Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2012.
Commission File Number 1-14728
Lan Airlines S.A.
(Translation of registrant’s name into English)
Presidente Riesco 5711, 20th floor
Las Condes
Santiago, Chile
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
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 the Consolidated Financial Statements
CLP | - | CHILEAN PESO | ||
ARS | - | ARGENTINE PESO | ||
US$ | - | UNITED STATES DOLLAR | ||
THUS$ | - | THOUSANDS OF UNITED STATES DOLLARS | ||
COP | - | COLOMBIAN PESO |
Table of Contents
Contents of the notes to the consolidated financial statements of Lan Airlines S.A. and Subsidiaries.
Notes | Page | |||
1 | ||||
6 | ||||
2.1. Preparation | 6 | |||
2.2. Consolidation | 8 | |||
9 | ||||
10 | ||||
2.5. Intangible assets | 10 | |||
2.6. Goodwill | 11 | |||
2.7. Borrowing costs | 11 | |||
11 | ||||
2.9. Financial assets | 11 | |||
2.10. Derivative financial instruments and hedging activities | 12 | |||
2.11. Inventories | 13 | |||
13 | ||||
14 | ||||
2.14. Capital | 14 | |||
14 | ||||
2.16. Interest-bearing loans | 14 | |||
2.17. 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. Environment costs | 17 | |||
18 | ||||
18 | ||||
25 | ||||
26 | ||||
28 | ||||
29 | ||||
31 | ||||
33 | ||||
33 | ||||
35 | ||||
8 Trade, other accounts receivable and non-current accounts receivable | 37 | |||
40 | ||||
10 Inventories | 42 | |||
43 | ||||
45 | ||||
13 Non-current assets (or disposal groups) classified as held for sale | 47 | |||
48 | ||||
51 |
Table of Contents
Notes | Page | |||
53 | ||||
17 Goodwill | 55 | |||
56 | ||||
19 Income taxes | 66 | |||
74 | ||||
81 | ||||
83 | ||||
86 | ||||
87 | ||||
89 | ||||
26 Equity | 91 | |||
27 Revenue | 97 | |||
98 | ||||
29 Gains (losses) on the sale of non-current assets not classified as held for sale | 100 | |||
101 | ||||
102 | ||||
109 | ||||
110 | ||||
34 Commitments | 117 | |||
121 | ||||
124 | ||||
125 | ||||
126 | ||||
128 |
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
| ||||||||||
As of | As of | |||||||||
March 31, | December 31, | |||||||||
Note | 2012 | 2011 | ||||||||
ThUS$ | ThUS$ | |||||||||
Current Assets | ||||||||||
Cash and cash equivalents | 6 - 7 | 176,569 | 374,407 | |||||||
Other financial assets | 7 - 11 | 219,464 | 227,803 | |||||||
Other non-financial assets | 12 | 43,649 | 32,711 | |||||||
Trade and other accounts receivable | 7 - 8 | 542,393 | 531,355 | |||||||
Accounts receivable from related entities | 7 - 9 | 851 | 838 | |||||||
Inventories | 10 | 85,607 | 72,787 | |||||||
Tax assets | 113,982 | 98,789 | ||||||||
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|
| |||||||
Total current assets other than non-current assets | ||||||||||
(or disposal groups) classified as held for sale | 1,182,515 | 1,338,690 | ||||||||
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|
|
| |||||||
Non-current assets (or disposal groups) classified as held for sale | 13 | 9,729 | 4,661 | |||||||
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|
|
| |||||||
Total current assets | 1,192,244 | 1,343,351 | ||||||||
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|
| |||||||
Non-current Assets | ||||||||||
Other financial assets | 7 - 11 | 25,721 | 21,833 | |||||||
Other non-financial assets | 12 | 15,413 | 15,205 | |||||||
Accounts receivable | 7 - 8 | 7,073 | 7,491 | |||||||
Equity accounted investments | 15 | 615 | 991 | |||||||
Intangible assets other than goodwill | 16 | 71,131 | 64,923 | |||||||
Goodwill | 17 | 172,178 | 163,777 | |||||||
Property, plant and equipment | 18 | 6,089,697 | 5,927,982 | |||||||
Current tax assets, noncurrent | 41,944 | 42,958 | ||||||||
Deferred tax assets | 19 | 72,006 | 60,148 | |||||||
|
|
|
| |||||||
Total non-current assets | 6,495,778 | 6,305,308 | ||||||||
|
|
|
| |||||||
Total assets | 7,688,022 | 7,648,659 | ||||||||
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|
|
|
The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
LIABILITIES AND EQUITY | ||||||||||
As of | As of | |||||||||
March 31, | December 31, | |||||||||
Note | 2012 | 2011 | ||||||||
LIABILITIES | ThUS$ | ThUS$ | ||||||||
Current liabilities | ||||||||||
Other financial liabilities | 7 - 20 | 606,814 | 582,257 | |||||||
Trade and other accounts payables | 7 - 21 | 648,137 | 645,086 | |||||||
Accounts payable to related entities | 7 - 9 | 239 | 367 | |||||||
Other provisions | 22 | 7,361 | 7,363 | |||||||
Tax liabilities | 40,774 | 29,369 | ||||||||
Other non-financial liabilities | 23 | 932,248 | 1,057,637 | |||||||
|
|
|
| |||||||
Total current liabilities | 2,235,573 | 2,322,079 | ||||||||
|
|
|
| |||||||
Non-current liabilities | ||||||||||
Other financial liabilities | 7 - 20 | 3,150,376 | 3,109,136 | |||||||
Accounts payable | 7 - 25 | 338,339 | 354,930 | |||||||
Other provisions | 22 | 22,891 | 22,385 | |||||||
Deferred tax liabilities | 19 | 396,401 | 369,625 | |||||||
Employee benefits | 24 | 16,015 | 13,132 | |||||||
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|
| |||||||
Total non-current liabilities | 3,924,022 | 3,869,208 | ||||||||
|
|
|
| |||||||
Total liabilities | 6,159,595 | 6,191,287 | ||||||||
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| |||||||
EQUITY | ||||||||||
Share capital | 26 | 484,133 | 473,907 | |||||||
Retained earnings | 26 | 1,169,997 | 1,116,798 | |||||||
Treasury Shares | (203) | - - | ||||||||
Other reserves | 26 | (134,847) | (145,381) | |||||||
|
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|
| |||||||
Parents ownership interest | 1,519,080 | 1,445,324 | ||||||||
Non-controlling interest | 9,347 | 12,048 | ||||||||
|
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|
| |||||||
Total equity | 1,528,427 | 1,457,372 | ||||||||
|
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|
| |||||||
Total liabilities and equity | 7,688,022 | 7,648,659 | ||||||||
|
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|
|
The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION
For the periods ended | ||||||||||
March 31, | ||||||||||
Note | 2012 | 2011 | ||||||||
ThUS$ | ThUS$ | |||||||||
Revenue | 27 | 1,506,117 | 1,324,258 | |||||||
Cost of sales | (1,119,399) | (951,704) | ||||||||
|
|
|
| |||||||
Gross margin | 386,718 | 372,554 | ||||||||
|
|
|
| |||||||
Other income | 30 | 30,565 | 40,616 | |||||||
Distribution costs | (137,324) | (115,778) | ||||||||
Administrative expenses | (105,976) | (89,518) | ||||||||
Other expenses | (62,769) | (54,586) | ||||||||
Other gains/(losses) | 1,943 | (3,224) | ||||||||
|
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|
| |||||||
Gains (losses) from operating activities | 113,157 | 150,064 | ||||||||
|
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| |||||||
Financial income | 3,511 | 5,607 | ||||||||
Financial costs | 28 | (36,700) | (35,913) | |||||||
Equity accounted earnings | 15 | (383) | (53) | |||||||
Foreign exchange gains/(losses) | 31 | 8,299 | (2,128) | |||||||
Result of indexation units | 2 | 15 | ||||||||
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| |||||||
Income before taxes | 87,886 | 117,592 | ||||||||
Income tax expense | (14,483) | (20,231) | ||||||||
19 | ||||||||||
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|
|
| |||||||
NET INCOME FOR THE PERIOD | 73,403 | 97,361 | ||||||||
|
|
|
| |||||||
Income attributable to owners of the parent | 76,067 | 97,235 | ||||||||
Income attributable to non-controlling interest | (2,664) | 126 | ||||||||
|
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| |||||||
Net income for the period | 73,403 | 97,361 | ||||||||
|
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| |||||||
EARNINGS PER SHARE | ||||||||||
Basic earnings per share (US$) | 32 | 0.22326 | 0.28656 | |||||||
Diluted earnings per share (US$) | 32 | 0.22326 | 0.28591 |
The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the periods ended | ||||||||||
March 31, | ||||||||||
Note | 2012 | 2011 | ||||||||
ThUS$ | ThUS$ | |||||||||
NET INCOME | 73,403 | 97,361 | ||||||||
Components of other comprehensive income, before taxes | ||||||||||
Currency translation differences | ||||||||||
Gains (losses) on currency translation, before tax | 31 | 11,379 | 246 | |||||||
|
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|
| |||||||
Other comprehensive income, before taxes, currency translation differences | 11,379 | 246 | ||||||||
|
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|
| |||||||
Cash flow hedges | ||||||||||
Gains (losses) on cash flow hedges before tax | 20 | 1,207 | 26,849 | |||||||
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| |||||||
Other comprehensive income, before taxes, cash flow hedges | 1,207 | 26,849 | ||||||||
Other components of other comprehensive income, before taxes | 12,586 | 27,095 | ||||||||
|
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| |||||||
Income tax relating to other comprehensive income | ||||||||||
Income tax related to currency translation differences in other comprehensive income | 19 | (1,934) | (42) | |||||||
|
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|
| |||||||
Income tax related to cash flow hedges in other comprehensive income | 19 | (205) | (4,564) | |||||||
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| |||||||
Amount of income taxes related to components of other comprehensive income | (2,139) | (4,606) | ||||||||
|
|
|
| |||||||
Other comprehensive income | 10,447 | 22,489 | ||||||||
|
|
|
| |||||||
Total comprehensive income | 83,850 | 119,850 | ||||||||
|
|
|
| |||||||
Comprehensive income attributable to owners of the parent | 86,551 | 119,558 | ||||||||
Comprehensive income attributable to non-controlling interests | (2,701) | 292 | ||||||||
|
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| |||||||
TOTAL COMPREHENSIVE INCOME | 83,850 | 119,850 | ||||||||
|
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|
|
The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||||||
Other reserves | ||||||||||||||||||||||||||||||||||||||
Note | Share capital | Treasury Shares | Other sundry reserves | Reserve for exchange on translation differences | Cash flow hedging reserve | Retained earnings | Parents ownership interest | Non- controlling interest | Total equity | |||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||||
Equity at January 1, 2012 | 473,907 | - | 8,492 | (13,317) | (140,556) | 1,116,798 | 1,445,324 | 12,048 | 1,457,372 | |||||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||||||||
Gain (losses) | 26 | - | - | - | - | - | 76,067 | 76,067 | (2,664) | 73,403 | ||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | 9,482 | 1,002 | - | 10,484 | (37) | 10,447 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total comprehensive income | - | - | - | 9,482 | 1,002 | 76,067 | 86,551 | (2,701) | 83,850 | |||||||||||||||||||||||||||||
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Transactions with shareholders | ||||||||||||||||||||||||||||||||||||||
Equity issuance | 26-36 | 10,226 | - | - | - | - | 10,226 | - | 10,226 | |||||||||||||||||||||||||||||
Dividends | 26 | - | - | - | - | - | (22,820) | (22,820) | - | (22,820) | ||||||||||||||||||||||||||||
Increase (decrease) through transactions with treasury shares | 26 | - | (203) | - | - | - | - | (203) | - | (203) | ||||||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 26-36 | - | - | 50 | - | - | (48) | 2 | - | 2 | ||||||||||||||||||||||||||||
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Total transactions with shareholders | 10,226 | (203) | 50 | - | - | (22,868) | (12,795) | - | (12,795) | |||||||||||||||||||||||||||||
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Closing balance as of March 31, 2012 | 484,133 | (203) | 8,542 | (3,835) | (139,554) | 1,169,997 | 1,519,080 | 9,347 | 1,528,427 | |||||||||||||||||||||||||||||
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The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent | ||||||||||||||||||||||||||||||||||
Other reserves | ||||||||||||||||||||||||||||||||||
Note | Share capital | Other sundry reserves | Currency translation reserve | Cash flow hedging reserve | Retained earnings | Parents ownership interest | Non- controlling interest | Total equity | ||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||
Equity at January 1, 2011 | 453,444 | 5,463 | (4,257) | (107,050) | 949,214 | 1,296,814 | 3,246 | 1,300,060 | ||||||||||||||||||||||||||
Total increase (decrease) in equity | ||||||||||||||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||||
Gain (losses) | 26 | - | - | - | - | 97,235 | 97,235 | 126 | 97,361 | |||||||||||||||||||||||||
Other comprehensive income | - | - | 38 | 22,285 | - | 22,323 | 166 | 22,489 | ||||||||||||||||||||||||||
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Total comprehensive income | - | - | 38 | 22,285 | 97,235 | 119,558 | 292 | 119,850 | ||||||||||||||||||||||||||
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Transactions with shareholders | ||||||||||||||||||||||||||||||||||
Equity issuance | 36 | 7,505 | - | - | - | - | 7,505 | - | 7,505 | |||||||||||||||||||||||||
Dividends | 26 | - | - | - | - | (29,170) | (29,170) | - | (29,170) | |||||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 26-36 | - | 937 | - | - | - | 937 | 21 | 958 | |||||||||||||||||||||||||
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Total transactions with shareholders | 7,505 | 937 | - | - | (29,170) | (20,728) | 21 | (20,707) | ||||||||||||||||||||||||||
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Closing balance as of March 31, 2011 | 460,949 | 6,400 | (4,219) | (84,765) | 1,017,279 | 1,395,644 | 3,559 | 1,399,203 | ||||||||||||||||||||||||||
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The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD
For the periods ended | ||||||||||
March 31, | ||||||||||
Note | 2012 | 2011 | ||||||||
ThUS$ | ThUS$ | |||||||||
Cash flows from operating activities | ||||||||||
Cash collection from operating activities | ||||||||||
Proceeds from sales of goods and services | 1,530,702 | 1,348,909 | ||||||||
Other cash receipts from operating activities | 17,709 | 24,864 | ||||||||
Payments for operating activities | ||||||||||
Payments to suppliers for goods and services | (1,142,832) | (1,027,691) | ||||||||
Payments to and on behalf of employees | (271,583) | (240,775) | ||||||||
Other payments for operating activities | (18,000) | (18,000) | ||||||||
Interest paid | (1,242) | (357) | ||||||||
Interest received | 4,006 | 3,260 | ||||||||
Income taxes refunded (paid) | (2,908) | (3,163) | ||||||||
Other cash inflows (outflows) | 5,140 | (854) | ||||||||
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| |||||||
Net cash flows from operating activities | 120,992 | 86,193 | ||||||||
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| |||||||
Cash flows used in investing activities | ||||||||||
Cash flows used for acquisition of subsidiaries | - | (3,541) | ||||||||
Other cash receipts from sales of equity or debt instruments of other entities | - | 4,581 | ||||||||
Amounts raised from sale of property, plant and equipment | 42 | - | ||||||||
Purchases of property, plant and equipment | (265,274) | (419,998) | ||||||||
Purchases of intangible assets | (8,739) | (2,711) | ||||||||
Interest received | 596 | 928 | ||||||||
Other cash inflows (outflows) | - | 98 | ||||||||
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| |||||||
Net cash flow used in investing activities | (273,375) | (420,643) | ||||||||
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| |||||||
Cash flows from (used in) financing activities | ||||||||||
Amounts raised from issuance of shares | 10,226 | 7,505 | ||||||||
Payments to acquire or redeem the shares of the entity | (203) | - | ||||||||
Amounts raised from long-term loans | 83,423 | 234,692 | ||||||||
Amounts raised from short-term loans | 75,000 | - | ||||||||
Loans repayments | (132,689) | (137,403) | ||||||||
Payments of finance lease liabilities | (22,416) | (10,388) | ||||||||
Dividends paid | (85,041) | (125,000) | ||||||||
Interest paid | (26,822) | (28,713) | ||||||||
Other cash inflows (outflows) | 53,085 | 48,588 | ||||||||
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| |||||||
Net cash flows from (used in) financing activities | (45,437) | (10,719) | ||||||||
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| |||||||
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change | (197,820) | (345,169) | ||||||||
Effects of variation in the exchange rate on cash and cash equivalents | (18) | 12 | ||||||||
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| |||||||
Net increase (decrease) in cash and cash equivalents | (197,838) | (345,157) | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 6 | 374,407 | 631,052 | |||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | 6 | 176,569 | 285,895 | |||||||
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The accompanying Notes 1 to 39 form an integral part of these consolidated financial statements.
Table of Contents
LAN AIRLINES S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2012
Lan Airlines S.A. (the “Company” or “LAN”) 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 Valparaíso Stock Exchange, the Chilean Electronic Exchange and the Santiago Stock Exchange; it is also quoted on the New York Stock Exchange (NYSE) 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 and Ecuador and a 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.
On August 13, 2010, LAN Airlines S.A. and TAM S.A. (TAM) announced they have signed a non-binding Memorandum of Understanding (MOU) in which the companies agree to proceed with their intention of carrying out their operations jointly under one parent company, to be named LATAM Airlines Group S.A. (“LATAM”). The proposed partnership of LAN with TAM would be within the world’s 10 largest airline groups. LATAM will provide transport services for passengers and cargo to more than 115 destinations in 23 countries, operating with a fleet of over 300 aircraft, with over 40,000 employees. Both airlines will continue operating independently with their current operating licenses and brands. Within the group, TAM will continue operating as a Brazilian company with its own structure. The current holding of LAN Airlines S.A. will operate as an independent business unit within the group. On October 20, 2010, LAN and TAM announced that the operating subsidiaries of TAM had presented the structure of the transaction to the Brazilian Civil Aviation Agency (ANAC), which was approved by this agency on March 01, 2011.
On January 18, 2011 the parties of the MOU (1) and Mrs. Maria Cláudia Oliveira Amaro, Maurício Rolim Amaro, Noemy Almeida Olivera Amaro and Joao Francisco Amaro (“Amaro Family”), as the only shareholders of TEP, signed (a) anImplementation Agreement and (b) a binding Exchange Offer Agreement (“Contracts Signed”) containing the final terms and conditions of the proposed partnership between LAN and TAM.
(1) On August 13, 2010 LAN reported as a significant matter to the Superintendency of Securities and Insurance that LAN, Costa Verde Aeronáutica S.A. and Inversiones Mineras del Cantábrico S.A. (the last two, “Cueto subsidiaries”), TAM S.A. (“TAM”) and TAM Empreendimentos e Participacoes S.A. (“TEP”) signed a non-binding Memorandum of Understanding (“MOU”) for which the primary terms were outlined.
On September 21, 2011, the Court of Defense of Free Competition (“TDLC”) approved the merger between LAN and TAM, establishing fourteen mitigation measures. On October 3, 2011, LAN and TAM filed an appeal to the Supreme Court objecting three of the mitigation measures. On April 5, 2012, the Supreme Court accepted the TLDC resolution rejecting the appeal filed by both companies.
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On December 21, 2011, the Board of LAN cited a special meeting of shareholders, citation was performed November 11, 2011, in which LAN shareholders approved, among others, the following matters:
(a) The merger of LAN with Sister Holdco S.A. and Holdco II S.A. and companies (the “Absorbed Companies”), two companies specially constituted for the purpose of the association between LAN and TAM;
(b)The change of name and the other transactions contemplated in contracts.
(c) The increase in capital by US$ 1,465,372,970.09 by issuing 147,355,882 common shares without par value of which:
(i) US$ 1,417,639,617.60 through the issue of 142,555,882 shares, which are intended to be exchanged for shares of the Absorbed Companies as a result of the proposed merger, at a rate of 0.9 new shares of LAN for each share that is fully subscribed and paid for each of the Absorbed Companies, and that belongs to shareholders other than LAN. The shares that LAN holds in the acquired companies at the time of the merger, shall have no effect;
(ii) US$ 47,733,352.49 through the issuance of 4,800,000 shares, which will go towards compensation plans for employees of the Company and its subsidiaries, as provided in Article 24 of the Corporations Law.
The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur 901, Renca.
Corporate Governance practices of the Company are set in accordance with Securities Market Law 18,045 the Corporations Law 18,046 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) with respect to the issuance of ADRs, and the Federal Republic of Brazil and the Comissão de Valores Mobiliários (“CVM”) of that country, as it pertains to the issuance of Brazilian Depositary Receipts (“BDRs”).
The Board of the Company is composed of nine members who are elected every two years by the ordinary shareholders meeting. The Board meets in regular monthly sessions and in extraordinary sessions as the corporate needs demand. Of the nine board members, three form part of its Directors’ Committee which fulfills both the role foreseen in the Corporations Law and the functions of the Audit Committee required by the Sarbanes Oxley Act 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., Inversiones Mineras del Cantábrico S.A. and Inversiones Nueva Costa Verde Aeronáutica Limitada, owns 33.84% of the shares issued by the Company, and is the controller 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 despite not meeting the majority of votes at shareholders’ meeting or having the power to elect a majority of the directors of the Company, there is a decisive influence in its administration.
As of March 31, 2012, the Company had a total of 1,667 registered shareholders, and 2.8% of the Company’s share capital was in the form of ADRs.
For the quarter ended March 31, 2012 the Company had an average of 22,029 employees, ending the period with a total of 22,161 people, with 4,224 in administration, 3,061 in maintenance, 6,266 in operations, 3,739 cabin crew, 2,017 pilots, and 2,854 in sales.
