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

March 22, 2016

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):  ¨

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2015

 

CONTENTS

 

Consolidated Statement of Financial Position
Consolidated Statement of Income by Function
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows - Direct Method
Notes to the Consolidated Financial Statements

 

CLP	-	CHILEAN PESO
ARS	-	ARGENTINE PESO
US$	-	united states dollar
THUS$	-	THOUSANDS OF UNITED STATES DOLLARS
COP	-	COLOMBIAN PESO
brl/R$	-	braZILIAN REAL
thr$	-	Thousands of Brazilian reaL
MXN	-	MEXICAN PESO
VEF	-	STRONG Bolivar

 

 

IFRS Santiago, Chile, March 21, 2016 – LATAM Airlines Group S.A. (NYSE: LFL; IPSA: LAN; BOVESPA: LATM33), the leading airline group in Latin America, announced today its consolidated financial statements for the fiscal year ended December 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 the International Financial Reporting Standards (IFRS) and are expressed in U.S. dollars.

 

 

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

 

Notes	Page
1 - General information	1
2 - Summary of significant accounting policies	5
2.1. Basis of Preparation	5
2.2. Basis of Consolidation	9
2.3. Foreign currency transactions	10
2.4. Property, plant and equipment	10
2.5. Intangible assets other than goodwill	11
2.6. Goodwill	12
2.7. Borrowing costs	12
2.8. Losses for impairment of non-financial assets	12
2.9. Financial assets	12
2.10. Derivative financial instruments and hedging activities	13
2.11. Inventories	14
2.12. Trade and other accounts receivable	15
2.13. Cash and cash equivalents	15
2.14. Capital	15
2.15. Trade and other accounts payables	15
2.16. Interest-bearing loans	15
2.17. Current and deferred taxes	16
2.18. Employee benefits	16
2.19. Provisions	17
2.20. Revenue recognition	17
2.21. Leases	18
2.22. Non-current assets (or disposal groups) classified as held for sale	18
2.23. Maintenance	18
2.24. Environmental costs	19
3 - Financial risk management	19
3.1. Financial risk factors	19
3.2. Capital risk management	33
3.3. Estimates of fair value	33
4 - Accounting estimates and judgments	36
5 - Segmental information	39
6 - Cash and cash equivalents	41
7 - Financial instruments	44
7.1. Financial instruments by category	44
7.2. Financial instruments by currency	46
8 - Trade, other accounts receivable and non-current accounts receivable	47
9 - Accounts receivable from/payable to related entities	50
10 - Inventories	51
11 - Other financial assets	52
12 - Other non-financial assets	53
13 - Investments in subsidiaries	54
14 - Intangible assets other than goodwill	58

 

 

15 - Goodwill	59
16 - Property, plant and equipment	61
17 - Current and deferred tax	67
18 - Other financial liabilities	73
19 - Trade and other accounts payables	82
20 - Other provisions	84
21 - Other non-financial liabilities	87
22 - Employee benefits	87
23 - Accounts payable, non-current	89
24 - Equity	89
25 - Revenue	95
26 - Costs and expenses by nature	95
27 - Other income, by function	97
28 - Foreign currency and exchange rate differences	97
29 - Earnings per share	106
30 - Contingencies	107
31 - Commitments	116
32 - Transactions with related parties	121
33 - Share based payments	122
34 - The environment	126
35 - Events subsequent to the date of the financial statements	127
36 – Consolidation schedule	128

  

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS

 

				As of				As of
				December 31,				December 31,
		Note		2015				2014
				ThUS$				ThUS$
Current assets
Cash and cash equivalents		6 - 7			753,497				989,396
Other financial assets		7 - 11			651,348				650,401
Other non-financial assets		12			330,016				247,871
Trade and other accounts receivable		7 - 8			796,974				1,378,835
Accounts receivable from related entities		7 - 9			183				308
Inventories		10			224,908				266,039
Tax assets		17			64,015				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					2,820,941				3,633,558
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners					1,960				1,064
Total current assets					2,822,901				3,634,622
Non-current assets
Other financial assets		7 - 11			89,458				84,986
Other non-financial assets		12			235,463				342,813
Accounts receivable		7 - 8			10,715				30,465
Intangible assets other than goodwill		14			1,321,425				1,880,079
Goodwill		15			2,280,575				3,313,401
Property, plant and equipment		16			10,938,657				10,773,076
Tax assets		17			25,629				17,663
Deferred tax assets		17			376,595				407,323
Total non-current assets					15,278,517				16,849,806
Total assets					18,101,418				20,484,428

 

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

 

 

LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY

 

				As of				As of
				December 31,				December 31,
LIABILITIES		Note		2015				2014
				ThUS$				ThUS$
Current liabilities
Other financial liabilities		7 - 18			1,644,235				1,624,615
Trade and other accounts payables		7 - 19			1,483,957				1,489,373
Accounts payable to related entities		7 - 9			447				56
Other provisions		20			2,922				12,411
Tax liabilities		17			19,378				17,889
Other non-financial liabilities		21			2,490,033				2,685,386
Total current liabilities					5,640,972				5,829,730
Non-current liabilities
Other financial liabilities		7 - 18			7,532,385				7,389,012
Accounts payable		7 - 23			417,050				577,454
Other provisions		20			424,497				703,140
Deferred tax liabilities		17			811,565				1,051,894
Employee benefits		22			65,271				74,102
Other non-financial liabilities		21			272,130				355,401
Total non-current liabilities					9,522,898				10,151,003
Total liabilities					15,163,870				15,980,733
EQUITY
Share capital		24			2,545,705				2,545,705
Retained earnings		24			317,950				536,190
Treasury Shares		24			(178	)			(178	)
Other reserves					(6,942	)			1,320,179
Parent's ownership interest					2,856,535				4,401,896
Non-controlling interest		13			81,013				101,799
Total equity					2,937,548				4,503,695
Total liabilities and equity					18,101,418				20,484,428

 

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

				For the period ended
				December 31,
		Note		2015				2014				2013
				ThUS$				ThUS$				ThUS$
Revenue		25			9,740,045				12,093,501				12,924,537
Cost of sales					(7,636,709	)			(9,624,501	)			(10,054,164	)
Gross margin					2,103,336				2,469,000				2,870,373
Other income		27			385,781				377,645				341,565
Distribution costs					(783,304	)			(957,072	)			(1,025,896	)
Administrative expenses					(878,006	)			(980,660	)			(1,136,115	)
Other expenses					(323,987	)			(401,021	)			(408,703	)
Other gains/(losses)					(55,280	)			33,524				(55,410	)
Income from operation activities					448,540				541,416				585,814
Financial income					75,080				90,500				72,828
Financial costs		26			(413,357	)			(430,034	)			(462,524	)
Share of profit of investments accounted for using the equity method					37				(6,455	)			1,954
Foreign exchange gains/(losses)		28			(467,896	)			(130,201	)			(482,174	)
Result of indexation units					481				7				214
Income (loss) before taxes					(357,115	)			65,233				(283,888	)
Income (loss) tax expense / benefit		17			178,383				(292,404	)			20,069
NET INCOME (LOSS) FOR THE PERIOD					(178,732	)			(227,171	)			(263,819	)
Income (loss) attributable to owners of the parent					(219,274	)			(259,985	)			(281,114	)
Income (loss) attributable to non-controlling interest		13			40,542				32,814				17,295
Net income (loss) for the year					(178,732	)			(227,171	)			(263,819	)
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)		29			(0.40193	)			(0.47656	)			(0.57613	)
Diluted earnings (losses) per share (US$)		29			(0.40193	)			(0.47656	)			(0.57613	)

 

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

				For the period ended
				December 31,
		Note		2015				2014				2013
				ThUS$				ThUS$				ThUS$
NET INCOME (LOSS)					(178,732	)			(227,171	)			(263,819	)
Components of other comprehensive income that will not be reclassified to income before taxes
Other comprehensive income, before taxes, gains (losses) by new measurements on defined benefit plans		24			(14,631	)			-				-
Total other comprehensive income that will not be reclassified to income before taxes					(14,631	)			-				-
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax		28			(1,409,439	)			(650,439	)			(629,858	)
Other comprehensive income, before taxes, currency translation differences					(1,409,439	)			(650,439	)			(629,858	)
Cash flow hedges
Gains (losses) on cash flow hedges before taxes		18			80,387				(163,993	)			128,166
Other comprehensive income (losses), before taxes, cash flow hedges					80,387				(163,993	)			128,166
Total other comprehensive income that will be reclassified to income before taxes					(1,329,052	)			(814,432	)			(501,692	)
Other components of other comprehensive income (loss), before taxes					(1,343,683	)			(814,432	)			(501,692	)
Income tax relating to other comprehensive income that will not be reclassified to income
Income tax relating to new measurements on defined benefit plans		17			3,911				-				-
Accumulate income tax relating to other comprehensive income that will not be reclassified to income					3,911				-				-
Income tax relating to other comprehensive income that will be reclassified to income
Income tax related to cash flow hedges in other comprehensive income					(21,103	)			47,979				(19,345	)
Income taxes related to components of other comprehensive income that will be reclassified to income					(21,103	)			47,979				(19,345	)
Total Other comprehensive income					(1,360,875	)			(766,453	)			(521,037	)
Total comprehensive income (loss)					(1,539,607	)			(993,624	)			(784,856	)
Comprehensive income (loss) attributable to owners of the parent					(1,551,331	)			(980,697	)			(768,457	)
Comprehensive income (loss) attributable to non-controlling interests					11,724				(12,927	)			(16,399	)
TOTAL COMPREHENSIVE INCOME (LOSS)					(1,539,607	)			(993,624	)			(784,856	)

 

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

				Attributable to owners of the parent
												Change in other reserves
																				Actuarial gains or
												Currency				Cash flow				losses on defined				Shares based				Other				Total								Parent's				Non-
				Share				Treasury				translation				hedging				benefit plans				payments				sundry				other				Retained				ownership				controlling				Total
		Note		capital				shares				reserve				reserve				reserve				reserve				reserve				reserve				earnings				interest				interest				equity
				ThUS$				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			-				-				-				-				-				-				-				-				(219,274	)			(219,274	)			40,542				(178,732	)
Other comprehensive income					-				-				(1,382,170	)			60,830				(10,717	)			-								(1,332,057	)			-				(1,332,057	)			(28,818	)			(1,360,875	)
Total comprehensive income					-				-				(1,382,170	)			60,830				(10,717	)			-				-				(1,332,057	)			(219,274	)			(1,551,331	)			11,724				(1,539,607	)
Transactions with shareholders
Increase (decrease) through transfers and other changes, equity		24-33			-				-				-				-				-				6,005				(1,069	)			4,936				1,034				5,970				(32,510	)			(26,540	)
Total transactions with shareholders					-				-				-				-				-				6,005				(1,069	)			4,936				1,034				5,970				(32,510	)			(26,540	)
Closing balance as of December 31, 2015					2,545,705				(178	)			(2,576,041	)			(90,510	)			(10,717	)			35,647				2,634,679				(6,942	)			317,950				2,856,535				81,013				2,937,548

 

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

				Attributable to owners of the parent
												Change in other reserves
												Currency				Cash flow				Shares based				Other				Total								Parent's				Non-
				Share				Treasury				translation				hedging				payments				sundry				other				Retained				ownership				controlling				Total
		Note		capital				shares				reserve				reserve				reserve				reserve				reserve				earnings				interest				interest				equity
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity as of January 1, 2014					2,389,384				(178	)			(589,991	)			(34,508	)			21,011				2,657,800				2,054,312				795,303				5,238,821				87,638				5,326,459
Total increase (decrease) in equity
Comprehensive income
Gain (losses)		24			-				-				-				-				-				-				-				(259,985	)			(259,985	)			32,814				(227,171	)
Other comprehensive income					-				-				(603,880	)			(116,832	)			-				-				(720,712	)			-				(720,712	)			(45,741	)			(766,453	)
Total comprehensive income					-				-				(603,880	)			(116,832	)			-				-				(720,712	)			(259,985	)			(980,697	)			(12,927	)			(993,624	)
Transactions with shareholders
Equity issuance		24-33			156,321				-				-				-				-				-				-				-				156,321				-				156,321
Increase (decrease) through transfers and other changes, equity		24-33			-				-				-				-				8,631				(22,052	)			(13,421	)			872				(12,549	)			27,088				14,539
Total transactions with shareholders					156,321				-				-				-				8,631				(22,052	)			(13,421	)			872				143,772				27,088				170,860
Closing balance as of December 31, 2014					2,545,705				(178	)			(1,193,871	)			(151,340	)			29,642				2,635,748				1,320,179				536,190				4,401,896				101,799				4,503,695

  

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

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

  

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

				For the periods ended
				December 31,
		Note		2015				2014				2013
				ThUS$				ThUS$				ThUS$
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services					11,372,397				13,367,838				13,406,275
Other cash receipts from operating activities					88,237				96,931				4,638
Payments for operating activities
Payments to suppliers for goods and services					(7,029,582	)			(8,823,007	)			(9,570,723	)
Payments to and on behalf of employees					(2,165,184	)			(2,433,652	)			(2,405,315	)
Other payments for operating activities					(351,177	)			(528,214	)			(31,215	)
Interest received					43,374				11,589				11,310
Income taxes refunded (paid)					(57,963	)			(108,389	)			(83,033	)
Other cash inflows (outflows)		6			(184,627	)			(251,657	)			76,761
Net cash flows from operating activities					1,715,475				1,331,439				1,408,698
Cash flows used in investing activities
Cash flows used to obtain control of subsidiaries or other businesses					-				518				(5,517	)
Cash flows used in the purchase of non-controlling interest					-				-				(497	)
Other cash receipts from sales of equity or debt instruments of other entities					519,460				524,370				270,485
Other payments to acquire equity or debt instruments of other entities					(704,115	)			(474,656	)			(440,801	)
Amounts raised from sale of property, plant and equipment					57,117				564,266				225,196
Purchases of property, plant and equipment					(1,569,749	)			(1,440,445	)			(1,381,786	)
Amounts raised from sale of intangible assets					91				-				-
Purchases of intangible assets					(52,449	)			(55,759	)			(43,484	)
Payment from other long-term assets					-				-				22,144
Other cash inflows (outflows)		6			10,576				(17,399	)			75,448
Net cash flow from (used in) investing activities					(1,739,069	)			(899,105	)			(1,278,812	)
Cash flows from (used in) financing activities
Amounts raised from issuance of shares					-				156,321				888,949
Payments to acquire or redeem the shares of the entity					-				4,661				-
Amounts raised from long-term loans					1,791,484				1,042,820				2,043,518
Amounts raised from short-term loans					205,000				603,151				1,101,159
Loans repayments					(1,263,793	)			(2,315,120	)			(1,952,013	)
Payments of finance lease liabilities					(342,614	)			(394,131	)			(423,105	)
Dividends paid					(35,032	)			(35,362	)			(29,694	)
Interest paid					(383,648	)			(368,789	)			(361,006	)
Other cash inflows (outflows)		6			(99,757	)			(13,777	)			(62,013	)
Net cash flows from (used in) financing activities					(128,360	)			(1,320,226	)			1,205,795
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change					(151,954	)			(887,892	)			1,335,681
Effects of variation in the exchange rate on cash and cash equivalents					(83,945	)			(107,615	)			(1,041	)
Net increase (decrease) in cash and cash equivalents					(235,899	)			(995,507	)			1,334,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6			989,396				1,984,903				650,263
CASH AND CASH EQUIVALENTS AT END OF PERIOD		6			753,497				989,396				1,984,903

 

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

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2015

 

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 25.00% 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.

 

 

As of December 31, 2015, the Company had a total of 1,563 registered shareholders. At that date approximately 3.91 % of the Company’s share capital was in the form of ADRs and approximately 0.44% in the form of BDRs.

 

For the period ended December 31, 2015, the Company had an average of 51,466 employees, ending this period with a total of 50,413 employees, spread over 9,118 Administrative employees, 5,990 in Maintenance, 16,878 in Operations, 9,383 in Cabin Crew, 4,022 in Controls Crew, and 5,022 in Sales.

 

 

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

 

a)

Participation rate

 

								As December 31, 2015						As December 31, 2014						As December 31, 2013
				Country		Functional
Tax No.		Company		of origin		Currency		Direct		Indirect		Total		Direct		Indirect		Total		Direct		Indirect		Total
								%		%		%		%		%		%		%		%		%
96.518.860-6		Lantours Division Servicios Terrestres S.A. and Subsidary		Chile		US$		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000		99.9900		0.0100		100.0000
96.763.900-1		Inmobiliaria Aeronáutica S.A.		Chile		US$		99.0100		0.9900		100.0000		99.0100		0.9900		100.0000		99.0100		0.9900		100.0000
96.969.680-0		Lan Pax Group S.A. and Subsidiaries		Chile		US$		99.8361		0.1639		100.0000		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		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		99.9900		0.0100		100.0000
93.383.000-4		Lan Cargo S.A.		Chile		US$		99.8939		0.0041		99.8980		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		0.0000		100.0000		100.0000
Foreign		Prime Airport Services Inc. and Subsidary		U.S.A.		US$		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.951.280-7		Transporte Aéreo S.A.		Chile		US$		0.0000		100.0000		100.0000		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		0.0000		100.0000		100.0000
96.631.520-2		Fast Air Almacenes de Carga S.A.		Chile		CLP		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.631.410-9		Ladeco Cargo S.A.		Chile		CLP		0.0000		100.0000		100.0000		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		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		0.0000		100.0000		100.0000
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidary		Chile		CLP		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000		0.0000		100.0000		100.0000
96.575.810-0		Inversiones Lan S.A. and Subsidiaries		Chile		CLP		99.7100		0.2900		100.0000		99.7100		0.0000		99.7100		99.7100		0.2900		100.0000
59.068.920-3		Technical Trainning LATAM S.A.		Chile		CLP		99.8300		0.1700		100.0000		99.8300		0.1700		100.0000		0.0000		0.0000		0.0000
Foreign		TAM S.A. and Subsidiaries (*)		Brazil		BRL		63.0901		36.9099		100.0000		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.

 

 

b)

Statement of financial position

 

				Statement of financial position																		Net Income
																						For the periods ended
				As of December 31, 2015						As of December 31, 2014						As of December 31, 2013						December 31,
																						2015		2014		2013
Tax No.		Company		Assets		Liabilities		Equity		Assets		Liabilities		Equity		Assets		Liabilities		Equity				Gain /(loss)
				ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$		ThUS$
96.518.860-6		Lantours Division Servicios Terrestres S.A. and Subsidary		5,613		5,522		91		3,229		2,289		940		2,722		2,210		512		2,341		2,078		787
96.763.900-1		Inmobiliaria Aeronáutica S.A.		39,302		14,832		24,470		39,920		16,854		23,066		38,553		12,124		26,429		1,404		(717)		1,231
96.969.680-0		Lan Pax Group S.A. and Subsidiaries (*)		519,588		1,049,232		(521,907)		640,020		1,065,157		(426,016)		641,589		901,851		(246,521)		(35,187)		(114,511)		(104,966)
Foreign		Lan Perú S.A.		255,691		240,938		14,753		239,470		228,395		11,075		263,516		252,109		11,407		5,068		1,058		3,755
Foreign		Lan Chile Investments Limited and Subsidiary (*)		2,015		13		2,002		2,015		-		2,015		4,419		5,248		(829)		(13)		2,844		(1)
93.383.000-4		Lan Cargo S.A.		483,033		217,037		265,966		575,979		234,772		341,207		772,640		413,527		359,113		(74,408)		(17,905)		3,685
Foreign		Connecta Corporation		37,070		38,298		(1,228)		27,431		28,853		(1,422)		9		2,171		(2,162)		194		740		(356)
Foreign		Prime Airport Services Inc. and Subsidar		6,683		11,180		(4,497)		18,120		22,897		(4,777)		13,528		18,412		(4,884)		279		107		78
96.951.280-7		Transporte Aéreo S.A.		331,117		122,666		208,451		367,570		147,278		220,292		359,693		120,399		239,294		5,878		(19,001)		(4,129)
96.634.020-7		Ediciones ladeco América S.A.		-		-		-		-		484		(484)		-		560		(560)		-		-		-
Foreign		Aircraft International Leasing Limited		-		4		(4)		-		-		-		-		2,805		(2,805)		(4)		2,805		(5)
96.631.520-2		Fast Air Almacenes de Carga S.A.		8,985		4,641		4,344		9,601		3,912		5,689		10,675		3,684		6,991		1,811		893		1,802
96.631.410-9		Ladeco Cargo S.A.		297		13		284		346		13		333		381		13		368		(1)		16		(2)
Foreign		Laser Cargo S.R.L.		27		39		(12)		41		138		(97)		52		201		(149)		69		12		(34)
Foreign		Lan Cargo Overseas Limited and Subsidiaries (*)		62,406		43,759		15,563		60,634		46,686		12,218		354,250		256,109		96,817		3,344		(84,603)		111,043
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidar		54,179		68,220		(12,601)		45,589		59,768		(12,711)		39,419		48,630		(9,937)		113		(4,276)		(1,246)
96.575.810-0		Inversiones Lan S.A. and Subsidiaries (*)		16,512		14,676		1,828		16,035		14,746		1,272		15,362		8,933		6,421		2,772		(4,473)		517
59.068.920-3		Technical Trainning LATAM S.A.		1,527		266		1,261		1,660		263		1,397		-		-		-		(72)		-		-
Foreign		TAM S.A. and Subsidiaries (*) (**)		4,711,316		4,199,223		437,953		6,817,698		5,809,529		912,634		8,695,458		7,983,671		617,035		(183,912)		171,655		(458,475)

 

(*)

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, we have 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; 4) Private investment funds and 5) Avoceta Leasing Limited created to finance the pre-delivery payments on aircraft. These companies have been consolidated as required by IFRS 10.

 

All the entities controlled have been included in the consolidation.

 

Changes in the scope of consolidation between January 1, 2014 and December 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. was controlled Aerolane Líneas Aéreas Nacionales del Ecuador S.A. through Lan Pax Group S.A. for accounting purposes, this transaction was recorded as a transaction with non-controlling interests.

 

-

In November 2014, LATAM Airlines Group S.A. acquires the remaining 50% shares of Lufthansa Lan Technical Training S.A. becoming in subsidiary. Subsequently it changed the business name to Technical Training LATAM S.A.

 

(2)

Dissolution of companies

 

-

In December 2014, the Company Ediciones Ladeco América S.A. subsidiary of Lan Cargo S.A. was dissolved.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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

 

2.1.

Basis of Preparation

 

The consolidated financial statements of LATAM Airlines Group S.A. are for the period ended December 31, 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.

 

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

 

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

 

(a)

Accounting pronouncements with implementation effective from January 1, 2015:

 

(i)          Standards and amendments		Date of issue		Mandatory Application: Annual periods beginning on or after
Amendment to IAS 19: Employee Benefits		November 2013		07/01/2014

 

 

(ii)          Improvements		Date of issue		Mandatory Application: Annual periods 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

 

(i)           Standards and amendments		Date of issue		Mandatory Application: Annual periods 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
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.		September 2014		To be determined

 

 

(i)           Standards and amendments		Date of issue		Mandatory Application: Annual periods beginning on or after
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 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, except for IFRS 15 it is still under evaluation.

 

On January 2016 was issued the International Financial Reporting Standard 16 Leases (IFRS 16) which sets out the principles for the recognition, measurement, presentation and disclosure of leases agreements by the lessor and the lessee. This standard is effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers.

 

The IFRS 16 Leases add important changes in the accounting for lessees by introducing a similar treatment to financial leases for all operating leases with a term of more than 12 months. This mean, in general terms, that an asset should be recognized for the right to use the underlying leased assets and a liability representing its present value of payments associate to the agreement. Monthly leases payments will be replace by the asset depreciation and a financial cost in the income statement. LATAM Airlines Group S.A. and subsidiaries are still assessing this standard to determinate the effect on their Financial Statements, covenants and other financial indicators.

 

 

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.

 

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.

 

(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.

 

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 10 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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

(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.

 

(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 a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels exists. 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 requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made 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.

 

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 54 USGC, which 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, being possible use 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 period ended at December 31, 2015, the Company recognized losses of US$ 239.4 million on fuel derivative. During the same period of 2014, the Company recognized losses of US$ 108.7 million for the same reason.

 

At December 31, 2015, the market value of its fuel positions amounted to US$ 56.4 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  December 31, 2015 (*)		Maturities
		Q116				Q216				Q316				Q416				Total
Percentage of the hedge of expected consumption value			63	%			27	%			27	%			11	%			32	%

 

(*) 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 term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the last quarter of 2016.

 

 

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December, 2015 and the end of December, 2014.

 

				Positions as of December 31, 2015				Positions as of December 31, 2014
Benchmark price				effect on equity				effect on equity
(US$ per barrel)				(millions of US$)				(millions of US$)
	+5				+5.41				+24.90
	-5				-2.78				-25.06

 

Given the fuel hedge structure during the year 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$ 125.61 million in the cost of total fuel consumption for the same period. For the first half 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$ 116.83 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.

 

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 2016, and secure the operating margin, LATAM and TAM conduct hedging through FX derivatives.

 

At December 31, 2015, the market value of its FX positions amounted to US$ 8.0 million (positive). At end of December 2014 the market value was of US$ 0.1 million (negative).

