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

August 11, 2016

Commission File Number 1-14728

 

 

LATAM Airlines Group S.A.

(Translation of Registrant’s Name Into English)

 

 

Presidente Riesco 5711, 20th floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

 

 

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

Form 20-F   x              Form 40-F   ¨

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

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

 

 

 

  

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 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 9
2.5. Intangible assets other than goodwill 10
2.6. Goodwill 10
2.7. Borrowing costs 10
2.8. Losses for impairment of non-financial assets 11
2.9. Financial assets 11
2.10. Derivative financial instruments and hedging activities 12
2.11. Inventories 13
2.12. Trade and other accounts receivable 13
2.13. Cash and cash equivalents 14
2.14. Capital 14
2.15. Trade and other accounts payables 14
2.16. Interest-bearing loans 14
2.17. Current and deferred taxes 14
2.18. Employee benefits 15
2.19. Provisions 15
2.20. Revenue recognition 16
2.21. Leases 16
2.22. Non-current assets (or disposal groups) classified as held for sale 17
2.23. Maintenance 17
2.24. Environmental costs 17
3 - Financial risk management 18
3.1. Financial risk factors 18
3.2. Capital risk management 32
3.3. Estimates of fair value 32
4 - Accounting estimates and judgments 36
5 - Segmental information 39
6 - Cash and cash equivalents 42
7 - Financial instruments 44
7.1. Financial instruments by category 44
7.2. Financial instruments by currency 46
8 - Trade, other accounts receivable and non-current accounts receivable 47
9 - Accounts receivable from/payable to related entities 50
10 - Inventories 51
11 - Other financial assets 51
12 - Other non-financial assets 52
13 - Non-current assets and disposal group classified as held for sale 53
14 - Investments in subsidiaries 53

 

 

 

 

15 - Intangible assets other than goodwill 56
16 - Goodwill 57
17 - Property, plant and equipment 60
18 - Current and deferred tax 66
19 - Other financial liabilities 72
20 - Trade and other accounts payables 79
21 - Other provisions 81
22 - Other non-financial liabilities 85
23 - Employee benefits 86
24 - Accounts payable, non-current 88
25 - Equity 88
26 - Revenue 93
27 - Costs and expenses by nature 93
28 - Other income, by function 95
29 - Foreign currency and exchange rate differences 95
30 - Earnings per share 104
31 - Contingencies 105
32 - Commitments 112
33 - Transactions with related parties 117
34 - Share based payments 118
35 - Statement of cash flows 122
36 - The environment 123
37 - Events subsequent to the date of the financial statements 124

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

        As of     As of  
        June 30,     December 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited        
ASSETS                    
Current assets                    
Cash and cash equivalents   6 - 7     637,397       753,497  
Other financial assets   7 - 11     633,727       651,348  
Other non-financial assets   12     302,897       330,016  
Trade and other accounts receivable   7 - 8     870,274       796,974  
Accounts receivable from related entities   7 - 9     353       183  
Inventories   10     228,436       224,908  
Tax assets   18     80,219       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         2,753,303       2,820,941  
                     
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners   13     87,809       1,960  
                     
Total current assets         2,841,112       2,822,901  
Non-current assets                    
Other financial assets   7 - 11     113,641       89,458  
Other non-financial assets   12     323,872       235,463  
Accounts receivable   7 - 8     8,166       10,715  
Intangible assets other than goodwill   15     1,591,756       1,321,425  
Goodwill   16     2,752,135       2,280,575  
Property, plant and equipment   17     10,997,106       10,938,657  
Tax assets   18     25,629       25,629  
Deferred tax assets   18     393,280       376,595  
Total non-current assets         16,205,585       15,278,517  
Total assets         19,046,697       18,101,418  

 

The accompanying Notes 1 to 37 form an integral part of these consolidated financial statements.

 

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

        As of     As of  
        June 30,     December 31,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited        
LIABILITIES AND EQUITY                
LIABILITIES                    
Current liabilities                    
Other financial liabilities   7 - 19     1,883,447       1,644,235  
Trade and other accounts payables   7 - 20     1,550,070       1,483,957  
Accounts payable to related entities   7 - 9     132       447  
Other provisions   21     2,404       2,922  
Tax liabilities   18     24,906       19,378  
Other non-financial liabilities   22     2,759,022       2,490,033  
Total current liabilities         6,219,981       5,640,972  
Non-current liabilities                    
Other financial liabilities   7 - 19     7,118,950       7,532,385  
Accounts payable   7 - 24     371,104       417,050  
Other provisions   21     520,742       424,497  
Deferred tax liabilities   18     925,963       811,565  
Employee benefits   23     76,371       65,271  
Other non-financial liabilities   22     274,374       272,130  
Total non-current liabilities         9,287,504       9,522,898  
Total liabilities         15,507,485       15,163,870  
                     
EQUITY                    
Share capital   25     2,545,705       2,545,705  
Retained earnings   25     324,766       317,950  
Treasury Shares   25     (178 )     (178 )
Other reserves         579,411       (6,942 )
Parent's ownership interest         3,449,704       2,856,535  
Non-controlling interest   14     89,508       81,013  
Total equity         3,539,212       2,937,548  
Total liabilities and equity         19,046,697       18,101,418  

 

The accompanying Notes 1 to 37 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 6 months ended     For the 3 months ended  
        June 30,     June 30,  
    Note   2016     2015     2016     2015  
        ThUS$     ThUS$     ThUS$     ThUS$  
        Unaudited  
Revenue   26     4,200,981       5,005,455       1,966,724       2,311,606  
Cost of sales         (3,330,106 )     (3,963,067 )     (1,668,632 )     (1,925,782 )
Gross margin         870,875       1,042,388       298,092       385,824  
Other income   28     237,269       198,541       143,909       101,248  
Distribution costs         (356,500 )     (388,906 )     (180,793 )     (168,283 )
Administrative expenses         (326,828 )     (465,771 )     (144,997 )     (215,767 )
Other expenses         (205,206 )     (150,710 )     (115,682 )     (94,384 )
Other gains/(losses)         (12,421 )     (382 )     (15,986 )     (6,596 )
Income from operation activities         207,189       235,160       (15,457 )     2,042  
Financial income         31,418       31,884       20,554       13,394  
Financial costs   27     (206,632 )     (205,583 )     (103,583 )     (110,250 )
Share of profit of investments accounted for using the equity method         -       37       -       37  
Foreign exchange gains/(losses)   29     143,408       (169,222 )     75,510       35,355  
Result of indexation units         284       476       284       2  
Income (loss) before taxes         175,667       (107,248 )     (22,692 )     (59,420 )
Income (loss) tax expense / benefit   18     (144,899 )     36,953       (62,572 )     13,400  
                                     
NET INCOME (LOSS) FOR THE PERIOD         30,768       (70,295 )     (85,264 )     (46,020 )
Income (loss) attributable to owners of the parent         10,133       (89,674 )     (92,075 )     (49,727 )
Income (loss) attributable to non-controlling interest   14     20,635       19,379       6,811       3,707  
                                     
Net income (loss) for the year         30,768       (70,295 )     (85,264 )     (46,020 )
                                     
EARNINGS PER SHARE                                    
Basic earnings (losses) per share (US$)   30     0.01857       (0.16437 )     (0.16878 )     (0.09115 )
Diluted earnings (losses) per share (US$)   30     0.01857       (0.16437 )     (0.16878 )     (0.09115 )

 

The accompanying Notes 1 to 37 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 6 months ended     For the 3 months ended  
        June 30,     June 30,  
    Note   2016     2015     2016     2015  
        ThUS$     ThUS$     ThUS$     ThUS$  
        Unaudited  
NET INCOME (LOSS)         30,768       (70,295 )     (85,264 )     (46,020 )
Components of other comprehensive income that will not be reclassified to income before taxes                                    
Other comprehensive income, before taxes, gain (losses) by remeasurements of post employment benefit obligations   25     (1,269 )     -       304       -  
Total other comprehensive income that will not be reclassified to income before taxes         (1,269 )     -       304       -  
Components of other comprehensive income that will be reclassified to income before taxes                                    
Currency translation differences                                    
Gains (losses) on currency translation, before tax   29     549,062       (660,084 )     304,086       66,656  
Other comprehensive income, before taxes, currency translation differences         549,062       (660,084 )     304,086       66,656  
Cash flow hedges                                    
Gains (losses) on cash flow hedges before taxes   19     61,537       132,503       33,563       49,240  
Other comprehensive income (losses), before taxes, cash flow hedges         61,537       132,503       33,563       49,240  
Total other comprehensive income that will be reclassified to income before taxes         610,599       (527,581 )     337,649       115,896  
Other components of other comprehensive income (loss), before taxes         609,330       (527,581 )     337,953       115,896  
Income tax relating to other comprehensive income that will not be reclassified to income                                    
Income tax relating to new measurements on defined benefit plans   18     383       -       (30 )     -  
Accumulate income tax relating to other comprehensive income that will not be reclassified to income         383       -       (30 )     -  
Income tax relating to other comprehensive income that will be reclassified to income                                    
Income tax related to cash flow hedges in other comprehensive income         (16,940 )     (36,395 )     (9,229 )     (15,029 )
Income taxes related to components of other comprehensive incomethat will be reclassified to income         (16,940 )     (36,395 )     (9,229 )     (15,029 )
Total Other comprehensive income         592,773       (563,976 )     328,694       100,867  
Total comprehensive income (loss)         623,541       (634,271 )     243,430       54,847  
Comprehensive income (loss) attributable to owners of the parent         594,063       (648,232 )     229,702       38,944  
Comprehensive income (loss) attributable to non-controlling interests         29,478       13,961       13,728       15,903  
TOTAL COMPREHENSIVE INCOME (LOSS)         623,541       (634,271 )     243,430       54,847  

 

The accompanying Notes 1 to 37 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)   25     -       -       -       -       -       -       -       -       10,133       10,133       20,635       30,768  
                                                                                                     
Other comprehensive income         -       -       540,961       43,854       (885 )     -               583,930       -       583,930       8,843       592,773  
                                                                                                     
Total comprehensive income         -       -       540,961       43,854       (885 )     -       -       583,930       10,133       594,063       29,478       623,541  
                                                                                                     
Transactions with shareholders                                                                                                    
                                                                                                     
Dividens   29     -       -       -       -       -       -       -       -       (3,040 )     (3,040 )     -       (3,040 )
                                                                                                     
Increase (decrease) through transfers and other changes, equity   25-34     -       -       -       -       -       1,753       670       2,423       (277 )     2,146       (20,983 )     (18,837 )
                                                                                                     
Total transactions with shareholders         -       -       -       -       -       1,753       670       2,423       (3,317 )     (894 )     (20,983 )     (21,877 )
                                                                                                     
Closing balance as of June 30, 2016 (Unaudited)         2,545,705       (178 )     (2,035,080 )     (46,656 )     (11,602 )     37,400       2,635,349       579,411       324,766       3,449,704       89,508       3,539,212  

 

The accompanying Notes 1 to 37 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)   25     -       -       -       -       -       -       -       (89,674 )     (89,674 )     19,379       (70,295 )
                                                                                             
Other comprehensive income         -       -       (655,343 )     96,785       -       -       (558,558 )     -       (558,558 )     (5,418 )     (563,976 )
                                                                                             
Total comprehensive income         -       -       (655,343 )     96,785       -       -       (558,558 )     (89,674 )     (648,232 )     13,961       (634,271 )
                                                                                             
Transactions with shareholders                                                                                            
                                                                                             
Increase (decrease) through transfers and other changes, equity   25-34     -       -       -       -       4,034       1,603       5,637       1,697       7,334       (16,849 )     (9,515 )
                                                                                             
Total transactions with shareholders         -       -       -       -       4,034       1,603       5,637       1,697       7,334       (16,849 )     (9,515 )
                                                                                             
Closing balance as of June 30, 2015 (Unaudited)         2,545,705       (178 )     (1,849,214 )     (54,555 )     33,676       2,637,351       767,258       448,213       3,760,998       98,911       3,859,909  

 

The accompanying Notes 1 to 37 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  
        June 30,  
    Note   2016     2015  
        ThUS$     ThUS$  
        Unaudited  
                 
Cash flows from operating activities                    
Cash collection from operating activities                    
Proceeds from sales of goods and services         4,899,179       5,701,558  
Other cash receipts from operating activities         32,923       43,060  
Payments for operating activities                    
Payments to suppliers for goods and services         (3,143,525 )     (3,554,526 )
Payments to and on behalf of employees         (1,187,656 )     (1,128,812 )
Other payments for operating activities         (86,060 )     (151,537 )
Interest received         5,508       13,544  
Income taxes refunded (paid)         (33,127 )     (20,878 )
Other cash inflows (outflows)   35     (68,147 )     (93,879 )
Net cash flows from operating activities         419,095       808,530  
Cash flows used in investing activities                    
Other cash receipts from sales of equity or debt instruments of other entities         1,507,952       200,455  
Other payments to acquire equity or debt instruments of other entities         (1,355,394 )     (204,439 )
Amounts raised from sale of property, plant and equipment         20,451       22,191  
Purchases of property, plant and equipment         (409,770 )     (490,229 )
Amounts raised from sale of intangible assets         4       17  
Purchases of intangible assets         (27,835 )     (10,487 )
Other cash inflows (outflows)   35     (2,056 )     23,671  
Net cash flow from (used in) investing activities         (266,648 )     (458,821 )
Cash flows from (used in) financing activities                    
Payments to acquire or redeem the shares of the entity         -       45  
Amounts raised from long-term loans         844,282       709,543  
Amounts raised from short-term loans         230,000       45,000  
Loans repayments         (886,880 )     (677,644 )
Payments of finance lease liabilities         (159,519 )     (158,113 )
Dividends paid         (19,799 )     (17,836 )
Interest paid         (201,684 )     (171,469 )
Other cash inflows (outflows)   35     (165,390 )     24,163  
Net cash flows from (used in) financing activities         (358,990 )     (246,311 )
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change         (206,543 )     103,398  
Effects of variation in the exchange rate on cash and cash equivalents         90,443       (18,823 )
Net increase (decrease) in cash and cash equivalents         (116,100 )     84,575  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   35     753,497       989,396  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   35     637,397       1,073,971  

 

The accompanying Notes 1 to 37 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 JUNE 30, 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”).

 

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.

 

On February 2, 2016, LATAM received the approval by Comissão de Valores Mobiliários (“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. On May 24, 2016, LATAM reported as an Essential Fact the maturity date May 23, 2016 deadline for holders of BDRs to express their option to keep the shares and the blockade by BM&FBOVESPA with the same date of the respective balances of shares of the holders of BDRs who chose to adhere to the procedure for sale of shares through the procedure called Sale Facility and assigned for this purpose a theoretical value of sales in the Santiago Stock Exchange. On June 9, 2016, LATAM Airlines Group S.A. reported that BTG Pactual Chile S.A. Stockbrokers ("BTG Pactual Chile"), a chilean institution contracted by the Company, made the sale on the Santiago Stock Exchange of the shares of the respective holders who adhered to Sale Facility procedure.

 

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 June 30, 2016, the Company had a total of 1,610 registered shareholders. At that date approximately 4.08 % of the Company’s share capital was in the form of ADRs and approximately 0.44% in the form of ADRs.

 

For the period ended June 30, 2016, the Company had an average of 49,690 employees, ending this period with a total of 48,560 employees, spread over 9,056 Administrative employees, 5,127 in Maintenance, 16,317 in Operations, 9,245 in Cabin Crew, 3,985 in Controls Crew, and 4,830 in Sales.

 

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

 

a) Participation rate

 

                As June 30, 2016     As December 31, 2015  
        Country   Functional                                    
Tax No.   Company   of origin   Currency   Direct     Indirect     Total     Direct     Indirect     Total  
                %     %     %     %     %     %  
                Unaudited                    
                                                 
96.518.860-6   Lantours Division Servicios Terrestres S.A. 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   Transporte 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 June 30, 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.

 

  2  

 

 

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.

 

b) Statement of financial position

 

        Statement of financial position     Net Income  
                    For the periods ended  
                    June 30,  
        As of June 30, 2016     As of December 31, 2015     2016     2015  
Tax No.   Company   Assets     Liabilities     Equity     Assets     Liabilities     Equity     Gain/(loss)  
        ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
        Unaudited                       Unaudited  
                                                     
96.518.860-6   Lantours Division Servicios Terrestres S.A. and Subsidary     3,585       1,885       1,700       5,613       5,522       91       1,609       2,131  
96.763.900-1   Inmobiliaria Aeronáutica S.A.     37,786       12,797       24,989       39,302       14,832       24,470       519       1,497  
96.969.680-0   Lan Pax Group S.A. and Subsidiaries (*)     448,649       1,011,478       (554,703 )     519,588       1,049,232       (521,907 )     (37,915 )     (5,270 )
Foreign   Lan Perú S.A.     303,988       291,246       12,742       255,691       240,938       14,753       (621 )     (2,172 )
Foreign   Lan Chile Investments Limited and Subsidiary (*)     2,014       -       2,014       2,015       13       2,002       12       (1 )
93.383.000-4   Lan Cargo S.A.     457,353       208,788       248,565       483,033       217,037       265,966       (17,103 )     (31,645 )
Foreign   Connecta Corporation     36,359       31,972       4,387       37,070       38,298       (1,228 )     5,615       3,422  
Foreign   Prime Airport Services Inc. and Subsidary (*)     7,737       12,523       (4,786 )     6,683       11,180       (4,497 )     (289 )     301  
96.951.280-7   Transporte Aéreo S.A.     321,509       113,017       208,492       331,117       122,666       208,451       859       8,400  
Foreign   Aircraft International Leasing Limited     -       -       -       -       4       (4 )     4       (4 )
96.631.520-2   Fast Air Almacenes de Carga S.A.     8,591       3,449       5,142       8,985       4,641       4,344       389       834  
Foreign   Laser Cargo S.R.L.     23       56       (33 )     27       39       (12 )     -       (73 )
Foreign   Lan Cargo Overseas Limited and Subsidiaries (*)     60,729       40,612       16,610       62,406       43,759       15,563       1,049       2,555  
96.969.690-8   Lan Cargo Inversiones S.A. and Subsidary (*)     56,000       67,050       (10,053 )     54,179       68,220       (12,601 )     2,543       (406 )
96.575.810-0   Inversiones Lan S.A. and Subsidiaries (*)     15,558       12,743       2,782       16,512       14,676       1,828       878       233  
59.068.920-3   Technical Trainning LATAM S.A.     1,788       222       1,566       1,527       266       1,261       205       (164 )
Foreign   TAM S.A. and Subsidiaries (*) (**)     5,301,757       4,733,458       485,741       4,711,316       4,199,223       437,953       (8,732 )     (61,933 )

 

(*) 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.

 

  3  

 

 

Changes in the scope of consolidation between January 1, 2015 and June 30, 2016, are detailed below:

 

(1) Incorporation or acquisition of companies

 

- On June 2016, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 4,767 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.0914%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.19061%

 

- 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 June 30, 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).

 

Law No. 20,780 issued on September 29, 2014, introduced modifications to the income tax system in Chile and other tax matters. On October 17, 2014 the Chilean Superintendence of Securities and Insurance (the “SVS”) issued Circular No. 856, which established that the effects of the change in the income tax rates on deferred tax assets and liabilities must be recognized directly within “Retained earnings” instead of the income statement as required by IAS 12. In order to comply with IAS 12, the financial statements for the period ended December 31, 2014 are different from those presented to the SVS as the modifications introduced by Law No. 20,780 and Circular No. 856 have been recognized within the income statement.

 

  4  

 

 

As from the year 2016, the differences between the financial statements presented to the Chilean regulator and those prepared to comply with IAS 12 no longer exist so no adjustment is necessary.

 

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

 

  5  

 

 

       

Mandatory

Application:

Annual periods
beginning on or
after

(ii)         Improvements   Date of issue    
         
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.

 

(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
         
Amendment to IFRS 15: Revenue from contracts with customers.   April 2016   01/01/2018
         
Amendment to IFRS 2: Share-based payments   June 2016   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

 

  6  

 

 

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.

 

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.

 

  7  

 

 

(b) Transactions with non-controlling interests

 

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

 

(c) Sales of subsidiaries

 

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

 

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

 

(d) Investees or associates

 

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

 

2.3. Foreign currency transactions

 

(a) Presentation and functional currencies

 

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

 

(b) Transactions and balances

 

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

 

  8  

 

 

(c) Group entities

 

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

 

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

 

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

 

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

 

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

 

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

 

2.4. Property, plant and equipment

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  9  

 

 

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 16)

 

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

 

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

 

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

 

(b) Computer software

 

Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 10 years.

