UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

May 12, 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):   ¨

 

 

Table of Contents      

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2016

 

CONTENTS

 

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

 

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

 

 

 

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

 

Notes Page
   
1 - General information 1
2 - Summary of significant accounting policies 4
2.1. Basis of Preparation 4
2.2. Basis of Consolidation 7
2.3. Foreign currency transactions 8
2.4. Property, plant and equipment 8
2.5. Intangible assets other than goodwill 9
2.6. Goodwill 10
2.7. Borrowing costs 10
2.8. Losses for impairment of non-financial assets 10
2.9. Financial assets 10
2.10. Derivative financial instruments and hedging activities 11
2.11. Inventories 12
2.12. Trade and other accounts receivable 13
2.13. Cash and cash equivalents 13
2.14. Capital 13
2.15. Trade and other accounts payables 13
2.16. Interest-bearing loans 13
2.17. Current and deferred taxes 14
2.18. Employee benefits 14
2.19. Provisions 15
2.20. Revenue recognition 15
2.21. Leases 16
2.22. Non-current assets (or disposal groups) classified as held for sale 16
2.23. Maintenance 16
2.24. Environmental costs 17
3 - Financial risk management 17
3.1. Financial risk factors 17
3.2. Capital risk management 31
3.3. Estimates of fair value 31
4 - Accounting estimates and judgments 35
5 - Segmental information 38
6 - Cash and cash equivalents 40
7 - Financial instruments 43
7.1. Financial instruments by category 43
7.2. Financial instruments by currency 45
8 - Trade, other accounts receivable and non-current accounts receivable 46
9 - Accounts receivable from/payable to related entities 49
10 - Inventories 50
11 - Other financial assets 51
12 - Other non-financial assets 52
13 - Investments in subsidiaries 53
14 - Intangible assets other than goodwill 56

 

 

 

15 - Goodwill 57
16 - Property, plant and equipment 59
17 - Current and deferred tax 65
18 - Other financial liabilities 71
19 - Trade and other accounts payables 79
20 - Other provisions 81
21 - Other non-financial liabilities 84
22 - Employee benefits 85
23 - Accounts payable, non-current 87
24 - Equity 87
25 - Revenue 92
26 - Costs and expenses by nature 92
27 - Other income, by function 94
28 - Foreign currency and exchange rate differences 94
29 - Earnings per share 103
30 - Contingencies 104
31 - Commitments 111
32 - Transactions with related parties 116
33 - Share based payments 117
34 - The environment 121
35 - Events subsequent to the date of the financial statements 122

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS                
        As of     As of  
        March 31,     December 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited        
Current assets                    
Cash and cash equivalents   6 - 7     768,000       753,497  
Other financial assets   7 - 11     604,751       651,348  
Other non-financial assets   12     275,583       330,016  
Trade and other accounts receivable   7 - 8     815,150       796,974  
Accounts receivable from related entities   7 - 9     228       183  
Inventories   10     229,522       224,908  
Tax assets   17     66,850       64,015  
                     
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners         2,760,084       2,820,941  
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners         2,007       1,960  
                     
Total current assets         2,762,091       2,822,901  
Non-current assets                    
Other financial assets   7 - 11     103,073       89,458  
Other non-financial assets   12     309,759       235,463  
Accounts receivable   7 - 8     7,014       10,715  
Intangible assets other than goodwill   14     1,443,519       1,321,425  
Goodwill   15     2,493,114       2,280,575  
Property, plant and equipment   16     11,116,714       10,938,657  
Tax assets   17     25,629       25,629  
Deferred tax assets   17     370,934       376,595  
Total non-current assets         15,869,756       15,278,517  
Total assets         18,631,847       18,101,418  

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY                
        As of     As of  
        March 31,     December 31,  
LIABILITIES   Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited        
Current liabilities                    
Other financial liabilities   7 - 18     1,641,563       1,644,235  
Trade and other accounts payables   7 - 19     1,452,837       1,483,957  
Accounts payable to related entities   7 - 9     472       447  
Other provisions   20     2,400       2,922  
Tax liabilities   17     25,799       19,378  
Other non-financial liabilities   21     2,468,489       2,490,033  
Total current liabilities         5,591,560       5,640,972  
Non-current liabilities                    
Other financial liabilities   7 - 18     7,687,404       7,532,385  
Accounts payable   7 - 23     410,418       417,050  
Other provisions   20     464,114       424,497  
Deferred tax liabilities   17     857,139       811,565  
Employee benefits   22     71,465       65,271  
Other non-financial liabilities   21     273,017       272,130  
Total non-current liabilities         9,763,557       9,522,898  
Total liabilities         15,355,117       15,163,870  
                     
EQUITY                    
Share capital   24     2,545,705       2,545,705  
Retained earnings   24     389,241       317,950  
Treasury Shares   24     (178 )     (178 )
Other reserves         256,380       (6,942 )
Parent's ownership interest         3,191,148       2,856,535  
Non-controlling interest   13     85,582       81,013  
Total equity         3,276,730       2,937,548  
Total liabilities and equity         18,631,847       18,101,418  

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

        For the period ended  
        March 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited  
Revenue   25     2,234,257       2,693,849  
Cost of sales         (1,661,474 )     (2,037,285 )
Gross margin         572,783       656,564  
Other income   27     93,360       97,293  
Distribution costs         (175,707 )     (220,623 )
Administrative expenses         (181,831 )     (250,004 )
Other expenses         (89,524 )     (56,326 )
Other gains/(losses)         3,565       6,214  
Income from operation activities         222,646       233,118  
Financial income         10,864       18,490  
Financial costs   26     (103,049 )     (95,333 )
Foreign exchange gains/(losses)   28     67,898       (204,577 )
Result of indexation units         -       474  
Income (loss) before taxes         198,359       (47,828 )
Income (loss) tax expense / benefit   17     (82,327 )     23,553  
NET INCOME (LOSS) FOR THE PERIOD         116,032       (24,275 )
Income (loss) attributable to owners of the parent         102,208       (39,947 )
Income (loss) attributable to non-controlling interest   13     13,824       15,672  
                     
Net income (loss) for the year         116,032       (24,275 )
EARNINGS PER SHARE                    
Basic earnings (losses) per share (US$)   29     0.18735       (0.07322 )
Diluted earnings (losses) per share (US$)   29     0.18735       (0.07322 )

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

        For the period ended  
        March 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited  
NET INCOME (LOSS)         116,032       (24,275 )
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     (1,573 )     -  
Total other comprehensive income that will not be reclassified to income before taxes         (1,573 )     -  
Components of other comprehensive income that will be reclassified to income before taxes                    
Currency translation differences                    
Gains (losses) on currency translation, before tax   28     244,976       (726,740 )
Other comprehensive income, before taxes, currency translation differences         244,976       (726,740 )
Cash flow hedges                    
Gains (losses) on cash flow hedges before taxes   18     27,974       83,263  
Other comprehensive income (losses), before taxes, cash flow hedges         27,974       83,263  
Total other comprehensive income that will be reclassified to income before taxes         272,950       (643,477 )
Other components of other comprehensive income (loss), before taxes         271,377       (643,477 )
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     413       -  
Accumulate income tax relating to other comprehensive income that will not be reclassified to income         413       -  
Income tax relating to other comprehensive income that will be reclassified to income                    
Income tax related to cash flow hedges in other comprehensive income         (7,711 )     (21,366 )
Income taxes related to components of other comprehensive income that will be reclassified to income         (7,711 )     (21,366 )
Total Other comprehensive income         264,079       (664,843 )
Total comprehensive income (loss)         380,111       (689,118 )
Comprehensive income (loss) attributable to owners of the parent         364,361       (687,176 )
Comprehensive income (loss) attributable to non-controlling interests         15,750       (1,942 )
TOTAL COMPREHENSIVE INCOME (LOSS)         380,111       (689,118 )

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM 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, 2016         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  
Total increase (decrease) in equity                                                                                                    
Comprehensive income                                                                                                    
Gain (losses)   24     -       -       -       -       -       -       -       -       102,208       102,208       13,824       116,032  
Other comprehensive income         -       -       243,384       19,929       (1,160 )     -               262,153       -       262,153       1,926       264,079  
Total comprehensive income         -       -       243,384       19,929       (1,160 )     -       -       262,153       102,208       364,361       15,750       380,111  
Transactions with shareholders                                                                                                    
Dividens   28     -       -       -       -       -       -       -       -       (30,662 )     (30,662 )     -       (30,662 )
Increase (decrease) through transfers and other changes, equity   24-33     -       -       -       -       -       829       340       1,169       (255 )     914       (11,181 )     (10,267 )
Total transactions with shareholders         -       -       -       -       -       829       340       1,169       (30,917 )     (29,748 )     (11,181 )     (40,929 )
                                                                                                     
Closing balance as of March 31, 2016 (Unaudited)         2,545,705       (178 )     (2,332,657 )     (70,581 )     (11,877 )     36,476       2,635,019       256,380       389,241       3,191,148       85,582       3,276,730  

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM 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, 2015         2,545,705       (178 )     (1,193,871 )     (151,340 )     29,642       2,635,748       1,320,179       536,190       4,401,896       101,799       4,503,695  
Total increase (decrease) in equity                                                                                            
Comprehensive income                                                                                            
Gain (losses)   24     -       -       -       -       -       -       -       (39,947 )     (39,947 )     15,672       (24,275 )
Other comprehensive income         -       -       (709,950 )     62,721       -       -       (647,229 )     -       (647,229 )     (17,614 )     (664,843 )
Total comprehensive income         -       -       (709,950 )     62,721       -       -       (647,229 )     (39,947 )     (687,176 )     (1,942 )     (689,118 )
Transactions with shareholders                                                                                            
Increase (decrease) through transfers and other changes, equity   24-33     -       -       -       -       2,128       1,928       4,056       528       4,584       (9,403 )     (4,819 )
Total transactions with shareholders         -       -       -       -       2,128       1,928       4,056       528       4,584       (9,403 )     (4,819 )
                                                                                             
Closing balance as of March 31, 2015 (Unaudited)         2,545,705       (178 )     (1,903,821 )     (88,619 )     31,770       2,637,676       677,006       496,771       3,719,304       90,454       3,809,758  

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

        For the periods ended  
        March 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited  
Cash flows from operating activities                    
Cash collection from operating activities                    
Proceeds from sales of goods and services         2,388,275       2,961,149  
Other cash receipts from operating activities         12,603       23,622  
Payments for operating activities                    
Payments to suppliers for goods and services         (1,665,245 )     (1,778,734 )
Payments to and on behalf of employees         (581,052 )     (638,808 )
Other payments for operating activities         (44,508 )     (73,264 )
Interest received         9,420       5,975  
Income taxes refunded (paid)         (12,016 )     (13,586 )
Other cash inflows (outflows)   6     (32,346 )     (123,659 )
Net cash flows from operating activities         75,131       362,695  
Cash flows used in investing activities                    
Other cash receipts from sales of equity or debt instruments of other entities         755,473       143,825  
Other payments to acquire equity or debt instruments of other entities         (664,564 )     (26,241 )
Amounts raised from sale of property, plant and equipment         12,406       5,254  
Purchases of property, plant and equipment         (290,082 )     (297,008 )
Amounts raised from sale of intangible assets         -       17  
Purchases of intangible assets         (13,180 )     (2,402 )
Other cash inflows (outflows)   6     (3,423 )     3,800  
Net cash flow from (used in) investing activities         (203,370 )     (172,755 )
Cash flows from (used in) financing activities                    
Amounts raised from long-term loans         607,590       129,299  
Amounts raised from short-term loans         120,000       14,990  
Loans repayments         (405,779 )     (164,563 )
Payments of finance lease liabilities         (90,268 )     (76,312 )
Dividends paid         (13,875 )     (9,419 )
Interest paid         (73,255 )     (75,100 )
Other cash inflows (outflows)   6     (82,859 )     41,311  
Net cash flows from (used in) financing activities         61,554       (139,794 )
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change         (66,685 )     50,146  
Effects of variation in the exchange rate on cash and cash equivalents         81,188       (80,382 )
Net increase (decrease) in cash and cash equivalents         14,503       (30,236 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   6     753,497       989,396  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   6     768,000       959,160  

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF MARCH 31, 2016 (UNAUDITED)

 

NOTE 1 - GENERAL INFORMATION

 

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

 

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

 

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

 

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

 

On February 2, 2016, LATAM received the approval by CVM for a discontinuation of Brazilian LATAM depositary receipts-BDRS level III ("BDRs"), supported by common shares of the company and, consequently, our registration of the foreign issuer.

 

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 March 31, 2016, the Company had a total of 1,531 registered shareholders. At that date approximately 4.52 % 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 March 31, 2016, the Company had an average of 51,417 employees, ending this period with a total of 49,888 employees, spread over 9,139 Administrative employees, 5,906 in Maintenance, 16,616 in Operations, 9,293 in Cabin Crew, 4,025 in Controls Crew, and 4,909 in Sales.

 

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

 

a) Participation rate

 

                As March 31, 2016     As December 31, 2015  
        Country   Functional                                    
Tax No .   Company   of origin   Currency   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  
96.763.900-1   Inmobiliaria Aeronáutica S.A.   Chile   US$     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  
Foreign   Lan Perú S.A.   Peru   US$     49.0000       21.0000       70.0000       49.0000       21.0000       70.0000  
Foreign   Lan Chile Investments Limited and Subsidiary   Cayman Insland   US$     99.9900       0.0100       100.0000       99.9900       0.0100       100.0000  
93.383.000-4   Lan Cargo S.A.   Chile   US$     99.8939       0.0041       99.8980       99.8939       0.0041       99.8980  
Foreign   Connecta Corporation   U.S.A.   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Prime Airport Services Inc. and Subsidary   U.S.A.   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.951.280-7   Trans porte Aéreo S.A.   Chile   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Aircraft International Leasing Limited   U.S.A.   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.631.520-2   Fast Air Almacenes de Carga S.A.   Chile   CLP     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Laser Cargo S.R.L.   Argentina   ARS     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
Foreign   Lan Cargo Overseas Limited and Subsidiaries   Bahamas   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.969.690-8   Lan Cargo Inversiones S.A. and Subsidary   Chile   US$     0.0000       100.0000       100.0000       0.0000       100.0000       100.0000  
96.575.810-0   Inversiones Lan S.A. and Subsidiaries   Chile   US$     99.7100       0.2900       100.0000       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  
Foreign   TAM S.A. and Subsidiaries (*)   Brazil   BRL     63.0901       36.9099       100.0000       63.0901       36.9099       100.0000  

 

(*) As of March 31, 2016, indirect ownership participation on TAM S.A and subsidiaries is from Holdco I S.A., LATAM is entitled to 99,9983% of the economic rights in TAM. Additionally LATAM Airlines owns 226 voting shares, equivalent as of 19,42% of total of voting shares. Additionally on March 29, 2016, LATAM Airlines Group S.A. has changed 675 series B shares by 675 series A shares, according to the provisional measure No. 714 of the Brazilian government.

 

Thus LATAM Airlines Group S.A. is owns 901 shares with voting rights of Holdco I S.A., equivalent to 49% of total shares with voting rights of that company.

 

  2  

 

b) Statement of financial position

 

        Statement of financial position     Net Income  
                                            For the periods ended  
        As of March 31, 2015     As of December 31, 2015     December 31,  
                                            2016     2015  
Tax No.   Company   Assets     Liabilities     Equity     Assets     Liabilities     Equity     Gain/(loss)  
        ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $  
                                                     
96.518.860-6   Lantours Division Servicios Terrestres S.A.and Subsidary     3,244       2,242       1,002       5,613       5,522       91       911       737  
96.763.900-1   Inmobiliaria Aeronáutica S.A.     39,112       14,292       24,820       39,302       14,832       24,470       350       798  
96.969.680-0   Lan Pax Group S.A.and Subsidiaries(*)     451,259       963,377       (503,987 )     519,588       1,049,232       (521,907 )     14,613       9,677  
Foreign   Lan Perú S.A.     286,827       260,349       26,478       255,691       240,938       14,753       131,117       15,058  
Foreign   Lan Chile Investments Limited and Subsidiary(*)     2,015       13       2,002       2,015       13       2,002       -       -  
93.383.000-4   Lan Cargo S.A.     464,454       211,489       252,965       483,033       217,037       265,966       (13,053 )     (12,563 )
Foreign   Connecta Corporation     34,408       33,606       802       37,070       38,298       (1,228 )     2,030       1,345  
Foreign   Prime Airport Services Inc.and Subsidary     7,222       11,991       (4,769 )     6,683       11,180       (4,497 )     (272 )     129  
96.951.280-7   Transporte Aéreo S.A.     332,592       116,287       216,305       331,117       122,666       208,451       7,779       (1,129 )
Foreign   Aircraft International Leasing Limited     -       4       (4 )     -       4       (4 )     -       (4 )
96.631.520-2   Fast Air Almacenesde Carga S.A.     8,616       3,648       4,968       8,985       4,641       4,344       314       458  
Foreign   Laser Cargo S.R.L.     23       58       (35 )     27       39       (12 )     -       (71 )
Foreign   Lan Cargo Overseas Limited and Subsidiaries(*)     66,777       43,578       19,593       62,406       43,759       15,563       4,032       7,060  
96.969.690-8   Lan Cargo Inversiones S.A.and Subsidary:     52,396       62,828       (9,526 )     54,179       68,220       (12,601 )     3,069       8,765  
96.575.810-0   Inversiones Lan S.A.and Subsidiaries(*)     18,268       15,188       3,047       16,512       14,676       1,828       1,202       874  
59.068.920-3   Technical Trainning LATAM S.A.     1,662       143       1,519       1,527       266       1,261       180       (213 )
Foreign   TAMS.A.and Subsidiaries(*)(**)     4,892,799       4,342,867       475,545       4,711,316       4,199,223       437,953       20,620       (14,978 )

 

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

 

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, 2015 and March 31, 2016, are detailed below:

 

(1) Incorporation or acquisition of companies

 

- On March 2016, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 1,119 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.0215%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.12066%

 

  3  

 

- On January 2016 it was registered at the Public Registry of Commerce, the Increase in Share Capital and statutory modification for the purpose of creating a new class of shares of Lan Argentina S.A., subsidiary of Lan Pax Group S.A., for a total of 90,000,000 Class "C" shares registered non-endorsable and non-voting. Lan Pax Group S.A. participated in this capital increase, changing its ownership to 4.87%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 95.85660%

 

- On October 2015, Rampas Airport Services S.A., subsidiary of Lan Pax Group S.A. increases its capital and paid in the amount of MUS $ 6,000 by issuing new shares, changing the property of the company as follows: Lan Pax Group S.A. increased its share to 99.99738%, Inversiones Lan S.A. decreased its stake to 0.00002% and Aerolane Líneas Aéreas Nacionales del Ecuador S.A. acquires stake for 0.0026%.