 

During the period ended at December 31, 2015 the Company recognized gains of US$ 19.0 million on hedging FX. During the same period of 2014 the Company recognized gains of US$ 3.8 million on hedging FX.

 

At end of December 2015, the Company has contracted FX derivatives for US$ 270 million to BRL, US$ 30 million to EUR and US$ 15 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 projection term was defined until the end of the last current contract hedge, being the last business day of the second quarter of 2016:

 

Appreciation (depreciation)*				Effect at December 31, 2015				Effect at December 31, 2014
of  R$/US$ / US$/EUR / US$/GBP				Millions of US$				Millions of US$
	-10	%			-21.28				-9.98
	+10	%			+16.71				+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)*				Effect at December 31, 2015				Effect at December 31, 2014
of R$/US$				Millons of US$				Millons of US$
	-10	%			+67.6				+69.8
	+10	%			-67.6				-69.8

 

(*) Appreciation (depreciation) of US$

 

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)				Effect at December 31, 2015				Effect at December 31, 2014
of R$/US$				Millions of US$				Millions of US$
	-10	%			+296.41				+464.01
	+10	%			-242.52				-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 71% (69% at December 31, 2014) of the debt is fixed to fluctuations in interest rate.

 

Rate Hedging Results:

 

At December 31, 2015, the market value of the positions of interest rate derivatives amounted to US$ 39.8 million (negative). At end of December 2014 this market value was US$ 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)		Positions as of December 31, 2015				Positions as of December 31, 2014
futures curve		effect on profit or loss before tax				effect on profit or loss before tax
in libor 3 months		(millions of US$)				(millions of US$)
+100 basis points			-26.7				-27.53
-100 basis points			+26.7				+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)		Positions as of December 31, 2015				Positions as of December 31, 2014
futures curve		effect on equity				effect on equity
in libor 3 months		(millions of US$)				(millions of US$)
+100  basis points			+8.71				+15.33
-100   basis points			-9.02				-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.

 

 

(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.

 

 

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 sufficient 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, the Company requires liquid funds, defined as cash and cash equivalents plus other short term financial assets, to meet its payment obligations.

 

The liquid funds, the future cash generation and the capacity to obtain additional funding, through bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its investment and financing future commitments.

 

The liquid funds balance as of December 31, 2015 is US$ 1,361 million, invested in short term instruments through financial high credit rating levels entities.

 

In addition to the liquid funds, the Company has access to short term credit line. As of December 31, 2015, LATAM has working capital credit lines with multiple banks and additionally has a US$130 million undrawn committed credit line.

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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		Chile		US$			100,253				-				-				-				-				100,253				100,000			At Expiration			1.00				1.00
97.036.000-K		SANTANDER		Chile		US$			100,363				-				-				-				-				100,363				100,000			At Expiration			1.44				1.44
97.030.000-7		ESTADO		Chile		US$			55,172				-				-				-				-				55,172				55,000			At Expiration			1.05				1.05
97.004.000-5		BANCO DE CHILE		Chile		US$			50,059				-				-				-				-				50,059				50,000			At Expiration			1.42				1.42
97.003.000-K		BANCO DO BRASIL		Chile		US$			70,133				-				-				-				-				70,133				70,000			At Expiration			1.18				1.18
97.951.000-4		HSBC		Chile		US$			12,020				-				-				-				-				12,020				12,000			At Expiration			0.66				0.66
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			19,873				58,407				112,252				35,953				-				226,485				211,135			Quarterly			4.18				4.18
0-E		BANCO BLADEX		U.S.A.		US$			-				9,702				30,526				15,514				-				55,742				50,000			Semiannual			4.58				4.58
0-E		DVB BANK SE		U.S.A.		US$			146				430				154,061				-				-				154,637				153,514			Quarterly			1.67				1.67
97.036.000-K		SANTANDER		Chile		US$			1,053				-				226,712				-				-				227,765				226,712			Quarterly			2.24				2.24
Obligations with the public
0-E		BANK OF NEW YORK		U.S.A.		US$			-				36,250				72,500				554,375				-				663,125				500,000			At Expiration			7.77				7.25
Guaranteed obligations
0-E		CREDIT AGRICOLE		Francia		US$			31,813				92,167				210,541				55,381				12,677				402,579				389,027			Quarterly			1.83				1.66
0-E		BNP PARIBAS		U.S.A.		US$			9,899				29,975				82,094				83,427				148,904				354,299				319,397			Quarterly			2.29				2.22
0-E		WELLS FARGO		U.S.A.		US$			35,636				106,990				285,967				286,959				554,616				1,270,168				1,180,751			Quarterly			2.27				1.57
0-E		WILMINGTON TRUST		U.S.A.		US$			6,110				69,232				135,334				133,363				539,019				883,058				675,696			Quarterly			4.25				4.25
0-E		CITIBANK		U.S.A.		US$			19,478				58,741				158,957				162,459				266,273				665,908				617,002			Quarterly			2.40				1.64
97.036.000-K		SANTANDER		Chile		US$			5,585				16,848				45,653				46,740				50,124				164,950				159,669			Quarterly			1.47				0.93
0-E		BTMU		U.S.A.		US$			2,992				9,035				24,541				25,214				39,930				101,712				96,954			Quarterly			1.82				1.22
0-E		APPLE BANK		U.S.A.		US$			1,471				4,445				12,079				12,431				20,099				50,525				48,142			Quarterly			1.72				1.12
0-E		US BANK		U.S.A.		US$			18,643				55,824				147,994				146,709				303,600				672,770				591,039			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			5,923				17,881				39,185				30,729				63,268				156,986				136,698			Quarterly			3.40				3.40
0-E		NATIXIS		France		US$			13,740				41,730				115,026				100,617				249,194				520,307				469,423			Quarterly			2.08				2.05
0-E		HSBC		U.S.A.		US$			1,590				4,790				12,908				13,112				25,175				57,575				53,583			Quarterly			2.40				1.59
0-E		PK AirFinance		U.S.A.		US$			2,172				6,675				18,928				20,812				18,104				66,691				62,514			Monthly			2.04				2.04
0-E		KFW IPEX-BANK		Germany		US$			728				2,232				5,684				4,131				1,658				14,433				13,593			Quarterly			2.45				2.45
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			8,225				24,695				-				-				-				32,920				32,492			Quarterly			2.32				2.32
Financial leases
0-E		ING		U.S.A.		US$			9,214				26,054				41,527				28,234				-				105,029				94,998			Quarterly			5.13				4.57
0-E		CREDIT AGRICOLE		France		US$			1,711				5,236				7,216				-				-				14,163				13,955			Quarterly			1.28				1.28
0-E		CITIBANK		U.S.A.		US$			6,083				18,250				48,667				38,596				-				111,596				97,383			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			17,556				52,674				115,934				23,211				-				209,375				192,914			Quarterly			5.37				4.77
0-E		BNP PARIBAS		U.S.A.		US$			11,368				34,292				86,206				31,782				-				163,648				153,107			Quarterly			4.08				3.64
0-E		WELLS FARGO		U.S.A.		US$			5,594				16,768				44,663				44,565				24,125				135,715				121,628			Quarterly			3.98				3.54
0-E		DVB BANK SE		U.S.A.		US$			4,732				14,225				14,269				-				-				33,226				32,567			Quarterly			2.06				2.06
0-E		BANC OF AMERICA		U.S.A.		US$			703				2,756				-				-				-				3,459				2,770			Monthly			1.41				1.41
Other loans
0-E		BOEING		U.S.A.		US$			655				533				151,362				-				-				152,550				151,362			At Expiration			1.80				1.80
0-E		CITIBANK (*)		U.S.A.		US$			25,820				77,850				207,190				206,749				-				517,609				450,000			Quarterly			6.00				6.00
Hedging derivatives
-		OTROS		-		US$			12,232				33,061				40,986				3,688				16				89,983				85,653			-			-				-
		Total							668,745				927,748				2,648,962				2,104,751				2,316,782				8,666,988				7,770,678

 

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

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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$			181				493				1,315				1,314				712				4,015				3,353			Monthly			6.01				6.01
Obligation with the public
0-E		BANK OF NEW YORK		U.S.A.		US$			440				65,321				397,785				86,590				521,727				1,071,863				800,000			At Expiration			8.17				8.00
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			2,771				7,700				20,527				18,808				-				49,806				43,505			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,715				11,054				21,830				15,730				-				52,329				49,995			Monthly			1.43				1.43
0-E		CREDIT AGRICOLE -CIB		France		US$			4,542				-				-				-				-				4,542				4,500			Quarterly/Semiannual			3.25				3.25
0-E		DVB BANK SE		U.S.A.		US$			123				361				284				-				-				768				755			Monthly			1.64				1.64
0-E		GENERAL ELECTRIC CAPITAL
		CORPORATION		U.S.A.		US$			3,834				11,437				9,050				-				-				24,321				23,761			Monthly			1.25				1.25
0-E		KFW IPEX-BANK		Germany		US$			3,345				6,879				15,973				12,429				-				38,626				36,899			Monthly/Quarterly			1.72				1.72
0-E		NATIXIS		France		US$			4,338				7,812				22,635				23,030				70,925				128,740				115,020			Quarterly/Semiannual			3.85				3.85
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			1,428				21,992				-				-				-				23,420				23,045			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			520				1,386				3,198				14,567				-				19,671				18,368			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			11,993				31,874				85,695				214,612				-				344,174				312,486			Quarterly			3.63				3.55
0-E		BANCO IBM S.A		Brazil		BRL			267				846				1,230				-				-				2,343				1,728			Monthly			14.14				14.14
0-E		HP FINANCIAL SERVICE		Brazil		BRL			188				564				188				-				-				940				882			Monthly			10.02				10.02
0-E		SOCIÉTÉ GÉNÉRALE		France		BRL			104				330				626				-				-				1,060				775			Monthly			14.14				14.14
		Total							37,789				168,049				580,336				387,080				593,364				1,766,618				1,435,072

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2015

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$								%				%
Trade and other accounts payables
-		OTHERS		OTHERS		US$			442,320				14,369				-				-				-				456,689				456,689			-					-				-
						CLP			39,823				114				-				-				-				39,937				39,937			-					-				-
						BRL			301,569				16				-				-				-				301,585				301,585			-					-				-
						Others currencies			218,347				9,016				-				-				-				227,363				227,363			-					-				-
Accounts payable to related parties currents
65.216.000-K		COMUNIDAD MUJER		Chile		CLP			10				-				-				-				-				10				10			-					-				-
78.591.370-1		BETHIA S.A. Y FILIALES		Chile		CLP			5				-				-				-				-				5				5			-					-				-
78.997.060-2		Viajes Falabella Ltda.		Chile		CLP			68																				68				68			-					-				-
0-E		Consultoría Administrativa Profesional		Mexico		MXN			342				-				-				-				-				342				342			-					-				-
0-E		INVERSORA AERONÁUTICA ARGENTINA		Argentina		US$			22				-				-				-				-				22				22			-					-				-
		Total							1,002,506				23,515				-				-				-				1,026,021				1,026,021
		Total consolidado							1,709,040				1,119,312				3,229,298				2,491,831				2,910,146				11,459,627				10,231,771

 

 

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.

 

												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		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				273,569			Quarterly			1.68				1.43
0-E		BNP PARIBAS		U.S.A.		US$			9,634				29,259				80,097				83,020				190,070				392,080				351,217			Quarterly			2.13				2.04
0-E		WELLS FARGO		U.S.A.		US$			35,533				106,692				285,218				286,264				698,052				1,411,759				1,302,968			Quarterly			2.26				1.57
0-E		CITIBANK		U.S.A.		US$			19,149				57,915				156,757				160,323				347,710				741,854				684,114			Quarterly			2.24				1.49
97.036.000-K		SANTANDER		Chile		US$			5,482				16,572				44,925				46,047				73,544				186,570				180,341			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,931				8,863				24,091				24,778				52,541				113,204				107,645			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,437				4,358				11,849				12,206				26,318				56,168				53,390			Quarterly			1.63				1.03
0-E		US BANK		U.S.A.		US$			18,713				56,052				148,622				147,357				376,792				747,536				648,158			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			5,834				17,621				47,600				30,300				78,509				179,864				155,279			Quarterly			3.25				3.25
0-E		NATIXIS		France		US$			11,783				35,803				99,012				98,632				259,912				505,142				454,230			Quarterly			1.86				1.81
0-E		HSBC		U.S.A.		US$			1,564				4,725				12,738				12,956				31,701				63,684				59,005			Quarterly			2.29				1.48
0-E		PK AirFinance US, Inc.		U.S.A.		US$			2,074				6,378				18,091				19,836				28,763				75,142				69,721			Monthly			1.86				1.86
0-E		KFW IPEX-BANK		Germany		US$			696				2,124				6,048				4,587				3,771				17,226				16,088			Quarterly			2.10				2.10
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			8,199				24,623				32,904				-				-				65,726				64,246			Quarterly			2.00				2.00
0-E		CREDIT AGRICOLE		U.S.A.		US$			7,864				23,394				62,540				-				-				93,798				91,337			Quarterly			1.73				1.73
Financial leases
0-E		ING		U.S.A.		US$			9,137				27,520				58,821				34,067				12,134				141,679				126,528			Quarterly			4.84				4.33
0-E		CREDIT AGRICOLE		France		US$			1,643				5,036				14,152				-				-				20,831				20,413			Quarterly			1.20				1.20
0-E		CITIBANK		U.S.A.		US$			6,083				18,250				48,667				48,667				14,262				135,929				115,449			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			17,555				52,678				138,380				67,095				3,899				279,607				252,205			Quarterly			5.35				4.76
0-E		BNP PARIBAS		U.S.A.		US$			11,240				33,917				91,743				60,834				10,974				208,708				191,672			Quarterly			4.14				3.68
0-E		WELLS FARGO		U.S.A.		US$			5,604				16,784				44,705				44,615				46,394				158,102				139,325			Quarterly			3.98				3.53
0-E		DVB BANK S E		U.S.A.		US$			4,701				14,145				33,201				-				-				52,047				50,569			Quarterly			1.89				1.89
0-E		US BANK		U.S.A.		US$			326				6,247				5,455				-				-				12,028				11,981			Monthly			-				-
0-E		BANC OF AMERICA		U.S.A.		US$			720				2,118				2,912				-				-				5,750				5,462			Monthly			1.41				1.41
Other loans
0-E		BOEING		U.S.A.		US$			-				4,994				180,583				-				-				185,577				179,507			At expiration			1.74				1.74
0-E		CITIBANK (*)		U.S.A.		US$			6,825				20,175				209,730				209,778				104,852				551,360				450,000			Quarterly			6.00				6.00
Hedging derivatives
-		OTHERS		-		US$			11,702				30,761				48,667				7,311				245				98,686				93,513			-			-				-
Non - hedging derivatives
-		OTHERS		-		US$			1,002				628				-				-				-				1,630				730			-			-				-
		Total							574,711				776,881				2,422,427				1,480,395				2,397,068				7,651,482				6,985,489

 

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

 

 

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.

 

												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 MAATSCHAP P IJ		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 CAP ITAL CORP ORATION		U.S.A.		US$			2,512				11,229				24,278				-				-				38,019				36,848			Monthly			1.25				1.25
0-E		KFW IP EX-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		P K AIRFINANCE US, INC.		U.S.A.		US$			1,392				4,103				20,694				-				-				26,189				25,293			Monthly			1.75				1.75
0-E		WACAP OU 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		COMP ANHIA BRASILEIRA
		DE MEIOS DE P AGAMENTO		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

 

 

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.

 

												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$						%				%
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				10,129,515

 

 

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 December 31, 2015, the Company had provided US$ 49.6 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 comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.

 

The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.

 

Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.

 

The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2015 the Company has an international long term credit rating of BB with negative outlook by Standard & Poor’s, a BB- rating with stable outlook by Fitch Ratings and a Ba2 rating with stable outlook by Moody’s.

 

3.3.

Estimates of fair value.

 

At December 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

 

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 December 31, 2015																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			26,600				26,600				-				-				200,753				200,753				-				-
															-																-
Short-term mutual funds			26,600				26,600				-								200,753				200,753				-
Other financial assets, current			624,200				607,622				16,578				-				546,535				526,081				20,454				-
Fair value of interest rate derivatives			-				-				-				-				1				-				1				-
Fair value of fuel derivatives			6,293				-				6,293				-				1,783				-				1,783				-
Fair value of foreign currency derivatives			9,888				-				9,888				-				-				-				-				-
Interest accrued since the last payment date of Cross Currency Swap			397				-				397				-				377				-				377				-
P rivate investment funds			448,810				448,810				-				-				480,777				480,777				-				-
Certificate of deposit CDB			-				-				-				-				18,293				-				18,293				-
Domestic and foreign bonds			158,812				158,812				-				-				41,111				41,111				-				-
Other investments			-				-				-				-				4,193				4,193				-				-
Liabilities
Other financial liabilities, current			134,089				-				134,089				-				227,233				-				227,233				-
Fair value of interest rate derivatives			33,518				-				33,518				-				26,395				-				26,395				-
Fair value of fuel derivatives			39,818				-				39,818				-				157,233								157,233
Fair value of foreign currency derivatives			56,424				-				56,424				-				37,242				-				37,242				-
Interest accrued since the last payment date of Currency Swap			4,329				-				4,329				-				5,173				-				5,173				-
Interest rate derivatives not recognized as a hedge			-				-				-				-				1,190								1,190
Other financial liabilities, non current			16,128				-				16,128				-				28,327				-				28,327				-
Fair value of interest rate derivatives			16,128				-				16,128				-				28,327				-				28,327				-

 

 

Additionally, at December 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 December 31, 2015								As of December 31, 2014
		Book				Fair				Book				Fair
		value				value				value				value
		ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			726,897				726,897				788,643				788,643
Cash on hand			10,656				10,656				11,568				11,568
Bank balance			302,696				302,696				239,514				239,514
Overnight			267,764				267,764				154,666				154,666
Time deposits			145,781				145,781				382,895				382,895
Other financial assets, current			27,148				27,148				103,866				103,866
Other financial assets			27,148				27,148				103,866				103,866
Trade and other accounts receivable current			796,974				796,974				1,378,835				1,378,835
Accounts receivable from related entities			183				183				308				308
Other financial assets, non current			89,458				89,458				84,986				84,986
Accounts receivable			10,715				10,715				30,465				30,465
Other financial liabilities, current (*)			1,510,146				1,873,552				1,397,382				1,446,100
Trade and other accounts payables			1,483,957				1,483,957				1,489,373				1,489,373
Accounts payable to related entities			447				447				56				56
Other financial liabilities, non current (*)			7,516,257				7,382,221				7,360,685				8,319,022
Accounts payable, non-current			417,050				417,050				577,454				577,454

(*) Fair value Level II

 

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

 

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

 

 

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

 

The Company has used estimates to value and record certain assets, liabilities, revenue, expenditure, and commitments. Basically, these estimates relate to:

 

(a)     Evaluation of possible losses through impairment of goodwill and intangible assets with an indefinite useful life

 

As of December 31, 2015 and 2014, goodwill amounted to ThUS$ 2,280,575 and ThUS$ 3,313,401, respectively, while intangible assets with an indefinite useful life comprised airport slots for ThUS$ 816,987 and ThUS$ 1,201,028, and Trademarks and Loyalty Program for ThUS$ 325,293 and ThUS$ 478,204, respectively.

 

At least once per year the Company verifies whether goodwill and intangible assets with an indefinite useful life have suffered any losses through impairment. For the purposes of this evaluation, the Company has identified two cash-generating units (CGUs): “Air transport” and “Multiplus loyalty and coalition program.” The book value of goodwill assigned to each CGU as of December 31, 2015, amounted to ThUS$ 1,835,088 and ThUS$ 445,487 (ThUS$ 2,658,503 and ThUS$ 654,898 as of December 31, 2014).

 

The recoverable value of these cash-generating units (CGUs) has been determined based on calculations of their value in use. The principal assumptions used by the management include: growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The estimation of these assumptions requires significant administrative judgment, as these variables feature inherent uncertainty; however, the assumptions used are consistent with Company’s internal planning. Therefore, management evaluates and updates the estimates on an annual basis, in light of conditions that affect these variables. The mainly assumptions used as well as, the corresponding sensitivity analyses are showed in Note 15.

 

(b)     Useful life, residual value, and impairment of property, plant, and equipment

 

The depreciation of assets is calculated based on the linear model, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according with the Company’s future economic benefits associated with them.

 

Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may render the useful life different to the lifespan estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.

 

Residual values are estimated in accordance with the market value that these assets will have at the end of their useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, once a year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).

 

 

(c)     Recoverability of deferred tax assets

 

Deferred taxes are calculated in accordance with the liability method, applied over temporary differences that arise between the fiscal based of assets and liabilities, and their book value. Deferred tax assets for tax losses are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company makes tax and financial projections to evaluate the realization of deferred tax asset over the course of time. Additionally, these projections are ensured to be consistent with those used to measure other long term assets. As of December 31, 2015 and 2014, the company recognized deferred tax assets amounting to ThUS$ 376,595 and ThUS$ 407,393, respectively, and had ceased to recognize deferred tax assets for tax losses amounting to ThUS$ 15,513 and ThUS$ 2,781, respectively (Note 17).

 

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

 

The Company advance sales of tickets as deferred revenue. Revenue from ticket sales is recognized in the income statement when the service is provided or when the tickets expires unused, reducing the corresponding deferred revenue. The Company evaluates monthly the probability that tickets expiry unused, based on the history of used tickets. Changes in the exchange probability would have an impact our revenue in the year in which the change occurs and in future years. As of December 31, 2015 and 2014, deferred revenue associated with air tickets sold amounted to ThUS$ 1,223,886 and ThUS$ 1,392,717, respectively. An hypothetical change of 1% in passenger behavior regarding to the ticket usage, - that is, if during the next 6 months after sells probability of used were 89% rather than 90%, as we consider, it would lead to a change in the expiry period from 6 to 7 months, which, as of December 31, 2015, would have an impact of up to ThUS$ 25,000.

 

(e)     Valuation of loyalty points and kilometers granted to loyalty program members, pending usage.

 

As of December 31, 2015 and 2014, the Company operated the following loyalty programs: LANPASS, TAM Fidelidade and Multiplus, with the objective of enhancing customer loyalty by offering points or kilometers (see Note 21).

 

When kilometers and points are redeemed for products and services other than the services provided by the Company, revenue is recognized immediately; when they are redeemed for air tickets on airlines from to LATAM Airlines Group S.A. and subsidiaries, revenue is deferred until the transport service is provided or the corresponding tickets expired.

 

Deferred revenue from loyalty programs at the closing date corresponds to the valuation of points and kilometers granted to loyalty program members, pending of use, and the probability to be redeemed.

 

According to IFRIC-13, kilometers and points value that the Company estimate are not likely to be redeemed (“breakage”), they recognize the associated value proportionally during the period in which the remaining kilometers or points are expected to be redeemed. The Company uses statistical models to estimate the breakage, based on historical redemption patterns Changes in the breakage would have a significant impact on our revenue in the year in which the change occurs and in future years.

 

 

As of December 31, 2015 and 2014, deferred revenue associated with the LANPASS loyalty program amounted to ThUS$ 973,264 and ThUS$ 860,835, respectively. As of December 31, 2015 a hypothetical change of 1% in the probability of usage would result in an impact of approximately ThUS$ 30,000. Meanwhile, deferred revenue associated with the TAM Fidelidade and Multiplus loyalty programs amounted to ThUS$ 452,264 and ThUS$ 590,342, respectively. As of December 31, 2015 a hypothetical change of 2% in the probability of usage would result in an impact of approximately ThUS$ 11,755.

 

The fair value of kilometers is determined by the Company based in its best estimate of the price at which they have been sold in the past. A hypothetical change of 1% in the fair value of the unused kilometers would result in an impact of approximately ThUS$ 6,396, as of December 31, 2015.

 

(f)     Provisions needs, and their valuation when required.

 

Known contingencies are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The Company applies professional judgment, experience, and knowledge to use available information to determine these values, in light of the specific characteristics of known risks. This process facilitates the early assessment and valuation of potential risks in individual cases or in the development of contingent eventualities.

 

(g)     Investment in subsidiary (TAM)

 

The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.

 

The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus insuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.

 

Since the integration of LAN and TAM operations, the most critical airline operations in Brazil have been managed by the CEO of TAM while global activities have been managed by the CEO of LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the LATAM Board.

 

The CEO of LATAM also evaluates the performance of LATAM Group executives and, together with the LATAM Board, determines compensation. Although Brazilian law currently imposes restrictions on the percentages of voting rights that may be held by foreign investors, LATAM believes that the economic basis of these agreements meets the requirements of accounting standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.

 

 

These estimates were made based on the best information available relating to the matters analyzed.

 

In any case, it is possible that events that may take place in the future could lead to their modification in future reporting periods, which would be made in a prospective manner.