 

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

 

2.6. Goodwill

 

Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually 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.

 

  10  

 

 

2.8. Losses for impairment of non-financial assets

 

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

 

2.9. Financial assets

 

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

 

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

 

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

 

(b) Loans and receivables

 

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

 

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

 

  11  

 

  

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

 

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

 

2.10. Derivative financial instruments and hedging activities

 

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

 

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

 

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

 

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

 

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

 

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

 

(a) Fair value hedges

 

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

 

(b) Cash flow hedges

 

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

 

  12  

 

  

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

 

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

 

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

 

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

 

(c) Derivatives not booked as a hedge

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

 

2.11. Inventories

 

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

 

2.12. Trade and other accounts receivable

 

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

 

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

  13  

 

  

2.13. Cash and cash equivalents

 

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

 

2.14. Capital

 

The common shares are classified as net equity.

 

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

 

2.15. Trade and other accounts payables

 

Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost.

 

2.16. Interest-bearing loans

 

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

 

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

 

2.17. Current and deferred taxes

 

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

 

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

 

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

 

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

 

  14  

 

  

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

 

2.18. Employee benefits

 

(a) Personnel vacations

 

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

 

(b) Share-based compensation

 

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

 

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

 

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

 

(d) Incentives

 

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

 

2.19. Provisions

 

Provisions are recognized when:

 

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

 

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

 

(iii) T he amount has been reliably estimated .

 

  15  

 

 

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.

 

(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.

 

  16  

 

  

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

 

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

 

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

 

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

 

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

 

2.23. Maintenance

 

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

 

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

 

Additionally, some leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.

 

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

 

2.24. Environmental costs

 

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

 

  17  

 

  

NOTE 3 - FINANCIAL RISK MANAGEMENT

 

3.1. Financial risk factors

 

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

 

(a) Market risk

 

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

 

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

 

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

 

(i) Fuel-price risk:

 

Exposition:

 

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

 

Mitigation:

 

To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible use West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and are highly liquid.

 

Fuel Hedging Results:

 

During the period ended at June 30, 2016, the Company recognized losses of US$ 31.3 million on fuel derivative. During the same period of 2015, the Company recognized losses of US$ 143.8 million for the same reason.

 

At June 30, 2016, the market value of its fuel positions amounted to US$ 9.9 million (negative). At December 31, 2015, this market value was US$ 56.4 million (negative).

 

  18  

 

  

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

 

Positions as of  June 30, 2016 (*) (Unaudited)   Maturities  
    Q316     Q416     Q117     Q217     Total  
                                         
Percentage of the hedge of expected consumption value     54 %     27 %     9 %     9 %     25 %

 

(*) 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.

 

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 June, 2016 and the end of December, 2015.

 

    Positions as of June 30, 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   +11.02   +5.41
-5   - 9.03   -2.78

  

Given the fuel hedge structure during the first half 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$ 56.4 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$ 63.6 million of increased fuel costs.

 

  19  

 

 

(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.

 

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 June 30, 2016, the market value of its FX positions amounted to US$ 17.9 million (negative). At end of December 2015 the market value was of US$ 8.0 million (positive).

 

During the period ended at June 30, 2016 the Company recognized losses of US$ 19.1 million on hedging FX. During the same period of 2015 the Company recognized gains of US$ 6.4 million on hedging FX.

 

At end of June 2016, the Company has contracted FX derivatives for US$ 330 million to BRL, US$ 95 million to EUR, US$ 50 million to GBP, US$ 40 million to AUD, US$ 41 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.

 

  20  

 

 

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 June 30, 2016   Effect at December 31, 2015
of  R$//EUR/GBP/AUD/CLP/COP   Millions of US$   Millions of US$
    (Unaudited)    
-10%    -17.79    -21.28
+10%   +20.76   +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.

 

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

 

Appreciation (depreciation)*   Effect at June 30, 2016   Effect at December 31, 2015
of R$/US$   Millons of US$   Millons of US$
    (Unaudited)    
-10%   +121.3   +67.6
+10%    -121.3    -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 19).

 

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.

 

  21  

 

  

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 June 30, 2016   Effect at December 31, 2015
of R$/US$   Millions of US$   Millions of US$
    (Unaudited)    
-10%   +354.52   +296.41
+10%   -290.06   -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").

 

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 70% (71% at December 31, 2015) of the debt is fixed to fluctuations in interest rate.

 

Rate Hedging Results :

 

At June 30, 2016, the market value of the positions of interest rate derivatives amounted to US$ 30.8 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 each date.

 

Increase (decrease)   Positions as of June 30, 2016 Positions as of June 30, 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    -27.49    -28.02
-100 basis points   +27.49   +26.02

 

  22  

 

 

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 June 30, 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   +6.13   +8.71
-100   basis points   -6.34    -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.

 

(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.

 

  23  

 

  

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

 

The Company has no guarantees to mitigate this exposure.

 

(ii) Operational activities

 

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

 

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

 

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

 

Credit quality of financial assets

 

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

 

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

 

  24  

 

 

(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 June 30, 2016 is US$1,234 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 June 30, 2016, LATAM has working capital credit lines with multiple banks.

 

  25  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of June 30, 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     f ive           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$     100,387       -       -       -       -       100,387       100,000     At Expiration     1.53       1.53  
97.036.000-K   SANTANDER   Chile   US$     150,891       -       -       -       -       150,891       150,000     At Expiration     2.49       2.49  
97.030.000-7   ESTADO   Chile   US$     40,160       -       -       -       -       40,160       40,000     At Expiration     1.60       1.60  
97.003.000-K   BANCO DO BRASIL   Chile   US$     -       71,969       -       -       -       71,969       70,000     At Expiration     2.82       2.82  
97.951.000-4   HSBC   Chile   US$     12,046       -       -       -       -       12,046       12,000     At Expiration     1.52       1.52  
                                                                                         
Bank loans
                                                                                         
97.023.000-9   CORPBANCA   Chile   UF     21,249       62,456       92,544       27,805       -       204,054       191,964     Quarterly     4.13       4.13  
0-E   BLADEX   U.S.A.   US$     -       12,143       32,514       7,679       -       52,336       47,500     Semiannual     4.80       4.80  
0-E   DVB BANK SE   U.S.A.   US$     127       373       28,955       -       -       29,455       28,911     Quarterly     1.70       1.70  
97.036.000-K   SANTANDER   Chile   US$     661       -       85,951       -       -       86,612       85,951     Quarterly     2.75       2.75  
                                                                                         
Obligations with the public
                                                                                         
0-E   BANK OF NEW YORK   E.E.U.U.   US$     -       36,250       72,500       536,250       -       645,000       500,000     At Expiration     7.77       7.25  
                                                                                         
Guaranteed obligations
 
0-E   CREDIT AGRICOLE   Francia   US$     35,498       92,659       214,207       45,085       7,353       394,802       381,326     Quarterly     2.07       1.91  
0-E   BNP PARIBAS   U.S.A.   US$     10,232       41,414       105,953       104,045       209,995       471,639       417,977     Trimestral     2.60       2.54  
0-E   WELLS FARGO   U.S.A.   US$     35,778       107,404       286,913       287,672       482,940       1,200,707       1,118,824     Trimestral     2.34       1.65  
0-E   WILMINGTON TRUST COMPANY   U.S.A.   US$     27,517       79,892       207,571       203,691       782,118       1,300,789       1,001,437     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     19,881       59,867       161,518       164,392       225,406       631,064       582,803     Quarterly     2.53       1.78  
97.036.000-K   SANTANDER   Chile   US$     5,735       17,270       46,590       47,418       38,369       155,382       149,172     Quarterly     1.72       1.18  
0-E   BTMU   U.S.A.   US$     3,086       9,297       25,142       25,674       33,659       96,858       91,508     Quarterly     2.04       1.44  
0-E   APPLE BANK   U.S.A.   US$     1,518       4,574       12,381       12,666       17,009       48,148       45,466     Quarterly     2.03       1.44  
0-E   US BANK   U.S.A.   US$     18,609       55,700       147,678       146,380       267,132       635,499       561,990     Quarterly     3.99       2.81  
0-E   DEUTSCHE BANK   U.S.A.   US$     6,069       18,220       35,406       31,286       55,805       146,786       127,092     Quarterly     3.65       3.65  
0-E   NATIXIS   France   US$     14,237       43,300       117,352       97,276       227,484       499,649       446,390     Quarterly     2.33       2.29  
0-E   HSBC   U.S.A.   US$     1,636       4,919       13,206       13,339       21,979       55,079       50,822     Quarterly     2.69       1.88  
0-E   PK AirFinance   U.S.A.   US$     2,226       6,815       19,376       21,325       12,576       62,318       58,718     Monthly     2.15       2.15  
0-E   KFW IPEX-BANK   Germany   US$     2,466       7,478       19,198       13,187       560       42,889       40,679     Quarterly     2.30       2.30  
0-E   AIRBUS FINANCIAL   E.E.U.U.   US$     1,974       5,884       15,862       11,744       -       35,464       33,749     Mensual     2.43       2.43  
0-E   INVESTEC   England   US$     -       3,673       7,483       7,559       7,645       26,360       21,999     Semestral     5.31       5.31  
                                                                                         
Otras obligaciones garantizadas
                                                                                         
0-E   CITIBANK   U.S.A.   US$     2,448       7,265       323,084       -       -       332,797       306,000     At Expiration     3.13       3.13  
0-E   DVB Bank SE   U.S.A.   US$     8,245       8,242       -       -       -       16,487       16,338     Quarterly     2.40       2.40  
                                                                                         
Financial leases
                                                                                         
0-E   ING   U.S.A.   US$     9,258       19,347       37,797       20,184       -       86,586       78,677     Quarterly     5.38       4.78  
0-E   CREDIT AGRICOLE   France   US$     1,754       5,352       3,647       -       -       10,753       10,600     Quarterly     1.60       1.60  
0-E   CITIBANK   U.S.A.   US$     6,083       18,250       48,667       26,429       -       99,429       87,945     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     17,556       52,673       92,369       11,660       -       174,258       162,215     Quarterly     5.38       4.78  
0-E   BNP PARIBAS   U.S.A.   US$     11,471       34,572       73,694       21,475       -       141,212       133,048     Quarterly     4.12       3.68  
0-E   WELLS FARGO   U.S.A.   US$     5,588       16,766       44,639       44,539       12,998       124,530       112,555     Quarterly     3.98       3.54  
0-E   DVB BANK SE   U.S.A.   US$     4,762       14,287       4,765       -       -       23,814       23,402     Quarterly     2.32       2.32  
0-E   BANC OF AMERICA   U.S.A.   US$     1,560       -       -       -       -       1,560       1,551     Monthly     1.41       1.41  
                                                                                         
Other loans
                                                                                         
0-E   CITIBANK (*)   U.S.A.   US$     25,325       78,310       207,104       155,431       -       466,170       411,187     Quarterly     6.00       6.00  
                                                                                         
Hedging derivatives                                                                                        
                                                                                         
-     OTROS   -   US$     8,202       22,646       18,987       221       -       50,056       -     -     0.00       0.00  
                                                                                         
    Total             614,235       1,019,267       2,603,053       2,084,412       2,403,028       8,723,995       7,699,796                      

 

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

 

  26  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of June 30, 2015 (Unaudited)

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

 

                      More than     More than     More than                                    
                Up to     90 days     one to     three to     More than                              
        Creditor       90     to one     three     five     five           Nominal         Effective     Nominal  
Tax No.   Creditor   country   Currency   days     year     years     years     years     Total     value     Amortization   rate     rate  
                ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$         %     %  
                                                                                         
Bank loans
 
0-E   NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ   Holand   US$     165       493       1,315       1,314       383       3,670       3,121     Monthly     6.01       6.01  
                                                                                         
Obligation with the public
 
0-E   THE BANK OF NEW YORK   U.S.A.   US$     -       364,000       83,750       583,750       -       1,031,500       800,000     At Expiration     8.17       8.00  
                                                                                         
Financial leases 
 
0-E   AFS INVESTMENT IX LLC   U.S.A.   US$     2,570       7,699       20,524       13,677       -       44,470       39,533     Monthly     1.25       1.25  
0-E   DVB BANK SE   U.S.A.   US$     121       358       46       -       -       525       519     Monthly     2.15       2.15  
0-E   GENERAL ELECTRIC CAPITAL CORPORATION   U.S.A.   US$     3,816       11,473       1,397       -       -       16,686       16,424     Monthly     1.90       1.90  
0-E   KFW IPEX-BANK   Germany   US$     596       1,765       967       -       -       3,328       3,280     Monthly/Quarterly     2.40       2.40  
0-E   NATIXIS   France   US$     4,037       7,831       22,730       42,526       45,705       122,829       111,133     Quarterly/Semiannual     4.50       4.50  
0-E   PK AIRFINANCE US, INC.   U.S.A.   US$     1,412       19,180       -       -       -       20,592       20,475     Monthly     2.40       2.40  
0-E   WACAPOU LEASING S.A.   Luxemburg   US$     784       2,371       6,424       6,528       2,917       19,024       17,342     Quarterly     2.65       2.65  
0-E   SOCIÉTÉ GÉNÉRALE MILAN BRANCH   Italy   US$     11,154       32,015       85,887       193,070       -       322,126       296,113     Quarterly     3.83       3.70  
0-E   BANCO IBM S.A   Brazil   BRL     360       1,152       815       -       -       2,327       1,574     Monthly     14.13       14.13  
0-E   HP FINANCIAL SERVICE   Brazil   BRL     229       457       -       -       -       686       659     Monthly     10.02       10.02  
0-E   SOCIÉTÉ GÉNÉRALE   France   BRL     139       444       502       -       -       1,085       735     Monthly     14.13       14.13  
                                                                                         
    Total             25,383       449,238       224,357       840,865       49,005       1,588,848       1,310,908                      

 

  27  

 

 

Class of liability for the analysis of liquidity risk ordered by date of maturity as of June 30, 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$         %     %  
                                                                                         
Trade and other accounts payables
 
-   OTHERS   VARIOS   US$     495,341       23,739       -       -       -       519,080       519,080     -     0.00       0.00  
            CLP     35,720       7       -       -       -       35,727       35,727     -     0.00       0.00  
            BRL     350,057       3       -       -       -       350,060       350,060     -     0.00       0.00  
            Others currencies     193,655       193       -       -       -       193,848       193,848     -     0.00       0.00  
                                                                                         
Accounts payable to related parties currents
 
65.216.000-K   COMUNIDAD MUJER   Chile   CLP     19       -       -       -       -       19       19     -     0.00       0.00  
78.591.370-1   BETHIA S.A. Y FILIALES   Chile   CLP     3       -       -       -       -       3       3     -     0.00       0.00  
79.773.440-3   Transportes San Felipe S.A.   Chile   CLP     56       -       -       -       -       56       56     -     0.00       0.00  
78.997.060-2   Viajes Falabella Ltda.   Chile   CLP     4       -       -       -       -       4       4     -     0.00       0.00  
0-E   Consultoría Administrativa Profesional   Mexico   MXN     50       -       -       -       -       50       50     -     0.00       0.00  
                                                                                         
    Total             1,074,905       23,942       -       -       -       1,098,847       1,098,847                      
                                                                                         
    Total consolidated             1,714,523       1,492,447       2,827,410       2,925,277       2,452,033       11,411,690       10,109,551                      

  

  28  

 

 

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

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

 

                      More than     More than     More than                                    
                Up to     90 days     one to     three to     More than                              
        Creditor       90     to one     three     five     five           Nominal         Effective     Nominal  
Tax No.   Creditor   country   Currency   days     year     years     years     years     Total     value     Amortization   rate     rate  
                ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$         %     %  
                                                                       
Loans to exporters
                                                                                         
97.032.000-8   BBVA   Chile   US$     100,253       -       -       -       -       100,253       100,000     At Expiration     1.00       1.00  
97.036.000-K   SANTANDER   Chile   US$     100,363       -       -       -       -       100,363       100,000     At Expiration     1.44       1.44  
97.030.000-7   ESTADO   Chile   US$     55,172       -       -       -       -       55,172       55,000     At Expiration     1.05       1.05  
97.004.000-5   BANCO DE CHILE   Chile   US$     50,059       -       -       -       -       50,059       50,000     At Expiration     1.42       1.42  
97.003.000-K   BANCO DO BRASIL   Chile   US$     70,133       -       -       -       -       70,133       70,000     At Expiration     1.18       1.18  
97.951.000-4   HSBC   Chile   US$     12,020       -       -       -       -       12,020       12,000     At Expiration     0.66       0.66  
                                                                                         
Bank loans
                                                                                         
97.023.000-9   CORPBANCA   Chile   UF     19,873       58,407       112,252       35,953       -       226,485       211,135     Quarterly     4.18       4.18  
0-E   BANCO BLADEX   U.S.A.   US$     -       9,702       30,526       15,514       -       55,742       50,000     Semiannual     4.58       4.58  
0-E   DVB BANK SE   U.S.A.   US$     146       430       154,061       -       -       154,637       153,514     Quarterly     1.67       1.67  
97.036.000-K   SANTANDER   Chile   US$     1,053       -       226,712       -       -       227,765       226,712     Quarterly     2.24       2.24  
                                                                                         
Obligations with the public
                                                                                         
0-E   BANK OF NEW YORK   U.S.A.   US$     -       36,250       72,500       554,375       -       663,125       500,000     At Expiration     7.77       7.25  
                                                                                         
Guaranteed obligations
                                                                                         
0-E   CREDIT AGRICOLE   Francia   US$     31,813       92,167       210,541       55,381       12,677       402,579       389,027     Quarterly     1.83       1.66  
0-E   BNP PARIBAS   U.S.A.   US$     9,899       29,975       82,094       83,427       148,904       354,299       319,397     Quarterly     2.29       2.22  
0-E   WELLS FARGO   U.S.A.   US$     35,636       106,990       285,967       286,959       554,616       1,270,168       1,180,751     Quarterly     2.27       1.57  
0-E   WILMINGTON TRUST   U.S.A.   US$     6,110       69,232       135,334       133,363       539,019       883,058       675,696     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     19,478       58,741       158,957       162,459       266,273       665,908       617,002     Quarterly     2.40       1.64  
97.036.000-K   SANTANDER   Chile   US$     5,585       16,848       45,653       46,740       50,124       164,950       159,669     Quarterly     1.47       0.93  
0-E   BTMU   U.S.A.   US$     2,992       9,035       24,541       25,214       39,930       101,712       96,954     Quarterly     1.82       1.22  
0-E   APPLE BANK   U.S.A.   US$     1,471       4,445       12,079       12,431       20,099       50,525       48,142     Quarterly     1.72       1.12  
0-E   US BANK   U.S.A.   US$     18,643       55,824       147,994       146,709       303,600       672,770       591,039     Quarterly     3.99       2.81  
0-E   DEUTSCHE BANK   U.S.A.   US$     5,923       17,881       39,185       30,729       63,268       156,986       136,698     Quarterly     3.40       3.40  
0-E   NATIXIS   France   US$     13,740       41,730       115,026       100,617       249,194       520,307       469,423     Quarterly     2.08       2.05  
0-E   HSBC   U.S.A.   US$     1,590       4,790       12,908       13,112       25,175       57,575       53,583     Quarterly     2.40       1.59  
0-E   PK  AirFinance   U.S.A.   US$     2,172       6,675       18,928       20,812       18,104       66,691       62,514     Monthly     2.04       2.04  
0-E   KFW IPEX-BANK   Germany   US$     728       2,232       5,684       4,131       1,658       14,433       13,593     Quarterly     2.45       2.45  
                                                                                         
Other guaranteed obligations
                                                                                         
0-E   DVB BANK SE   U.S.A.   US$     8,225       24,695       -       -       -       32,920       32,492     Quarterly     2.32       2.32  
                                                                                         
Financial leases
                                                                                         
0-E   ING   U.S.A.   US$     9,214       26,054       41,527       28,234       -       105,029       94,998     Quarterly     5.13       4.57  
0-E   CREDIT AGRICOLE   France   US$     1,711       5,236       7,216       -       -       14,163       13,955     Quarterly     1.28       1.28  
0-E   CITIBANK   U.S.A.   US$     6,083       18,250       48,667       38,596       -       111,596       97,383     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     17,556       52,674       115,934       23,211       -       209,375       192,914     Quarterly     5.37       4.77  
0-E   BNP PARIBAS   U.S.A.   US$     11,368       34,292       86,206       31,782       -       163,648       153,107     Quarterly     4.08       3.64  
0-E   WELLS FARGO   U.S.A.   US$     5,594       16,768       44,663       44,565       24,125       135,715       121,628     Quarterly     3.98       3.54  
0-E   DVB BANK SE   U.S.A.   US$     4,732       14,225       14,269       -       -       33,226       32,567     Quarterly     2.06       2.06  
0-E   BANC OF AMERICA   U.S.A.   US$     703       2,756       -       -       -       3,459       2,770     Monthly     1.41       1.41  
                                                                                         
Other loans
                                                                                         
0-E   BOEING   U.S.A.   US$     655       533       151,362       -       -       152,550       151,362     At Expiration     1.80       1.80  
0-E   CITIBANK (*)   U.S.A.   US$     25,820       77,850       207,190       206,749       -       517,609       450,000     Quarterly     6.00       6.00  
                                                                                         
Hedging derivatives
                                                                                         
-   OTROS   -   US$     12,232       33,061       40,986       3,688       16       89,983       85,653     -     0.00       0.00  
                                                                                         
    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.