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The significant operating subsidiaries included in these consolidated financial statements are as follows:
a) As of March 31, 2012 | ||||||||||||||||||||||||||||||||||
Statement of financial position | Results for the period | |||||||||||||||||||||||||||||||||
As of March 31, 2012 | As of March 31, 2012 | ended March 31, 2012 | ||||||||||||||||||||||||||||||||
Direct | Indirect | Total | ||||||||||||||||||||||||||||||||
Country | Functional | ownership | ownership | ownership | Net | |||||||||||||||||||||||||||||
Tax No. | Company | of origin | Currency | interest | interest | interest | Assets | Liabilities | Equity | Income | ||||||||||||||||||||||||
% | % | % | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
96.518.860-6 | Lantours Division de Servicios Terrestres S.A. (*) | Chile | US$ | 99.9900 | 0.0100 | 100.0000 | 3,142 | 1,853 | 1,289 | 504 | ||||||||||||||||||||||||
96.763.900-1 | Inmobiliaria Aeronáutica S.A. | Chile | US$ | 99.0100 | 0.9900 | 100.0000 | 66,034 | 33,524 | 32,510 | 1,031 | ||||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (**) | Chile | US$ | 99.8361 | 0.1639 | 100.0000 | 509,438 | 561,310 | (52,441) | (18,202) | ||||||||||||||||||||||||
Foreign | Lan Peru S.A. | Peru | US$ | 49.0000 | 21.0000 | 70.0000 | 167,724 | 153,560 | 14,164 | 3,255 | ||||||||||||||||||||||||
Foreign | Lan Chile Investments Limited and Subsidiaries (**) | Cayman Islands | US$ | 99.9900 | 0.0100 | 100.0000 | 4,419 | 5,236 | (817) | 1 | ||||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | Chile | US$ | 99.8939 | 0.0041 | 99.8980 | 801,174 | 375,525 | 425,649 | 3,619 | ||||||||||||||||||||||||
Foreign | Connecta Corporation | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | 352 | 2,237 | (1,885) | (8) | ||||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary (**) | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | 13,369 | 20,343 | (6,974) | (994) | ||||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 347,192 | 115,471 | 231,721 | (558) | ||||||||||||||||||||||||
96.634.020-7 | Ediciones Ladeco América S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | - | 603 | (603) | - | ||||||||||||||||||||||||
Foreign | Aircraft International Leasing Limited | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | - | 2,798 | (2,798) | (4) | ||||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 27,258 | 12,409 | 14,849 | 643 | ||||||||||||||||||||||||
96.631.410-9 | Ladeco Cargo S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 404 | 10 | 394 | (1) | ||||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | Argentina | ARS | 0.0000 | 100.0000 | 100.0000 | 80 | 216 | (136) | (4) | ||||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries (**) | Bahamas | US$ | 0.0000 | 100.0000 | 100.0000 | 154,183 | 185,331 | (33,303) | (2,310) | ||||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary (**) | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 69,083 | 76,201 | (6,686) | (3,955) | ||||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries (**) | Chile | CLP | 99.7100 | 0.0000 | 99.7100 | 17,227 | 9,229 | 7,965 | 1,376 |
(*) | Comercial Masterhouse S.A., in July 2010, changed its name to Lantours División de Servicios Terrestres S.A. |
(**) | The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest. |
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b) As of December 31, 2011
Statement of financial position | Results for the period | |||||||||||||||||||||||||||||||
As of December 31, 2011 | As of December 31, 2011 | ended March 31, 2011 | ||||||||||||||||||||||||||||||
Direct | Indirect | Total | ||||||||||||||||||||||||||||||
Country | Functional | ownership | ownership | ownership | Net | |||||||||||||||||||||||||||
Tax No. | Company | of origin | Currency | interest | interest | interest | Assets | Liabilities | Equity | Income | ||||||||||||||||||||||
% | % | % | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||
96.518.860-6 | Lantours Division de Servicios Terrestres S.A. (*) | Chile | US$ | 99.9900 | 0.0100 | 100.0000 | 2,534 | 1,749 | 785 | 91 | ||||||||||||||||||||||
96.763.900-1 | Inmobiliaria Aeronáutica S.A. | Chile | US$ | 99.0100 | 0.9900 | 100.0000 | 65,580 | 34,101 | 31,479 | 990 | ||||||||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (**) | Chile | US$ | 99.8361 | 0.1639 | 100.0000 | 464,789 | 502,284 | (41,935) | (4,117) | ||||||||||||||||||||||
Foreign | Lan Peru S.A. | Peru | US$ | 49.0000 | 21.0000 | 70.0000 | 139,888 | 128,979 | 10,909 | 35 | ||||||||||||||||||||||
Foreign | Lan Chile Investments Limited and Subsidiaries (**) | Cayman Islands | US$ | 99.9900 | 0.0100 | 100.0000 | 4,420 | 5,238 | (818) | 983 | ||||||||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | Chile | US$ | 99.8939 | 0.0041 | 99.8980 | 765,829 | 343,799 | 422,030 | 6,945 | ||||||||||||||||||||||
Foreign | Connecta Corporation | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | 346 | 2,223 | (1,877) | (2) | ||||||||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidiary (**) | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | 9,965 | 15,945 | (5,980) | (253) | ||||||||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 348,943 | 116,663 | 232,280 | 11,227 | ||||||||||||||||||||||
96.634.020-7 | Ediciones Ladeco América S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | - | 566 | (566) | - | ||||||||||||||||||||||
Foreign | Aircraft International Leasing Limited | U.S.A | US$ | 0.0000 | 100.0000 | 100.0000 | - | 2,794 | (2,794) | (3) | ||||||||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 24,692 | 11,372 | 13,320 | (517) | ||||||||||||||||||||||
96.631.410-9 | Ladeco Cargo S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 380 | 8 | 372 | (1) | ||||||||||||||||||||||
Foreign | Laser Cargo S.R.L. | Argentina | ARS | 0.0000 | 100.0000 | 100.0000 | 82 | 216 | (134) | (3) | ||||||||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries (**) | Bahamas | US$ | 0.0000 | 100.0000 | 100.0000 | 162,002 | 189,614 | (30,990) | (750) | ||||||||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidiary (**) | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 67,194 | 69,671 | (2,477) | (3,391) | ||||||||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries (**) | Chile | CLP | 99.7100 | 0.0000 | 99.7100 | 14,299 | 7,821 | 6,478 | 582 |
(*) | Comercial Masterhouse S.A., in July 2010, changed its name to Lantours División de Servicios Terrestres S.A. |
(**) | The Equity reported corresponds to Equity attributable to owners of the parent, does not include non-controlling interest. |
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Additionally, the Company has proceeded to consolidate certain special purpose entities according to standards issued by the Standing Interpretations Committee of the International Accounting Standards: Consolidation - Special Purpose Entities (“SIC 12”) and private investment funds in which the parent company and subsidiaries are contributors.
All the entities controlled have been included in the consolidation.
Changes in the scope of consolidation between January 1, 2011 and March 31, 2012, are detailed below:
(1) | Incorporation or acquisition of companies |
- | AEROASIS S.A., direct subsidiary of Lan Pax Group S.A, was acquired in February 2011. (See Note 39) |
(2) Disposal of companies
- | Blue Express INTL Ltda. and subsidiary, direct subsidiary of Lan Cargo S.A., were sold according to a purchase agreement signed on April 6, 2011. |
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.
The consolidated financial statements of Lan Airlines S.A. are for the period ended March 31, 2012 and have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations.
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 consolidated interim financial statements have been prepared under IAS 34.
In order to facilitate comparison, there have been some minor reclassifications to the consolidated financial statements for the previous year.
(a) At the date of these consolidated financial statements, the following accounting pronouncements were adopted by the Company, with application effective as of January 1, 2012:
Mandatory application: | ||
annual periods | ||
Standards and amendments | beginning on or after | |
Amendment to IFRS 1: First-time adoptions | 07/01/2011 | |
Amendment to IFRS 7: Financial Instruments: Disclosures | 07/01/2011 | |
Amendment to IAS 12: Income tax | 01/01/2012 |
The adoption of the standards, amendments and interpretations described above have not had a significant impact on the Company’s consolidated financial statements.
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(b) Accounting pronouncements with applications effective as of January 1, 2013 and following:
Mandatory application: | ||
annual periods | ||
Standards and amendments | beginning on or after | |
Amendment to IAS 1: Presentation of financial statements | 07/01/2012 | |
IAS 27: Separate financial statements | 01/01/2013 | |
Amendment to IAS 28: Investments in associates and join ventures | 01/01/2013 | |
IFRS 10: Consolidated financial statements | 01/01/2013 | |
IFRS 11: Joint arrangements | 01/01/2013 | |
IFRS 12: Disclosures of interests in other entities | 01/01/2013 | |
IFRS 13: Fair value measurement | 01/01/2013 | |
Amendment to IAS 19: Employee benefits | 01/01/2013 | |
IFRS 9: Financial instruments | 01/01/2015 | |
Mandatory application: | ||
annual periods | ||
Interpretation | beginning on or after | |
IFRIC 20: Stripping costs in the production phase of mine | 01/01/2013 |
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The Company’s management believes that the adoption of the standards, amendments and interpretations described above would not have had a significant impact on the Company’s consolidated financial statements in the year of their first application. The Company has not early adopted any of the above standards.
(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 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 Company uses the acquisition-cost method or purchase accounting for the purchase of subsidiaries. The cost of acquisition is the fair value of the assets delivered, the equity instruments issued and the liabilities incurred or assumed on the exchange date. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a business combination are initially valued at their fair value on the date of acquisition, regardless of the extent of the non-controlling interests. The excess of the acquisition cost over the fair value of the Company’s holding in the net identifiable assets acquired is shown as goodwill. If the cost is less than the fair value of the net assets of the acquired subsidiary, the difference is recorded directly in the consolidated statement of income (Note 2.6).
Inter-company transactions, balances and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.
(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) Investees or associates
Investees or associates are all entities over which Lan Airlines S.A. and Subsidiaries have a significant influence but has no control, this usually arises from a holding of between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recorded at their cost.
The participation of Lan Airlines S.A. and Subsidiaries in the losses or gains after the acquisition of its investees or associates is shown in results, and its participation in post acquisition movements in reserves of investees or associates are shown in reserves.
Post-acquisition movement is adjusted against the carrying amount of the investment. When the participation of Lan Airlines S.A. and Subsidiaries in the losses of an investee or associate is equal to or more than its holding in it, including any other non guaranteed account receivable, Lan Airlines S.A. and Subsidiaries will not show the additional losses unless it has incurred obligations or made payments on behalf of the investee or associate.
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Gains or losses for dilution in investees or associates are shown in the consolidated statement of income.
2.3. | Foreign currency transactions |
(a) Presentation and functional currencies
The items included in the financial statements of each of the entities of Lan Airlines 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 Lan Airlines S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of Lan Airlines 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.
(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, |
(iii) | All the resultant exchange differences are shown as a separate component in net equity. |
In the consolidation, exchange differences arising from the translation of a net investment in foreign entities (or local with a functional currency different to that of the parent), and of loans and other foreign currency instruments designated as hedges for these investments, are recorded within net equity. When the investment is sold, these exchange differences are shown in the consolidated statement of income as part of the loss or gain on the sale.
Adjustments to the goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate.
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2.4. | Property, plant and equipment |
The land of Lan Airlines S.A. and Subsidiaries is recognized at cost less any accumulated impairment loss. The rest of the property, plant and equipment is shown, initially and subsequently, at historic cost less the corresponding depreciation and any impairment loss, except for certain land and minor equipment that are reassessed at first adoption, according to IFRS.
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 proceeds obtained with the book value and are included in the consolidated statement of income.
2.5. | Intangible assets |
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.
Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. Certain costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible assets when they have met all the criteria for capitalization. The direct costs include the expenses of the personnel who develop the computer software and other costs directly associated.
Development costs of computer software shown as assets are amortized over their estimated useful lives.
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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 on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually and when there are indications that the carrying value may not be recoverable. 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 charged to income and expenses.
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 losses. 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 subjected to a test once per year to check that there has been no reversal of the loss.
2.9. | Financial assets |
The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss, loans and accounts receivable and financial assets held to maturity. 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 as 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 acquired for trading unless they are designated as hedges. Assets in this category are classified as cash and cash equivalents, held for trading, and other financial assets, designated on initial recognition.
(b) | Loans and accounts receivable |
Loans and accounts receivable 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 accounts receivable are included in trade and other accounts receivable in the consolidated statement of financial position (Note 2.12).
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(c) Financial assets held to maturity
Financial assets held to maturity are non-derivative financial instruments with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and capacity to hold until their maturity. Should the Company sell a not-insignificant amount of the financial assets held to their maturity, the whole category is reclassified as available for sale. These financial instruments held to maturity are included in non-current assets, except for those maturity equal to or less than 12 months from the consolidated statement of financial position, which are classified as other current financial assets.
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 loss 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.
Financial assets and 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. Held to maturity investments are carried at amortized cost using the effective interest rate.
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. For the case of financial assets held to maturity, if there is any evidence of impairment, 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.
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 an other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current
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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, current in the case that their remaining maturity is less than 12 months and non-current in the case that it is more than 12 months.
(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).
In the 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.
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 |
Certain derivatives are 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. 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
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allowance for impairment loss of trade accounts receivable is made when there is objective evidence that the Company will not be able to recover all the amounts due according to the original terms of the accounts receivable.
The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are considered indicators that the receivable has been impaired. The amount of the provision is the difference between the book value of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate. The book value of the asset is reduced by the amount of the allowance and the loss is shown in the consolidated statement of income in Cost of sales. When an account receivable is written off, it is charged to the allowance account for accounts receivable.
2.13. | Cash and cash equivalents |
Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and easily liquidated 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 obtained.
2.15. | Trade and other accounts payables |
Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost and are valued according to the method of the effective interest rate.
2.16. | Interest-bearing loans |
Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.
Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.
2.17. | Deferred taxes |
Deferred taxes are calculated 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 end of the reporting period, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.
Deferred tax assets are recognised when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences.
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The Company does not record deferred tax on temporary differences arising on investments in subsidiaries and associates, provided that the opportunity to reverse the temporary differences is controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.
2.18. | Employee benefits |
(a) | Personnel vacations |
The Company recognizes the expense for personnel vacations on an accrual basis.
(b) | Share-based compensation |
The compensation plans implemented by the granting of options for the subscription and payment of shares are shown in the consolidated financial statements in accordance with IFRS 2: Share based payments, showing the effect of the fair value of the options granted as a charge to remuneration on a straight-line basis between the date of granting such options and the date on which these become vested.
(c) | Post-employment and other long-term benefits |
Provisions are made for these obligations by applying the method of the actuarial value of the accrued cost, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in results for the period when they occur.
(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 recognised when:
(i) | The Company has a present legal or implicit obligation as a result of past events. |
(ii) | It is probable that some payment is going to be necessary to settle an obligation, and |
(iii) | The amount has been reliably estimated. |
Provisions are shown at the present value of the disbursements expected to be necessary for settling the obligation using the Company’s best estimates. The pre-tax discount rate used for determining the present value reflects current market evaluations on the date of the consolidated financial statements, time value of money, as well as the specific risks related to the liability in question.
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2.20. | Revenue recognition |
Revenues include the fair value of the proceeds received or to be received on sales of goods and rendering services in the ordinary course of the Company’s business. Revenues are shown net of refunds, rebates and discounts.
(a) | Rendering of services |
(i) | Passenger and cargo transport |
The Company shows revenue from the transportation of passengers and cargo once the service has been provided.
(ii) | Frequent flyer program |
The Company currently has a frequent flyer program called Lan Pass, whose objective is customer loyalty through the delivery of kilometers fly with the Company or its alliance partners in certain flights, use the services of entities registered with the program or make purchases with an associated credit card. The kilometers 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 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 capitalized at the start of the lease at the lower of the fair value of the asset leased and the present value of the minimum lease payments.
Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in Other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it
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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 major 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 its use expressed in terms of cycles and flight hours.
The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.
2.24. | Environmental costs |
Disbursements related to environmental protection are charged to results when incurred.
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NOTE 3 - FINANCIAL RISK MANAGEMENT
3.1. | Financial risk factors |
The Company’s activities are exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The Company’s global risk management program is focused on uncertainty in the financial markets and tries to minimize the potential adverse effects on the net margin. The Company uses derivatives to hedge part of these risks.
(a) | Market risk |
Due to the nature of its operations, the Company is exposed to market risks such as:
(i) fuel-price risk, (ii) interest-rate risk, and (iii) local exchange-rate risk. In order to fully or partially hedge all of these risks, the Company operates with derivative instruments to fix or limit rises in the underlying assets.
(i) | Fuel-price risk: |
Fluctuations in fuel prices largely depend on the global supply and demand for oil, decisions taken by Organization of Petroleum Exporting Countries (“OPEC”), global refining capacity, stock levels maintained, and weather and geopolitical factors.
The Company purchases an aircraft fuel called Jet Fuel grade 54. There is a benchmark price in the international market for this underlying asset, which is US Gulf Coast Jet 54. However, the futures market for this asset has a low liquidity index and as a result the Company hedges its exposure using West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and are highly liquid assets and therefore have advantages in comparison to the use of the U.S. Gulf Coast Jet 54 index.
During first quarter 2012, the Company booked gains of US$ 13.6 million on fuel hedging. During the same period 2011, the Company recognized gains of US$ 22.0 million for the same reason.
At March 31, 2012, the market value of its fuel positions amounted to US$ 27.5 million (positive). At December 31, 2011, this market value was US$ 30.6 million (positive). The following tables show the notional value of the purchase positions together with the derivatives contracted for the different periods:
Positions as of March 31, 2012 (*) | Maturities | |||||||||||||
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Q212 | Q312 | Q412 | Total | |||||||||||
Volume (thousands of barrels WTI) | 1,992 | 1,245 | 612 | 3,849 | ||||||||||
Contracted future price (US$ per barril)(**) | 99 | 101 | 115 | 102 | ||||||||||
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Total (ThUS$) | 197,208 | 125,745 | 70,380 | 392,598 | ||||||||||
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Approximate percentage of hedge | ||||||||||||||
(of expected consumption value) | 58% | 34% | 15 | % | 34% |
(*)The volume shown in the table considers all the hedging instruments (swaps and options) in Brent and WTI.
(**)Weighted average between collars and asset options corresponds to equivalent WTI.
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Positions as of December 31, 2011 (*) | Maturities | |||||||||||||||||
Q112 | Q212 | Q312 | Total | |||||||||||||||
Volume (thousands of barrels WTI) | 1,800 | 1,134 | 693 | 3,627 | ||||||||||||||
Contracted future price (US$ per barril)(**) | 95 | 92 | 92 | 93 | ||||||||||||||
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Total (ThUS$) | 171,000 | 104,328 | 63,756 | 337,311 | ||||||||||||||
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Approximate percentage of hedge | ||||||||||||||||||
(of expected consumption value) | 50% | 33% | 19% | 34 | % |
(*)The volume shown in the table considers all the hedging instruments (swaps and options) in WTI.
(**)Weighted average between collars and asset options correspond to equivalent WTI.
Sensitivity analysis
A drop in fuel price positively affects the Company through a reduction in costs. However, this drop also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.
As the current positions do not represent changes in cash flows, but a variation in the exposure to the market value, the current hedge positions have no impact on income (they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity).
The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the fourth quarter of 2012. The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the WTI and BRENT crude futures benchmark price at March 31, 2012 and the end of December 31, 2011.
Positions as of March 31, 2012 | Positions as of December 31, 2011 | |||
Benchmarck price | effect on equity | effect on equity | ||
(US$ per barrel) | (millions of US$) | (millions of US$) | ||
+ 5 | +13.9 | +16.5 | ||
-5 | -12.8 | -13.8 |
The Company seeks to reduce the risk of fuel price rises to ensure it is not left at a disadvantage compared to its competitors in the event of a sharp price fall. The Company therefore uses hedge instruments like swaps, call options and collars to partially hedge the fuel volumes consumed.
According to the requirements of IAS 39, during the presented period, the Company has not recorded amounts for ineffectiveness in the consolidated income statement.
Given the fuel hedge structure during the first quarter 2012, which considers a hedge-free portion, a vertical fall by US$ 5 in the WTI benchmark price (the monthly daily average), would have meant a decrease of approximately US$ 7.89 million in the cost of total fuel consumption for the same period.
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For the first quarter 2012, a vertical rise by US$ 5 in the WTI benchmark price (the monthly daily average) would have meant an impact of approximately US$ 7.88 million of increased fuel costs for the first quarter 2012.
(ii) | Cash flow interest-rate risk: |
The fluctuation in interest rates depends heavily on the state of the global economy. An improvement in long-term economic prospects moves long-term rates upward while a drop causes a decline through market effects. However, if we consider government intervention in periods of economic recession, it is usual to reduce interest rates to stimulate aggregate demand by making credit more accessible and increasing production (in the same way interest rates are raised in periods of economic expansion). The present uncertainty about how the market and governments will react, and thus how interest rates will change, creates a risk related to the Company’s debt at floating interest rates and its investments.
Cash flow interest rate risk equates to the risk of future cash flows of the financial instruments due to the fluctuation in interest rates on the market. The Company’s exposure to risks of changes in market interest rates is mainly related to long-term obligations with variable interest rates.
In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts in order to eliminate more than 80% of its exposure to interest-rate fluctuations. The Company is therefore exposed to a small portion of the fluctuations in the 90 days, 180 days and 360 days London Inter Bank Offer Rate (LIBOR).
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.
Positions as of March 31, 2012 | Positions as of December 31, 2011 | |||
Increase (decrease) | effect on pre-tax earnings | effect on pre-tax earnings | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
+100 basis points | -3.83 | -3.06 | ||
-100 basis points | +3.83 | +3.06 |
Changes in market conditions produce a change in the valuation of current financial instruments hedging interest rates, causing an effect on the Company’s equity (because they are booked as cash-flow hedges). These changes are considered reasonably possible based on current market conditions. The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve.
Increase (decrease) | Positions as of March 31, 2012 | Positions as of December 31, 2011 | ||
futures curve | effect on equity | effect on equity | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
+100 basis points | 38.50 | 40.70 | ||
-100 basis points | (40.70) | (43.20) |
There are limitations in the method used for the sensitivity analysis and relate to those provided by the market because the levels indicated by the futures curves are not necessarily met and will change in each period.
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In accordance with the requirements of IAS 39, during the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement.
(iii) | Local exchange-rate risk: |
The functional currency used by the parent Company is the US dollar in terms of setting prices for its services, the composition of its statement of financial position and effects on its operating income. The Company sells most of its services in US dollars or prices equivalent to the US dollar, and a large part of its expenses are denominated in US dollars or equivalents to the US dollar, particularly fuel costs, aeronautic charges, aircraft leases, insurance and aircraft components and accessories. Remuneration expenses are denominated in local currencies.
The Company maintains its cargo and passenger business tariffs in US dollars. There is a mix in the domestic markets as sales in Peru are in local currency but the prices are indexed to the US dollar. In Chile and Argentina, tariffs are in local currency without any kind of indexation. In the case of the domestic business in Ecuador, both tariffs and sales are in US dollar. The Company is therefore exposed to fluctuations in the different currencies, mainly: Chilean peso, Argentine peso, Uruguayan peso, Euro, Peruvian sol, Brazilian real, Colombian peso, Australian dollar and New Zealand dollar.
The Company manages its exposure to foreign currency risk through hedging selected balances using forward exchange contracts.
(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.
(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, 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 as investments held to maturity.
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.
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(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 IATA (International Air Transport Association), international 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 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.
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. The bad-debt rate in the principal countries where the Company has a presence is insignificant.
(c) | Liquidity risk |
Liquidity risk represents the risk that the Company has no funds to meet its obligations.
Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs related to market-risk hedges, the Company requires liquid funds to meet its payment obligations.
The Company therefore manages its cash and cash equivalents and its financial assets, matching the term of investments with those of its obligations. The Company’s policy is that the average term of its investments may not exceed the average term of its obligations. This cash and cash equivalents position is invested in highly-liquid short-term instruments through first-class financial entities.
The Company has future obligations related to financial leases, operating leases, maturities of other bank borrowings, derivative contracts and aircraft purchase contracts.