 

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

 

 

For the periods ended														Coalition and
		Air												loyalty program
		transportation												Multiplus												Eliminations												Consolidated
		At December 31,												At December 31,												At December 31,												At December 31,
		2015				2014				2013				2015				2014				2013				2015				2014				2013				2015				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Income from ordinary activities from external customers (*)			9,278,041				11,587,224				12,328,634				462,004				506,277				595,903				-				-				-				9,740,045				12,093,501				12,924,537
LAN passenger			4,241,918				4,464,761				4,731,296				-				-				-				-				-				-				4,241,918				4,464,761				4,731,296
TAM passenger			3,706,692				5,409,084				5,734,359				462,004				506,277				595,903				-				-				-				4,168,696				5,915,361				6,330,262
Freight			1,329,431				1,713,379				1,862,979				-				-				-				-				-				-				1,329,431				1,713,379				1,862,979
Income from ordinary activities from transactions with other operating segments			462,004				506,277				595,903				67,826				106,030				94,457				(529,830	)			(612,307	)			(690,360	)			-				-				-
Other operating income			230,823				217,390				272,640				154,958				160,255				68,925				-				-				-				385,781				377,645				341,565
Interest income			21,818				32,390				49,737				63,647				58,110				34,280				(10,385	)			-				(11,189	)			75,080				90,500				72,828
Interest expense			(423,742	)			(430,030	)			(472,171	)			-				(4	)			(1,542	)			10,385				-				11,189				(413,357	)			(430,034	)			(462,524	)
Total net interest expense			(401,924	)			(397,640	)			(422,434	)			63,647				58,106				32,738				-				-				-				(338,277	)			(339,534	)			(389,696	)
Depreciation and amortization			(923,311	)			(983,847	)			(1,037,734	)			(11,095	)			(7,417	)			(3,999	)			-				-				-				(934,406	)			(991,264	)			(1,041,733	)
Material non-cash items other than depreciation and amortization			(507,921	)			(168,573	)			(593,666	)			1,893				(2,350	)			153				-				-				-				(506,028	)			(170,923	)			(593,513	)
Disposal of fixed assets and inventory losses			(20,932	)			(28,756	)			(33,987	)			-				(814	)			59				-				-				-				(20,932	)			(29,570	)			(33,928	)
Doubtful accounts			(18,292	)			(9,637	)			(77,754	)			611				(1,522	)			(123	)			-				-				-				(17,681	)			(11,159	)			(77,877	)
Exchange differences			(469,178	)			(130,187	)			(482,139	)			1,282				(14	)			217				-				-				-				(467,896	)			(130,201	)			(481,922	)
Result of indexation units			481				7				214				-				-				-				-				-				-				481				7				214
Income (loss) atributable to owners of the parents			(356,039	)			(404,346	)			(389,040	)			136,765				144,361				107,926				-				-				-				(219,274	)			(259,985	)			(281,114	)
Participation of the entity in the income of associates			37				(2,175	)			1,954				-				(4,280	)			-				-				-				-				37				(6,455	)			1,954
Expenses for income tax			249,090				(218,503	)			72,155				(70,707	)			(73,901	)			(52,086	)			-				-				-				178,383				(292,404	)			20,069
Segment profit / (loss)			(315,497	)			(332,287	)			(344,337	)			136,765				105,116				80,518				-				-				-				(178,732	)			(227,171	)			(263,819	)
Assets of segment			16,924,200				18,759,848				21,520,500				1,182,111				1,773,584				1,118,686				(4,893	)			(49,002	)			(8,040	)			18,101,418				20,484,430				22,631,146
Amount of non-current asset additions			1,492,281				1,522,298				1,746,913				-				-				-				-				-				-				1,492,281				1,522,298				1,746,913
Property, plant and equipment			1,439,057				1,444,402				1,685,011				-				-				-				-				-				-				1,439,057				1,444,402				1,685,011
Intangibles other than goodwill			53,224				77,896				61,902				-				-				-				-				-				-				53,224				77,896				61,902
Segment liabilities			14,700,072				15,293,668				16,604,451				490,076				723,438				775,975				(26,278	)			(36,371	)			(75,739	)			15,163,870				15,980,735				17,304,687
Purchase of non-monetary assets of segment			1,622,198				1,496,204				1,425,270				-				-				-				-				-				-				1,622,198				1,496,204				1,425,270

 

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

 

 

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

 

		For the period ended
		At December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Peru			681,340				660,057				646,217
Argentina			979,324				813,472				950,595
U.S.A.			1,025,475				1,224,264				1,290,493
Europe			723,062				935,893				937,539
Colombia			353,007				391,678				387,999
Brazil			3,464,297				5,361,594				5,572,884
Ecuador			238,500				248,585				273,712
Chili			1,575,519				1,589,202				1,698,476
Asia Pacific and rest of Latin America			699,521				868,756				1,166,622
Income from ordinary activities			9,740,045				12,093,501				12,924,537
Other operating income			385,781				377,645				341,565

 

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

 

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

 

NOTE 6 - CASH AND CASH EQUIVALENTS

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Cash on hand			10,656				11,568
Bank balances			302,696				239,514
Overnight			267,764				154,666
Total Cash			581,116				405,748
Cash equivalents
Time deposits			145,781				382,895
Mutual funds			26,600				200,753
Total cash equivalents			172,381				583,648
Total cash and cash equivalents			753,497				989,396

 

 

Cash and cash equivalents are denominated in the following currencies:

 

		As of				As of
		December 31,				December 31,
Currency		2015				2014
		ThUS$				ThUS$
Argentine peso			18,733				44,697
Brazilian real			106,219				45,591
Chilean peso (*)			17,978				30,758
Colombian peso			14,601				17,188
Euro			10,663				9,639
US Dollar			564,214				745,214
Strong bolivar (**)			2,986				63,236
Other currencies			18,103				33,073
Total			753,497				989,396

 

(*) At December 31, 2015 and at December 31, 2014, the Company not maintains currency derivative contracts (forward)), for conversion into dollars of investments in pesos.

 

(**) At December 31, 2015, the Company has decided reflect an exchange rate loss of ThUS$ 40,968 consequence change in the SICAD rate of Venezuela (13.5 VEF/US$) at the SIMADI rate equivalent to 198.70 VEF/US$ of 2015. Assets that are held by the Company at December 31, 2015 is equivalent to ThUS$ 2.986.

 

During 2014, 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.

 

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.

 

 

Other inflows (outflows) of cash:

 

		For the periods ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Hedging margin guarantees			87,842				(64,334	)			88,925
Change reservation systems			11,000				-				-
Currency hedge			1,802				(1,153	)			-
Bank commissions, taxes paid and other			(5,137	)			(47,724	)			(14,535	)
Tax paid on bank transaction			(7,176	)			-				-
Guarantees			(8,439	)			(86,006	)			(5,001	)
Fuel derivatives premiums			(20,932	)			(7,075	)			(4,041	)
Fuel hedge			(243,587	)			(45,365	)			11,413
Total Other inflows (outflows) Operation flow			(184,627	)			(251,657	)			76,761
Recovery loans convertible into shares			20,000				-				-
Certificate of bank deposits			3,497				(17,399	)			75,448
Tax paid on bank transaction			(12,921	)			-				-
Total Other inflows (outflows) Investment flow			10,576				(17,399	)			75,448
Credit card loan manager			3,227				23,864				(8,965	)
Early redemption of bonds TAM 2020			(15,328	)			-				-
Guarantees bonds emission			(26,111	)			-				-
Aircraft Financing advances			(28,144	)			8,669				24,650
Settlement of derivative contracts			(35,891	)			(42,962	)			(61,897	)
Breakage			-				-				(16,280	)
Others			2,490				(3,348	)			479
Total Other inflows (outflows) Financing flow			(99,757	)			(13,777	)			(62,013	)

 

 

NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1.

Financial instruments by category

 

As of December 31, 2015

 

														Initial designation
Assets		Loans								Held				as fair value
		and				Hedge				for				through
		receivables				derivatives				trading				profit and loss				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			726,897				-				-				26,600				753,497
Other financial assets, current (*)			27,148				16,578				158,812				448,810				651,348
Trade and others accounts receivable, current			796,974				-				-				-				796,974
Accounts receivable from related entities, current			183				-				-				-				183
Other financial assets, non current (*)			88,820				-				638				-				89,458
Accounts receivable, non current			10,715				-				-				-				10,715
Total			1,650,737				16,578				159,450				475,410				2,302,175

 

Liabilities										Other				Held
										financial				Hedge
										liabilities				derivatives				Total
										ThUS$				ThUS$				ThUS$
Other liabilities, current											1,510,146				134,089				1,644,235
Trade and others accounts payable, current											1,483,957				-				1,483,957
Accounts payable to related entities, current											447				-				447
Other financial liabilities, non-current											7,516,257				16,128				7,532,385
Accounts payable, non-current											417,050				-				417,050
Total											10,927,857				150,217				11,078,074

 

(*) 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.

 

 

As of December 31, 2014

 

Assets														Initial designation
		Loans								Held				as fair value
		and				Hedge				for				through
		receivables				derivatives				trading				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			1,378,835				-				-				-				1,378,835
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			2,386,612				2,161				41,602				704,016				3,134,391

 

Liabilities						Other								Held
						financial				Hedge				for
						liabilities				derivatives				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							1,489,373				-				-				1,489,373
Accounts payable to related entities, current							56				-				-				56
Other financial liabilities, non-current							7,360,685				28,327				-				7,389,012
Accounts payable, non-current							577,454				-				-				577,454
Total							10,824,950				254,370				1,190				11,080,510

 

(*) 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.

 

 

7.2.

Financial instruments by currency

 

a)     Assets 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Cash and cash equivalents			753,497				989,396
Argentine peso			18,733				44,697
Brazilian real			106,219				45,591
Chilean peso			17,978				30,758
Colombian peso			14,601				17,188
Euro			10,663				9,639
US Dollar			564,214				745,214
Strong bolivar			2,986				63,236
Other currencies			18,103				33,073
Other financial assets (current and non-current)			740,806				735,387
Argentine peso			157,281				45,169
Brazilian real			449,934				500,875
Chilean peso			640				26,881
Colombian peso			1,670				406
Euro			615				4,244
US Dollar			128,620				156,687
Strong bolivar			22				43
Other currencies			2,024				1,082
Trade and other accounts receivable, current			796,974				1,378,835
Argentine peso			71,438				100,798
Brazilian real			191,037				528,404
Chilean peso			57,755				131,189
Colombian peso			13,208				9,021
Euro			53,200				38,764
US Dollar			320,959				369,774
Strong bolivar			7,225				4,895
Other currencies (*)			82,152				195,990
Accounts receivable, non-current			10,715				30,465
Brazilian real			521				761
Chilean peso			5,041				5,814
US Dollar			5,000				23,734
Other currencies (*)			153				156
Accounts receivable from related entities, current			183				308
Brazilian real			-				9
Chilean peso			183				299
Total assets			2,302,213				3,134,391
Argentine peso			247,452				190,664
Brazilian real			747,711				1,075,640
Chilean peso			81,597				194,941
Colombian peso			29,479				26,615
Euro			64,478				52,647
US Dollar			1,018,793				1,295,409
Strong bolivar			10,233				68,174
Other currencies			102,470				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.

 

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Trade accounts receivable			685,733				1,269,433
Other accounts receivable			182,028				210,909
Total trade and other accounts receivable			867,761				1,480,342
Less: Allowance for impairment loss			(60,072	)			(71,042	)
Total net trade and accounts receivable			807,689				1,409,300
Less: non-current portion – accounts receivable			(10,715	)			(30,465	)
Trade and other accounts receivable, current			796,974				1,378,835

 

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				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Fully performing			577,902				1,088,362
Matured accounts receivable, but not impaired
Expired from 1 to 90 days			28,717				83,599
Expired from 91 to 180 days			10,995				11,521
More than 180 days overdue (*)			8,047				14,909
Total matured accounts receivable, but not impaired			47,759				110,029
Matured accounts receivable and impaired
Judicial, pre-judicial collection and protested documents			24,304				53,956
Debtor under pre-judicial collection process and portfolio sensitization			35,768				17,086
Total matured accounts receivable and impaired			60,072				71,042
Total			685,733				1,269,433

 

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

 

 

 

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

 

		As of				As of
		December 31,				December 31,
Currency		2015				2014
		ThUS$				ThUS$
Argentine Peso			71,438				100,798
Brazilian Real			191,558				529,165
Chilean Peso			62,796				137,003
Colombian peso			13,208				9,021
Euro			53,200				38,764
US Dollar			325,959				393,508
Strong bolivar			7,225				4,895
Other currency (*)			82,305				196,146
Total			807,689				1,409,300
(*) Other currencies
Australian Dollar			26,185				15,243
Chinese Yuan			4,282				35,626
Danish Krone			164				8,814
Pound Sterling			7,228				33,624
Indian Rupee			3,070				1,887
Japanese Yen			4,343				4,635
Norwegian Kroner			221				16,516
Swiss Franc			1,919				5,701
Korean Won			4,462				25,203
New Taiwanese Dollar			3,690				10,323
Other currencies			26,741				38,574
Total			82,305				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	%

 

 

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 December 31, 2013			(75,503	)			9,928				(5,027	)			(70,602	)
From January 1 to December 31, 2014			(70,602	)			6,864				(7,304	)			(71,042	)
From January 1 to December 31, 2015			(71,042	)			10,120				850				(60,072	)

 

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

 

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

 

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

 

As of December 31, 2015

As of December 31, 2014

Gross exposure

Gross

Exposure net

Gross exposure

Gross

Exposure net

according to

impaired

of risk

according to

Impaired

of risk

balance

exposure

concentrations

balance

exposure

concentrations

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

Trade accounts receivable

685,733

(60,072

)

625,661

1,269,433

(71,042

)

1,198,391

Other accounts receivable

182,028

-

182,028

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.

 

 

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a)

Accounts Receivable

 

As of

As of

Country

December 31,

December 31,

Tax No.

Related party

Relationship

of origin

Currency

2015

2014

ThUS$

ThUS$

78.591.370-1

Bethia S.A. and Subsidiaries

Related director

Chile

CLP

167

284

87.752.000-5

Granja Marina Tornagaleones S.A.

Common shareholder

Chile

CLP

14

15

Foreign

TAM Aviação Executivae Taxi Aéreo S.A.

Related director

Brazil

BRL

2

-

Foreign

Prisma Fidelidade S.A.

Joint Venture

Brazil

BRL

-

9

Total current assets

183

308

 

(b)

Accounts payable

 

Country

As of

As of

of

December 31,

December 31,

Tax No.

Related party

Relationship

origin

Currency

2015

2014

ThUS$

ThUS$

Foreign

Consultoría Administrativa Profesional S.A. de C.V.

Common matrix

Mexico

MXN

342

-

65.216.000-K

Viajes Falabella Ltda.

Related director

Chile

CLP

68

21

Foreign

Inversora Aeronaútica Argentina

Related director

Argentina

US$

22

27

65.216.000-K

Comunidad Mujer

Related director

Chile

CLP

10

2

78.591.370-1

Bethia S.A. and Subsidiaries

Related director

Chile

CLP

5

6

Total current liabilities

447

56

 

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.

 

 

NOTE 10 -INVENTORIES

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Technical stock			192,930				229,313
Non-technical stock			31,978				36,726
Total production suppliers			224,908				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 December 31, 2015 amounts to ThUS$ 15,892 (ThUS$ 2,982 as of December 31, 2014). The resulting amounts do not exceed the respective net realizable values.

 

As of December 31, 2015, the Company recorded ThUS$ 160,030 (ThUS$ 189,864 as of December 31, 2014) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

 

 

NOTE 11 - OTHER FINANCIAL ASSETS

 

The composition of Other financial assets is as follows:

 

		Current Assets								Non-current assets								Total Assets
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a)   Other financial assets
Private investment funds			448,810				480,777				-				-				448,810				480,777
Deposits in guarantee (aircraft)			16,532				8,458				58,483				70,155				75,015				78,613
Certificate of deposit (CBD)			-				18,293				-				-				-				18,293
Guarantees for margins of derivatives			4,456				92,556				-				-				4,456				92,556
Other investments			-				4,193				638				491				638				4,684
Domestic and foreign bonds			158,812				41,111				-				-				158,812				41,111
Other guarantees given			6,160				2,852				30,337				14,340				36,497				17,192
Subtotal of other financial assets			634,770				648,240				89,458				84,986				724,228				733,226
(b)   Hedging assets
Interest accrued since the last payment date of Cross currency swap			397				377				-				-				397				377
Fair value of interest rate derivatives			-				1				-				-				-				1
Fair value of foreign currency derivatives (*)			9,888				-				-				-				9,888				-
Fair value of fuel price derivatives			6,293				1,783				-				-				6,293				1,783
Subtotal of hedging assets			16,578				2,161				-				-				16,578				2,161
Total Other Financial Assets			651,348				650,401				89,458				84,986				740,806				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.

 

 

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				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a)  Advance payments
Aircraft leases			33,305				26,039				22,569				26,201				55,874				52,240
Aircraft insurance and other			12,408				12,160				-				-				12,408				12,160
Others			16,256				17,970				33,781				36,450				50,037				54,420
Subtotal advance payments			61,969				56,169				56,350				62,651				118,319				118,820
(b)  Other assets
Aircraft maintenance reserve (*)			99,112				31,108				64,366				123,588				163,478				154,696
Sales tax			158,134				155,795				45,061				64,652				203,195				220,447
Other taxes			4,295				3,513				-				-				4,295				3,513
Contributions to Société Internationale de Télécommunications Aéro nautiques (“SITA”)			505				599				547				453				1,052				1,052
Judicial deposits			-				-				67,980				90,450				67,980				90,450
Others			6,001				687				1,159				1,019				7,160				1,706
Subtotal other assets			268,047				191,702				179,113				280,162				447,160				471,864
Total Other Non - Financial Assets			330,016				247,871				235,463				342,813				565,479				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 December 31, 2015, LATAM had ThUS$ 163,478 in maintenance reserves (ThUS$ 154,696 at December 31, 2014), corresponding to 9 aircraft out of a total fleet of 328 (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 2023.

 

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).

 

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.

 

Detail of significant subsidiaries and summarized financial information:

 

Ownership

As of

As of

Country

December 31,

December 31,

of

Functional

2015

2014

Name of significant subsidiary

incorporation

currency

%

%

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.

 

 

Summary financial information of significant subsidiaries

 

																										Results for the period
		Statement of financial position as of December 31, 2015																								ended December 31, 2015
		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$
Lan Perú S.A.			255,691				232,547				23,144				240,938				239,521				1,417				1,078,992				5,068
Lan Cargo S.A.			483,033				159,294				323,739				217,037				147,423				69,614				278,117				(74,408	)
Lan Argentina S.A.			195,756				180,558				15,198				170,384				168,126				2,258				443,317				9,432
Transporte Aéreo S.A.			331,117				41,756				289,361				122,666				44,495				78,171				324,464				5,878
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			126,001				80,641				45,360				116,153				111,245				4,908				246,402				(1,278	)
Aerovías de Integración Regional, AIRES S.A.			130,039				62,937				67,102				75,003				64,829				10,174				291,354				(34,079	)
TAM S.A. (*)			4,711,316				1,350,377				3,360,939				4,199,223				1,963,400				2,235,823				4,597,611				(183,812	)

 

																										Results for the period
		Statement of financial position as of December 31, 2014																								ended December 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$
Lan Perú S.A.			239,470				214,245				25,225				228,395				226,784				1,611				1,134,289				1,058
Lan Cargo S.A.			575,979				250,174				325,805				234,772				119,111				115,661				267,578				(17,905	)
Lan Argentina S.A.			233,142				206,503				26,639				201,168				198,593				2,575				439,929				(17,864	)
Transporte Aéreo S.A.			367,570				80,090				287,480				147,278				59,805				87,473				364,580				(19,001	)
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			126,472				78,306				48,166				116,040				111,718				4,322				256,925				(20,193	)
Aerovías de Integración Regional, AIRES S.A.			131,324				38,751				92,573				61,736				49,577				12,159				392,433				(81,033	)
TAM S.A. (*)			6,817,698				1,921,316				4,896,382				5,809,529				2,279,110				3,530,419				6,628,432				171,655

 

 

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

 

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

 

 

(b) Non-controlling interest

 

						As of				As of				As of				As of
				Country		December 31,				December 31,				December 31,				December 31,
Equity		Tax No.		of origin		2015				2014				2015				2014
						%				%				ThUS$				ThUS$
Lan Perú S.A		0-E		Peru			30.00000				30.00000				4,426				3,323
Lan Cargo S.A. and Subsidiaries		93.383.000-4		Chile			0.10605				0.10605				974				925
Inversiones Lan S.A. and Subsidiaries		96.575.810-0		Chile			0.00000				0.29000				-				5
Promotora Aérea Latinoamericana S.A. and Subsidiaries		0-E		Mexico			51.00000				51.00000				3,084				1,730
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				(1,386	)			195
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				29				217
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				5				5
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				12				6
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				(811	)			(826	)
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				0.98307				540				684
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				1,256				825
Multiplus S.A.		0-E		Brazil			27.26000				27.26000				72,884				94,710
Total															81,013				101,799

 

						As of				As of				As of				For the period ended
				Country		December 31,				December 31,				December 31,				December 31,
Incomes		Tax No.		of origin		2015				2014				2013				2015				2014				2013
						%				%				%				ThUS$				ThUS$				ThUS$
Lan Perú S.A		0-E		Peru			30.00000				30.00000				30.00000				1,521				317				1,127
Lan Cargo S.A. and Subsidiaries		93.383.000-4		Chile			0.10605				0.10605				0.10605				(69	)			(125	)			111
Inversiones Lan S.A. and Subsidiaries		96.575.810-0		Chile			0.00000				0.29000				0.29000				-				(14	)			1
Promotora Aerea Latinoamericana S.A. and Subsidiaries		0-E		Mexico			51.00000				51.00000				51.00000				1,349				396				(511	)
Aerolinheas Brasileiras S.A. and Subsidiaries		0-E		Brazil			0.00000				0.00000				26.70000				-				-				(1,520	)
Aerolane, Lineas Aéreas Nacionales del Ecuador S.A.		0-E		Ecuador			0.00000				0.00000				28.05000				-				(5,671	)			(11,303	)
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				4.22000				281				270				188
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				1.00000				61				58				47
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				1.00000				1				4				1
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				1.00000				5				6				-
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				10.00000				14				(495	)			(145	)
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				0.98307				0.98307				(335	)			(797	)			(645	)
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				5.02000				431				(389	)			671
Multiplus S.A.		0-E		Brazil			27.26000				27.26000				27.26000				37,283				39,254				29,273
Total																			40,542				32,814				17,295

 

 

NOTE 14 - INTANGIBLE ASSETS OTHER THAN GOODWILL

 

The details of intangible assets are as follows:

 

		Classes of intangible assets								Classes of intangible assets
		(net)								(gross)
		As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
Airport slots			816,987				1,201,028				816,987				1,201,028
Loyalty program			272,312				400,317				272,312				400,317
Computer software			104,258				126,797				324,043				309,846
Developing software			74,887				74,050				74,887				74,050
Trademarks			52,981				77,887				52,981				77,887
Other assets			-				-				808				808
Total			1,321,425				1,880,079				1,542,018				2,063,936

 

Movement in Intangible assets other than goodwill:

 

		Computer												Trademarks				Other
		software				Developing				Airport				and loyalty				assets
		Net				software				slots (*)				program (*)				Net				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			144,244				54,635				1,561,130				621,584				806				2,382,399
Additions			14,703				47,199				-				-				-				61,902
Withdrawals			(467	)			(1,975	)			-				-				-				(2,442	)
Transfer software			46,444				(48,890	)			-				-				(492	)			(2,938	)
Foreing exchange			(5,542	)			(4,894	)			(199,323	)			(79,363	)			(72	)			(289,194	)
Amortization			(56,258	)			-				-				-				(161	)			(56,419	)
Closing balance as of December 31, 2013			143,124				46,075				1,361,807				542,221				81				2,093,308
Opening balance as of January 1, 2014			143,124				46,075				1,361,807				542,221				81				2,093,308
Additions			16,902				60,994				-				-				-				77,896
Withdrawals			(1,365	)			(3,576	)			-				-				-				(4,941	)
Transfer software			22,351				(24,539	)			-				-				-				(2,188	)
Foreing exchange			(6,763	)			(4,904	)			(160,779	)			(64,017	)			-				(236,463	)
Amortization			(47,452	)			-				-				-				(81	)			(47,533	)
Closing balance as of December 31, 2014			126,797				74,050				1,201,028				478,204				-				1,880,079
Opening balance as of January 1, 2015			126,797				74,050				1,201,028				478,204				-				1,880,079
Additions			4,954				48,270				-				-				-				53,224
Withdrawals			(4,612	)			(162	)			-				(1	)			-				(4,775	)
Transfer software			28,726				(30,426	)			-				-				-				(1,700	)
Foreing exchange			(14,871	)			(16,845	)			(384,041	)			(152,910	)			-				(568,667	)
Amortization			(36,736	)			-				-				-				-				(36,736	)
Closing balance as of December 31, 2015			104,258				74,887				816,987				325,293				-				1,321,425

 

 

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of December 31, 2015 amounts to ThUS$ 219,785 (ThUS$ 183,049 as of December 31, 2014). The accumulated amortization of other identifiable intangible assets as of December 31, 2015 amounts to ThUS$ 808 (ThUS$ 808 as of December 31, 2014).