 

(2) Dissolution of companies

 

- In July 2015, the Company Ladeco Cargo 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 interim consolidated financial statements of LATAM Airlines Group S.A. for the period ended March 31, 2016, 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 October 17, 2014 the Chilean Superintendency of Securities and Insurance (SVS) issued Office Circular No. 956, introduced the restatement of assets and liabilities by deferred income taxes that occur as a direct effect of the First- Category Tax rate increase introduced by Law No. 20,780 (Tax reform) was held in equity and not as indicates the International Accounting Standards 12 (AS 12), and changed the framework for preparation and presentation of financial information adopted as of that date.

 

As referred on paragraph 4A of IFRS 1, The Company has decided apply IFRS retrospective, according to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, as if it had never stopped applying those IFRS.

 

Whereas detailed in the previous paragraph does not modify any of the accounts set forth in the Statements of Financial Position as of March 31, 2016 and 2015, as neither as of December 31, 2015 and 2014, as expressed in paragraph 40A IAS 1 " Presentation of Financial Statements”, incorporate adjusted opening balance as January 1, 2015 is not necessary (third column).

 

  4  

 

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

 

The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements. These interim consolidated financial statements have been prepared under IAS 34.

 

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

 

(a) Accounting pronouncements with implementation effective from January 1, 2016:

 

(i)          Standards and amendments   Date of issue   Mandatory
Application:
Annual periods
beginning on or after
         
Amendment to IFRS 11: Joint arrangements.   May 2014   01/01/2016
         
Amendment IAS 1: Presentation of Financial Statements.   December 2014   01/01/2016
         
Amendment to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of Interests in other entities and IAS 28: Investments in associates and joint ventures.   December 2014   01/01/2016
         
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
         
(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 application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company.

 

  5  

 

(b)            Accounting pronouncements not yet in force for financial years beginning on January 1, 2016 and which has not been effected early adoption

 

(i)             Standards and amendments   Date of issue   Mandatory
Application:
Annual periods
beginning on or after
         
Amendment to IAS 7: Statement of Cash Flows.   January 2016   01/01/2017
         
Amendment to IAS 12: Income Taxes.   January 2016   01/01/2017
         
IFRS 9: Financial instruments.   December 2009   01/01/2018
         
IFRS 15: Revenue from contracts with customers (1).   May 2014   01/01/2018
         
Amendment to IFRS 9: Financial instruments.   November 2013   01/01/2018
         
IFRS 16: Leases (2).   January 2016   01/01/2019
         
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.   September 2014   To be determined

 

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 and IFRS 16, which are still under evaluation.

 

(1) IFRS 15 Revenue from Contracts with Customers supersedes actual standard for revenue recognition that actually uses the Company, as IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standards supersedes IFRS 15 supersedes, IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers; and SIC-31 Revenue - Barter Transactions Involving Advertising Services.

 

(2) 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 these standard to determinate the effect on their Financial Statements, covenants and other financial indicators.

 

  6  

 

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.

 

Balances, transactions 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.

 

  7  

 

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.

 

  8  

 

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.

 

  9  

 

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 or each time that there is evidence of impairment. 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.

 

  10  

 

(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.

 

  11  

 

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.

 

  12  

 

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.

 

  13  

 

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.

 

  14  

 

(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) I t is probable that payment is going to be necessary to settle an obligation; and

 

(iii) T he 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. R evenues 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.

 

  15  

 

 

(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.

 

  16  

 

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.

 

  17  

 

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 March 31, 2016, the Company recognized losses of US$ 28.8 million on fuel derivative. During the same period of 2015, the Company recognized losses of US$ 104.7 million for the same reason.

 

At March 31, 2016, the market value of its fuel positions amounted to US$ 21.3 million (negative). At December 31, 2015, this market value was US$ 56.4 million (negative).

 

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

 

Positions as of  March 31, 2016 (*) (Unaudited)   Maturities  
    Q216     Q316     Q416     Total  
Percentage of the hedge of expected consumption value     57 %     27 %     11 %     31 %

 

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

 

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).

 

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.

 

  18  

 

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of March, 2016 and the end of December, 2015.

 

      Positions as of March 31, 2016     Positions as of December 31, 2015  
Benchmark price     effect on equity     effect on equity  
   (US$ per barrel)       (millions of US$)     (millions of US$)  
      (Unaudited)        
   +5        +4.93       +5.41  
  -5       -6.23       -2.78  

 

Given the fuel hedge structure during the first quarter of 2016, which considers a hedge-free portion, a vertical fall by 5 dollars in the JET benchmark price (the monthly daily average), would have meant an impact of approximately US$ 25.2 million in the cost of total fuel consumption for the same period. For the first quarter of 2016, a vertical rise by 5 dollars in the JET benchmark price (the monthly daily average) would have meant an impact of approximately US$ 30.7 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), Pound Sterling (GBP), Australian Dollar (AUD), Colombian Peso (COP) and Chilean Peso (CLP).

 

In lower concentrations the Company is therefore exposed to fluctuations in others currencies, such as: Argentine Peso, Paraguayan Guaraní, Mexican Peso, Peruvian Sol and New Zealand Dollar.

 

Mitigation :

 

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

 

  19  

 

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 March 31, 2016, the market value of its FX positions amounted to US$ 18.6 million (negative). At end of December 2015 the market value was of US$ 8.0 million (positive).

 

During the period ended at March 31, 2016 the Company recognized gains of US$ 1.1 million on hedging FX. During the same period of 2015 the Company recognized gains of US$ 7.5 million on hedging FX.

 

At end of March 2016, the Company has contracted FX derivatives for US$ 326 million to BRL, US$ 159 million to EUR, US$ 60 million to GBP, US$ 21 million to AUD, US$ 51 million to COP and US$ 45 million to CLP. At end of December 2015, the Company had contracted FX for US$ 270 million to BRL, US$ 30 million to EUR and US$ 15 million to GBP. For AUD, COP and CLP there were no current positions.

 

Sensitivity analysis:

 

A depreciation of exchange rate R$/ US$, US$/EUR, US$/GBP, US$/AUD, COP$/US$ and CLP$/US$ 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 last quarter of 2016:

 

Appreciation (depreciation)*     Effect at March 31, 2016     Effect at December 31, 2015  
of  R$//EUR/GBP/AUD/CLP/COP     Millions of US$     Millions of US$  
      (Unaudited)        
  -10 %     -24.33       -21.28  
  +10 %     +25.51       +16.71  

 

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.

 

  20  

 

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

 

Appreciation (depreciation)*     Effect at March 31, 2016     Effect at December 31, 2015  
                 of R$/US$                    Millions of US$     Millions of US$  
      (Unaudited)        
  -10 %     +113.2       +67.6  
  +10 %     -113.2       -67.6  

 

(*) Appreciation (depreciation) of US$ regard to the covered currencies.

 

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 March 31, 2016     Effect at December 31, 2015  
                  of R$/US$                  Millions of US$     Millions of US$  
      (Unaudited)        
  -10 %     +323.89       +296.41  
  +10 %     -265.00       -242.52  

 

(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").

 

  21  

 

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% (71% at December 31, 2015) of the debt is fixed to fluctuations in interest rate.

 

Rate Hedging Results :

 

At March 31, 2016, the market value of the positions of interest rate derivatives amounted to US$ 34.5 million (negative). At end of December 2015 this market value was US$ 39.8 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 March 31, 2016     Positions as of December 31, 2015  
futures curve   effect on profit or loss before tax     effect on profit or loss before tax  
  in libor 3 months     (millions of US$)     (millions of US$)  
    (Unaudited)        
+100 basis points     -26.7       -26.7  
-100 basis points     +26.7       +26.7  

 

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 March 31, 2016     Positions as of December 31, 2015  
futures curve   effect on equity     effect on equity  
  in libor 3 months     (millions of US$)     (millions of US$)  
    (Unaudited)        
+100 basis points     +7.28       +8.71  
-100 basis points     -7.54       -9.02  

 

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.

 

  22  

 

(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.

 

  23  

 

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 March 31, 2016 is US$1,340 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 March 31, 2016, LATAM has working capital credit lines with multiple banks.

 

  24  

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2016 (Unaudited)

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

 

                      More than     More than     More than                                    
                Up to     90 days     one to     three to     More than                              
        Creditor       90     to one     three     five     five           Nominal         Effective     Nominal  
Tax No.   Creditor   country   Currency   days     year     years     years     years     Total     value     Amortization   rate     rate  
                ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$         %     %  
Loans to exporters                                                                                        
97.032.000-8   BBVA   Chile   US$     100,336       -       -       -       -       100,336       100,000     At Expiration     1.33       1.33  
97.036.000-K   SANTANDER   Chile   US$     100,440       -       -       -       -       100,440       100,000     At Expiration     1.80       1.80  
97.030.000-7   ESTADO   Chile   US$     58,061       -       -       -       -       58,061       57,357     At Expiration     4.91       4.91  
97.004.000-5   BANCO DECHILE   Chile   US$     50,060       -       -       -       -       50,060       50,000     At Expiration     1.44       1.44  
97.003.000-K   BANCO DOBRASIL   Chile   US$     -       71,969       -       -       -       71,969       70,000     At Expiration     2.82       2.82  
97.951.000-4   HSBC   Chile   US$     12,023       -       -       -       -       12,023       12,000     At Expiration     0.75       0.75  
Bank loans                                                                                        
97.023.000-9   CORP BANCA   Chile   UF     20,997       61,752       105,115       32,782       -       220,646       206,647     Quarterly     4.16       4.16  
0-E   BLADEX   U.S.A.   US$     3,632       6,070       30,526       15,514       -       55,742       50,000     Semiannual     4.58       4.58  
0-E   DVB BANK SE   U.S.A.   US$     265       370       95,949       -       -       96,584       95,784     Quarterly     1.69       1.69  
97.036.000-K   SANTANDER   Chile   US$     675       -       179,835       -       -       180,510       179,835     Quarterly     2.53       2.53  
Obligations with the public                                                                                        
0-E   BANK OF NEW YORK   U.S.A.   US$     18,125       18,125       72,500       554,375       -       663,125       500,000     At Expiration     7.77       7.25  
Guaranteed obligations                                                                                        
0-E   CREDIT AGRICOLE   France   US$     35,603       97,607       231,868       51,085       9,137       425,300       409,578     Quarterly     1.93       1.77  
0-E   BNP PARIBAS   U.S.A.   US$     10,183       30,799       84,012       84,532       139,354       348,880       311,234     Quarterly     2.45       2.41  
0-E   WELLS FARGO   U.S.A.   US$     35,762       107,373       286,823       287,569       518,938       1,236,465       1,149,856     Quarterly     2.25       1.64  
0-E   WILMINGTON TRUST COMPANY   U.S.A.   US$     29,018       78,207       192,034       189,791       746,129       1,235,179       948,685     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     19,823       59,737       161,174       164,022       246,121       650,877       599,960     Quarterly     2.49       1.74  
97.036.000-K   SANTANDER   Chile   US$     5,716       17,233       46,491       47,310       44,344       161,094       154,436     Quarterly     1.57       1.03  
0-E   BTMU   U.S.A.   US$     3,073       9,272       25,075       25,609       36,900       99,929       94,241     Quarterly     1.92       1.32  
0-E   APPLE BANK   U.S.A.   US$     1,511       4,559       12,349       12,630       18,609       49,658       46,810     Quarterly     2.02       1.42  
0-E   US BANK   U.S.A.   US$     18,629       55,758       147,837       146,546       285,357       654,127       576,555     Quarterly     3.99       2.81  
0-E   DEUTSCHE BANK   U.S.A.   US$     6,053       18,184       37,613       31,241       59,742       152,833       131,930     Quarterly     3.62       3.62  
0-E   NATIXIS   France   US$     14,188       42,992       117,343       99,815       239,472       513,810       457,979     Quarterly     2.22       2.19  
0-E   HSBC   U.S.A.   US$     1,632       4,912       13,190       13,322       23,655       56,711       52,211     Quarterly     2.58       1.77  
0-E   PK AirFinance   U.S.A.   US$     2,201       6,738       19,153       21,068       15,358       64,518       60,633     Monthly     2.14       2.14  
0-E   KFW IP EX-BANK   Germany   US$     2,448       7,438       19,430       14,909       1,113       45,338       42,883     Quarterly     2.27       2.27  
Other guaranteed obligations                                                                                        
0-E   CITIBANK   U.S.A.   US$     2,151       6,453       292,207       -       -       300,811       275,000     At Expiration     3.13       3.13  
0-E   DVB Bank SE   U.S.A.   US$     8,247       16,486       -       -       -       24,733       24,438     Quarterly     2.32       2.32  
Financial leases                                                                                        
0-E   ING   U.S.A.   US$     9,240       22,714       39,663       24,209       -       95,826       86,890     Quarterly     5.26       4.68  
0-E   CREDIT AGRICOLE   France   US$     1,738       5,305       5,447       -       -       12,490       12,289     Quarterly     1.59       1.59  
0-E   CITIBANK   U.S.A.   US$     6,083       18,250       48,667       32,513       -       105,513       92,696     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     17,560       52,672       104,147       17,440       -       191,819       177,669     Quarterly     5.37       4.77  
0-E   BNP PARIBAS   U.S.A.   US$     11,443       34,484       80,053       26,674       -       152,654       143,150     Quarterly     4.14       3.70  
0-E   WELLS FARGO   U.S.A.   US$     5,590       16,770       44,649       44,551       18,560       130,120       117,109     Quarterly     3.98       3.54  
0-E   DVB BANK S E   U.S.A.   US$     4,759       14,283       9,528       -       -       28,570       28,000     Quarterly     2.09       2.09  
0-E   BANC OF AMERICA   U.S.A.   US$     1,752       363       -       -       -       2,115       2,096     Monthly     1.41       1.41  
Other loans                                                                                        
0-E   BOEING   U.S.A.   US$     336       -       75,993       -       -       76,329       75,993     At Expiration     1.79       1.79  
0-E   CITIBANK (*)   U.S.A.   US$     25,620       78,032       207,093       181,044       -       491,789       430,639     Quarterly     6.00       6.00  
Hedging derivatives                                                                                        
-   OTROS   -   US$     9,891       24,126       25,829       1,084       -       60,930       56,804     -     -       -  
                                                                                         
    Total             654,864       989,033       2,811,593       2,119,635       2,402,789       8,977,914       7,981,387                      

 

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

 

  25  

 

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

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

 

                      More than     More than     More than                                    
                Up to     90 days     one to     three to     More than                              
        Creditor       90     to one     three     five     five           Nominal         Effective     Nominal  
Tax No.   Creditor   country   Currency   days     year     years     years     years     Total     value     Amortization   rate     rate  
                ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $         %     %  
Bank loans                                                                                        
0-E   NEDERLANDS CHE                                                                                    
    CREDIETVERZEKERING MAATS CHAPPIJ   Holanda   US$     181       493       1,315       1,314       547       3,850       3,237     Monthly     6.01       6.01  
Obligation with the public                                                                                        
0-E   BANK OF NEW YORK   U.S.A.   US$     32,951       34,853       401,075       89,878       521,959       1,080,716       800,000     At Expiration     8.17       8.00  
Financial leases                                                                                        
                                                                                         
0-E   AFS INVESTMENT IX LLC   U.S.A.   US$     2,761       7,699       20,525       16,242       -       47,227       41,533     Monthly     1.25       1.25  
0-E   AIRBUS FINANCIAL   U.S.A.   US$     2,003       5,844       15,792       13,740       -       37,379       35,503     Monthly     1.43       1.43  
0-E   DVB BANK SE   U.S.A.   US$     122       360       164       -       -       646       637     Monthly     1.64       1.64  
0-E   GENERAL ELECTRIC CAPITAL CORPORATION   U.S.A.   US$     3,840       11,469       5,221       -       -       20,530       20,107     Monthly     1.25       1.25  
0-E   KFW IP EX-BANK   Alemania   US$     606       1,775       1,552       -       -       3,933       3,859     Monthly/ Quarterly     1.72       1.72  
0-E   NATIXIS   Francia   US$     2,691       9,027       22,776       23,154       67,228       124,876       112,516     Quarterly/ Semiannual     3.85       3.85  
0-E   P K AIRFINANCE US, INC.   U.S.A.   US$     1,437       20,592       -       -       -       22,029       21,769     Monthly     1.75       1.75  
0-E   WACAPOU LEASING S.A.   Luxemburg   US$     505       1,352       3,111       14,216       -       19,184       17,986     Quarterly     2.00       2.00  
0-E   SOCIÉTÉ GÉNÉRALE MILAN BRANCH   Italy   US$     11,973       31,909       85,799       203,865       -       333,546       304,338     Quarterly     3.63       3.55  
0-E   BANCO IBM S.A   Brazil   BRL     301       954       1,023       -       -       2,278       1,658     Monthly     14.14       14.14  
0-E   HP FINANCIAL SERVICE   Brazil   BRL     206       618       -       -       -       824       783     Monthly     10.02       10.02  
0-E   SOCIÉTÉ GÉNÉRALE   Francia   BRL     117       372       559       -       -       1,048       757     Monthly     14.14       14.14  
    Total             59,694       127,317       558,912       362,409       589,734       1,698,066       1,364,683                      

 

  26  

 

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   VARIOS   US$     389,224       9,304       -       -       -       398,528       398,528       -       -       -  
            CLP     27,234       52       -       -       -       27,286       27,286       -       -       -  
            BRL     276,161       4       -       -       -       276,165       276,165       -       -       -  
            Others currencies     276,071       965       -       -       -       277,036       277,036       -       -       -  
Accounts payable to related parties currents                                                                                
65.216.000-K   COMUNIDAD MUJER   Chile   CLP     8       -       -       -       -       8       8       -       -       -  
78.591.370-1   BETHIA S.A.Y FILIALES   Chile   CLP     3       -       -       -       -       3       3       -       -       -  
79.773.440-3   Transportes San Felipe S.A.   Chile   CLP     56                                       56       56       -       -       -  
78.997.060-2   Viajes Falabella Ltda.   Chile   CLP     353                                       353       353       -       -       -  
0-E   Consultoría Administrativa Profesional   Mexico   MXN     53       -       -       -       -       53       53       -       -       -  
0-E   INVERSORA AERONÁUTICA ARGENTINA   Argentina   US$     -       -       -       -       -       -       -       -       -       -  
    Total             969,163       10,325       -       -       -       979,488       979,488                          
                                                                                             
    Total consolidated             1,683,721       1,126,675       3,370,505       2,482,044       2,992,523       11,655,468       10,325,558                          

 

  27  

 

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. 89.862.2 00-2 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 NEWYORK   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 Air Finance   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.