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Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2012
Class of Liability | Debtor Tax No. | Debtor | Debtor country | Creditor Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than to one year | More than three | More than years | More than five years | Total | Amortization | Effective rate | Nominal value | Nominal rate | |||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | ThUS$ | % | ||||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US $ | 4,025 | 12,076 | 32,197 | 32,208 | 56,412 | 136,918 | Quarterly | 5.69% | 110,609 | 5.01% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US $ | 19,775 | 48,694 | 46,593 | 16,805 | - | 131,867 | Quarterly | 4.52% | 126,116 | 4.52% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US $ | 4,229 | 12,668 | 31,568 | 15,601 | 25,342 | 89,408 | Quarterly | 4.76% | 76,452 | 4.31% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BNP PARIBAS | U.S.A. | US $ | 19,720 | 59,208 | 159,370 | 161,606 | 232,348 | 632,252 | Quarterly | 4.31% | 543,286 | 3.85% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | WELLS FARGO | U.S.A. | US $ | 5,609 | 16,834 | 44,826 | 44,737 | 107,761 | 219,767 | Quarterly | 3.64% | 184,995 | 3.53% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US $ | 11,598 | 34,837 | 93,941 | 95,718 | 256,057 | 492,151 | Quarterly | 2.54% | 437,410 | 2.25% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | 5,480 | 16,419 | 44,353 | 45,201 | 137,461 | 248,914 | Quarterly | 1.19% | 235,060 | 1.05% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | J P MORGAN | U.S.A. | US $ | 4,725 | 14,175 | 38,428 | 39,322 | 138,218 | 234,868 | Quarterly | 1.10% | 222,144 | 0.95% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BTMU | U.S.A. | US $ | 2,919 | 8,745 | 23,711 | 24,253 | 87,085 | 146,713 | Quarterly | 1.45% | 135,657 | 1.30% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | APPLE BANK | U.S.A. | US $ | 1,439 | 4,290 | 11,642 | 11,926 | 43,338 | 72,635 | Quarterly | 1.50% | 67,120 | 1.35% | |||||||||||||||||||||||||||||||||||||
Financial leases | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US $ | 7,359 | 20,396 | 42,054 | 36,435 | 7,460 | 113,704 | Quarterly | 3.93% | 104,296 | 3.73% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US $ | 3,839 | 11,569 | 36,301 | 30,964 | 38,283 | 120,956 | Quarterly | 1.50% | 113,970 | 1.50% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US $ | 2,009 | 6,028 | 41,828 | 16,075 | 22,103 | 88,043 | Quarterly | 4.92% | 74,753 | 4.42% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | S.CHARTERED | U.S.A. | US $ | 1,788 | 5,491 | 5,680 | - | - | 12,959 | Quarterly | 1.47% | 12,765 | 1.47% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US $ | 15,581 | 46,694 | 124,539 | 124,510 | 96,127 | 407,451 | Quarterly | 5.29% | 349,160 | 4.70% | |||||||||||||||||||||||||||||||||||||
Loans to exporters | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | 12,704 | - | - | - | - | 12,704 | Semiannual | 2.35% | 12,500 | 2.35% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.004.000-5 | BANCO DE CHILE | Chile | US $ | - | 30,335 | - | - | - | 30,335 | Semiannual | 2.21% | 30,000 | 2.21% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 76,645,030-K | ITAU | Chile | US $ | 75,138 | - | - | - | - | 75,138 | Quarterly | 1.31% | 75,000 | 1.31% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.032.000-8 | BBVA | Chile | US $ | - | 61,297 | - | - | - | 61,297 | Annual | 2.21% | 60,000 | 2.13% | |||||||||||||||||||||||||||||||||||||
Bank loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | 1,082 | 1,888 | 206,498 | - | - | 209,468 | - | 2.47% | 206,074 | 2.47% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.030.000-7 | ESTADO | Chile | US $ | 413 | 446 | 45,507 | - | - | 46,366 | Semiannual | 1.82% | 44,848 | 1.81% | |||||||||||||||||||||||||||||||||||||
Other loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | BOEING | U.S.A. | US $ | - | 6,566 | 342,277 | - | - | 348,843 | - | 2.08% | 340,914 | 2.08% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | - | 3,864 | 30,948 | 27,089 | - | 61,901 | Quarterly | 2.28% | 58,960 | 2.28% | |||||||||||||||||||||||||||||||||||||
Derivatives | 89.862.200-2 | Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | 9,796 | 30,993 | 69,525 | 36,272 | 5,406 | 151,992 | - | - | 147,200 | - | |||||||||||||||||||||||||||||||||||
Non-hedging derivatives | 89.862.200-2 | Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | 1,329 | 3,806 | 8,788 | 614 | - | 14,537 | - | - | 14,094 | - | |||||||||||||||||||||||||||||||||||
Accounts payable and other accounts payables | -
| Lan Airlines S.A. and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||
Several | - | sundry | - | US $ | 288,632 | 23,634 | - | - | - | 312,266 | - | - | 312,266 | - | ||||||||||||||||||||||||||||||||||||||
CLP | 58,770 | - | - | - | - | 58,770 | - | - | 58,770 | - | ||||||||||||||||||||||||||||||||||||||||||
Others | 171,402 | - | - | - | - | 171,402 | - | - | 171,402 | - | ||||||||||||||||||||||||||||||||||||||||||
Accounts payable, non-current | -
| Lan Airlines S.A. and subsidiaries | Several | - | sundry | - | US $ | - | - | 18,000 | - | - | 18,000 | - | - | 18,000 | - | |||||||||||||||||||||||||||||||||||
Accounts payable related parties | - | Lan Airlines S.A. and subsidiaries | Several | 78.591.370-1 | Bethia S.A. and subsidiaries | - | CLP | 104 | - | - | - | - | 104 | - | - | 104 | - | |||||||||||||||||||||||||||||||||||
Several | Foreing | Inversora Aeronaútica | ||||||||||||||||||||||||||||||||||||||||||||||||||
Argentina | - | US $ | 135 | - | - | - | - | 135 | - | - | 135 | - | ||||||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||||
Total | 729,600 | 480,953 | 1,498,574 | 759,336 | 1,253,401 | 4,721,864 | 4,344,060 | |||||||||||||||||||||||||||||||||||||||||||||
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Table of Contents
24
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2011
Class of Liability | Debtor Tax No. | Debtor | Debtor country | Creditor Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than to one year | More than three | More than years | More than five years | Total | Amortization | Effective rate | Nominal value | Nominal rate | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | ThUS$ | % | ||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US $ | 4,025 | 12,076 | 32,192 | 32,213 | 60,438 | 140,944 | Quarterly | 5.69% | 113,193 | 5.01% | |||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US $ | 21,249 | 61,560 | 67,744 | 33,826 | 7,228 | 191,607 | Quarterly | 4.05% | 182,041 | 4.05% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US $ | 15,633 | 46,900 | 125,060 | 106,833 | 124,408 | 418,834 | Quarterly | 5.18% | 354,360 | 4.61% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BNP PARIBAS | U.S.A. | US $ | 19,616 | 59,263 | 159,420 | 161,548 | 252,865 | 652,712 | Quarterly | 4.27% | 557,517 | 3.81% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | WELLS FARGO | U.S.A. | US $ | 5,615 | 16,828 | 44,837 | 44,749 | 113,352 | 225,381 | Quarterly | 3.64% | 188,942 | 3.53% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US $ | 13,585 | 41,065 | 110,232 | 111,306 | 290,463 | 566,651 | Quarterly | 2.94% | 497,707 | 2.61% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | 5,436 | 16,577 | 44,721 | 45,461 | 143,675 | 255,870 | Quarterly | 1.14% | 239,882 | 1.01% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | J P MORGAN | U.S.A. | US $ | 4,692 | 14,329 | 38,755 | 39,580 | 143,763 | 241,119 | Quarterly | 1.09% | 226,295 | 0.94% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BTMU | U.S.A. | US $ | 2,227 | 6,817 | 18,434 | 18,807 | 69,085 | 115,370 | Quarterly | 1.41% | 105,863 | 1.26% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | APPLE BANK | U.S.A. | US $ | 757 | 2,330 | 6,322 | 6,469 | 23,952 | 39,830 | Quarterly | 1.37% | 36,541 | 1.22% | |||||||||||||||||||||||||||||||||
Financial leases | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US $ | 7,332 | 21,559 | 43,281 | 39,703 | 9,324 | 121,199 | Quarterly | 3.94% | 110,576 | 3.73% | |||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US $ | 2,311 | 7,020 | 20,099 | 20,901 | 35,093 | 85,424 | Quarterly | 1.46% | 79,428 | 1.46% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US $ | 1,809 | 6,140 | 19,663 | - | - | 27,612 | Quarterly | 1.85% | 26,426 | 1.82% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | S.CHARTERED | U.S.A. | US $ | 1,773 | 5,435 | 7,538 | - | - | 14,746 | Quarterly | 1.56% | 14,481 | 1.56% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US $ | 4,204 | 12,617 | 33,636 | 33,629 | 14,736 | 98,822 | Quarterly | 5.22% | 85,948 | 4.68% | |||||||||||||||||||||||||||||||||
Loans to exporters | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | - | 12,704 | - | - | - | 12,704 | Semiannual | 2.35% | 12,500 | 2.35% | |||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.004.000-5 | BANCO DE CHILE | Chile | US $ | 292 | 30,291 | - | - | - | 30,583 | Semiannual | 1.91% | 30,000 | 1.91% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.006.000-6 | BCI | Chile | US $ | 50,187 | - | - | - | - | 50,187 | Quarterly | 1.51% | 50,000 | 1.51% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.032.000-8 | BBVA | Chile | US $ | - | 61,297 | - | - | - | 61,297 | Annual | 2.21% | 60,000 | 2.13% | |||||||||||||||||||||||||||||||||
Bank loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US $ | 1,145 | 2,314 | 203,779 | - | - | 207,238 | - | 2.55% | 202,899 | 2.35% | |||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.030.000-7 | ESTADO | Chile | US $ | - | 876 | 45,532 | - | - | 46,408 | Semiannual | 1.82% | 44,848 | 1.81% | |||||||||||||||||||||||||||||||||
Other loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | BOEING | U.S.A. | US $ | - | 5,884 | 271,307 | - | - | 277,191 | - | 1.87% | 269,965 | 1.87% | |||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | - | �� | - | 31,081 | 31,006 | - | 62,087 | Quarterly | 2.43% | 58,960 | 2.43% | ||||||||||||||||||||||||||||||||
Derivatives | 89.862.200-2 | Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | 10,191 | 28,940 | 70,303 | 41,382 | 8,620 | 159,436 | - | - | 154,410 | - | |||||||||||||||||||||||||||||||
Non-hedging derivatives | 89.862.200-2 | Lan Airlines S.A. | Chile | - | OTHERS | - | US $ | 1,357 | 3,896 | 8,998 | 1,586 | - | 15,837 | - | - | 15,380 | - | |||||||||||||||||||||||||||||||
Accounts payable and other accounts payables | -
| Lan Airlines S.A. and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||
Several | - | sundry | - | US $ | 411,908 | 25,920 | - | - | - | 437,828 | - | - | 437,828 | - | ||||||||||||||||||||||||||||||||||
CLP | 15,408 | - | - | - | - | 15,408 | - | - | 15,408 | - | ||||||||||||||||||||||||||||||||||||||
Others | 78,245 | - | - | - | - | 78,245 | - | - | 78,245 | - | ||||||||||||||||||||||||||||||||||||||
Accounts payable, non-current | -
| Lan Airlines S.A. and subsidiaries | Several | - | sundry | - | US $ | - | - | 36,000 | - | - | 36,000 | - | - | 36,000 | - | |||||||||||||||||||||||||||||||
Accounts payable related parties | -
| Lan Airlines S.A. and subsidiaries | Several | 96.847.880-K | Lufthansa Lan Technical Training S.A. | - | US $ | 147 | - | - | - | - | 147 | - | - | 147 | - | |||||||||||||||||||||||||||||||
Several | 96.921.070-3 | Australsociedad | ||||||||||||||||||||||||||||||||||||||||||||||
Concesionaria S.A. | - | CLP | 2 | - | - | - | - | 2 | - | - | 2 | - | ||||||||||||||||||||||||||||||||||||
Several | 78.591.370-1 | Bethia S.A. and subsidiaries | - | CLP | 116 | - | - | - | - | 116 | - | - | 116 | - | ||||||||||||||||||||||||||||||||||
Several | Foreing | Inversora Aeronaútica | ||||||||||||||||||||||||||||||||||||||||||||||
Argentina | - | US $ | 102 | - | - | - | - | 102 | - | - | 102 | - | ||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||
Total | 679,364 | 502,638 | 1,438,934 | 768,999 | 1,297,002 | 4,686,937 | 4,286,010 | |||||||||||||||||||||||||||||||||||||||||
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Table of Contents
25
The Company has fuel and interest 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 2011, the Company had provided US$ 117.2 million in derivative margin guarantees, for cash and stand-by letters of credit. At the end of March 31, 2012, the Company had provided US$ 112.0 million in guarantees for cash and stand-by letters of credit. The decrease was due at maturity and fuel purchase contracts and rates, and changes in fuel prices and interest rates
3.2. | Capital risk management |
The Company’s objectives, with respect to the management of capital, are (i) to safeguard it in order to continue as an on-going business, (ii) to seek a return for its shareholders, and (iii) to maintain an optimum capital structure and reduce its costs.
In order to maintain or adjust the capital structure, the Company may adjust the amount of the dividends payable to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Company monitors the adjusted leverage ratio, in line with industry practice. This index is calculated as net adjusted debt divided by the sum of adjusted equity and net adjusted debt. Net adjusted debt is total financial debt plus 8 times the operating lease payments of the last 12 months, less total cash (measured as the sum of cash and cash equivalents plus marketable securities). Capital is the amount of net equity without the impact of the market value of derivatives, plus net adjusted debt.
Currently the Company’s strategy, which has not changed since 2007, has consisted of maintaining a leverage ratio of between 70% and 80% and an international credit rating of higher than BBB- (the minimum required for being considered investment grade). The leverage ratios as of March 31, 2012, and December 31, 2011, were as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ |
ThUS$ | |||||||
Total financial loans |
|
3,866,288 |
|
|
3,788,272 |
| ||
Last twelve months Operating lease payment x 8 | 1,408,040 | 1,393,576 | ||||||
Less: | ||||||||
Cash and marketable securities | (276,777) | (472,499) | ||||||
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|
| |||||
Total net adjusted debt | 4,997,551 | 4,709,349 | ||||||
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| |||||
Net Equity | 1,519,080 | 1,445,324 | ||||||
Cash flow hedging reserve | 139,554 | 140,556 | ||||||
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|
|
| |||||
Adjusted equity | 1,658,634 | 1,585,880 | ||||||
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|
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| |||||
Total adjusted debt and equity | 6,656,185 | 6,295,229 | ||||||
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| |||||
Adjusted leverage | 75.1% | 74.8% |
Table of Contents
26
At March 31, 2012, the Company maintained financial instruments that should be recorded at fair value. These include:
Investments in short-term Mutual Funds (cash equivalent),
Interest rate derivative contracts,
Fuel derivative contracts,
Currency derivative contracts, and
Private investment funds.
The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.
The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.
The following table shows the classification of financial instruments at fair value at March 31, 2012 depending on the level of information used in the assessment:
Fair value 2012 | Fair value measurements using values considered as | |||||||||||||
Level I | Level II | Level III | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||
Assets | ||||||||||||||
Short-term mutual funds | 97,960 | 97,960 | - | - | ||||||||||
Fair value of interest rate derivatives | 44 | - | 44 | - | ||||||||||
Fair value of fuel derivatives | 27,473 | - | 27,473 | - | ||||||||||
Private investment funds | 62,870 | 62,870 | - | - | ||||||||||
Liabilities | ||||||||||||||
Fair value of interest rate derivatives | 151,992 | - | 151,992 | - | ||||||||||
Fair value of foreign currency derivatives | 161 | - | 161 | - | ||||||||||
Interest rate derivatives not accounted for as hedging instruments | 13,554 | - | 13,544 | - |
Table of Contents
27
Additionally, at March 31, 2012, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:
As of March 31, 2012 | As of December 31, 2011 | |||||||||||||||
Book value | Fair value | Book value | Fair value | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | ||||||||||||||||
Cash on hand | 5,971 | 5,971 | 4,605 | 4,605 | ||||||||||||
Bank balance | 22,776 | 22,776 | 17,013 | 17,013 | ||||||||||||
Overnight | 45,053 | 45,053 | 46,028 | 46,028 | ||||||||||||
Time deposits | 4,809 | 4,809 | 150,427 | 150,427 | ||||||||||||
Other financial assets | ||||||||||||||||
Domestic and foreign bonds | 37,338 | 40,277 | 37,359 | 40,250 | ||||||||||||
Other financial assets | 117,460 | 117,460 | 120,225 | 120,225 | ||||||||||||
Trade and other accounts receivable current and accounts receivable non-current | 549,466 | 549,466 | 538,846 | 538,846 | ||||||||||||
Accounts receivable from related entities | 851 | 851 | 838 | 838 | ||||||||||||
Other financial liabilities | 3,591,483 | 3,723,612 | 3,516,307 | 3,665,661 | ||||||||||||
Trade and other accounts payables, | 648,137 | 648,137 | 645,086 | 645,086 | ||||||||||||
Accounts payable to related entities | 239 | 239 | 367 | 367 | ||||||||||||
Accounts payable, non-current | 338,339 | 338,339 | 354,930 | 354,930 |
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, 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.
Table of Contents
28
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
The Company has used estimates to value and book some of the assets, liabilities, revenues, expenses and commitments; these relate principally to:
(a) | The evaluation of possible impairment losses for certain assets. |
(b) | The useful lives and residual values of fixed and intangible assets. |
(c) | The criteria employed in the valuation of certain assets. |
(d) | Air tickets sold that are not actually used. |
(e) | The calculation of deferred income at the year end, corresponding to the valuation of kilometers credited to holders of the Lan Pass loyalty card which have not yet been used. |
(f) | The need for provisions and where required, the determination of their values. |
(g) | The recoverability of deferred tax assets. |
These estimates are made on the basis of the best information available on the matters analyzed.
In any case, it is possible that events will require modification of the estimates in the future, in which case the effects would be accounted for prospectively.
Table of Contents
29
NOTE 5 – SEGMENTAL INFORMATION
The Company reports information by segments as established in IFRS 8 “Operating segments”. This standard sets rules for the reporting of information by segments in the financial statements, plus reporting about products and services, geographical areas and principal customers.
An operating segment is defined as a component of an entity on which financial information is held separately and which is evaluated regularly by the senior management in making decisions with respect to the assignment of resources and evaluation of results.
The Company has determined that it has only one operating segment: air transportation.
Air transport segment | ||||||||
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Income from ordinary activities and other operating income | 1,536,682 | 1,364,874 | ||||||
Interest income | 3,511 | 5,607 | ||||||
Interest expense | (36,700) | (35,913) | ||||||
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Total net interest expense | (33,189) | (30,306) | ||||||
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| |||||
Depreciation and amortization | (106,486) | (95,404) | ||||||
Segment profit | 76,067 | 97,235 | ||||||
Earnings on investments | (383) | (53) | ||||||
Expenses for income tax | (14,483) | (20,231) | ||||||
Assets of segment | 7,688,022 | 6,898,785 | ||||||
Investments in associates | 615 | 540 | ||||||
Purchase of non-monetary assets | 274,013 | 422,709 |
Table of Contents
30
The Company’s revenues by geographic area are as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Peru | 136,565 | 115,783 | ||||||
Argentina | 206,108 | 139,961 | ||||||
USA | 289,825 | 265,581 | ||||||
Europe | 139,127 | 125,325 | ||||||
Colombia | 90,170 | 88,125 | ||||||
Chile | 399,203 | 349,047 | ||||||
Others (*) | 275,684 | 281,052 | ||||||
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| |||||
Total (**) | 1,536,682 | 1,364,874 | ||||||
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|
|
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.
(*) Includes the rest of Latin America and Asia Pacific.
(**) Includes operating revenues and other operating income.
Table of Contents
31
NOTE 6 – CASH AND CASH EQUIVALENTS
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Cash | ||||||||
Cash on hand | 5,971 | 4,605 | ||||||
Bank balances | 22,776 | 17,013 | ||||||
Overnight | 45,053 | 46,028 | ||||||
�� |
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|
| ||||
Total Cash | 73,800 | 67,646 | ||||||
Cash equivalents | ||||||||
Time deposits | 4,809 | 150,427 | ||||||
Mutual funds | 97,960 | 156,334 | ||||||
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|
| |||||
Total cash equivalents | 102,769 | 306,761 | ||||||
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|
|
| |||||
Total cash and cash equivalents | 176,569 | 374,407 | ||||||
|
|
|
|
Cash and cash equivalents are denominated in the following currencies at March 31, 2012, and December 31, 2011:
Currency | As of March 31, 2012 | As of December 31, 2011 | ||||||
ThUS$ | ThUS$ | |||||||
US Dollar | 90,252 | 158,313 | ||||||
Chilean peso (*) | 14,162 | 148,274 | ||||||
Euro | 2,247 | 5,688 | ||||||
Argentine peso (*) | 40,325 | 20,020 | ||||||
Brazilian real | 3,195 | 6,616 | ||||||
Colombian peso | 3,209 | 7,668 | ||||||
Other currencies | 23,179 | 27,828 | ||||||
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|
| |||||
Total | 176,569 | 374,407 | ||||||
|
|
|
|
(*) The Company has no currency derivative contracts (forward exchange controls) outstanding at March 31, 2012 (ThUS$ 110,339 at December 31, 2011), for conversion into dollars of investments in chilean pesos. For currency derivative contracts, for conversion into dollars of investments in argentine pesos, the Company has contracts in effect at March 31, 2012 of ThUS$ 4,559.
In Venezuela, effective 2003, the authorities decreed that all remittances abroad should be approved by the Currency Management Commission (CADIVI). Despite having free availability of bolivars in Venezuela, the Company has certain restrictions for freely remitting these funds outside Venezuela. At March 31, 2012 the amount subject to such restrictions in dollar terms is ThUS$ 18,974 (ThUS$ 23,914 at December 31, 2011).
Table of Contents
32
The Company has no significant non-monetary transactions that should be reported.
Table of Contents
33
NOTE 7 - FINANCIAL INSTRUMENTS
7.1. | Financial instruments by category |
As of March 31, 2012
Assets | Held to maturity | Loans and accounts | Hedging derivatives | Held to trading | Designated as at fair value | Total | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Cash and cash equivalents | - | 78,609 | - | 97,960 | - | 176,569 | ||||||||||||||||||
Other financial assets (*) | 37,338 | 91,739 | 27,517 | - | 62,870 | 219,464 | ||||||||||||||||||
Trade and other current accounts receivable | - | 542,393 | - | - | - | 542,393 | ||||||||||||||||||
Current accounts receivable from related parties | - | 851 | - | - | - | 851 | ||||||||||||||||||
Non-current other financial assets (*) | 508 | 25,213 | - | - | - | 25,721 | ||||||||||||||||||
Non-current accounts receivable | - | 7,073 | - | - | - | 7,073 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 37,846 | 745,878 | 27,517 | 97,960 | 62,870 | 972,071 | ||||||||||||||||||
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|
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|
|
|
| |||||||||||||
Liabilities | Other Financial liabilities | Hedging derivatives | Held to trading | Total | ||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Other financial liabilities | 561,066 | 40,951 | 4,797 | 606,814 | ||||||||||||||||||||
Trade and other accounts payables | 648,137 | - | - | 648,137 | ||||||||||||||||||||
Current accounts payable to related parties | 239 | - | - | 239 | ||||||||||||||||||||
Non-current other financial liabilities | 3,030,417 | 111,202 | 8,757 | 3,150,376 | ||||||||||||||||||||
Non-current accounts payable | 338,339 | - | - | 338,339 | ||||||||||||||||||||
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|
| |||||||||||||||||
Total | 4,578,198 | 152,153 | 13,554 | 4,743,905 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(*) The value presented in held to maturity corresponds, mainly, to domestic and foreign bonds; designated as at fair value through profit and loss on initial recognition corresponds to private investment funds; and loans and accounts receivable corresponds to guarantees given.
Table of Contents
34
As of December 31, 2011
Assets | Held to maturity | Loans and accounts receivable | Hedging derivatives | Held to trading | Designated as at fair value | Total | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Cash and cash equivalents | - | 218,073 | - | 156,334 | - | 374,407 | ||||||||||||||||||
Other financial assets (*) | 37,359 | 98,392 | 31,319 | - | 167,070 | 334,140 | ||||||||||||||||||
Trade and other current accounts receivable | - | 531,355 | - | - | - | 531,355 | ||||||||||||||||||
Current accounts receivable from related parties | - | 838 | - | - | - | 838 | ||||||||||||||||||
Non-current other financial assets (*) | 508 | 21,325 | - | - | - | 21,833 | ||||||||||||||||||
Non-current accounts receivable | - | 7,491 | - | - | - | 7,491 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 37,867 | 877,474 | 31,319 | 156,334 | 167,070 | 1,270,064 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Liabilities | Other Financial liabilities | Hedging derivatives | Held to trading | Total | ||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Other financial liabilities | 537,334 | 40,016 | 4,907 | 582,257 | ||||||||||||||||||||
Trade and other accounts payables | 645,086 | - | - | 645,086 | ||||||||||||||||||||
Current accounts payable to related parties | 367 | - | - | 367 | ||||||||||||||||||||
Non-current other financial liabilities | 2,978,973 | 120,304 | 9,859 | 3,109,136 | ||||||||||||||||||||
Non-current accounts payable | 354,930 | - | - | 354,930 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 4,516,690 | 160,320 | 14,766 | 4,691,776 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(*) The value presented in held to maturity corresponds mainly to domestic and foreign bonds; and designated as at fair value through profit and loss on initial recognition corresponds to private investment funds; and loans and accounts receivable corresponds to guarantees given.