 

(*) See Note 2.5

 

NOTE 15 – GOODWILL

 

The Goodwill amount at December 31, 2015 is ThUS$ 2,280,575 (ThUS$ 3,313,401 at December 31, 2014). Movement of Goodwill, separated by CGU:

 

						Coalition
						and loyalty
		Air				program
		Transport				Multiplus				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			3,361,906				851,254				4,213,160
Increase (decrease) due to exchange rate differences			(421,729	)			(108,686	)			(530,415	)
Others			44,860				-				44,860
Closing balance as of December 31, 2013			2,985,037				742,568				3,727,605
Opening balance as of January 1, 2014			2,985,037				742,568				3,727,605
Increase (decrease) due to exchange rate differences			(360,371	)			(87,670	)			(448,041	)
Others			33,837				-				33,837
Closing balance as of December 31, 2014			2,658,503				654,898				3,313,401
Opening balance as of January 1, 2015			2,658,503				654,898				3,313,401
Increase (decrease) due to exchange rate differences			(823,415	)			(209,411	)			(1,032,826	)
Closing balance as of December 31, 2015			1,835,088				445,487				2,280,575

 

The Company has two cash- generating units (CGUs), confirming the existence of two cash- generating units: “Air transportation” and, “Coalition and loyalty program Multiplus”. The CGU “Air transport” considers the transport of passengers and cargo, 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, while the CGU “Coalition and loyalty program Multiplus” works with an integrated network associated companies in Brazil.

 

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of expected cash flows, before tax, which are based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated using the estimated growth rates, which do not exceed the average rates of long-term growth. Base on growth expectation and long-term investment cycles, usually in the industry, these calculations use a pre-tax cash flow projections or ten years.

 

Management establish rates for annual growth, discount, inflation and exchange for each cash generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based on past performance and management’s expectations over market developments in each country where it operates. The discount rates used are in American Dollars for the CGU “Air transportation” and Brazilian Reals for CGU “Program coalition loyalty Multiplus”, both of them before tax and reflect specific risks related to each country where the Company operates. Inflation and exchange rates are based on available data for each country and the information provided by the Central Bank of each country, and the fuel price is determined based on estimated production levels, competitive environment market in which they operate and its business strategy.

 

 

The main assumptions used in the calculations as of December 31, 2015 and 2014 are discussed as follows:

 

Air transportation

Coalition and loyalty

CGU

program Multiplus CGU (2)

Annual growth rate (Terminal)

%

1.5 and 2.5

4.7 and 6.4

Exchange rate (1)

R$/US$

4.15 and 5.21

4.15 and 5.21

Discount rate based on the weighted average cost of capital (WACC)

%

10.5 and 11.5

-

Discount rate based on cost of equity (CoE)

%

-

19.0 and 23.0

Fuel Price from futures price curves commodities markets

US$/barril

60-70

-

 

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

 

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.

 

CGU´s are sensitive to rates for annual growth, discount and exchanges. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:

 

		Increase				Increase				Decrease Minimum
		Maximum				Maximum				terminal
		WACC				CoE				growth rate
		%				%				%
Air transportation CGU			11.5				-				1.5
Coalition and loyalty program Multiplus CGU			-				23.0				4.4

 

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

 

 

NOTE 16 - PROPERTY, PLANT AND EQUIPMENT

 

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

 

		Gross Book Value								Acumulated depreciation								Net Book Value
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Construction in progress			1,142,812				937,279				-				-				1,142,812				937,279
Land			45,313				57,988				-				-				45,313				57,988
Buildings			131,816				249,361				(40,325	)			(82,355	)			91,491				167,006
Plant and equipment			9,683,764				8,660,352				(2,392,463	)			(1,770,560	)			7,291,301				6,889,792
Own aircraft			9,118,396				7,531,526				(2,198,682	)			(1,407,704	)			6,919,714				6,123,822
Other			565,368				1,128,826				(193,781	)			(362,856	)			371,587				765,970
Machinery			36,569				65,832				(21,220	)			(42,099	)			15,349				23,733
Information technology equipment			154,093				188,208				(110,204	)			(137,199	)			43,889				51,009
Fixed installations and accessories			179,026				97,090				(90,068	)			(53,307	)			88,958				43,783
Motor vehicles			99,997				95,981				(64,047	)			(53,452	)			35,950				42,529
Leasehold improvements			124,307				144,230				(70,219	)			(87,707	)			54,088				56,523
Other property, plants and equipment			3,279,902				4,522,589				(1,150,396	)			(2,019,155	)			2,129,506				2,503,434
Financial leasing aircraft			3,151,405				4,365,247				(1,120,682	)			(1,985,458	)			2,030,723				2,379,789
Other			128,497				157,342				(29,714	)			(33,697	)			98,783				123,645
Total			14,877,599				15,018,910				(3,938,942	)			(4,245,834	)			10,938,657				10,773,076

 

(*) It includes pre-delivery payments to aircraft manufacturers for ThUS$ 944,582 (ThUS$ 816,324 as of December 31, 2014)

 

(**) Mainly considers rotable and tools.

 

 

(a)

The movement in the different categories of Property, plant and equipment from January 1, 2014 to December 31, 2015 is shown below:

 

																																		Other
																		Information				Fixed												property,				Property,
														Plant and				technology				installations				Motor				Leasehold				plant and				Plant and
		Construction								Buildings				equipment				equipment				& accessories				vehicles				improvements				equipment				equipment
		in progress				Land				net				net				net				net				net				net				net				net
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			1,153,003				65,307				175,070				6,360,115				40,463				42,343				4,722				21,728				3,944,325				11,807,076
Additions			17,731				-				11,798				1,555,667				22,146				7,663				303				-				69,703				1,685,011
Disposals			-				-				-				(141,328	)			(31	)			-				(161	)			-				(644,637	)			(786,157	)
Retirements			(615	)			-				(430	)			(65,151	)			(270	)			(15	)			(10	)			(219	)			(19,716	)			(86,426	)
Depreciation expenses			-				-				(11,768	)			(446,503	)			(14,131	)			(8,893	)			(312	)			(12,281	)			(336,586	)			(830,474	)
Foreing exchange			(53,452	)			(5,955	)			(12,414	)			(71,013	)			(3,375	)			(1,527	)			(286	)			(1	)			(320,738	)			(468,761	)
Other increases (decreases)			(258,017	)			-				9,529				(384,669	)			1,417				11,021				(2,512	)			7,542				278,206				(337,483	)
Changes, total			(294,353	)			(5,955	)			(3,285	)			447,003				5,756				8,249				(2,978	)			(4,959	)			(973,768	)			(824,290	)
Closing balance as of December 31, 2013			858,650				59,352				171,785				6,807,118				46,219				8,249				(2,978	)			16,769				(973,768	)			10,982,786
Opening balance as of January 1, 2014			858,650				59,352				171,785				6,807,118				46,219				50,592				1,744				16,769				2,970,557				10,982,786
Additions			29,980				3,440				16,636				1,214,282				22,239				2,190				1,586				-				154,049				1,444,402
Disposals			-				-				-				(660,129	)(*)			(57	)			-				(4	)			-				(328	)			(660,518	)
Retirements			(705	)			-				(403	)			(39,463	)			(205	)			(230	)			(53	)			(50	)			(34,282	)			(75,391	)
Depreciation expenses			-				-				(13,980	)			(431,967	)			(16,889	)			(8,899	)			(1,041	)			(19,127	)			(286,033	)			(777,936	)
Foreing exchange			733				(4,804	)			(12,341	)			(59,957	)			(3,595	)			(1,509	)			330				-				(110,727	)			(191,870	)
Other increases (decreases)			48,621				-				5,309				124,205				3,297				1,639				(597	)			58,931				(189,802	)			51,603
Changes, total			78,629				(1,364	)			(4,779	)			146,971				4,790				(6,809	)			221				39,754				(467,123	)			(209,710	)
Closing balance as of December 31, 2014			937,279				57,988				167,006				6,954,089				51,009				43,783				1,965				56,523				2,503,434				10,773,076
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			39,711				-				439				1,304,199				15,322				1,692				280				13,188				64,226				1,439,057
Disposals			-				-				(500	)			(76,675	)(**)			(27	)			-				(8	)			-				(11	)			(77,221	)
Retirements			(1,262	)			-				(956	)			(38,240	)			(104	)			(476	)			(4	)			-				(8,902	)			(49,944	)
Depreciation expenses			-				-				(7,161	)			(521,688	)			(16,196	)			(11,649	)			(378	)			(13,973	)			(174,474	)			(745,519	)
Foreing exchange			(932	)			(11,786	)			(18,248	)			(129,933	)			(6,126	)			(13,269	)			(638	)			(1,659	)			(252,709	)			(435,300	)
Other increases (decreases)			168,016				(889	)			(49,089	)			(150,677	)			11				68,877				308				9				(2,058	)			34,508
Changes, total			205,533				(12,675	)			(75,515	)			386,986				(7,120	)			45,175				(440	)			(2,435	)			(373,928	)			165,581
Closing balance as of December 31, 2015			1,142,812				45,313				91,491				7,341,075				43,889				88,958				1,525				54,088				2,129,506				10,938,657

 

(*)	During the first half of 2014 four Boeing 777-300ER aircraft were sold and subsequently leased.
(**)	During the first half of 2015 three Airbus A340 aircraft were sold.
	During the second half of 2015 seven Dash-200 aircraft were sold.
	During the second half of 2015 two Airbus A319 aircraft were sold.

 

 

(b)

Composition of the fleet:

 

				Aircraft included
				in the Company´s Property,								Operating								Total
				plant and equipment								leases								fleet
				As of				As of				As of				As of				As of				As of
				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
Aircraft		Model		2015				2014				2015				2014				2015				2014
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	(3)			2				2				2				4	(3)			4
Boeing 787		800			6				6				4				4				10				10
Boeing 787		900			3				-				4				-				7				-
Airbus A319		100			38				40				12				12				50				52
Airbus A320		200			95				95				59				63				154				158
Airbus A321		200			26				18				10				3				36				21
Airbus A330		200			8				8				2				5				10				13
Airbus A340		300			-				3				-				-				-				3
Airbus A350		900			1				-				-				-				1				-
Bombardier		Dhc8-200			-				2				-				5				-				7
Total					225				220				106				107				331				327

 

(1) Two aircraft leased to FEDEX

(2) Three aircraft leased to FEDEX

(3) One aircraft leased to DHL

 

(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. (*)			10				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$ 745,519 (ThUS$ 777,936 at December 31, 2014). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income.

 

 

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

 

(i)  Property, plant and equipment pledged as guarantee:

 

In the period ended December 31, 2015, direct guarantees by eight Airbus A321-200 aircraft, three Boeing 787-9 aircraft and one Airbus A350 aircraft were added. Additionally, as a result of the transfer plan fleet of TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A.. the direct guarantee of one Airbus A320-200 aircraft was added.

 

Description of Property, plant and equipment pledged as guarantee:

 

						As of								As of
						December 31,								December 31,
						2015								2014
Creditor of		Assets				Existing				Book				Existing				Book
guarantee		committed		Fleet		Debt				Value				Debt				Value
							ThUS$				ThUS$				ThUS$				ThUS$
Wilmington		Aircraft and engines		Airbus A321 / A350			374,619				478,667				-				-
Trust Company				Boeing 767			907,356				1,220,541				1,001,311				1,277,357
				Boeing 777 / 787			712,059				834,567				452,622				518,788
Banco Santander S.A.		Aircraft and engines		Airbus A319			58,527				95,387				66,318				100,485
				Airbus A320			524,682				749,192				585,008				788,706
				Airbus A321			36,334				45,380				39,739				45,161
BNP P aribas		Aircraft and engines		Airbus A319			154,828				229,798				174,714				238,103
				Airbus A320			145,506				192,957				162,304				207,881
Credit Agrico le		Aircraft and engines		Airbus A319			37,755				84,129				55,797				121,038
				Airbus A320			115,339				214,726				157,514				219,460
				Airbus A321			50,591				97,257				60,288				63,939
J P Morgan		Aircraft and engines		Boeing 777			215,265				263,366				237,463				278,169
Wells Fargo		Aircraft and engines		Airbus A320			279,478				348,271				305,949				360,064
Bank of Utah		Aircraft and engines		Airbus A320			240,094				312,573				259,260				327,094
Natixis		Aircraft and engines		Airbus A320			56,223				81,355				48,814				55,946
				Airbus A321			413,201				722,876				405,416				488,198
Citibank N. A.		Aircraft and engines		Airbus A320			127,135				172,918				142,591				146,535
				Airbus A321			49,464				73,122				55,836				59,452
HSBC		Aircraft and engines		Airbus A320			53,583				64,241				59,005				59,342
KfW IP EX-Bank		Aircraft and engines		Airbus A320			13,593				16,838				16,088				17,516
P K AirFinance US, Inc.		Aircraft and engines		Airbus A320			62,514				48,691				69,721				70,102
Total direct guarantee							4,628,146				6,346,852				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 December 31, 2015 amounted to ThUS$ 1,311,088 (ThUS$ 1,626,257 at December 31, 2014). The book value of assets with indirect guarantees as of December 31, 2015 amounts to ThUS$ 2,001,605 (ThUS$ 2,335,135 as of December 31, 2014).

 

 

(ii) Commitments and others

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Gross book value of fully depreciated property, plant and equipment still in use			129,766				138,960
Commitments for the acquisition of aircraft (*)			19,800,000				21,500,000

 

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

 

Purchase commitment of aircraft

 

		Year of delivery
Manufacturer		2016				2017				2018				2019				2020				2021				Total
Airbus S.A.S.			23				24				24				10				14				13				108
A320-NEO			2				18				16				8				8				-				52
A321			15				-				-				-				-				-				15
A321-NEO			-				-				6				-				4				5				15
A350			6				6				2				2				2				8				26
The Boeing Company			4				1				4				6				-				-				15
B777			-				-				-				2				-				-				2
B787-8			-				-				-				4				-				-				4
B787-9			4				1				4				-				-				-				9
Total			27				25				28				16				14				13				123

 

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. In September 2015 the change of 6 Airbus A350-900 aircraft for 6 Airbus A350-1000 aircraft was signed. Additionally, in November 2015 the change of 6 Airbus A350-900 aircraft to 6 Airbus A350-1000 aircraft was signed.

 

At December 31, 2015, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., 82 aircraft Airbus A320 family, with deliveries between 2016 and 2021, and 26 Airbus aircraft A350 family with delivery dates starting from 2016 remain to be received.

 

The approximate amount is ThUS$ 16,300,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 5 Airbus A350 aircraft.

 

In April 2015 the change of 8 Boeing 787-8 aircraft for 8 Boeing 787-8 aircraft was signed.

 

As of December 31, 2015, and as a result of different aircraft purchase contracts signed with The Boeing Company, a total of 13 787 Dreamliner aircraft, with delivery dates between 2016 and 2019, and two 777 with delivery expected for 2019 remain to be received.

 

The approximate amount, according to the manufacturer’s price list, is ThUS$ 3,500,000.

 

 

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

 

						For the periods ended
						December 31,
						2015				2014				2013
Average rate of capitalization of capitalized interest costs			%				2.79				2.84				3.63
Costs of capitalized interest			ThUS$				22,551				18,426				25,625

 

(iv)    Financial leases

 

The detail of the main financial leases is as follows:

						As of				As of
						December 31,				December 31,
Lessor		Aircraft		Model		2015				2014
Agonandra Statutory Trust		Airbus A319		100			-				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
FLYAFI 1 S.R.L.		Boeing 777		300ER			1				1
FLYAFI 2 S.R.L.		Boeing 777		300ER			1				1
FLYAFI 3 S.R.L.		Boeing 777		300ER			1				1
Forderum Holding B.V. (GECAS)		Airbus A320		200			2				2
Garza Leasing LLC		Boeing 767		300ER			1				1
General Electric Capital Corporation		Airbus A330		200			3				3
Intraelo BETA Corpotation (KFW)		Airbus A320		200			1				1
Juliana Leasing Limited		Airbus A320		200			2				2
Linnet Leasing Limited		Airbus A320		200			-				4
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 Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)		Airbus A320		200			1				1
NBB São Paulo Lease CO. Limited (BBAM)		Airbus A321		200			1				1
Osprey Leasing Limited		Airbus A319		100			8				8
Petrel Leasing LLC		Boeing 767		300ER			1				1
Pilpilen Leasing Limited		Airbus A320		200			4				-
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
TMF Interlease Aviation B.V.		Airbus A330		200			1				1
TMF Interlease Aviation II B.V.		Airbus A319		100			5				5
TMF Interlease Aviation II B.V.		Airbus A320		200			2				2
Tricahue Leasing LLC		Boeing 767		300ER			3				3
Wacapou Leasing S.A		Airbus A320		200			1				1
Total							66				71

 

 

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

 

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

 

Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of December 31, 2015 the Company had sixty six aircraft (seventy one aircraft as of December 31, 2014).

 

As of December 31, 2015, as a result of the transfer plan fleet of TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company reduces its number of aircraft leasing in four Airbus A319-100 and one Airbus A320-200 aircraft.

 

The book value of assets under financial leases as of December 31, 2015 amounts to ThUS$ 2,030,723 (ThUS$ 2,379,789 as of December 31, 2014).

 

The minimum payments under financial leases are as follows:

 

		As of December 31, 2015												As of December 31, 2014												As of December 31, 2013
		Gross								Present				Gross								Present				Gross								Present
		Value				Interest				Value				Value				Interest				Value				Value				Interest				Value
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
No later than one year			360,862				(47,492	)			313,370				403,840				(48,197	)			355,643				462,157				(53,925	)			408,232
Between one and five years			1,003,237				(75,363	)			927,874				1,121,190				(97,909	)			1,023,281				1,406,384				(118,702	)			1,287,682
Over five years			95,050				(1,406	)			93,644				261,877				(6,409	)			255,468				633,120				(19,562	)			613,558
Total			1,459,149				(124,261	)			1,334,888				1,786,907				(152,515	)			1,634,392				2,501,661				(192,189	)			2,309,472

 

NOTE 17 - CURRENT AND DEFERRED TAXES

 

In the period ended December 31, 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.

 

 

 

On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System"(*) and could not elect to use the other system.

 

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.

 

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				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Provisional monthly payments (advances)			43,935				68,752				-				-				43,935				68,752
Other recoverable credits			20,080				31,956				25,629				17,663				45,709				49,619
Total current tax assets			64,015				100,708				25,629				17,663				89,644				118,371

 

(a.2)

The composition of the current tax liabilities are as follows:

 

		Current liabilities								Non-current liabilities								Total liabilities
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Income tax provision			19,001				16,712				-				-				19,001				16,712
Additional tax provision			377				1,177				-				-				377				1,177
Total current tax liabilities			19,378				17,889				-				-				19,378				17,889

 

 

(b)

Deferred taxes

 

The balances of deferred tax are the following:

 

		Assets								Liabilities
		As of				As of				As of				As of
Concept		December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(14,243	)			(23,675	)			1,103,017				847,965
Leased assets			(25,299	)			(102,457	)			137,741				83,318
Amortization			(5,748	)			(31,750	)			92,313				128,350
Provisions			210,992				416,153				(70,028	)			65,076
Revaluation of financial instruments			709				270				(7,575	)			(12,536	)
Tax losses			212,067				151,569				(797,715	)			(571,180	)
Revaluation property, plant and equipment			-				-				(4,081	)			(5,999	)
Intangibles			-				-				355,952				523,275
Others			(1,883	)			(2,787	)			1,941				(6,375	)
Total			376,595				407,323				811,565				1,051,894

 

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

 

Movements of Deferred tax assets and liabilities

 

(a) From January 1 to December 31, 2013

 

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

 

 

(b) From January 1 to December 31, 2014

 

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

 

(c) From January 1 to December 31, 2015

 

		Opening				Recognized in				Recognized in				Exchange								Ending
		balance				consolidated				comprehensive				rate								balance
		Assets/(liabilities)				income				income				variation				Others				Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(871,640	)			(254,160	)			-				8,540				-				(1,117,260	)
Leased assets			(185,775	)			14,932				-				7,803				-				(163,040	)
Amortization			(160,100	)			57,433				-				4,606				-				(98,061	)
Provisions			351,077				52,845				3,911				(126,813	)			-				281,020
Revaluation of financial instruments			12,806				19,760				(21,103	)			(3,179	)			-				8,284
Tax losses (*)			722,749				320,397				-				(33,364	)			-				1,009,782
Revaluation property, plant and equipment			5,999				12,799				-				(14,717	)			-				4,081
Intangibles			(523,275	)			-				-				167,323				-				(355,952	)
Others			3,588				46,898				-				(47,465	)			(6,845	)			(3,824	)
Total			(644,571	)			270,904				(17,192	)			(37,266	)			(6,845	)			(434,970	)

 

(*) 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 December 31, 2015, generating no effect on the outcome of tax.

 

 

Deferred tax assets not recognized:		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Tax losses			15,513				2,781
Total Deferred tax assets not recognized			15,513				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 recognized deferred tax assets of ThUS$ 15,513 (ThUS$ 2,781 at December 31, 2014) according with a loss of ThUS$ 45,628 (ThUS$ 11,620 at December 31, 2014) to offset against future years tax benefits.

 

Deferred tax expense and current income taxes:

 

		For the period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Current tax expense
Current tax expense			92,916				97,782				73,611
Adjustment to previous period’s current tax			(395	)			(2,151	)			(561	)
Total current tax expense, net			92,521				95,631				73,050
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences			(270,904	)			196,676				(92,863	)
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness			-				97				(256	)
Total deferred tax expense, net			(270,904	)			196,773				(93,119	)
Income tax expense			(178,383	)			292,404				(20,069	)

 

 

Composition of income tax expense (income):

 

		For the period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Current tax expense, net, foreign			89,460				92,272				61,118
Current tax expense, net, Chile			3,061				3,359				11,932
Total current tax expense, net			92,521				95,631				73,050
Deferred tax expense, net, foreign			(280,445	)			168,049				(112,047	)
Deferred tax expense, net, Chile			9,541				28,724				18,928
Deferred tax expense, net, total			(270,904	)			196,773				(93,119	)
Income tax expense			(178,383	)			292,404				(20,069	)

 

Profit before tax by the legal tax rate in Chile (22.5% and 21% at December 31, 2015 and 2014, respectively)

 

		For the period ended												For the period ended
		December 31,												December 31,
		2015				2014				2013				2015				2014				2013
		ThUS$				ThUS$				ThUS$				%				%				%
Tax expense using the legal rate (*)			(89,472	)			6,805				(61,035	)			22.50				21.00				20.00
Tax effect by change in tax rate (*)			-				150,210				-				-				463.55				-
Tax effect of rates in other jurisdictions			(21,803	)			112,563				(34,287	)			5.48				347.37				11.24
Tax effect of non- taxable operating revenues			(106,381	)			(60,960	)			(24,004	)			26.75				(188.12	)			7.87
Tax effect of disallowable expenses			38,677				88,643				98,211				(9.73	)			273.55				(32.18	)
Other increases (decreases) in legal tax charge			596				(4,857	)			1,046				(0.15	)			(14.99	)			(0.34	)
Total adjustments to tax expense using the legal rate			(88,911	)			285,599				40,966				22.35				881.36				(13.41	)
Tax expense using the effective rate			(178,383	)			292,404				(20,069	)			44.85				902.36				6.59

 

(*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that 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.

 

 

Deferred taxes related to items charged to net equity:

 

		For the period ended
		December 31,
		2015				2014
		ThUS$				ThUS$
Aggregate deferred taxation of components of other comprehensive income			(17,192	)			40,227
Tax effect by change legal tax rate in other comprehensive income (*)			-				7,752
Aggregate deferred taxation related to items charged to net equity			(992	)			(3,389	)
Tax effect by change legal tax rate in net equity (*)			-				(2,708	)

 

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

 

NOTE 18 - OTHER FINANCIAL LIABILITIES

 

The composition of Other financial liabilities is as follows:

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Current
(a) Interest bearing loans			1,510,146				1,397,382
(b) Derivatives not recognized as a hedge			-				1,190
(c) Hedge derivatives			134,089				226,043
Total current			1,644,235				1,624,615
Non-current
(a) Interest bearing loans			7,516,257				7,360,685
(c) Hedge derivatives			16,128				28,327
Total non-current			7,532,385				7,389,012

 

 

(a) Interest bearing loans

 

Obligations with credit institutions and debt instruments:

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Current
Loans to exporters			387,409				327,278
Bank loans			80,188				98,711
Guaranteed obligations			591,148				502,938
Other guaranteed obligations			32,513				31,798
Subtotal bank loans			1,091,258				960,725
Obligation with the public			10,999				21,206
Financial leases			324,859				364,514
Other loans			83,030				50,937
Total current			1,510,146				1,397,382
Non-current
Bank loans			564,128				415,667
Guaranteed obligations			4,122,995				3,827,018
Other guaranteed obligations			-				32,492
Subtotal bank loans			4,687,123				4,275,177
Obligation with the public (1)			1,294,882				1,111,481
Financial leases			1,015,779				1,344,520
Other loans			518,473				629,507
Total non-current			7,516,257				7,360,685
Total obligations with financial institutions			9,026,403				8,758,067

 

(1) On June 9, 2015 LATAM Airlines Group S.A. has issued and placed on the international market under Rule 144-A and Regulation S of the securities laws of the United States of America, unsecured long-term bonds in the amount of US$ 500,000,000, maturing 2020, at interest rate of 7.25% per annum.