 

  29  

 

  

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

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

 

                      More than     More than     More than                                    
                Up to     90 days     one to     three to     More than                              
        Creditor       90     to one     three     five     five           Nominal         Effective     Nominal  
Tax No.   Creditor   country   Currency   days     year     years     years     years     Total     value     Amortization   rate     rate  
                ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$         %     %  
                                                                       
Bank loans
                                                                                         
0-E   NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ   Holland   US$     181       493       1,315       1,314       712       4,015       3,353     Monthly     6.01       6.01  
                                                                                         
Obligation with the public
                                                                                         
0-E   BANK OF NEW YORK   U.S.A.   US$     440       65,321       397,785       86,590       521,727       1,071,863       800,000     At Expiration     8.17       8.00  
                                                                                         
Financial leases
                                                                                         
0-E   AFS INVESTMENT IX LLC   U.S.A.   US$     2,771       7,700       20,527       18,808       -       49,806       43,505     Monthly     1.25       1.25  
0-E   AIRBUS FINANCIAL   U.S.A.   US$     3,715       11,054       21,830       15,730       -       52,329       49,995     Monthly     1.43       1.43  
0-E   CREDIT AGRICOLE -CIB   France   US$     4,542       -       -       -       -       4,542       4,500     Quarterly/Semiannual     3.25       3.25  
0-E   DVB BANK SE   U.S.A.   US$     123       361       284       -       -       768       755     Monthly     1.64       1.64  
0-E   GENERAL ELECTRIC CAPITAL                                                                                    
    CORPORATION   U.S.A.   US$     3,834       11,437       9,050       -       -       24,321       23,761     Monthly     1.25       1.25  
0-E   KFW IPEX-BANK   Germany   US$     3,345       6,879       15,973       12,429       -       38,626       36,899     Monthly/Quarterly     1.72       1.72  
0-E   NATIXIS   France   US$     4,338       7,812       22,635       23,030       70,925       128,740       115,020     Quarterly/Semiannual     3.85       3.85  
0-E   PK AIRFINANCE US, INC.   U.S.A.   US$     1,428       21,992       -       -       -       23,420       23,045     Monthly     1.75       1.75  
0-E   WACAPOU LEASING S.A.   Luxemburg   US$     520       1,386       3,198       14,567       -       19,671       18,368     Quarterly     2.00       2.00  
0-E   SOCIÉTÉ GÉNÉRALE MILAN BRANCH   Italy   US$     11,993       31,874       85,695       214,612       -       344,174       312,486     Quarterly     3.63       3.55  
0-E   BANCO IBM S.A   Brazil   BRL     267       846       1,230       -       -       2,343       1,728     Monthly     14.14       14.14  
0-E   HP FINANCIAL SERVICE   Brazil   BRL     188       564       188       -       -       940       882     Monthly     10.02       10.02  
0-E   SOCIÉTÉ GÉNÉRALE   France   BRL     104       330       626       -       -       1,060       775     Monthly     14.14       14.14  
                                                                                         
    Total             37,789       168,049       580,336       387,080       593,364       1,766,618       1,435,072                      

 

  30  

 

 

 

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       -       0.00       0.00  
            CLP     39,823       114       -       -       -       39,937       39,937       -       0.00       0.00  
            BRL     301,569       16       -       -       -       301,585       301,585       -       0.00       0.00  
            Others currencies     218,347       9,016       -       -       -       227,363       227,363       -       0.00       0.00  
                                                                                             
Accounts payable to related parties currents                                                                                        
65.216.000-K   COMUNIDAD MUJER   Chile   CLP     10       -       -       -       -       10       10       -       0.00       0.00  
78.591.370-1   BETHIA S.A. Y FILIALES   Chile   CLP     5       -       -       -       -       5       5       -       0.00       0.00  
78.997.060-2   Viajes Falabella Ltda.   Chile   CLP     68                                       68       68       -       0.00       0.00  
0-E   Consultoría Administrativa Profesional   Mexico   MXN     342       -       -       -       -       342       342       -       0.00       0.00  
0-E   INVERSORA AERONÁUTICA ARGENTINA   Argentina   US$     22       -       -       -       -       22       22       -       0.00       0.00  
    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                          

 

  31  

 

 

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 June 30, 2016, the Company had provided US$ 61.8 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The increase 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 June 30, 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 B1 rating with stable outlook by Moody’s.

 

3.3. Estimates of fair value.

 

At June 30, 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.

 

  32  

 

 

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.

 

  33  

 

 

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

 

    As of June 30, 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     38,180       38,180       -       -       26,600       26,600       -       -  
                                                                 
Short-term mutual funds     38,180       38,180       -       -       26,600       26,600       -       -  
                                                                 
Other financial assets, current     605,895       596,749       9,146       -       624,200       607,622       16,578       -  
Fair value of fuel derivatives     5,162       -       5,162       -       6,293       -       6,293       -  
Fair value of foreign currency derivatives     3,841       -       3,841       -       9,888       -       9,888       -  
Interest accrued since the last payment date of Cross Currency Swap     143       -       143       -       397       -       397       -  
Private investment funds     539,062       539,062       -       -       448,810       448,810       -       -  
Certificate of deposit CDB     -       -       -       -       -       -       -       -  
Domestic and foreign bonds     57,687       57,687       -       -       158,812       158,812       -       -  
Other investments     -       -       -       -       -       -       -       -  
                                                                 
Liabilities                                                                
Other financial liabilities, current     70,515       -       70,515       -       134,089       -       134,089       -  
Fair value of interest rate derivatives     19,746       -       19,746       -       33,518       -       33,518       -  
Fair value of fuel derivatives     10,989       -       10,989       -       39,818               39,818          
Fair value of foreign currency derivatives     36,751       -       36,751       -       56,424       -       56,424       -  
Interest accrued since the last payment date of Currency Swap     3,029       -       3,029       -       4,329       -       4,329       -  
Interest rate derivatives not recognized as a hedge     -       -       -       -       -               -          
                                                                 
Other financial liabilities, non current     12,102       -       12,102       -       16,128       -       16,128       -  
Fair value of interest rate derivatives     12,102       -       12,102       -       16,128       -       16,128       -  

 

  34  

 

 

Additionally, at June 30, 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 June 30, 2016     As of December 31, 2015  
    Book     Fair     Book     Fair  
    value     value     value     value  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited              
                         
Cash and cash equivalents     599,217       599,217       726,897       726,897  
Cash on hand     8,810       8,810       10,656       10,656  
Bank balance     298,101       298,101       302,696       302,696  
Overnight     185,515       185,515       267,764       267,764  
Time deposits     106,791       106,791       145,781       145,781  
                                 
Other financial assets, current     27,832       27,832       27,148       27,148  
Other financial assets     27,832       27,832       27,148       27,148  
                                 
Trade and other accounts receivable current     870,274       870,274       796,974       796,974  
Accounts receivable from related entities     353       353       183       183  
Other financial assets, non current     113,641       113,641       89,458       89,458  
Accounts receivable     8,166       8,166       10,715       10,715  
                                 
Other financial liabilities, current (*)     1,812,932       2,044,898       1,510,146       1,873,552  
Trade and other accounts payables     1,550,070       1,550,070       1,483,957       1,483,957  
Accounts payable to related entities     132       132       447       447  
Other financial liabilities, non current (*)     7,106,848       7,586,006       7,516,257       7,382,221  
Accounts payable, non-current     371,104       371,104       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.

 

  35  

 

 

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 June 30, 2016 goodwill amounted to ThUS$ 2,752,135 (ThUS$ 2,280,575 at December 31, 2015), while intangible assets with an indefinite useful life comprised airport slots for ThUS$ 993,884 (ThUS$ 816,987 at December 31, 2015), and Trademarks and Loyalty Program for ThUS$ 395,727 (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 June 30, 2016, amounted to ThUS$ 2,210,189 and ThUS$ 541,946 (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  
    June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport Slots     993.884       816.987       -       -  
Trade marks     64.453       52.981       -       -  
Loyalty program     -       -       331.274       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 16.

 

(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.

 

  36  

 

 

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 June 30, 2016 the company recognized deferred tax assets amounting to ThUS$ 393,280 (ThUS$ 376,595 at December 31, 2015), and had ceased to recognize deferred tax assets for tax losses amounting to ThUS$ 69,221 (ThUS$ 15,513 at December 31, 2015) (Note 18).

 

(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 June 30, 2016, deferred revenue associated with air tickets sold amounted to ThUS$ 1,477,553 (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 June 30, 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 June 30, 2016 and December 31, 2015, the Company operated the following loyalty programs: LATAM Pass, LATAM Fidelidade and Multiplus, with the objective of enhancing customer loyalty by offering points or kilometers (see Note 22).

 

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.

 

  37  

 

 

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 June 30, 2016, deferred revenue associated with the LATAM Pass loyalty program amounted to ThUS$ 905,470 (ThUS$ 973,264 at December 31, 2015). As of June 30, 2016 a hypothetical change of 1% in the probability of usage would result in an impact of approximately ThUS$ 28,400 and ThUS$25.082 at the same period of 2015. Meanwhile, deferred revenue associated with the LATAM Fidelidade and Multiplus loyalty programs amounted to ThUS$ 487,085 (ThUS$ 452,264 at December 31, 2015). As of June 30, 2016 a hypothetical change of 2% in the probability of usage would result in an impact of approximately ThUS$ 7,321 and ThUS$ 7,141 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 June 30, 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.

 

  38  

 

 

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 LATAM Pass and LATAM 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 15.1 million of members, along with being a regulated entity with a separately business and not directly related to air transport.

 

  39  

 

 

(a)       For the 6 months ended

 

          Coalition and              
    Air     loyalty program              
    transportation     Multiplus     Eliminations     Consolidated  
    At June 30,     At June 30,     At June 30,     At June 30,  
    2016     2015     2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
                                                 
Income from ordinary activities from external customers (*)     4,008,728       4,750,818       192,253       254,637       -       -       4,200,981       5,005,455  
                                                                 
LAN passenger     1,989,806       2,111,349       -       -       -       -       1,989,806       2,111,349  
TAM passenger     1,482,945       1,954,702       192,253       254,637       -       -       1,675,198       2,209,339  
Freight     535,977       684,767       -       -       -       -       535,977       684,767  
                                                                 
Income from ordinary activities from transactions with other operating segments     192,253       254,637       28,611       35,709       (220,864 )     (290,346 )     -       -  
Other operating income     151,524       114,503       85,745       84,038       -       -       237,269       198,541  
Interest income     7,931       14,485       27,668       25,790       (4,181 )     (8,391 )     31,418       31,884  
Interest expense     (210,813 )     (213,974 )     -       -       4,181       8,391       (206,632 )     (205,583 )
Total net interest expense     (202,882 )     (199,489 )     27,668       25,790       -       -       (175,214 )     (173,699 )
                                                                 
Depreciation and amortization     (465,306 )     (464,916 )     (4,851 )     (7,618 )     -       -       (470,157 )     (472,534 )
                                                                 
Material non-cash items other than depreciation and amortization     104,458       (194,639 )     (421 )     1,258       -       -       104,037       (193,381 )
Disposal of fixed assets and inventory losses     (20,150 )     (18,413 )     -       -       -       -       (20,150 )     (18,413 )
Doubtful accounts     (19,881 )     (6,261 )     376       39       -       -       (19,505 )     (6,222 )
Exchange differences     144,171       (170,441 )     (763 )     1,219       -       -       143,408       (169,222 )
Result of indexation units     318       476       (34 )     -       -       -       284       476  
                                                                 
Income (loss) atributable to owners of the parents     (62,969 )     (158,330 )     73,102       68,656       -       -       10,133       (89,674 )
                                                                 
Participation of the entity in the income of associates     -       37       -       -       -       -       -       37  
Expenses for income tax     (110,611 )     71,391       (34,288 )     (34,438 )     -       -       (144,899 )     36,953  
Segment profit / (loss)     (42,334 )     (138,951 )     73,102       68,656       -       -       30,768       (70,295 )
Assets of segment     17,665,249       18,853,409       1,499,334       592,157       (117,886 )     (83,117 )     19,046,697       19,362,449  
                                                                 
Amount of non-current asset additions     836,697       326,530       -       -       -       -       836,697       326,530  
                                                                 
Property, plant and equipment     833,714       308,848       -       -       -       -       833,714       308,848  
Intangibles other than goodwill     2,983       17,682       -       -       -       -       2,983       17,682  
                                                                 
Segment liabilities     14,883,748       14,984,275       659,028       518,624       (35,291 )     (359 )     15,507,485       15,502,540  
Purchase of non-monetary assets of segment     437,605       500,716       -       -       -       -       437,605       500,716  

 

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

 

  40  

 

 

 

(b) For the 3 months ended

 

                Coalition and              
    Air     loyalty program              
    transportation     Multiplus     Eliminations     Consolidated  
    At June 30,     At June 30,     At June 30,     At June 30,  
    2016     2015     2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Income from ordinary activities from external customers (*)     1,869,803       2,189,078       96,921       122,528       -       -       1,966,724       2,311,606  
LAN passenger     904,897       982,691       -       -       -       -       904,897       982,691  
TAM passenger     704,896       871,942       96,921       122,528       -       -       801,817       994,470  
Freight     260,010       334,445       -       -       -       -       260,010       334,445  
Income from ordinary activities from transactions with other operating segments     96,921       122,528       11,018       21,283       (107,939 )     (143,811 )     -       -  
Other operating income     92,215       63,879       51,694       37,369       -       -       143,909       101,248  
Interest income     7,718       5,206       16,121       12,992       (3,285 )     (4,804 )     20,554       13,394  
Interest expense     (106,868 )     (115,054 )     -       -       3,285       4,804       (103,583 )     (110,250 )
Total net interest expense     (99,150 )     (109,848 )     16,121       12,992       -       -       (83,029 )     (96,856 )
Depreciation and amortization     (228,106 )     (231,378 )     (2,600 )     (3,708 )     -       -       (230,706 )     (235,086 )
Material non-cash items other than depreciation and amortization     51,299       19,613       (54 )     1,172       -       -       51,245       20,785  
Disposal of fixed assets and inventory losses     (13,137 )     (11,534 )     -       -       -       -       (13,137 )     (11,534 )
Doubtful accounts     (11,753 )     (3,084 )     341       46       -       -       (11,412 )     (3,038 )
Exchange differences     75,894       34,229       (384 )     1,126       -       -       75,510       35,355  
Result of indexation units     295       2       (11 )     -       -       -       284       2  
Income (loss) atributable to owners of the parents     (133,138 )     (84,971 )     41,063       35,244       -       -       (92,075 )     (49,727 )
Participation of the entity in the income of associates     -       37       -       -       -       -       -       37  
Expenses for income tax     (44,184 )     30,751       (18,388 )     (17,351 )     -       -       (62,572 )     13,400  
Segment profit / (loss)     (126,327 )     (81,264 )     41,063       35,244       -       -       (85,264 )     (46,020 )
Assets of segment     17,665,249       18,853,409       1,499,334       592,157       (117,886 )     (83,117 )     19,046,697       19,362,449  
Amount of non-current asset additions     356,742       153,701       -       -       -       -       356,742       153,701  
Property, plant and equipment     341,760       142,451       -       -       -       -       341,760       142,451  
Intangibles other than goodwill     14,982       11,250       -       -       -       -       14,982       11,250  
Segment liabilities     14,883,748       14,984,275       659,028       518,624       (35,291 )     (359 )     15,507,485       15,502,540  
Purchase of non-monetary assets of segment     134,343       201,306       -       -       -       -       134,343       201,306  

 

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

 

  41  

 

 

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

 

    For the 6 months ended     For the 3 months ended  
    At June 30,     At June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
                         
Peru     287,590       322,438       136,048       159,124  
Argentina     505,547       466,342       230,897       213,092  
U.S.A.     452,989       522,957       207,814       245,444  
Europe     335,360       347,060       148,672       151,705  
Colombia     155,567       184,214       76,606       87,891  
Brazil     1,299,222       1,891,542       641,803       852,025  
Ecuador     101,156       122,640       49,344       61,177  
Chili     749,718       797,863       329,784       372,327  
Asia Pacific and rest of Latin America     313,832       350,399       145,756       168,821  
Income from ordinary activities     4,200,981       5,005,455       1,966,724       2,311,606  
Other operating income     237,269       198,541       143,909       101,248  

 

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  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cash on hand     8,810       10,656  
Bank balances     298,101       302,696  
Overnight     185,515       267,764  
Total Cash     492,426       581,116  
                 
Cash equivalents                
Time deposits     106,791       145,781  
Mutual funds     38,180       26,600  
Total cash equivalents     144,971       172,381  
Total cash and cash equivalents     637,397       753,497  

 

  42  

 

 

Cash and cash equivalents are denominated in the following currencies:

 

    As of     As of  
    June 30,     December 31,  
Currency   2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Argentine peso     16,304       18,733  
Brazilian real     148,231       106,219  
Chilean peso (*)     25,329       17,978  
Colombian peso     8,025       14,601  
Euro     7,324       10,663  
US Dollar     413,524       564,214  
Strong bolivar (**)     725       2,986  
Other currencies     17,935       18,103  
Total     637,397       753,497  

 

(*) At June 30, 2016 and at December 31, 2015, the Company does not maintains currency derivative contracts (forward)), for conversion into dollars of investments in pesos.

 

(**) At December 31, 2015, the Company reflected 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 June 30, 2016, the DICOM rate equivalent to 628.34 VEF/US$, which represented assets that are held by the Company equivalent to ThUS$ 725 (ThUS$ 2,986 at December 31, 2015)

 

  43  

 

 

NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1. Financial instruments by category

 

As of June 30, 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     599,217       -       -       38,180       637,397  
Other financial assets, current (*)     27,832       9,146       57,687       539,062       633,727  
Trade and others accounts receivable, current     870,274       -       -       -       870,274  
Accounts receivable from related entities, current     353       -       -       -       353  
Other financial assets, non current (*)     112,987       -       654       -       113,641  
Accounts receivable, non current     8,166       -       -       -       8,166  
Total     1,618,829       9,146       58,341       577,242       2,263,558  

 

    Other     Held        
    financial     Hedge        
Liabilities   liabilities     derivatives     Total  
    ThUS$     ThUS$     ThUS$  
Other liabilities, current     1,812,932       70,515       1,883,447  
Trade and others accounts payable, current     1,550,070       -       1,550,070  
Accounts payable to related entities, current     132       -       132  
Other financial liabilities, non-current     7,106,848       12,102       7,118,950  
Accounts payable, non-current     371,104       -       371,104  
Total     10,841,086       82,617       10,923,703  

 

(*)         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  

 

 

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.