Table of Contents
35
7.2. | Financial instruments by currency |
a) Assets | As of March 31, 2012 | As of December 31, 2011 | ||||||
ThUS$ | ThUS$ | |||||||
Cash and cash equivalents | 176,569 | 374,407 | ||||||
US Dollar | 90,252 | 158,313 | ||||||
Chilean Peso | 14,162 | 148,274 | ||||||
Euro | 2,247 | 5,688 | ||||||
Argentine Peso | 40,325 | 20,020 | ||||||
Brazilian Real | 3,195 | 6,616 | ||||||
Colombian Peso | 3,209 | 7,668 | ||||||
Others | 23,179 | 27,828 | ||||||
Other financial assets | 245,185 | 249,636 | ||||||
US Dollar | 233,417 | 241,008 | ||||||
Brazilian Real | 5,799 | 3,066 | ||||||
Colombian Peso | 4,555 | 4,175 | ||||||
Others | 1,414 | 1,387 | ||||||
Trade and other current accounts receivable | 542,393 | 531,355 | ||||||
US Dollar | 353,031 | 348,921 | ||||||
Chilean Peso | 62,813 | 63,818 | ||||||
Euro | 10,180 | 8,266 | ||||||
Argentine Peso | 34,074 | 24,879 | ||||||
Brazilian Real | 34,394 | 35,467 | ||||||
Australian Dollar | 8,554 | 5,567 | ||||||
Colombian Peso | 20,639 | 34,583 | ||||||
Others | 18,708 | 9,854 | ||||||
Non-current accounts receivable | 7,073 | 7,491 | ||||||
US Dollar | 9 | 9 | ||||||
Chilean Peso | 7,029 | 7,422 | ||||||
Others | 35 | 60 | ||||||
Current accounts receivable from related parties | 851 | 838 | ||||||
US Dollar | 76 | 29 | ||||||
Chilean Peso | 775 | 809 | ||||||
Total financial assets | 972,071 | 1,163,727 | ||||||
US Dollar | 676,785 | 748,280 | ||||||
Chilean Peso | 84,779 | 220,323 | ||||||
Euro | 12,427 | 13,954 | ||||||
Argentine Peso | 74,399 | 44,899 | ||||||
Brazilian Real | 43,388 | 45,149 | ||||||
Australian Dollar | 8,554 | 5,567 | ||||||
Colombian Peso | 28,403 | 46,426 | ||||||
Others | 43,336 | 39,129 |
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36
b) Liabilities
Liabilities information is detailed in the table within Note 3 section (c) Liquidity risk.
Table of Contents
37
NOTE 8 – TRADE, OTHER ACCOUNTS RECEIVABLE AND NON-CURRENT ACCOUNTS RECEIVABLE
As of March 31, | As of December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Trade accounts receivable | 469,218 | 474,852 | ||||||
Other accounts receivable | 101,791 | 84,519 | ||||||
|
|
|
| |||||
Total trade and other accounts receivable | 571,009 | 559,371 | ||||||
Less: Allowance for impairment loss | (21,543) | (20,525) | ||||||
|
|
|
| |||||
Total net trade and accounts receivable | 549,466 | 538,846 | ||||||
Less: non-current portion – accounts receivable | (7,073) | (7,491) | ||||||
|
|
|
| |||||
Trade and other accounts receivable, current | 542,393 | 531,355 | ||||||
|
|
|
|
The fair value of trade and other accounts receivable does not differ significantly from the book value.
There are overdue accounts receivable which are not impaired. Maturity of these accounts is as follows:
As of March 31, | As of December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Up to 3 months | 5,628 | 10,348 | ||||||
Between 3 and 6 months | 9,177 | 6,256 | ||||||
|
|
|
| |||||
Total | 14,805 | 16,604 | ||||||
|
|
|
|
The amounts of individually impaired trade and other accounts receivable are as follows:
As of March 31, | As of December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Judicial and pre-judicial collection | 9,667 | 9,626 | ||||||
Debtors under pre-judicial collection process | 5,362 | 4,306 | ||||||
|
|
|
| |||||
Total | 15,029 | 13,932 | ||||||
|
|
|
|
Table of Contents
38
Currency balances that make up the trade receivables, non-current accounts receivable and accounts receivables at March 31, 2012 and December 31, 2011, are as follows:
As of March 31, | As of December 31, | |||||||
2012 | 2011 | |||||||
Currency | ThUS$ | ThUS$ | ||||||
US Dollar | 353,040 | 348,930 | ||||||
Chilean Peso | 69,842 | 71,240 | ||||||
Euro | 10,180 | 8,266 | ||||||
Argentine Peso | 34,074 | 24,879 | ||||||
Brazilian Real | 34,394 | 35,467 | ||||||
Australian Dollar | 8,554 | 5,567 | ||||||
Colombian peso | 20,639 | 34,583 | ||||||
Other | 18,743 | 9,914 | ||||||
|
|
|
| |||||
Total | 549,466 | 538,846 | ||||||
|
|
|
|
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% |
The movement in the allowance for impairment loss of trade accounts and other accounts receivables between January 01, 2011 and March 31, 2012 is as follows:
ThUS$ | ||||
As of January 1, 2011 | (22,077) | |||
Write-offs | 267 | |||
(Increase) decrease in allowance | 387 | |||
|
| |||
Balance as of March 31, 2011 | (21,423) | |||
|
| |||
As of April 01, 2011 | (21,423) | |||
Write-offs | 3,793 | |||
(Increase) decrease in allowance | (2,895) | |||
|
| |||
Balance as of December 31, 2011 | (20,525) | |||
|
| |||
As of January 1, 2012 | (20,525) | |||
Write-offs | 323 | |||
(Increase) decrease in allowance | (1,341) | |||
|
| |||
Balance as of March 31, 2012 | (21,543) | |||
|
|
Table of Contents
39
Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.
Historic and current re-negotiations are not relevant and the policy is to analyze case by case in order to classify them according to the existence of risk, determining whether it is appropriate to re-classify accounts to pre-judicial recovery. If such re-classification is justified, an allowance is made for the account, whether overdue or falling due.
The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.
As of March 31, 2012 | As of December 31, 2011 | |||||||||||||||||||||||
Gross | Gross | Exposure net | Gross | Gross | Exposure net | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Trade accounts receivable | 469,218 | (21,543) | 447,675 | 474,852 | (20,525) | 454,327 | ||||||||||||||||||
Other accounts receivable | 101,791 | - | 101,791 | 84,519 | - | 84,519 |
There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.
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40
NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
The accounts receivable from and payable to related entities as of March 31, 2012 and December 31, 2011, respectively, are as follows:
(a) Accounts Receivable
Country of | As of March 31, | As of December 31, | Transaction | Nature of | ||||||||||||||||
Tax No. | Related party | Relationship | origin | 2012 | 2011 | Currency | deadlines | transaction | ||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda y CPA | Controlling shareholder | Chile | 4 | 19 | CLP | 30 to 45 days | Monetary | ||||||||||||
96,847,880-K | Lufthansa Lan Technical Training S.A. | Associate | Chile | 76 | - | US$ | 30 to 45 days | Monetary | ||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Others related parties | Chile | 737 | 758 | CLP | 30 to 45 days | Monetary | ||||||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Others related parties | Chile | 34 | 32 | CLP | 30 to 45 days | Monetary | ||||||||||||
96.812.280-0 | San Alberto S.A. y Filiales | Others related parties | Chile | - | 29 | US$ | 30 to 45 days | Monetary | ||||||||||||
|
|
|
| |||||||||||||||||
Total current assets | 851 | 838 | ||||||||||||||||||
|
|
|
|
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41
(b) Accounts payable
Country | As of | As of | ||||||||||||||||||
of | March 31, | December 31, | Transaction | Nature of | ||||||||||||||||
Tax No. | Related party | Relationship | origin | 2012 | 2011 | Currency | deadlines | transaction | ||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||
96.847.880-K | Lufthansa Lan Technical Training S.A. | Associate | Chile | - | 147 | US$ | 30 to 45 days | Monetary | ||||||||||||
96.921.070-3 | Austral Sociedad Concesionaria S.A. | Associate | Chile | - | 2 | CLP | 30 to 45 days | Monetary | ||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Other related parties | Chile | 104 | 116 | CLP | 30 to 45 days | Monetary | ||||||||||||
Foreign | Inversora Aeronaútica Argentina | Other related parties | Argentina | 135 | 102 | US$ | 30 to 45 days | Monetary | ||||||||||||
|
|
|
| |||||||||||||||||
Total current liabilities | 239 | 367 | ||||||||||||||||||
|
|
|
|
Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.
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42
The inventories at March 31, 2012 and December 31, 2011 respectively, are detailed below:
As of March 31, | As of December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Technical stock | 70,636 | 57,836 | ||||||
Non-technical stock | 14,971 | 14,951 | ||||||
|
|
|
| |||||
85,607 | 72,787 | |||||||
|
|
|
|
The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services (provided to the Company and third parties), which are valued at average cost, net of provision for obsolescence that as of March 31, 2012 amounts to ThUS$ 2,807 (ThUS$ 1,685 as of December 31, 2011). The resulting amounts do not exceed the respective net realizable values.
As of March 31, 2012, the Company recorded ThUS$ 11,736 (ThUS$ 9,711 as of March 31, 2011) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of cost of sales.
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43
NOTE 11 – OTHER FINANCIAL ASSETS
The composition of other financial assets is as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
(a) Other financial assets | 191,947 | 196,484 | ||||||
(b) Hedging asset | 27,517 | 31,319 | ||||||
|
|
|
| |||||
Total Current | 219,464 | 227,803 | ||||||
|
|
|
| |||||
Non-current | ||||||||
(a) Other financial assets | 25,721 | 21,833 | ||||||
|
|
|
| |||||
Total non-current | 25,721 | 21,833 | ||||||
|
|
|
|
a) Other financial assets
Other financial assets as of March 31, 2012 and December 31, 2011, respectively, are as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Private investment funds | 62,870 | 60,733 | ||||||
Domestic and foreign bonds | 37,338 | 37,359 | ||||||
Guarantees for margins of derivatives | 74,047 | 79,171 | ||||||
Deposits in guarantee (aircraft) | 8,403 | 11,657 | ||||||
Other guarantees given | 9,289 | 7,564 | ||||||
|
|
|
| |||||
Total current | 191,947 | 196,484 | ||||||
|
|
|
| |||||
Non-current | ||||||||
Deposits in guarantee (aircraft) | 18,752 | 15,498 | ||||||
Other guarantees given | 6,461 | 5,827 | ||||||
Other investments | 508 | 508 | ||||||
|
|
|
| |||||
Total non-current | 25,721 | 21,833 | ||||||
|
|
|
| |||||
Total other financial assets | 217,668 | 218,317 | ||||||
|
|
|
|
Table of Contents
44
b) Hedging assets
Hedging assets as of March 31, 2012 and December 31, 2011, are as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Cash-flow hedge of interest-rate risk | 44 | 73 | ||||||
Cash-flow hedge of currency risk | - | 631 | ||||||
Cash-flow hedge of fuel-price risk | 27,473 | 30,615 | ||||||
|
|
|
| |||||
Total current | 27,517 | 31,319 | ||||||
|
|
|
| |||||
Total hedging assets | 27,517 | 31,319 | ||||||
|
|
|
|
Foreign currency derivatives include the fair value of forward exchange contracts.
The types of derivative hedging contracts maintained by the Company at the end of each period are presented in Note 20.
Table of Contents
45
NOTE 12 – OTHER NON-FINANCIAL ASSETS
The composition of other non-financial assets is as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
a) Advance Payments | 42,547 | 31,552 | ||||||
b) Other assets | 1,102 | 1,159 | ||||||
|
|
|
| |||||
Total current | 43,649 | 32,711 | ||||||
|
|
|
| |||||
Non-Current | ||||||||
a) Advance Payments | 10,553 | 11,189 | ||||||
b) Other assets | 4,860 | 4,016 | ||||||
|
|
|
| |||||
Total non-current | 15,413 | 15,205 | ||||||
|
|
|
|
a) Advance payments
Advance payments as of March 31, 2012 as of December 31, 2011 are as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Aircraft insurance and other | 16,983 | 7,954 | ||||||
Aircraft leases | 15,636 | 13,196 | ||||||
Handling and ground handling services | 2,941 | 2,941 | ||||||
Others | 6,987 | 7,461 | ||||||
|
|
|
| |||||
Total current | 42,547 | 31,552 | ||||||
|
|
|
| |||||
Non-Current | ||||||||
Aircraft leases | 10,496 | 11,189 | ||||||
Others | 57 | - | ||||||
|
|
|
| |||||
Total non-current | 10,553 | 11,189 | ||||||
|
|
|
| |||||
Total advance payments | 53,100 | 42,741 | ||||||
|
|
|
|
Table of Contents
46
b) Other assets
Other assets as of March 31, 2012, and December 31, 2011 are as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Contributions to SITA | 841 | 841 | ||||||
Others | 261 | 318 | ||||||
|
|
|
| |||||
Total current | 1,102 | 1,159 | ||||||
|
|
|
| |||||
Non-current | ||||||||
Contributions to SITA | 329 | 329 | ||||||
Others | 4,531 | 3,687 | ||||||
|
|
|
| |||||
Total non-current | 4,860 | 4,016 | ||||||
|
|
|
| |||||
Total other assets | 5,962 | 5,175 | ||||||
|
|
|
|
Table of Contents
47
NOTE 13 – NON-CURRENT ASSETS (OR DISPOSAL GROUPS) CLASSIFIED AS HELD FOR SALE
Non-current assets and disposal groups held for sale as of March 31, 2012, and December 31, 2011 are as follows:
December 31, | December 31, | |||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Engines | 2,204 | 2,204 | ||||||
Inventories on consignment | 95 | 527 | ||||||
Aircraft | 7,037 | 1,537 | ||||||
Scrapped aircraft | 365 | 365 | ||||||
Rotables | 28 | 28 | ||||||
|
|
|
| |||||
Total | 9,729 | 4,661 | ||||||
|
|
|
|
During the first quarter of 2012, a transfer of an aircraft B767-200 was made from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale.
During the first quarter of 2012, sales were made of inventories held on consignment of the Boeing 737-200 fleet.
Item balances are shown net of provision, which as of March 31, 2012 amounted to ThUS$ 5,656 (ThUS$ 5,386 at December 31, 2011).
The Company has no discontinued operations as of March 31, 2012.
Table of Contents
48
NOTE 14 - 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 Lan Airlines S.A. and Subsidiaries. The consolidation also includes special-purpose entities and private investment funds.
The following is a summary of financial information with respect to the sum of the financial statements of subsidiary companies, special-purpose entities and private investment funds that have been consolidated:
As of March 31, 2012
Assets | Liabilities | |||||||
ThUS$ | ThUS$ | |||||||
Current | 456,325 | 623,560 | ||||||
Non-current | 1,524,236 | 927,432 | ||||||
|
|
|
| |||||
Total | 1,980,561 | 1,550,992 | ||||||
|
|
|
|
As of December 31, 2011
Assets | Liabilities | |||||||
ThUS$ | ThUS$ | |||||||
Current |
|
493,662 |
|
|
618,360 |
| ||
Non-current | 1,498,840 | 917,171 | ||||||
|
|
|
| |||||
Total | 1,992,502 | 1,535,531 | ||||||
|
|
|
|
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Total operating revenues | 684,073 | 591,169 | ||||||
Total expenses | (704,350) | (598,013) | ||||||
|
|
|
| |||||
Total net income | (20,277) | (6,844) | ||||||
|
|
|
|
Table of Contents
49
Significant subsidiaries detailed as of March 31, 2012
Name of significant subsidiary | Country of | Functional currency | % Ownership | Nature and scope of on transferring funds to controller | ||||
Lan Perú S.A. | Peru | US$ | 69.97858 | Without significant restrictions | ||||
Lan Cargo S.A. | Chile | US$ | 99.89803 | Without significant restrictions | ||||
Lan Argentina S.A. | Argentina | ARS | 94.99055 | Without significant restrictions | ||||
Transporte Aéreo S.A. | Chile | US$ | 99.89804 | Without significant restrictions | ||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | Ecuador | US$ | 71.94990 | Without significant restrictions | ||||
Aerovías de Integración Regional, AIRES S.A. | Colombia | COP | 98.21089 | Without significant restrictions |
Summary financial information of significant subsidiaries
Statement of financial position as of March 31, 2012 | Results for the period ended March 31, 2012 | |||||||||||||||||||||||||||||||
Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Lan Perú S.A. | 167,724 | 151,211 | 16,513 | 153,560 | 152,656 | 904 | 258,161 | 3,255 | ||||||||||||||||||||||||
Lan Cargo S.A. | 801,174 | 186,214 | 614,960 | 375,525 | 134,893 | 240,632 | 59,312 | 3,619 | ||||||||||||||||||||||||
Lan Argentina S.A. | 132,815 | 106,904 | 25,911 | 110,341 | 108,732 | 1,609 | 142,912 | 1,811 | ||||||||||||||||||||||||
Transporte Aéreo S.A. | 347,192 | 237,388 | 109,804 | 115,471 | 27,454 | 88,017 | 87,446 | (558) | ||||||||||||||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | 99,567 | 68,438 | 31,129 | 95,583 | 93,044 | 2,539 | 73,620 | (6,512) | ||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 123,681 | 47,853 | 75,828 | 80,490 | 69,456 | 11,034 | 63,292 | (15,854) |
Table of Contents
50
Significant subsidiaries detailed as of December 31, 2011
Name of significant subsidiary | Country of | Functional currency | % Ownership | Nature and scope of on transferring funds to controller | ||||
Lan Perú S.A. | Peru | US$ | 69.97858 | Without significant restrictions | ||||
Lan Cargo S.A. | Chile | US$ | 99.89803 | Without significant restrictions | ||||
Lan Argentina S.A. | Argentina | ARS | 94.99055 | Without significant restrictions | ||||
Transporte Aéreo S.A. | Chile | US$ | 99.89804 | Without significant restrictions | ||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | Ecuador | US$ | 71.94990 | Without significant restrictions | ||||
Aerovías de Integración Regional, AIRES S.A. | Colombia | COP | 98.21089 | Without significant restrictions |
Summary financial information of significant subsidiaries
Statement of financial position as of December 31, 2011 | Results for the year ended March 31, 2011 | |||||||||||||||||||||||||||||||
Name of significant subsidiary | Total Assets | Current Assets | Non-current Assets | Total Liabilities | Current Liabilities | Non-current Liabilities | Revenue | Net Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Lan Perú S.A. | 139,888 | 124,485 | 15,403 | 128,979 | 128,025 | 954 | 206,937 | 35 | ||||||||||||||||||||||||
Lan Cargo S.A. | 765,829 | 188,937 | 576,892 | 343,799 | 122,450 | 221,349 | 52,939 | 6,945 | ||||||||||||||||||||||||
Lan Argentina S.A. | 136,579 | 108,561 | 28,018 | 114,037 | 112,555 | 1,482 | 110,013 | 480 | ||||||||||||||||||||||||
Transporte Aéreo S.A. | 348,943 | 237,627 | 111,316 | 116,663 | 26,332 | 90,331 | 94,000 | 11,227 | ||||||||||||||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | 71,598 | 42,369 | 29,229 | 61,102 | 58,726 | 2,376 | 60,699 | 796 | ||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 134,983 | 76,936 | 58,047 | 80,271 | 70,112 | 10,159 | 62,003 | (6,000) |
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51
NOTE 15 - EQUITY ACCOUNTED INVESTMENTS
The following summarized financial information is the sum of the financial statements of the investees, corresponding to the statements of financial position as of March 31, 2012 and December 31, 2011, and the statements of income for the periods ended March 31, 2012,
As of March 31, 2012
Assets | Liabilities | |||||||
ThUS$ | ThUS$ | |||||||
Current | 2,771 | 1,354 | ||||||
Non-current | 402 | 116 | ||||||
|
|
|
| |||||
Total | 3,173 | 1,470 | ||||||
|
|
|
|
As of December 31, 2011
Assets | Liabilities | |||||||
ThUS$ | ThUS$ | |||||||
Current | 2,649 | 721 | ||||||
Non-current | 269 | 115 | ||||||
|
|
|
| |||||
Total | 2,918 | 836 | ||||||
|
|
|
|
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Total operating revenues | 566 | 533 | ||||||
Total expenses | (723) | (590) | ||||||
|
|
|
| |||||
Sum of net income | (157) | (57) | ||||||
|
|
|
|
As an investment in associates, the Company has shown its holdings in the following companies: Austral Sociedad Concesionaria S.A. and Lufthansa Lan Technical Training S.A. The Company made no investments in associates during the first quarter ended 2012.
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52
Percentage of ownership | Cost of investment | |||||||||||||
Company | Country of incorporation | Functional currency | As of March 31, 2012 | As of December 31, 2011 | As of March 31, 2012 | As of December 31, 2011 | ||||||||
% | % | ThUS$ | ThUS$ | |||||||||||
Austral Sociedad Concesionaria S.A. | Chile | CLP | 20.00 | 20.00 | 661 | 661 | ||||||||
Lufthansa Lan Technical Training S.A. | Chile | CLP | 50.00 | 50.00 | 702 | 702 |
These companies do not have significant restrictions on the ability to transfer funds.
The movement of investments in associates between January 1, 2011 and March 31, 2012 is as follows:
ThUS$ | ||||
Opening balance as of January 1, 2011 | 593 | |||
|
| |||
Equity accounted earnings | (53) | |||
|
| |||
Total changes in investments in associated entities | (53)�� | |||
|
| |||
Balance as of March 31, 2011 | 540 | |||
|
| |||
Opening balance as of April 01, 2011 | 540 | |||
|
| |||
Equity accounted earnings | 555 | |||
Other reductions, investments in associated entities | (25) | |||
Dividends received | (79) | |||
|
| |||
Total changes in investments in associated entities | 451 | |||
|
| |||
Closing balance as of December 31, 2011 | 991 | |||
|
| |||
Opening balance as of January 1, 2012 | 991 | |||
|
| |||
Equity accounted earnings | (79) | |||
Dividends received | (297) | |||
|
| |||
Other reductions, investments in associated entities | - | |||
|
| |||
Total changes in investments in associated entities | (376) | |||
|
| |||
Balance as of March 31, 2012 | 615 | |||
|
|
The Company records the gain or loss on its investments in associates on a monthly basis in the consolidated statement of income, using the equity method. The Company has no investments in associates which are not accounted for using the equity method.
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53
NOTE 16 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
Classes of intangible assets (net) | As of March 31, 2012 | As of December 31, 2011 | ||||||
ThUS$ | ThUS$ | |||||||
Computer software | 70,768 | 64,519 | ||||||
Other assets | 363 | 404 | ||||||
|
|
|
| |||||
Total | 71,131 | 64,923 | ||||||
|
|
|
| |||||
Classes of intangible assets (gross) | As of March 31, 2012 | As of December 31, 2011 | ||||||
ThUS$ | ThUS$ | |||||||
Computer software | 121,758 | 112,881 | ||||||
Other assets | 808 | 808 | ||||||
|
|
|
| |||||
Total | 122,566 | 113,689 | ||||||
|
|
|
|
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54
The movement in software and other assets between January 1, 2011 and March 31, 2012 is as follows:
Computer software Net | Other assets Net | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2011 | 45,183 | 566 | 45,749 | |||||||||
Additions | 3,379 | - | 3,379 | |||||||||
Withdrawals | (43) | - | (43) | |||||||||
Amortization | (2,426) | (41) | (2,467) | |||||||||
|
|
|
|
|
| |||||||
Balance as of March 31, 2011 | 46,093 | 525 | 46,618 | |||||||||
|
|
|
|
|
| |||||||
Opening balance as of April 01, 2011 | 46,093 | 525 | 46,618 | |||||||||
Additions | 25,811 | - | 25,811 | |||||||||
Withdrawals | (141) | - | (141) | |||||||||
Amortization | (7,244) | (121) | (7,365) | |||||||||
|
|
|
|
|
| |||||||
Balance as of December 31, 2011 | 64,519 | 404 | 64,923 | |||||||||
|
|
|
|
|
| |||||||
Opening balance as of January 1, 2012 | 64,519 | 404 | 64,923 | |||||||||
Additions | 8,877 | - | 8,877 | |||||||||
Amortization | (2,628) | (41) | (2,669) | |||||||||
|
|
|
|
|
| |||||||
Balance as of March 31, 2012 | 70,768 | 363 | 71,131 | |||||||||
|
|
|
|
|
|
Intangible assets with defined useful lives consist primarily of licensing and computer software, for which the Company has established useful lives of between 4 and 7 years.