 

  28  

 

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  
F inancial 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                      

 

  29  

 

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 Ltd a.   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                          

 

  30  

 

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 2015, the Company provided US$ 49.6 million in derivative margin guarantees, for cash and stand-by letters of credit. At March 31, 2016, the Company had provided US$ 52.6 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The rise 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 March 31, 2016 the Company has an international long term credit rating of BB- with negative outlook by Standard & Poor’s, a B+ rating with negative outlook by Fitch Ratings and a Ba2 rating with stable outlook by Moody’s.

 

3.3. Estimates of fair value.

 

At March 31, 2016, 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.

 

  31  

 

2. Financial Investments:

 

This category includes the following instruments:

 

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

 

- 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.

 

  32  

 

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

 

    As of March 31, 2016     As of December 31, 2015  
          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 $  
    Unaudited                          
Assets                                                                
Cash and cash equivalents     30,373       30,373       -       -       26,600       26,600       -       -  
                                                                 
Short-term mutual funds     30,373       30,373       -       -       26,600       26,600       -       -  
                                                                 
Other financial assets, current     576,128       572,249       3,879       -       624,200       607,622       16,578       -  
Fair value of fuel derivatives     2,760       -       2,760       -       6,293       -       6,293       -  
Fair value of foreign currency derivatives     956       -       956       -       9,888       -       9,888       -  
Interest accrued since the last payment date of Cross Currency Swap     163               163       -       397               397       -  
Private investment funds     493,983       493,983       -       -       448,810       448,810       -       -  
Certificate of deposit CDB     -       -       -       -       -       -       -       -  
Domestic and foreign bonds     78,266       78,266       -       -       158,812       158,812       -       -  
Other investments     -       -       -       -       -       -       -       -  
                                                                 
Liabilities                                                                
Other financial liabilities, current     87,567               87,567       -       134,089               134,089       -  
Fair value of interest rate derivatives     21,382       -       21,382       -       33,518       -       33,518       -  
Fair value of fuel derivatives     40,879       -       40,879       -       39,818               39,818       -  
Fair value of foreign currency derivatives     21,343       -       21,343       -       56,424       -       56,424       -  
Interest accrued since the last payment date of Currency Swap     3,963               3,963       -       4,329               4,329       -  
Interest rate derivatives not recognized as a hedge     -       -       -       -       -               -       -  
                                                                 
Other financial liabilities, non current     14,070       -       14,070       -       16,128       -       16,128       -  
Fair value of interest rate derivatives     14,070       -       14,070       -       16,128       -       16,128       -  

 

  33  

 

Additionally, at March 31, 2016, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:

 

    As of March 31, 2016     As of December 31, 2015  
    Book     Fair     Book     Fair  
    value     value     value     value  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited              
Cash and cash equivalents     737,627       737,627       726,897       726,897  
Cash on hand     23,322       23,322       10,656       10,656  
Bank balance     204,278       204,278       302,696       302,696  
Overnight     130,220       130,220       267,764       267,764  
Time deposits     379,807       379,807       145,781       145,781  
                                 
Other financial assets, current     28,623       28,623       27,148       27,148  
Other financial assets     28,623       28,623       27,148       27,148  
                                 
Trade and other accounts receivable current     815,150       815,150       796,974       796,974  
Accounts receivable from related entities     228       228       183       183  
Other financial assets, non current     103,073       103,073       89,458       89,458  
Accounts receivable     7,014       7,014       10,715       10,715  
                                 
Other financial liabilities, current (*)     1,553,996       1,865,918       1,510,146       1,873,552  
Trade and other accounts payables     1,452,837       1,452,837       1,483,957       1,483,957  
Accounts payable to related entities     472       472       447       447  
Other financial liabilities, non current (*)     7,673,334       7,550,409       7,516,257       7,382,221  
Accounts payable, non-current     410,418       410,418       417,050       417,050  

 

(*) 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.

 

  34  

 

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 March 31, 2016 goodwill amounted to ThUS$ 2,493,114 (ThUS$ 2,280,575 at December 31, 2015), while intangible assets with an indefinite useful life comprised airport slots for ThUS$ 896,392 (ThUS$ 816,987 at December 31, 2015), and Trademarks and Loyalty Program for ThUS$ 356,908 (ThUS$ 325,293 at December 31, 2015).

 

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 March 31, 2016, amounted to ThUS$ 2,004,328 and ThUS$ 488,786 (ThUS$ 1,835,088 and ThUS$ 445,487 at December 31, 2015), which included intangible assets with undefined useful life:

 

    Air Transport
CGU 		    Coalition and loyalty
Program Multiplus CGU 		 
    As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport Slots     896.392       816.987       -       -  
Trade marks     58.130       52.981       -       -  
Loyalty program     -       -       298.778       272.312  

 

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.

 

  35  

 

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 March 31, 2016 the company recognized deferred tax assets amounting to ThUS$ 370,934 (ThUS$ 376,595 at December 31, 2015), and had ceased to recognize deferred tax assets for tax losses amounting to ThUS$ 34,633 (ThUS$ 15,513 at December 31, 2015) (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 March 31, 2016, deferred revenue associated with air tickets sold amounted to ThUS$ 1,184,064 (ThUS$ 1,223,886 as of December 31, 2015). 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 March 31, 2016, 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 March 31, 2016 and December 31, 2015, 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.

 

  36  

 

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 March 31, 2016, deferred revenue associated with the LANPASS loyalty program amounted to ThUS$ 923,006 (ThUS$ 973,264 at December 31, 2015). As of March 31, 2016 a hypothetical change of 1% in the probability of usage would result in an impact of approximately ThUS$ 30,000 and ThUS$24.233 at the same period of 2015. Meanwhile, deferred revenue associated with the TAM Fidelidade and Multiplus loyalty programs amounted to ThUS$ 389,464 (ThUS$ 452,264 at December 31, 2015). As of March 31, 2016 a hypothetical change of 2% in the probability of usage would result in an impact of approximately ThUS$ 3,646 and ThUS$ 2,881 at the same period of 2015.

 

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. As of March 31, 2016 a hypothetical change of 1% in the fair value of the unused kilometers would result in an impact of approximately ThUS$ 9,000 and ThUS$ 8,900 at the same period of 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.

 

  37  

 

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

 

  38  

 

(a) For the periods ended

 

                Coalition and                          
    Air     loyalty program                          
    transportation     Multiplus     Eliminations     Consolidated  
    At March 31,     At March 31,     At March 31,     At March 31,  
    2016     2015     2016     2015     2016     2015     2016     2015  
    ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $     ThUS $  
    Unaudited  
Income from ordinary activities from external customers(*)     2,138,925       2,561,740       95,332       132,109       -       -       2,234,257       2,693,849  
LAN passenger     1,084,909       1,128,658       -       -       -       -       1,084,909       1,128,658  
TAM passenger     778,049       1,082,760       95,332       132,109       -       -       873,381       1,214,869  
Freight     275,967       350,322       -       -       -       -       275,967       350,322  
Income from ordinary activities from transactions with other operating segments     95,332       132,109       17,593       14,426       (112,925 )     (146,535 )     -       -  
Other operating income     59,309       50,624       34,051       46,669       -       -       93,360       97,293  
Interest income     213       9,279       11,547       12,798       (896 )     (3,587 )     10,864       18,490  
Interest expense     (103,945 )     (98,920 )     -       -       896       3,587       (103,049 )     (95,333 )
Total net interest expense     (103,732 )     (89,641 )     11,547       12,798       -       -       (92,185 )     (76,843 )
                                                                 
Depreciation and amortization     (237,200 )     (233,538 )     (2,251 )     (3,910 )     -       -       (239,451 )     (237,448 )
Material non-cash items other than depreciation and amortization     53,159       (214,252 )     (367 )     86       -       -       52,792       (214,166 )
Disposal of fixed assets and inventory losses     (7,013 )     (6,879 )     -       -       -       -       (7,013 )     (6,879 )
Doubtful accounts     (8,128 )     (3,177 )     35       (7 )     -       -       (8,093 )     (3,184 )
Exchange differences     68,277       (204,670 )     (379 )     93       -       -       67,898       (204,577 )
Result of indexation units     23       474       (23 )     -       -       -       -       474  
Income (loss) atributable to owners of the parents     70,169       (73,359 )     32,039       33,412       -       -       102,208       (39,947 )
Expenses for income tax     (66,427 )     40,640       (15,900 )     (17,087 )     -       -       (82,327 )     23,553  
Segment profit/(loss)     83,993       (57,687 )     32,039       33,412       -       -       116,032       (24,275 )
Assets of segment     17,355,487       17,953,630       1,390,839       1,054,936       (114,479 )     (118,886 )     18,631,847       18,889,680  
Amount of non-current asset additions     506,254       172,829       -       -       -       -       506,254       172,829  
Property, plant and equipment     491,953       166,397       -       -       -       -       491,953       166,397  
Intangibles other than goodwill     14,301       6,432       -       -       -       -       14,301       6,432  
Segment liabilities     14,752,850       14,635,848       636,770       444,345       (34,503 )     (271 )     15,355,117       15,079,922  
Purchase of non-monetary assets of segment     303,262       299,410       -       -       -       -       303,262       299,410  

 

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

 

  39  

 

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

 

    For the period ended  
    At March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Peru     151,542       163,314  
Argentina     274,650       253,250  
U.S.A.     245,175       277,513  
Europe     186,688       195,355  
Colombia     78,961       96,323  
Brazil     657,419       1,039,517  
Ecuador     51,812       61,463  
Chile     419,934       425,536  
Asia Pacific and rest of Latin America     168,076       181,578  
Income from ordinary activities     2,234,257       2,693,849  
Other operating income     93,360       97,293  

 

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  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cash on hand     23,322       10,656  
Bank balances     204,278       302,696  
Overnight     130,220       267,764  
Total Cash     357,820       581,116  
Cash equivalents                
Time deposits     379,807       145,781  
Mutual funds     30,373       26,600  
Total cash equivalents     410,180       172,381  
Total cash and cash equivalents     768,000       753,497  

 

  40  

 

Cash and cash equivalents are denominated in the following currencies:

 

    As of     As of  
Currency   March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Argentine peso     18,412       18,733  
Brazilian real     58,163       106,219  
Chilean peso (*)     22,410       17,978  
Colombian peso     7,026       14,601  
Euro     13,633       10,663  
US Dollar     640,189       564,214  
Strong bolivar (**)     1,775       2,986  
Other currencies     6,392       18,103  
Total     768,000       753,497  

 

(*) At March 31, 2016 and at December 31, 2015, the Company not maintains currency derivative contracts (forward)), for conversion into dollars of investments in pesos.

 

(**) At March 31, 2016, 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$) at the DICOM rate equivalent to 198.70 VEF/US$. As of March 31, 2016, the DICOM rate equivalent to 272.91 VEF/US$, which represented assets that are held by the Company equivalent to ThUS$ 1,775 (ThUS$ 2,986 at December 31, 2015)

 

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.

 

  41  

 

Other inflows (outflows) of cash:

 

    For the periods ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Currency hedge     5,516       (3,748 )
Vale vista refounds     4,091       -  
Tax paid on bank transaction     115       -  
Fuel derivatives premiums     (856 )     (3,745 )
Bank commissions, taxes paid and other     (1,887 )     (421 )
Hedging margin guarantees     (4,978 )     69,658  
Guarantees     (6,977 )     (54,174 )
Fuel hedge     (27,370 )     (131,229 )
Total Other inflows (outflows) Operation flow     (32,346 )     (123,659 )
Certificate of bank deposits     -       3,800  
Tax paid on bank transaction     (3,423 )     -  
Total Other inflows (outflows) Investment flow     (3,423 )     3,800  
Credit card loan manager     -       2,814  
Finance charge by transfer of the rights     -       1,548  
Guarantees bonds emission     (7,489 )     (10,048 )
Aircraft Financing advances     (75,370 )     46,997  
Total Other inflows (outflows) Financing flow     (82,859 )     41,311  

 

  42  

 

NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1. Financial instruments by category

 

As of March 31, 2016 (Unaudited)

  

                      Initial designation        
  Loans           Held     as fair value        
    and     Hedge     for     through        
Assets   receivables     derivatives     trading     profit and loss     Total  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
Cash and cash equivalents     737,627       -       -       30,373       768,000  
Other financial assets, current (*)     28,623       3,879       78,266       493,983       604,751  
Trade and others accounts receivable, current     815,150       -       -       -       815,150  
Accounts receivable from related entities, current     228       -       -       -       228  
Other financial assets, non current (*)     102,428       -       645       -       103,073  
Accounts receivable, non current     7,014       -       -       -       7,014  
Total     1,691,070       3,879       78,911       524,356       2,298,216  

 

  Other     Held        
    financial     Hedge        
Liabilities   liabilities     derivatives     Total  
    ThUS$     ThUS$     ThUS$  
Other liabilities, current     1,553,996       87,567       1,641,563  
Trade and others accounts payable, current     1,452,837       -       1,452,837  
Accounts payable to related entities, current     472       -       472  
Other financial liabilities, non-current     7,673,334       14,070       7,687,404  
Accounts payable, non-current     410,418       -       410,418  
Total     11,091,057       101,637       11,192,694  

 

(*)           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.

 

  43  

 

As of December 31, 2015

 

                      Initial designation        
    Loans           Held     as fair value        
    and     Hedge     for     through        
Assets   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  

 

    Other     Held        
    financial     Hedge        
Liabilities   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.

 

  44  

 

7.2. Financial instruments by currency

 

a) Assets

 

    As of     As of  
    March 31,     December 31,  
  2016     2015  
    ThUS$     ThUS$  
Cash and cash equivalents     768,000       753,497  
Argentine peso     18,412       18,733  
Brazilian real     58,163       106,219  
Chilean peso     22,410       17,978  
Colombian peso     7,026       14,601  
Euro     13,633       10,663  
US Dollar     640,189       564,214  
Strong bolivar     1,775       2,986  
Other currencies     6,392       18,103  
Other financial assets (current and non-current)     707,824       740,806  
Argentine peso     77,892       157,281  
Brazilian real     496,581       449,934  
Chilean peso     624       640  
Colombian peso     454       1,670  
Euro     3,236       615  
US Dollar     126,878       128,620  
Strong bolivar     1       22  
Other currencies     2,158       2,024  
Trade and other accounts receivable, current     815,150       796,974  
Argentine peso     63,926       71,438  
Brazilian real     338,995       191,037  
Chilean peso     30,033       57,755  
Colombian peso     5,818       13,208  
Euro     21,947       53,200  
US Dollar     280,032       320,959  
Strong bolivar     603       7,225  
Other currencies(*)     73,796       82,152  
Accounts receivable, non-current     7,014       10,715  
Brazilian real     572       521  
Chilean peso     6,227       5,041  
US Dollar     62       5,000  
Other currencies(*)     153       153  
Accounts receivable from related entities, current     228       183  
Brazilian real     4       -  
Chilean peso     249       183  
US Dollar     (25 )     -  
Total assets     2,298,216       2,302,175  
Argentine peso     160,230       247,452  
Brazilian real     894,315       747,711  
Chilean peso     59,543       81,597  
Colombian peso     13,298       29,479  
Euro     38,816       64,478  
US Dollar     1,047,136       1,018,793  
Strong bolivar     2,379       10,233  
Other currencies     82,499       102,432  

 

(*)        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.