 

As reported in the Essential Matter of May 20 and June 5, 2015, the Issuance and placement of the Bonds 144-A shall be: (i) finance the repurchase, conversion and redemption of secured long-term bonds issued by the company TAM Capital 2 Inc., under Rule 144-A and Regulation S of the securities laws of the United States of America, maturing 2020; (ii) in the event there is any remnant fund other general corporate purposes. The aforementioned bonds TAM Capital 2 Inc. were redeemed in whole (US$ 300,000,000) through a process of exchange for new bonds dated June 9, 2015 and then the remaining bonds were redeemed by running the prepay dated June 18, 2015.

 

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

 

 

Currency balances that make the interest bearing loans:

 

		As of				As of
		December 31,				December 31,
		2015				2014
Currency		ThUS$				ThUS$
Argentine peso			-				39,053
Brazilian real			3,387				53,410
Chilean peso (U.F.)			210,423				187,614
Euro			-				547
US Dollar			8,812,593				8,477,443
Total			9,026,403				8,758,067

 

 

Préstamos que devengan intereses por tramos de vencimiento a131 de diciembre de 2015

Nombre empresa deudora: LATAM Airlines Group S.A. y Filiales, Rut 89.862.200-2, Chile.

 

												Nominal values																								Accounting values
																More than				More than				More than																More than				More than				More than
												Up to				90 days				one to				three to				More than				Total				Up to				90 days				one to				three to				More than				Total
				Creditor								90				to one				three				five				five				nominal				90				to one				three				five				five				accounting						Effective				Nominal
Tax No.		Creditor		country				Currency				days				year				years				years				years				value				days				year				years				years				years				value				Amortization		rate				rate
												ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA			Chile				US$				100,000				-				-				-				-				100,000				100,183				-				-				-				-				100,183			At Expiration			1.00				1.00
97.036.000-K		SANTANDER			Chile				US$				100,000				-				-				-				-				100,000				100,067				-				-				-				-				100,067			At Expiration			1.44				1.44
97.030.000-7		ESTADO			Chile				US$				55,000				-				-				-				-				55,000				55,088				-				-				-				-				55,088			At Expiration			1.05				1.05
97.004.000-5		CHILE			Chile				US$				50,000				-				-				-				-				50,000				50,006				-				-				-				-				50,006			At Expiration			1.42				1.42
97,003,000-K		BANCO DO BRASIL			Chile				US$				70,000				-				-				-				-				70,000				70,051				-				-				-				-				70,051			At Expiration			1.18				1.18
97.951.000-4		HSBC			Chile				US$				12,000				-				-				-				-				12,000				12,014				-				-				-				-				12,014			At Expiration			0.66				0.66
Bank loans
97.023.000-9		CORPBANCA			Chile				UF				17,631				52,893				105,837				34,774				-				211,135				18,510				52,892				104,385				34,635				-				210,422			Quarterly			4.18				4.18
0-E		BLADEX			U.S.A.				US$				-				7,500				27,500				15,000				-				50,000				134				7,500				27,125				14,875				-				49,634			Semiannual			4.58				4.58
0-E		DVB BANK SE			U.S.A.				US$				-				-				153,514				-				-				153,514				14				-				153,514				-				-				153,528			Quarterly			1.67				1.67
97.036.000-K		SANTANDER			Chile				US$				-				-				226,712				-				-				226,712				650				-				226,712				-				-				227,362			Quarterly			2.24				2.24
Obligations with the public
0-E		BANK OF YORK			U.S.A.				US$				-				-				-				500,000				-				500,000				2,383				-				-				486,962				-				489,345			At Expiration			7.77				7.25
Guaranteed obligations
0-E		CREDIT AGRICOLE			France				US$				29,633				88,188				204,722				54,074				12,410				389,027				30,447				88,189				203,286				54,074				12,410				388,406			Quarterly			1.83				1.66
0-E		BNP PARIBAS			U.S.A.				US$				8,162				25,012				70,785				75,028				140,410				319,397				9,243				25,012				70,335				74,917				140,407				319,914			Quarterly			2.29				2.22
0-E		WELLS FARGO			U.S.A.				US$				30,895				93,511				255,536				264,770				536,039				1,180,751				34,933				93,511				227,704				252,054				525,257				1,133,459			Quarterly			2.27				1.57
0-E		WILMINGTON TRUST			U.S.A.				US$				-				48,264				85,183				90,694				451,555				675,696				5,691				48,263				81,867				88,977				448,016				672,814			Quarterly			4.25				4.25
0-E		CITIBANK			U.S.A.				US$				17,042				51,792				143,168				150,792				254,208				617,002				18,545				51,792				133,740				146,362				249,406				599,845			Quarterly			2.40				1.64
97.036.000-K		SANTANDER			Chile				US$				5,233				15,862				43,552				45,416				49,606				159,669				5,514				15,862				41,434				44,599				49,281				156,690			Quarterly			1.47				0.93
0-E		BTMU			U.S.A.				US$				2,714				8,250				22,801				24,007				39,182				96,954				2,897				8,250				21,336				23,376				38,789				94,648			Quarterly			1.82				1.22
0-E		APPLE BANK			U.S.A.				US$				1,333				4,055				11,211				11,828				19,715				48,142				1,478				4,056				10,483				11,513				19,515				47,045			Quarterly			1.72				1.12
0-E		US BANK			U.S.A.				US$				14,483				43,948				120,924				126,550				285,134				591,039				17,232				43,948				102,607				117,968				277,195				558,950			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK			U.S.A.				US$				4,767				14,667				32,449				25,826				58,989				136,698				5,342				14,666				32,448				25,826				58,989				137,271			Quarterly			3.40				3.40
0-E		NATIXIS			France				US$				11,698				35,914				97,434				83,289				241,088				469,423				12,351				35,914				97,434				83,289				241,088				470,076			Quarterly			2.08				2.05
0-E		HSBC			U.S.A.				US$				1,374				4,180				11,533				12,112				24,384				53,583				1,504				4,180				11,533				12,112				24,384				53,713			Quarterly			2.40				1.59
0-E		PK AIRFINANCE			U.S.A.				US$				1,882				5,846				17,171				19,744				17,871				62,514				1,937				5,846				17,171				19,744				17,871				62,569			Monthly			2.04				2.04
0-E		KFW IPEX-BANK			Germany				US$				653				2,028				5,314				3,958				1,640				13,593				655				2,028				5,314				3,958				1,640				13,595			Quarterly			2.45				2.45
-		SWAP Aviones llegados			-				US$				502				1,360				2,521				765				-				5,148				502				1,360				2,521				765				-				5,148			Quarterly			-				-
Other guaranteed obligations
0-E		DVB BANK SE			U.S.A.				US$				8,054				24,438				-				-				-				32,492				8,075				24,438				-				-				-				32,513			Quarterly			2.32				2.32
Financial leases
0-E		ING			U.S.A.				US$				8,108				23,191				36,868				26,831				-				94,998				8,894				23,191				36,066				26,682				-				94,833			Quarterly			5.13				4.57
0-E		CREDIT AGRICOLE			France				US$				1,666				5,131				7,158				-				-				13,955				1,700				5,131				7,158				-				-				13,989			Quarterly			1.28				1.28
0-E		CITIBANK			U.S.A.				US$				4,687				14,447				41,726				36,523				-				97,383				5,509				14,447				40,684				36,330				-				96,970			Quarterly			6.40				5.67
0-E		PEFCO			U.S.A.				US$				15,246				46,858				108,403				22,407				-				192,914				16,536				46,858				106,757				22,324				-				192,475			Quarterly			5.37				4.77
0-E		BNP PARIBAS			U.S.A.				US$				9,956				30,678				81,373				31,100				-				153,107				10,494				30,678				79,983				30,958				-				152,113			Quarterly			4.08				3.64
0-E		WELLS FARGO			U.S.A.				US$				4,519				13,784				38,531				41,238				23,556				121,628				4,919				13,784				37,247				40,819				23,486				120,255			Quarterly			3.98				3.54
0-E		DVB BANK SE			U.S.A.				US$				4,567				13,873				14,127				-				-				32,567				4,625				13,873				14,127				-				-				32,625			Quarterly			2.06				2.06
0-E		BANC OF AMERICA			U.S.A.				US$				674				2,096				-				-				-				2,770				676				2,096				-				-				-				2,772			Monthly			1.41				1.41
Other loans
0-E		BOEING			U.S.A.				US$				-				-				151,362				-				-				151,362				2,294				-				151,363				-				-				153,657			At Expiration			1.80				1.80
0-E		CITIBANK (*)			U.S.A.				US$				19,361				60,251				174,178				196,210				-				450,000				20,485				60,251				174,178				192,932				-				447,846			Quarterly			6.00				6.00
		Total											611,840				738,017				2,291,593				1,892,936				2,155,787				7,690,173				641,578				738,016				2,218,512				1,846,051				2,127,734				7,571,891

 

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

 

 

Interest-bearing loans due in installments to December 31, 2015

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

 

												Nominal values																								Accounting values
																More than				More than				More than																More than				More than				More than
												Up to				90 days				one to				three to				More than				Total				Up to				90 days				one to				three to				More than				Total
				Creditor								90				to one				three				five				five				nominal				90				to one				three				five				five				accounting						Effective				Nominal
Tax No.		Creditor		country				Currency				days				year				years				years				years				value				days				year				years				years				years				value				Amortization		rate				rate
												ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Préstamos bancarios
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ			Holland				US$				115				356				1,031				1,162				689				3,353				132				356				1,031				1,162				689				3,370			Monthly			6.01				6.01
Obligaciones con el público
0-E		THE BANK OF NEW YORK			U.S.A.				US$				-				-				300,000				-				500,000				800,000				7,506				1,110				301,722				5,171				501,027				816,536			At Expiration			8.17				8.00
Arrendamientos financieros
0-E		AFS INVESTMENT IXLLC			U.S.A.				US$				1,972				6,085				17,540				17,908				-				43,505				2,176				6,085				17,540				17,908				-				43,709			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL			U.S.A.				US$				3,370				10,397				20,812				15,416				-				49,995				3,461				10,396				20,813				15,416				-				50,086			Monthly			1.43				1.43
0-E		CREDIT AGRICOLE-CIB			U.S.A.				US$				4,500				-				-				-				-				4,500				4,528				-				-				-				-				4,528			Quarterly			3.25				3.25
0-E		DVB BANK SE			U.S.A.				US$				118				355				282				-				-				755				120				355				282				-				-				757			Monthly			1.64				1.64
0-E		GENERAL ELECTRIC CAPITAL CORPORATION			U.S.A.				US$				3,654				11,137				8,970				-				-				23,761				3,697				11,137				8,970				-				-				23,804			Monthly			1.25				1.25
0-E		KFW IPEX-BANK			Germany				US$				3,097				6,401				15,186				12,215				-				36,899				3,163				6,401				15,186				12,215				-				36,965			Monthly/Quarterly			1.72				1.72
0-E		NATIXIS			France				US$				2,505				5,387				17,359				19,682				70,087				115,020				3,476				5,387				17,360				19,682				70,088				115,993			Quarterly/Semiannual			3.85				3.85
0-E		PK AIRFINANCE US, INC.			U.S.A.				US$				1,276				21,769				-				-				-				23,045				1,316				21,769				-				-				-				23,085			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.			Luxemburg				US$				383				1,101				2,617				14,267				-				18,368				418				1,101				2,617				14,267				-				18,403			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH			Italy				US$				8,148				25,003				71,311				208,024				-				312,486				9,552				25,003				71,311				208,024				-				313,890			Quarterly			3.63				3.55
0-E		BANCO IBM S.A			Brazil				BRL				217				651				860				-				-				1,728				217				651				860				-				-				1,728			Monthly			14.14				14.14
0-E		HP FINANCIAL SERVICE			Brazil				BRL				168				529				185				-				-				882				169				529				185				-				-				883			Monthly			10.02				10.02
0-E		SOCIETE GENERALE			France				BRL				85				256				434				-				-				775				85				256				434				-				-				775			Monthly			14.14				14.14
		Total											29,608				89,427				456,587				288,674				570,776				1,435,072				40,016				90,536				458,311				293,845				571,804				1,454,512
		Total consolidado											641,448				827,444				2,748,180				2,181,610				2,726,563				9,125,245				681,594				828,552				2,676,823				2,139,896				2,699,538				9,026,403

 

 

 

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
												More than				More than				More than																More than				More than				More than
								Up to				90 days				one to				three to				More than				Total				Up to				90 days				one to				three to				More than				Total
				Creditor				90				to one				three				five				five				nominal				90				to one				three				five				five				accounting						Effective				Nominal
Tax No.		Creditor		country		Currency		days				year				years				years				years				value				days				year				years				years				years				value				Amortization		rate				rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chile		US$			100,000				-				-				-				-				100,000				100,058				-				-				-				-				100,058			At expiration			0.40				0.40
97.036.000-K		SANTANDER		Chile		US$			45,000				-				-				-				-				45,000				45,040				-				-				-				-				45,040			At expiration			0.34				0.34
97.030.000-7		ESTADO		Chile		US$			55,000				-				-				-				-				55,000				55,022				-				-				-				-				55,022			At expiration			0.52				0.52
97.006.000-6		BCI		Chile		US$			100,000				-				-				-				-				100,000				100,140				-				-				-				-				100,140			At expiration			0.47				0.47
76.645.030-K		ITAU		Chile		US$			15,000				-				-				-				-				15,000				15,018				-				-				-				-				15,018			At expiration			0.65				0.65
97.951.000-4		HSBC		Chile		US$			12,000				-				-				-				-				12,000				12,000				-				-				-				-				12,000			At expiration			0.50				0.50
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			14,242				42,725				113,934				17,367				-				188,268				15,542				42,725				112,160				17,187				-				187,614			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			-				17,542				-				-				-				17,542				122				17,542				-				-				-				17,664			Monthly			31.00				31.00
0-E		BBVA		Argentina		ARS			-				21,050				-				-				-				21,050				339				21,050				-				-				-				21,389			Monthly			33.00				33.00
97.036.000-K		BBVA		Chile		US$			-				-				282,967				-				-				282,967				928				-				282,967				-				-				283,895			Quarterly			2.33				2.33
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		US$			17,225				52,658				105,594				62,209				35,883				273,569				17,745				52,658				105,594				62,209				35,883				274,089			Quarterly			1.68				1.43
0-E		BNP PARIBAS		U.S.A.		US$			7,815				24,005				67,806				73,475				178,116				351,217				8,940				24,005				67,248				73,287				178,078				351,558			Quarterly			2.13				2.04
0-E		WELLS FARGO		U.S.A.		US$			30,351				91,866				251,040				260,112				669,599				1,302,968				34,771				91,866				219,808				245,026				653,056				1,244,527			Quarterly			2.26				1.57
0-E		CITIBANK		U.S.A.		US$			16,624				50,489				139,491				146,931				330,579				684,114				18,154				50,489				128,993				141,745				323,754				663,135			Quarterly			2.24				1.49
97.036.000-K		SANTANDER		Chile		US$			5,127				15,545				42,646				44,472				72,551				180,341				5,418				15,545				40,183				43,413				71,879				176,438			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,649				8,042				22,221				23,393				51,340				107,645				2,838				8,042				20,557				22,621				50,668				104,726			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,296				3,952				10,919				11,516				25,707				53,390				1,448				3,952				10,094				11,131				25,366				51,991			Quarterly			1.63				1.03
0-E		US BANK		U.S.A.		US$			14,158				42,960				118,206				123,705				349,129				648,158				17,169				42,960				97,791				113,644				337,272				608,836			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			4,552				14,031				39,791				24,725				72,180				155,279				5,190				14,031				39,791				24,726				72,180				155,918			Quarterly			3.25				3.25
0-E		NATIXIS		France		US$			9,739				29,807				84,884				87,304				242,496				454,230				10,278				29,807				84,884				87,304				242,496				454,769			Quarterly			1.86				1.81
0-E		HSBC		U.S.A.		US$			1,340				4,082				11,249				11,820				30,514				59,005				1,474				4,082				11,249				11,820				30,514				59,139			Quarterly			2.29				1.48
0-E		PK AirFinance		U.S.A.		US$			1,755				5,452				16,014				18,412				28,088				69,721				1,810				5,452				16,014				18,412				28,088				69,776			Monthly			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.

 

  

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
												More than				More than				More than																More than				More than				More than
								Up to				90 days				one to				three to				More than				Total				Up to				90 days				one to				three to				More than				Total
				Creditor				90				to one				three				five				five				nominal				90				to one				three				five				five				accounting						Effective				Nominal
Tax No.		Creditor		country		Currency		days				year				years				years				years				value				days				year				years				years				years				value				Amortization		rate				rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
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 IXLLC		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		WACAPOULEASING 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

   

 

(b)

Derivatives not recognized as a hedge

 

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

 

(c)

Hedge derivatives

 

																		Total hedge
		Current liabilities								Non-current liabilities								derivatives
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Accrued interest from the last date of interest rate swap			4,329				5,173				-				-				4,329				5,173
Fair value of interest rate derivatives			33,518				26,395				16,128				28,327				49,646				54,722
Fair value of fuel derivatives			56,424				157,233				-				-				56,424				157,233
Fair value of foreign currency derivatives			39,818				37,242				-				-				39,818				37,242
Total hedge derivatives			134,089				226,043				16,128				28,327				150,217				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				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Cross currency swaps (CCS) (1)			(49,311	)			(38,802	)
Interest rate options (2)			-				1
Interest rate swaps (3)			(44,085	)			(58,758	)
Fuel collars (4)			6,293				(32,772	)
Fuel swap (5)			(56,424	)			(122,678	)
Currency forward US$/GBP$ (6)			7,432				-
Currency options US$/EUR$ (6)			1,438				-
Currency options R$/US$ (6)			933				-
Currency options CLP$/US$ (6)			85				-

 

(1)

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

 

 

(2)

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

(3)

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

(4)

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

(5)

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

(6)

Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate US$/GBP, US$/EUR, R$/US$ and CLP$/US$. 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 12 months from the consolidated statement of financial position date, meanwhile in the case of interest rate hedging, the hedges will impact results over the life of the related loans, which are valid initially 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 period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Debit (credit) recognized in comprehensive income during the period			80,387				(163,993	)			128,166
Debit (credit) transferred from net equity to income during the period			(151,244	)			(151,520	)			(18,688	)

 

 

NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Current
(a) Trade and other accounts payables			1,025,574				1,196,100
(b) Accrued liabilities at the reporting date			458,383				293,273
Total trade and other accounts payables			1,483,957				1,489,373

 

(a)

Trade and other accounts payable:

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Trade creditors			758,783				924,105
Leasing obligation			18,784				37,322
Other accounts payable			248,007				234,673
Total			1,025,574				1,196,100

 

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Boarding Fee			175,900				193,263
Aircraft Fuel			148,612				290,109
Airport charges and overflight			94,139				102,111
Handling and ground handling			88,629				55,503
Land services			80,387				47,103
Other personnel expenses			72,591				114,245
Professional services and advisory			63,302				65,445
Suppliers’ technical purchases			52,160				64,799
Marketing			45,997				54,885
Services on board			32,993				24,642
Leases, maintenance and IT services			25,558				34,029
Crew			23,834				12,403
Aircraft and engines leasing			19,146				37,322
Distribution system			17,531				3,293
Achievement of goals			15,386				12,197
Maintenance			18,573				14,757
Aviation insurance			7,655				4,749
Communications			6,731				6,447
Others			36,450				58,798
Total trade and other accounts payables			1,025,574				1,196,100

 

(b)

Liabilities accrued:

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Aircraft and engine maintenance			246,454				121,946
Accrued personnel expenses			108,058				130,382
Accounts payable to personnel (*)			81,368				16,407
Others accrued liabilities			22,503				24,538
Total accrued liabilities			458,383				293,273

 

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

 

 

NOTE 20 - OTHER PROVISIONS

 

Other provisions:

 

		Current liabilities								Non-current liabilities								Total Liabilities
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Provision for contingencies (1)
Tax contingencies			1,297				320				350,418				607,371				351,715				607,691
Civil contingencies			1,476				11,870				37,555				47,355				39,031				59,225
Labor contingencies			149				221				15,648				23,064				15,797				23,285
Other			-				-				11,910				15,351				11,910				15,351
Provision for European Commision investigation (2)			-				-				8,966				9,999				8,966				9,999
Total other provisions (3)			2,922				12,411				424,497				703,140				427,419				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 December 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.

 

 

Movement of provisions:

 

						European
		Legal				Commission
		claims				Investigation(*)				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			1,355,581				10,865				1,366,446
Increase in provisions			65,107				-				65,107
Provision used			(57,192	)			-				(57,192	)
Difference by subsidiaries conversion			(170,452	)			-				(170,452	)
Reversal of provision			(53,459	)			-				(53,459	)
Exchange difference			(831	)			484				(347	)
Closing balance as of December 31, 2013			1,138,754				11,349				1,150,103
Opening balance as of January 1, 2014			1,138,754				11,349				1,150,103
Increase in provisions			42,792				-				42,792
Provision used			(27,597	)			-				(27,597	)
Difference by subsidiaries conversion			(132,092	)			-				(132,092	)
Reversal of provision			(315,288	)			-				(315,288	)
Exchange difference			(1,017	)			(1,350	)			(2,367	)
Closing balance as of December 31, 2014			705,552				9,999				715,551
Opening balance as of January 1, 2015			705,552				9,999				715,551
Increase in provisions			54,675				-				54,675
Provision used			(19,522	)			-				(19,522	)
Difference by subsidiaries conversion			(220,266	)			-				(220,266	)
Reversal of provision			(100,740	)			-				(100,740	)
Exchange difference			(1,246	)			(1,033	)			(2,279	)
Closing balance as of December 31, 2015			418,453				8,966				427,419

 

Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), in the amount of US$ 61 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 December 31, 2015 is disclosed in Note 30, at case No. 2001.51.01.012530-0.

 

 

(*) 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 done 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 you can find 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. On December 16, 2015 the Court European resolved the appeal and annulled the European Commission. This ruling may be appealed by the European Commission.The procedural stage at December 31, 2015 is disclosed in Note 30, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries in European Commission Court.

 

 

NOTE 21 - OTHER NON-FINANCIAL LIABILITIES

 

		Current liabilities								Non-current liabilities								Total Liabilities
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Deferred revenues (*)			2,423,703				2,565,391				272,130				355,353				2,695,833				2,920,744
Sales tax			10,379				38,160				-				-				10,379				38,160
Retentions			33,125				52,567				-				-				33,125				52,567
Others taxes			11,211				18,880				-				-				11,211				18,880
Other sundry liabilities			11,615				10,388				-				48				11,615				10,436
Total other non-financial liabilities			2,490,033				2,685,386				272,130				355,401				2,762,163				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, aiming to operate activities of accumulation 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.

 

NOTE 22 - EMPLOYEE BENEFITS

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Retirements payments			42,117				36,523
Resignation payments			8,858				5,556
Other obligations			14,296				32,023
Total liability for employee benefits			65,271				74,102

 

(a)

The movement in retirements and resignation payments and other obligations:

 

						Increase (decrease)												Actuarial
		Opening				current service				Benefits				Change				(gains)				Currency				Closing
		balance				provision				paid				of model				losses				translation				balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			38,095				9,866				(2,295	)			-				-				-				45,666
From January 1 to December 31, 2014			45,666				1,507				(2,466	)			29,395				-				-				74,102
From January 1 to December 31, 2015			74,102				(13,609	)			(3,824	)			-				14,631				(6,029	)			65,271

   

The principal assumptions used in the calculation to the provision in Chile are presented below:

 

		As of
		December 31,
Assumptions		2015				2014
Discount rate			4.84	%			4.49	%
Expected rate of salary increase			4.50	%			4.50	%
Rate of turnover			6.16	%			6.16	%
Mortality rate			RV-2009				RV-2009
Inflation rate			2.92	%			2.92	%
Retirement age of women			60				60
Retirement age of men			65				65

 

The discount rate is determined by reference to free risk 20 years Central Bank of Chile BCP bond. Mortality table RV – 2009, established by Chilean Superintendency of Securities and Insurance and inflation rate performance curve of Central Bank of Chile instruments long term BCU and BCP.

 

The obligation is determined based on the actuarial value of the accrued cost of the benefit and it is sensibility to main actuarial assumptions used for the calculation. The Following is a sensitivity analysis based on increased (decreased) on the discount rate, increased wages, rotation and inflation:

 

		Effect on the liability
		As of
		December 31,
		2015
		ThUS$
Discount rate
Change in the accrued liability an closing for increase in 100 p.b.			(4,669	)
Change in the accrued liability an closing for decrease of 100 p.b.			5,345
Rate of wage growth
Change in the accrued liability an closing for increase in 100 p.b.			5,309
Change in the accrued liability an closing for decrease of 100 p.b.			(4,725	)

 

 

(b)

The liability for short-term:

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Profit-sharing and bonuses (*)			81,368				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
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Salaries and wages			1,631,320				1,656,565				1,720,513
Short-term employee benefits			171,366				361,328				452,158
Termination benefits			51,684				84,179				67,508
Other personnel expenses			218,435				248,030				252,590
Total			2,072,805				2,350,102				2,492,769

 

NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
Aircraft and engine maintenance			371,419				506,312
Fleet financing (JOL)			35,042				59,148
Provision for vacations and bonuses			10,365				9,595
Other accounts payable			-				1,945
Other sundry liabilities			224				454
Total accounts payable, non-current			417,050				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 December 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.