The Company shows its intangible assets at cost, except for acquisitions by business combination, which are at fair value; and amortization is made on a straight-line basis over their estimated useful lives.
The amortization of each period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of March 31, 2012 amounts to ThUS$ 50,990 (ThUS$ 48,362 as of December 31, 2011). The accumulated amortization of other identifiable intangible assets as of March 31, 2012 amounts to ThUS$ 445 (ThUS$ 404 as of December 31, 2011).
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55
The goodwill represents the excess of cost of acquisition over the fair value of the participation of the Company in the identifiable net assets of the subsidiary at the acquisition date. Goodwill at March 31, 2012 amounted to ThUS$172,178 (ThUS$ 163,777 at December 31, 2011)
At December 31, 2011, the Company performed an impairment test based on the value in use and no impairment was identified. The testing is done at least once per year.
The value in use of those cash generating units to which goodwill has been assigned has been determined assuming that yields, occupation factors and fleet capacity are maintained at current obtainable levels. The Company projects cash flows for the initial periods based on internal budgets and extrapolates the final value of these periods based on a growth factor consistent with the long-term economic projections in the markets in which the units operate. The determined cash flows are discounted at a rate which takes into account the time value of money and risks related to those cash generating units which have not been taken into account in estimation of the units’ future cash flows.
The movement of goodwill from January 1, 2011 to March 31, 2012, is as follows:
ThUS$ | ||||
Opening balance as of January 1, 2011 | 157,994 | |||
Additions (1) | 6,736 | |||
Increase (decrease) due to exchange rate differences | (7) | |||
|
| |||
Closing balance as of March 31, 2011 | 164,723 | |||
|
| |||
Opening balance as of April 01, 2011 | 164,723 | |||
Amendment initial recognition (2) | (820) | |||
Increase (decrease) due to exchange rate differences | (126) | |||
|
| |||
Closing balance as of December 31, 2011 | 163,777 | |||
|
| |||
Opening balance as of January 1, 2012 | 163,777 | |||
Increase (decrease) due to exchange rate differences | 8,401 | |||
|
| |||
Closing balance as of March 31, 2012 | 172,178 | |||
|
|
(1) Corresponds to the goodwill generated by the purchase of Aeroasis S.A. (see Note 39).
(2) Corresponds to change of initial recognition goodwill generated by the purchase of the company Aerovías de Integración Regional, AIRES S.A.
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56
NOTE 18 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of property, plant and equipment is as follows:
Gross Book Value | Acumulated depreciation | Net Book Value | ||||||||||||||||||||||||
As of March 31, 2012 | As of December 31, 2011 | As of March 31, 2012 | As of 2011 | As of March 31, 2012 | As of December 31, 2011 | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Construction in progress | 1,218,443 | 1,087,563 | - | - | 1,218,443 | 1,087,563 | ||||||||||||||||||||
Land | 35,673 | 35,673 | - | - | 35,673 | 35,673 | ||||||||||||||||||||
Buildings | 101,253 | 101,123 | (23,806) | (23,185) | 77,447 | 77,938 | ||||||||||||||||||||
Plant and equipment | 4,862,208 | 5,380,663 | (1,164,436) | �� | (1,238,678) | 3,697,772 | 4,141,985 | |||||||||||||||||||
Own aircraft | 4,397,532 | 4,921,907 | (1,045,708) | (1,123,871) | 3,351,824 | 3,798,036 | ||||||||||||||||||||
Other | 464,676 | 458,756 | (118,728) | (114,807) | 345,948 | 343,949 | ||||||||||||||||||||
Information technology equipment | 91,825 | 89,678 | (68,757) | (67,087) | 23,068 | 22,591 | ||||||||||||||||||||
Fixed installations and accessories | 65,957 | 64,936 | (31,290) | (29,838) | 34,667 | 35,098 | ||||||||||||||||||||
Motor vehicles | 3,804 | 3,714 | (2,137) | (2,077) | 1,667 | 1,637 | ||||||||||||||||||||
Leasehold improvements | 94,703 | 94,485 | (67,840) | (62,986) | 26,863 | 31,499 | ||||||||||||||||||||
Other property, plants and equipment | 1,490,796 | 832,772 | (516,699) | (338,774) | 974,097 | 493,998 | ||||||||||||||||||||
Financial leasing aircraft | 1,431,724 | 772,887 | (488,661) | (308,805) | 943,063 | 464,082 | ||||||||||||||||||||
Other | 59,072 | 59,885 | (28,038) | (29,969) | 31,034 | 29,916 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total |
|
7,964,662
|
|
|
7,690,607
|
|
|
(1,874,965)
|
|
|
(1,762,625)
|
|
|
6,089,697
|
|
|
5,927,982
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
57
The movement in the different categories of property, plant and equipment from January 1, 2011 to March 31, 2012 is shown below:
(a) As of March 31, 2011 | ||||||||||||||||||||||||||||||||||||||||
Construction in progress | Land | Buildings net | Plant and equipment net | Information technology equipment net | Fixed installations & accessories net | Motor vehicles net | Leasehold improvements net | Other property, plant and equipment net | Property, Plant and equipment net | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||
Opening balance as of January 1, 2011 | 715,603 | 35,538 | 80,121 | 3,663,136 | 18,599 | 27,003 | 1,290 | 44,120 | 363,020 | 4,948,430 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Additions | 3,175 | - | 941 | 283,491 | 3,560 | 440 | 166 | - | 246 | 292,019 | ||||||||||||||||||||||||||||||
Acquisitions through business combination | - | - | - | - | - | - | - | - | 16 | 16 | ||||||||||||||||||||||||||||||
Transfers (to) from non-current assets (or disposal groups) classified as Held for Sale | (127) | - | - | (112) | (1,195) | (588) | (1) | - | (115) | (2,138) | ||||||||||||||||||||||||||||||
Retirements | - | - | (4) | (1,599) | (8) | - | - | - | (24) | (1,635) | ||||||||||||||||||||||||||||||
Depreciation expense | - | - | (597) | (63,536) | (1,428) | (1,094) | (49) | (4,585) | (7,483) | (78,772) | ||||||||||||||||||||||||||||||
Increases (decreases) due to exchanges differences | 82 | - | - | (436) | 44 | (67) | (1) | - | (22) | (400) | ||||||||||||||||||||||||||||||
Other increases (decreases) | 131,482 | - | 1,602 | (203,153) | 28 | 1,336 | - | - | 203,926 | 135,221 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Changes, total | 134,612 | - | 1,942 | 14,655 | 1,001 | 27 | 115 | (4,585) | 196,544 | 344,311 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Closing balance as of March 31, 2011 | 850,215 | 35,538 | 82,063 | 3,677,791 | 19,600 | 27,030 | 1,405 | 39,535 | 559,564 | 5,292,741 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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58
(b) As of December 31, 2011 | ||||||||||||||||||||||||||||||||||||||||
Construction in progress | Land | Buildings net | Plant and equipment net | Information technology equipment net | Fixed installations & accessories net | Motor vehicles net | Leasehold improvements net | Other property, plant and equipment net | Property, Plant and equipment net | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||
Opening balance as of April 1, 2011 | 850,215 | 35,538 | 82,063 | 3,677,791 | 19,600 | 27,030 | 1,405 | 39,535 | 559,564 | 5,292,741 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Additions | 26,723 | - | 170 | 745,077 | 8,325 | 6,223 | 377 | 6,555 | 18,826 | 812,276 | ||||||||||||||||||||||||||||||
Disposals | - | - | (2,681) | (109,936) | (8) | - | (6) | - | (537) | (113,168) | ||||||||||||||||||||||||||||||
Retirements | (150) | - | - | (3,218) | (77) | (23) | (17) | - | (308) | (3,793) | ||||||||||||||||||||||||||||||
Depreciation expenses | - | - | (2,705) | (201,526) | (4,926) | (2,508) | (166) | (15,353) | (23,125) | (250,309) | ||||||||||||||||||||||||||||||
Increases (decreases) due to exchanges differences | (934) | - | (95) | (335) | (107) | 13 | 19 | - | (73) | (1,512) | ||||||||||||||||||||||||||||||
Other increases (decreases) | 211,709 | 135 | 1,186 | 34,132 | (216) | 4,363 | 25 | 762 | (60,349) | 191,747 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Changes, total | 237,348 | 135 | (4,125) | 464,194 | 2,991 | 8,068 | 232 | (8,036) | (65,566) | 635,241 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Closing balance as of December 31, 2011 | 1,087,563 | 35,673 | 77,938 | 4,141,985 | 22,591 | 35,098 | 1,637 | 31,499 | 493,998 | 5,927,982 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
59
(c) As of March 31, 2012 | ||||||||||||||||||||||||||||||||||||||||
Construction in progress | Land | Buildings net | Plant and equipment net | Information technology equipment net | Fixed installations & accessories net | Motor vehicles net | Leasehold improvements net | Other property, plant and equipment net | Property, Plant and equipment net | |||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||
Opening balance as of January 1, 2012 | 1,087,563 | 35,673 | 77,938 | 4,141,985 | 22,591 | 35,098 | 1,637 | 31,499 | 493,998 | 5,927,982 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Additions | 9,912 | - | 23 | 130,736 | 2,642 | 964 | 141 | 422 | 5,490 | 150,330 | ||||||||||||||||||||||||||||||
Disposals | (11) | - | - | - | (14) | - | (1) | - | - | (26) | ||||||||||||||||||||||||||||||
Transfers (to) from non-current assets (or disposal groups) classified as Held for Sale | - | - | - | (5,500) | - | - | - | - | - | (5,500) | ||||||||||||||||||||||||||||||
Retirements | (894) | - | - | (1,083) | (151) | (455) | (54) | - | (828) | (3,465) | ||||||||||||||||||||||||||||||
Depreciation expenses | - | - | (882) | (73,329) | (1,705) | (1,121) | (59) | (5,179) | (7,664) | (89,939) | ||||||||||||||||||||||||||||||
Increases (decreases) due to exchanges differences | 52 | - | 88 | (967) | (18) | 2 | (10) | - | (1,734) | (2,587) | ||||||||||||||||||||||||||||||
Other increases (decreases) | 121,821 | - | 280 | (494,070) | (277) | 179 | 13 | 121 | 484,835 | 112,902 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Changes, total | 130,880 | - | (491) | (444,213) | 477 | (431) | 30 | (4,636) | 480,099 | 161,715 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Closing balance as of March 31, 2012 | 1,218,443 | 35,673 | 77,447 | 3,697,772 | 23,068 | 34,667 | 1,667 | 26,863 | 974,097 | 6,089,697 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
60
(d) Composition of the fleet
Aircraft included in the Company’s property, plant and equipment:
Aircraft
| Model
| As of March 31, | As of December 31, | |||||||||||
2012 | 2011 | |||||||||||||
Boeing 767 | 300ER | 21 | 21 | |||||||||||
Boeing 767 | 300F | 8 | 8 | |||||||||||
Boeing 767 | 200ER (*) | - | 1 | |||||||||||
Airbus A318 | 100 | 10 | 10 | |||||||||||
Airbus A319 | 100 | 26 | 24 | |||||||||||
Airbus A320 | 200 | 33 | 33 | |||||||||||
Airbus A340 | 300 | 4 | 4 | |||||||||||
|
| |||||||||||||
Total | 102 | 101 | ||||||||||||
|
|
(*) Leased to Aerovías de México S.A.; ending the first quarter of 2012 this aircraft was transferred to the line item non-current assets or groups of assets for disposal classified as held for sale.
Operating leases:
Aircraft | Model | As of March 31, | As of December 31, | |||||||||||||
2012 | 2011 | |||||||||||||||
Boeing 767 | 300ER | 10 | 10 | |||||||||||||
Boeing 767 | 300F | 4 | 4 | |||||||||||||
Boeing 777 | Freighter | 2 | 2 | |||||||||||||
Airbus A320 | 200 | 9 | 9 | |||||||||||||
Airbus A340 | 300 | 1 | 1 | |||||||||||||
Boeing 737 | 700 | 9 | 9 | |||||||||||||
Bombardier | Dhc8-200 | 10 | 10 | |||||||||||||
Bombardier | Dhc8-400 | 4 | 4 | |||||||||||||
|
|
| ||||||||||||||
Total | 49 | 49 | ||||||||||||||
|
|
| ||||||||||||||
Total fleet | 151 | 150 | ||||||||||||||
|
|
|
Table of Contents
61
(e) Method used for the depreciation of property, plant and equipment:
Method | Useful life | |||||
minimum | maximum | |||||
Buildings | Straight line without residual value | 20 | 50 | |||
Plant and equipment | Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet (*) | 5 | 20 | |||
Information technology equipment | Straight line without residual value | 5 | 10 | |||
Fixed installations and accessories | Straight line without residual value | 10 | 10 | |||
Motor vehicle | Straight line without residual value | 10 | 10 | |||
Leasehold improvements | Straight line without residual value | 5 | 5 | |||
Other property, plant and equipment | Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet (*) | 3 | 20 |
(*) | Except for certain technical components, which are depreciated on the basis of cycles and flight hours. |
The depreciation charged to income in the period ended March 31, 2012, which is included in the consolidated statement of income, amounts to ThUS$ 89,939 (ThUS$ 78,772 for the period ended March 31, 2011). Depreciation charges for the year are recognized in Cost of sales and Administrative expenses in the consolidated statement of income.
f) | Additional information regarding property, plant and equipment: |
i) | Property, plant and equipment pledged as guarantee: |
In the period ended March 31, 2012 direct guarantees were added for two aircraft Airbus A319-100 fleet. Additionally, the Company sold its participation in the permanent establishments Quetro Leasing LLC, Codorniz Leasing Limited, Pochard Leasing LLC, Garza Leasing LLC and Caiquen Leasing LLC. Product of the above the Company eliminated direct guarantees associated with two aircraft Airbus A319-100 and seven aircraft Boeing 767-300 (six passenger aircrafts and one freighter).
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62
Description of property, plant and equipment pledged as guarantee:
As of March 31, 2012 | As of December 31,2011 | |||||||||||||||||||
Creditor of guarantee | Assets committed | Fleet | Existing Debt | Book Value | Existing Debt | Book Value | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||
Wilmington Trust Company | Aircraft and engines | Boeing 767 | 691,707 | 850,991 | 1,032,921 | 1,305,915 | ||||||||||||||
Boeing 777 | 12,647 | 23,983 | 13,750 | 24,664 | ||||||||||||||||
BNP Paribas | Aircraft and engines | Airbus A318 | 183,277 | 223,651 | 187,705 | 239,530 | ||||||||||||||
Airbus A319 | 443,692 | 594,191 | 390,614 | 521,829 | ||||||||||||||||
Airbus A320 | 681,412 | 843,616 | 695,308 | 855,214 | ||||||||||||||||
Credite Agricole (*) | Aircraft and engines | Airbus A319 | 52,390 | 113,470 | 93,019 | 114,376 | ||||||||||||||
Airbus A320 | 28,347 | 160,794 | 34,530 | 163,746 | ||||||||||||||||
Airbus A340 | 45,379 | 211,523 | 54,491 | 215,978 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total direct guarantee | 2,138,851 | 3,022,219 | 2,502,338 | 3,441,252 | ||||||||||||||||
|
|
|
|
|
|
|
|
(*) Calyon creditor of guarantee renamed Credite Agricole
The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying value of the goods provided as guarantees.
Additionally, there are indirect guarantees related to assets recorded in property, plant and equipment whose total debt at March 31, 2012 amounted to ThUS $ 654,945 (ThUS $ 316,859 at December 31, 2011). The book value of assets with indirect guarantees as of March 31, 2012 amounts to ThUS$ 754,129 (ThUS$ 504,355 as of December 31, 2011).
ii) | Commitments and others |
Fully depreciated assets and commitments for future purchases are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Gross book value of fully depreciated property, plant and equipment still in use | 44,752 | 43,626 | ||||||
Commitments for the acquisition of aircraft (*) | 14,800,000 | 14,500,000 |
(*) According to the manufacturer’s price list.
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63
In December 2009, the Company signed a purchase commitment with Airbus for the purchase of 30 aircraft of the A320 family with deliveries between 2011 and 2016. Later, in December 2010 the Company made another commitment to the manufacturer for the purchase of 50 A320 family aircraft with deliveries between 2012 and 2016. Additionally, in June 2011, the Company signed a contract for 20 additional aircraft of the A320 NEO family with deliveries between 2017 and 2018.
With regards to the above, as of March 31, 2012, and as a result of different aircraft purchase contracts signed with Airbus S.A.S., there remain 88 Airbus aircraft of the A320 family to be delivered between 2012 and 2018. The approximate amount is ThUS$ 7,100,000, according to the manufacturer’s price list. Additionally, the Company has active purchase options for 4 A320 NEO aircraft.
During February, May and December 2011 purchase contracts were signed with The Boeing Company for 3, 5 and 2 B767-300 aircraft respectively.
As of March 31, 2012 and a as result of different aircraft contracts signed with The Boeing Company, 13 B767-300 aircraft remain to be delivered between 2012 and 2013, 2 B777-Freighter aircraft for delivery in 2012 and 26 B787 Dreamliner, aircraft with delivery dates from 2012. The approximate amount is ThUS$ 7,700,000, according to the manufacturer’s price list. In addition, the Company has purchase options over 1 B777- Freighter aircraft and 15 B787 Dreamliner aircraft.
The acquisition of the aircraft is part of the strategic plan for long haul fleet. This plan also means the sale of 15 aircraft model Airbus A318 between 2011 and 2013. It is estimated that this sale will have no significant impact on results. In 2011 the Company sold the first 5 aircraft. During 2012, the Company plans to sell 5 aircraft and during 2013 its plan is to sell the last 5 aircraft.
iii) | Capitalized interest costs with respect to property, plant and equipment. |
For the periods ended March 31, | ||||||||||
2012 | 2011 | |||||||||
Average rate of capitalization of capitalized interest costs | % | 3.40 | 4.39 | |||||||
Costs of capitalized interest | ThUS$ | 9,400 | 8,305 |
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64
iv) | Financial leases |
The detail of the main financial leases is as follows:
Lessor | Aircraft | Model | As of March 31, | As of December 31, | ||||||||||||
2012 | 2011 | |||||||||||||||
Bluebird Leasing LLC | Boeing 767 | 300F | 2 | 2 | ||||||||||||
Caiquen Leasing LLC | Boeing 767 | 300F | 1 | - | ||||||||||||
Cernicalo Leasing LLC | Boeing 767 | 300F | 2 | 2 | ||||||||||||
Codorniz Leasing Limited | Airbus A319 | 100 | 2 | - | ||||||||||||
Eagle Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
Garza Leasing LLC | Boeing 767 | 300ER | 1 | - | ||||||||||||
Linnet Leasing Limited | Airbus A320 | 200 | 4 | 4 | ||||||||||||
Petrel Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
Pochard Leasing LLC | Boeing 767 | 300ER | 2 | - | ||||||||||||
Quetro Leasing LLC | Boeing 767 | 300ER | 3 | - | ||||||||||||
Seagull Leasing LLC | Boeing 767 | 300F | 1 | 1 | ||||||||||||
|
| |||||||||||||||
Total | 20 | 11 | ||||||||||||||
|
|
Leasing contracts where the Company acts as the lessee of aircrafts establish a 12 year term and quarterly payments of obligations.
Additionally, the lessee will have the obligations to contract and maintain active the insurance coverage for the aircraft, perform maintenance on the aircraft and update the airworthiness certificates at their own cost.
Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of March 31, 2012 the Company had twenty aircraft as financial leases (eleven aircraft as of December 31, 2011).
In the periods ended March 31, 2012, due to the sale of its participation in the permanent establishments Caiquen Leasing LLC, Codorniz Leasing Limited, Garza Leasing LLC, Pochard Leasing LLC and Quetro Leasing LLC, the Company increased its number of aircraft on lease by seven Boeing 767-300 (one freighter and six passenger aircrafts) and two A319-100. Therefore, these aircraft were reclassified from the Plant and equipment category to the category Other property plant and equipment.
The book value of assets under financial leases as of March 31, 2012 amounts to ThUS$ 943,062 (ThUS$ 464,082 as of December 31, 2011).
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65
The minimum payments under financial leases are as follows:
As of March 31, 2012
Gross Value | Interest | Present Value | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
No later than one year | 134,858 | (20,425) | 114,433 | |||||||||
Between one and five years | 437,408 | (57,159) | 380,249 | |||||||||
Over five years | 164,091 | (7,861) | 156,230 | |||||||||
|
|
|
|
|
| |||||||
Total | 736,357 | (85,445) | 650,912 | |||||||||
|
|
|
|
|
| |||||||
As of December 31, 2011 | ||||||||||||
Gross Value | Interest | Present Value | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
No later than one year | 78,369 | (7,622) | 70,747 | |||||||||
Between one and five years | 207,365 | (18,657) | 188,708 | |||||||||
Over five years | 59,152 | (2,078) | 57,074 | |||||||||
|
|
|
|
|
| |||||||
Total | 344,886 | (28,357) | 316,529 | |||||||||
|
|
|
|
|
|
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Deferred tax assets and liabilities are offset if there is a legal right to offset assets and liabilities for income taxes relating to the same tax authority.
The balances of deferred taxes are as follows:
Assets | Liabilities | |||||||||||||||
Concept | As of March 31, | As of December 31, | As of March 31, | As of December 31, | ||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Depreciation | (525) | (547) | 325,507 | 338,741 | ||||||||||||
Amortization | 15,310 | 14,255 | 39,035 | 36,667 | ||||||||||||
Provisions | 7,286 | 7,036 | 55,566 | 48,681 | ||||||||||||
Post-employment benefit obligations | 938 | 865 | (1,288) | (924) | ||||||||||||
Revaluation of financial instruments | - | - | (28,583) | (28,788) | ||||||||||||
Tax losses | 45,275 | 35,300 | - | - | ||||||||||||
Others | 3,722 | 3,239 | 6,164 | (24,752) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 72,006 | 60,148 | 396,401 | 369,625 | ||||||||||||
|
|
|
|
|
|
|
|
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67
Movements of deferred tax assets and liabilities from January 1, 2011 to March 31, 2012 are as follows:
(a) From January 1 to March 31, 2011
Beginning balance | Recognized in consolidated | Recognized in comprehensive | Incorporation by business | Sale of | Ending balance | |||||||||||||||||||||||||||
asset (liability) | income | income | combinations | Reclassifications | Others | investment | asset (liability) | |||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Depreciation | (290,669) | 9,192 | - | - | - | - | (5) | (281,482) | ||||||||||||||||||||||||
Amortization | (17,320) | (2,394) | - | - | - | - | - | (19,714) | ||||||||||||||||||||||||
Provisions | (14,889) | (796) | - | - | - | - | (388) | (16,073) | ||||||||||||||||||||||||
Post-employment benefit obligations | 1,604 | 275 | - | - | - | - | - | 1,879 | ||||||||||||||||||||||||
Revaluation of financial instruments | 21,926 | - | (4,564) | - | - | - | - | 17,362 | ||||||||||||||||||||||||
Tax losses | 13,229 | 15,862 | - | 2,994 | (6,832) | - | - | 25,253 | ||||||||||||||||||||||||
Others | 12,191 | (39,847) | (42) | - | - | (14) | (67) | (27,779) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | (273,928) | (17,708) | (4,606) | 2,994 | (6,832) | (14) | (460) | (300,554) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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68
(b) From April 1 to December 31, 2011
Beginning balance asset (liability) | Recognized in consolidated income | Recognized in comprehensive income | Incorporation by business combinations | Reclassification | Others | Ending balance asset (liability) | ||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||
Depreciation | (281,482) | (57,806) | - | - | - | - | (339,288) | |||||||||||||||||||||
Amortization | (19,714) | (6,509) | - | 3,811 | - | - | (22,412) | |||||||||||||||||||||
Provisions | (16,073) | (25,572) | - | - | - | - | (41,645) | |||||||||||||||||||||
Post-employment benefit obligations | 1,879 | (90) | - | - | - | - | 1,789 | |||||||||||||||||||||
Revaluation of financial instruments | 17,362 | - | 11,426 | - | - | - | 28,788 | |||||||||||||||||||||
Tax losses | 25,253 | 12,854 | - | (2,994) | 187 | - | 35,300 | |||||||||||||||||||||
Others |
|
(27,779) |
|
|
56,389 |
|
|
1,888 |
|
|
- |
|
|
- |
|
|
(2,507) |
|
|
27,991 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | (300,554) | (20,734) | 13,314 | 817 | 187 | (2,507) | (309,477) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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69
(c) From January 1 to March 31, 2012
Beginning balance | Recognized in consolidated | Recognized in comprehensive | Ending balance | |||||||||||||||||
asset (liability) | income | income | Others | asset (liability) | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Depreciation | (339,288) | 13,256 | - | - | (326,032) | |||||||||||||||
Amortization | (22,412) | (1,313) | - | - | (23,725) | |||||||||||||||
Provisions | (41,645) | (6,635) | - | - | (48,280) | |||||||||||||||
Post-employment benefit obligations | 1,789 | 437 | - | - | 2,226 | |||||||||||||||
Revaluation of financial instruments | 28,788 | - | (205) | - | 28,583 | |||||||||||||||
Tax losses | 35,300 | 9,975 | - | - | 45,275 | |||||||||||||||
Others | 27,991 | (32,295) | (1,934) | 3,796 | (2,442) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | (309,477) | (16,575) | (2,139) | 3,796 | (324,395) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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70
Deferred tax assets not recognized: | As of March 31, 2012 | As of December 31, 2011 | ||||||
ThUS$ | ThUS$ | |||||||
Temporary differences | - | 2,152 | ||||||
Tax losses | 2,447 | 35 | ||||||
|
|
|
| |||||
Total Deferred tax assets not recognized | 2,447 | 2,187 | ||||||
|
|
|
|
Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company did not recognize deferred income tax assets of ThUS$ 2,447 (ThUS$ 35 at December 31, 2011) in respect to losses amounting to ThUS$ 7,197 (ThUS$ 103 at December 31, 2011) that can be carried against future taxable income.