 

  45  

 

 

7.2. Financial instruments by currency

 

    As of     As of  
    June 30,     December 31,  
a)      Assets   2016     2015  
    ThUS$     ThUS$  
    Unaudited        
             
Cash and cash equivalents     637,397       753,497  
Argentine peso     16,304       18,733  
Brazilian real     148,231       106,219  
Chilean peso     25,329       17,978  
Colombian peso     8,025       14,601  
Euro     7,324       10,663  
US Dollar     413,524       564,214  
Strong bolivar     725       2,986  
Other currencies     17,935       18,103  
                 
Other financial assets (current and non-current)     747,368       740,806  
Argentine peso     57,327       157,281  
Brazilian real     539,631       449,934  
Chilean peso     613       640  
Colombian peso     468       1,670  
Euro     7,329       615  
US Dollar     139,945       128,620  
Strong bolivar     -       22  
Other currencies     2,055       2,024  
                 
Trade and other accounts receivable, current     870,274       796,974  
Argentine peso     61,403       71,438  
Brazilian real     316,700       191,037  
Chilean peso     76,143       57,755  
Colombian peso     7,774       13,208  
Euro     30,629       53,200  
US Dollar     317,784       320,959  
Strong bolivar     2       7,225  
Other currencies (*)     59,839       82,152  
                 
Accounts receivable, non-current     8,166       10,715  
Brazilian real     634       521  
Chilean peso     7,389       5,041  
US Dollar     -       5,000  
Other currencies (*)     143       153  
                 
Accounts receivable from related entities, current     353       183  
Brazilian real     -       -  
Chilean peso     353       183  
US Dollar     -       -  
                 
Total assets     2,263,558       2,302,175  
Argentine peso     135,034       247,452  
Brazilian real     1,005,196       747,711  
Chilean peso     109,827       81,597  
Colombian peso     16,267       29,479  
Euro     45,282       64,478  
US Dollar     871,253       1,018,793  
Strong bolivar     727       10,233  
Other currencies     79,972       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.

 

  46  

 

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Trade accounts receivable     808,379       685,733  
Other accounts receivable     144,633       182,028  
Total trade and other accounts receivable     953,012       867,761  
Less: Allowance for impairment loss     (74,572 )     (60,072 )
Total net trade and accounts receivable     878,440       807,689  
Less: non-current portion – accounts receivable     (8,166 )     (10,715 )
Trade and other accounts receivable, current     870,274       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  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Fully performing     685,991       577,902  
Matured accounts receivable, but not impaired                
Expired from 1 to 90 days     33,143       28,717  
Expired from 91 to 180 days     12,737       10,995  
More than 180 days overdue (*)     1,936       8,047  
Total matured accounts receivable, but not impaired     47,816       47,759  
Matured accounts receivable and impaired                
Judicial, pre-judicial collection and protested documents     35,733       24,304  
Debtor under pre-judicial collection process and portfolio sensitization     38,839       35,768  
Total matured accounts receivable and impaired     74,572       60,072  
Total     808,379       685,733  

 

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

 

  47  

 

 

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

 

    As of     As of  
    June 30,     December 31,  
Currency   2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Argentine Peso     61,403       71,438  
Brazilian Real     317,334       191,558  
Chilean Peso     83,532       62,796  
Colombian peso     7,774       13,208  
Euro     30,629       53,200  
US Dollar     317,784       325,959  
Strong bolivar     2       7,225  
Other currency (*)     59,982       82,305  
Total     878,440       807,689  
                 
(*) Other currencies                
Australian Dollar     18,511       26,185  
Chinese Yuan     2,027       4,282  
Danish Krone     206       164  
Pound Sterling     5,213       7,228  
Indian Rupee     2,722       3,070  
Japanese Yen     3,810       4,343  
Norwegian Kroner     150       221  
Swiss Franc     1,276       1,919  
Korean Won     2,884       4,462  
New Taiwanese Dollar     465       3,690  
Other currencies     22,718       26,741  
Total     59,982       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 %

 

  48  

 

 

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 June 30, 2015 (Unaudited)     (71,042 )     549       1,031       (69,462 )
From April 1 to December 31, 2015     (69,462 )     9,571       (181 )     (60,072 )
From January 1 to June 30, 2016 (Unaudited)     (60,072 )     12,837       (27,337 )     (74,572 )

 

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 June 30, 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     808,379       (74,572 )     733,807       685,733       (60,072 )     625,661  
Other accounts receivable     144,633       -       144,633       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.

 

  49  

 

 

NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a) Accounts Receivable

 

                    As of     As of  
            Country       June 30,     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     341       167  
87.752.000-5   Granja Marina Tornagaleones S.A.   Common shareholder   Chile   CLP     12       14  
Foreign   TAM Aviação Executiva e Taxi Aéreo S.A.   Related director   Brazil   BRL     -       2  
    Total current assets                 353       183  

 

(b) Accounts payable

 

                    As of     As of  
            Country       June 30,     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     50       342  
65.216.000-K   Viajes Falabella Ltda.   Related director   Chile   CLP     4       68  
Foreign   Inversora Aeronaútica Argentina   Related director   Argentina   US$     -       22  
65.216.000-K   Comunidad Mujer   Related director   Chile   CLP     19       10  
79.773.440-3   Transportes San Felipe S.A.   Common property   Chile   CLP     56       -  
78.591.370-1   Bethia S.A. and Subsidiaries   Related director   Chile   CLP     3       5  
    Total current liabilities                 132       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.

 

  50  

 

  

NOTE 10 -INVENTORIES

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Technical stock     193,559       192,930  
Non-technical stock     34,877       31,978  
Total production suppliers     228,436       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 June 30, 2016 amounts to ThUS$ 23,127 (ThUS$ 15,892 at December 31, 2015). The resulting amounts do not exceed the respective net realizable values.

 

As of June 30, 2016, the Company recorded ThUS$ 66,432 (ThUS$ 71,449 at June 30, 2015) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

 

NOTE 11 - OTHER FINANCIAL ASSETS

 

The composition of Other financial assets is as follows:

 

    Current Assets     Non-current assets     Total Assets  
    As of     As of     As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
(a)      Other financial assets                                                
Private investment funds     539,062       448,810       -       -       539,062       448,810  
Deposits in guarantee (aircraft)     9,302       16,532       68,744       58,483       78,046       75,015  
Guarantees for margins of derivatives     7,135       4,456       -       -       7,135       4,456  
Other investments     -       -       654       638       654       638  
Domestic and foreign bonds     57,687       158,812       -       -       57,687       158,812  
Other guarantees given     11,395       6,160       44,243       30,337       55,638       36,497  
Subtotal of other financial assets     624,581       634,770       113,641       89,458       738,222       724,228  
                                                 
(b)      Hedging assets                                                
Interest accrued since the last payment date of Cross currency swap     143       397       -       -       143       397  
Fair value of foreign currency derivatives (*)     3,841       9,888       -       -       3,841       9,888  
Fair value of fuel price derivatives     5,162       6,293       -       -       5,162       6,293  
Subtotal of hedging assets     9,146       16,578       -       -       9,146       16,578  
Total Other Financial Assets     633,727       651,348       113,641       89,458       747,368       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 19.

 

  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  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
(a)   Advance payments                                                
Aircraft leases     33,102       33,305       19,734       22,569       52,836       55,874  
Aircraft insurance and other     29,475       12,408       -       -       29,475       12,408  
Others     12,639       16,256       28,086       33,781       40,725       50,037  
Subtotal advance payments     75,216       61,969       47,820       56,350       123,036       118,319  
                                                 
(b)   Other assets                                                
Aircraft maintenance reserve (*)     53,574       99,112       124,303       64,366       177,877       163,478  
Sales tax     171,995       158,134       45,818       45,061       217,813       203,195  
Other taxes     1,316       4,295       -       -       1,316       4,295  
Contributions to Société Internationale de Télécommunications Aéronautiques ("SITA")     450       505       547       547       997       1,052  
Judicial deposits     -       -       103,865       67,980       103,865       67,980  
Others     346       6,001       1,519       1,159       1,865       7,160  
Subtotal other assets     227,681       268,047       276,052       179,113       503,733       447,160  
Total Other Non - Financial Assets     302,897       330,016       323,872       235,463       626,769       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 June 30, 2016, LATAM had ThUS$ 177,877 in maintenance reserves (ThUS$ 163,478 at December 31, 2015), corresponding to 9 aircraft out of a total fleet of 333 (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 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

 

Non-current assets and in disposal groups held for sale at June 30, 2016 and December 31, 2015, respectively, are detailed below:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
             
Aircraft     70,976       263  
Rotables     1,096       1,060  
Engines     15,372       272  
Scrapped aircraft     365       365  
                 
Total     87,809       1,960  

 

During the second quarter of 2016, two Airbus A319 aircraft, two Airbus A320 aircraft, two Airbus A330 aircraft and six spare engines were reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale. As a result, an adjustment of US$ 5 million was recorded to write down these assets to their net realizable value.

 

The balances are presented at the lower of book value and fair value less cost to sell.

 

NOTE 14 - 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   June 30,     December 31,  
Name of significant subsidiary   incorporation   currency   2016     2015  
            %     %  
            Unaudited        
Lan Perú S.A.   Peru   US$     70.00000       70.00000  
Lan Cargo S.A.   Chile   US$     99.89803       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     99.19061       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 June 30, 2016     ended June 30, 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.     303,988       281,897       22,091       291,246       289,982       1,264       463,348       (621 )
Lan Cargo S.A.     457,353       139,458       317,895       208,788       164,618       44,170       123,414       (17,103 )
Lan Argentina S.A.     163,921       146,715       17,206       169,690       167,379       2,311       178,773       (26,489 )
Transporte Aéreo S.A.     321,509       34,098       287,411       113,017       45,598       67,419       140,033       859  
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     90,489       45,311       45,178       82,244       76,774       5,470       102,596       (1,598 )
Aerovías de Integración Regional, AIRES S.A.     131,755       56,950       74,805       81,446       70,651       10,795       125,746       (132 )
TAM S.A. (*)     5,301,757       1,572,508       3,729,249       4,733,458       2,726,358       2,007,100       1,854,843       (8,732 )

 

                                        Results for the period  
    Statement of financial position as of December 31, 2015     ended June 30, 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       531,265       (2,172 )
Lan Cargo S.A.     483,033       159,294       323,739       217,037       147,423       69,614       139,345       (31,645 )
Lan Argentina S.A.     195,756       180,558       15,198       170,384       168,126       2,258       210,814       2,836  
Transporte Aéreo S.A.     331,117       41,756       289,361       122,666       44,495       78,171       177,038       8,400  
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.     126,001       80,641       45,360       116,153       111,245       4,908       122,495       6,621  
Aerovías de Integración Regional, AIRES S.A.     130,039       62,937       67,102       75,003       64,829       10,174       146,099       (13,916 )
TAM S.A. (*)     4,711,316       1,350,377       3,360,939       4,199,223       1,963,400       2,235,823       2,444,052       (61,933 )

 

(*) 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   June 30,     December 31,     June 30,     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       3,823       4,426  
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10605       0.10605       613       974  
Promotora Aérea Latinoamericana S.A. and Subsidiaries   0-E   Mexico     51.00000       51.00000       3,507       3,084  
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     0.70422       0.70422       (2,593 )     (1,386 )
Lan Argentina S.A.   0-E   Argentina     0.13440       1.00000       1,594       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       (512 )     (811 )
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.80939       0.98307       501       540  
Transportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       1,356       1,256  
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       81,202       72,884  
Total                             89,508       81,013  

 

            As of     For the 6 months ended     For the 3 months ended  
Incomes       Country   June 30,     June 30,     June 30,  
    Tax  No.   of origin   2016     2015     2016     2015     2016     2015  
            %     %     ThUS$     ThUS$     ThUS$     ThUS$  
            Unaudited  
                                             
Lan Perú S.A   0-E   Peru     30.00000       30.00000       (186 )     (652 )     (4,121 )     (5,169 )
Lan Cargo S.A. and Subsidiaries   93.383.000-4   Chile     0.10605       0.10605       (8 )     (18 )     (13 )     (24 )
Promotora Aerea Latinoamericana S.A. and Subsidiaries   0-E   Mexico     51.00000       51.00000       424       1,507       (98 )     449  
Inversora Cordillera S.A. and Subsidiaries   0-E   Argentina     4.22000       4.22000       180       134       90       67  
Lan Argentina S.A.   0-E   Argentina     0.13440       1.00000       38       29       19       15  
Americonsult de Guatemala S.A.   0-E   Guatemala     1.00000       1.00000       -       1       -       2  
Americonsult Costa Rica S.A.   0-E   Costa Rica     1.00000       1.00000       -       3       -       2  
Linea Aérea Carguera de Colombiana S.A.   0-E   Colombia     10.00000       10.00000       299       (47 )     (62 )     (1,076 )
Aerolíneas Regionales de Integración Aires S.A.   0-E   Colombia     0.80939       0.98307       (90 )     (137 )     (61 )     (46 )
Transportes Aereos del Mercosur S.A.   0-E   Paraguay     5.02000       5.02000       50       (158 )     (137 )     (121 )
Multiplus S.A.   0-E   Brazil     27.26000       27.26000       19,928       18,717       11,194       9,608  
Total                             20,635       19,379       6,811       3,707  

 

  55  

 

 

NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL

 

The details of intangible assets are as follows:

 

    Classes of intangible assets     Classes of intangible assets  
    (net)     (gross)  
    As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Airport slots     993,884       816,987       993,884       816,987  
Loyalty program     331,274       272,312       331,274       272,312  
Computer software     142,445       104,258       381,956       324,043  
Developing software     59,700       74,887       59,700       74,887  
Trademarks     64,453       52,981       64,453       52,981  
Other assets     -       -       808       808  
Total     1,591,756       1,321,425       1,832,075       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     2,016       15,666       -       -       17,682  
Withdrawals     (1,016 )     -       -       -       (1,016 )
Transfer software     3,704       (3,691 )     -       -       13  
Foreing exchange     (7,747 )     (6,957 )     (172,804 )     (68,803 )     (256,311 )
Amortization     (22,338 )     -       -       -       (22,338 )
Closing balance as of June 30, 2015 (Unaudited)     101,416       79,068       1,028,224       409,401       1,618,109  
                                         
Opening balance as of July 1, 2015     101,416       79,068       1,028,224       409,401       1,618,109  
Additions     2,938       32,604       -       -       35,542  
Withdrawals     (3,596 )     (162 )     -       (1 )     (3,759 )
Transfer software     25,022       (26,735 )     -       -       (1,713 )
Foreing exchange     (7,124 )     (9,888 )     (211,237 )     (84,107 )     (312,356 )
Amortization     (14,398 )     -       -       -       (14,398 )
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     5,566       23,717       -       -       29,283  
Withdrawals     (736 )     (147 )     -       -       (883 )
Transfer software     47,211       (46,209 )     -       -       1,002  
Foreing exchange     6,682       7,452       176,897       70,434       261,465  
Amortization     (20,536 )     -       -       -       (20,536 )
Closing balance as of June 30, 2016 (Unaudited)     142,445       59,700       993,884       395,727       1,591,756  

 

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of June 30, 2016 amounts to ThUS$ 239,511 (ThUS$ 219,785 at December 31, 2015).

 

(*) See Note 2.5

 

  56  

 

 

NOTE 16 – GOODWILL

 

The Goodwill amount at June 30, 2016 is ThUS$ 2,752,135 (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     (368,277 )     (94,227 )     (462,504 )
Closing balance as of June 30, 2015 (Unaudited)     2,290,226       560,671       2,850,897  
Opening balance as of July 1, 2015     2,290,226       560,671       2,850,897  
Increase (decrease) due to exchange rate differences     (455,138 )     (115,184 )     (570,322 )
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     375,101       96,459       471,560  
Closing balance as of June 30, 2016 (Unaudited)     2,210,189       541,946       2,752,135  

 

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 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 rates. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:

 

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

 

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

 

As of June 30, 2016 have been identified new impairment indications for the Air Transportation CGU. The recoverable value was determined using the following assumptions presented below:

 

 

        Air transportation
        CGU
Annual growth rate (Terminal)   %   1.7 and 2.0
Exchange rate (1)   R$/US$   3.73 and 4.40
Discount rate based on the weighted average cost of capital (WACC)   %   8.56 and 9.56
Fuel Price from futures price curves commodities markets   US$/barril   53-76

 

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

 

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

 

  58  

 

 

The CGU is 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     Minimum  
    Maximum     terminal  
    WACC     growth rate  
    %     %  
Air transportation CGU     9.56       1.7  

 

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

 

At June 30, 2016, have not been any indications of impairment requiring an impartment test for Coalition and loyalty program Multiplus CGU.

 

  59  

 

 

NOTE 17 - 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  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Construction in progress (*)     692,231       1,142,812       -       -       692,231       1,142,812  
Land     50,658       45,313       -       -       50,658       45,313  
Buildings     163,307       131,816       (44,420 )     (40,325 )     118,887       91,491  
Plant and equipment     9,784,872       9,683,764       (2,019,757 )     (2,392,463 )     7,765,115       7,291,301  
    Own aircraft     9,135,596       9,118,396       (1,807,973 )     (2,198,682 )     7,327,623       6,919,714  
    Other (**)     649,276       565,368       (211,784 )     (193,781 )     437,492       371,587  
Machinery     43,012       36,569       (26,733 )     (21,220 )     16,279       15,349  
Information technology equipment     162,620       154,093       (119,205 )     (110,204 )     43,415       43,889  
Fixed installations and accessories     204,760       179,026       (104,304 )     (90,068 )     100,456       88,958  
Motor vehicles     107,054       99,997       (72,486 )     (64,047 )     34,568       35,950  
Leasehold improvements     170,366       124,307       (75,166 )     (70,219 )     95,200       54,088  
Other property, plants and equipment     3,304,755       3,279,902       (1,224,458 )     (1,150,396 )     2,080,297       2,129,506  
Financial leasing aircraft     3,143,229       3,151,405       (1,190,292 )     (1,120,682 )     1,952,937       2,030,723  
    Other     161,526       128,497       (34,166 )     (29,714 )     127,360       98,783  
Total     14,683,635       14,877,599       (3,686,529 )     (3,938,942 )     10,997,106       10,938,657  

 

(*) It includes pre-delivery payments to aircraft manufacturers for ThUS$ 637,227 (ThUS$ 1,016,007 as of December 31, 2015)

 

(**) Mainly considers rotable and tools.

 

  60  

 

 

(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     16,400       -       -       223,629       4,361       974       17       9,445       54,022       308,848  
Disposals     -       -       -       (28,848 )     (18 )     -       (6 )     -       -       (28,872 )
Retirements     (2 )     -       -       (17,051 )     (56 )     (207 )     (2 )     -       (5,516 )     (22,834 )
Depreciation expenses     -       -       (3,863 )     (255,134 )     (8,505 )     (6,147 )     (194 )     (7,459 )     (97,098 )     (378,400 )
Foreing exchange     (88 )     (5,249 )     (13,652 )     (83,888 )     (2,298 )     (503 )     (370 )     321       (82,813 )     (188,540 )
Other increases (decreases)     217,422       (1,065 )     (58,052 )     (21,224 )     (338 )     60,644       6       (3,069 )     18,754       213,078  
Changes, total     233,732       (6,314 )     (75,567 )     (182,516 )     (6,854 )     54,761       (549 )     (762 )     (112,651 )     (96,720 )
Closing balance as of June 30, 2015 (Unaudited)     1,171,011       51,674       91,439       6,771,573       44,155       98,544       1,416       55,761       2,390,783       10,676,356  
Opening balance as of July 1, 2015     1,171,011       51,674       91,439       6,771,573       44,155       98,544       1,416       55,761       2,390,783       10,676,356  
Additions     23,311       -       439       1,080,570       10,961       718       263       3,743       10,204       1,130,209  
Disposals     -       -       (500 )     (47,827 ) (1)     (9 )     -       (2 )     -       (11 )     (48,349 )
Retirements     (1,260 )     -       (956 )     (21,189 )     (48 )     (269 )     (2 )     -       (3,386 )     (27,110 )
Depreciation expenses     -       -       (3,298 )     (266,554 )     (7,691 )     (5,502 )     (184 )     (6,514 )     (77,376 )     (367,119 )
Foreing exchange     (844 )     (6,537 )     (4,596 )     (46,045 )     (3,828 )     (12,766 )     (268 )     (1,980 )     (169,896 )     (246,760 )
Other increases (decreases)     (49,406 )     176       8,963       (129,453 )     349       8,233       302       3,078       (20,812 )     (178,570 )
Changes, total     (28,199 )     (6,361 )     52       569,502       (266 )     (9,586 )     109       (1,673 )     (261,277 )     262,301  
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     9,433       -       20       786,672       3,990       58       5       24,154       9,382       833,714  
Disposals     -       -       -       (13,789 ) (2)     (1 )     -       -       -       -       (13,790 )
Retirements     (114 )     -       -       (26,556 )     (44 )     (696 )     -       -       (4,297 )     (31,707 )
Depreciation expenses     -       -       (2,662 )     (278,222 )     (7,834 )     (6,771 )     (148 )     (10,678 )     (67,478 )     (373,793 )
Foreing exchange     5,827       5,345       2,798       56,673       3,299       10,102       232       3,151       100,657       188,084  
Other increases (decreases)     (465,727 )     -       27,240       (51,505 ) (3)     116       8,805       -       24,485       (87,473 )     (544,059 )
Changes, total     (450,581 )     5,345       27,396       473,273       (474 )     11,498       89       41,112       (49,209 )     58,449  
Closing balance as of June 30, 2016 (Unaudited)     692,231       50,658       118,887       7,814,348       43,415       100,456       1,614       95,200       2,080,297       10,997,106  

  

(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.
(3) During the first half of 2016 six aircraft were reclassified to non-current assets and disposal group classified as held for sale (See Note 13).