 

  45  

 

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

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Trade accounts receivable     704,749       685,733  
Other accounts receivable     177,622       182,028  
Total trade and other accounts receivable     882,371       867,761  
Less: Allowance for impairment loss     (60,207 )     (60,072 )
Total net trade and accounts receivable     822,164       807,689  
Less: non-current portion   accounts receivable     (7,014 )     (10,715 )
Trade and other accounts receivable, current     815,150       796,974  

 

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  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Fully performing     606,111       577,902  
Matured accounts receivable, but not impaired                
Expired from 1 to 90 days     25,150       28,717  
Expired from 91 to 180 days     9,599       10,995  
More than 180 days overdue (*)     3,682       8,047  
Total matured accounts receivable, but not impaired     38,431       47,759  
Matured accounts receivable and impaired                
Judicial, pre-judicial collection and protested documents     27,064       24,304  
Debtor under pre-judicial collection process and portfolio sensitization     33,143       35,768  
Total matured accounts receivable and impaired     60,207       60,072  
Total     704,749       685,733  

 

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

 

  46  

 

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

 

    As of     As of  
    March 31,     December 31,  
Currency   2016     2015  
    ThUS$     ThUS$  
Argentine Peso     63,926       71,438  
Brazilian Real     339,567       191,558  
Chilean Peso     36,260       62,796  
Colombian peso     5,818       13,208  
Euro     21,947       53,200  
US Dollar     280,094       325,959  
Strong bolivar     603       7,225  
Other currency (*)     73,949       82,305  
Total     822,164       807,689  
                 
(*)    Other currencies                
Australian Dollar     22,195       26,185  
Chinese Yuan     6,253       4,282  
Danish Krone     197       164  
Pound Sterling     4,519       7,228  
Indian Rupee     2,259       3,070  
Japanese Yen     7,050       4,343  
Norwegian Kroner     80       221  
Swiss Franc     1,178       1,919  
Korean Won     5,148       4,462  
New Taiwanese Dollar     759       3,690  
Other currencies     24,311       26,741  
Total     73,949       82,305  

 

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 %

 

  47  

 

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

 

    Opening           (Increase)     Closing  
    balance     Write-offs     Decrease     balance  
Periods   ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2015 (Unaudited)     (71,042 )     225       5,234       (65,583 )
From April 1 to December 31, 2015     (65,583 )     9,895       (4,384 )     (60,072 )
From January 1 to March 31, 2016 (Unaudited)     (60,072 )     10,908       (11,043 )     (60,207 )

 

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

 

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

 

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

 

    As of March 31, 2016     As of December 31, 2015  
    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$  
    Unaudited                    
Trade accounts receivable     704,749       (60,207 )     644,542       685,733       (60,072 )     625,661  
Other accounts receivable     177,622       -       177,622       182,028       -       182,028  

 

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.

 

  48  

 

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a) Accounts Receivable

 

                    As of     As of  
            Country       March 31,     December 31,  
Tax No.   Related party   Relationship   of origin   Currency   2016     2016  
                    ThUS$     ThUS$  
                    Unaudited        
                             
78.591.370-1   Bethia S.A. and Subsidiaries   Related director   Chile   CLP     215       167  
87.752.000-5   Granja Marina T ornagaleones S.A.   Common shareholder   Chile   CLP     9       14  
Foreign   TAM Aviação Executiva e Taxi Aéreo S.A.   Related director   Brazil   BRL     4       2  
    Total current assets                 228       183  

 

(b) Accounts payable

 

                    As of     As of  
            Country       March 31,     December 31,  
Tax No.   Related party   Relationship   of origin   Currency   2016     2015  
                    ThUS$     ThUS$  
                    Unaudited        
Foreign   Consultoría Administrativa Profesional S.A. de C.V.   Associate   Mexico   MXN     53       342  
65.216.000-K   Viajes Falabella Ltda.   Related director   Chile   CLP     353       68  
Foreign   Inversora Aeronaútica Argentina   Related director   Argentina   US$     -       22  
65.216.000-K   Comunidad Mujer   Related director   Chile   CLP     8       10  
79.773.440-3   Transportes San Felipe S.A.   Related director   Chile   CLP     56       -  
78.591.370-1   Bethia S.A. and Subsidiaries   Related director   Chile   CLP     2       5  
    Total current liabilities                 472       447  

 

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.

 

  49  

 

NOTE 10 -INVENTORIES

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Technical stock     194,607       192,930  
Non-technical stock     34,915       31,978  
Total production suppliers     229,522       224,908  

 

The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence that as of March 31, 2016 amounts to ThUS$ 17,461 (ThUS$ 15,892 at December 31, 2015). The resulting amounts do not exceed the respective net realizable values.

 

As of March 31, 2016, the Company recorded ThUS$ 38,268 (ThUS$ 39,685 at March 31, 2015) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

 

  50  

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
(a) Other financial assets                                                
Private investment funds     493,983       448,810       -       -       493,983       448,810  
Deposits in guarantee (aircraft)     11,919       16,532       62,808       58,483       74,727       75,015  
Guarantees for margins of derivatives     7,817       4,456       -       -       7,817       4,456  
Other investments     -       -       645       638       645       638  
Domestic and foreign bonds     78,266       158,812       -       -       78,266       158,812  
Other guarantees given     8,887       6,160       39,620       30,337       48,507       36,497  
Subtotal of other financial assets     600,872       634,770       103,073       89,458       703,945       724,228  
                                                 
(b) Hedging assets                                                
Interest accrued since the last payment date of Cross currency swap     163       397       -       -       163       397  
Fair value of foreign currency derivatives (*)     956       9,888       -       -       956       9,888  
Fair value of fuel price derivatives     2,760       6,293       -       -       2,760       6,293  
Subtotal of hedging assets     3,879       16,578       -       -       3,879       16,578  
Total Other Financial Assets     604,751       651,348       103,073       89,458       707,824       740,806  

 

(*) 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.

 

  51  

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
(a) Advance payments                                                
                                                 
Aircraft leases     32,101       33,305       20,006       22,569       52,107       55,874  
Aircraft insurance and other     5,831       12,408       -       -       5,831       12,408  
Others     15,145       16,256       31,969       33,781       47,114       50,037  
Subtotal advance payments     53,077       61,969       51,975       56,350       105,052       118,319  
                                                 
(b) Other assets                                                
Aircraft maintenance reserve(*)     47,154       99,112       126,721       64,366       173,875       163,478  
Sales tax     171,145       158,134       45,586       45,061       216,731       203,195  
Other taxes     3,519       4,295       -       -       3,519       4,295  
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”)     450       505       547       547       997       1,052  
Judicial deposits     -       -       83,429       67,980       83,429       67,980  
Others     238       6,001       1,501       1,159       1,739       7,160  
Subtotal other assets     222,506       268,047       257,784       179,113       480,290       447,160  
Total Other Non - Financial Assets     275,583       330,016       309,759       235,463       585,342       565,479  

 

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

 

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

 

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

 

As of March 31, 2016, LATAM had ThUS$ 173,875 in maintenance reserves (ThUS$ 163,478 at December 31, 2015), corresponding to 9 aircraft out of a total fleet of 335 (9 aircraft out of a total fleet of 331 at December 31, 2015). 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)

  

  52  

 

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 of   Functional   March 31,     December 31,  
Name of significant subsidiary   incorporation   currency   2016     2015  
            %     %  
            Unaudited        
Lan Perú S.A.   Peru   US$     69.97858       69.97858  
Lan Cargo S.A.   Chile   US$     99.89804       99.89803  
Lan Argentina S.A.   Argentina   ARS     95.85660       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     99.12066       99.01646  
TAM S.A.   Brazil   BRL     99.99938       99.99938  

 

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

 

  53  

 

Summary financial information of significant subsidiaries

 

          Results for the period  
    Statement of financial position as of March 31, 2016     ended March 31, 2016  
    Total     Current     Non-current     Total     Current     Non-current           Net  
Name of significant subsidiary   Assets     Assets     Assets     Liabilities     Liabilities     Liabilities     Revenue     Income  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited     Unaudited  
Lan Perú S.A.     286,827       264,007       22,820       260,349       259,155       1,194       239,976       13,117  
Lan Cargo S.A.     464,454       143,698       320,756       211,489       148,586       62,903       61,340       (13,053 )
Lan Argentina S.A.     170,514       159,777       10,737       130,674       128,483       2,191       108,408       18,065  
Transporte Aéreo S.A.     332,592       45,007       287,585       116,287       44,610       71,677       77,490       7,779  
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     90,397       45,016       45,381       79,922       74,733       5,189       53,974       627  
Aerovías de Integración Regional, AIRES S.A.     121,098       51,023       70,075       66,356       55,932       10,424       63,463       (2,894 )
TAM S.A. (*)     4,892,799       1,386,099       3,506,700       4,342,867       2,083,599       2,259,268       959,333       20,620  

 

          Results for the period  
    Statement of financial position as of December 31, 2015     ended March 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$  
                                        Unaudited  
Lan Perú S.A.     255,691       232,547       23,144       240,938       239,521       1,417       277,969       15,058  
Lan Cargo S.A.     483,033       159,294       323,739       217,037       147,423       69,614       65,860       (12,563 )
Lan Argentina S.A.     195,756       180,558       15,198       170,384       168,126       2,258       126,391       13,728  
Transporte Aéreo S.A.     331,117       41,756       289,361       122,666       44,495       78,171       91,458       (1,129 )
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     126,001       80,641       45,360       116,153       111,245       4,908       62,308       5,513  
Aerovías de Integración Regional, AIRES S.A.     130,039       62,937       67,102       75,003       64,829       10,174       75,124       (9,244 )
TAM S.A. (*)     4,711,316       1,350,377       3,360,939       4,199,223       1,963,400       2,235,823       1,332,408       (14,978 )

 

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

 

  54  

 

(b) Non-controlling interest

 

            As of     As of     As of     As of  
Equity       Country   March 31,     December 31,     March 31,     December 31,  
    Tax No.   of origin   2016     2015     2016     2015  
            %     %     ThUS$     ThUS$  
            Unaudited           Unaudited        
Lan Perú S.A   0-E   Peru     30.00000       30.00000       7,943       4,426  
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10605       0.10605       644       974  
Promotora Aérea Latinoamericana S.A. and Subsidiaries   0-E   Mexico     51.00000       51.00000       3,606       3,084  
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     4.22000       4.22000       (1,213 )     (1,386 )
Lan Argentina S.A.   0-E   Argentina     0.13440       1.00000       107       29  
Americonsult de Guatemala S.A.   0-E   Guatemala     1.00000       1.00000       6       5  
Americonsult Costa Rica S.A.   0-E   Costa Rica     1.00000       1.00000       11       12  
Linea Aérea Carguera de Colombiana S.A.   0-E   Colombia     10.00000       10.00000       (450 )     (811 )
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.87934       0.98307       542       540  
Transportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       1,444       1,256  
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       72,942       72,884  
Total                             85,582       81,013  

 

            As of     As of     For the period ended  
Incomes       Country   March 31,     December 31,     March 31,  
    T ax No.   of origin   2016     2015     2016     2015  
            %     %     ThUS$     ThUS$  
            Unaudited  
Lan Perú S.A   0-E   Peru     30.00000       30.00000       3,935       4,517  
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10605       0.10605       4       6  
Promotora Aerea Latinoamericana S.A. and Subsidiaries   0-E   Mexico     51.00000       51.00000       522       1,058  
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     4.22000       4.22000       90       67  
Lan Argentina S.A.   0-E   Argentina     0.13440       1.00000       19       14  
Americonsult de Guatemala S.A.   0-E   Guatemala     1.00000       1.00000       -       (1 )
Americonsult Costa Rica S.A.   0-E   Costa Rica     1.00000       1.00000       -       1  
Linea Aérea Carguera de Colombiana S.A.   0-E   Colombia     10.00000       10.00000       361       1,029  
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.87934       0.98307       (28 )     (91 )
T ransportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       188       (36 )
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       8,733       9,108  
Total                             13,824       15,672  

 

  55  

 

NOTE 14 - INTANGIBLE ASSETS OTHER THAN GOODWILL

 

The details of intangible assets are as follows:

 

    Classes of intangible assets
(net) 		    Classes of intangible assets
(gross) 		 
    As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport slots     896,392       816,987       896,392       816,987  
Loyalty program     298,778       272,312       298,778       272,312  
Computer software     120,968       104,258       350,313       324,043  
Developing software     69,251       74,887       69,251       74,887  
Trademarks     58,130       52,981       58,130       52,981  
Other assets     -       -       808       808  
Total     1,443,519       1,321,425       1,673,672       1,542,018  

 

Movement in Intangible assets other than goodwill:

 

    Computer                 Trademarks        
    software     Developing     Airport     and loyalty        
    Net     software     slots(*)     program (*)     Total  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
Opening balance as of January 1,2015     126,797       74,050       1,201,028       478,204       1,880,079  
Additions     608       5,824       -       -       6,432  
Withdrawals     (945 )     -       -       -       (945 )
Transfer software     3,302       (3,328 )     -       -       (26 )
Foreing exchange     (9,082 )     (8,305 )     (206,586 )     (82,255 )     (306,228 )
Amortization     (11,336 )     -       -       -       (11,336 )
Closing balance as of March 31, 2015 (Unaudited)     109,344       68,241       994,442       395,949       1,567,976  
                                         
Opening balance as of April 1, 2015     109,344       68,241       994,442       395,949       1,567,976  
Additions     4,346       42,446       -       -       46,792  
Withdrawals     (3,667 )     (162 )     -       (1 )     (3,830 )
Transfer software     25,424       (27,098 )     -       -       (1,674 )
Foreing exchange     (5,789 )     (8,540 )     (177,455 )     (70,655 )     (262,439 )
Amortization     (25,400 )     -       -       -       (25,400 )
Closing balance as of December 31, 2015     104,258       74,887       816,987       325,293       1,321,425  
                                         
Opening balance as of January 1, 2016     104,258       74,887       816,987       325,293       1,321,425  
Additions     4,810       9,491       -       -       14,301  
Withdrawals     (722 )     (18 )     -       -       (740 )
Transfer software     19,350       (18,596 )     -       -       754  
Foreing exchange     2,832       3,487       79,405       31,615       117,339  
Amortization     (9,560 )     -       -       -       (9,560 )
Closing balance as of March 31, 2016 (Unaudited)     120,968       69,251       896,392       356,908       1,443,519  

 

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of March 31, 2016 amounts to ThUS$ 229,345 (ThUS$ 219,785 at December 31, 2015).

 

(*) See Note 2.5

 

  56  

 

NOTE 15 – GOODWILL

 

The Goodwill amount at March 31, 2016 is ThUS$ 2,493,114 (ThUS$ 2,280,575 at December 31, 2015). Movement of Goodwill, separated by CGU:

 

          Coalition        
          and loyalty        
    Air     program        
    Transport     Multiplus     Total  
    ThUS$     ThUS$     ThUS$  
Opening balance as of January 1, 2015     2,658,503       654,898       3,313,401  
Increase (decrease) due to exchange rate differences     (438,590 )     (112,648 )     (551,238 )
Closing balance as of March 31, 2015 (Unaudited)     2,219,913       542,250       2,762,163  
Opening balance as of April 1, 2015     2,219,913       542,250       2,762,163  
Increase (decrease) due to exchange rate differences     (384,825 )     (96,763 )     (481,588 )
Closing balance as of December 31, 2015     1,835,088       445,487       2,280,575  
Opening balance as of January 1, 2016     1,835,088       445,487       2,280,575  
Increase (decrease) due to exchange rate differences     169,240       43,299       212,539  
Closing balance as of March 31, 2016 (Unaudited)     2,004,328       488,786       2,493,114  

 

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.

 

  57  

 

As of December 31, 2015 the recoverable values were determined using the following assumptions presented below:

 

        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

(2) The flow, as well as annual growth rte and discount, are denominated in real. 

 

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:

 

                Decrease  
    Increase     Increase     M inimum  
    M aximum     M aximum     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.

 

At March 31, 2016, have not been identified new impairment indications that requiring impairment test.

 

  58  

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Construction in progress (*)     947,055       1,142,812       -       -       947,055       1,142,812  
Land     47,734       45,313       -       -       47,734       45,313  
Buildings     134,733       131,816       (41,661 )     (40,325 )     93,072       91,491  
Plant and equipment     9,633,564       9,683,764       (1,924,308 )     (2,392,463 )     7,709,256       7,291,301  
Own aircraft     9,032,978       9,118,396       (1,726,538 )     (2,198,682 )     7,306,440       6,919,714  
Other (**)     600,586       565,368       (197,770 )     (193,781 )     402,816       371,587  
Machinery     39,594       36,569       (23,745 )     (21,220 )     15,849       15,349  
Information technology equipment     161,019       154,093       (118,119 )     (110,204 )     42,900       43,889  
Fixed installations and accessories     188,003       179,026       (97,029 )     (90,068 )     90,974       88,958  
Motor vehicles     104,015       99,997       (68,178 )     (64,047 )     35,837       35,950  
Leasehold improvements     129,226       124,307       (74,394 )     (70,219 )     54,832       54,088  
Other property, plants and equipment     3,258,785       3,279,902       (1,179,580 )     (1,150,396 )     2,079,205       2,129,506  
Financial leasing aircraft     3,112,928       3,151,405       (1,147,797 )     (1,120,682 )     1,965,131       2,030,723  
Other     145,857       128,497       (31,783 )     (29,714 )     114,074       98,783  
Total     14,643,728       14,877,599       (3,527,014 )     (3,938,942 )     11,116,714       10,938,657  

 

(*) It includes pre-delivery payments to aircraft manufacturers for ThUS$ 871,951 (ThUS$ 1,016,007 as of December 31, 2015)

 

(**) Mainly considers rotable and tools.