Expense (income) for deferred and current income taxes for the years ended at March 31, 2012 and March 31, 2011, respectively, are as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Expense for current income tax | ||||||||
Current tax expense | 3,442 | 493 | ||||||
Adjustment to previous year’s current tax | (5,534) | 3,187 | ||||||
Other current tax expense (income) | 8 | (1,157) | ||||||
|
|
|
| |||||
Total current tax expense, net | (2,084) | 2,523 | ||||||
|
|
|
| |||||
Expense for deferred income taxes | ||||||||
Deferred expense (income) for taxes related to the creation and reversal of temporary differences | 14,155 | 16,535 | ||||||
Reduction (increase) in value of deferred tax assets | 2,412 | 1,173 | ||||||
|
|
|
| |||||
Total deferred tax expense, net | 16,567 | 17,708 | ||||||
|
|
|
| |||||
Income tax expense | 14,483 | 20,231 | ||||||
|
|
|
|
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71
Composition of income tax expense (income):
For the periods ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current tax expense, net, foreign | 2,967 | (336) | ||||||
Current tax expense, net, Chile | (5,051) | 2,859 | ||||||
|
|
|
| |||||
Total current tax expense, net | (2,084) | 2,523 | ||||||
|
|
|
| |||||
Deferred tax expense, net, foreign | (8,071) | (4,720) | ||||||
Deferred tax expense, net, Chile | 24,638 | 22,428 | ||||||
|
|
|
| |||||
Deferred tax expense, net, total | 16,567 | 17,708 | ||||||
|
|
|
| |||||
Income tax expense | 14,483 | 20,231 | ||||||
|
|
|
|
Reconciliation of tax expense using the legal rate to the tax expense using the effective rate:
For the periods ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Tax expense using the legal rate | 16,752 | 23,468 | ||||||
|
|
|
| |||||
Tax effect of legal rate change | (1,741) | (3,566) | ||||||
Tax effect of rates in other jurisdictions | (4,059) | 1,782 | ||||||
Tax effect of non-taxable operating revenues | (11,394) | (2,325) | ||||||
Tax effect of disallowable expenses | 14,782 | 1,004 | ||||||
Other increases (decreases) | 143 | (132) | ||||||
|
|
|
| |||||
Total adjustments to tax expense using the legal rate | (2,269) | (3,237) | ||||||
|
|
|
| |||||
Tax expense using the effective rate | 14,483 | 20,231 | ||||||
|
|
|
|
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72
Reconciliation of legal tax rate to effective tax rate:
For the periods ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
% | % | |||||||
Legal tax rate | 18.50 | 20.00 | ||||||
|
|
|
| |||||
Effect of tax rates for legal rate change | (1.92) | (3.04) | ||||||
Effect of tax rates in other jurisdictions | (4.48) | 1.50 | ||||||
Effect of tax rate on non-taxable operating revenues | (12.58) | (1.98) | ||||||
Effect of tax rate on disallowable expenses | 16.33 | 0.86 | ||||||
Other increase (decrease) | 0.16 | (0.12) | ||||||
|
|
|
| |||||
Total adjustment to the legal tax rate | (2.49) | (2.78) | ||||||
|
|
|
| |||||
Total effective tax rate | 16.01 | 17.22 | ||||||
|
|
|
|
Deferred taxes related to items charged to net equity:
For the periods ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Aggregate deferred taxation of components of other comprehensive income | (2,139) | (4,606) | ||||||
Aggregate deferred taxation related to items charged to net equity | - | (112) | ||||||
|
|
|
| |||||
Total deferred taxes related to items charged to net equity | (2,139) | (4,718) | ||||||
|
|
|
|
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73
Deferred tax effects of the components of other comprehensive income:
As of March 31, 2012 | ||||||||||||
Amount before Taxes | Income tax expense (income) | Amount after Taxes | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Cash-flow hedges | (1,207) | 205 | (1,002) | |||||||||
Translation adjustment | (11,379) | 1,934 | (9,445) | |||||||||
|
| |||||||||||
2,139 | ||||||||||||
|
| |||||||||||
As of March 31, 2011 | ||||||||||||
Amount before Taxes | Income tax expense (income) | Amount after Taxes | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Cash-flow hedges | (26,849) | 4,564 | (22,285) | |||||||||
Translation adjustment | (246) | 42 | (204) | |||||||||
|
| |||||||||||
4,606 | ||||||||||||
|
|
Table of Contents
74
NOTE 20 – OTHER FINANCIAL LIABILITIES
The composition of other financial liabilities is as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
(a) Bank loans | 561,066 | 537,334 | ||||||
(b) Other financial liabilities | 4,797 | 4,907 | ||||||
(c) Hedge liabilities | 40,951 | 40,016 | ||||||
|
|
|
| |||||
Total Current | 606,814 | 582,257 | ||||||
|
|
|
| |||||
Non-current | ||||||||
(a) Bank loans | 3,030,417 | 2,978,973 | ||||||
(b) Other financial liabilities | 8,757 | 9,859 | ||||||
(c) Hedge liabilities | 111,202 | 120,304 | ||||||
|
|
|
| |||||
Total Non-current |
|
3,150,376 |
| 3,109,136 | ||||
|
|
|
| |||||
a) Interest bearing loans |
Obligations with credit institutions and debt instruments:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Exporters loans | 178,597 | 153,386 | ||||||
Bank loans | 583 | 379 | ||||||
Guaranteed obligations | 263,163 | 310,217 | ||||||
Financial leases | 114,433 | 70,747 | ||||||
Other loans | 4,290 | 2,605 | ||||||
|
|
|
| |||||
Total current | 561,066 | 537,334 | ||||||
|
|
|
| |||||
Non-current | ||||||||
Bank loans | 250,900 | 247,725 | ||||||
Guaranteed obligations | 1,845,676 | 2,159,055 | ||||||
Financial leases | 536,479 | 245,782 | ||||||
Other loans | 397,362 | 326,411 | ||||||
|
|
|
| |||||
Total non-current | 3,030,417 | 2,978,973 | ||||||
|
|
|
| |||||
Total obligations with financial institutions |
|
3,591,483 |
|
|
3,516,307 |
| ||
|
|
|
|
Table of Contents
75
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 repricing of the loan.
Currency balances that make the interest bearing loans at March 31, 2012 and December 31, 2011, are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
US Dollar | 3,591,483 | 3,516,307 | ||||||
|
|
|
| |||||
Total | 3,591,483 | 3,516,307 | ||||||
|
|
|
|
Table of Contents
76
Interest-bearing loans due in installments at March 31, 2012
Class of Liability | Debtor Tax No. | Debtor | Debtor country | Creditor Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than three years | More than three to five years | More than five years | Total | Amortization | Effective rate | Nominal value | Nominal rate | |||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | ThUS$ | % | ||||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US$ | 2,633 | 8,060 | 23,060 | 25,491 | 51,365 | 110,609 | Quarterly | 5.69% | 109,122 | 5.01% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US$ | 18,331 | 46,039 | 45,128 | 16,618 | - | 126,116 | Quarterly | 4.52% | 126,719 | 4.52% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US$ | 3,414 | 10,364 | 26,885 | 12,540 | 23,249 | 76,452 | Quarterly | 4.76% | 75,625 | 4.31% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BNP PARIBAS | U.S.A. | US$ | 14,418 | 44,253 | 126,243 | 139,085 | 219,287 | 543,286 | Quarterly | 4.31% | 534,888 | 3.85% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | WELLS FARGO | U.S.A. | US$ | 3,975 | 12,144 | 33,925 | 36,304 | 98,647 | 184,995 | Quarterly | 3.64% | 181,220 | 3.53% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US$ | 9,119 | 27,694 | 77,245 | 82,345 | 241,007 | 437,410 | Quarterly | 2.54% | 425,833 | 2.25% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | 4,857 | 14,685 | 40,304 | 41,987 | 133,227 | 235,060 | Quarterly | 1.19% | 228,192 | 1.05% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | JP MORGAN | U.S.A. | US$ | 4,194 | 12,694 | 34,931 | 36,471 | 133,854 | 222,144 | Quarterly | 1.10% | 214,171 | 0.95% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BTMU | U.S.A. | US$ | 2,473 | 7,475 | 20,712 | 21,793 | 83,204 | 135,657 | Quarterly | 1.45% | 130,804 | 1.30% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | APPLE BANK | U.S.A. | US$ | 1,209 | 3,662 | 10,156 | 10,704 | 41,389 | 67,120 | Quarterly | 1.50% | 64,796 | 1.35% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | SWAP Aviones llegados | - | US$ | 941 | 2,703 | 6,133 | 4,461 | 3,231 | 17,469 | - | - | 17,469 | - | |||||||||||||||||||||||||||||||||||||
Financial leases | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US$ | 7,365 | 20,961 | 55,227 | 13,499 | 7,244 | 104,296 | Quarterly | 3.93% | 104,456 | 3.73% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US$ | 4,534 | 13,823 | 34,415 | 55,795 | 5,403 | 113,970 | Quarterly | 1.50% | 114,206 | 1.50% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US$ | 3,695 | 6,430 | 31,421 | 12,892 | 20,315 | 74,753 | Quarterly | 4.92% | 74,061 | 4.42% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | S.CHARTERED | U.S.A. | US$ | 1,740 | 5,387 | 5,638 | - | - | 12,765 | Quarterly | 1.47% | 12,771 | 1.47% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US$ | 11,536 | 35,262 | 100,496 | 110,283 | 91,583 | 349,160 | Quarterly | 5.29% | 345,418 | 4.70% | |||||||||||||||||||||||||||||||||||||
Loans to exporters | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | 12,500 | - | - | - | - | 12,500 | Semiannual | 2.35% | 12,690 | 2.35% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.004.000-5 | BANCO DE CHILE | Chile | US$ | - | 30,000 | - | - | - | 30,000 | Semiannual | 2.21% | 30,086 | 2.21% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 76,645,030-K | ITAU | Chile | US$ | 75,000 | - | - | - | - | 75,000 | Quarterly | 1.31% | 75,017 | 1.31% | |||||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.032.000-8 | BBVA | Chile | US$ | - | 60,000 | - | - | - | 60,000 | Annual | 2.21% | 60,804 | 2.13% | |||||||||||||||||||||||||||||||||||||
Bank loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | - | - | 206,074 | - | - | 206,074 | - | 2.47% | 206,301 | 2.47% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.030.000-7 | ESTADO | Chile | US$ | - | - | 44,848 | - | - | 44,848 | Semiannual | 1.82% | 45,182 | 1.81% | |||||||||||||||||||||||||||||||||||||
Other Loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | BOEING | U.S.A. | US$ | - | - | 340,914 | - | - | 340,914 | - | 2.08% | 345,205 | 2.08% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | - | OTROS | - | US$ | - | - | 32,488 | 26,472 | - | 58,960 | Quarterly | 2.28% | 56,447 | 2.28% | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Total | 181,934 | 361,636 | 1,296,243 | 646,740 | 1,153,005 | 3,639,558 | 3,591,483 | |||||||||||||||||||||||||||||||||||||||||||||
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77
Interest-bearing loans due in installments at December 31, 2011
Class of Liability | Debtor Tax No. | Debtor | Debtor country | Creditor Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Amortization | Effective rate | Nominal value | Nominal rate | |||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | ThUS$ | % | ||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US$ | 2,584 | 7,961 | 22,779 | 25,172 | 54,697 | 113,193 | Quarterly | 5.69% | 111,605 | 5.01% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US$ | 19,373 | 57,624 | 64,797 | 33,089 | 7,158 | 182,041 | Quarterly | 4.05% | 182,875 | 4.05% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US$ | 11,515 | 35,377 | 100,266 | 90,741 | 116,461 | 354,360 | Quarterly | 5.18% | 350,084 | 4.61% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BNP PARIBAS | U.S.A. | US$ | 14,230 | 43,705 | 124,762 | 137,393 | 237,427 | 557,517 | Quarterly | 4.27% | 548,525 | 3.81% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | WELLS FARGO | U.S.A. | US$ | 3,946 | 12,031 | 33,640 | 35,999 | 103,326 | 188,942 | Quarterly | 3.64% | 184,969 | 3.53% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US$ | 10,285 | 31,428 | 88,005 | 94,388 | 273,601 | 497,707 | Quarterly | 2.94% | 484,801 | 2.61% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | 4,822 | 14,611 | 40,108 | 41,767 | 138,574 | 239,882 | Quarterly | 1.14% | 232,677 | 1.01% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | JP MORGAN | U.S.A. | US$ | 4,151 | 12,635 | 34,726 | 36,288 | 138,495 | 226,295 | Quarterly | 1.09% | 217,978 | 0.94% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | BTMU | U.S.A. | US$ | 1,886 | 5,742 | 15,876 | 16,702 | 65,657 | 105,863 | Quarterly | 1.41% | 102,065 | 1.26% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | APPLE BANK | U.S.A. | US$ | 643 | 1,957 | 5,440 | 5,740 | 22,761 | 36,541 | Quarterly | 1.37% | 35,254 | 1.22% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | SWAP Aviones llegados | - | US$ | 969 | 2,770 | 8,887 | 3,792 | 2,021 | 18,439 | - | - | 18,439 | - | |||||||||||||||||||||||||||||||||||
Financial leases | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | ING | U.S.A. | US$ | 7,258 | 21,816 | 59,161 | 13,340 | 9,001 | 110,576 | Quarterly | 3.94% | 110,707 | 3.73% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CREDITE AGRICOLE | France | US$ | 3,136 | 9,534 | 25,518 | 41,240 | - | 79,428 | Quarterly | 1.46% | 79,552 | 1.46% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | CITIBANK | U.S.A. | US$ | 2,357 | 4,842 | 19,227 | - | - | 26,426 | Quarterly | 1.85% | 26,467 | 1.82% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | S.CHARTERED | U.S.A. | US$ | 1,716 | 5,303 | 7,462 | - | - | 14,481 | Quarterly | 1.56% | 14,488 | 1.56% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 0-E | PEFCO | U.S.A. | US$ | 3,181 | 9,826 | 27,939 | 30,653 | 14,349 | 85,948 | Quarterly | 5.22% | 85,315 | 4.68% | |||||||||||||||||||||||||||||||||||
Loans to exporters | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | - | 12,500 | - | - | - | 12,500 | Semiannual | 2.35% | 12,615 | 2.35% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.004.000-5 | BANCO DE CHILE | Chile | US$ | - | 30,000 | - | - | - | 30,000 | Semiannual | 1.91% | 30,224 | 1.91% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 76,645,030-K | ITAU | Chile | US$ | 50,000 | - | - | - | - | 50,000 | Quarterly | 1.51% | 50,065 | 1.51% | |||||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.032.000-8 | BBVA | Chile | US$ | - | 60,000 | - | - | - | 60,000 | Annual | 2.21% | 60,482 | 2.13% | |||||||||||||||||||||||||||||||||||
Bank loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 97.036.000-K | SANTANDER | Chile | US$ | - | - | 202,899 | - | - | 202,899 | - | 2.55% | 203,129 | 2.55% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | 97.030.000-7 | ESTADO | Chile | US$ | - | - | 44,848 | - | - | 44,848 | Semiannual | 1.82% | 44,975 | 1.81% | |||||||||||||||||||||||||||||||||||
Other Loans | 89.862.200-2 | Lan Airlines S.A. | Chile | 0-E | BOEING | U.S.A. | US$ | - | - | 269,965 | - | - | 269,965 | - | 1.87% | 272,569 | 1.87% | |||||||||||||||||||||||||||||||||
Lan Airlines S.A. | Chile | - | OTROS | - | US$ | - | - | - | 58,960 | - | 58,960 | Quarterly | 2.43% | 56,447 | 2.43% | |||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 142,052 | 379,662 | 1,196,305 | 665,264 | 1,183,528 | 3,566,811 | 3,516,307 | |||||||||||||||||||||||||||||||||||||||||||
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78
b) | Other financial liabilities |
The detail of other financial liabilities as of March 31, 2012 and December 31, 2011, respectively, is as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Interest rate derivative not recognized as a hedge | 4,797 | 4,907 | ||||||
|
|
|
| |||||
Total current |
|
4,797 |
| 4,907 | ||||
|
|
|
| |||||
Non-current | ||||||||
Interest rate derivative not recognized as a hedge | 8,757 | 9,859 | ||||||
|
|
|
| |||||
Total non-current |
|
8,757 |
| 9,859 | ||||
|
|
|
| |||||
Total other financial liabilities |
|
13,554 |
| 14,766 | ||||
|
|
|
|
c) | Hedging liabilities |
Hedging liabilities as of March 31, 2012 and December 31, 2011 are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Interest from the last date of interest rate swap | 4,792 | 5,027 | ||||||
Fair value interest rate derivatives | 35,998 | 34,105 | ||||||
Fair value of foreign currency derivatives | 161 | 884 | ||||||
|
|
|
| |||||
Total current | 40,951 | 40,016 | ||||||
|
|
|
| |||||
Non-current | ||||||||
Fair value interest rate derivatives | 111,202 | 120,304 | ||||||
|
|
|
| |||||
Total non-current | 111,202 | 120,304 | ||||||
|
|
|
| |||||
Total hedging liabilities | 152,153 | 160,320 | ||||||
|
|
|
|
The foreign currency derivatives correspond to forward exchange contracts.
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79
Hedging operation
The fair values by type of derivative, of the contracts held as hedging instruments are presented below:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Forward starting swaps (FSS) (1) | (20,002) | (19,703) | ||||||
Interest rate options (2) | 44 | 73 | ||||||
Interest rate swaps (3) | (131,990) | (139,733) | ||||||
Fuel collars (4) | 17,077 | 19,016 | ||||||
Fuel swap (5) | 10,396 | 11,599 | ||||||
Currency forward (6) | (161) | (253) |
(1) | Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate for long-term loans incurred in the acquisition of aircraft to be produced from the future contract date. These contracts are recorded as cash flow hedges. |
(2) | Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate for long-term loans incurred in the acquisition of aircraft. These contracts are recorded as cash flow hedges. |
(3) | Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3, 6 and 12 months LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedges. |
(4) | Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. |
(5) | Covers the significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. |
(6) | Covers investments denominated in Chilean pesos to changes in the US Dollar - Chilean Peso exchange rate, with the aim of ensuring investment in dollars. |
During the periods presented, the Company only maintains cash flow hedges. In the case of fuel hedges, the cash flows subject to said hedges will impact results between 1 to 9 months from the consolidated statement of financial position date, whereas in the case of interest rate hedging, the hedges will impact results over the life of the related loans, which are valid for 12 years. The hedges on investments will impact results continuously throughout the life of the investment (up to 3 months), while the cash flows occur at the maturity of the investment.
During the periods presented, all hedged highly probable forecast transactions have occurred.
During the periods presented, there has been no hedge ineffectiveness recognized in the consolidated statement of income.
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80
Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.
The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Debit (credit) recognized in comprehensive income during the year | 1,207 | 26,849 | ||||||
Debit (credit) transferred from net equity to income during the year | 727 | 12,674 |
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81
NOTE 21 - TRADE AND OTHER ACCOUNTS PAYABLES
The composition of trade and other accounts payables is as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
(a) Trade and other accounts payable | 542,438 | 531,481 | ||||||
(b) Accrued liabilities at the reporting date | 105,699 | 113,605 | ||||||
|
|
|
| |||||
Total trade and other accounts payables | 648,137 | 645,086 | ||||||
|
|
|
|
a) Trade and other accounts payable as of March 31, 2012 and December 31, 2011 are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Trade creditors | 433,837 | 410,533 | ||||||
Leasing obligations | 18,536 | 18,849 | ||||||
Other accounts payable (*) | 90,065 | 102,099 | ||||||
|
|
|
| |||||
Total | 542,438 | 531,481 | ||||||
|
|
|
|
(*) Includes agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in Note 22.
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82
Trade and other accounts payables by concept:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Aircraft fuel | 125,566 | 134,088 | ||||||
Boarding Fee | 74,656 | 80,253 | ||||||
Landing and other aviation fees | 40,070 | 41,900 | ||||||
Suppliers’ technical purchases | 35,264 | 36,387 | ||||||
Handling and ground handling | 37,623 | 34,743 | ||||||
Other personnel expenses | 39,338 | 32,833 | ||||||
Professional services and advisory | 24,566 | 29,870 | ||||||
Marketing | 21,748 | 22,183 | ||||||
Aircraft and engines leasing | 18,536 | 18,849 | ||||||
U.S.A. Department of Justice (*) | 18,097 | 18,387 | ||||||
In-flight services | 15,542 | 12,929 | ||||||
Maintenance | 8,748 | 11,252 | ||||||
Crew | 9,408 | 9,780 | ||||||
Aviation insurance | 15,239 | 6,274 | ||||||
Communication | 3,838 | 5,881 | ||||||
Others
|
| 54,199
|
|
| 35,872
|
| ||
|
|
|
| |||||
Total trade and other accounts payables | 542,438 | 531,481 | ||||||
|
|
|
|
(*) Includes agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in Note 22.
b) The liabilities accrued at March 31, 2012 and December 31, 2011, are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Aircraft and engine maintenance | 13,949 | 11,178 | ||||||
Accounts payable to personnel | 19,037 | 38,391 | ||||||
Accrued personnel expenses | 53,446 | 46,034 | ||||||
Others accrued liabilities | 19,267 | 18,002 | ||||||
|
|
|
| |||||
Total accrued liabilities | 105,699 | 113,605 | ||||||
|
|
|
|
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83
The detail of other provisions as of March 31, 2012 and December 31, 2011 is as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current | ||||||||
Provision legal claims (1) | 7,361 | 7,363 | ||||||
|
|
|
| |||||
Total other provisions, current | 7,361 | 7,363 | ||||||
|
|
|
| |||||
Non-current | ||||||||
Provision legal claims (1) | 11,932 | 11,710 | ||||||
Provision for European Commision investigation (2) | 10,959 | 10,675 | ||||||
|
|
|
| |||||
Total other provisions, non-current |
|
22,891 |
| 22,385 | ||||
|
|
|
| |||||
Total other provisions |
|
30,252 |
| 29,748 | ||||
|
|
|
|
(1) The amount represents a provision for certain legal claims made against the Company by former employees, regulatory agencies and others. The charge for the provision is shown in the consolidated statement of income in Administrative expenses. It is expected that the current balance as of March 31, 2012 will be applied during the next 12 months.
(2) Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.