 

  61  

 

 

(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  
Aircraft     Model     June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
          2016     2015     2016     2015     2016     2015  
          Unaudited           Unaudited           Unaudited        
Boeing 767     300ER     34       34       3       4       37       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 (2)
Boeing 787     800       6       6       4       4       10       10  
Boeing 787     900       4       3       8       4       12       7  
Airbus A319     100       36       38       12       12       48       50  
Airbus A320     200       93       95       57       59       150       154  
Airbus A321     200       30       26       13       10       43       36  
Airbus A330     200       4       8       2       2       6       10  
Airbus A350     900       3       1       -       -       3       1  
                                                         
Total             224       225       110       106       334       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$ 373,793 (ThUS$ 378,400 at June 30, 2015). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income.

 

  62  

 

 

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

 

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

 

In the period ended June 30, 2016, direct guarantees by five Airbus A31-100 aircraft, four Airbus A321-200 aircraft, two Airbus A320-200 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  
            June 30,     December 31,  
            2016     2015  
Creditor of   Assets       Existing     Book     Existing     Book  
guarantee   committed   Fleet   Debt     Value     Debt     Value  
            ThUS$     ThUS$     ThUS$     ThUS$  
            Unaudited        
                                 
Wilmington   Aircraft and engines   Airbus A321 / A350     613,014       782,498       374,619       478,667  
Trust Company       Boeing 767     859,751       1,197,997       907,356       1,220,541  
        Boeing 777 / 787     778,057       922,686       712,059       834,567  
                                         
Banco Santander S.A.   Aircraft and engines   Airbus A319     54,607       94,602       58,527       95,387  
        Airbus A320     493,992       734,331       524,682       749,192  
        Airbus A321     34,603       45,183       36,334       45,380  
                                         
BNP Paribas   Aircraft and engines   Airbus A319     144,664       234,994       154,828       229,798  
        Airbus A320 / A350     273,907       313,582       145,506       192,957  
                                         
Credit Agricole   Aircraft and engines   Airbus A319     31,149       90,048       37,755       84,129  
        Airbus A320     93,743       207,028       115,339       214,726  
        Airbus A321     45,634       95,183       50,591       97,257  
              -       -               -  
JP Morgan   Aircraft and engines   Boeing 777     204,018       257,307       215,265       263,366  
                                         
Wells Fargo   Aircraft and engines   Airbus A320     266,026       340,284       279,478       348,271  
                                         
Bank of Utah   Aircraft and engines   Airbus A320     230,185       303,664       240,094       312,573  
                                         
Natixis   Aircraft and engines   Airbus A320     51,063       68,174       56,223       81,355  
        Airbus A321     395,328       527,397       413,201       542,594  
                                         
Citibank N. A.   Aircraft and engines   Airbus A320     119,245       169,644       127,135       172,918  
        Airbus A321     46,195       71,644       49,464       73,122  
                                         
HSBC   Aircraft and engines   Airbus A320     -       -       53,583       64,241  
                                         
KfW IPEX-Bank   Aircraft and engines   Airbus A319     8,420       6,576       -       -  
        Airbus A320     32,259       36,710       13,593       16,838  
                                         
Airbus Financial Services   Aircraft and engines   Airbus A319     33,749       33,661       -       -  
                                         
PK AirFinance US, Inc.   Aircraft and engines   Airbus A320     58,718       47,516       62,514       48,691  
                                         
Total direct guarantee             4,868,327       6,580,709       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 June 30, 2016 amounted to ThUS$ 1,112,742 (ThUS$ 1,311,088 at December 31, 2015). The book value of assets with indirect guarantees as of June 30, 2016 amounts to ThUS$ 1,937,576 (ThUS$ 2,001,605 as of December 31, 2015).

 

  63  

 

 

(ii) Commitments and others

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
             
Gross book value of fully depreciated property, plant and equipment still in use     105,265       129,766  
                 
Commitments for the acquisition of aircraft (*)     18,400,000       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.     12       15       20       13       17       21       98  
A320-NEO     2       11       11       7       9       8       48  
A321     6       -       1       -       -       -       7  
A321-NEO     -       -       6       2       6       5       19  
A350-1000     -       -       -       2       2       8       12  
A350-900     4       4       2       2       -       -       12  
The Boeing Company     -       1       4       6       -       -       11  
B777     -       -       -       2       -       -       2  
B787-9     -       1       4       4       -       -       9  
Total     12       16       24       19       17       21       109  

 

In September 2015 the change of 6 Airbus A350-900 aircraft for 6 Airbus A350-1000 aircraft was signed. Additionally, in November 2015 the change of 6 Airbus A350-900 aircraft to 6 Airbus A350-1000 aircraft was signed. In April 2016 the change of 4 Airbus A320 NEO aircraft to 4 Airbus A321 NEO aircraft was signed.

 

As of June 30, 2016, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., 74 aircraft Airbus A320 family, with deliveries between 2016 and 2021, and 24 Airbus aircraft A350 family with delivery dates starting from 2016 remain to be received.

 

The approximate amount is ThUS$ 15,600,000, 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. In May 2016 the change of 4 Boeing 787-8 aircraft for 4 Boeing 787-9 aircraft was signed.

 

As of June 30, 2016, and as a result of different aircraft purchase contracts signed with The Boeing Company, a total of 9 787 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$ 2,800,000.

 

  64  

 

 

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

 

          For the periods ended  
          June 30,  
          Unaudited  
          2016     2015  
Average rate of capitalization of capitalized interest costs     %       3.59       2.84  
Costs of capitalized  interest     ThUS$       2,289       12,412  

 

(iv) Financial leases

 

The detail of the main financial leases is as follows:

 

              As of     As of  
              June 30,     December 31,  
Lessor   Aircraft     Model     2016     2015  
              Unaudited        
Agonandra Statutory Trust   Airbus A320     200     -     2  
Becacina Leasing LLC   Boeing 767     300ER     1       1  
Caiquen Leasing LLC   Boeing 767     300F     1       1  
Cernicalo Leasing LLC   Boeing 767     300F     2       2  
Chirihue Leasing Trust   Boeing 767     300F     2       2  
Cisne Leasing LLC   Boeing 767     300ER     2       2  
Codorniz Leasing Limited   Airbus A319     100       2       2  
Conure Leasing Limited   Airbus A320     200       2       2  
Flamenco Leasing LLC   Boeing 767     300ER     1       1  
FLYAFI 1 S.R.L.   Boeing 777     300ER     1       1  
FLYAFI 2 S.R.L.   Boeing 777     300ER     1       1  
FLYAFI 3 S.R.L.   Boeing 777     300ER     1       1  
Forderum Holding B.V. (GECAS)   Airbus A320     200       2       2  
Garza Leasing LLC   Boeing 767     300ER     1       1  
General Electric Capital Corporation   Airbus A330     200       3       3  
Intraelo BETA Corpotation (KFW)   Airbus A320     200       1       1  
Juliana Leasing Limited   Airbus A320     200       -       2  
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       -       5  
TMF Interlease Aviation II B.V.   Airbus A320     200       -       2  
Tricahue Leasing LLC   Boeing 767     300ER     3       3  
Wacapou Leasing S.A   Airbus A320     200       1       1  
Total                 54       66  

 

  65  

 

 

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 June 30, 2016 the Company had fifty five aircraft (sixty six aircraft as of December 31, 2015).

 

As of June 30, 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 five Airbus A319-100, six Airbus A320-200 and one Airbus A330-200 aircraft. Additionally two Airbus A330-200 were reclassified from property, plant and equipment to held for sale.

 

The book value of assets under financial leases as of June 30, 2016 amounts to ThUS$ 1,952,937 (ThUS$ 2,030,723 at December 31, 2015).

 

The minimum payments under financial leases are as follows:

 

    As of June 30, 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     324,983       (39,106 )     285,877       360,862       (47,492 )     313,370  
Between one and five years     823,932       (57,550 )     766,382       1,003,237       (75,363 )     927,874  
Over five years     61,622       (620 )     61,002       95,050       (1,406 )     93,644  
Total     1,210,537       (97,276 )     1,113,261       1,459,149       (124,261 )     1,334,888  

 

NOTE 18 - CURRENT AND DEFERRED TAXES

 

In the period ended June 30, 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.

 

  66  

 

 

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  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provisional monthly payments (advances)     56,018       43,935       -       -       56,018       43,935  
Other recoverable credits     24,201       20,080       25,629       25,629       49,830       45,709  
Total current tax assets     80,219       64,015       25,629       25,629       105,848       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  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Income tax provision     20,284       19,001       -       -       20,284       19,001  
Additional tax provision     4,622       377       -       -       4,622       377  
Total current tax liabilities     24,906       19,378       -       -       24,906       19,378  

 

  67  

 

 

(b) Deferred taxes

 

The balances of deferred tax are the following:

 

    Assets     Liabilities  
    As of     As of     As of     As of  
Concept   June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
Depreciation     (30,104 )     (14,243 )     1,262,223       1,116,748  
Leased assets     (12,218 )     (25,299 )     190,436       226,003  
Amortization     (5,441 )     (5,748 )     67,996       65,416  
Provisions     203,533       210,992       (74,784 )     (167,545 )
Revaluation of financial instruments     -       709       (5,635 )     (7,575 )
Tax losses     233,321       212,067       (974,366 )     (797,715 )
Revaluation property, plant and equipment     -       -       -       (4,081 )
Intangibles     -       -       443,375       364,314  
Others     4,189       (1,883 )     16,718       16,000  
Total     393,280       376,595       925,963       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 June 30, 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 )     (128,717 )     -       3,843       -       (996,514 )
Leased assets     (185,775 )     (12,624 )     -       3,511       -       (194,888 )
Amortization     (160,100 )     17,952       -       2,072       -       (140,076 )
Provisions     351,077       3,622       -       (57,061 )     -       297,638  
Revaluation of financial instruments     12,806       36,018       (36,395 )     (1,430 )     -       10,999  
Tax losses (*)     722,749       164,720       -       (15,013 )     -       872,456  
Revaluation propety, plant and equipment     5,999       5,759       -       (6,622 )     -       5,136  
Intangibles     (523,275 )     -       -       75,289       -       (447,986 )
Others     3,588       (8,225 )     -       2,592       (114 )     (2,159 )
Total     (644,571 )     78,505       (36,395 )     7,181       (114 )     (595,394 )

 

  68  

 

 

(b) From July 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     (996,514 )     (139,174 )     -       4,697       -       (1,130,991 )
Leased assets     (194,888 )     (60,706 )     -       4,292       -       (251,302 )
Amortization     (140,076 )     66,378       -       2,534       -       (71,164 )
Provisions     297,638       146,740       3,911       (69,752 )     -       378,537  
Revaluation of financial instruments     10,999       (16,258 )     15,292       (1,749 )     -       8,284  
Tax losses (*)     872,456       155,677       -       (18,351 )     -       1,009,782  
Revaluation propety, plant and equipment     5,136       7,040       -       (8,095 )     -       4,081  
Intangibles     (447,986 )     (8,362 )     -       92,034       -       (364,314 )
Others     (2,159 )     41,064       -       (50,057 )     (6,731 )     (17,883 )
Total     (595,394 )     192,399       19,203       (44,447 )     (6,731 )     (434,970 )

 

 

(c) From January 1 to June 30, 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 )     (157,402 )     -       (3,934 )     -       (1,292,327 )
Leased assets     (251,302 )     52,242       -       (3,594 )     -       (202,654 )
Amortization     (71,164 )     (151 )     -       (2,122 )     -       (73,437 )
Provisions     378,537       (159,016 )     383       58,413       -       278,317  
Revaluation of financial instruments     8,284       12,827       (16,940 )     1,464       -       5,635  
Tax losses (*)     1,009,782       182,537       -       15,368       -       1,207,687  
Revaluation propety, plant and equipment     4,081       (10,860 )     -       6,779       -       -  
Intangibles     (364,314 )     (1,989 )     -       (77,072 )     -       (443,375 )
Others     (17,883 )     (16,325 )     -       20,259       1,420       (12,529 )
Total     (434,970 )     (98,137 )     (16,557 )     15,561       1,420       (532,683 )

 

Deferred tax assets not recognized:   As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Tax losses     69,221       15,513  
Total Deferred tax assets not recognized     69,221       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 June 30, 2016, the Company has not recognized deferred tax assets of ThUS$ 69,221 (ThUS$ 15,513 at December 31, 2015) according with a loss of ThUS$ 203,591 (ThUS$ 45,628 at December 31, 2015) to offset against future years tax benefits.

 

  69  

 

 

Deferred tax expense and current income taxes:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Current tax expense                                
Current tax expense     46,938       41,509       22,448       11,715  
Adjustment to previous period’s current tax     (176 )     43       (2,297 )     (156 )
Total current tax expense, net     46,762       41,552       20,151       11,559  
                                 
Deferred tax expense                                
Deferred expense for taxes related to the creation and reversal of temporary differences     98,137       (78,505 )     42,421       (24,959 )
Total deferred tax expense, net     98,137       (78,505 )     42,421       (24,959 )
Income tax expense     144,899       (36,953 )     62,572       (13,400 )

 

Composition of income tax expense (income):

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Current tax expense, net, foreign     40,904       40,331       15,217       11,642  
Current tax expense, net, Chile     5,858       1,221       4,934       (83 )
Total current tax expense, net     46,762       41,552       20,151       11,559  
                                 
Deferred tax expense, net, foreign     95,144       (75,220 )     46,405       (42,002 )
Deferred tax expense, net, Chile     2,993       (3,285 )     (3,984 )     17,043  
Deferred tax expense, net, total     98,137       (78,505 )     42,421       (24,959 )
Income tax expense     144,899       (36,953 )     62,572       (13,400 )

 

  70  

 

 

Profit before tax by the legal tax rate in Chile (24% and 22.5% at June 30, 2016 and 2015, respectively)

 

    For the 6 months ended     For the 6 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     %     %  
    Unaudited     Unaudited  
Tax expense using the legal rate (*)     37,208       (28,490 )     24.00       22.50  
     Tax effect of rates in other jurisdictions     16,424       (8,579 )     10.59       6.78  
     Tax effect of non-taxable operating revenues     (21,530 )     (15,915 )     (13.89 )     12.57  
     Tax effect of disallowable expenses     105,148       16,406       67.82       (12.95 )
     Other increases (decreases) in legal tax charge     7,649       (375 )     4.93       0.30  
          Total adjustments to tax expense using the legal rate     107,691       (8,463 )     69.45       6.70  
          Tax expense using the effective rate     144,899       (36,953 )     93.45       29.20  

 

(*) 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 June 30, 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 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Aggregate deferred taxation of components of other comprehensive income     (16,557 )     (36,395 )     (9,259 )     (15,029 )
Aggregate deferred taxation related to items charged to net equity     (1,747 )     1,426       (1,298 )     2,139  

 

(*) 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.

 

  71  

 

 

NOTE 19 - OTHER FINANCIAL LIABILITIES

 

The composition of Other financial liabilities is as follows:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Current                
(a)  Interest bearing loans     1,812,932       1,510,146  
(b)  Hedge derivatives     70,515       134,089  
Total current     1,883,447       1,644,235  
                 
Non-current                
(a)  Interest bearing loans     7,106,848       7,516,257  
(b)  Hedge derivatives     12,102       16,128  
Total non-current     7,118,950       7,532,385  

 

(a) Interest bearing loans

 

Obligations with credit institutions and debt instruments:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Current                
Loans to exporters     372,934       387,409  
Bank loans     88,634       80,188  
Guaranteed obligations     643,113       591,148  
Other guaranteed obligations     16,493       32,513  
Subtotal bank loans     1,121,174       1,091,258  
Obligation with the public     311,508       10,999  
Financial leases     295,554       324,859  
Other loans     84,696       83,030  
Total current     1,812,932       1,510,146  
Non-current                
Bank loans     268,142       564,128  
Guaranteed obligations     4,391,420       4,122,995  
Other guaranteed obligations (1)     302,471       -  
Subtotal bank loans     4,962,033       4,687,123  
Obligation with the public (2)     996,901       1,294,882  
Financial leases     822,512       1,015,779  
Other loans     325,402       518,473  
Total non-current     7,106,848       7,516,257  
Total obligations with financial institutions     8,919,780       9,026,403  

 

  72  

 

 

(1) On March 29 and May 12, 2016, LATAM Airlines Group S.A. 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 June 30, 2016 was for a total of MUS $ 306,000. 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: Libor to 3 Months + 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  
    June 30,     December 31,  
    2016     2015  
Currency   ThUS$     ThUS$  
    Unaudited        
             
Brazilian real     2,968       3,387  
Chilean peso (U.F.)     191,297       210,423  
US Dollar     8,725,515       8,812,593  
Total     8,919,780       9,026,403  

 

  73  

 

 

Interest-bearing loans due in installments to June 30, 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       100,281       -       -       -       -       100,281     At Expiration     1.53       1.53  
97.036.000-K   SANTANDER   Chile   US$     150,000       -       -       -       -       150,000       150,267       -       -       -       -       150,267     At Expiration     2.49       2.49  
97.030.000-7   ESTADO   Chile   US$     40,000       -       -       -       -       40,000       40,073       -       -       -       -       40,073     At Expiration     1.60       1.60  
97,003,000-K   BANCO DO BRASIL   Chile   US$     70,000       -       -       -       -       70,000       70,280       -       -       -       -       70,280     At Expiration     2.82       2.82  
97.951.000-4   HSBC   Chile   US$     12,000       -       -       -       -       12,000       12,033       -       -       -       -       12,033     At Expiration     1.52       1.52  
                                                                                                                                 
Bank loans                                                                                                                            
                                                                                                                                 
97.023.000-9   CORPBANCA   Chile   UF     19,244       57,732       87,877       27,111       -       191,964       19,984       57,732       86,578       27,003       -       191,297     Quarterly     4.13       4.13  
0-E   BLADEX   U.S.A.   US$     -       10,000       30,000       7,500       -       47,500       -       10,147       29,625       7,438       -       47,210     Semiannual     4.80       4.80  
0-E   DVB  BANK  SE   U.S.A.   US$     -       -       28,911       -       -       28,911       1       -       28,911       -       -       28,912     Quarterly     1.70       1.70  
97.036.000-K   SANTANDER   Chile   US$     -       -       85,951       -       -       85,951       269       -       85,951       -       -       86,220     Quarterly     2.75       2.50  
                                                                                                                                 
Obligations with the public                                                                                                                            
0-E   BANK OF NEW YORK   U.S.A.   US$     -       -       -       500,000       -       500,000       2,291       -       -       488,454       -       490,745     At Expiration     7.77       7.25  
                                                                                                                                 