 

(b)

Subscribed and paid shares

 

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

 

			Nro. Of
Movement of authorized shares			shares
Autorized shares as of January 1, 2014			551,847,819
No movement of autorized shares at December 31, 2014			-
Authorized shares as of December 31, 2014			551,847,819
Autorized shares as of January 1, 2015			551,847,819
No movement of autorized shares at December 31, 2015			-
Authorized shares as of December 31, 2015			551,847,819

 

Movement fully paid shares

 

						Movement
						value				Cost of issuance
						of shares				and placement				Paid- in
		N° of				(1)				of shares (2)				Capital
		shares				ThUS$				ThUS$				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 December 31, 2014			545,547,819				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 December 31, 2015			-				-				-				-
Paid shares as of December 31, 2015			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 December 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)).

 

 

(c)

Treasury stock

 

At December 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:

 

														Deferred tax
						Stock								by tax effect
		Opening				option				Deferred				of change in legal rate				Closing
Periods		balance				plan				tax				(Tax reform) (*)				balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			5,574				18,877				(3,440	)			-				21,011
From January 1 to December 31, 2014			21,011				14,728				(3,389	)			(2,708	)			29,642
From January 1 to December 31, 2015			29,642				8,924				(2,919	)			-				35,647

 

(*) 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.

 

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

 

(e)

Other sundry reserves

 

Movement of Other sundry reserves:

 

						Transactions								Capitalization
						with				Cost of issuance				share issuance
		Opening				non-controlling				and placement				and placement				Legal				Closing
Periods		balance				interest				of shares				cost				reserves				balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			2,666,682				(1,950	)			(5,443)	(1)			179	(2)			(1,668	)			2,657,800
From January 1 to December 31, 2014			2,657,800				(21,526	)			-				-				(526	)			2,635,748
From January 1 to December 31, 2015			2,635,748				-				-				-				(1,069	)			2,634,679

 

(1)

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

 

(2)

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

 

 

Balance of Other sundry reserves comprises the following:

 

		As of				As of				As of
		December 31,				December 31,				December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Higher value for TAM S.A. share exchange (1)			2,665,692				2,665,692				2,665,692
Reserve for the adjustment to the value of fixed assets (2)			2,620				2,620				2,620
Transactions with non-controlling interest (3)			(25,891	)			(25,891	)			(5,355	)
Cost of issuance and placement of shares			(5,264	)			(5,264	)			(5,264	)
Others			(2,478	)			(1,409	)			107
Total			2,634,679				2,635,748				2,657,800

 

(1)

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

 

(2)

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

 

(3)

The balance at December 31, 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).

 

 

(f)

Reserves with effect in other comprehensive income.

 

Movement of Reserves with effect in other comprehensive income:

 

										Actuarial gain
		Currency				Cash flow				or loss on defined
		translation				hedging				benefit plans
		reserve				reserve				reserve				Total
		ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			3,574				(140,730	)			-				(137,156	)
Derivatives valuation gains (losses)			-				124,227				-				124,227
Deferred tax			-				(18,005	)			-				(18,005	)
Difference by subsidiaries conversion			(593,565	)			-				-				(593,565	)
Closing balance as of December 31, 2013			(589,991	)			(34,508	)			-				(624,499	)
Opening balance as of January 1, 2014			(589,991	)			(34,508	)			-				(624,499	)
Derivatives valuation gains (losses)			-				(165,231	)			-				(165,231	)
Deferred tax			-				40,647				-				40,647
Tax effect on deferred tax by change legal tax rate (Tax reform)(*)			-				7,752				-				7,752
Difference by subsidiaries conversion			(603,880	)			-				-				(603,880	)
Closing balance as of December 31, 2014			(1,193,871	)			(151,340	)			-				(1,345,211	)
Opening balance as of January 1, 2015			(1,193,871	)			(151,340	)			-				(1,345,211	)
Derivatives valuation gains (losses)			-				82,730				-				82,730
Deferred tax			-				(21,900	)			-				(21,900	)
Actuarial reserves by employee benefit plans			-				-				(14,627	)			(14,627	)
Deferred tax actuarial IAS by employee benefit plans			-				-				3,910				3,910
Difference by subsidiaries conversion			(1,382,170	)			-				-				(1,382,170	)
Closing balance as of December 31, 2015			(2,576,041	)			(90,510	)			(10,717	)			(2,677,268	)

 

(*) 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.

 

(f.3)

Actuarial gain or loss on defined benefit plans reserve

 

These originate from the actuarial calculation Company has developed from December 31, 2015, the effect of a negative reserve amounting to ThUS$ 10,717 net of deferred taxes.

 

(g)

Retained earnings

 

Movement of Retained earnings:

 

						Result				Other
		Opening				for the				increase				Closing
Periods		balance				period				(decreases)				balance
		ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			1,076,136				(281,114	)			281				795,303
From January 1 to December 31, 2014			795,303				(259,985	)			872				536,190
From January 1 to December 31, 2015			536,190				(219,274	)			1,034				317,950

 

(h)

Dividends per share

 

As of December 31, 2013
		Final dividend
Description of dividend		2012
Date of dividend			04-29-2013
Amount of the dividend (ThUS$)			3,288
Number of shares among which the dividend is distributed			483,547,819
Dividend per share (US$)			0.0068

 

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

 

As of December 31, 2015 and December 31, 2014, have not been paid dividends and have not been provisioned minimum mandatory dividends.

 

 

NOTE 25 - REVENUE

 

The detail of revenues is as follows:

 

		For the periods ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Passengers LAN			4,241,918				4,464,761				4,731,296
Passengers TAM			4,168,696				5,915,361				6,330,262
Cargo			1,329,431				1,713,379				1,862,979
Total			9,740,045				12,093,501				12,924,537

 

NOTE 26 - COSTS AND EXPENSES BY NATURE

 

(a)

Costs and operating expenses

 

The main operating costs and administrative expenses are detailed below:

 

		For the periods ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Aircraft fuel			2,651,067				4,167,030				4,414,249
Other rentals and landing fees			1,109,826				1,327,238				1,373,061
Aircraft rentals			525,134				521,384				441,077
Aircraft maintenance			437,235				452,731				477,086
Comissions			302,774				365,508				408,671
Passenger services			295,439				300,325				331,405
Other operating expenses			1,293,320				1,487,672				1,644,827
Total			6,614,795				8,621,888				9,090,376

 

 

(b)

Depreciation and amortization

 

Depreciation and amortization are detailed below:

 

		For the period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Depreciation (*)			897,670				943,731				985,317
Amortization			36,736				47,533				56,413
Total			934,406				991,264				1,041,730

 

(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at December 31, 2015 is ThUS$ 345,192 and ThUS$ 373,183 for the period of 2014.

 

(c)

Personnel expenses

 

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

 

(d)

Financial costs

 

The detail of financial costs is as follows:

 

		For the period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Bank loan interest			331,511				330,298				382,969
Financial leases			42,855				72,242				76,343
Other financial instruments			38,991				27,494				3,212
Total			413,357				430,034				462,524

 

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

 

(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.

 

 

Additionally, in December 2015 a negative impact on results of US$ 80 million before tax associated with the output of the rest of the A330 fleet, including engines and technical materials is recognized. These expenses are recognized at “Other Gain and Loses” of the Consolidated Statement of Income by Function.

 

NOTE 27 - OTHER INCOME, BY FUNCTION

 

Other income by function is as follows:

 

		For the period ended
		December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Tours			113,225				109,788				105,449
Aircraft leasing			46,547				31,104				36,614
Customs and warehousing			25,457				22,368				24,281
Duty free			16,408				18,076				14,748
Maintenance			11,669				15,421				12,392
Other miscellaneous income			172,475				180,888				148,081
Total			385,781				377,645				341,565

 

NOTE 28 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

 

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

 

The functional currency is defined 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:

 

		As of				As of
		December 31,				December 31,
Current assets		2015				2014
		ThUS$				ThUS$
Cash and cash equivalents			182,089				213,161
Argentine peso			11,611				22,121
Brazilian real			8,810				2,365
Chilean peso			17,739				30,453
Colombian peso			1,829				1,622
Euro			10,663				9,639
U.S. dollar			112,422				50,652
Strong bolivar			2,986				63,236
Other currency			16,029				33,073
Other financial assets, current			124,042				73,030
Argentine peso			108,592				40,939
Brazilian real			1,263				-
Chilean peso			563				25,781
Colombian peso			1,167				-
Euro			1				1
U.S. dollar			12,128				6,008
Strong bolivar			22				43
Other currency			306				258

 

 

		As of				As of
		December 31,				December 31,
Current assets		2015				2014
		ThUS$				ThUS$
Other non - financial assets, current			126,130				59,700
Argentine peso			14,719				7,326
Brazilian real			15,387				148
Chilean peso			10,265				18,073
Colombian peso			486				1,415
Euro			1,983				2,523
U.S. dollar			61,577				5,751
Strong bolivar			-				330
Other currency			21,713				24,134
Trade and other accounts receivable, current			247,229				543,257
Argentine peso			30,563				61,291
Brazilian real			11,136				33,267
Chilean peso			55,169				128,780
Colombian peso			1,195				4,394
Euro			53,200				38,764
U.S. dollar			6,743				75,876
Strong bolivar			7,225				4,895
Other currency			81,998				195,990
Accounts receivable from related entities, current			183				299
Chilean peso			183				299
Tax current assets			22,717				21,605
Argentine peso			2,371				2,300
Brazilian real			5				2
Chilean peso			3,615				5,773
Colombian peso			1,275				1,995
Euro			14				21
U.S. dollar			1,394				467
Other currency			14,043				11,047
Total current assets			702,390				911,052
Argentine peso			167,856				133,977
Brazilian real			36,601				35,782
Chilean peso			87,534				209,159
Colombian peso			5,952				9,426
Euro			65,861				50,948
U.S. Dollar			194,264				138,754
Strong bolivar			10,233				68,504
Other currency			134,089				264,502

 

 

		As of				As of
		December 31,				December 31,
Non-current assets		2015				2014
		ThUS$				ThUS$
Other financial assets, non-current			20,767				36,715
Argentine peso			22				57
Brazilian real			1,478				1,050
Chilean peso			77				1,100
Colombian peso			162				203
Euro			614				4,243
U.S. dollar			16,696				29,238
Other currency			1,718				824
Other non - financial assets, non-current			60,215				18,803
Argentine peso			169				45
Brazilian real			4,454				-
U.S. dollar			50,108				1
Other currency			5,484				18,757
Accounts receivable, non-current			9,404				10,569
Chilean peso			4,251				5,413
U.S. dollar			5,000				5,000
Other currency			153				156
Deferred tax assets			2,632				2,613
Colombian peso			336				256
U.S. dollar			-				3
Other currency			2,296				2,354
Total non-current assets			93,018				68,700
Argentine peso			191				102
Brazilian real			5,932				1,050
Chilean peso			4,328				6,513
Colombian peso			498				459
Euro			614				4,243
U.S. dollar			71,804				34,242
Other currency			9,651				22,091

 

  

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
		As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,
Current liabilities		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
Other financial liabilities, current			94,199				71,436				141,992				173,416
Chilean peso			54,655				15,542				52,892				42,725
Euro			-				547				-				-
U.S. dollar			39,544				55,347				89,100				130,691
Trade and other accounts payables, current			575,967				421,165				19,261				20,875
Argentine peso			20,772				38,740				2,072				-
Brazilian real			37,572				14,330				16				13
Chilean peso			40,219				25,017				10,951				11,502
Colombian peso			5,271				13,652				155				187
Euro			5,275				35,937				618				8,266
U.S. dollar			310,565				175,298				839				827
Strong bolivar			2,627				5,261				-				-
Other currency			153,666				112,930				4,610				80
Accounts payable to related entities, current			447				56				-				-
Chilean peso			83				29				-				-
U.S. dollar			22				27				-				-
Other currency			342				-				-				-
Other provisions, current			-				-				460				-
Chilean peso			-				-				24				-
Other currency			-				-				436				-
Tax liabilities, current			36				268				9,037				-
Argentine peso			-				-				9,036				-
Chilean peso			-				268				-				-
U.S. dollar			27				-				-				-
Other currency			9				-				1				-

 

  

		Up to 90 days								91 days to 1 year
		As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,
Current liabilities		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
Other non-financial liabilities, current			40,431				126,953				1				158
Argentine peso			(2,387	)			5,698				-				-
Brazilian real			4,292				959				5				46
Chilean peso			32,228				18,798				-				-
Colombian peso			145				4,670				-				-
Euro			2,706				6,400				-				-
U.S. dollar			(3,233	)			44,728				(5	)			111
Strong bolivar			2,490				227				-				-
Other currency			4,190				45,473				1				1
Total current liabilities			711,080				619,880				170,751				194,449
Argentine peso			18,385				44,438				11,108				-
Brazilian real			41,864				15,289				21				59
Chilean peso			127,185				59,656				63,867				54,227
Colombian peso			5,416				18,322				155				187
Euro			7,981				42,884				618				8,266
U.S. dollar			346,925				275,400				89,934				131,629
Strong bolivar			5,117				5,488				-				-
Other currency			158,207				158,403				5,048				81

 

 

		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
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
Non-current liabilities		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Other financial liabilities, non-current			561,217				625,406				328,480				171,288				571,804				1,088,218
Chilean peso			104,385				112,161				34,635				17,186				-				-
U.S. dollar			456,832				513,245				293,845				154,102				571,804				1,088,218
Accounts payable, non-current			239,029				474,955				168				2,316				8				-
Chilean peso			8,058				4,938				168				2,316				8				-
U.S. dollar			229,005				468,184				-				-				-				-
Other currency			1,966				1,833				-				-				-				-
Other provisions, non-current			27,712				16,660				-				-				68				-
Argentine peso			797				454				-				-				-				-
Brazillian real			11,009				146				-				-				-				-
Chilean peso			-				36				-				-				-				-
Colombian peso			198				-				-				-				-				-
Euro			8,966				9,999				-				-				-				-
U.S. dollar			6,742				6,025				-				-				68				-
Provisions for employees benefits, non-current			56,306				822				-				-				-				-
Chilean peso			56,306				-				-				-				-				-
U.S. dollar			-				822				-				-				-				-
Total non-current liabilities			884,264				1,117,843				328,648				173,604				571,880				1,088,218
Argentine peso			797				454				-				-				-				-
Brazilian real			11,009				146				-				-				-				-
Chilean peso			168,749				117,135				34,803				19,502				8				-
Colombian peso			198				-				-				-				-				-
Euro			8,966				9,999				-				-				-				-
U.S. dollar			692,579				988,276				293,845				154,102				571,872				1,088,218
Other currency			1,966				1,833				-				-				-				-

 

  

		As of				As of
		December 31,				December 31,
General summary of foreign currency:		2015				2014
		ThUS$				ThUS$
Total assets			795,408				979,752
Argentine peso			168,047				134,079
Brazilian real			42,533				36,832
Chilean peso			91,862				215,672
Colombian peso			6,450				9,885
Euro			66,475				55,191
U.S. dollar			266,068				172,996
Strong bolivar			10,233				68,504
Other currency			143,740				286,593
Total liabilities			2,666,623				3,193,994
Argentine peso			30,290				44,892
Brazilian real			52,894				15,494
Chilean peso			394,612				250,520
Colombian peso			5,769				18,509
Euro			17,565				61,149
U.S. dollar			1,995,155				2,637,625
Strong bolivar			5,117				5,488
Other currency			165,221				160,317
Net position
Argentine peso			137,757				89,187
Brazilian real			(10,361	)			21,338
Chilean peso			(302,750	)			(34,848	)
Colombian peso			681				(8,624	)
Euro			48,910				(5,958	)
U.S. dollar			(1,729,087	)			(2,464,629	)
Strong bolivar			5,116				63,016
Other currency			(21,481	)			126,276

 

  

(b)

Exchange differences

 

Exchange differences recognized in the income statement, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2015 and 2014, generated a debit of ThUS$ 467,896 and ThUS$ 130,201, respectively.

 

Exchange differences recognized in equity as reserves for currency translation differences for the period ended December 31, 2015 and 2014, represented a debit of ThUS$ 1,409,439 and ThUS$ 650,439, respectively.

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
Argentine peso			12.97				8.55
Brazilian real			3.98				2.66
Chilean peso			710.16				606.75
Colombian peso			3,183.00				2,389.50
Euro			0.92				0.82
Strong bolivar			198.70				12.00
Australian dollar			1.37				1.22
Boliviano			6.85				6.86
Mexican peso			17.34				14.74
New Zealand dollar			1.46				1.28
Peruvian Sol			3.41				2.99
Uruguayan peso			29.88				24.25

 

 

NOTE 29 - EARNINGS / (LOSS) PER SHARE

 

		For the period ended
		December 31,
Basic earnings / (loss) per share		2015				2014				2013
Earnings / (loss) attributable to owners of the parent (ThUS$)			(219,274	)			(259,985	)			(281,114	)
Weighted average number of shares, basic			545,547,819				545,547,819				487,930,977
Basic earnings / (loss) per share (US$)			(0.40193	)			(0.47656	)			(0.57613	)

 

		For the period ended
		December 31,
Diluted earnings / (loss) per share		2015				2014				2013
Earnings / (loss) attributable to owners of the parent (ThUS$)			(219,274	)			(259,985	)			(281,114	)
Weighted average number of shares, basic			545,547,819				545,547,819				487,930,977
Weighted average number of shares, diluted			545,547,819				545,547,819				487,930,977
Diluted earnings / (loss) per share (US$)			(0.40193	)			(0.47656	)			(0.57613	)

 

In the calculation of diluted earnings per share have not been considered the compensation plan disclosed in Note 33 (a.1), because the average market price is lower than the price of options and these have an effect antidilutive.

 

  

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 (*)
										MUS$
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. Conversations have begun with the representatives in the Variglog liquidation process to work towards a settlement regarding the funds in Switzerland.		17,100 Plus interests and costs
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.		The 2nd Room of the Federal Appellate Court confirmed another extension of the precautionary measure that will expire March 16, 2016. ORSNA did not file an extraordinary remedy, so the measure is in effect through that date.		-0-

 

 

(ii)

Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
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 MUS$ 8.966. This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. The European Court decided on the appeal in December 2015 and overturned the Commission’s Decision. It is likely that the European Commission will appeal that decision.		On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011. On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction). The European Court of Justice overturned the Commission’s Decision on December 16, 2015 because of discrepancies. The European Commission can appeal this decision. We are waiting to see how the Commission reacts.		8,966
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, the Netherlands and Germany.		Cases are in the uncovering evidence stage.		-0-

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
Aerolinhas Brasileiras S.A.		Federal Justice.		0008285-53.2015.403.6105		An action seeking to quash a decision and petioning for early protection in order to obgain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge.		This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines:  (i) ABSA: MUS$8,712; (ii) Norberto Jochmann:      MUS$ 167; (iii) Hernan Merino: MUS$ 84; (iv) Felipe Meyer :MUS$ 84. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper.  This obligation had also been stayed by the court of federal justice in this process.  Awaiting CADE’s statement.		8,712
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.		We have been waiting since August 21, 2015 for a statement by Serasa on TAM’s letter of indemnity and a statement by the Union.		9,298
Tam Linhas Aéreas S.A.		Department of Federal Revenue of Brazil		19515.721155/2014-15		Alleged irregularities in the SAT payments for the periods 01/2009 to 12/2009, 01/2010 to 12/2010 and 01/2011 to 12/2012.		We filed a voluntary remedy on which a judgment is pending since June 30, 2015.		21,212

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
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 MMU$ 61 The disclosure prohibition motions entered by the parties against the ruling that overturned the decision did not suffice. The lawsuit was returned by the Brazilian Department of Justice (MPF) on November 23, 2015.		75,514
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.		18,550
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. The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of Tax Appeals (CARF) on June 8, 2015. We are awaiting a judgment.		36,174

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
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.		The case proceedings were referred to the Superior Courts for a judgment on the complaint filed against the decision not allowing the Union’s extraordinary remedy and for a judgment on the special remedy in relation to fees.  A judgment is pending since December 1, 2015.		8,514
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.		We are awaiting notification of the judgment on admissibility of the special remedy filed by the Prosecutor General of the Department of the Treasury, in addition to the notification regarding the decision rendered by CARF.		8,210
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.		6,604
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.		6,857

 

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
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.		Through proceedings dated June 5, 2014, the First Civil Overflow Court Room became aware of the process in Colombia and sent a copy of prior pleas submitted to the plaintiffs by the defendant. In December 2015, the 1st Civil Court in the Provisional Circuit was designated the 45th Permanent Civil Court in the Circuit and the proceedings were presented to the Judge’s chambers on December 7, 2015.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. On October 13, 2015, Regional One petitioned that the Court reopen the case. Lan Colombia Airlines presented its arguments against this petition and a decision by the Court is pending.		12,443

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
Tam Linhas Aéreas S.A.		Department of Finance of the State of Rio de Janeiro.		03.43129-0		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.		The Treasury remedy was denied on November 11, 2015. Publication of the ruling is pending.		58,300
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.  A judgment is pending in the case before the Curitiba/PR Tax Court since December 9, 2015.		45,044
Tam Linhas Aéreas S.A.		Department of Finance of the State of Sao Paulo.		4.037.054		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  a waiting   for    judgment  of  the TIT / SP.		6,632
Tam Viagens S.A.		Department of Finance to the municipality of São Paulo.		67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965		A claim was filed alleging infraction and seeking a fine because of a deficient basis for calculation of the service tax (ISS) because the company supposedly made incorrect deductions.		We received notice of the petition on December 22, 2015.  A record of our objection is pending.		44,561
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.		-0-

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
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.		87,156
Tam Linhas Aereas S.A.		1° Civil Court of Comarca of Bauru/SP.		0049304-37.2009.8.26.0071/1		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.		9,563
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.		16,164
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.		-0-

 

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed (*)
										MUS$
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A.		Internal Revenue Service.		17502-2012-0082		Certificate of 2006 Income Tax, items where CEDT is disregarded. They are requesting certification of branch expenses, ARC fees for which no income tax withholding was made by the payer, etc. These proceedings began in 2012.		A decision was rendered on the appeal for a review and payment was made to avoid interest accrual. This payment was also contested before the Court. An accounting analysis was made on October 18, 2015 before the Court with experts on behalf of SRI and the Company. The expert opinions were issued. We are awaiting a final decision by the Court.		12,505
TAM Linhas Aéreas S.A.		Recife Labor Court.		0000070-22.2013.5.06.0017		An action filed by the Public Ministry of Labor seeking that the Company refrain from practicing moral harassment, religious, social, sexual and other discrimination.		The case is just now beginning.		-0-
TAM Linhas Aéreas S.A.		São Carlos Labor Court.		0010476-12.2015.5.15.0008		Action filed by the union seeking additional hazard pay for maintenance (MRO) employees (São Carlos).		The case is just now beginning and calculations are being prepared.		-0-

 

-

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. Mr. Ignacio Cueto has reached an agreement with the Securities and Exchange Commission (“SEC”), which includes the consent to pay a penalty in the amount of US$75.000 and to a cease-and-desist order concerning the books and records and internal control provisions of the U.S. Securities Exchange Act of 1934.The Company, on its part, continues cooperating with the respective authorities in the aforementioned investigation. Presently the Company cannot predict the results in the matter; nor estimate or range the potential losses or risks that may eventually come resulting from the way in which this matter is finally resolved.

 

-

In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 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.

 

(*) The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 87 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

 

 

NOTE 31 - COMMITMENTS

 

(a.1)

Loan covenants

 

With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F 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.

 

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

 

At December 31, 2015, the Company is in compliance with all indicators detailed above.

 

(a.2) Fleet financing commitments to receive

 

On May 29, 2015, The Company has issued and placed debt securities denominated Enhanced Equipment Trust Certificates (“EETC”) for an aggregate amount of US $ 1,020,823,000 (the “Certificates”) in accordance with the following:

 

•

The Certificates were issued and placed in the international market under Rule 144-A and Regulation S of the securities laws of the United States of America by pass-through trusts (“Trusts”).

 

•

This offer consists of class A Certificates that will have an interest rate of 4.2% per annum, with an estimated distribution date of November 15, 2027, while the Class B Certificates will have an interest rate of 4.5% per annum, with an estimated distribution date of November 15, 2023.

 

•

Trusts will use the proceeds of the placement, which will initially remain in escrow with a first class bank, to acquire “Equipment Notes” to be issued by four separate special purpose entities, each of which is wholly owned by LATAM (each an “Issuer”).

 

•

Each Issuer will use the proceeds from the sale of the Equipment Notes and the initial payment under each Lease (as such term is defined below) to finance the acquisition of eleven new Airbus A321-200, two Airbus A350-900s and four Boeing 787 -9, whose deliveries are scheduled between July 2015 and March 2016 (the “Aircrafts”).

 

•

Each of the Issuers will lease the acquired Aircrats to LATAM according to a finance lease (“Lease”), who may in turn sublease the Aircraft under operating sub-lease agreements.

 

•

Based on the above, LATAM will recognise these Equipment Notes as debt upon delivery of each Aircraft.