 

  59  

 

(a) The movement in the different categories of Property, plant and equipment:

 

                                                    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, 2015     937,279       57,988       167,006       6,954,089       51,009       43,783       1,965       56,523       2,503,434       10,773,076  
Additions     9,142       -       -       112,683       1,165       557       17       9,445       33,388       166,397  
Disposals     -       -       -       (5,187 )     -       -       -       -       -       (5,187 )
Retirements     -       -       -       (2,889 )     (45 )     (1 )     -       -       (1,790 )     (4,725 )
Depreciation expenses     -       -       (941 )     (132,222 )     (4,129 )     (4,083 )     (73 )     (4,199 )     (43,991 )     (189,638 )
Foreing exchange     (45 )     (6,073 )     (16,130 )     (93,311 )     (2,938 )     (457 )     (366 )     -       (109,916 )     (229,236 )
Other increases (decreases)     125,268       (1,066 )     (58,188 )     (12,934 )     (459 )     60,083       -       (1,226 )     15,643       127,121  
Changes, total   134,365       (7,139 )     (75,259 )     (133,860 )     (6,406 )     56,099       (422 )     4,020       (106,666 )     (135,268 )
Closing balance as of March 31, 2015 (Unaudited)     1,071,644       50,849       91,747       6,820,229       44,603       99,882       1,543       60,543       2,396,768       10,637,808  
Opening balance as of April 1, 2015     1,071,644       50,849       91,747       6,820,229       44,603       99,882       1,543       60,543       2,396,768       10,637,808  
Additions     30,569       -       439       1,191,516       14,157       1,135       263       3,743       30,838       1,272,660  
Disposals     -       -       (500 )     (71,488 )(1)     (27 )     -       (8 )     -       (11 )     (72,034 )
Retirements     (1,262 )     -       (956 )     (35,351 )     (59 )     (475 )     (4 )     -       (7,112 )     (45,219 )
Depreciation expenses     -       -       (6,220 )     (389,466 )     (12,067 )     (7,566 )     (305 )     (9,774 )     (130,483 )     (555,881 )
Foreing exchange     (887 )     (5,713 )     (2,118 )     (36,622 )     (3,188 )     (12,812 )     (272 )     (1,659 )     (142,793 )     (206,064 )
Other increases (decreases)     42,748       177       9,099       (137,743 )     470       8,794       308       1,235       (17,701 )     (92,613 )
Changes, total     71,168       (5,536 )     (256 )     520,846       (714 )     (10,924 )     (18 )     (6,455 )     (267,262 )     300,849  
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  
Opening balance as of January 1, 2016     1,142,812       45,313       91,491       7,341,075       43,889       88,958       1,525       54,088       2,129,506       10,938,657  
Additions     4,036       -       -       482,337       1,433       29       1       2,512       1,605       491,953  
Disposals     -       -       -       (9,856 )(2)     -       -       -       -       -       (9,856 )
Retirements     (93 )     -       -       (18,256 )     (1 )     -       -       -       (45 )     (18,395 )
Depreciation expenses     -       -       (634 )     (136,086 )     (3,934 )     (3,341 )     (72 )     (3,213 )     (38,884 )     (186,164 )
Foreing exchange     2,481       2,421       1,173       23,384       1,506       4,587       213       1,318       51,960       89,043  
Other increases (decreases)     (202,181 )     -       1,042       76,677       7       741       -       127       (64,937 )     (188,524 )
Changes, total     (195,757 )     2,421       1,581       418,200       (989 )     2,016       142       744       (50,301 )     178,057  
Closing balance as of March 31, 2016 (Unaudited)     947,055       47,734       93,072       7,759,275       42,900       90,974       1,667       54,832       2,079,205       11,116,714  

 

(1) 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.

 

(2) During the first quarter of 2016 one Airbus A330 aircraft were sold.

 

  60  

 

(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  
          March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
Aircraft   Model     2016     2015     2016     2015     2016     2015  
          Unaudited           Unaudited           Unaudited        
Boeing 767     300ER     34       34       4       4       38       38  
Boeing 767     300F     8 (1)     8 (1)     3       3       11 (1)     11 (1)
Boeing 777     300ER     4       4       6       6       10       10  
Boeing 777     Freighter       2 (2)     2 (2)     2       2       4 (2)     4  
Boeing 787     800       6       6       4       4       10       10  
Boeing 787     900       4       3       6       4       10       7  
Airbus A319     100       38       38       12       12       50       50  
Airbus A320     200       95       95       58       59       153       154  
Airbus A321     200       28       26       10       10       38       36  
Airbus A330     200       7       8       2       2       9       10  
Airbus A350     900       2       1       -       -       2       1  
Total             228       225       107       106       335       331  

 

(1) Three aircraft leased to FEDEX

(2) 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$ 186,164 (ThUS$ 189,638 at December 31, 2015). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income.

 

  61  

 

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

 

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

 

In the period ended March 31, 2016, direct guarantees by two Airbus A321-200 aircraft, one Boeing 787-9 aircraft and one Airbus A350-941aircraft were added.

 

Description of Property, plant and equipment pledged as guarantee:

 

            As of     As of  
            March 31,     December 31,  
            2016     2015  
Creditor of   As sets       Existing     Book     Existing     Book  
guarantee      committed   Fleet   Debt     Value     Debt     Value  
            ThUS$     ThUS$     ThUS$     ThUS$  
            Unaudited              
Wilmington Trust Company   Aircraft and engines   Airbus A321 / A350     550,684       693,609       374,619       478,667  
        Boeing 767     883,607       1,205,673       907,356       1,220,541  
        Boeing 777 / 787     798,363       933,963       712,059       834,567  
Banco Santander S.A.   Aircraft and engines   Airbus A319     56,570       94,032       58,527       95,387  
        Airbus A320     509,383       741,717       524,682       749,192  
        Airbus A321     35,471       44,917       36,334       45,380  
BNP Paribas   Aircraft and engines   Airbus A319     149,766       228,607       154,828       229,798  
        Airbus A320     141,228       189,869       145,506       192,957  
Credit Agricole   Aircraft and engines   Airbus A319     34,472       80,108       37,755       84,129  
        Airbus A320     104,594       208,667       115,339       214,726  
        Airbus A321     48,125       96,151       50,591       97,257  
JP Morgan   Aircraft and engines   Boeing 777     209,654       260,697       215,265       263,366  
Wells Fargo   Aircraft and engines   Airbus A320     272,770       343,520       279,478       348,271  
Bank of Utah   Aircraft and engines   Airbus A320     235,170       307,735       240,094       312,573  
Natixis   Aircraft and engines   Airbus A320     53,667       86,247       56,223       81,355  
        Airbus A321     404,313       533,920       413,201       542,594  
Citibank N.A.   Aircraft and engines   Airbus A320     123,202       171,062       127,135       172,918  
        Airbus A321     47,840       72,215       49,464       73,122  
HSBC   Aircraft and engines   Airbus A320     52,209       63,671       53,583       64,241  
KfW IPEX-Bank   Aircraft and engines   Airbus A320     12,939       16,669       13,593       16,838  
PK AirFinance US, Inc.   Aircraft and engines   Airbus A320     60,632       48,104       62,514       48,691  
Total direct guarantee             4,784,659       6,421,153       4,628,146       6,166,570  

 

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

 

Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at March 31, 2016 amounted to ThUS$ 1,245,356 (ThUS$ 1,311,088 at December 31, 2015). The book value of assets with indirect guarantees as of March 31, 2016 amounts to ThUS$ 1,959,973 (ThUS$ 2,001,605 as of December 31, 2015).

 

  62  

 

(ii) Commitments and others

 

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

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Gross book value of fully depreciated property, plant and equipment still in use     98,134       129,766  
Commitments for the acquisition of aircraft (*)     19,300,000       19,800,000  
                 
(*) 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.     20       22       24       12       14       13       105  
A320-NEO     2       18       16       8       8       -       52  
A321     13       -       -       -       -       -       13  
A321-NEO     -       -       6       -       4       5       15  
A350-1000     -       -       -       2       2       8       12  
A350-900     5       4       2       2       -       -       13  
The Boeing Company     2       1       4       6       -       -       13  
B777     -       -       -       2       -       -       2  
B787-8     -       -       4       4       -       -       8  
B787-9     2       1       -       -       -       -       3  
Total     22       23       28       18       14       13       118  

 

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

 

As of March 31, 2016, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., 80 aircraft Airbus A320 family, with deliveries between 2016 and 2021, and 25 Airbus aircraft A350 family with delivery dates starting from 2016 remain to be received.

 

The approximate amount is ThUS$ 16,200,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 4 Airbus A350 aircraft.

 

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

 

As of March 31, 2016, and as a result of different aircraft purchase contracts signed with The Boeing Company, a total of 11 787 Dreamliner aircraft, with delivery dates between 2016 and 2019, and 2 Boeing 777 with delivery expected for 2019 remain to be received.

 

The approximate amount, according to the manufacturer's price list, is ThUS$ 3,100,000.

 

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

 

  63  

 

        For the periods ended  
        March 31,  
        2016     2015  
        Unaudited  
Average rate of capitalization of capitalized interest costs   %     3.13       2.77  
Costs of capitalized interest   ThUS$     3,560       6,192  

 

(iv) Financial leases

 

The detail of the main financial leases is as follows:

 

            As of     As of  
            March 31,     December 31,  
Lessor   Aircraft   Model   2016     2015  
            Unaudited        
Agonandra Statutory Trust   Airbus A320   200     -       2  
Amendoeira Leasing Trust   Airbus A319   100     1       -  
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  
Figueira Leasing LLC   Airbus A320   200     1       -  
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  
Jacarandá Leasing Limited   Airbus A320   200     1       -  
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       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 A330   200     -       1  
TMF Interlease Aviation II B.V.   Airbus A319   100     4       5  
TMF Interlease Aviation II B.V.   Airbus A320   200     -       2  
Tricahue Leasing LLC   Boeing 767   300ER     3       3  
Wacapou LeasingS.A   Airbus A320   200     1       1  
Total             61       66  

 

  64  

 

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

 

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

 

Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of March 31, 2016 the Company had sixty one aircraft (sixty six aircraft as of December 31, 2015).

 

As of March 31, 2016, as a result of the transfer plan fleet of TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company declined its number of aircraft leasing in four Airbus A320-200 and one Airbus A330-200 aircraft.

 

The book value of assets under financial leases as of March 31, 2016 amounts to ThUS$ 1,965,131 (ThUS$ 2,030,723 at December 31, 2015).

 

The minimum payments under financial leases are as follows:

 

    As of March 31, 2016 (Unaudited)     As of December 31, 2015  
    Gross           Present     Gross           Present  
    Value     Interest     Value     Value     Interest     Value  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
No later than one year     343,710       (44,059 )     299,651       360,862       (47,492 )     313,370  
Between one and five years     928,372       (66,857 )     861,515       1,003,237       (75,363 )     927,874  
Over five years     85,788       (960 )     84,828       95,050       (1,406 )     93,644  
Total     1,357,870       (111,876 )     1,245,994       1,459,149       (124,261 )     1,334,888  

 

NOTE 17 - CURRENT AND DEFERRED TAXES

 

In the period ended March 31, 2016, the income tax provision was calculated at the rate of 24% for the business year 2016, 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.

 

  65  

 

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.

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provisional monthly payments (advances)     42,103       43,935       -       -       42,103       43,935  
Other recoverable credits     24,747       20,080       25,629       25,629       50,376       45,709  
Total current tax assets     66,850       64,015       25,629       25,629       92,479       89,644  

 

(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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Income tax provision     25,712       19,001       -       -       25,712       19,001  
Additional tax provision     87       377       -       -       87       377  
Total current tax liabilities     25,799       19,378       -       -       25,799       19,378  

 

  66  

 

(b) Deferred taxes

 

The balances of deferred tax are the following:

 

    Assets     Liabilities  
    As of     As of     As of     As of  
Concept   March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Depreciation     (45,072 )     (14,243 )     1,127,225       1,103,017  
Leased assets     (87,036 )     (25,299 )     219,753       137,741  
Amortization     (5,607 )     (5,748 )     69,022       92,313  
Provisions     257,562       210,992       (88,386 )     (70,028 )
Revaluation of financial instruments     -       709       (11,397 )     (7,575 )
Tax losses     253,798       212,067       (874,009 )     (797,715 )
Revaluation property, plant and equipment     -       -       -       (4,081 )
Intangibles     -       -       399,756       355,952  
Others     (2,711 )     (1,883 )     15,175       1,941  
Total     370,934       376,595       857,139       811,565  

 

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 March 31, 2015 (Unaudited)

 

    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 )     (50,807 )     -       4,594       -       (917,853 )
Leased assets     (185,775 )     12,519       -       4,197       -       (169,059 )
Amortization     (160,100 )     4,919       -       2,478       -       (152,703 )
Provisions     351,077       (17,635 )     -       (68,216 )     -       265,226  
Revaluation of financial instruments     12,806       22,482       (21,366 )     (1,710 )     -       12,212  
Tax losses(*)     722,749       83,524       -       (17,947 )     -       788,326  
Revaluation propety, plant and equipment     5,999       6,885       -       (7,916 )     -       4,968  
Intangibles     (523,275 )     -       -       90,007       -       (433,268 )
Others     3,588       (8,341 )     -       1,521       1,384       (1,848 )
Total     (644,571 )     53,546       (21,366 )     7,008       1,384       (603,999 )

 

  67  

 

(b) From April 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     (917,853 )     (217,084 )     -       3,946       -       (1,130,991 )
Leased assets     (169,059 )     (85,849 )     -       3,606       -       (251,302 )
Amortization     (152,703 )     79,411       -       2,128       -       (71,164 )
Provisions     265,226       167,997       3,911       (58,597 )     -       378,537  
Revaluation of financial instruments     12,212       (2,722 )     263       (1,469 )     -       8,284  
Tax losses(*)     788,326       236,873       -       (15,417 )     -       1,009,782  
Revaluation propety, plant and equipment     4,968       5,914       -       (6,801 )     -       4,081  
Intangibles     (433,268 )     (8,362 )     -       77,316       -       (364,314 )
Others     (1,848 )     41,180       -       (48,986 )     (8,229 )     (17,883 )
Total     (603,999 )     217,358       4,174       (44,274 )     (8,229 )     (434,970 )

 

(c) From January 1 to March 31, 2016 (Unaudited)

 

    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     (1,130,991 )     (39,540 )     -       (1,766 )     -       (1,172,297 )
Leased assets     (251,302 )     (53,874 )     -       (1,613 )     -       (306,789 )
Amortization     (71,164 )     (2,513 )     -       (952 )     -       (74,629 )
Provisions     378,537       (59,222 )     413       26,220       -       345,948  
Revaluation of financial instruments     8,284       10,167       (7,711 )     657       -       11,397  
Tax losses (*)     1,009,782       111,127       -       6,898       -       1,127,807  
Revaluation propety, plant and equipment     4,081       (7,124 )     -       3,043       -       -  
Intangibles     (364,314 )     (846 )     -       (34,596 )     -       (399,756 )
Others     (17,883 )     (13,891 )     -       12,250       1,638       (17,886 )
Total     (434,970 )     (55,716 )     (7,298 )     10,141       1,638       (486,205 )

 

Deferred tax assets not recognized:

 

  As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Tax losses     34,633       15,513  
Total Deferred tax assets not recognized     34,633       15,513  

 

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. At March 31, 2016, the Company has not recognized deferred tax assets of ThUS$ 34,633 (ThUS$ 15,513 at December 31, 2015) according with a loss of ThUS$ 101,862 (ThUS$ 45,628 at December 31, 2015) to offset against future years tax benefits.

 

  68  

 

Deferred tax expense and current income taxes:

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Current tax expense                
Current tax expense     24,490       29,794  
Adjustment to previous period ’ s current tax     2,121       199  
Total current tax expense, net     26,611       29,993  
                 
Deferred tax expense                
Deferred expense for taxes related to the creation and reversal of temporary differences     55,716       (53,546 )
Total deferred tax expense, net     55,716       (53,546 )
Income tax expense     82,327       (23,553 )

 

Composition of income tax expense (income):

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Current tax expense, net, foreign     25,687       28,689  
Current tax expense, net, Chile     924       1,304  
Total current tax expense, net     26,611       29,993  
                 
Deferred tax expense, net, foreign     48,739       (33,218 )
Deferred tax expense, net, Chile     6,977       (20,328 )
Deferred tax expense, net, total     55,716       (53,546 )
Income tax expense     82,327       (23,553 )

 

Profit before tax by the legal tax rate in Chile (24% and 22.5% at March 31, 2016 and 2015, respectively)

 

  69  

 

    For the period ended     For the period ended  
    March 31,     March 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     %     %  
    Unaudited     Unaudited  
Tax expense using the legal rate(*)     44,288       (14,288 )     24.00       22.50  
Tax effect of rates in other jurisdictions     14,774       1,039       8.01       (1.64 )
Tax effect of non-taxable operating revenues     (20,214 )     (30,197 )     (10.95 )     47.55  
Tax effect of disallowable expenses     41,266       17,977       22.36       (28.31 )
Other increases (decreases) in legal tax charge     2,213       1,916       1.20       (3.02 )
Total adjustments to tax expense using the legal rate     38,039       (9,265 )     20.62       14.58  
Tax expense using the effective rate     82,327       (23,553 )     44.62       37.08  

 

(*) 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 March 31, 2016 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.

 

Deferred taxes related to items charged to net equity:

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Aggregate deferred taxation of components of other comprehensive income     (7,298 )     (21,366 )
Aggregate deferred taxation related to items charged to net equity     (449 )     (713 )

 

(*) 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.

 

  70  

 

NOTE 18 - OTHER FINANCIAL LIABILITIES

 

The composition of Other financial liabilities is as follows:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
Current                
(a) Interest bearing loans     1,553,996       1,510,146  
(b) Hedge derivatives     87,567       134,089  
Total current     1,641,563       1,644,235  
                 
Non-current                
(a) Interest bearing loans     7,673,334       7,516,257  
(b) Hedge derivatives     14,070       16,128  
Total non-current     7,687,404       7,532,385  

 

(a) Interest bearing loans

 

Obligations with credit institutions and debt instruments:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Current                
Loans to exporters     390,289       387,409  
Bank loans     85,436       80,188  
Guaranteed obligations     628,625       591,148  
Other guaranteed obligations     24,502       32,513  
Subtotal bank loans     1,128,852       1,091,258  
Obligation with the public     37,763       10,999  
Financial leases     303,531       324,859  
Other loans     83,850       83,030  
Total current     1,553,996       1,510,146  
Non-current                
Bank loans     450,177       564,128  
Guaranteed obligations     4,311,706       4,122,995  
Other guaranteed obligations (1)     275,000       -  
Subtotal bank loans     5,036,883       4,687,123  
Obligation with the public (2)     1,297,537       1,294,882  
Financial leases     917,277       1,015,779  
Other loans     421,637       518,473  
Total non-current     7,673,334       7,516,257  
Total obligations with financial institutions     9,227,330       9,026,403  

 

  71  

 

(1) On March 29, 2016, LATAM Airlines Group S.A. He performed the closing of a new financing - Revolving Credit Facility (RCF). The credit line will be guaranteed by TAM Linhas Aereas S.A. and Transporte Aereo S.A.

 

The total amount committed and disbursed to March 30, 2016 was for a total of MUS $ 275,000. The financing term is 3 years.

 

The company will pay a coupon (a) plus a fee (b) based on the amount utilization rotated quarterly. The amount available but not willing, it will pay a quarterly commitment fee (c).