Guaranteed obligations                                                                                                                            
                                                                                                                                 
0-E   CREDIT AGRICOLE   France   US$     33,039       88,694       208,426       43,954       7,213       381,326       33,942       88,694       207,185       43,954       7,213       380,988     Quarterly     2.07       1.91  
0-E   BNP PARIBAS   U.S.A.   US$     8,328       33,594       89,070       91,418       195,567       417,977       9,478       34,022       87,187       90,556       194,240       415,483     Quarterly     2.60       2.54  
0-E   WELLS FARGO   U.S.A.   US$     31,170       94,345       257,814       267,131       468,364       1,118,824       35,081       94,345       231,705       255,615       460,008       1,076,754     Quarterly     2.34       1.65  
0-E   WILMINGTON TRUST   U.S.A.   US$     16,874       49,038       133,018       140,853       661,654       1,001,437       22,408       49,038       128,387       138,340       656,810       994,983     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     17,261       52,491       145,033       152,760       215,258       582,803       18,796       52,491       136,149       148,715       211,322       567,473     Quarterly     2.53       1.78  
97.036.000-K   SANTANDER   Chile   US$     5,286       16,037       44,006       45,898       37,945       149,172       5,601       16,036       42,064       45,203       37,747       146,651     Quarterly     1.72       1.18  
0-E   BTMU   U.S.A.   US$     2,751       8,363       23,100       24,314       32,980       91,508       2,947       8,363       21,736       23,756       32,700       89,502     Quarterly     2.04       1.44  
0-E   APPLE BANK   U.S.A.   US$     1,353       4,109       11,360       11,986       16,658       45,466       1,514       4,109       10,682       11,706       16,514       44,525     Quarterly     2.03       1.44  
0-E   US BANK   U.S.A.   US$     14,649       44,450       122,306       127,998       252,587       561,990       17,265       44,450       105,056       120,168       246,320       533,259     Quarterly     3.99       2.81  
0-E   DEUTSCHE  BANK   U.S.A.   US$     4,894       15,003       28,632       26,397       52,166       127,092       5,465       15,004       28,632       26,398       52,165       127,664     Quarterly     3.65       3.65  
0-E   NATIXIS   France   US$     11,949       36,843       96,605       79,054       221,939       446,390       12,619       36,843       96,605       79,054       221,939       447,060     Quarterly     2.33       2.29  
0-E   HSBC   U.S.A.   US$     1,393       4,233       11,675       12,261       21,260       50,822       1,539       4,233       11,675       12,261       21,260       50,968     Quarterly     2.69       1.88  
0-E   PK AIRFINANCE   U.S.A.   US$     1,948       6,054       17,781       20,445       12,490       58,718       2,002       6,053       17,781       20,445       12,490       58,771     Quarterly     2.15       2.15  
0-E   KFW IPEX-BANK   Germany   US$     2,230       6,856       18,129       12,907       557       40,679       2,258       6,856       18,129       12,907       557       40,707     Quarterly     2.30       2.30  
0-E   AIRBUS FINANCIAL   U.S.A.   US$     1,768       5,390       15,020       11,571       -       33,749       1,813       5,390       15,020       11,571       -       33,794     Monthly     2.43       2.43  
0-E   INVESTEC   England   US$     -       2,641       5,742       6,429       7,187       21,999       -       2,792       5,509       6,334       7,148       21,783     Semiannual     5.31       5.31  
-   SWAP Aviones llegados   -   US$     452       1,214       2,097       405       -       4,168       452       1,214       2,097       405       -       4,168     Quarterly     -       -  
                                                                                                                                 
Other guaranteed obligations                                                                                                                            
                                                                                                                                 
0-E   CITIBANK   U.S.A.   US$     -       -       306,000       -       -       306,000       144       -       302,471       -       -       302,615     Quarterly     3.13       3.13  
0-E   DVB  BANK  SE   U.S.A.   US$     8,145       8,193       -       -       -       16,338       8,156       8,193       -       -       -       16,349     Quarterly     2.40       2.40  
                                                                                                                                 
Financial leases                                                                                                                            
                                                                                                                                 
0-E   ING   U.S.A.   US$     8,304       16,919       34,045       19,409       -       78,677       8,988       16,919       33,363       19,330       -       78,600     Quarterly     5.38       4.78  
0-E   CREDIT AGRICOLE   France   US$     1,711       5,264       3,625       -       -       10,600       1,743       5,265       3,625       -       -       10,633     Quarterly     1.60       1.60  
0-E   CITIBANK   U.S.A.   US$     4,823       14,883       42,920       25,319       -       87,945       5,563       14,883       42,014       25,222       -       87,682     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     15,614       47,980       87,273       11,348       -       162,215       16,696       47,979       86,039       11,318       -       162,032     Quarterly     5.38       4.78  
0-E   BNP PARIBAS   U.S.A.   US$     10,223       31,499       70,233       21,093       -       133,048       10,714       31,499       69,131       21,022       -       132,366     Quarterly     4.12       3.68  
0-E   WELLS FARGO   U.S.A.   US$     4,593       14,027       39,190       41,944       12,801       112,555       4,964       14,026       38,033       41,617       12,777       111,417     Quarterly     3.98       3.54  
0-E   DVB BANK SE   U.S.A.   US$     4,623       14,042       4,737       -       -       23,402       4,668       14,042       4,737       -       -       23,447     Quarterly     4.47       2.32  
0-E   BANC OF AMERICA   U.S.A.   US$     1,551       -       -       -       -       1,551       1,554       -       -       -       -       1,554     Monthly     1.41       1.41  
                                                                                                                                 
Other loans                                                                                                                            
                                                                                                                                 
0-E   BOEING   U.S.A.   US$     -       -       -       -       -       -       1,656       -       -       -       -       1,656     At Expiration     1.81       1.81  
0-E   CITIBANK (*)   U.S.A.   US$     19,449       62,569       179,443       149,726       -       411,187       20,471       62,569       176,069       149,333       -       408,442     Quarterly     6.00       6.00  
                                                                                                                                 
     Total             625,625       752,463       2,230,019       1,879,231       2,216,626       7,703,964       653,976       753,187       2,152,146       1,838,125       2,191,210       7,588,644                      

 

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

 

  74  

 

 

Interest-bearing loans due in installments to June 30, 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   NEDERLANDSCHE                                                                                                                            
    CREDIETVERZEKERING MAATSCHAPPIJ   Holanda   US$     119       366       1,062       1,197       377       3,121       134       367       1,062       1,197       377       3,137     Monthly     6.01       6.01  
                                                                                                                                 
Obligation with the public                                                                                                                            
                                                                                                                                 
0-E   THE BANK OF NEW YORK   E.E.U.U.   US$     -       300,000       -       500,000       -       800,000       7,646       301,571       4,118       504,329       -       817,664     At Expiration     8.17       8.00  
                                                                                                                                 
Financial leases                                                                                                                            
                                                                                                                                 
0-E   AFS INVESTMENT IX LLC   E.E.U.U.   US$     2,028       6,259       18,040       13,206       -       39,533       2,214       6,259       18,041       13,206       -       39,720     Monthly     1.25       1.25  
0-E   DVB BANK SE   E.E.U.U.   US$     118       355       46       -       -       519       119       355       46       -       -       520     Monthly     2.15       2.15  
0-E   GENERAL ELECTRIC CAPITAL CORPORATION   E.E.U.U.   US$     3,712       11,315       1,397       -       -       16,424       3,747       11,315       1,397       -       -       16,459     Monthly     1.90       1.90  
0-E   KFW IPEX-BANK   Alemania   US$     579       1,736       965       -       -       3,280       585       1,737       964       -       -       3,286     Monthly/Quarterly     2.40       2.40  
0-E   NATIXIS   Francia   US$     2,580       5,567       17,912       39,772       45,302       111,133       3,500       5,567       17,912       39,773       45,302       112,054     Quarterly/Semiannual     4.50       4.50  
0-E   PK AIRFINANCE US, INC.   E.E.U.U.   US$     1,312       19,163       -       -       -       20,475       1,346       19,164       -       -       -       20,510     Monthly     2.40       2.40  
0-E   WACAPOU LEASING S.A.   Luxemburgo   US$     651       1,999       5,646       6,148       2,898       17,342       695       1,999       5,646       6,149       2,898       17,387     Quarterly     2.65       2.65  
0-E   SOCIÉTÉ GÉNÉRALE  MILAN BRANCH   Italia   US$     8,326       25,673       73,045       189,069       -       296,113       9,644       25,673       73,045       189,069       -       297,431     Quarterly     3.83       3.77  
0-E   BANCO IBM S.A   Brasil   BRL     264       792       517       -       -       1,573       264       792       517       -       -       1,573     Monthly     14.13       14.13  
0-E   HP FINANCIAL SERVICE   Brasil   BRL     214       446       -       -       -       660       214       446       -       -       -       660     Monthly     10.02       10.02  
0-E   SOCIETE GENERALE   Francia   BRL     104       312       319       -       -       735       104       312       319       -       -       735     Monthly     14.13       14.13  
                                                                                                                                 
     Total             20,007       373,983       118,949       749,392       48,577       1,310,908       30,212       375,557       123,067       753,723       48,577       1,331,136                      
                                                                                                                                 
    Total consolidado             645,632       1,126,446       2,348,968       2,696,623       2,265,203       9,082,872       684,188       1,128,744       2,275,213       2,591,848       2,239,787       8,919,780                      

 

  75  

 

  

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 BRASIL   Chile   US$     70,000       -       -       -       -       70,000     70,051     -       -       -       -       70,051     At Expiration     1.18       1.18  
97.951.000-4   HSBC   Chile   US$     12,000       -       -       -       -       12,000     12,014     -       -       -       -       12,014     At Expiration     0.66       0.66  
                                                                                                                             
Bank loans                                                                                                                            
                                                                                                                             
97.023.000-9   CORPBANCA   Chile   UF     17,631       52,893       105,837       34,774       -       211,135     18,510     52,892       104,385       34,635       -       210,422     Quarterly     4.18       4.18  
0-E   BLADEX   U.S.A.   US$     -       7,500       27,500       15,000       -       50,000     134     7,500       27,125       14,875       -       49,634     Semiannual     4.58       4.58  
0-E   DVB BANK SE   U.S.A.   US$     -       -       153,514       -       -       153,514     14     -       153,514       -       -       153,528     Quarterly     1.67       1.67  
97.036.000-K   SANTANDER   Chile   US$     -       -       226,712       -       -       226,712     650     -       226,712       -       -       227,362     Quarterly     2.24       2.24  
                                                                                                                             
Obligations with the public                                                                                                                        
0-E   BANK OF YORK   U.S.A.   US$     -       -       -       500,000       -       500,000     2,383     -       -       486,962       -       489,345     At Expiration     7.77       7.25  
                                                                                                                             
Guaranteed obligations                                                                                                                        
                                                                                                                             
0-E   CREDIT AGRICOLE   France   US$     29,633       88,188       204,722       54,074       12,410       389,027     30,447     88,189       203,286       54,074       12,410       388,406     Quarterly     1.83       1.66  
0-E   BNP PARIBAS   U.S.A.   US$     8,162       25,012       70,785       75,028       140,410       319,397     9,243     25,012       70,335       74,917       140,407       319,914     Quarterly     2.29       2.22  
0-E   WELLS FARGO   U.S.A.   US$     30,895       93,511       255,536       264,770       536,039       1,180,751     34,933     93,511       227,704       252,054       525,257       1,133,459     Quarterly     2.27       1.57  
0-E   WILMINGTON TRUST   U.S.A.   US$     -       48,264       85,183       90,694       451,555       675,696     5,691     48,263       81,867       88,977       448,016       672,814     Quarterly     4.25       4.25  
0-E   CITIBANK   U.S.A.   US$     17,042       51,792       143,168       150,792       254,208       617,002     18,545     51,792       133,740       146,362       249,406       599,845     Quarterly     2.40       1.64  
97.036.000-K   SANTANDER   Chile   US$     5,233       15,862       43,552       45,416       49,606       159,669     5,514     15,862       41,434       44,599       49,281       156,690     Quarterly     1.47       0.93  
0-E   BTMU   U.S.A.   US$     2,714       8,250       22,801       24,007       39,182       96,954     2,897     8,250       21,336       23,376       38,789       94,648     Quarterly     1.82       1.22  
0-E   APPLE BANK   U.S.A.   US$     1,333       4,055       11,211       11,828       19,715       48,142     1,478     4,056       10,483       11,513       19,515       47,045     Quarterly     1.72       1.12  
0-E   US BANK   U.S.A.   US$     14,483       43,948       120,924       126,550       285,134       591,039     17,232     43,948       102,607       117,968       277,195       558,950     Quarterly     3.99       2.81  
0-E   DEUTSCHE BANK   U.S.A.   US$     4,767       14,667       32,449       25,826       58,989       136,698     5,342     14,666       32,448       25,826       58,989       137,271     Quarterly     3.40       3.40  
0-E   NATIXIS   France   US$     11,698       35,914       97,434       83,289       241,088       469,423     12,351     35,914       97,434       83,289       241,088       470,076     Quarterly     2.08       2.05  
0-E   HSBC   U.S.A.   US$     1,374       4,180       11,533       12,112       24,384       53,583     1,504     4,180       11,533       12,112       24,384       53,713     Quarterly     2.40       1.59  
0-E   PK AIRFINANCE   U.S.A.   US$     1,882       5,846       17,171       19,744       17,871       62,514     1,937     5,846       17,171       19,744       17,871       62,569     Monthly     2.04       2.04  
0-E   KFW IPEX-BANK   Germany   US$     653       2,028       5,314       3,958       1,640       13,593     655     2,028       5,314       3,958       1,640       13,595     Quarterly     2.45       2.45  
-   SWAP Aviones llegados   -   US$     502       1,360       2,521       765       -       5,148     502     1,360       2,521       765       -       5,148     Quarterly     -       -  
                                                                                                                             
Other guaranteed obligations                                                                                                                        
                                                                                                                             
0-E   DVB BANK SE   U.S.A.   US$     8,054       24,438       -       -       -       32,492     8,075     24,438       -       -       -       32,513     Quarterly     2.32       2.32  
                                                                                                                             
Financial leases                                                                                                                        
                                                                                                                             
0-E   ING   U.S.A.   US$     8,108       23,191       36,868       26,831       -       94,998     8,894     23,191       36,066       26,682       -       94,833     Quarterly     5.13       4.57  
0-E   CREDIT AGRICOLE   France   US$     1,666       5,131       7,158       -       -       13,955     1,700     5,131       7,158       -       -       13,989     Quarterly     1.28       1.28  
0-E   CITIBANK   U.S.A.   US$     4,687       14,447       41,726       36,523       -       97,383     5,509     14,447       40,684       36,330       -       96,970     Quarterly     6.40       5.67  
0-E   PEFCO   U.S.A.   US$     15,246       46,858       108,403       22,407       -       192,914     16,536     46,858       106,757       22,324       -       192,475     Quarterly     5.37       4.77  
0-E   BNP PARIBAS   U.S.A.   US$     9,956       30,678       81,373       31,100       -       153,107     10,494     30,678       79,983       30,958       -       152,113     Quarterly     4.08       3.64  
0-E   WELLS FARGO   U.S.A.   US$     4,519       13,784       38,531       41,238       23,556       121,628     4,919     13,784       37,247       40,819       23,486       120,255     Quarterly     3.98       3.54  
0-E   DVB BANK SE   U.S.A.   US$     4,567       13,873       14,127       -       -       32,567     4,625     13,873       14,127       -       -       32,625     Quarterly     2.06       2.06  
0-E   BANC OF AMERICA   U.S.A.   US$     674       2,096       -       -       -       2,770     676     2,096       -       -       -       2,772     Monthly     1.41       1.41  
                                                                                                                             
Other loans                                                                                                                        
                                                                                                                             
0-E   BOEING   U.S.A.   US$     -       -       151,362       -       -       151,362     2,294     -       151,363       -       -       153,657     At Expiration     1.80       1.80  
0-E   CITIBANK (*)   U.S.A.   US$     19,361       60,251       174,178       196,210       -       450,000     20,485     60,251       174,178       192,932       -       447,846     Quarterly     6.00       6.00  
                                                                                                                             
     Total             611,840       738,017       2,291,593       1,892,936       2,155,787       7,690,173     641,578     738,016       2,218,512       1,846,051       2,127,734       7,571,891                      

  

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

 

  76  

 

 

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

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

 

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

 

  77  

 

 

(b) Hedge derivatives

 

                            Total hedge  
    Current liabilities     Non-current liabilities     derivatives  
    As of     As of     As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
Accrued interest from the last date of interest rate swap     3,029       4,329       -       -       3,029       4,329  
Fair value of interest rate derivatives     19,746       33,518       12,102       16,128       31,848       49,646  
Fair value of fuel derivatives     10,989       56,424       -       -       10,989       56,424  
Fair value of foreign currency derivatives     36,751       39,818       -       -       36,751       39,818  
Total hedge derivatives     70,515       134,089       12,102       16,128       82,617       150,217  

 

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

 

Hedging operation

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cross currency swaps (CCS) (1)     (17,227 )     (49,311 )
Interest rate swaps (2)     (32,641 )     (44,085 )
Fuel options (3)     (5,827 )     (50,131 )
Currency forward - options US$/GBP$  (4)     2,351       7,432  
Currency forward - options  US$/EUR$  (4)     670       1,438  
Currency options  R$/US$  (4)     (21,152 )     933  
Currency options  CLP/US$  (4)     (463 )     85  
Currency options  COP/US$  (4)     (2 )     -  
Currency options  AUD/US$  (4)     820       -  

 

(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 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.

 

  78  

 

 

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 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Debit (credit) recognized in comprehensive income during the period     61,537       132,503       33,563       49,240  
Debit (credit) transferred from net equity to income during the period     (63,578 )     (166,617 )     (26,157 )     (53,155 )

 

NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Current                
(a) Trade and other accounts payables     1,098,715       1,025,574  
(b) Accrued liabilities at the reporting date     451,355       458,383  
Total trade and other accounts payables     1,550,070       1,483,957  

 

  79  

 

 

(a) Trade and other accounts payable:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Trade creditors     842,933       758,783  
Leasing obligation     12,255       18,784  
Other accounts payable     243,527       248,007  
Total     1,098,715       1,025,574  

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Boarding Fee     182,005       175,900  
Aircraft Fuel     125,583       148,612  
Handling and ground handling     102,507       88,629  
Other personnel expenses     87,172       72,591  
Airport charges and overflight     86,683       94,139  
Suppliers' technical purchases     68,585       52,160  
Land services     66,109       80,387  
Professional services and advisory     56,759       63,302  
Marketing     53,252       45,997  
Services on board     34,981       32,993  
Aviation insurance     31,995       7,655  
Maintenance     27,712       18,573  
Crew     27,476       23,834  
Leases, maintenance and IT services     23,845       25,558  
Achievement of goals     21,308       15,386  
Justice Department E.E.U.U. and SEC (*)     17,469       -  
Distribution system     16,141       17,531  
Aircraft and engines leasing     12,255       19,146  
Communications     2,992       6,731  
Others     53,886       36,450  
Total trade and other accounts payables     1,098,715       1,025,574  

 

(*) Provision made for payments of fines, on July 25, 2016 LATAM reached agreements with the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") both authorities of the United States of America, in force as of this date, regarding the investigation on payments by LAN Airlines S.A. made in 2006-2007 to a consultant who advised on the resolution of labor matters in Argentina. The amount of the fines is ThUS$ 12,750 to the DOJ and the amount to the SEC is ThUS$ 6,744 plus interests of ThUS$ 2,694.

 

  80  

 

 

In relation to the amounts payable to the SEC, ThUS $ 4,719 are classified in Non-current accounts payable (Note 24).

 

(b) Liabilities accrued:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Aircraft and engine maintenance     266,814       246,454  
Accrued personnel expenses     143,407       108,058  
Accounts payable to personnel (*)     20,460       81,368  
Others accrued liabilities     20,674       22,503  
Total accrued liabilities     451,355       458,383  

 

(*) Profits and bonds participation (Note 23 letter b)

 

NOTE 21 - OTHER PROVISIONS

 

Other provisions:

 

    Current liabilities     Non-current liabilities     Total Liabilities  
    As of     As of     As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Provision for contingencies (1)                                                
Tax contingencies     1,297       1,297       421,468       350,418       422,765       351,715  
Civil contingencies     914       1,476       52,792       37,555       53,706       39,031  
Labor contingencies     193       149       22,593       15,648       22,786       15,797  
Other     -       -       14,792       11,910       14,792       11,910  
Provision for European Commision investigation (2)     -       -       9,097       8,966       9,097       8,966  
Total other provisions (3)     2,404       2,922       520,742       424,497       523,146       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.

 

  81  

 

 

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 June 30, 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.

 

  82  

 

 

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     22,777       -       22,777  
Provision used     (1,905 )     -       (1,905 )
Difference by subsidiaries conversion     (99,111 )     -       (99,111 )
Reversal of provision     (22,220 )     -       (22,220 )
Exchange difference     (347 )     (836 )     (1,183 )
Closing balance as of June 30, 2015 (Unaudited)     604,746       9,163       613,909  
                         
Opening balance as of July 1, 2015     604,746       9,163       613,909  
Increase in provisions     31,898       -       31,898  
Provision used     (17,617 )     -       (17,617 )
Difference by subsidiaries conversion     (121,155 )     -       (121,155 )
Reversal of provision     (78,520 )     -       (78,520 )
Exchange difference     (899 )     (197 )     (1,096 )
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     41,620       -       41,620  
Provision used     (15,632 )     -       (15,632 )
Difference by subsidiaries conversion     86,770       -       86,770  
Reversal of provision     (17,410 )     -       (17,410 )
Exchange difference     248       131       379  
Closing balance as of June 30, 2016 (Unaudited)     514,049       9,097       523,146  

 

Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), of US$ 74 million, done in order to suspend the enforceability of the tax credit. The company is discussing over the Tribunal the constitutionality of the requirement made by FA in a legal suit. Initially it was covered by the effects of a provisional remedy, meaning that, the company was not obligated to collect the tax while there was not a judicial decision in this regard. However, the decision taken by a judge in the first instance was publicized in an unfavorable way, revoking the provisional remedy relief. As the legal suit is still in progress (TAM appealed from this first decision), the company needed to do the deposit judicial in guarantee to suspend the enforceability of such tax credit; deposit classified in this category deducting the existing provision. Finally, if the final decision is favorable to the company, the deposit already made is going to come back to TAM. On the other hand, if the tribunal confirms the first decision, such deposit will be converted in a definitive payment in favor of the Brazilian Government. The procedural stage at June 30, 2016 is disclosed in Note 31, at case No. 2001.51.01.012530-0.