The movement of provisions between January 1, 2011 and March 31, 2012 is as follows:
0000000000 | 0000000000 | 0000000000 | ||||||||||
Legal claims | European Commission Investigation | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2011 | 21,957 | 10,916 | 32,873 | |||||||||
Increase in provisions | 123 | - | 123 | |||||||||
Acquisition through business combination | - | - | - | |||||||||
Provision used | (166) | - | (166) | |||||||||
Reversal of unused provision | (36) | - | (36) | |||||||||
Exchange difference | 320 | - | 320 | |||||||||
|
|
|
|
|
| |||||||
Balance as of March 31, 2011 | 22,198 | 10,916 | 33,114 | |||||||||
|
|
|
|
|
|
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84
Commission | Commission | Commission | ||||||||||
Legal claims | European Commission Investigation | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of April 1, 2011 | 22,198 | 10,916 | 33,114 | |||||||||
Increase in provisions | 11,962 | - | 11,962 | |||||||||
Provision used | (3,426) | - | (3,426) | |||||||||
Reversal of unused provision | (11,482) | - | (11,482) | |||||||||
Exchange difference | (179) | (241) | (420) | |||||||||
|
|
|
|
|
| |||||||
Balance as of December 31, 2011 | 19,073 | 10,675 | 29,748 | |||||||||
|
|
|
|
|
| |||||||
| Legal claims | | | European Commission Investigation | | Total | ||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2012 | 19,073 | 10,675 | 29,748 | |||||||||
Increase in provisions | 57 | - | 57 | |||||||||
Provision used | (51) | - | (51) | |||||||||
Exchange difference | 214 | 284 | 498 | |||||||||
|
|
|
|
|
| |||||||
Balance as of March 31, 2012 | 19,293 | 10,959 | 30,252 | |||||||||
|
|
|
|
|
|
European Commission Provision:
(a) This provision was established because of the investigation brought by the Directorate General for Competition of the European Commission against more than 25 cargo airlines, including Lan Cargo S.A., as part of a global investigation begun in 2006 regarding possible unfair competition on the air cargo market. This was a joint investigation by the European and U.S.A. authorities. The start of the investigation was disclosed through a significant 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 aPlea Agreement with the U.S.A. Department of Justice, as disclosed in a significant matter report notice on January 21, 2009.
(b) A significant matter report dated November 9, 2010, reported that the General Direction of Competition had issued its decision on this case (the “decision”), under which it imposed fines totaling € 799,445,000 (seven hundred and ninety nine million four hundred and forty-five thousand Euros) for infringement of European Union regulations on free competition against eleven (11) airlines, among which are Lan Airlines S.A. and Lan Cargo S.A., Air Canada, Air France, KLM, British Airways, Cargolux, Cathay Pacific, Japan Airlines, Qantas Airways, SAS and Singapore Airlines.
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85
(c) Jointly, Lan Airlines 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 LAN. This is a minor fine in comparison to the original decision, as there was a significant reduction in fine because LAN cooperated during the investigation.
(d) On January 24, 2011, Lan Airlines S.A. and Lan Cargo S.A. appealed the decision before the Court of Justice of the European Union. At March 31, 2012, the provision reached the amount of ThUS$ 10,959 (ThUS$ 10,675 at December 31, 2011)
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NOTE 23 – OTHER CURRENT NON-FINANCIAL LIABILITIES
Other current non-financial liabilities as of March 31, 2012 and December 31, 2011 are as follows:
December | December | |||||||
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Deferred revenues | 903,311 | 969,873 | ||||||
Dividends payable | 23,098 | 85,318 | ||||||
Other sundry liabilities | 5,839 | 2,446 | ||||||
|
|
|
| |||||
Total other non-financial liabilities, current | 932,248 | 1,057,637 | ||||||
|
|
|
|
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Provisions for employee benefits as of March 31, 2012 and December 31, 2011, respectively, are as follows:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Pension payments | 5,198 | 3,559 | ||||||
Termination payments | 254 | 280 | ||||||
Other obligations | 10,563 | 9,293 | ||||||
|
|
|
| |||||
Total provisions for employee benefits, non-current | 16,015 | 13,132 | ||||||
|
|
|
|
(a) The movement in payments for termination indemnities and other obligations between January 1, 2011 and March 31, 2012 is as follows:
ThUS$ | ||||
Opening balance as of January 1, 2011 | 9,657 | |||
Increase (decrease) current service provision | 914 | |||
|
| |||
Balance as of March 31, 2011 | 10,571 | |||
|
| |||
Opening balance as of April 1, 2011 | 10,571 | |||
Increase (decrease) current service provision | 2,561 | |||
|
| |||
Balance as of December 31, 2011 | 13,132 | |||
|
| |||
Opening balance as of January 1, 2012 | 13,132 | |||
Increase (decrease) current service provision | 2,883 | |||
|
| |||
Balance as of March 31, 2012 | 16,015 | |||
|
|
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(b) The provision for short-term benefits as of March 31, 2012 and December 31, 2011 respectively, is detailed below:
As of March 31, 2012 ThUS$ | As of December 31, 2011 ThUS$ | |||||||
Profit-sharing and bonuses | 19,037 | 38,391 | ||||||
|
|
|
|
The participation in profits and bonuses corresponds to an annual incentives plan for achievement of objectives.
(c) Employment expenses are detailed below:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Salaries and wages | 213,465 | 178,513 | ||||||
Short-term employee benefits | 40,797 | 22,780 | ||||||
Termination benefits | 6,083 | 5,118 | ||||||
Other personnel expenses | 38,251 | 31,682 | ||||||
|
|
|
| |||||
Total | 298,596 | 238,093 | ||||||
|
|
|
|
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NOTE 25 – NON-CURRENT ACCOUNTS PAYABLE
Non-current accounts payable as of March 31, 2012 and December 31, 2011 are as follows:
As of March 31, 2012 ThUS$ | As of December 31, 2011 ThUS$ | |||||||
Fleet financing (JOL) | 274,805 | 271,965 | ||||||
Other accounts payable (*) | 18,000 | 36,000 | ||||||
Aircraft and engine maintenance | 37,468 | 38,540 | ||||||
Provision for vacations and bonuses | 7,607 | 7,982 | ||||||
Other sundry liabilities | 459 | 443 | ||||||
|
|
|
| |||||
Total non-current liabilities | 338,339 | 354,930 | ||||||
|
|
|
|
(*) Agreement entitled “Plea Agreement” with the Department of Justice of United States of America; its short-term part is in trade and other payables. See details in Note 22.
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91
(a) Capital
The capital of the Company is managed and composed in the following form:
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 at March 31, 2012 amounts to ThUS$ 484,133, divided into 340,999,909 common stock of a same series (ThUS$ 473,907, divided into 340,326,431 shares as of December 31, 2011), no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.
(b) Subscribed and paid shares
As of March 31, 2012, the total number of shares authorized is 488,355,882 shares no par value, according to the capital increase approved at the Extraodinary Shareholders’ Meeting of December 21, 2011 by 147,355,882 ordinary shares no par value. Of this increase, 142,555,882 shares, will be allocated to the proposed merger with companies Sister Holdco S.A. and Holdco II S.A.; and 4,800,000 shares will be allocated to compensation plans for employees of the Company and its subsidiaries. At the end of this period, the total suscribed shares before the capital increase mentioned above, are fully paid 340,999,909. During the first quarter of 2012, have been exercised options for 673,478 shares and due to the deadline for exercising the options have been canceled 91 shares that have been deducted from the authorized capital. The shares for the capital increase of December 21, 2011 are subject to compliance with the conditions described in the minutes of the special meeting held on that date, it was approved for issue by the Superintendency of Securities and Insurance dated April 17, 2012. The resolutions adopted at such meeting, including the capital increase is not considered perfected until the conditions are met.
At December 31, 2011, of the total shares subscribed, 340,326,431 shares have been fully paid (includes 7,000 shares paid on December 30, 2011 and registered in the Register of Shareholders in January 2012), leaving 673,569 shares reserved for issuance under option contracts.
(c) Treasury stock
At March 31, 2012, of the total number of shares subscribed and paid, the Company acquired 7,401 shares, from the shareholders who exercised the right to retirement, for an amount of ThUS$ 203.
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(d) | Other sundry reserves |
The movement of Other sundry reserves between January 1, 2011 and March 31, 2012 is as follows:
(1,801) | (1,801) | (1,801) | (1,801) | (1,801) | ||||||||||||
Stock option plans | Other reserves | Total | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
Opening balance as of January 1, 2011 | 5,401 | 62 | 5,463 | |||||||||||||
Stock option plans | 660 | - | 660 | |||||||||||||
Deferred tax | (112) | - | (112) | |||||||||||||
Legal reserves | - | 389 | 389 | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of March 31, 2011 | 5,949 | 451 | 6,400 | |||||||||||||
|
|
|
|
|
| |||||||||||
Opening balance as of April 1, 2011 | 5,949 | 451 | 6,400 | |||||||||||||
Stock option plans | 1,424 | - | 1,424 | |||||||||||||
Deferred tax | (243) | - | (243) | |||||||||||||
Transactions with non-controlling interest | - | (1,801) | (1,801) | |||||||||||||
Capitalization share issuance and placement costs (1) | - | 2,672 | 2,672 | |||||||||||||
Legal reserves | - | 40 | 40 | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of December 31, 2011 | 7,130 | 1,362 | 8,492 | |||||||||||||
|
|
|
|
|
| |||||||||||
Opening balance as of January 1, 2012 | 7,130 | 1,362 | 8,492 | |||||||||||||
Share issuance and placement costs fusion TAM | - | - | - | |||||||||||||
Legal reserves | - | 50 | 50 | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of March 31, 2012 | 7,130 | 1,412 | 8,542 | |||||||||||||
|
|
|
|
|
|
(1) | Capitalization share issuance and placement costs caused by the capital increase carried out in 2007, as set out extraordinary share holders meeting held on December 21, 2011. |
(d.1) | Reserves for stock option plans |
These reserves are related to the share-based payments explained in Note 36.
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(d.2) | Other reserves |
The balance of Other reserves comprises the following:
As of March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Reserve for the adjustment of the value of fixed assets (1) | 2,620 | 2,620 | ||||||
Transactions with non-controlling interest (2) | (1,801) | (1,801) | ||||||
Others | 593 | 543 | ||||||
|
|
|
| |||||
Total | 1,412 | 1,362 | ||||||
|
|
|
|
(1) 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.
(2) Corresponds to the loss generated by the participation of Lan Pax Group S.A., in the capital increase for Aerovías de Integración Regional, AIRES S.A.
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(e) | Reserves with effect in other comprehensive income. |
The movement of Reserves with effect in other comprehensive income between January 1, 2011 and March 31, 2012 is as follows:
Currency translation reserve | Cash flow hedging reserve | Total | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
Opening balance as of January 1, 2011 | (4,257) | (107,050) | (111,307) | |||||||||||||
Derivatives valuation gains (losses) | - | 26,849 | 26,849 | |||||||||||||
Deferred tax | (8) | (4,564) | (4,572) | |||||||||||||
Currency translation differences | 46 | - | 46 | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of March 31, 2011 | (4,219) | (84,765) | (88,984) | |||||||||||||
|
|
|
|
|
| |||||||||||
Opening balance as of April 1, 2011 | (4,219) | (84,765) | (88,984) | |||||||||||||
Derivatives valuation gains (losses) | - | (67,217) | (67,217) | |||||||||||||
Deferred tax | 1,863 | 11,426 | 13,289 | |||||||||||||
Currency translation differences | (10,961) | - | (10,961) | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of December 31, 2011 | (13,317) | (140,556) | (153,873) | |||||||||||||
|
|
|
|
|
| |||||||||||
Opening balance as of January 1, 2012 | (13,317) | (140,556) | (153,873) | |||||||||||||
Derivatives valuation gains (losses) | - | 1,207 | 1,207 | |||||||||||||
Deferred tax | (1,942) | (205) | (2,147) | |||||||||||||
Currency translation differences | 11,424 | - | 11,424 | |||||||||||||
|
|
|
|
|
| |||||||||||
Balance as of March 31, 2012 | (3,835) | (139,554) | (143,389) | |||||||||||||
|
|
|
|
|
|
(e.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.
(e.2) | Cash flow hedging reserve |
These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.
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(f) | Retained earnings |
The movement of retained earnings between January 1, 2011 and March 31, 2012 is as follows:
ThUS$ | ||||
Opening balance as of January 1, 2011 | 949,214 | |||
Result for the year | 97,235 | |||
Dividends | (29,170) | |||
|
| |||
Balance as of March 31, 2011 | 1,017,279 | |||
|
| |||
Opening balance as of April 1, 2011 | 1,017,279 | |||
Result for the period | 222,962 | |||
Other decreases | (632) | |||
Dividends | (122,811) | |||
|
| |||
Balance as of December 31, 2011 | 1,116,798 | |||
|
| |||
Opening balance as of January 1, 2012 | 1,116,798 | |||
Result for the year | 76,067 | |||
Other decreases | (48) | |||
Dividends | (22,820) | |||
|
| |||
Balance as of March 31, 2012 | 1,169,997 | |||
|
|
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(g) | Dividends per share |
As of March 31, 2012 | ||||
Description | Mandatory minimum dividend 2012 | |||
Date of dividend | 03-31-2012 | |||
Amount of the dividend (ThUS$) | 22,820 | |||
Number of shares among which the | 340,999,909 | |||
Dividend per share (US$) | 0.06692 |
As of December 31, 2011 | ||||||||||||
Description | Final dividend 2010 | Interim dividend 2011 | Interim dividend 2011 | |||||||||
Date of dividend | 04-29-2011 | 08-30-2011 | 12-20-2011 | |||||||||
Amount of the dividend (ThUS$) | 10,386 | 56,595 | 85,000 | |||||||||
Number of shares among which the | 339,310,509 | 339,358,209 | 340,164,105 | |||||||||
Dividend per share (US$) | 0.03061 | 0.16677 | 0.24988 |
The Company’s dividend policy is that dividends distributed will be equal to the minimum required by law, i.e. 30% of the net income according to current regulations. This policy does not preclude the Company from distributing dividends in excess of this obligatory minimum, based on the events and circumstances that may occur during the course of the year.
At March 31, 2012, dividends are provisioned for a minimum mandatory dividend corresponding to 30% of the value of Company. This amount is in the category Other financial liabilities, current.
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The detail of revenues is as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Passengers | 1,138,211 | 977,823 | ||||||
Cargo | 367,906 | 346,435 | ||||||
|
|
|
| |||||
Total |
| 1,506,117
|
|
| 1,324,258
|
| ||
|
|
|
|
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NOTE 28 - COSTS AND EXPENSES BY NATURE
a) Costs and operating expenses
The main operating costs and administrative expenses are detailed below:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Other rentals and landing fees | 165,148 | 160,963 | ||||||
Aircraft fuel | 493,770 | 389,904 | ||||||
Comissions | 57,619 | 52,615 | ||||||
Other operating expenses | 171,836 | 151,731 | ||||||
Aircraft rentals | 44,293 | 42,485 | ||||||
Aircraft maintenance | 49,786 | 43,432 | ||||||
Passenger services | 37,934 | 36,959 | ||||||
|
|
|
| |||||
Total | 1,020,386 | 878,089 | ||||||
|
|
|
|
b) Depreciation and amortization
Depreciation and amortization are detailed below:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Depreciation (*) | 103,817 | 92,937 | ||||||
Amortization | 2,669 | 2,467 | ||||||
|
|
|
| |||||
Total | 106,486 | 95,404 | ||||||
|
|
|
|
(*) Includes the depreciation of property, plant and equipment and the maintenance cost of aircraft held under operating leases.
c) Personnel expenses
The costs for personnel expenses are disclosed in provisions for employee benefits (See Note 24).
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d) Financial costs
The detail of financial costs is as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Bank loan interest | 18,711 | 27,759 | ||||||
Financial leases | 6,993 | 1,369 | ||||||
Other financial instruments | 10,996 | 6,785 | ||||||
|
|
|
| |||||
Total | 36,700 | 35,913 | ||||||
|
|
|
|
Costs and expenses by nature presented in this note are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.
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NOTE 29 - GAINS (LOSSES) ON THE SALE OF NON-CURRENT ASSETS NOT CLASSIFIED AS HELD FOR SALE
The gains (losses) on sales of non-current assets not classified as Held for Sale as of March 31, 2012 and 2011 are as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Property, plant and equipment | (380) | (343) | ||||||
|
|
|
| |||||
Total | (380) | (343) | ||||||
|
|
|
|
The gain (loss) on sales for the period is presented in Other operating income by function and Cost of sales.
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NOTE 30 - OTHER INCOME, BY FUNCTION
Other income by function is as follows:
For the periods ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Duty free | 3,261 | 4,194 | ||||||
Aircraft leasing | 3,351 | 5,196 | ||||||
Logistics and courier | - | 10,958 | ||||||
Customs and warehousing | 5,635 | 5,595 | ||||||
Tours | 12,424 | 11,333 | ||||||
Other miscellaneous income | 5,894 | 3,340 | ||||||
|
|
|
| |||||
Total | 30,565 | 40,616 | ||||||
|
|
|
|
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NOTE 31 – FOREIGN CURRENCY AND EXHANGE RATE DIFFERENCES
a) Foreign currency
The foreign currency detail of current and non-current assets is as follows:
As of | As of | |||||||
Current assets | March 31, | December 31, | ||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Cash and cash equivalents | 86,317 | 216,094 | ||||||
Chilean peso | 14,162 | 148,274 | ||||||
Euro | 2,247 | 5,688 | ||||||
Argentine peso | 40,325 | 20,020 | ||||||
Brazilian real | 3,195 | 6,616 | ||||||
Colombian peso | 3,209 | 7,668 | ||||||
Other currency | 23,179 | 27,828 | ||||||
Other current financial assets | 6,588 | 4,352 | ||||||
Brazilian real | 3,155 | 1,127 | ||||||
Colombian peso | 2,207 | 2,009 | ||||||
Other currency | 1,226 | 1,216 | ||||||
Other current non-financial assets | 3,197 | 3,881 | ||||||
Chilean peso | 644 | 1,561 | ||||||
Argentine peso | 1,853 | 1,781 | ||||||
Brazilian real | 68 | 52 | ||||||
Colombian peso | 72 | 117 | ||||||
Other currency | 560 | 370 | ||||||
Trade and other current accounts receivable | 189,362 | 182,434 | ||||||
Chilean peso | 62,813 | 63,818 | ||||||
Euro | 10,180 | 8,266 | ||||||
Argentine peso | 34,074 | 24,879 | ||||||
Brazilian real | 34,394 | 35,467 | ||||||
Australian dollar | 8,554 | 5,567 | ||||||
Colombian peso | 20,639 | 34,583 | ||||||
Other currency | 18,708 | 9,854 | ||||||
Current accounts receivable from related entities | 775 | 809 | ||||||
Chilean peso | 775 | 809 |
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103
As of | As of | |||||||
Current assets | March 31, | December 31, | ||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Current tax assets | 76,236 | 67,668 | ||||||
Chilean peso | 18,220 | 15,817 | ||||||
Argentine peso | 22,725 | 20,236 | ||||||
Brazilian real | 8,231 | 8,475 | ||||||
Mexican peso | 20,835 | 18,457 | ||||||
Colombian peso | 3,450 | 2,658 | ||||||
Other currency | 2,775 | 2,025 | ||||||
Total current assets | 362,475 | 475,238 | ||||||
Chilean peso | 96,614 | 230,279 | ||||||
Euro | 12,427 | 13,954 | ||||||
Argentine peso | 98,977 | 66,916 | ||||||
Brazilian real | 49,043 | 51,737 | ||||||
Mexican peso | 20,835 | 18,457 | ||||||
Australian dollar | 8,554 | 5,567 | ||||||
Colombian peso | 29,577 | 47,035 | ||||||
Other currency | 46,448 | 41,293 |
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As of | As of | |||||||
Non-current assets | March 31, | December 31, | ||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Other non-current financial assets | 5,180 | 4,276 | ||||||
Brazilian real | 2,644 | 1,939 | ||||||
Colombian peso | 2,348 | 2,166 | ||||||
Other currency | 188 | 171 | ||||||
Other non-current non-financial assets | 903 | 130 | ||||||
Colombian peso | 903 | 130 | ||||||
Non-current accounts receivable | 7,064 | 7,482 | ||||||
Chilean peso | 7,029 | 7,422 | ||||||
Other currency | 35 | 60 | ||||||
Investment recorded using the method | 615 | 990 | ||||||
of participation | ||||||||
Chilean peso | 615 | 990 | ||||||
Goodwill | 108,930 | 100,529 | ||||||
Argentine peso | 479 | 487 | ||||||
Colombian peso | 108,451 | 100,042 | ||||||
Current tax assets, non-current | 17,628 | 17,951 | ||||||
Argentine peso | 17,628 | 17,951 | ||||||
Deferred tax assets | 63,636 | 53,386 | ||||||
Colombian peso | 56,786 | 45,173 | ||||||
Other currency | 6,850 | 8,213 | ||||||
Total non-current assets | 203,956 | 184,744 | ||||||
Chilean peso | 7,644 | 8,412 | ||||||
Argentine peso | 24,957 | 26,651 | ||||||
Brazilian real | 2,644 | 1,939 | ||||||
Colombian peso | 168,488 | 147,511 | ||||||
Other currency | 223 | 231 |
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105
The foreign currency detail of current and non-current liabilities is as follows:
Up to 90 days | 91 days to 1 year | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
Current liabilities | March 31, | December 31, | March 31, | December 31, | ||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Trade and other accounts payables | 302,921 | 298,551 | 13,333 | 21,082 | ||||||||||||
Chilean peso | 66,857 | 77,141 | 10,494 | 10,284 | ||||||||||||
Euro | 10,104 | 10,921 | 1,709 | 697 | ||||||||||||
Argentine peso | 26,172 | 35,542 | - | - | ||||||||||||
Brazilian real | 32,902 | 32,898 | 9 | 9 | ||||||||||||
Colombian peso | 56,764 | 53,988 | 1,069 | 10,019 | ||||||||||||
Other currency | 110,122 | 88,061 | 52 | 73 | ||||||||||||
Current accounts payable to related entities | 104 | 118 | - | - | ||||||||||||
Chilean peso | 104 | 118 | - | - | ||||||||||||
Current tax liabilities | 15,419 | 10,168 | 2,325 | 4,384 | ||||||||||||
Chilean peso | 8,766 | 3,678 | - | 748 | ||||||||||||
Argentine peso | 3,390 | 2,164 | 1,508 | 2,303 | ||||||||||||
Brazilian real | 1,137 | 1,724 | - | 334 | ||||||||||||
Colombian peso | 660 | 942 | 815 | 999 | ||||||||||||
Other currency | 1,466 | 1,660 | 2 | - | ||||||||||||
Other current non-financial liabilities | 20,791 | 32,393 | 355 | 2,527 | ||||||||||||
Brazilian real | - | - | 240 | 235 | ||||||||||||
Colombian peso | 17,212 | 32,036 | 112 | 1,789 | ||||||||||||
Other currency | 3,579 | 357 | 3 | 503 | ||||||||||||
Total current liabilities | 339,235 | 341,230 | 16,013 | 27,993 | ||||||||||||
Chilean peso | 75,727 | 80,937 | 10,494 | 11,032 | ||||||||||||
Euro | 10,104 | 10,921 | 1,709 | 697 | ||||||||||||
Argentine peso | 29,562 | 37,706 | 1,508 | 2,303 | ||||||||||||
Brazilian real | 34,039 | 34,622 | 249 | 578 | ||||||||||||
Colombian peso | 74,636 | 86,966 | 1,996 | 12,807 | ||||||||||||
Other currency | 115,167 | 90,078 | 57 | 576 |
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More than 1 to 3 years | More than 3 to 5 years | More than 5 years | ||||||||||
|
|
| ||||||||||
As of | As of | As of | As of | As of | As of | |||||||
Non-current liabilities | March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||
Non-current accounts payable | 7,291 | 7,665 | 82 | 76 | 11 | 10 | ||||||
Chilean peso | 6,532 | 6,684 | 82 | 76 | 11 | 10 | ||||||
Other currency | 759 | 981 | - | - | - | - | ||||||
Other long-term provisions | 18,681 | 18,175 | - | - | - | - | ||||||
Brazilian real | 495 | 466 | - | - | - | - | ||||||
Colombian peso | 6,209 | 5,728 | - | - | - | - | ||||||
Euro | 10,959 | 10,675 | - | - | - | - | ||||||
Other currency | 1,018 | 1,306 | - | - | - | - | ||||||
Non-current provisions for employee benefits | 6,055 | 5,528 | - | - | - | - | ||||||
Argentine peso | 1,230 | 1,097 | - | - | - | - | ||||||
Colombian peso | 4,825 | 4,431 | - | - | - | - | ||||||
Total non-current liabilities | 32,027 | 31,368 | 82 | 76 | 11 | 10 | ||||||
Chilean peso | 6,532 | 6,684 | 82 | 76 | 11 | 10 | ||||||
Argentine peso | 1,230 | 1,097 | - | - | - | - | ||||||
Brazilian real | 495 | 466 | - | - | - | - | ||||||
Colombian peso | 11,034 | 10,159 | - | - | - | - | ||||||
Euro | 10,959 | 10,675 | - | - | - | - | ||||||
Other currency | 1,777 | 2,287 | - | - | - | - |
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107
As of | As of | |||||||
March 31, | December 31, | |||||||
General summary of foreign currency: | 2012 | 2011 | ||||||
ThUS$ | ThUS$ | |||||||
Total assets | 566,431 | 659,982 | ||||||
Chilean peso | 104,258 | 238,691 | ||||||
Euro | 12,427 | 13,954 | ||||||
Argentine peso | 123,934 | 93,567 | ||||||
Brazilian real | 51,687 | 53,676 | ||||||
Mexican peso | 20,835 | 18,457 | ||||||
Australian dollar | 8,554 | 5,567 | ||||||
Colombian peso | 198,065 | 194,546 | ||||||
Other currency | 46,671 | 41,524 | ||||||
Total liabilities | 387,368 | 400,677 | ||||||
Chilean peso | 92,846 | 98,739 | ||||||
Euro | 22,772 | 22,293 | ||||||
Argentine peso | 32,300 | 41,106 | ||||||
Brazilian real | 34,783 | 35,666 | ||||||
Colombian peso | 87,666 | 109,932 | ||||||
Other currency | 117,001 | 92,941 | ||||||
Net position | 179,063 | 259,305 | ||||||
Chilean peso | 11,412 | 139,952 | ||||||
Euro | (10,345) | (8,339) | ||||||
Argentine peso | 91,634 | 52,461 | ||||||
Brazilian real | 16,904 | 18,010 | ||||||
Mexican peso | 20,835 | 18,457 | ||||||
Australian dollar | 8,554 | 5,567 | ||||||
Colombian peso | 110,399 | 84,614 | ||||||
Other currency | (70,330) | (51,417) |
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108
b) Exchange differences
Exchange rate differences recognized in results, other than those relating to financial instruments at fair value through profit and loss, for the period ended March 31, 2012 and 2011 generated a gain of ThUS$ 8,299 and a loss of ThUS$ 2,128, respectively.