 

 

•

The Certificates have not been registered under the United Stated Securities Act of 1933 or under applicable securities laws in any other jurisdiction. Consequently, the Certificates have been offered and sold to persons reasonably believed to qualify as institutional investors in accordance with Rule 144-A under the Securities Act of the United States, and other non-residents of the United States in transactions outside the United States under Regulation S of the normative body.

 

At December 31, 2015 the escrow of EETC is ThUS$ 345,127 corresponding to 6 aircraft by receive.

 

(b)           Commitments under operating leases as lessee

 

Details of the main operating leases are as follows:

 

				As of				As of
				December 31,				December 31,
Lessor		Aircraft		2015				2014
Aircraft 76B-26329 Inc.		Boeing 767			1				1
Aircraft 76B-27615 Inc.		Boeing 767			1				1
Aircraft 76B-28206 Inc.		Boeing 767			1				1
Aviación 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
AWAS 4839 Trust		Airbus A320			-				1
AWAS 5125 Trust		Airbus A320			1				1
AWAS 5178 Limited		Airbus A320			1				1
AWAS 5234 Trust		Airbus A320			1				1
Baker & Spice Aviation Limited		Airbus A320			1				2
Bank Of America		Airbus A321			3				-
BOC Aviation Pte. Ltd.		Airbus A320			-				1
CIT Aerospace International		Airbus A320			2				2
Delaware Trust Company, National Association		Bombardier Dhc8-200			-				5
ECAF I 1215 DAC		Airbus A320			1				-
ECAF I 2838 DAC		Airbus A320			1				-
ECAF I 40589 DAC		Boeing 777			1				-
Eden Irish Aircr Leasing MSN 1459		Airbus A320			1				1
GECAS Sverige Aircraft Leasing Worldwide AB		Airbus A320			3				6
GFL Aircraft Leasing Netherlands B.V.		Airbus A320			1				1
International Lease Finance Corporation		Boeing 767			1				1
JSA Aircraft 38484, LLC		Boeing 787			1				-
Magix Airlease Limited		Airbus A320			2				2

 

 

				As of				As of
				December 31,				December 31,
Lessor		Aircraft		2015				2014
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
NBB Cuckoo Co., Ltd		Airbus A321			1				-
NBB Grosbeak Co., Ltd		Airbus A321			1				-
NBB-6658 Lease Partnership		Airbus A321			1				-
NBB-6670 Lease Partnership		Airbus A321			1				-
Orix Aviation Systems Limited		Airbus A320			2				2
RBS Aerospace Limited		Airbus A320			-				6
SASOF II (J) Aviation Ireland Limited		Airbus A319			1				1
Shenton Aircraft Leasing Limited		Airbus A320			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			7				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			7				6
Wells Fargo Bank Northwest National Association		Airbus A330			2				5
Wells Fargo Bank Northwest National Association		Boeing 767			3				3
Wells Fargo Bank Northwest National Association		Boeing 777			6				7
Wells Fargo Bank Northwest National Association		Boeing 787			7				3
Wilmington Trust Company		Airbus A319			1				1
Zipdell Limited		Airbus A320			-				1
Total					106				107

 

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

 

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

 

		As of				As of
		December 31,				December 31,
		2015				2014
		ThUS$				ThUS$
No later than one year			513,748				511,624
Between one and five years			1,281,454				1,202,440
Over five years			858,095				441,419
Total			2,653,297				2,155,483

 

 

The minimum lease payments charged to income are the following:

 

						For the period ended
						December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Minimum operating lease payments			525,134				521,384				441,077
Total			525,134				521,384				441,077

 

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.

 

In 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.

 

In the second quarter of 2015, two Airbus A321-200 aircraft and one Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A320-200 aircraft and two Airbus A330-200 aircraft were returned.

 

In the third quarter of 2015, five Airbus A321-200 aircraft and one Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A330-200 aircraft was returned.

 

In the fourth quarter of 2015, one Airbus A330-200 aircraft was 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 margins agreed in the leasing agreements, a cost that must be assumed by the lessee. The lessee should also contract insurance for each aircraft to cover associated risks and the amounts of these assets. Regarding rental payments, these are unrestricted and may not be netted against other accounts receivable or payable between the lessor and lessee.

 

 

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

 

						Value				Release
Creditor Guarantee		Debtor		Type		ThUS$				date
GE Capital Aviation Services Limited		Lan Cargo S.A.		Two letter of credit			7,530			Aug 17, 2016
GE Capital Aviation Services Limited		LATAM Airlines Group S.A.		Nine letter of credit			37,178			Jan 10, 2016
International Lease Finance Corp		LATAM Airlines Group S.A.		Four letter of credit			1,700			Feb 4, 2016
ORIX Aviation System Limited		LATAM Airlines Group S.A.		One letter of credit			3,255			Aug 31, 2016
SMBC Aviation Capital Ltd.		LATAM Airlines Group S.A.		Two letter of credit			11,133			Aug 14, 2016
Engine Lease Finance Corporation		LATAM Airlines Group S.A.		One letter of credit			4,750			Dec 8, 2016
Banc of America		LATAM Airlines Group S.A.		Three letter of credit			1,044			Sep 6, 2016
Wells Fargo Bank		LATAM Airlines Group S.A.		Eight letter of credit			13,160			Feb 9, 2016
Wells Fargo Bank		Tam Linhas Aéreas S.A.		One letter of credit			5,500			Jul 14, 2016
CIT Aerospace International		Tam Linhas Aéreas S.A.		Three letter of credit			12,375			Oct 6, 2016
RBS Aerospace Limited		Tam Linhas Aéreas S.A.		One letter of credit			12,357			Oct 2, 2016
							109,982

 

(c) Other commitments

 

At December 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			2,050			Nov 14, 2016
American Alternative Insurance Corporation		LATAM Airlines Group S.A.		Four letter of credit			3,140			Apr 5, 2016
Citibank N.A.		LATAM Airlines Group S.A.		One letter of credit			16,400			Jan 31, 2016
Comisión Europea		LATAM Airlines Group S.A.		One letter of credit			8,862			Feb 11, 2016
Deutsche Bank A.G.		LATAM Airlines Group S.A.		Three letter of credit			40,000			Mar 31, 2016
Dirección Generalde Aeronáutica Civil		LATAM Airlines Group S.A.		Sixty six letter of credit			15,687			Jan 31, 2016
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador		LATAM Airlines Group S.A.		One letter of credit			5,500			Jun 17, 2016
Metropolitan Dade County		LATAM Airlines Group S.A.		Ten letter of credit			3,108			Mar 13, 2016
The Royal Bank of Scotland plc		LATAM Airlines Group S.A.		Two letter of credit			23,000			Jan 8, 2016
Washington International Insurance		LATAM Airlines Group S.A.		Four letter of credit			2,810			Apr 5, 2016
8ª Vara Federal da Subseção de Campinas SP		Tam Linhas Aéreas S.A.		One insurance policies guarantee			10,762			May 19, 2016
Conselho Administrativo de Conselhos Federais		Tam Linhas Aéreas S.A.		One insurance policies guarantee			5,595			Oct 20, 2021
Fundação de Proteão de Defesa do Consumidor Procon		Tam Linhas Aéreas S.A.		Two insurance policies guarantee			2,465			May 16, 2016
Juizo da 6ª Vara de Execuções Fiscais Federal de Campo Grande/MS		Tam Linhas Aéreas S.A.		Two insurance policies guarantee			19,402			Jan 4, 2016
União Federal Vara Comarca de DF		Tam Linhas Aéreas S.A.		Two insurance policies guarantee			2,250			Nov 9, 2020
							161,031

 

 

NOTE 32 - TRANSACTIONS WITH RELATED PARTIES

 

(a)

Details of transactions with related parties as follows:

 

																Transaction amount
				Nature of				Nature of								with related parties
				relationship with		Country		related parties								As of December 31,
Tax No.		Related party		related parties		of origin		transactions		Currency		2015				2014				2013
												ThUS$				ThUS$				ThUS$
96.810.370-9		Inversiones Costa Verde Ltda. y CP A.		Related director		Chile		Tickets sales		CLP			15				31				17
96.847.880-K		Technical Training Latam S.A.		Associate (*)		Chile		Leases as lessor		CLP			-				209				253
								Training services received		CLP			-				(785	)			(1,186	)
								Training services received		US$			-				(743	)			(1,146	)
65.216.000-K		Comunidad Mujer		Related director		Chile		Tickets sales		CLP			2				9				10
								Services provided for advertising		CLP			(10	)			(11	)			(11	)
78.591.370-1		Bethia S.A and subsidiaries		Related director		Chile		Services received of cargo transport		CLP			(259	)			(646	)			2,697
								Other revenue		CLP			30				-				-
								Services received from National and International Courier		CLP			(227	)			(496	)			(382	)
								Other services received		CLP			-				(10	)			(478	)
								Settlement of Property, plant and equipment (1)		CLP			-				-				14,217
								Commitments made on behalf of the entity		CLP			-				-				(84	)
79.773.440-3		Transportes San Felipe S.A		Related director		Chile		Tickets sales		CLP			7				26				17
								Services received of transfer of passengers		CLP			(127	)			(70	)			(142	)
								Commitments made on behalf of the entity		CLP			-				-				(84	)
87.752.000-5		Granja Marina Tornagaleones S.A.		Common shareholder		Chile		Tickets sales		CLP			117				155				231
65.216.000-K		Viajes Falabella Ltda.		Related director		Chile		Sales commissions		CLP			(50	)			-				-
Foreign		Inversora Aeronáutica Argentina		Related director		Argentina		Revenue billboard advertising maintaining		ARS			1				12				9
								Leases as lessor		US$			(269	)			(334	)			(358	)
Foreign		Made In Everywhere Repr. Com. Distr. Ltda.		Related director		Brazil		Services received of transport		BRL			-				(2	)			-
Foreign		TAM Aviação Executiva e Taxi Aéreo S/A		Principal shareholder of the common matrix		Brazil		Revenue from services provided		BRL			-				-				485
								Services received		BRL			(56	)			(12	)			-
								Commitments made on behalf of the entity		BRL			-				-				(17	)
Foreign		Prismah Fidelidade S.A.		Joint Venture		Brazil		Professional counseling services received		BRL			-				(119	)			(499	)
Foreign		Jochmann P articipacoes Ltda.		Other related parties		Brazil		Services received		BRL			-				-				(27	)
Foreign		Consultoría Administrativa Profesional S.A. de C.V.		Associate		Mexico		Professional counseling services received		MXN			(1,191	)			-				-

 

(*) Subsidiary from October, 2014

 

 

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

 

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

 

(b)

Compensation of key management

 

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

 

						For the period ended
						December 31,
		2015				2014				2013
		ThUS$				ThUS$				ThUS$
Remuneration			17,185				19,507				15,148
Management fees			547				1,213				368
Non-monetary benefits			864				990				565
Short-term benefits			19,814				-				22,400
Share-based payments			10,811				16,086				17,709
Total			49,221				37,796				56,190

 

NOTE 33 - SHARE-BASED PAYMENTS

 

(a)

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

 

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

 

(a.1)

Compensation plan 2011

 

At a Special Shareholders Meeting held on December 21, 2011, the Company’s shareholders approved, among other matters, an increase of capital of which 4,800,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, pursuant to Article 24 of the Companies Law. In this compensation plan no member of the controlling group would be benefited.

 

 

The granting of options for the subscription and payment of shares has been formalized through conclusion of contracts of options to subscribe for shares, according to the proportions shown in the following schedule of accrual and is related to the permanence condition of the executive as employee of the Company at these dates for the exercise of the options:

 

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

 

		Number
		of share
		options
Share options in agreements of share- based payments, as of January 1, 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
Share options granted			406,000
Share options cancelled			(90,000	)
Share options in agreements of share- based payments, as of December 31, 2015			4,518,000

 

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 December 2015 corresponds to ThUS$ 10,811 (ThUS$ 12,900 at December 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 December 31, 2014		US$	15,47		US$	18,29			34.74	%		3.6 years			0	%			0.00696
As of December 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.

 

(b)

Subsidiaries compensation plans

 

(b.1)

Stock Options

 

TAM Linhas Aereas S.A. and Multiplus S.A., both subsidiaries of TAM S.A., have outstanding stock options at December 31, 2015, which amounted to 96,675 shares and 518,507 shares, respectively (at December 31, 2014, the distribution of outstanding stock options amounted to 637,400 for Multiplus S.A. and 96,675 shares TAM Linhas Aéreas S.A.).

 

TAM Linhas Aéreas S.A.

 

Description		4th Grant
Date		05-28-2010				Total
Outstanding option number
As December 31, 2014			96,675				96,675
Outstanding option number
As December 31, 2015			96,675				96,675

 

Multiplus S.A.

 

														4nd Extraordinary
Description		1st Grant				3rd Grant				4th Grant				Grant
Date		10-04-2010				03-21-2012				04-03-2013				11-20-2013				Total
Outstanding option number
As December 31, 2014			7,760				129,371				294,694				205,575				637,400
Outstanding option number
As December 31, 2015			-				102,621				255,995				159,891				518,507

 

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
		Accrued options								Non accrued options
		As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,
Company		2015				2014				2015				2014
TAM Linhas Aéreas S.A.			-				-				96,675				96,675
Multiplus S.A.			-				-				518,507				637,400

 

In accordance with IFRS 2 - Share-based payments, the fair value of the option must be recalculated and recorded as a liability of the Company once payment is made in cash (cash-settled). The fair value of these options was calculated using the “Black-Scholes-Merton” method, where the cases were updated with information LATAM Airlines Group S.A.. There is no value recorded in liabilities and in income at December 31, 2015 (at December 31, 2014 not exist value recorded in liabilities and the amount recognized in in incomes was ThUS$ 191).

 

(b.2)

Payments based on restricted stock

 

In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 ordinary, registered, book entry securities with no face value, issued by the Company to beneficiaries.

 

The quantity of restricted stock units was calculated based on employees’ expected remunerations divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to the restricted stock when the following conditions have been met:

 

a.        Compliance with the performance goal defined by this Council as return on Capital Invested.

 

b.        The Beneficiary must remain as an administrator or employee of the Company for the period running from the date of issue to the following dates described, in order to obtain rights over the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third) after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.

 

		Number
		shares in
		circulation
As of January 1, 2014			-
Granted			91,103
As of December 31, 2014			91,103
As of January 1, 2015			91,103
Granted			119,731
Not acquired due to breach of employment retention conditions			(34,924	)
As of December 31, 2015			175,910

 

 

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, seeking continuous improvement and contribution to the solution of global climate change problems has been made, 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 it is based on the aim of being a world leader in Climate Change and Eco-efficiency, which is implemented on the following objectives:

 

i.

Impact and Profitability:

-

Environmental Management System

-

Risk Management

-

Eco-efficiency

-

Sustainable Alternative Energy

 

ii.

Commitment and Recognition:

-

Internal Capacity Development

-

Transparency

-

Value Chain

-

Emissions Offsets

-

Recognition and Communications Projects

 

For 2015, 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 2015, we have worked in the following initiatives:

 

-

Advance in the implementation of an Environmental Management System for main operations, with an emphasis on Santiago and Miami. Achieving certification Environmental Management System ISO 14001 at its facility in Miami.

-

Certification of stage 2, the most advanced IATA Environmental Assestment (IEnvA), been the third airline in the world to achieve this certification.

-

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

-

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

 

 

-

Measurement and external verification of the Corporate Carbon Footprint.

 

It is highlighted that in the 2015 LATAM Airlines Group maintained its selection in the index Dow Jones Sustainability in the global category, being the only two airlines that belong to this select group.

 

As of December 31, 2015, the Environment Management spent US$ 150,700 (US$ 370,160 at December 31, 2014). The budget of the Environment Management for 2015 was US$ 324,460 (US$ 520,000 for 2014).

 

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

 

The Company announced on February 4, 2016 that Ignacio Cueto Plaza, CEO of LAN Airlines, has consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (SEC) concerning the books and records and internal controls provisions of the U.S. Securities Exchange Act of 1934.

 

·

The allegations set forth in the Order relate to an isolated matter which occurred in 2006 – 2007. As previously disclosed in LATAM’s public filings, the issue is related to consultant fee payments made by LAN Airlines S.A. to a consultant on labor matters in Argentina which were not accurately recorded in the Company’s accounting records. Ignacio Cueto consented to the Order and agreed to pay a $75,000 penalty to the SEC and to remain in compliance with LATAM’s compliance structure and internal accounting controls.

 

·

Over the past decade, since the occurrence of this event, the Company has implemented significant enhancements to its compliance structure and internal accounting controls.

 

The Company and its senior executives maintain a strong commitment to complying with all laws and regulations in all countries where the company operates. The Company has been cooperating with the investigation of the U.S. regulatory authorities and will continue to do so as necessary.

 

Subsequent to the closing date of the annual financial statements, at December 31, 2015, has occurred an important variation in the exchange rate (Central Bank of Brazil) R$/US$, from R$3.90 per US$ to R$ 3.62 per US$ at March 21, 2016, which represents a 7.22% appreciation of the Brazilian currency.

 

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

 

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at December 31, 2015, have been approved by the Board of Director’s in an extraordinary meeting held on March 21, 2016.

 

 

NOTE 36 - CONSOLIDATION SCHEDULE

 

In accordance with SEC rule SX 3-10 the Company is presenting consolidation schedules as Senior Notes issued by TAM Capital (issuer), a 100% subsidiary of TAM S.A., in 2007 are fully and unconditionally guaranteed by TAM S.A (guarantor) and by TAM Linhas Aéreas (guarantor) which is also a 100% subsidiary of TAM S.A.. The consolidation schedules separately present the financial information for LATAM Airlines Group S.A. (parent company), TAM S.A. (guarantor), TAM Linhas Aéreas S.A. (guarantor) and other consolidated subsidiaries of LATAM Airlines Group S.A. (non-guarantors).

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2015				2015				2015				2015				2015				2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Assets
Current assets
Cash and cash equivalents			301,109				859				67				142,439				309,023				-				753,497
Other financial assets			108,263				416				-				105,439				581,773				(144,543	)			651,348
Other non-financial assets			123,332				718				-				150,204				55,501				261				330,016
Trade and other accounts receivable			367,322				3,897				-				151,458				274,301				(4	)			796,974
Accounts receivable from related entities			451,061				1,072				82,218				533,629				1,049,892				(2,117,689	)			183
Inventories			146,241				-				-				75,238				3,429				-				224,908
Tax assets			15,711				5,824				-				11,264				31,216				-				64,015
Total current assets other than non-current assets (or disposal groups) classified as held for sale			1,513,039				12,786				82,285				1,169,671				2,305,135				(2,261,975	)			2,820,941
Non-current assets and disposal groups held for sale			609				-				-				277				1,074				-				1,960
Total current assets			1,513,648				12,786				82,285				1,169,948				2,306,209				(2,261,975	)			2,822,901
Non-current assets
Other financial assets			71,776				425,952				-				221,155				1,620				(631,045	)			89,458
Other non-financial assets			84,249				730				-				114,080				33,107				3,297				235,463
Accounts receivable			2,105				-				-				5,521				3,089				-				10,715
Accounts receivable from related parties			506,672				-				304,535				1				1,007,074				(1,818,282	)			-
Equity accounted investments			1,065,985				11,804				-				-				392,937				(1,470,726	)			-
Intangible assets other than goodwill			101,212				31,993				-				879,356				308,862				2				1,321,425
Goodwill			2,194,449				-				-				-				83,250				2,876				2,280,575
Property, plant and equipment			8,917,026				19				-				881,138				836,100				304,374				10,938,657
Current tax assets, long term portion			-				-				-				-				25,629				-				25,629
Deferred tax assets			-				15,747				-				311,059				82,901				(33,112	)			376,595
Total non-current assets			12,943,474				486,245				304,535				2,412,310				2,774,569				(3,642,616	)			15,278,517
Total assets			14,457,122				499,031				386,820				3,582,258				5,080,778				(5,904,591	)			18,101,418

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2015				2015				2015				2015				2015				2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Liabilities and shareholder’s equity
Current liabilities
Other financial liabilities			1,459,629				-				3,318				124,778				56,415				95				1,644,235
Trade and other accounts payable			398,351				722				-				624,410				452,436				8,038				1,483,957
Accounts payable to related parties			328,618				804				75,437				786,235				951,720				(2,142,367	)			447
Other provisions			29				-				-				10,776				2,894				(10,777	)			2,922
Tax liabilities			12,755				-				-				-				6,623				-				19,378
Other non-financial liabilities			1,404,126				558				-				588,839				496,542				(32	)			2,490,033
Total current liabilities			3,603,508				2,084				78,755				2,135,038				1,966,630				(2,145,043	)			5,640,972
Non-current liabilities
Other financial liabilities			5,785,018				-				299,775				527,207				927,846				(7,461	)			7,532,385
Accounts payable			129,759				-				-				229,006				58,285				-				417,050
Accounts payable to related parties			797,109				24,395				-				-				972,543				(1,794,047	)			-
Provision for losses on investments			518,975				-				-				-				19,343				(538,318	)			-
Other provisions			13,768				73				-				389,120				21,535				1				424,497
Deferred tax liabilities			478,596				-				-				151,950				153,957				27,062				811,565
Employee benefits			37,854				-				-				-				27,417				-				65,271
Other non-financial liabilities			236,000				-				-				36,130				-				-				272,130
Total non-current liabilities			7,997,079				24,468				299,775				1,333,413				2,180,926				(2,312,763	)			9,522,898
Total liabilities			11,600,587				26,552				378,530				3,468,451				4,147,556				(4,457,806	)			15,163,870
Equity
Share capital			2,545,705				1,289,676				111,123				1,371,505				728,944				(3,501,248	)			2,545,705
Retained earnings			317,950				(1,126,588	)			(102,833	)			(1,191,909	)			(219,031	)			2,640,361				317,950
Share premium			-				19,194				-				-				501,209				(520,403	)			-
Treasury shares			(178	)			-				-				-				-				-				(178	)
Other reserves			(6,942	)			290,197				-				(65,641	)			(81,070	)			(143,486	)			(6,942	)
Parent’s ownership interest			2,856,535				472,479				8,290				113,955				930,052				(1,524,776	)			2,856,535
Non-controlling interest			-				-				-				-				-				81,013				81,013
Total non-current liabilities			2,856,535				472,479				8,290				113,955				930,052				(1,443,763	)			2,937,548
Total liabilities			14,457,122				499,031				386,820				3,582,406				5,077,608				(5,901,569	)			18,101,418

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2014				2014				2014				2014				2014				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Assets
Current assets
Cash and cash equivalents			628,367				47				398				44,326				289,244				27,014				989,396
Other financial assets			135,336				1,951				-				85,376				531,958				(104,220	)			650,401
Other non-financial assets			53,427				1,055				-				129,562				88,297				(24,470	)			247,871
Trade and other accounts receivable			456,622				5,732				-				562,040				360,236				(5,795	)			1,378,835
Accounts receivable from related entities			184,626				1,506				-				226,225				1,140,972				(1,553,021	)			308
Inventories			153,891				-				-				105,315				6,833				-				266,039
Tax assets			20,866				12,368				-				26,660				45,839				(5,025	)			100,708
Total current assets other than non-current assets (or disposal groups) classified as held for sale			1,633,135				22,659				398				1,179,504				2,463,379				(1,665,517	)			3,633,558
Non-current assets and disposal groups held for sale			-				-				-				407				657				-				1,064
Total current assets			1,633,135				22,659				398				1,179,911				2,464,036				(1,665,517	)			3,634,622
Non-current assets
Other financial assets			48,805				-				-				34,366				1,815				-				84,986
Other non-financial assets			121,231				788				-				157,853				51,570				11,371				342,813
Accounts receivable			3,257				-				-				5,761				21,447				-				30,465
Accounts receivable from related parties			479,784				70				389,378				65,328				1,458,330				(2,392,890	)			-
Equity accounted investments			1,581,526				642,053				-				285,731				423,627				(2,932,937	)			-
Intangible assets other than goodwill			91,638				14,405				-				1,277,534				449,470				47,032				1,880,079
Goodwill			3,207,664				47,032				-				-				102,861				(44,156	)			3,313,401
Property, plant and equipment			8,363,122				34				-				1,351,003				809,316				249,601				10,773,076
Current tax assets, long term portion			-				-				-				-				17,663				-				17,663
Deferred tax assets			-				30,875				-				366,596				97,080				(87,228	)			407,323
Total non-current assets			13,897,027				735,257				389,378				3,544,172				3,433,179				(5,149,207	)			16,849,806
Total assets			15,530,162				757,916				389,776				4,724,083				5,897,215				(6,814,724	)			20,484,428