 

  83  

 

 

(*) 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 June 30, 2016 is disclosed in Note 31, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries.

 

  84  

 

 

NOTE 22 - OTHER NON-FINANCIAL LIABILITIES

 

    Current liabilities     Non-current liabilities     Total Liabilities  
    As of     As of     As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
Deferred revenues (*)     2,682,739       2,423,703       274,374       272,130       2,957,113       2,695,833  
Sales tax     12,466       10,379       -       -       12,466       10,379  
Retentions     33,832       33,125       -       -       33,832       33,125  
Others taxes     8,273       11,211       -       -       8,273       11,211  
Dividends     7,871       3,980       -       -       7,871       3,980  
Other sundry liabilities     13,841       7,635       -       -       13,841       7,635  
Total other non-financial liabilities     2,759,022       2,490,033       274,374       272,130       3,033,396       2,762,163  

 

(*) Note 2.20.

 

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

 

LATAM Pass 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 LATAM Pass 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 LATAM 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.

 

  85  

 

 

NOTE 23 - EMPLOYEE BENEFITS

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Retirements payments     53,071       42,117  
Resignation payments     11,832       8,858  
Other obligations     18,282       14,296  
Total liability for employee benefits     83,185       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 June 30, 2015 (Unaudited)     74,102       9,038       (1,660 )     -       -       81,480  
From July 1 to December 31, 2015     81,480       (22,647 )     (2,164 )     14,631       (6,029 )     65,271  
From January 1 to June 30, 2016 (Unaudited)     65,271       12,446       (1,046 )     (300 )     -       76,371  

 

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

 

    As of  
    June 30,  
Assumptions   2016     2015  
             
Discount rate     4.64 %     4.97 %
Expected rate of salary increase     4.50 %     4.50 %
Rate of turnover     6.16 %     6.16 %
Mortality rate     RV-2009       RV-2009  
Inflation rate     2.86 %     3.02 %
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.

 

  86  

 

 

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  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Discount rate            
Change in the accrued liability an closing for increase in 100 p.b.     (6,613 )     (4,669 )
Change in the accrued liability an closing for decrease of 100 p.b.     7,176       5,345  
                 
Rate of wage growth                
Change in the accrued liability an closing for increase in 100 p.b.     6,491       5,309  
Change in the accrued liability an closing for decrease of 100 p.b.     (5,769 )     (4,725 )

 

(b) The liability for short-term:

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Profit-sharing and bonuses (*)     20,460       81,368  

 

(*) Accounts payables to employees (Note 20 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 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
                         
Salaries and wages     758,088       882,359       397,875       431,957  
Short-term employee benefits     46,948       86,630       (25,118 )     35,747  
Termination benefits     41,406       33,451       28,151       10,532  
Other personnel expenses     88,681       101,409       45,499       49,924  
Total     935,123       1,103,849       446,407       528,160  

 

  87  

 

 

NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Aircraft and engine maintenance     319,177       371,419  
Fleet financing (JOL)     35,735       35,042  
Provision for vacations and bonuses     11,245       10,365  
U.S. Department of Justice and SEC (*)     4,719       -  
Other sundry liabilities     228       224  
Total accounts payable, non-current     371,104       417,050  

 

(*) See Note 20

 

NOTE 25 - 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 June 30, 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.

 

  88  

 

 

(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 June 30, 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 June 30, 2016     -  
Authorized shares as of June 30, 2016 (Unaudited)     551,847,819  

 

Movement fully paid shares                        
          Movement              
          value     Cost of issuance        
          of shares     and placement     Paid- in  
    N° of     (1)     of shares (2)     Capital  
    shares     ThUS$     ThUS$     ThUS$  
                         
Paid shares as of January 1, 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 June 30, 2016     -       -       -       -  
Paid shares as of June 30, 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 June 30, 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 June 30, 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.

 

  89  

 

 

(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 June 30, 2015 (Unaudited)     29,642       5,460       (1,426 )     33,676  
From July 1 to December 31, 2015     33,676       3,464       (1,493 )     35,647  
From January 1 to June 30, 2016 (Unaudited)     35,647       2,560       (807 )     37,400  

 

These reserves are related to the “Share-based payments” explained in Note 34.

 

(e) Other sundry reserves

 

Movement of Other sundry reserves:

 

    Opening     Legal     Closing  
Periods   balance     reserves     balance  
    ThUS$     ThUS$     ThUS$  
                   
From January 1 to June 30, 2015 (Unaudited)     2,635,748       1,603       2,637,351  
From July 1 to December 31, 2015     2,637,351       (2,672 )     2,634,679  
From January 1 to June 30, 2016 (Unaudited)     2,634,679       670       2,635,349  

 

Balance of Other sundry reserves comprises the following:

 

    As of     As of  
    June 30,     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)     (25,911 )     (25,891 )
Cost of issuance and placement of shares     (4,793 )     (4,793 )
Others     (2,259 )     (2,949 )
Total     2,635,349       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.

 

  90  

 

  

(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 June 30, 2016, 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$ (20), 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).

 

(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)     -       133,519       -       133,519  
Deferred tax     -       (36,734 )     -       (36,734 )
Difference by subsidiaries conversion     (655,343 )     -       -       (655,343 )
Closing balance as of June 30, 2015 (Unaudited)     (1,849,214 )     (54,555 )     -       (1,903,769 )
                                 
Opening balance as of July 1, 2015     (1,849,214 )     (54,555 )     -       (1,903,769 )
Derivatives valuation gains (losses)     -       (50,789 )     -       (50,789 )
Deferred tax     -       14,834       -       14,834  
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     (726,827 )     -       -       (726,827 )
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)     -       60,411       -       60,411  
Deferred tax     -       (16,557 )     -       (16,557 )
Actuarial reserves by employee benefit plans     -       -       (1,267 )     (1,267 )
Deferred tax actuarial IAS by employee benefit plans     -       -       382       382  
Difference by subsidiaries conversion     540,961       -       -       540,961  
Closing balance as of June 30, 2016 (Unaudited)     (2,035,080 )     (46,656 )     (11,602 )     (2,093,338 )

 

  91  

 

 

(f.1) Currency translation reserve

 

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

 

(f.2) Cash flow hedging reserve

 

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

 

(f.3) Actuarial gain or loss on defined benefit plans reserve

 

These originate from the actuarial calculation Company has developed from December 31, 2015, the effect of a negative reserve amounting to ThUS$ 16,576 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 June 30, 2015 (Unaudited)     536,190       (89,674 )     -       1,697       448,213  
From July 1 to December 31, 2015     448,213       (129,600 )     -       (663 )     317,950  
From January 1 to June 30, 2016 (Unaudited)     317,950       10,133       (3,040 )     (277 )     324,766  

 

(h) Dividends per share

 

    Minimum mandatory     Final dividend  
    dividend     dividend  
Description of dividend   2016     2015  
             
Date of dividend     06-30-2016       12-31-2015  
Amount of the dividend (ThUS$)     3,040       -  
Number of shares among which the  dividend is distributed     545,547,819       545,547,819  
Dividend per share (US$)     0,0056       -  

 

  92  

 

 

NOTE 26 - REVENUE

 

The detail of revenues is as follows:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Passengers LAN     1,989,806       2,111,349       904,897       982,691  
Passengers TAM     1,675,198       2,209,339       801,817       994,470  
Cargo     535,977       684,767       260,010       334,445  
Total     4,200,981       5,005,455       1,966,724       2,311,606  

 

NOTE 27 - COSTS AND EXPENSES BY NATURE

 

(a) Costs and operating expenses

 

The main operating costs and administrative expenses are detailed below:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Aircraft fuel     929,437       1,419,037       468,004       674,972  
Other rentals and landing fees     521,653       558,383       260,601       272,478  
Aircraft rentals     272,157       257,691       138,554       128,793  
Aircraft maintenance     181,744       229,698       86,949       115,725  
Comissions     127,186       154,083       60,557       71,520  
Passenger services     140,276       144,518       62,824       66,757  
Other operating expenses     640,907       628,661       355,502       310,725  
Total     2,813,360       3,392,071       1,432,991       1,640,970  

 

  93  

 

 

(b) Depreciation and amortization

 

Depreciation and amortization are detailed below:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Depreciation (*)     449,621       450,196       219,730       223,728  
Amortization     20,536       22,338       10,976       11,358  
Total     470,157       472,534       230,706       235,086  

 

(*) 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 June 30, 2016 is ThUS$ 76,861 and ThUS$ 83,018 for the same period of 2015.

 

(c) Personnel expenses

 

The costs for personnel expenses are disclosed in Note 23 liability for employee benefits.

 

(d) Financial costs

 

The detail of financial costs is as follows:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Bank loan interest     167,424       166,951       83,220       85,869  
Financial leases     17,775       23,052       8,282       10,974  
Other financial instruments     21,433       15,580       12,081       13,407  
Total     206,632       205,583       103,583       110,250  

 

Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 23, 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.

 

  94  

 

 

NOTE 28 - OTHER INCOME, BY FUNCTION

 

Other income by function is as follows:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Tours     48,884       57,760       24,922       35,861  
Aircraft leasing     32,477       21,298       17,069       11,950  
Customs and warehousing     10,615       11,239       5,399       5,822  
Duty free     4,768       8,055       2,375       3,926  
Maintenance     10,809       7,781       8,688       5,713  
Other miscellaneous income     129,716       92,408       85,456       37,976  
Total     237,269       198,541       143,909       101,248  

 

NOTE 29 - 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:

 

  95  

 

 

    As of     As of  
    June 30,     December 31,  
Current assets   2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Cash and cash equivalents     161,283       182,089  
Argentine peso     8,239       11,611  
Brazilian real     12,916       8,810  
Chilean peso     25,014       17,739  
Colombian peso     2,199       1,829  
Euro     7,324       10,663  
U.S. dollar     88,793       112,422  
Strong bolivar     725       2,986  
Other currency     16,073       16,029  
                 
Other financial assets, current     49,428       124,042  
Argentine peso     36,881       108,592  
Brazilian real     556       1,263  
Chilean peso     530       563  
Colombian peso     123       1,167  
Euro     1       1  
U.S. dollar     11,033       12,128  
Strong bolivar     -       22  
Other currency     304       306  

 

  96  

 

 

    As of     As of  
    June 30,     December 31,  
Current assets   2016     2015  
    ThUS$     ThUS$  
    Unaudited        
Other non - financial assets, current     141,565       126,130  
Argentine peso     14,261       14,719  
Brazilian real     20,068       15,387  
Chilean peso     17,454       10,265  
Colombian peso     734       486  
Euro     2,172       1,983  
U.S. dollar     65,562       61,577  
Strong bolivar     3       -  
Other currency     21,311       21,713  
                 
Trade and other accounts receivable, current     297,146       247,229  
Argentine peso     46,897       30,563  
Brazilian real     27,289       11,136  
Chilean peso     74,343       55,169  
Colombian peso     909       1,195  
Euro     30,629       53,200  
U.S. dollar     57,706       6,743  
Strong bolivar     2       7,225  
Other currency     59,371       81,998  
                 
Accounts receivable from related entities, current     353       183  
Chilean peso     353       183  
                 
Tax current assets     28,146       22,717  
Argentine peso     1,581       2,371  
Brazilian real     2,610       5  
Chilean peso     4,098       3,615  
Colombian peso     1,237       1,275  
Euro     173       14  
U.S. dollar     1,436       1,394  
Peruvian sol     15,478       12,572  
Other currency     1,533       1,471  
                 
Total current assets     677,921       702,390  
Argentine peso     107,859       167,856  
Brazilian real     63,439       36,601  
Chilean peso     121,792       87,534  
Colombian peso     5,202       5,952  
Euro     40,299       65,861  
U.S. Dollar     224,530       194,264  
Strong bolivar     730       10,233  
Other currency     114,070       134,089  

 

  97  

 

 

    As of     As of  
    June 30,     December 31,  
Non-current assets   2016     2015  
    ThUS$     ThUS$  
             
Other financial assets, non-current     29,164       20,767  
Argentine peso     19       22  
Brazilian real     2,195       1,478  
Chilean peso     83       77  
Colombian peso     174       162  
Euro     7,328       614  
U.S. dollar     17,614       16,696  
Other currency     1,751       1,718  
                 
Other non - financial assets, non-current     44,491       60,215  
Argentine peso     156       169  
Brazilian real     7,227       4,454  
U.S. dollar     32,346       50,108  
Other currency     4,762       5,484  
                 
Accounts receivable, non-current     7,532       9,404  
Chilean peso     7,389       4,251  
U.S. dollar     -       5,000  
Other currency     143       153  
                 
Deferred tax assets     2,614       2,632  
Colombian peso     342       336  
Other currency     2,272       2,296  
                 
Total  non-current assets     83,801       93,018  
Argentine peso     175       191  
Brazilian real     9,422       5,932  
Chilean peso     7,472       4,328  
Colombian peso     516       498  
Euro     7,328       614  
U.S. dollar     49,960       71,804  
Other currency     8,928       9,651  

 

  98  

 

 

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  
    June 30,     December 31,     June 30,     December 31,  
Current liabilities   2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
                         
Other financial liabilities, current     85,759       94,199       431,739       141,992  
Chilean peso     56,129       54,655       57,732       52,892  
U.S. dollar     29,630       39,544       374,007       89,100  
                                 
Trade and other accounts payables, current     696,827       575,967       21,238       19,261  
Argentine peso     21,104       20,772       1,371       2,072  
Brazilian real     50,066       37,572       3       16  
Chilean peso     3,909       40,219       11,487       10,951  
Colombian peso     6,619       5,271       217       155  
Euro     23,279       5,275       11       618  
U.S. dollar     436,077       310,565       186       839  
Strong bolivar     539       2,627       -       -  
Other currency     155,234       153,666       7,963       4,610  
                                 
Accounts payable to related entities, current     132       447       -       -  
Chilean peso     82       83       -       -  
U.S. dollar     -       22       -       -  
Other currency     50       342       -       -  
                                 
Other provisions, current     -       -       507       460  
Chilean peso     -       -       24       24  
Other currency     -       -       483       436  
                                 
Tax liabilities, current     921       36       10,601       9,037  
Argentine peso     910       -       10,601       9,036  
U.S. dollar     -       27       -       -  
Other currency     11       9       -       1  

 

  99  

 

 

    Up to 90 days     91 days to 1 year  
    As of     As of     As of     As of  
    June 30,     December 31,     June 30,     December 31,  
Current liabilities   2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited        
                         
Other non-financial liabilities, current     45,224       40,431       -       1  
Argentine peso     7,162       (2,387 )     -       -  
Brazilian real     3,909       4,292       -       5  
Chilean peso     35,721       32,228       -       -  
Colombian peso     898       145       -       -  
Euro     986       2,706       -       -  
U.S. dollar     559       (3,233 )     -       (5 )
Strong bolivar     (108 )     2,490       -       -  
Other currency     (3,903 )     4,190       -       1  
                                 
Total current liabilities     828,863       711,080       464,085       170,751  
Argentine peso     29,176       18,385       11,972       11,108  
Brazilian real     53,975       41,864       3       21  
Chilean peso     95,841       127,185       69,243       63,867  
Colombian peso     7,517       5,416       217       155  
Euro     24,265       7,981       11       618  
U.S. dollar     466,266       346,925       374,193       89,934  
Strong bolivar     431       5,117       -       -  
Other currency     151,392       158,207       8,446       5,048  

 

  100  

 

  

    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   June 30,     December 31,     June 30,     December 31,     June 30,     December 31,  
    2016     2015     2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited           Unaudited           Unaudited        
                                     
Other financial liabilities, non-current     208,809       561,217       780,724       328,480       48,577       571,804  
Chilean peso     86,578       104,385       27,003       34,635       -       -  
U.S. dollar     122,231       456,832       753,721       293,845       48,577       571,804  
                                                 
Accounts payable, non-current     214,094       239,029       266       168       19       8  
Chilean peso     8,970       8,058       266       168       19       8  
U.S. dollar     203,680       229,005       -       -       -       -  
Other currency     1,444       1,966       -       -       -       -  
                                                 
Other provisions, non-current     35,574       27,712       -       -       67       68  
Argentine peso     643       797       -       -       -       -  
Brazillian real     18,666       11,009       -       -       -       -  
Chilean peso     38       -       -       -       -       -  
Colombian peso     389       198       -       -       -       -  
Euro     9,097       8,966       -       -       -       -  
U.S. dollar     6,741       6,742       -       -       67       68  
                                                 
Provisions for employees benefits, non-current     66,391       56,306       -       -       -       -  
Chilean peso     66,391       56,306       -       -       -       -  
                                                 
Other non-financial liabilities, non-current     2       -       -       -       -       -  
Colombian peso     2       -       -       -       -       -  
                                                 
Total non-current liabilities     524,870       884,264       780,990       328,648       48,663       571,880  
Argentine peso     643       797       -       -       -       -  
Brazilian real     18,666       11,009       -       -       -       -  
Chilean peso     161,977       168,749       27,269       34,803       19       8  
Colombian peso     391       198       -       -       -       -  
Euro     9,097       8,966       -       -       -       -  
U.S. dollar     332,652       692,579       753,721       293,845       48,644       571,872  
Other currency     1,444       1,966       -       -       -       -  

  

  101  

 

 

    As of     As of  
General summary of foreign currency:   June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
             
Total assets     761,722       795,408  
Argentine peso     108,034       168,047  
Brazilian real     72,861       42,533  
Chilean peso     129,264       91,862  
Colombian peso     5,718       6,450  
Euro     47,627       66,475  
U.S. dollar     274,490       266,068  
Strong bolivar     730       10,233  
Other currency     122,998       143,740  
                 
Total liabilities     2,647,471       2,666,623  
Argentine peso     41,791       30,290  
Brazilian real     72,644       52,894  
Chilean peso     354,349       394,612  
Colombian peso     8,125       5,769  
Euro     33,373       17,565  
U.S. dollar     1,975,476       1,995,155  
Strong bolivar     431       5,117  
Other currency     161,282       165,221  
                 
Net position                
Argentine peso     66,243       137,757  
Brazilian real     217       (10,361 )
Chilean peso     (225,085 )     (302,750 )
Colombian peso     (2,407 )     681  
Euro     14,254       48,910  
U.S. dollar     (1,700,986 )     (1,729,087 )
Strong bolivar     299       5,116  
Other currency     (38,284 )     (21,481 )

 

  102  

 

 

(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 June 30, 2016 and 2015, generated a debit of ThUS$ 143,408 and a charge ThUS$ 169,222, respectively. In the second quarter of 2016 and 2015 generated a debit of ThUS$ 75,510 and ThUS$ 35,355 respectively.

 

Exchange differences recognized in equity as reserves for currency translation differences for the period ended June 30, 2016 and 2015, represented a debit of ThUS$ 549,062 and a charge ThUS$ 660,084, respectively. In the second quarter of 2016 and 2015 generated a debit of ThUS$ 304,086 and ThUS$ 66,656 respectively.

 

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

 

    As of     As of  
    June 30,     December 31,  
    2016     2015  
    Unaudited        
             
Argentine peso     15.04       12.97  
Brazilian real     3.20       3.98  
Chilean peso     661.37       710.16  
Colombian peso     2,919.16       3,183.00  
Euro     0.90       0.92  
Strong bolivar     628.34       198.70  
Australian dollar     1.34       1.37  
Boliviano     6.86       6.85  
Mexican peso     18.25       17.34  
New Zealand dollar     1.40       1.46  
Peruvian Sol     3.29       3.41  
Uruguayan peso     30.55       29.88  

  

  103  

 

 

NOTE 30 - EARNINGS / (LOSS) PER SHARE

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
  2016     2015     2016     2015  
    Unaudited  
Basic earnings / (loss) per share                                
Earnings / (loss) attributable to owners of the parent (ThUS$)     10,133       (89,674 )     (92,075 )     (49,727 )
                                 
Weighted average number of shares, basic     545,547,819       545,547,819       545,547,819       545,547,819  
                                 
Basic earnings / (loss) per share (US$)     0.01857       (0.16437 )     (0.16878 )     (0.09115 )

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
  2015     2014     2015     2014  
    Unaudited  
Diluted earnings / (loss) per share                                
Earnings / (loss) attributable to owners of the parent (ThUS$)     10,133       (89,674 )     (92,075 )     (49,727 )
                                 
Weighted average number of shares, basic     545,547,819       545,547,819       545,547,819       545,547,819  
                                 
Weighted average number of shares, diluted     545,547,819       545,547,819       545,547,819       545,547,819  
                                 
Diluted earnings / (loss) per share (US$)     0.01857       (0.16437 )     (0.16878 )     (0.09115 )

 

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. 