 

a. Interests: L3M + 200 bps annual
b. Utilization fee: If the rotated amount is less than 33% will be to increase 10bps; in case to be between 33% and 66% should be of score a 25bps; and if more than 66% it should adding 50bps
c. Commitment Fee: 0.625% per annum

 

The line is secured with collateral asset basis; such collateral is composed of: aircraft, engines and spare parts

 

This funding requires must compliance with liquidity ratio and certain ratios of collateral.

 

(2) 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, 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  
    March 31,     December 31,  
    2016     2015  
Currency   ThUS$     ThUS$  
    Unaudited        
Brazilian real     3,198       3,387  
Chilean peso (U.F.)     263,583       210,423  
US Dollar     8,960,549       8,812,593  
Total     9,227,330       9,026,403  

 

  72  

 

Interest - bearing loans due in installments to March 31, 2016 (Unaudited)

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       100,244       -       -       -       -       100,244     At Expiration     1.33       1.33  
97.036.000-K   SANTANDER   Chile   US$     100,000       -       -       -       -       100,000       100,092       -       -       -       -       100,092     At Expiration     1.80       1.80  
97.030.000-7   ESTADO   Chile   US$     57,357       -       -       -       -       57,357       57,663       -       -       -       -       57,663     At Expiration     4.91       4.91  
97.004.000-5   CHILE   Chile   US$     50,000       -       -       -       -       50,000       50,000       -       -       -       -       50,000     At Expiration     1.44       1.44  
97,003,000-K   BANCO DO BRASIL   Chile   US$     70,000       -       -       -       -       70,000       70,274       -       -       -       -       70,274     At Expiration     2.82       2.82  
97.951.000-4   HSBC   Chile   US$     12,000       -       -       -       -       12,000       12,016       -       -       -       -       12,016     At Expiration     0.75       0.75  
                                                                                                                                 
Bank loans                                                                                                                                
                                                                                                                                 
97.023.000-9   CORP BANCA   Chile   UF     18,828       56,485       99,503       31,831       -       206,647       19,637       56,485       95,156       34,642       -       205,920     Quarterly     4.16       4.16  
0-E   BLADEX   U.S.A.   US$     2,500       5,000       27,500       15,000       -       50,000       3,245       5,000       27,125       14,875       -       50,245     Semiannual     4.58       4.58  
0-E   DVB BANK SE   U.S.A.   US$     -       -       95,784       -       -       95,784       20       -       95,784       -       -       95,804     Quarterly     1.69       1.69  
97.036.000-K   SANTANDER   Chile   US$     -       -       179,835       -       -       179,835       555       -       179,835       -       -       180,390     Quarterly     2.53       2.53  
                                                                                                                               
Obligations with the public                                                                                                                                
0-E   BANK OF YORK   U.S.A.   US$     -       -       -       500,000       -       500,000       12,184       -       -       487,033       -       499,217     At Expiration     7.77       7.25  
                                                                                                                                 
Guaranteed obligations                                                                                                                                
0-E   CREDIT AGRICOLE   France   US$     33,150       92,639       225,081       49,773       8,935       409,578       33,943       92,639       223,742       49,773       8,935       409,032     Quarterly     1.93       1.77  
0-E   BNP PARIBAS   U.S.A.   US$     8,261       25,275       71,526       75,452       130,720       311,234       9,412       25,275       71,103       75,362       130,720       311,872     Quarterly     2.45       2.41  
0-E   WELLS FARGO   U.S.A.   US$     31,032       93,927       256,672       265,948       502,277       1,149,856       35,046       93,927       229,700       253,830       492,745       1,105,248     Quarterly     2.25       1.64  
0-E   WILMINGTON TRUST   U.S.A.   US$     19,386       49,124       121,787       130,291       628,097       948,685       25,117       49,124       117,414       127,909       623,344       942,908     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     17,157       52,130       144,101       151,774       234,798       599,960       18,707       52,130       134,944       147,536       230,441       583,758     Quarterly     2.49       1.74  
97.036.000-K   SANTANDER   Chile   US$     5,264       15,945       43,781       45,655       43,791       154,436       5,559       15,945       41,751       44,899       43,534       151,688     Quarterly     1.57       1.03  
0-E   BTMU   U.S.A.   US$     2,732       8,305       22,947       24,166       36,091       94,241       2,924       8,305       21,533       23,570       35,757       92,089     Quarterly     1.92       1.32  
0-E   APPLE BANK   U.S.A.   US$     1,343       4,077       11,290       11,907       18,193       46,810       1,508       4,077       10,587       11,609       18,021       45,802     Quarterly     2.02       1.42  
0-E   US BANK   U.S.A.   US$     14,566       44,198       121,613       127,272       268,906       576,555       17,248       44,198       103,828       119,065       261,828       546,167     Quarterly     3.99       2.81  
0-E   DEUTS CHE BANK   U.S.A.   US$     4,838       14,820       30,556       26,113       55,603       131,930       5,435       14,820       30,556       26,113       55,603       132,527     Quarterly     3.62       3.62  
0-E   NATIXIS   France   US$     11,848       36,354       97,024       81,188       231,565       457,979       12,508       36,354       97,024       81,188       231,565       458,639     Quarterly     2.22       2.19  
0-E   HSBC   U.S.A.   US$     1,388       4,201       11,605       12,188       22,829       52,211       1,530       4,201       11,605       12,188       22,829       52,353     Quarterly     2.58       1.77  
0-E   PKAIRFINANCE   U.S.A.   US$     1,915       5,949       17,474       20,091       15,204       60,633       1,972       5,949       17,474       20,091       15,204       60,690     Mensual     2.14       2.14  
0-E   KFW IP EX-BANK   Germany   US$     2,204       6,776       18,254       14,546       1,103       42,883       2,233       6,776       18,254       14,546       1,103       42,912     Quarterly     2.27       2.27  
-   SWAP Aviones llegados   -   US$     478       1,285       2,312       571       -       4,646       478       1,285       2,312       571       -       4,646     Quarterly     -       -  
Other guaranteed obligations                                                                                                                                
0-E   CITIBANK   U.S.A.   US$     -       -       275,000       -       -       275,000       48       -       275,000       -       -       275,048     Quarterly     3.13       3.13  
0-E   DVB BANK SE   U.S.A.   US$     8,100       16,338       -       -       -       24,438       8,116       16,338       -       -       -       24,454     Quarterly     2.32       2.32  
Financial leases                                                                                                                                
0-E   ING   U.S.A.   US$     8,212       20,069       35,466       23,143       -       86,890       8,942       20,069       34,722       23,032       -       86,765     Quarterly     5.26       4.68  
0-E   CREDIT AGRICOLE   France   US$     1,689       5,197       5,403       -       -       12,289       1,727       5,197       5,403       -       -       12,327     Quarterly     1.59       1.59  
0-E   CITIBANK   U.S.A.   US$     4,750       14,653       42,326       30,967       -       92,696       5,532       14,653       41,359       30,819       -       92,363     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     15,454       47,383       97,911       16,921       -       177,669       16,639       47,383       96,473       16,859       -       177,354     Quarterly     5.37       4.77  
0-E   BNP PARIBAS   U.S.A.   US$     10,102       31,077       75,843       26,128       -       143,150       10,629       31,077       74,597       26,024       -       142,327     Quarterly     4.14       3.70  
0-E   WELLS FARGO   U.S.A.   US$     4,555       13,907       38,858       41,588       18,201       117,109       4,940       13,907       37,638       41,215       18,156       115,856     Quarterly     3.98       3.54  
0-E   DVB BANK S E   U.S.A.   US$     4,599       13,954       9,447       -       -       28,000       4,649       13,954       9,447       -       -       28,050     Quarterly     2.09       2.09  
0-E   BANC OF AMERICA   U.S.A.   US$     1,736       360       -       -       -       2,096       1,738       360       -       -       -       2,098     Mensual     1.41       1.41  
Other loans                                                                                                                                
0-E   BOEING   U.S.A.   US$     -       -       75,993       -       -       75,993       1,897       -       75,993       -       -       77,890     At Expiration     1.79       1.79  
0-E   CITIBANK (*)   U.S.A.   US$     19,452       61,353       176,791       173,043       -       430,639       20,600       61,353       173,148       172,496       -       427,597     Quarterly     6.00       6.00  
    Total             644,896       740,781       2,431,683       1,895,556       2,216,313       7,929,229       685,007       740,781       2,353,507       1,855,245       2,189,785       7,824,325                      

  

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

 

  73  

 

Interest-bearing loans due in installments to March 31, 2016 (Unaudited)

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   NEDERLANDS CHE                                                                                                                            
    CREDIETVERZEKERING MAATSCHAPPIJ   Holand   US$     117       361       1,046       1,179       534       3,237       133       361       1,047       1,179       534       3,254     Monthly     6.01       6.01  
Obligation with the public                                                                                                                                
0-E   THE BANK OF NEW YORK   U.S.A.   US$     -       -       300,000       -       500,000       800,000       23,746       1,833       304,837       4,760       500,907       836,083     At Expiration     8.17       8.00  
Financial leases                                                                                                                                
0-E   AFS INVESTMENT IX LLC   U.S.A.   US$     2,000       6,171       17,789       15,573       -       41,533       2,195       6,171       17,789       15,573       -       41,728     Monthly     1.25       1.25  
0-E   AIRBUS FINANCIAL   U.S.A.   US$     1,754       5,347       14,901       13,501       -       35,503       1,819       5,347       14,901       13,501       -       35,568     Monthly     1.43       1.43  
0-E   DVB BANK SE   U.S.A.   US$     118       355       164       -       -       637       119       355       164       -       -       638     Monthly     1.64       1.64  
0-E   GENERAL ELECTRIC CAPITAL CORPORATION   U.S.A.   US$     3,683       11,226       5,198       -       -       20,107       3,726       11,226       5,198       -       -       20,150     Monthly     1.25       1.25  
0-E   KFW IPEX-BANK   Germany   US$     579       1,737       1,543       -       -       3,859       586       1,737       1,544       -       -       3,867     Monthly/Quarterly     1.72       1.72  
0-E   NATIXIS   France   US$     1,383       6,680       17,727       20,099       66,627       112,516       1,856       6,680       17,727       20,099       66,627       112,989     Quarterly/Semiannual     3.85       3.85  
0-E   PK AIRFINANCE US, INC.   U.S.A.   US$     1,294       20,475       -       -       -       21,769       1,331       20,475       -       -       -       21,806     Monthly     1.75       1.75  
0-E   WACAPOU LEASING S.A.   Luxemburg   US$     375       1,078       2,563       13,970       -       17,986       408       1,078       2,563       13,970       -       18,019     Quarterly     2.00       2.00  
0-E   SOCIÉTÉ GÉNÉRALE MILAN BRANCH   Italy   US$     8,225       25,325       72,187       198,601       -       304,338       9,591       25,325       72,187       198,602       -       305,705     Quarterly     3.63       3.55  
0-E   BANCO IBM S.A   Brazil   BRL     238       714       706       -       -       1,658       238       714       706       -       -       1,658     Monthly     14.14       14.14  
0-E   HP FINANCIAL SERVICE   Brazil   BRL     189       594       -       -       -       783       189       594       -       -       -       783     Monthly     10.02       10.02  
0-E   SOCIETE GENERALE   Francia   BRL     94       281       382       -       -       757       94       281       382       -       -       757     Monthly     14.14       14.14  
                                                                                                                                 
    Total             20,049       80,344       434,206       262,923       567,161       1,364,683       46,031       82,177       439,045       267,684       568,068       1,403,005                      
                                                                                                                                 
    Total consolidated             664,945       821,125       2,865,889       2,158,479       2,783,474       9,293,912       731,038       822,958       2,792,552       2,122,929       2,757,853       9,227,330                      

 

  74  

 

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

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       100,183       -       -       -       -       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 BRAS IL   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   CORP BANCA   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 S E   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   DEUTS CHE 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   KFWIPEX-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 Avionesllegados   -   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 P ARIBAS   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.

 

  75  

 

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   NEDERLANDS CHE                                                                                                                            
    CREDIETVERZEKERING MAATS CHAPPIJ   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 conel 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 IX LLC   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 IP EX-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 AIR FINANCEUS, INC.   U.S.A.   US$     1,276       21,769       -       -       -       23,045       1,316       21,769       -       -       -       23,085     Monthly     1.75       1.75  
0-E   WACAP OULEASING 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                      

 

  76  

 

(b) Hedge derivatives

 

                            Total hedge  
    Current liabilities     Non-current liabilities     derivatives  
    As of     As of     As of     As of     As of     As of  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
Accrued interest from the last date of interest rate swap     3,963       4,329       -       -       3,963       4,329  
Fair value of interest rate derivatives     21,382       33,518       14,070       16,128       35,452       49,646  
Fair value of fuel derivatives     21,343       56,424       -       -       21,343       56,424  
Fair value of foreign currency derivatives:     40,879       39,818       -       -       40,879       39,818  
Total hedge derivatives     87,567       134,089       14,070       16,128       101,637       150,217  

 

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  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cross currency swaps (CCS) (1)     (24,383 )     (49,311 )
Interest rate swaps (2)     (36,434 )     (44,085 )
Fuel collars (3)     2,760       6,293  
Fuel swap (4)     (21,343 )     (56,424 )
Currency forward US$/GBP$ (5)     762       7,432  
Currency options US$/EUR$ (5)     (3,301 )     1,438  
Currency options R$/US$ (5)     (13,981 )     933  
Currency options CLP$/US$ (5)     (592 )     85  
Currency options COP$/US$ (5)     (818 )     -  
Currency options AUD$/US$ (5)     (428 )     -  

 

(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 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.
(3) 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.
(4) 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.
(5) Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate US$/GBP, US$/EUR, R$/US$, CLP$/US$, COP$/US$ and AUD$/US$. These contracts are recorded as cash flow hedges.

 

  77  

 

During the periods presented, the Company only maintains cash flow hedges and fair value (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will impact results in the next 9 months from the consolidated statement of financial position date, meanwhile in the case of interest rate hedging, the hedges will impact results over the life of the related loans, which are valid 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  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Debit (credit) recognized in comprehensive income during the period     27,974       83,263  
Debit (credit) transferred from net equity to income during the period     (37,421 )     (113,462 )

 

  78  

 

NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES

 

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

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Current                
(a) Trade and other accounts payables     979,015       1,025,574  
(b) Accrued liabilities at the reporting date     473,822       458,383  
  Total trade and other accounts payables     1,452,837       1,483,957  

 

(a) Trade and other accounts payable:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Trade creditors     734,498       758,783  
Leasing obligation     15,553       18,784  
Other accounts payable     228,964       248,007  
Total     979,015       1,025,574  

 

  79  

 

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

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Boarding Fee     165,389       175,900  
Aircraft Fuel     127,053       148,612  
Handling and ground handling     87,209       88,629  
Other personnel expenses     77,446       72,591  
Suppliers' technical purchases     75,251       52,160  
Airport charges and overflight     73,541       94,139  
Professional services and advisory     63,317       63,302  
Land services     61,342       80,387  
Marketing     39,973       45,997  
Services on board     37,457       32,993  
Maintenance     32,064       18,573  
Leases, maintenance and IT services     29,269       25,558  
Crew     24,678       23,834  
Achievement of goals     18,272       15,386  
Aircraft and engines leasing     15,553       19,146  
Distribution system     9,591       17,531  
Aviation insurance     7,080       7,655  
Communications     4,128       6,731  
Others     30,402       36,450  
Total trade and other accounts payables     979,015       1,025,574  

 

(b) Liabilities accrued:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Aircraft and engine maintenance     268,720       246,454  
Accrued personnel expenses     122,492       108,058  
Accounts payable to personnel (*)     64,028       81,368  
Others accrued liabilities     18,582       22,503  
Total accrued liabilities     473,822       458,383  

 

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

 

  80  

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provision for contingencies (1)                                                
Tax contingencies     1,298       1,297       380,892       350,418       382,190       351,715  
Civil contingencies     955       1,476       44,299       37,555       45,254       39,031  
Labor contingencies     147       149       17,377       15,648       17,524       15,797  
Other     -       -       12,191       11,910       12,191       11,910  
Provision for European                                                
Commision investigation (2)     -       -       9,355       8,966       9,355       8,966  
Total other provisions (3)     2,400       2,922       464,114       424,497       466,514       427,419  

 

(1) Provisions for contingencies:

 

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

 

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

 

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

 

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

 

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

 

(3) Total other provision at March 31, 2016, and at December 31, 2015, 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.

 

  81  

 

Movement of provisions:

 

          European        
    Legal     Commission        
    claims     Investigation(*)     Total  
    ThUS$     ThUS$     ThUS$  
                   
Opening balance as of January 1, 2015     705,552       9,999       715,551  
Increase in provisions     7,527       -       7,527  
Provision used     (1,040 )     -       (1,040 )
Difference by subsidiaries conversion     (118,486 )     -       (118,486 )
Reversal of provision     (7,736 )     -       (7,736 )
Exchange difference     (317 )     (1,174 )     (1,491 )
Closing balance as of March 31, 2015 (Unaudited)     585,500       8,825       594,325  
                         
Opening balance as of April 1, 2015     585,500       8,825       594,325  
Increase in provisions     47,148       -       47,148  
Provision used     (18,482 )     -       (18,482 )
Difference by subsidiaries conversion     (101,780 )     -       (101,780 )
Reversal of provision     (93,004 )     -       (93,004 )
Exchange difference     (929 )     141       (788 )
Closing balance as of December 31, 2015     418,453       8,966       427,419  
                         
Opening balance as of January 1, 2016     418,453       8,966       427,419  
Increase in provisions     26,103       -       26,103  
Provision used     (4,916 )     -       (4,916 )
Difference by subsidiaries conversion     38,949       -       38,949  
Reversal of provision     (21,555 )     -       (21,555 )
Exchange difference     125       389       514  
                         
Closing balance as of March 31, 2016 (Unaudited)     457,159       9,355       466,514  

 

Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), in the amount of US$ 67 million, done in order to suspend the enforceability of the tax credit. The company is discussing over the Tribunal the constitutionality of the requirement made by FA in a legal suit. Initially it was covered by the effects of a provisional remedy, meaning that, the company was not obligated to collect the tax while there was not a judicial decision in this regard. However, the decision taken by a judge in the first instance was publicized in an unfavorable way, revoking the provisional remedy relief. As the legal suit is still in progress (TAM appealed from this first decision), the company needed to do the deposit judicial in guarantee to suspend the enforceability of such tax credit; deposit classified in this category deducting the existing provision. Finally, if the final decision is favorable to the company, the deposit already made is going to come back to TAM. On the other hand, if the tribunal confirms the first decision, such deposit will be converted in a definitive payment in favor of the Brazilian Government. The procedural stage at March 31, 2016 is disclosed in Note 30, at case No. 2001.51.01.012530-0.