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2014				2014				2014				2014				2014				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Liabilities and shareholder’s equity
Current liabilities
Other financial liabilities			1,290,302				-				3,319				205,763				125,231				-				1,624,615
Trade and other accounts payable			463,620				397				-				534,957				491,646				(1,247	)			1,489,373
Accounts payable to related parties			452,777				279				-				104,380				991,944				(1,549,324	)			56
Other provisions			32				-				-				11,017				1,362				-				12,411
Tax liabilities			11,934				-				-				51				10,979				(5,075	)			17,889
Other non-financial liabilities			1,272,521				6,764				-				798,087				634,319				(26,305	)			2,685,386
Total current liabilities			3,491,186				7,440				3,319				1,654,255				2,255,481				(1,581,951	)			5,829,730
Non-current liabilities
Other financial liabilities			5,242,620				-				299,098				668,084				1,179,210				-				7,389,012
Accounts payable			37,582				-				-				492,519				78,015				(30,662	)			577,454
Accounts payable to related parties			1,139,256				36,742				69,051				293,232				856,727				(2,395,008	)			-
Provision for losses on investments			423,358				-				-				-				20,524				(443,846	)			36
Other provisions			14,225				108				-				660,336				28,435				-				703,104
Deferred tax liabilities			452,374				14,405				-				352,711				228,058				4,346				1,051,894
Employee benefits			32,665				-				-				-				25,459				15,978				74,102
Other non-financial liabilities			295,000				-				-				60,379				22				-				355,401
Total non-current liabilities			7,637,080				51,255				368,149				2,527,261				2,416,450				(2,849,192	)			10,151,003
Total liabilities			11,128,266				58,695				371,468				4,181,516				4,671,931				(4,431,143	)			15,980,733
Equity
Share capital			2,545,705				1,895,913				163,359				2,008,303				847,890				(4,915,465	)			2,545,705
Retained earnings			536,190				(1,651,990	)			(145,051	)			(1,285,733	)			(275,294	)			3,358,068				536,190
Share premium			-				28,216				-				-				457,897				(486,113	)			-
Treasury shares			(178	)			-				-				-				-				-				(178	)
Other reserves			1,320,179				427,082				-				(180,003	)			194,791				(441,870	)			1,320,179
Parent’s ownership interest			4,401,896				699,221				18,308				542,567				1,225,284				(2,485,380	)			4,401,896
Non-controlling interest			-				-				-				-				-				101,799				101,799
Total non-current liabilities			4,401,896				699,221				18,308				542,567				1,225,284				(2,383,581	)			4,503,695
Total liabilities			15,530,162				757,916				389,776				4,724,083				5,897,215				(6,814,724	)			20,484,428

 

 

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2015				2015				2015				2015				2015				2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Revenue			2,759,969				-				-				4,224,290				3,228,372				(472,586	)			9,740,045
Cost of sales			(2,670,774	)			-				-				(3,745,752	)			(2,928,504	)			1,708,321				(7,636,709	)
Gross margin			89,195				-				-				478,538				299,868				1,235,735				2,103,336
Other income			1,132,663				-				-				181,922				1,017,029				(1,945,833	)			385,781
Distribution costs			(287,089	)			-				-				(303,936	)			(346,840	)			154,561				(783,304	)
Administrative expenses			(325,567	)			(1,257	)			-				(337,064	)			(784,628	)			570,510				(878,006	)
Other expenses			(189,244	)			(951	)			(4	)			(24,325	)			(118,091	)			8,628				(323,987	)
Other gains/(losses)			(81,244	)			161				-				(33,019	)			45,423				13,399				(55,280	)
Gains (losses) from operating activities			338,714				(2,047	)			(4	)			(37,884	)			112,761				37,000				448,540
Financial income			9,222				1,472				14,986				58,670				65,700				(74,970	)			75,080
Financial costs			(296,205	)			-				(25,264	)			(62,918	)			(111,450	)			82,480				(413,357	)
Revenue and losses from associated companies			(217,530	)			(165,774	)			-				32,134				-				351,207				37
Exchange differences			(40,151	)			(10	)			4,680				(472,122	)			49,177				(9,470	)			(467,896	)
Resut for readjustable units			23				-				-				-				457				1				481
Income / (loss) before taxes			(205,927	)			(166,359	)			(5,602	)			(482,120	)			116,645				386,248				(357,115	)
Income tax expense / benefit			(13,347	)			(2,790	)			-				200,507				(37,385	)			31,398				178,383
NET INCOME / (LOSS) FOR THE YEAR			(219,274	)			(169,149	)			(5,602	)			(281,613	)			79,260				417,646				(178,732	)
Income / (loss) attributable to owners of the parent			(219,274	)			(169,149	)			(5,602	)			(281,613	)			79,260				377,104				(219,274	)
Income / (loss) attributable to non-controlling			-				-				-				-				-				40,542				40,542
NET INCOME / (LOSS)			(219,274	)			(169,149	)			(5,602	)			(281,613	)			79,260				417,646				(178,732	)
Total comprehensive income / (loss)			(1,551,330	)			(168,932	)			(4,162	)			(302,015	)			(57,568	)			544,400				(1,539,607	)
Comprehensive income / (loss) attributable to owners of the parent			(1,551,330	)			(168,932	)			(4,162	)			(302,015	)			(92,830	)			567,938				(1,551,331	)
Comprehensive income / (loss) attributable to non-controlling interest							-				-				-				35,262				(23,538	)			11,724
Total comprehensive income / (loss)			(1,551,330	)			(168,932	)			(4,162	)			(302,015	)			(57,568	)			544,400				(1,539,607	)

 

 

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2014				2014				2014				2014				2014				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Revenue			3,055,416				-				-				6,391,949				3,564,135				(917,999	)			12,093,501
Cost of sales			(3,075,475	)			(408	)			-				(5,202,839	)			(3,450,252	)			2,104,473				(9,624,501	)
Gross margin			(20,059	)			(408	)			-				1,189,110				113,883				1,186,474				2,469,000
Other income			1,014,024				-				-				20,891				1,253,142				(1,910,412	)			377,645
Distribution costs			(318,825	)			-				-				(397,445	)			(365,581	)			124,779				(957,072	)
Administrative expenses			(350,817	)			(3,423	)			-				(452,014	)			(850,026	)			675,620				(980,660	)
Other expenses			(197,055	)			(1,126	)			(9	)			(110,890	)			(122,798	)			30,857				(401,021	)
Other gains/(losses)			(71,175	)			(170	)			-				24,828				(122,589	)			202,630				33,524
Gains (losses) from operating activities			56,093				(5,127	)			(9	)			274,480				(93,969	)			309,948				541,416
Financial income			6,353				(732	)			13,789				46,414				134,249				(109,573	)			90,500
Financial costs			(297,138	)			(581	)			(25,083	)			(156,890	)			(106,994	)			156,652				(430,034	)
Equity accounted investments			86,715				179,647				-				(7,530	)			(4,280	)			(261,007	)			(6,455	)
Exchange differences			(88,909	)			339				2,198				(81,447	)			35,754				1,864				(130,201	)
Resut for readjustable units			-				-				-				-				7				-				7
Income / (loss) before taxes			(236,886	)			173,546				(9,105	)			75,027				(35,233	)			97,884				65,233
Income tax expense / benefit			(23,099	)			1,140				-				(33,461	)			(105,194	)			(131,790	)			(292,404	)
NET INCOME / (LOSS) FOR THE YEAR			(259,985	)			174,686				(9,105	)			41,566				(140,427	)			(33,906	)			(227,171	)
Income / (loss) attributable to owners of the parent			(259,985	)			174,686				(9,105	)			41,566				(140,427	)			(66,720	)			(259,985	)
Income / (loss) attributable to non-controlling			-				-				-				-				-				32,814				32,814
NET INCOME / (LOSS)			(259,985	)			174,686				(9,105	)			41,566				(140,427	)			(33,906	)			(227,171	)
Total comprehensive income / (loss)			(980,697	)			93,514				(9,105	)			101,097				(269,379	)			70,947				(993,623	)
Comprehensive income / (loss) attributable to owners of the parent			(980,697	)			93,514				(9,105	)			101,097				(269,379	)			83,874				(980,696	)
Comprehensive income / (loss) attributable to non-controlling interest							-				-				-				-				(12,927	)			(12,927	)
Total comprehensive income / (loss)			(980,697	)			93,514				(9,105	)			101,097				(269,379	)			70,947				(993,623	)

 

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2013				2013				2013				2013				2013				2013				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Revenue			3,293,992				-				-				6,608,718				3,853,047				(831,220	)			12,924,537
Cost of sales			(2,945,869	)			(3,957	)			-				(5,370,821	)			(3,493,775	)			1,760,258				(10,054,164	)
Gross margin			348,123				(3,957	)			-				1,237,897				359,272				929,038				2,870,373
Other income			900,146				-				-				41,769				1,249,990				(1,850,340	)			341,565
Distribution costs			(328,116	)			-				-				(438,251	)			(389,931	)			130,402				(1,025,896	)
Administrative expenses			(297,140	)			(19,015	)			-				(605,346	)			(917,953	)			703,339				(1,136,115	)
Other expenses			(173,866	)			(7,634	)			(27	)			(93,314	)			(142,092	)			8,230				(408,703	)
Other gains/(losses)			(42,122	)			(1,216	)			-				(180,872	)			(21,810	)			190,610				(55,410	)
Gains (losses) from operating activities			407,025				(31,822	)			(27	)			(38,117	)			137,476				111,279				585,814
Financial income			1,966				1,668				7,150				38,284				91,106				(67,346	)			72,828
Financial costs			(243,084	)			(449	)			(23,409	)			(142,500	)			(118,613	)			65,531				(462,524	)
Equity accounted investments			(358,929	)			(430,613	)			-				48,226				-				741,316				-
Revenue and losses from associated companies			(8,229	)			-				-				-				(3,599	)			13,782				1,954
Exchange differences			(56,159	)			88				(5,006	)			(421,117	)			19				1				(482,174	)
Resut for readjustable units			21				-				-				-				193				-				214
Income / (loss) before taxes			(257,389	)			(461,128	)			(21,292	)			(515,224	)			106,582				864,563				(283,888	)
Income tax expense / benefit			(23,725	)			2,689				-				105,903				(35,786	)			(29,012	)			20,069
NET INCOME/ (LOSS) FOR THE YEAR			(281,114	)			(458,439	)			(21,292	)			(409,321	)			70,796				835,551				(263,819	)
Income / (loss) attributable to owners of the parent			(281,114	)			(458,439	)			(21,292	)			(409,321	)			70,796				818,256				(281,114	)
Income / (loss) attributable to non-controlling			-				-				-				-				-				17,295				17,295
NET INCOME (LOSS)			(281,114	)			(458,439	)			(21,292	)			(409,321	)			70,796				835,551				(263,819	)
Total comprehensive income / (loss)			(768,457	)			(446,447	)			(21,292	)			(398,419	)			(14,050	)			863,809				(784,856	)
Comprehensive income / (loss) attributable to owners of the parent			(768,457	)			(446,447	)			(21,292	)			(398,419	)			(14,050	)			880,208				(768,457	)
Comprehensive income / (loss) attributable to non-controlling interest							-				-				-				-				(16,399	)			(16,399	)
Total comprehensive income / (loss)			(768,457	)			(446,447	)			(21,292	)			(398,419	)			(14,050	)			863,809				(784,856	)

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

		LATAM S.A.												TAM Linhas
		(parent company				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		and guarantor)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2015				2015				2015				2015				2015				2015				2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash flows from operating activities
Receipts from sales of goods and services			5,506,889				(17,705	)			-				5,442,905				5,041,794				(4,601,486	)			11,372,397
Other receipts from operating activities			73,596				-				-				-				14,641				-				88,237
Payments to suppliers for the supply of goods and services			(3,936,180	)			(392	)			(22,537	)			(3,853,193	)			(3,869,722	)			4,652,442				(7,029,582	)
Payments to and on behalf of employees			(389,722	)			(883	)			-				(922,865	)			(851,714	)			-				(2,165,184	)
Other payments for operating activities			(209,137	)			(70	)			-				9,241				(151,211	)			-				(351,177	)
Interest received			10,076				1,647				14,986				17,311				80,425				(81,071	)			43,374
Income taxes refunded (paid)			1,838				3,902				-				(255,152	)			191,449				-				(57,963	)
Other inflows (outflows) of cash			(153,925	)			(25,176	)			(4	)			(48,194	)			30,876				11,796				(184,627	)
Net cash flows from operating activities			903,435				(38,677	)			(7,555	)			390,053				486,538				(18,319	)			1,715,475
Cash flows from (used in) investing activities
Cash flows used to obtain control of subsidiaries or other businesses			-				432,360				-				-				(432,360	)			-				-
Other cash receipts from sales of equity or debt instruments of other entities			42,266				1,535				-				30,992				444,667				-				519,460
Other payments to acquire equity or debt instruments of other entities			(108,464	)			-				-				(81,332	)			(514,319	)			-				(704,115	)
Other proceeds selling the shares of profit of investments accounted for using the equit			-				(295,111	)			-				-				295,111				-				-
Loans to related parties			(63,326	)			-				-				-				(26,461	)			89,787				-
Proceeds from sale of property, plant and equipment			20,617				-				-				58,700				(22,200	)			-				57,117
Purchases of property, plant and equipment			(1,195,216	)			-				-				(194,464	)			10,943				(191,012	)			(1,569,749	)
Amounts raised from sale of intangible assets			-				29,444				-				-				(29,353	)			-				91
Purchases of intangible assets			(27,463	)			-				-				(11,869	)			(9,846	)			(3,271	)			(52,449	)
Proceeds from related parties			-				-				-				-				59,551				(59,551	)			-
Dividends received			4,889				-				-				-				4,211				(9,100	)			-
Other inflows (outflows) of cash			-				-				-				3,497				7,079				-				10,576
Net cash flows from investing activities			(1,326,697	)			168,228				-				(194,476	)			(212,977	)			(173,147	)			(1,739,069	)
Cash flows from (used in) financing activities
Proceeds from issue of shares			-				-				-				-				89,761				(89,761	)			-
Payments to acquire or redeem the entity’s shares			-				-				-				66				(319	)			253				-
Proceeds from term loans			1,487,939				-				-				-				150,031				153,514				1,791,484
Proceeds from short term loans			205,000				-				-				-				-				-				205,000
Loans from related parties			28,932				-				-				-				393,460				(422,392	)			-
Repayment of loans			(707,307	)			-				-				(440	)			(556,046	)			-				(1,263,793	)
Payments of finance lease liabilities			(169,700	)			-				-				(128,075	)			(33,024	)			(11,815	)			(342,614	)
Repayment of loans to related parties			(337,693	)			-				-				-				(49,809	)			387,502				-
Dividends Paid			(9	)			-				-				82,204				(125,181	)			7,954				(35,032	)
Interest paid			(277,233	)			-				-				(53,156	)			(151,124	)			97,865				(383,648	)
Other inflows (outflows) of cash			(95,541	)			-				-				8,250				7,369				(19,835	)			(99,757	)
Net cash flows from (used in) financing activities			134,388				-				-				(91,151	)			(274,882	)			103,285				(128,360	)
Net increase (decrease) in, cash and cash aquivalents before effect of exchange rate			(288,874	)			129,551				(7,555	)			104,426				(1,321	)			(88,181	)			(151,954	)
Effects of variation in the exchange rate on cash and cash equivalents			(38,384	)			(128,735	)			7,225				(7,056	)			83,005				-				(83,945	)
Net increase (decrease) in cash and cash equivalents			(327,258	)			816				(330	)			97,370				81,684				(88,181	)			(235,899	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			628,367				43				397				44,326				316,263				-				989,396
CASH AND CASH EQUIVALENTS AT END OF PERIOD			301,109				859				67				141,696				397,947				(88,181	)			753,497

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2014				2014				2014				2014				2014				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash flows from operating activities
Receipts from sales of goods and services			5,959,058				(45,594	)			-				6,147,010				6,256,083				(4,948,719	)			13,367,838
Other receipts from operating activities			89,995				-				-				-				7,063				(127	)			96,931
Payments to suppliers for the supply of goods and services			(4,221,845	)			(3,328	)			-				(4,715,944	)			(5,348,418	)			5,466,528				(8,823,007	)
Payments to and on behalf of employees			(461,680	)			(2,857	)			-				(1,225,709	)			(703,860	)			(39,546	)			(2,433,652	)
Other payments for operating activities			(150,833	)			-				-				6,791				(48,934	)			(335,238	)			(528,214	)
Dividends paid			-				-				-				-				-				-				-
Dividends received			-				-				-				-				-				-				-
Interest paid			-				-				(19,672	)			-				-				19,672				-
Interest received			8,980				-				13,789				-				27,785				(38,965	)			11,589
Income taxes refunded (paid)			(6,909	)			(5,058	)			-				614				(84,254	)			(12,782	)			(108,389	)
Other inflows (outflows) of cash			(126,540	)			4,327				(9	)			15,146				(5,507	)			(139,074	)			(251,657	)
Net cash flows from operating activities			1,090,226				(52,510	)			(5,892	)			227,908				99,958				(28,251	)			1,331,439
Cash flows from (used in) investing activities
Cash flows from losing control of subsidiaries or other businesses			-				-				-				-				3,024				(3,024	)			-
Cash flows used to obtain control of subsidiaries or other businesses			(250,350	)			(118,120	)			-				33,782				(154,930	)			490,136				518
Cash flows used in the purchase of non-controlling			-				-				-				-				-				-				-
Other cash receipts from sales of equity or debt instruments of other entities			-				228				-				80,405				342,908				100,829				524,370
Other payments to acquire equity or debt instruments of other entities			(36,477	)			-				-				-				(138,920	)			(299,259	)			(474,656	)
Loans to related parties			(126,630	)			-				12,948				-				(55,146	)			168,828				-
Proceeds from sale of property, plant and equipment			-				-				-				186,015				562,272				(184,021	)			564,266
Purchases of property, plant and equipment			(1,269,024	)			-				-				(255,636	)			(224,816	)			309,031				(1,440,445	)
Amounts raised from sale of intangible assets			-				8,224				-				-				-				(8,224	)			-
Purchases of intangible assets			-				-				-				(30,933	)			(23,831	)			(995	)			(55,759	)
Proceeds from other long-term assets			-				-				-				-				-				-				-
Other cash receipts from related parties			-				-				-				(75,082	)			22,380				52,702				-
Income taxes refunded (paid)			-				-				-				-				-				-				-
Dividends received			9,685				-				-				-				752				(10,437	)			-
Other inflows (outflows) of cash			-				-				-				(397	)			(15,527	)			(1,475	)			(17,399	)
Net cash flows from investing activities			(1,672,796	)			(109,668	)			12,948				(61,846	)			318,166				614,091				(899,105	)
Cash flows from (used in) financing activities
Proceeds from issue of shares			156,321				219,110				-				262,702				156,402				(638,214	)			156,321
Payments to acquire or redeem the entity’s shares			-				-				-				-				-				4,661				4,661
Proceeds from long term loans			706,661				4,162				-				89,598				336,159				(93,760	)			1,042,820
Proceeds from short term loans			597,000				-				-				84,944				6,151				(84,944	)			603,151
Loans from related parties			-				-				-				-				169,746				(169,746	)			-
Repayment of loans			(1,147,651	)			-				-				(419,887	)			(706,576	)			(41,006	)			(2,315,120	)
Payments of finance lease liabilities			(131,484	)			-				-				(181,779	)			(56,262	)			(24,606	)			(394,131	)
Repayment of loans to related parties			(9,310	)			-				-				-				(3,483	)			12,793				-
Dividends Paid			-				-				-				-				(13,983	)			(21,379	)			(35,362	)
Interest paid			(246,598	)			(581	)			(4,807	)			(49,536	)			(168,938	)			101,671				(368,789	)
Other inflows (outflows) of cash			(37,641	)			-				-				-				-				23,864				(13,777	)
Net cash flows from (used in) financing activities			(112,702	)			222,691				(4,807	)			(213,958	)			(280,784	)			(930,666	)			(1,320,226	)
Net increase (decrease) in, cash and cash aquivalents before effect of exchange rate			(695,272	)			60,513				2,249				(47,896	)			137,340				(344,826	)			(887,892	)
Effects of variation in the exchange rate on cash and cash equivalents			(45,080	)			(60,573	)			(1,941	)			(29,882	)			(173,817	)			203,678				(107,615	)
Net increase (decrease) in cash and cash equivalents			(740,352	)			(60	)			308				(77,778	)			(36,477	)			(141,148	)			(995,507	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,368,719				103				89				122,104				325,718				168,170				1,984,903
CASH AND CASH EQUIVALENTS AT END OF PERIOD			628,367				43				397				44,326				289,241				27,022				989,396

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

														TAM Linhas
		LATAM S.A.				TAM S.A.				TAM Capital				Aéreas S.A.				Other				Consolidating
		(parent company)				(guarantor)				(subsidiary issuer)				(guarantor)				(non-guarantor)				adjustments				Consolidated
		As of				As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2013				2013				2013				2013				2013				2013				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash flows from operating activities
Receipts from sales of goods and services			5,975,782				-				-				6,242,979				6,031,715				(4,844,201	)			13,406,275
Other receipts from operating activities			12,067				-				-				-				2,918				(10,347	)			4,638
Payments to suppliers for the supply of goods and services			(4,291,945	)			(20,795	)			(377	)			(4,664,071	)			(4,417,013	)			3,823,478				(9,570,723	)
Payments to and on behalf of employees			(423,688	)			(1,332	)			-				(1,572,939	)			(1,340,071	)			932,715				(2,405,315	)
Other payments for operating activities			-				-				-				-				(64,025	)			32,810				(31,215	)
Dividends paid			-				-				-				-				(800	)			800				-
Dividends received			-				70,950				-				-				-				(70,950	)			-
Interest paid			-				-				(19,950	)			-				-				19,950				-
Interest received			8,621				-				-				52,878				83,964				(134,153	)			11,310
Income taxes refunded (paid)			(11,558	)			4,256				-				40,393				(94,185	)			(21,939	)			(83,033	)
Other inflows (outflows) of cash			38,011				(7,539	)			(27	)			(24,540	)			16,575				54,281				76,761
Net cash flows from operating activities			1,307,290				45,540				(20,354	)			74,700				219,078				(217,556	)			1,408,698
Cash flows from (used in) investing activities
Cash flows from losing control of subsidiaries or other businesses			-				-				-				-				200				(200	)			-
Cash flows used to obtain control of subsidiaries or other businesses			(1,650,000	)			(1,644,953	)			-				(616,911	)			(182,531	)			4,088,878				(5,517	)
Cash flows used in the purchase of non-controlling			-				-				-				-				-				(497	)			(497	)
Other cash receipts from sales of equity or debt instruments of other entities			-				409				-				(208,776	)			(51,409	)			530,261				270,485
Other payments to acquire equity or debt instruments of other entities			-				-				-				(29,101	)			(93,526	)			(318,174	)			(440,801	)
Loans to related parties			(288,957	)			-				(218,026	)			-				(86,282	)			593,265				-
Proceeds from sale of property, plant and equipment			6,281				-				-				-				189,445				29,470				225,196
Purchases of property, plant and equipment			(1,523,440	)			-				-				(68,471	)			109,632				100,493				(1,381,786	)
Amounts raised from sale of intangible assets			(12,539	)			-				-				(20,529	)			(14,021	)			3,605				(43,484	)
Proceeds from other long-term assets			-				-				-				-				14,999				7,145				22,144
Other cash receipts from related parties			-				-				-				(269,622	)			30,260				239,362				-
Income taxes refunded (paid)			-				-				-				-				(77,902	)			77,902				-
Other inflows (outflows) of cash			-				-				-				61,188				18,435				(4,175	)			75,448
Net cash flows from investing activities			(3,468,655	)			(1,644,544	)			(218,026	)			(1,152,222	)			(142,700	)			5,347,335				(1,278,812	)
Cash flows from (used in) financing activities
Proceeds from issue of shares			888,570				1,650,000				185,190				1,577,613				182,897				(3,595,321	)			888,949
Payments to acquire or redeem the entity’s shares			-				(900	)			-				-				(200	)			1,100				-
Proceeds from term loans			1,924,260				-				-				114,768				65,815				(61,325	)			2,043,518
Proceeds from short term loans			963,800				-				-				145,285				51,984				(59,910	)			1,101,159
Loans from related parties			1,134,875				-				-				-				315,183				(1,450,058	)			-
Repayment of loans			(1,223,409	)			-				-				(330,584	)			(332,092	)			(65,928	)			(1,952,013	)
Payments of finance lease liabilities			(83,088	)			-				-				(281,648	)			(41,234	)			(17,135	)			(423,105	)
Repayment of loans to related parties			(87,679	)			-				54,594				-				(21,874	)			54,959				-
Dividends Paid			(3,288	)			-				-				-				(1,053	)			(25,353	)			(29,694	)
Interest paid			(164,186	)			-				(2,294	)			(329,617	)			(116,762	)			251,853				(361,006	)
Other inflows (outflows) of cash			(51,701	)			-				-				-				(59,400	)			49,088				(62,013	)
Net cash flows from (used in) financing activities			3,298,154				1,649,100				237,490				895,817				43,264				(4,918,030	)			1,205,795
Net increase (decrease) in, cash and cash aquivalents before effect of exchange rate			1,136,789				50,096				(890	)			(181,705	)			119,642				211,749				1,335,681
Effects of variation in the exchange rate on cash and cash equivalents			-				(50,061	)			(2,819	)			137,052				50,398				(135,607	)			(1,041	)
Net increase (decrease) in cash and cash equivalents			1,136,789				35				(3,709	)			(44,653	)			170,040				76,142				1,334,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			231,930				73				3,797				166,755				169,675				78,037				650,263
CASH AND CASH EQUIVALENTS AT END OF PERIOD			1,368,719				108				88				122,102				339,715				154,179				1,984,903

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 22, 2016				LATAM AIRLINES GROUP S.A.
				By:		/s/ Enrique Cueto
				Name:		Enrique Cueto
				Title:		Latam Airlines Group CEO