 

  104  

 

 

NOTE 31 – CONTINGENCIES

 

Lawsuits

 

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

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     

Atlantic Aviation Investments

LLC (AAI).

  Supreme Court of the State of New York County of New York.   07-6022920   Atlantic Aviation Investments LLC. ("AAI"), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 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. In Brazil a Settlement Agreement was signed and it is awaiting for approval from the Bankruptcy Court of that country and Variglog 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-

 

  105  

 

 

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

  

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     
LATAM Airlines Group S.A. y Lan Cargo S.A.   European Commission.   -   Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 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 THUS$ 9,097. (8.220.000 Euros)

 

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 resolution, but rather confirmed, on May 20, 2016, that it will issue a new decision curing the rulings specified in the Decision. It has a period of 5 years to do this, or until 2021.

  9,097
                     
  106  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     
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: ThUS$10,598; (ii) Norberto Jochmann: ThUS$204; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. 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.    10,598
                     

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. 11,311

 

  107  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     

Tam Linhas

Aéreas S.A.

 

 

 

Department of Federal Revenue of Brazil

 

  19515.721155/2014-15   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.

 

  25,805
                     

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$74.

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.

  91,865
                     

Tam Linhas

Aéreas S.A.

  Internal Revenue Service of Brazil.   16643.000087/2009-36   This is an administrative proceeding arising from an infraction notice issued on 15.12.2009, by which the authority aims to request social contribution on net income (CSL) on base periods 2004 to 2007, due to the deduction of expenses related to suspended taxes.   The appeal filed by the company was dismissed in 2010. In 2012 the voluntary appeal was also dismissed. Consequently, the special appeal filed by the company awaits judgment of admissibility, since 2012.  

22,567

 

                     

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.   44,007

 

  108  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     
Aerovías de Integración Regional,                AIRES S.A.   United States  Court of Appeals for the Eleventh Circuit, Florida, U.S.A.   2013-20319 CA 01  

The July 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 in the Judge’s chambers in Bogota on December 7, 2015.  The prior motions made by the two defendants were dismissed by an interim ruling rendered April 20, 2016. At this time, the proceedings are pending presentation to the Judge in his chambers in Bogota so that they can continue and a hearing can be convened.  The Federal Court in the State of Florida, U.S.A., ruled on March 26 th , 2014 and approved the request from LAN AIRLINES COLOMBIA to suspend the process in the U.S. as the claim 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 U.S. court reopen the case.  Lan Colombia Airlines presented its arguments against this petition, which included the official translation of the interim ruling by the Colombian Court rendered April 20, 2016.  A decision by the U.S. court is pending.   12,443

 

  109  

 

 

Company   Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     

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 first-instance ruling was rendered on June 1, 2016 that was partially favorable.  The separate fine was revoked.   12,810
                     

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.   91,001
                     

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. The company won in the first instance, but an appeal by the Union is expected.   16,358
                     
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)

106,027

 

 

  110  

 

 


Company 		  Court   Case Number   Origin   Stage of trial  

Amounts

Committed (*)

                    ThUS$
                     
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. ThUS$4.770 in cash was deposited in guarantee.

 

  11,063
                     

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 damag   Trial in initial stage and in negotiation  process with the Union.   16,616
                     
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..

 

  Federal Revenue Bureau of Brazil   19515.720476/2015-83  

An administrative proceeding by the Federal Revenue Bureau for alleged irregularities in TAM’s accident insurance (SAT) payments.

 

The objection to the ruling of infringement, filed July 7, 2015, was judged improper and that ruling was upheld by the Tax Court (DRJ) on April 12, 2016. We have filed an appeal that is pending hearing. 

  53,220

 

- In order to deal with any financial obligations arising from legal proceedings in effect at June 30, 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 21.

 

- 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.

 

  111  

 

 

Governmental Investigations (1)

 

- On July 25, 2016, LATAM reached agreements with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) regarding the investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a consultant advising it in the resolution of labor matters in Argentina. The agreements are effective July 25, 2016.

 

(1) See more information in Note 20 Trade and other accounts payables and in Note 37 Events subsequent to the date of the financial statements.

  

NOTE 32 - 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.

 

On March 30, 2016, LATAM structured a Revolving Credit Facility granted by with aircraft, engines, spare parts and supplies for a total amount available of US$ 275 million. On May 12, 2016 the line was increase in US$ 50 million. This line includes restrictions minimum liquidity level as the consolidated company and individual level as for companies LATAM Airlines Group S.A. and TAM Linhas Aereas S.A.

 

At June 30, 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").

 

At June 30, 2016 the total amount available was used to finance news aircrafts received by LATAM.

 

  112  

 

 

(b) Commitments under operating leases as lessee

 

Details of the main operating leases are as follows:

 

        As of     As of  
        June 30,     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 Tritón A.I.E.   Airbus A319     3       3  
Avolon Aerospace AOE 19 Limited   Airbus A320     1       1  
Avolon Aerospace AOE 20 Limited   Airbus A320     1       1  
Avolon Aerospace AOE 6 Limited   Airbus A320     1       1  
Avolon Aerospace AOE 62 Limited   Boeing 777     1       1  
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     2       3  
GFL Aircraft Leasing Netherlands B.V.   Airbus A320     1       1  
International Lease Finance Corporation   Boeing 767     -       1  
JSA Aircraft 38484, LLC   Boeing 787     1       1  
JSA Aircraft 7128, LLC   Airbus A321     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  

  

  113  

 

  

        As of     As of  
        June 30,     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     4       2  
PAAL Aquila Company Limited   Airbus A321     1       -  
PAAL Aquila Company Limited   Airbus A321     1       -  
SASOF II (J) Aviation Ireland Limited   Airbus A319     1       1  
Shenton Aircraft Leasing Limited   Airbus A320     1       1  
SKY HIGH V LEASING COMPANY LIMITED   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  
TC-CIT Aviation Ireland Limited   Airbus A320     1       1  
Volito Aviation August 2007 AB   Airbus A320     2       2  
Volito Aviation November 2006 AB   Airbus A320     2       2  
Volito November 2006 AB   Airbus A320     2       2  
Wells Fargo Bank North National Association   Airbus A319     3       3  
Wells Fargo Bank North National Association   Airbus A320     2       2  
Wells Fargo Bank Northwest National Association   Airbus A320     8       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     11       7  
Wilmington Trust Company   Airbus A319     1       1  
Total         110       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  
    June 30,     December 31,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited        
             
No later than one year     517,577       513,748  
Between one and five years     1,341,440       1,281,454  
Over five years     1,101,073       858,095  
Total     2,960,090       2,653,297  

  

  114  

 

 

The minimum lease payments charged to income are the following:

 

    For the 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
                                 
Minimum operating lease payments     272,157       257,691       138,554       128,793  
                                 
Total     272,157       257,691       138,554       128,793  

  

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. In the second quarter of 2016, three Airbus A321-200 aircraft were leased for a period of ten years each and two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, one Airbus A320-200 aircraft and one Boeing 767-300ER aircraft were returned.

 

The operating lease agreements signed by the Company and its subsidiaries state that maintenance of the aircraft should be done according to the manufacturer’s technical instructions and within the 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 June 30, 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   LATAM Airlines Group S.A.   Nine letter of credit     37,178     Sep 14, 2016
International Lease Finance Corp   LATAM Airlines Group S.A.   Four letter of credit     1,700     Oct 12, 2016
ORIX Aviation System Limited   LATAM Airlines Group S.A.   One letter of credit     3,255     Aug 31, 2016
Wells Fargo Bank   LATAM Airlines Group S.A.   Nine letter of credit     15,160     Sep 30, 2016
SMBC Aviation Capital Ltd.   LATAM Airlines Group S.A.   Two letter of credit     11,133     Aug 14, 2016
Engine Lease Finance Corporation   LATAM Airlines Group S.A.   One letter of credit     4,750     Sep 8, 2016
Banc of America   LATAM Airlines Group S.A.   Three letter of credit     1,044     Sep 6, 2016
Wells Fargo Bank   LAN Cargo S.A.   One letter of credit     5,000     May 25, 2017
Wells Fargo Bank   Tam Linhas Aéreas S.A.   One letter of credit     5,500     Jul 14, 2016
CIT Aerospace International   Tam Linhas Aéreas S.A.   Three letter of credit     12,375     Oct 6, 2016
RBS Aerospace Limited   Tam Linhas Aéreas S.A.   One letter of credit     12,357     Oct 2, 2016
              116,982      

  

  115  

 

  

(c) Other commitments

 

At June 30, 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.   Six letter of credit     3,490     Apr 5, 2017
Deutsche Bank A.G.   LATAM Airlines Group S.A.   Two letter of credit     40,000     Jul 28, 2016
                     
Dirección General de Aeronáutica Civil   LATAM Airlines Group S.A.   Forty-seven letter of credit     17,537     Aug 1, 2016
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador   LATAM Airlines Group S.A.   One letter of credit     5,500     Jun 17, 2017
Metropolitan Dade County   LATAM Airlines Group S.A.   Ten letter of credit     2,521     Sep 28, 2016
The Royal Bank of Scotland plc   LATAM Airlines Group S.A.   One letter of credit     5,000     May 20, 2017
JP Morgan Chase   LATAM Airlines Group S.A.   One letter of credit     10,000     Jun 17, 2017
4ª Vara Mista de Bayeux   Tam Linhas Aéreas S.A.   One insurance policies guarantee     1,076     Mar 25, 2021
6ª Vara Federal da Subseção   Tam Linhas Aéreas S.A.   One insurance policies guarantee     11,157     Jan 4, 2018
8ª Vara Federal da Subseção de Campinas SP   Tam Linhas Aéreas S.A.   One insurance policies guarantee     13,092     May 19, 2020
Conselho Administrativo de Conselhos Federais   Tam Linhas Aéreas S.A.   One insurance policies guarantee     6,807     Oct 20, 2021
Fundação de Proteão de Defesa do Consumidor Procon   Tam Linhas Aéreas S.A.   Two insurance policies guarantee     3,327     Jan 21, 2021
União Federal Vara Comarca de SP   Tam Linhas Aéreas S.A.   One insurance policies guarantee     19,858     Feb 22, 2021
União Federal Vara Comarca de DF   Tam Linhas Aéreas S.A.   Two insurance policies guarantee     2,737     Nov 9, 2020
              144,267      

 

  116  

 

 

NOTE 33 - 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 June 30,  
Tax 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       3  
                                     
65.216.000-K   Comunidad Mujer   Related director   Chile   Tickets sales   CLP     5       -  
                Services provided for advertising   CLP     (12 )     (11 )
                                     
78.591.370-1   Bethia S.A and subsidiaries   Related director   Chile   Load transport services received   CLP     (525 )     (1,072 )
                Services received from National and International Courier   CLP     (286 )     (121 )
                    US$     (11 )     -  
                Services provided cargo transport   CLP     949       992  
                                     
65.216.000-K   Viajes Falabella Ltda.   Related director   Chile   Sales commissions incurred   CLP     (367 )     -  
79.773.440-3   Transportes San Felipe S.A   Common property   Chile   Shuttle services received passenger   CLP     (57 )     (48 )
87.752.000-5   Granja Marina Tornagaleones S.A.   Common shareholder   Chile   Revenue from services   CLP     47       69  
Foreign   Consultoría Administrativa Profesional S.A. de C.V.   Associate   Mexico   Professional counseling services received   MXN     (1,246 )     -  
Foreign   Inversora Aeronáutica Argentina   Related director   Argentina   Leases as lessee   US$     (134 )     (134 )
                Revenue from services   ARS     -       2  
                                     
Foreign   TAM Aviação Executiva e Taxi Aéreo S/A   Principal shareholder of the common matrix   Brazil   Services provided   BRL     12       -  
                Services received   BRL     (69 )     -  

 

  117  

 

 

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 6 months ended     For the 3 months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    ThUS$     ThUS$     ThUS$     ThUS$  
    Unaudited  
Remuneration     8,908       8,558       4,264       4,084  
Management fees     246       278       180       114  
Non-monetary benefits     414       360       283       169  
Short-term benefits     15,054       10,152       4,447       5,304  
Share-based payments     2,988       5,280       1,494       2,640  
Total     27,610       24,628       10,668       12,311  

 

NOTE 34 - 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.

 

  118  

 

 

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

 

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

 

    Number  
    of share  
    options  
       
Share options in agreements of share- based payments, as of January 1, 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 June 30, 2016     -  
Share options in agreements of share- based payments, as of June 30, 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 June 2016 corresponds to ThUS$ 2,989 (ThUS$ 5,280 at June 30, 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 June 30, 2015 (Unaudited)   US$ 15,47     US$ 18,29       34.74 %   3.6 years     0 %     0.00696  
As of June 30, 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:

 

  119  

 

 

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 June 30, 2016, which amounted to 96,675 shares and 417,539 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 June 30, 2015 (Unaudited)     96,675       96,675  
Outstanding option number As June 30, 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 June 30, 2015 (Unaudited)     3,796       115,298       269,241       205,575       593,910  
Outstanding option number As June 30, 2016 (Unaudited)     -       84,249       173,399       159,891       417,539  

   

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.

 

  120  

 

 

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  
    June 30,     December 31,     June 30,     December 31,  
Company   2016     2015     2016     2015  
    Unaudited           Unaudited        
TAM Linhas Aéreas S.A.     -       -       96,675       96,675  
Multiplus S.A.     -       -       417,539       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 June 30, 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.

 

  121  

 

 

    Number  
    shares in  
    circulation  
       
As of January 1, 2015     91,103  
No movement at June 30, 2015     -  
As of June 30, 2015 (Unaudited)     91,103  
As of July 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  
Exercised     (15,811 )
Not acquired due to breach of employment retention conditions     (42,944 )
As of June 30, 2016 (Unaudited)     255,437  

 

NOTE 35 - STATEMENT OF CASH FLOWS

 

(a)            The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 17 letter (d), additional information in numeral (iv) Financial leases.

 

(b)           Other inflows (outflows) of cash:

 

    For the periods ended  
    June 30,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Bank cmmissions, taxes paid and other     546       5,550  
Vale vista refounds     50       -  
Change reservation systems     -       10,723  
Tax paid on bank transaction     (4,180 )     -  
Hedging margin guarantees     (4,195 )     91,651  
Fuel derivatives premiums     (4,529 )     (9,942 )
Currency hedge     (10,496 )     (12,717 )
Guarantees     (12,135 )     (2,709 )
Fuel hedge     (33,208 )     (176,435 )
Total Other inflows (outflows) Operation flow     (68,147 )     (93,879 )
Recovery loans convertible into shares     -       20,000  
Certificate of bank deposits     -       3,671  
Tax paid on bank transaction     (2,056 )     -  
Total Other inflows (outflows) Investment flow     (2,056 )     23,671  
                 
Credit card loan manager     -       1,912  
Early redemption of bonds TAM 2020     -       (15,328 )
Settlement of derivative contracts     (14,027 )     (19,013 )
Aircraft Financing advances     (151,363 )     58,148  
Others     -       (1,556 )
Total Other inflows (outflows) Financing flow     (165,390 )     24,163  

 

  122  

 

 

(c) Dividends:

 

    For the periods ended  
    June 30,  
    2016     2015  
    ThUS$     ThUS$  
    Unaudited  
Multiplus S.A     (19,399 )     (17,436 )
Lan Perú S.A     (400 )     (400 )
Total dividends paid (*)     (19,799 )     (17,836 )

 

(*) Dividends paid to minority shareholders

 

NOTE 36 - 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.

 

  123  

 

 

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. Achieving certification Environmental Management System ISO 14001 at its facility in Miami in the second quarter of 2015.
- 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.
- Answer to the DJSI 2016 questionnaire, which the company responds annually.
- Measurement and external verification of the Corporate Carbon Footprint.

 

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

 

NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS

 

- On July 12, 2016 LATAM Airlines Group S.A. and Qatar Airways, entered into a subscription agreement providing for Qatar Airways to acquire up to 10% of LATAM's total shares, which will be acquired in connection with a capital increase. As provided for in the subscription agreement, LATAM Airlines Group will hold an Extraordinary Shareholders Meeting on August 18, 2017 to propose a capital increase in the amount of US$613 million through the issuance of 61,316,424 new shares at a price of US$10 per share.

 

- As part of the discontinuance of the Brazilian depositary program BDRS receipts level III ("BDRs"), reported by the Company through several essential facts, on July 25, 2016, the Comissão de Valores Mobiliários of Brazil ("CVM") confirmed the deregistration of LATAM.

 

- On July 25, 2016 LATAM reached agreements with the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") both authorities of the United States of America, in force as of this date, regarding the investigation on payments by LAN Airlines S.A. ("LAN") totaling US$1,150,000 made in 2006-2007 to a consultant who advised on the resolution of labor matters in Argentina.

 

The purpose of the investigation was to ascertain whether such payments violated the anticorruption law of the United States of America (“FCPA”), which: (i) prohibits the payment of bribes to foreign government officials for the purpose of obtaining a commercial advantage; and (ii) requires the companies bound by such law to make and keep adequate accounting records, as well as to maintain an adequate system of internal controls. The FCPA applies to LATAM because of the ADR program that it has in place in the American Securities market.

 

  124  

 

 

After an exhaustive investigation, the DOJ and SEC concluded that there was no violation of the rules of the FCPA that prohibit the payment of bribes, which is consistent with the results of LATAM’s internal investigations. However, the DOJ and the SEC have deemed that LAN incorrectly recorded the aforementioned payments in its accounting and, consequently, violated the part of the FCPA that requires companies to make and keep accurate accounting records. The above-cited authorities have also deemed that LAN´s internal controls existing in the years 2006-2007 were deficient, for which reason LAN has additionally violated the rules of the FCPA that require maintaining an adequate system of internal controls

 

The agreements, mainly contemplate the following:

 

(a) With regard to the DOJ, the agreement considers primarily: (i) entering into a contract called a Deferred Prosecution Agreement (“DPA”), which is a public contract by which the DOJ publicly filed charges alleging a violation of the FCPA’s accounting provisions; LATAM is not required to respond to those charges and DOJ does not pursue those charges for a period of 3 years, and the DOJ would dismiss the charges after the expiration of such period, assuming that LATAM complied with all terms of the DPA; this would be in exchange for LATAM having admitted a series of facts described in the DPA and agreeing to pay the negotiated fine referred to below and other conditions stated in such agreement; (ii) clauses by which LATAM admitted that the accounting for the payments made to the consultant in Argentina was incorrect and that, at the time that such payments were made (2006-2007), it lacked adequate internal controls; (iii) LATAM’s acceptance of an independent consultant, for 27 months, whose function would be to monitor, evaluate, and report to the DOJ on the effectiveness of LATAM’s compliance program, and also LATAM’s acceptance of continuing, for 9 months after the work of the independent consultant is finished, to evaluate and report to the DOJ, this time on its own, on the effectiveness of the aforementioned compliance program; and (iv) paying a fine of $12,750,000,

 

(b) With regard to the SEC, the agreement considered primarily: (i) entering into an agreement which contains a Cease and Desist Order, which is a SEC administrative order closing the investigation by which LATAM accepts certain obligations and statements of facts, described in the document; (ii) the same obligations related to the monitor referred above; and (iii) paying an amount of US$ 6,743,932 plus interests of US$ 2.693.856

 

Subsequent at June 30, 2016 until the date of issuance of these financial statements, there is no knowledge of other financial facts or otherwise, that could significantly affect the balances or interpretation thereof.

 

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at June 30, 2016, have been approved by the Board of Director’s in an extraordinary meeting held on 11, 2016.

 

  125  

 

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: August 11, 2016     LATAM AIRLINES GROUP S.A.
    By:  

/s/ Enrique Cueto

    Name:   Enrique Cueto
    Title:   Latam Airlines Group CEO

 

 

126

 

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.