 

  82  

 

(*) 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 A irlines 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 European Commission does not appeal the sentence, but can issue a new decision correcting the failures specified in the Judgment and it has a period of 5 years the Court European resolved the appeal and annulled the European Commission. The procedural stage at March 31, 2016 is disclosed in Note 30, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries in European Commission Court.

 

  83  

 

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  
    March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Deferred revenues (*)     2,344,295       2,423,703       273,017       272,130       2,617,312       2,695,833  
Sales tax     7,398       10,379       -       -       7,398       10,379  
Retentions     42,563       33,125       -       -       42,563       33,125  
Others taxes     9,457       11,211       -       -       9,457       11,211  
Dividends     35,181       3,980       -       -       35,181       3,980  
Other sundry liabilities     29,595       7,635       -       -       29,595       7,635  
Total other non-financial liabilities     2,468,489       2,490,033       273,017       272,130       2,741,506       2,762,163  

 

(*) 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 one world® 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.

 

  84  

 

NOTE 22 - EMPLOYEE BENEFITS

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Retirements payments     46,745       42,117  
Resignation payments     9,569       8,858  
Other obligations     15,151       14,296  
Total liability for employee benefits     71,465       65,271  

 

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

 

          Increase (decrease)           Actuarial              
    Opening     current service     Benefits     (gains)     Currency     Closing  
    balance     provision     paid     losses     translation     balance  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to                                                
March 31, 2015 (Unaudited)     74,102       7,713       (1,227 )     -       -       80,588  
From April 1 to                                                
December 31, 2015     80,588       (21,322 )     (2,597 )     14,631       (6,029 )     65,271  
From January 1 to                                                
March 31, 2016 (Unaudited)     65,271       5,604       (972 )     1,562       -       71,465  

 

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

 

    As of  
    March 31,  
Assumptions   2016     2015  
             
Discount rate     4.62 %     4.64 %
Expected rate of salary increase     4.50 %     4.50 %
Rate of turnover     6.16 %     6.16 %
Mortality rate     RV-2009       RV-2009  
Inflation rate     2.93 %     3.09 %
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.

 

  85  

 

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     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Discount rate                
Change in the accrued liability an closing for increase in 100 p.b.     (5,321 )     (4,669 )
Change in the accrued liability an closing for decrease of 100 p.b.     6,093       5,345  
                 
Rate of wage growth                
Change in the accrued liability an closing for increase in 100 p.b.     6,052       5,309  
Change in the accrued liability an closing for decrease of 100 p.b.     (5,210 )     (4,725 )

 

(b) The liability for short-term:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Profit-sharing and bonuses (*)     64,028       81,368  

 

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

 

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

 

(c) Employment expenses are detailed below:

 

    For the periods ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Salaries and wages     360,213       450,402  
Short-term employee benefits     72,066       50,883  
Termination benefits     13,255       22,919  
Other personnel expenses     43,181       51,485  
Total     488,715       575,689  

 

  86  

 

NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Aircraft and engine maintenance     364,515       371,419  
Fleet financing (JOL)     35,388       35,042  
Provision for vacations and bonuses     10,290       10,365  
Other sundry liabilities     225       224  
Total accounts payable, non-current     410,418       417,050  

 

NOTE 24 - EQUITY

 

(a) Capital

 

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

 

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

 

The capital of the Company at March 31, 2016 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, 2015), 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:

 

Movement of authorized shares   Nro. Of  
    shares  
Autorized shares as of January 1, 2015     551,847,819  
No movement of autorized shares at March 31, 2015     -  
Authorized shares as of December 31, 2015     551,847,819  
         
Autorized shares as of January 1, 2016     551,847,819  
No movement of autorized shares at March 31, 2016     -  
Authorized shares as of March 31, 2016 (Unaudited)     551,847,819  

 

  87  

 

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, 2015     545,547,819       2,552,066       (6,361 )     2,545,705  
No movement of paid shares at December 31, 2015     -       -       -       -  
Paid shares as of December 31, 2015     545,547,819       2,552,066       (6,361 )     2,545,705  
                                 
Paid shares as of January 1, 2016     545,547,819       2,552,066       (6,361 )     2,545,705  
No movement of paid shares at March 31, 2016     -       -       -       -  
Paid shares as of March 31, 2016 (Unaudited)     545,547,819 (3)     2,552,066       (6,361 )     2,545,705  

 

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

 

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

 

(3)           At March 31, 2016, 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 March 31, 2016, 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:

 

          Stock              
    Opening     option     Deferred     Closing  
Periods   balance     plan     tax     balance  
    ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2015 (Unaudited)     29,642       2,841       (713 )     31,770  
From April 1 to December 31, 2015     31,770       6,083       (2,206 )     35,647  
From January 1 to March 31, 2016 (Unaudited)     35,647       1,233       (404 )     36,476  

 

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

 

(e) Other sundry reserves

 

  88  

 

Movement of Other sundry reserves:

 

    Opening     Legal     Closing  
Periods   balance     reserves     balance  
    ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2015 (Unaudited)     2,635,748       1,928       2,637,676  
From April 1 to December 31, 2015     2,637,676       (2,997 )     2,634,679  
From January 1 to March 31, 2016 (Unaudited)     2,634,679       340       2,635,019  

 

Balance of Other sundry reserves comprises the following:

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Higher value for TAM S.A. share exchange (1)     2,665,692       2,665,692  
Reserve for the adjustment to the value of fixed assets (2)     2,620       2,620  
Transactions with non-controlling interest (3)     (25,895 )     (25,891 )
Cost of issuance and placement of shares     (5,264 )     (5,264 )
Others     (2,134 )     (2,478 )
Total     2,635,019       2,634,679  

 

(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. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (4), respectively; 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).

 

  89  

 

(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, 2015   (1,193,871 )   (151,340 )   -     (1,345,211 )
Derivatives valuation gains (losses)     -       84,500       -       84,500  
Deferred tax     -       (21,779 )     -       (21,779 )
Difference by subsidiaries conversion     (709,950 )     -       -       (709,950 )
                                 
Closing balance as of March 31, 2015 (Unaudited)     (1,903,821 )     (88,619 )     -       (1,992,440 )
                                 
Opening balance as of April 1, 2015     (1,903,821 )     (88,619 )     -       (1,992,440 )
Derivatives valuation gains (losses)     -       (1,770 )     -       (1,770 )
Deferred tax     -       (121 )     -       (121 )
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     (672,220 )     -       -       (672,220 )
                                 
Closing balance as of December 31, 2015     (2,576,041 )     (90,510 )     (10,717 )     (2,677,268 )
                                 
Opening balance as of January 1, 2016     (2,576,041 )     (90,510 )     (10,717 )     (2,677,268 )
Derivatives valuation gains (losses)     -       27,468       -       27,468  
Deferred tax     -       (7,539 )     -       (7,539 )
Actuarial reserves by employee benefit plans     -       -       (1,573 )     (1,573 )
Deferred tax actuarial IAS by employee benefit plans     -       -       413       413  
Difference by subsidiaries conversion     243,384       -       -       243,384  
                                 
Closing balance as of March 31, 2016 (Unaudited)     (2,332,657 )     (70,581 )     (11,877 )     (2,415,115 )

 

(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.

 

  90  

 

(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$ 11,877 net of deferred taxes.

 

(g) Retained earnings

 

Movement of Retained earnings:

 

          Result           Other        
    Opening     for the           increase     Closing  
Periods   balance     period     Dividens     (decreases)     balance  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
From January 1 to March 31, 2015 (Unaudited)     536,190       (39,947 )     -       528       496,771  
From April 1 to December 31, 2015     496,771       (179,327 )     -       506       317,950  
From January 1 to March 31, 2016 (Unaudited)     317,950       102,208       (30,662 )     (255 )     389,241  

 

(h) Dividends per share

 

    Minimum mandatory     Final dividend  
    dividend     dividend  
Description of dividend   2016     2015  
             
Date of dividend     03-31-2016       12-31-2012  
Amount of the dividend (ThUS$)     30,662       -  
Number of shares among which the dividend is distributed     545,547,819       545,547,819  
Dividend per share (US$)     0.0562       -  

 

  91  

 

NOTE 25 - REVENUE

 

The detail of revenues is as follows:

    For the periods ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Passengers LAN     1,084,909       1,128,658  
Passengers TAM     873,381       1,214,869  
Cargo     275,967       350,322  
Total     2,234,257       2,693,849  

 

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  
    M arch 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Aircraft fuel     461,433       744,064  
Other rentals and landing fees     261,051       285,905  
Aircraft rentals     133,603       128,899  
Aircraft maintenance     94,796       113,974  
Comissions     66,629       82,563  
Passenger services     77,452       77,762  
Other operating expenses     285,406       317,934  
Total     1,380,370       1,751,101  

 

  92  

 

(b) Depreciation and amortization

 

Depreciation and amortization are detailed below:

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Depreciation (*)     229,891       226,468  
Amortization     9,560       10,980  
Total     239,451       237,448  

 

(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at March 31, 2016 is ThUS$ 88,815 and ThUS$ 86,565 for the same period of 2015.

 

(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  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Bank loan interest     84,204       81,082  
Financial leases     9,493       12,078  
Other financial instruments     9,352       2,173  
Total     103,049       95,333  

 

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, in December 2015 the company recognized 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.

 

  93  

 

NOTE 27 - OTHER INCOME, BY FUNCTION

 

Other income by function is as follows:

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Tours     23,962       21,899  
Aircraft leasing     15,408       9,348  
Customs and warehousing     5,216       5,417  
Duty free     2,393       4,129  
Maintenance     2,121       2,068  
Other miscellaneous income     44,260       54,432  
Total     93,360       97,293  

 

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:

 

  94  

 

    As of     As of  
Current assets   March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cash and cash equivalents     162,499       182,089  
Argentine peso     6,907       11,611  
Brazilian real     5,782       8,810  
Chilean peso     21,790       17,739  
Colombian peso     1,200       1,829  
Euro     13,633       10,663  
U.S. dollar     106,016       112,422  
Strong bolivar     1,775       2,986  
Other currency     5,396       16,029  
                 
Other financial assets, current     68,411       124,042  
Argentine peso     52,500       108,592  
Brazilian real     2,362       1,263  
Chilean peso     542       563  
Colombian peso     119       1,167  
Euro     1       1  
U.S. dollar     12,577       12,128  
Strong bolivar     1       22  
Other currency     309       306  

 

  95  

 

    As of     As of  
Current assets   March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Other non - financial assets, current     130,516       126,130  
Argentine peso     13,819       14,719  
Brazilian real     14,707       15,387  
Chilean peso     18,738       10,265  
Colombian peso     765       486  
Euro     2,502       1,983  
U.S. dollar     56,693       61,577  
Strong bolivar     8       -  
Other currency     23,284       21,713  
                 
Trade and other accounts receivable, current     216,192       247,229  
Argentine peso     27,116       30,563  
Brazilian real     43,361       11,136  
Chilean peso     28,077       55,169  
Colombian peso     462       1,195  
Euro     21,947       53,200  
U.S. dollar     21,088       6,743  
Strong bolivar     603       7,225  
Other currency     73,538       81,998  
                 
Accounts receivable from related entities, current     249       183  
Chilean peso     249       183  
                 
Tax current assets     25,193       22,717  
Argentine peso     2,564       2,371  
Brazilian real     2,263       5  
Chilean peso     3,832       3,615  
Colombian peso     1,684       1,275  
Euro     74       14  
U.S. dollar     85       1,394  
Other currency     14,691       14,043  
                 
Total current assets     603,060       702,390  
Argentine peso     102,906       167,856  
Brazilian real     68,475       36,601  
Chilean peso     73,228       87,534  
Colombian peso     4,230       5,952  
Euro     38,157       65,861  
U.S. Dollar     196,459       194,264  
Strong bolivar     2,387       10,233  
Other currency     117,218       134,089  

 

  96  

 

    As of     As of  
Non-current assets   March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
Other financial assets, non-current     25,202       20,767  
Argentine peso     20       22  
Brazilian real     1,823       1,478  
Chilean peso     82       77  
Colombian peso     169       162  
Euro     3,235       614  
U.S. dollar     18,024       16,696  
Other currency     1,849       1,718  
                 
Other non - financial assets, non-current     48,209       60,215  
Argentine peso     151       169  
Brazilian real     5,046       4,454  
U.S. dollar     37,893       50,108  
Other currency     5,119       5,484  
                 
Accounts receivable, non-current     6,442       9,404  
Chilean peso     6,227       4,251  
U.S. dollar     62       5,000  
Other currency     153       153  
                 
Deferred tax assets     5,299       2,632  
Colombian peso     398       336  
U.S. dollar     2,606       -  
Other currency     2,295       2,296  
                 
Total non-current assets     85,152       93,018  
Argentine peso     171       191  
Brazilian real     6,869       5,932  
Chilean peso     6,309       4,328  
Colombian peso     567       498  
Euro     3,235       614  
U.S. dollar     58,585       71,804  
Other currency     9,416       9,651  

 

  97  

 

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  
Current liabilities   March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Other financial liabilities, current     101,293       94,199       194,735       141,992  
Chilean peso     55,783       54,655       114,147       52,892  
U.S. dollar     45,510       39,544       80,588       89,100  
                                 
Trade and other accounts                                
payables, current     608,311       575,967       18,931       19,261  
Argentine peso     14,430       20,772       701       2,072  
Brazilian real     40,842       37,572       4       16  
Chilean peso     11,371       40,219       11,131       10,951  
Colombian peso     20,730       5,271       267       155  
Euro     10,781       5,275       386       618  
U.S. dollar     347,601       310,565       57       839  
Strong bolivar     892       2,627       -       -  
Other currency     161,664       153,666       6,385       4,610  
                                 
Accounts payable to related entities, current     656       447       -       -  
Chilean peso     603       83       -       -  
U.S. dollar     -       22       -       -  
Other currency     53       342       -       -  
                                 
Other provisions, current     -       -       451       460  
Chilean peso     -       -       27       24  
Other currency     -       -       424       436  
                                 
Tax liabilities, current     1,484       36       10,850       9,037  
Argentine peso     1,484       -       10,850       9,036  
Chilean peso     -       -       -       -  
U.S. dollar     -       27       -       -  
Other currency     -       9       -       1  

 

  98  

 

    Up to 90 days     91 days to 1 year  
    As of     As of     As of     As of  
Current liabilities   March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Other non-financial liabilities, current     63,673       40,431       -       1  
Argentine peso     11,879       (2,387 )     -       -  
Brazilian real     2,280       4,292       -       5  
Chilean peso     29,367       32,228       -       -  
Colombian peso     734       145       -       -  
Euro     11,649       2,706       -       -  
U.S. dollar     1,227       (3,233 )     -       (5 )
Strong bolivar     93       2,490       -       -  
Other currency     6,444       4,190       -       1  
                                 
Total current liabilities     775,417       711,080       224,967       170,751  
Argentine peso     27,793       18,385       11,551       11,108  
Brazilian real     43,122       41,864       4       21  
Chilean peso     97,124       127,185       125,305       63,867  
Colombian peso     21,464       5,416       267       155  
Euro     22,430       7,981       386       618  
U.S. dollar     394,338       346,925       80,645       89,934  
Strong bolivar     985       5,117       -       -  
Other currency     168,161       158,207       6,809       5,048  

 

  99  

 

    More than 1 to 3 years     More than 3 to 5 years     More than 5 years  
    As of     As of     As of     As of     As of     As of  
Non-current liabilities   March 31,     December 31,     March 31,     December 31,     March 31,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Other financial liabilities, non-current     533,112       561,217       302,327       328,480       568,068       571,804  
Chilean peso     95,156       104,385       34,642       34,635       -       -  
U.S. dollar     437,956       456,832       267,685       293,845       568,068       571,804  
                                                 
Accounts payable, non-current     238,730       239,029       -       168       -       8  
Chilean peso     8,362       8,058       -       168       -       8  
U.S. dollar     228,975       229,005       -       -       -       -  
Other currency     1,393       1,966       -       -       -       -  
                                                 
Other provisions, non-current     30,700       27,712       -       -       -       68  
Argentine peso     761       797       -       -       -       -  
Brazillian real     13,529       11,009       -       -       -       -  
Chilean peso     38       -       -       -       -       -  
Colombian peso     209       198       -       -       -       -  
Euro     9,355       8,966       -       -       -       -  
U.S. dollar     6,808       6,742       -       -       -       68  
                                                 
Provisions for employees benefits, non-current     62,027       56,306       -       -       -       -  
Chilean peso     62,027       56,306       -       -       -       -  
                                                 
Total non-current liabilities     864,569       884,264       302,327       328,648       568,068       571,880  
Argentine peso     761       797       -       -       -       -  
Brazilian real     13,529       11,009       -       -       -       -  
Chilean peso     165,583       168,749       34,642       34,803       -       8  
Colombian peso     209       198       -       -       -       -  
Euro     9,355       8,966       -       -       -       -  
U.S. dollar     673,739       692,579       267,685       293,845       568,068       571,872  
Other currency     1,393       1,966       -       -       -       -  

 

  100  

 

    As of     As of  
General summary of foreign currency:   March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Total assets     688,212       795,408  
Argentine peso     103,077       168,047  
Brazilian real     75,344       42,533  
Chilean peso     79,537       91,862  
Colombian peso     4,797       6,450  
Euro     41,392       66,475  
U.S. dollar     255,044       266,068  
Strong bolivar     2,387       10,233  
Other currency     126,634       143,740  
                 
Total liabilities     2,735,348       2,666,623  
Argentine peso     40,105       30,290  
Brazilian real     56,655       52,894  
Chilean peso     422,654       394,612  
Colombian peso     21,940       5,769  
Euro     32,171       17,565  
U.S. dollar     1,984,475       1,995,155  
Strong bolivar     2,378       5,117  
Other currency     174,970       165,221  
                 
Net position                
Argentine peso     62,972       137,757  
Brazilian real     18,689       (10,361 )
Chilean peso     (343,117 )     (302,750 )
Colombian peso     (17,143 )     681  
Euro     9,221       48,910  
U.S. dollar     (1,729,431 )     (1,729,087 )
Strong bolivar     9       5,116  
Other currency     (48,336 )     (21,481 )

 

  101  

 

(b) Exchange differences

 

Exchange differences recognized in the income statement, except for financial instruments measured at fair value through profit or loss, for the period ended March 31, 2016 and 2015, generated a debit of ThUS$ 67,898 and a charge ThUS$ 204,577, respectively.

 

Exchange differences recognized in equity as reserves for currency translation differences for the period ended March 31, 2016 and 2015, represented a debit of ThUS$ 244,976 and a charge ThUS$ 726,740, respectively.

 

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

 

    As of     As of  
    March 31,     December 31,  
    2016     2015  
    Unaudited     Unaudited  
             
Argentine peso     14.67       12.97  
Brazilian real     3.58       3.98  
Chilean peso     669.80       710.16  
Colombian peso     3,000.67       3,183.00  
Euro     0.88       0.92  
Strong bolivar     272.91       198.70  
Australian dollar     1.31       1.37  
Boliviano     6.86       6.85  
Mexican peso     17.30       17.34  
New Zealand dollar     1.45       1.46  
Peruvian Sol     3.32       3.41  
Uruguayan peso     31.70       29.88  

 

  102  

 

NOTE 29 - EARNINGS / (LOSS) PER SHARE

 

    For the period ended  
    March 31,  
Basic earnings / (loss) per share   2016     2015  
    Unaudited  
             
Earnings / (loss) attributable to owners of the parent (ThUS$)     102,208       (39,947 )
Weighted average number of shares, basic     545,547,819       545,547,819  
Basic earnings / (loss) per share (US$)     0.18735       (0.07322 )

 

    For the period ended  
    March 31,  
Diluted earnings / (loss) per share   2016     2015  
    Unaudited  
             
Earnings / (loss) attributable to owners of the parent (ThUS$)     102,208       (39,947 )
Weighted average number of shares, basic     545,547,819       545,547,819  
Weighted average number of shares, diluted     545,547,819       545,547,819  
Diluted earnings / (loss) per share (US$)     0.18735       (0.07322 )

 

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.

 

  103  

 

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 29 th , 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. On February 25, 2016, Lan Argentina S.A. and ORSNA informed the Court of their decision to put an end to the lawsuit and guarantee use of the hangar by Lan.  The parties agreed to maintain the precautionary measure in effect allowing Lan to use the hangar indefinitely until the parties reach a final agreement.  The court agreed, so the precautionary measure was extended indefinitely. -0-

  

  104  

 

(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 26 th , 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 April 14 th , 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).

On November 9 th , 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$ 9,355.

 

This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the revocation, but it may issue a new decision correcting the faults specified in the Decision. It can do so within 5 years.

9,355

 

  105  

 

Company Court

Case Number

  Origin   Stage of trial

Amounts

Committed (*)

              MUS$
               
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-
               
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$9,559; (ii) Norberto Jochmann: MUS$184; (iii) Hernan Merino: MUS$ 92; (iv) Felipe Meyer :MUS$ 92. 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.  9,559
               

Aerolinhas Brasileiras S.A.

 

 

Federal Justice.

 

 

0001872-58.2014.4.03.6105

 

 

  An annulment action with a motion for preliminary injunction, was filed on 28/02/2014, 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. The statement was authenticated on January 29, 2016. 10,201

 

  106  

 

Company Court Case Number   Origin   Stage of trial

Amounts

Committed (*)

              MUS$
               

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.

 

23,274
               

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 on the appeal filed by the company.

 

In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered for MMU$67

 

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. We filed a petition on February 26, 2016 requesting that the expert opinions be monitored and the case proceedings were submitted to the Ministry of Finance.

82,854
               

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.

20,353

 

               

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. 39,690

 

  107  

 

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 30 th , 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 20 th , 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 26 th , 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 1 st , 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
           

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. 49,421

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. The objection was filed on January 19, 2016. A first-instance administrative decision is now pending. 82,074

 

  108  

 

Company Court

Case Number

  Origin   Stage of trial

Amounts

Committed (*)

              MUS$
               
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. 14,680
               
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 (CARF)

95,627

 

               
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. MUS$4,302 in cash was deposited in guarantee.

 

10,492
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.

 

17,161
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-

 

  109  

 


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.

12,592

 

               

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-

 

 

               
TAM Linhas Aéreas S.A. Sao Paulo Labor Court, Sao Paulo 0000009-45.2016.5.02.090   The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.   The action is in its initial phase. 14,414
               
TAM Linhas Aéreas S.A. Internal Revenue Service of Brazil

19515.720476/2015-83

 

  Legal administrative proceeding due to alleged irregularities related to the TAM SAT payments.   Pending decision since 09/11/2016 47,999

 

- In order to deal with any financial obligations arising from legal proceedings in effect at March 31, 2016, 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.

 

- 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 and its lawyers have held conversations and exchanged opinions with the respective authorities on the ways that this matter can potentially be resolved. 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.

 

- 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.

 

  110  

 

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 March 31, 2016, 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.

 

  111  

 

• 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 March 31, 2016 the escrow of EETC is ThUS$ 72,138 corresponding to 2 aircraft by receive.

 

(b) Commitments under operating leases as lessee

 

Details of the main operating leases are as follows:

 

        As of     As of  
        March 31,     December 31,  
Lessor   Aircraft   2016     2015  
        Unaudited        
Aircraft 76B-26329 Inc.   Boeing 767     1       1  
Aircraft 76B-27615 Inc.   Boeing 767     1       1  
Aircraft 76B-28206 Inc.   Boeing 767     1       1  
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 T ritón 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  
AWAS 5125 Trust   Airbus A320     -       1  
AWAS 5178 Limited   Airbus A320     -       1  
AWAS 5234 Trust   Airbus A320     1       1  
Baker & Spice Aviation Limited   Airbus A320     1       1  
Bank of America   Airbus A321     2       3  
CIT Aerospace International   Airbus A320     2       2  
ECAF I 1215 DAC   Airbus A320     1       1  
ECAF I 2838 DAC   Airbus A320     1       1  
ECAF I 40589 DAC   Boeing 777     1       1  
Eden Irish Aircr Leasing MSN 1459   Airbus A320     1       1  
GECAS Sverige Aircraft Leasing Worldwide AB   Airbus A320     3       3  
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       1  
Macquarie Aerospace Finance 5125-2 Trust   Airbus A320     1       -  
Macquarie Aerospace Finance 5178 Limited   Airbus A320     1       -  
Magix Airlease Limited   Airbus A320     2       2  

 

  112  

 

        As of     As of  
        March 31,     December 31,  
Lessor   Aircraft   2016     2015  
        Unaudited        
MASL Sweden (1) AB   Airbus A320     -       1  
MASL Sweden (2) AB   Airbus A320     -       1  
MASL Sweden (7) AB   Airbus A320     -       1  
MASL Sweden (8) AB   Airbus A320     1       1  
NBB Cuckoo Co., Ltd   Airbus A321     1       1  
NBB Grosbeak Co., Ltd   Airbus A321     1       1  
NBB Redstart Co., Ltd   Airbus A321     1       -  
NBB-6658 Lease Partnership   Airbus A321     1       1  
NBB-6670 Lease Partnership   Airbus A321     1       1  
Orix Aviation Systems Limited   Airbus A320     2       2  
SASOF II (J) Aviation Ireland Limited   Airbus A319     1       1  
Shenton Aircraft Leasing Limited   Airbus A320     1       1  
SKY HIGH V LEASING COMPANY LIMIT ED   Airbus A320     -       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       7  
SMBC Aviation Capital Limited   Airbus A321     2       2  
Sunflower Aircraft Leasing Limited   Airbus A320     2       2  
T C-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     10       7  
Wells Fargo Bank Northwest National Association   Airbus A330     2       2  
Wells Fargo Bank Northwest National Association   Boeing 767     3       3  
Wells Fargo Bank Northwest National Association   Boeing 777     6       6  
Wells Fargo Bank Northwest National Association   Boeing 787     9       7  
Wilmington T rust Company   Airbus A319     1       1  
Total         107       106  

 

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  
    March 31,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
No later than one year     522,135       513,748  
Between one and five years     1,317,994       1,281,454  
Over five years     981,111       858,095  
Total     2,821,240       2,653,297  

 

  113  

 

The minimum lease payments charged to income are the following:

 

    For the period ended  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Minimum operating lease payments     133,603       128,899  
                 
Total     133,603       128,899  

 

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.

 

In the first quarter of 2016, two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand and one Airbus A320-200 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 March 31, 2016 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   LAT AM Airlines Group S.A.   Nine letter of credit     37,178     Sep 14, 2016
International Lease Finance Corp   LAT AM Airlines Group S.A.   Four letter of credit     1,700     Oct 12, 2016
ORIX Aviation System Limited   LAT AM Airlines Group S.A.   One letter of credit     3,255     Aug 31, 2016
SMBC Aviation Capital Ltd.   LAT AM Airlines Group S.A.   Two letter of credit     11,133     Aug 14, 2016
Engine Lease Finance Corporation   LAT AM Airlines Group S.A.   One letter of credit     4,750     Sep 8, 2016
Banc of America   LAT AM Airlines Group S.A.   Three letter of credit     1,044     Sep 6, 2016
Wells Fargo Bank   LAT AM Airlines Group S.A.   Nine letter of credit     15,160     Jun 16, 2016
Wells Fargo Bank   T am Linhas Aéreas S.A.   One letter of credit     5,500     Jul 14, 2016
CIT Aerospace International   T am Linhas Aéreas S.A.   Three letter of credit     12,375     Oct 6, 2016
RBS Aerospace Limited   T am Linhas Aéreas S.A.   One letter of credit     12,357     Oct 2, 2016
              111,982      

 

  114  

 

(c) Other commitments

 

At March 31, 2016 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     2,165     Nov 14, 2016
American Alternative Insurance Corporation   LATAM Airlines Group S.A.   One letter of credit     3,490     Apr 5, 2016
Deutsche Bank A.G.   LATAM Airlines Group S.A.   Three letter of credit     50,000     Jun 1, 2016
                     
Dirección Generalde Aeronáutica Civil   LATAM Airlines Group S.A.   Sixty six letter of credit     16,860     Apr 30, 2016
Empresa Públicade Hidrocarburosdel 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     2,521     Apr 2, 2016
The Royal Bank of Scotland plc   LATAM Airlines Group S.A.   One letter of credit     5,000     May 20, 2016
Was hington International Insurance   LATAM Airlines Group S.A.   Four letter of credit     1,510     Apr 5, 2016
8ª Vara Federalda Subseção de Campinas S P   Tam Linhas Aéreas S.A.   One insurance policies guarantee     11,808     May 19, 2020
Conselho Administrativode Conselhos Federais   Tam Linhas Aéreas S.A.   One insurance policies guarantee     6,139     Oct 20, 2021
Fundaçãode Proteãode Defesado Consumidor Procon   Tam Linhas Aéreas S.A.   Three insurance policies guarantee     4,233     May 16, 2016
Juizoda 6ª Varade Execuções Fiscais Federalde Campo Grande /MS   Tam Linhas Aéreas S.A.   One insurance policies guarantee     10,063     Jan 4, 2018
União Federal Vara Comarcade S P   Tam Linhas Aéreas S.A.   Two insurance policies guarantee     17,910     Feb 22, 2021
União Federal Vara Comarcade DF   Tam Linhas Aéreas S.A.   Two insurance policies guarantee     2,469     Nov 9, 2020
              139,668      

 

  115  

 

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 March 31,  
T ax No.   Related party   related parties   of origin     transactions   Currency     2016     2015  
                            ThUS$     ThUS$  
                            Unaudited  
96.810.370-9   Inversiones Costa Verde Ltda. y & CPA.   Related director     Chile     Tickets sales     CLP       1       -  
                    Services received     CLP       (1 )     -  
65.216.000-K   Comunidad Mujer   Related director     Chile     Tickets sales     CLP       3       -  
78.591.370-1   Bethia S.A and subsidiaries   Related director     Chile     Load transport services     CLP       (650 )     (199 )
                    Revenue from services     CLP       631       515  
                    Commitments made on behalf of the entity     CLP       -       4  
                    Other services received     CLP       (3 )     -  
79.773.440-3   Transportes San Felipe
S.A. 		  Related director     Chile     Shuttle services received passenger     CLP       (56 )     (48 )
87.752.000-5   Granja Marina Tornagaleones S.A.   Common shareholder     Chile     Revenue from services     CLP       23       -  
                    Services provided     CLP       (29 )     -  
65.216.000-K   Viajes Falabella Ltda.   Related director     Chile     Sales commissions incurred     CLP       (394 )     (64 )
Foreign   Inversora Aeronáutica Argentina   Related director     Argentina     Revenue from services     ARS       -       2  
                    Leases as lessee     US$       (67 )     (45 )
Foreign   Consultoría Administrativa Profesional S.A. de C.V.   Associate     Mexico     Professional counseling services received     MXN       527       -  

 

  116  

 

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  
    March 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Remuneration     4,644       4,474  
Management fees     66       164  
Non-monetary benefits     131       191  
Short-term benefits     10,607       4,848  
Share-based payments     1,494       2,640  
Total     16,942       12,317  

 

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:

 

  117  

 

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, 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  
         
Share options in agreements of share- based payments, as of January 1, 2016     4,518,000  
No movement as of March 31, 2016     -  
Share options in agreements of share- based payments,as of March 31, 2016 (Unaudited)     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 March 2016 corresponds to ThUS$ 1,494 (ThUS$ 2,640 at December 31, 2015).

 

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

 

    Weighted average     Exercise     Expected     Life of   Dividends     Risk-free  
    share price     price     volatility     option   expected     interest  
As of March 31, 2015 (Unaudited)   US$ 15,47     US$ 18,29       34.74 %   3.6 years     0 %     0.00696  
As of March 31, 2016 (Unaudited)   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:

 

  118  

 

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 March 31, 2016, which amounted to 96,675 shares and 518,507 shares, respectively (at December 31, 2015, the distribution of outstanding stock options amounted to 518,507 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 March 31, 2015 (Unaudited)     96,675       96,675  
Outstanding option number As March 31, 2016 (Unaudited)     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 March 31, 2015 (Unaudited)     3,796       115,298       269,241       205,575       593,910  
Outstanding option number As March 31, 2016 (Unaudited)     -       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.

  119  

 

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  
    March 31,     December 31,     March 31,     December 31,  
Company   2016     2015     2016     2015  
    Unaudited           Unaudited        
TAM Linhas Aéreas S.A.     -       -       96,675       96,675  
Multiplus S.A.     -       -       518,507       518,507  

 

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 March 31, 2016 (at December 31, 2015 not exist value recorded in liabilities and in incomes).

 

(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.

 

  120  

 

    Number  
    shares in  
    circulation  
       
As of January 1, 2015     91.103  
No movement at March 31, 2015     -  
As of March 31, 2015 (Unaudited)     91.103  
As of April 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  
As of January 1, 2016     175.910  
Granted     138.282  
Not acquired due to breach of employment retention conditions     (42.944 )
As of March 31, 2016 (Unaudited)     271.248  

 

NOTE 34 - THE ENVIRONMENT

 

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

 

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

 

The Environment Strategy LATAM Airlines Group S.A. is called Climate Change Strategy and it is based on the aim of being a world leader in Climate Change and Eco-efficiency, which is implemented under the following pillars:

 

i. Carbon Footprint
ii. Eco-Efficiency
iii. Sustainable Alternative Energy
iv. Standards and Certifications

 

For 2016, were established and worked the following topics:

 

1. Advance in the implementation of an Environmental Management System;
2. Manage the Carbon Footprint of our emissions by ground operations;
3. Corporate Risk Management;
4. Corporate strategy to meet the global target of aviation to have a carbon neutral growth by 2020.

 

  121  

 

Thus, during 2016, 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.
- Measurement and external verification of the Corporate Carbon Footprint.

 

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

 

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

 

On April 29, 2016, Moody’s modified the international rating long term of LATAM Airlines Group S.A. from Ba2 with stable outlook to B1 with stable outlook.

 

On April 5, 2016, the Board of Directors of LATAM approved the cancellation of the BDRs program (“Cancellation”), with the subsequent termination of its existing foreign issuer registration on the CVM. The cancellation will take place through the sale of the underlying common stocks to the BDRs in the Santiago Stock Exchange. The BDRs holders that don’t want to sell the Shares may remain as shareholders of LATAM in Chile, acknowledging that each BDR represents one Share. This was reported to the Chilean Superintendency of Securities and Insurance through an essential fact sent on the same date.

 

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at March 31, 2016, have been approved by the Board of Director’s in an extraordinary meeting held on May 11, 2016.

 

  122  

 

SIGNATURES

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

 

Date: May 12, 2016 LATAM AIRLINES GROUP S.A.
By:

/s/ Enrique Cueto

Name:

Enrique Cueto

Title: Latam Airlines Group CEO
LATAM Airlines (NYSE:LTM)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more LATAM Airlines Charts.
LATAM Airlines (NYSE:LTM)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more LATAM Airlines Charts.