Exchange rate differences shown in equity as translation reserves for the period ended March 31, 2012 and 2011 represented a loss of ThUS$ 11,379 and a gain of ThUS$ 246, respectively.
The following shows the current exchange rates for the US dollar at the end of each period:
As of March 31, 2012 | As of December 31, 2011 | |||||||
Chilean peso | 487.44 | 519.20 | ||||||
Argentine peso | 4.38 | 4.30 | ||||||
Brazilian real | 1.82 | 1.87 | ||||||
Peruvian Sol | 2.66 | 2.69 | ||||||
Australian dollar | 0.96 | 0.98 | ||||||
Strong Bolivar | 4.30 | 4.30 | ||||||
Boliviano | 6.86 | 6.86 | ||||||
Uruguayan peso | 19.40 | 19.80 | ||||||
Mexican peso | 12.81 | 13.96 | ||||||
Colombian peso | 1,787.50 | 1,936.00 | ||||||
New Zealand dollar | 1.22 | 1.28 | ||||||
Euro | 0.75 | 0.77 |
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109
For the periods ended March 31, | ||||||||
Basic earnings | 2012 | 2011 | ||||||
Earnings attributable to | 76,067 | 97,235 | ||||||
Weighted average number | 340,706,463 | 339,310,509 | ||||||
Basic earnings per share (US$) | 0.22326 | 0.28656 | ||||||
For the periods ended March 31, | ||||||||
Diluted earnings | 2012 | 2011 | ||||||
Earnings attributable to | 76,067 | 97,235 | ||||||
Weighted average number | 340,706,463 | 339,310,509 | ||||||
Adjustment diluted weighted average shares | ||||||||
Stock options | - | 781,698 | ||||||
|
|
|
| |||||
Weighted average number | 340,706,463 | 340,092,207 | ||||||
|
|
|
| |||||
Diluted earnings per share (US$) | 0.22326 | 0.28591 |
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110
a) Lawsuits
i) Actions brought by Lan Airlines S.A. and Subsidiaries.
Company | Court | Case No. | Origin | Stage and level of proceeding | Amounts involved | |||||
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 of Lan Airlines S.A. constituted under the laws of the state of Delaware, sued on August 29, 2007 Varig Logística S.A. (“Variglog”) for the non-payment of four loans under loan agreements governed by the law of New York. These agreements provide for the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A. | Stage of execution in Switzerland of judgment condemning Variglog to repay the principal, interest and costs in favor of AAI. An embargo is held over the bank account of Variglog in Switzerland by AAI. Variglog is in the process of judicial recovery in Brazil and requested in Switzerland to recognize the judgment that declared the state of judicial recovery. | 17,100 plus interest and costs | |||||
Atlantic Aviation Investments LLC (AAI) | Supreme Court of the State of New York, County of New York | 602286-09 | Atlantic Aviation Investments LLC. (“AAI”) sued on July 24, 2009 Matlin Patterson Global Advisers LLC, Matlin Patterson Global Opportunities Partners II LP, Matlin Patterson Global Opportunities Partners (Cayman) II LP and Volo Logistics LLC (a) as representative for Variglog, for failure to pay the four loans indicated in the previous note; and (b) for a default on their obligations of guarantors and other obligations under the Memorandum of Understanding signed by the parties on September 29, 2006. | The court dismissed in part and upheld in part the motion to dismiss counterclaims brought by defendants in the case. Both parties appealed this decision. AAI filed a request for summary Judgement (short trial) that the court ruled favorably. The defendants appealed from this decision that which was granted with suspensive effect. | 17,100 plus interest, costs and damages |
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111
Company | Court | Case No. | Origin | Stage and level of proceeding | Amounts involved | |||||
ThUS$ | ||||||||||
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. | Tax Court of Guayaquil | 6319-4064-05 | Against the regional director of the Guayaquil Internal Revenue Service for overpayment of VAT. | Favorable sentence at first intance, appeal pending against them. | 4,210 plus interest | |||||
Lan Airlines S.A. | Tax Tribunal of Quito | 23493-A | Against the regional director of the Quito Internal Revenue Service for overpayment of VAT. | Judicial decree | 3,958 | |||||
Lan Perú S.A. | Administrative Tribunal of Perú | 2011 | Lan Peru is suing LAP (Lima Airport concession) for wrong amounts charged by the use of hoses at the airport in Lima. These amounts are intended to supplement what has already been obtained in a ruling that ordered Ositran LAP wrong amounts charged back. | First intances. | 740 | |||||
Aerotransportes Mas de Carga S.A. de C.V. | Federal Court of Fiscal and Administrative Justice | 24611/08 | Judgement of invalidity against the tax authority’s refusal to restore a balance in favor of VAT. | Final stage evidentiary | 1,000 |
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112
Company | Court | Case No. | Origin | Stage and level of proceeding | Amounts involved | |||||
ThUS$ | ||||||||||
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. | Distric Tax Court No. 2 (Guayaquil) | 09504-2010- 0114 | Against the regional director of the Guayaquil Internal Revenue Service to determine tax credit decreased for the year 2006. | Pending conclusion and of evidence | Undetermined | |||||
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. | Distric Tax Court No. 2 (Guayaquil) | 09503-2010- 0172 | Against the regional director of the Guayaquil Internal Revenue Service for non-payment of advance income tax, 2010. | Evidence | 696 | |||||
Aerolane, Líneas Aéreas Nacionales del Ecuador S.A. | Distric Tax Court No. 2 (Guayaquil) | 6886-4499-06 | Against the regional director of the Guayaquil Internal Revenue Service for rectification of tax return for 2003. | Sentence pending. | Undetermined | |||||
Aerovías de Integración Regional S.A. AIRES S.A. | Section One, Subsection A, the Administrative Tribunal of Cundinamarca | AEROVIAS DE INTEGRACION REGIONAL S.A AIRES S.A. seeks that Act 043 Session of October 20, 2008 of Grupo Evaluador de Proyectos Aerocomerciales GEPA be declared invalid. This relates to the decision of the Director of the UAEAC and Enrique Olaya Herrera airport in Medellin to order the suspension of operations of the company to and from that airport. | On June 17, 2010 a decree was issued by which evidence was presented, the status of which was notified on June 22 of that year. On March 8, 2011 the preliminary stages were completed. On July 6, 2011 per state order, Aerocivil was ordered to pay the fees of the expert witness. An appeal was registered against this judgement on July 22. On November 9th, 2011 the decree in response to the appeal was notified and by which the fee for the expert OLGA LUCIA VILLAGRA was set. Fees that have already been paid by the aerocivil and those corresponding to AIRES. On January 30th 2012 closing arguments were presented. | ThUS$ 2,033 The estimated amount of damages that were caused to AIRES S.A. as a result of the suspension of operations at the Enrique Olaya Herrera airport in Medellin, not a sum that could be repeated against the Company. |
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ii) Lawsuits against Lan Airlines S.A. and Subsidiaries
Company | Court | Cause No. | Origin | Stage and level of proceeding | Amounts involved | |||||
ThUS$ | ||||||||||
Aerolinhas Brasileiras S.A. | Secretary of Finance of State of Río de Janeiro | 2003 | The administrative authority of Río de Janeiro, Brazil, notified breach action or fine for alleged non-payment of ICMS (VAT) on import of Boeing-767 aircraft registered No. PR-ABB. | Pending resolution of the review group to annul the fine. | 3,000 | |||||
Lan Cargo S.A. | Civil Court of Asunción, Paraguay | 78-362 | Request of indemnification for damages brought by the prior general agent in Paraguay. | Pending appeal of the decision to reject one of the exceptions for lack of overt action, made by lawyers for the defendant. | 437 | |||||
Lan Airlines S.A. y Lan Cargo S.A. | European commission and Canada | - | Investigation of possible breaches of free competition of cargo airlines, especially the fuel surcharge. On December 26, 2007, the Director General for Competition of the European Commission notified Lan Cargo S.A. and Lan Airlines S.A. of the instruction of a process against twenty-five cargo airlines, including Lan Cargo S.A., for alleged breaches of free competition in the European air cargo market, especially the intended fixing of a surcharge for fuel and cargo. Dated November 09, 2010 the Direction General for Competition of the European Commission notified Lan Cargo S.A. and Lan Airlines S.A. the imposition of fines in the amount of ThUS$ 10,959. This fine is being appealed by Lan Cargo S.A. and Lan Airlines S.A. We can not predict the outcome of the appeal process. | On April 14, 2008, the Company answered the European Commission’s notification. The appeal was presented on January 24, 2011. | 10,959 | |||||
Lan Airlines S.A. and Lan Cargo S.A. | Competition Bureau Canada | - | Investigation for possible infractions of competition from airlines cargo flights, especially fuel surcharges. | Investigation pending. | Undetermined |
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114
Company | Court | Case No. | Origin | Stage and level of proceeding | Amounts involved | |||||
ThUS$ | ||||||||||
Lan Cargo S.A. and Lan Airlines S.A. | Canada-Superior Court of Quebec, Supreme Court of British Columbia, Superior Court of Ontario | - | For class actions, as a result of the investigation for possible breaches of competition from airlines cargo flights, especially fuel surcharges. They have filed three lawsuits in Canada (Quebec, British Columbia and Ontario). | A compromise was agreed in the three cases with the counterpart. The approval is pending by the three courts, which is expected to be awarded over the next four months. | 700 | |||||
Lan Cargo S.A. and Lan Airlines S.A. | In the High Court of Justice Chancery Division (England) and Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands). | - | Lawsuit filed against european airlines by users of freight services in private prosecutions as a consequence of the investigation into alleged breaches of free competition of cargo airlines, especially fuel surcharges. Lan Airlines S.A. and Lan Cargo S.A. have been third-party defendants in such prosecutions in England and the Netherlands. | Case is in the process of discovery tests. | Undetermined | |||||
Lan Logistics, Corp. | Federal Court, Florida, U.S.A. | - | In mid June 2008 a demand was presented for purchase option right for sale of LanBox. | Failed against Lanlogistics, Corp. for $ 5 million plus interest, which is appealing to the court of appeals. | Undetermined | |||||
Aerovías de Integración Regional S.A. AIRES S.A. | Civil Court of the Circuit of Bogota | On December 10th 2008, HK-4491 aircraft was at the Bucaramanga airport and after starting engine n°2 as the starting procedure of engine n°1 began; there was a failure in the startup system and pressurization of the aircraft. The complainant, Mrs. Milena Paez, claims there is a civil contractual liability since, due to hearing loss in her right ear which affected her family, professional, and community life, the airline failed in its obligation to bring the passenger safely to her destination. | On January 23, 2012 the answer to the complaint was filed, also preliminary objections and appeals under warranty was admitted and was ordered the suspension of the process up to 90 days in order to allow Aires S.A. to notify Colseguros S.A. (call warranty). On March 14th, 2012 Colseguros S.A. was notified of the process. On March 2nd 2012, Colseguros S.A. gave answer to the call and demand. | Action against Aires S.A. with an initial aspiration of ThUS$ 1,768 that is ThCOP 1,900 (equivalent 3,550 SMMLV (*) plus the corresponding accrued interest since December 2008, title that generates an additional quantity of ThCOP 1,500,000 equivalent to 2,800 SMMLV). | ||||||
(*)SMMLV: Current legal monthly minimun wage |
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115
Company | Court | Case No. | Origin | Stage and level of proceeding | Amounts involved | |||||
ThUS$ | ||||||||||
Aerolinhas Brasileiras S.A. | Conselho Administrativo de Defesa Econômica, Brasil | - | Investigation of alleged breaches of free competition of cargo airlines, especially fuel surcharges. | Investigation pending. CADE and Federal Attorney not yet issued final decisions. | Undetermined | |||||
Lan Airlines S.A. “Brazil” | Instituto de Defesa do Consumidor de Sao Paulo | - | The Department of Consumer Protection and Defense (“PROCON”) has applied a fine to Lan Airlines S.A. in the amount of MR$ 1,688 equivalent to approximately ThUS$ 905. This penalty relates to the cancellation of flights to Chile as a product of the 2010 earthquake, holding that Lan Airlines S.A. did not act in accordance with the rules applicable to the facilities and offered no compensation to passengers who could not travel as a result of this extraordinary circumstance. | Fine imposed by the consumer organization of Sao Paulo. An objection was presented which was rejected. This decision was appealed. Still in the administrative sphere. | 905 | |||||
Lan Perú S.A. | Administrative Tribunal of Peru | 2011 | LAP (Lima Airport concession) is questioning before an administrative tribunal’s decision to the administrative authority Ositran, which in due course LAP stated that it had to give certain amounts uncollected by Lan Peru for the use of hoses in the Lima Airport. | First instance. | 2,109 | |||||
Lan Cargo S.A | Tribunal of Arbitration, Frankfurt/ Germany | Aerohandling Airport Assistance GmbH (Handling company in Frankfurt/ Airport) is claiming additional payment for Lan Cargo S.A. services offered over the years 2007 to 2010. An agreement was reached on the subject, LAN CARGO paying the final amount of the ThUS$ 90 | Single instance. | 820 (Amount payed according to agreement ThUS$ 90) | ||||||
Lan Airlines S.A. | Tenth Civil Court of Santiago | Sociedad Jara y Jara Limitada brings action against Lan Airlines S.A. the demand based on the damage they have caused by felony criminal complaints of fraud made againts them in 2008 and that were dismissed for good. It claims that the damage caused by Lan affected its reputation and business continuity. | First instance. | 11,935 |
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116
Considering the stage of process for each of the cases mentioned above and/or the improbable event of obtaining an adverse sentence, as of March 31, 2012 the Company has estimated that is not necessary to make a provision for any case, with the exception of the significant matter relating to the European Commission which was reported to the SVS. A provision of US$ 11 million has been recorded for the decision issued by the European Commission on November 9, 2010.
On May 6 2011, the Directors of Lan Cargo S.A. and Aerolinhas Brasileiras S.A. approved a judicial agreement with the defenders of the civil class action case that was in process before the United States District Court for the Eastern District of New York. From the agreement, Lan Cargo S.A. and Aerolinhas Brasileiras S.A. committed to pay the amount of US$ 59.7 million and US$ 6.3 million, respectively, payments that were already made as of March 31, 2012. This agreement terminates the companies´ obligations with regards to all plaintiffs who will not choose to file a suit in an individual capacity against the companies. The terms of the judgment have not yet been set for the plaintiffs who are considering opting for a separate suit. |
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117
(a) Loan covenants
With respect to various loans signed by the Company for the financing of Boeing 767 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis. Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership and disposal of assets.
Additionally, with respect to various loans signed by its subsidiary Lan Cargo S.A. for the financing of Boeing 767 aircraft, which carry the guarantee of the United States Export–Import Bank, restrictions have been established to the Company´s management and its subsidiary Lan Cargo S.A. in terms of shareholder composition and disposal of assets.
Regarding the various contracts of the Company for the financing of Airbus A320 aircraft, which are guaranteed by the European Export Credit Agencies, limits have been established on some of the Company’s financial indicators. 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.
In connection with the financing of spare engines for its Boeing 767 and 777 fleet, which are guaranteed by the Export - Import Bank of the United States, restrictions have been placed on the ownership structure of their guarantors and their legal successor in case of merger.
In relation to credit agreements entered into by the Company, for the current period local banks have set limits to some financial indicators of the Company on a consolidated basis.
At March 31, 2012, the Company is in compliance with these covenants.
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118
(b) Commitments under operating leases as lessee
Details of the main operating leases are as follows:
Lessor | Aircraft | As of
2012 | As of
2011 | |||||||||
ACS Aircraft Finance Bermuda Ltd. - Aircastle (WFBN) |
Boeing 737 |
|
1 |
|
|
1 |
| |||||
Aircraft 76B-26261 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-26327 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-26329 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-27597 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-27613 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-27615 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-28206 Inc. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
Aircraft Solutions Lux V S.ÀR.L. (AVMAX) | Bombardier Dhc8-200 | 1 | 1 | |||||||||
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 | |||||||||
AWAS 4839 Trust | Airbus A320 | 1 | 1 | |||||||||
BOC Aviation Pte. Ltd. | Airbus A320 | 1 | 1 | |||||||||
Celestial Aviation Trading 16 Ltd. - GECAS (WFBN) | Boeing 767 | 1 | 1 | |||||||||
Celestial Aviation Trading 23 Ltd. - GECAS (WFBN) | Boeing 777 | 1 �� | 1 | |||||||||
Celestial Aviation Trading 35 Ltd. (GECAS) | Boeing 767 | 1 | 1 | |||||||||
Celestial Aviation Trading 39 Ltd. - GECAS (WFBN) | Boeing 777 | 1 | 1 | |||||||||
Celestial Aviation Trading 47 Ltd. - GECAS (WFBN) | Boeing 767 | 1 | 1 | |||||||||
Celestial Aviation Trading 48 Ltd. - GECAS (WFBN) | Boeing 767 | 1 | 1 | |||||||||
Celestial Aviation Trading 51 Ltd. - GECAS (WFBN) | Boeing 767 | 1 | 1 | |||||||||
CIT Aerospace International | Boeing 767 | 1 | 1 | |||||||||
Delaware Trust Company, National Association (CRAFT) | Bombardier Dhc8-200 | 9 | 9 | |||||||||
International Lease Finance Corp. (ILFC) | Boeing 737 | 2 | 2 | |||||||||
International Lease Finance Corp. (ILFC) | Boeing 767 | 1 | 1 | |||||||||
JB 30244, Inc. - AWAS | Boeing 737 | 1 | 1 | |||||||||
JB 30249, Inc. - AWAS | Boeing 737 | 1 | 1 | |||||||||
KN Operating Limited (NAC) | Bombardier Dhc8-400 | 4 | 4 | |||||||||
MCAP Europe Limited - Mitsubishi (WTC) | Boeing 737 | 1 | 1 | |||||||||
MSN 167 Leasing Limited | Airbus A340 | 1 | 1 | |||||||||
MSN 32415, LLC - AWAS | Boeing 737 | 1 | 1 | |||||||||
Orix Aviation Systems Limited | Airbus A320 | 2 | 2 | |||||||||
Pembroke B737-7006 Leasing Limited | Boeing 737 | 2 | 2 | |||||||||
Sunflower Aircraft Leasing Limited - AerCap | Airbus A320 | 2 | 2 | |||||||||
|
|
|
| |||||||||
Total |
|
49 |
|
|
49 |
| ||||||
|
|
|
|
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119
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 March 31, 2012 | As of December 31, 2011 | |||||||
ThUS$ | ThUS$ | |||||||
No later than one year | 158,734 | 169,842 | ||||||
Between one and five years | 406,538 | 443,256 | ||||||
Over five years | 76,020 | 92,264 | ||||||
|
|
|
| |||||
Total | 641,292 | 705,362 | ||||||
|
|
|
|
The minimum lease payments charged to income are the following:
For the year ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Minimum operating lease payments | 42,972 | 40,614 | ||||||
|
|
|
| |||||
Total | 42,972 | 40,614 | ||||||
|
|
|
|
In December 2010, the Company added one Airbus A320-200 aircraft for a period of eight months, the latter finally returned in May 2011.
In January 2011 the Company added to the fleet three aircraft, a Boeing 767-300F with a contract term of five years, one Airbus A320-200 for a period of seven years and one Airbus A319-100 for a period of four months which was returned in May 2011. In July 2011 the Company added two Airbus A320-200 aircrafts for a period of eight years, while in August and September 2011, the Company received an Airbus A320-200 aircraft for a period of eight years. On the other hand, in September 2011 an Bombardier Dhc8-200 aircraft was returned due to termination of the lease term.
In September 2011, the Company signed a contract to establish the early departure of three Boeing 737-700. The return of these aircraft will be completed during the second quarter of 2012.
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.
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At March 31, 2012 the Company has existing letters of credit related to operating leasing as follows:
Value | Release | |||||||||||
Creditor Guarantee | Debtor | Type | ThUS$ | date | ||||||||
Air Canada | Lan Airlines S.A. | One letter of credit | 1,800 | Jun 30, 2012 | ||||||||
Celestial Aviation Trading 16 Ltd | Lan Cargo S.A. | Two letters of credit | 3,500 | Apr 25, 2012 | ||||||||
Celestial Aviation Trading 35 Ltd | Lan Airlines S.A. | One letter of credit | 2,500 | Jun 13, 2012 | ||||||||
CIT Aerospace International | Lan Airlines S.A. | Two letters of credit | 3,240 | May 10, 2012 | ||||||||
GE Capital Aviation Services Ltd | Lan Cargo S.A. | Eleven letters of credit | 32,304 | Apr 25, 2012 | ||||||||
International Lease Finance Corp. | Lan Airlines S.A. | Eigth letters of credit | 3,880 | Aug 25, 2012 | ||||||||
Orix Aviation System Limited | Lan Airlines S.A. | Two letters of credit | 6,520 | May 5, 2012 | ||||||||
TAF Mercury | Lan Airlines S.A. | One letter of credit | 4,000 | Dec 11, 2012 | ||||||||
TAF Venus | Lan Airlines S.A. | One letter of credit | 4,000 | Dec 11, 2012 | ||||||||
|
| |||||||||||
61,744 | ||||||||||||
|
|
(c) Other commitments
At March 31, 2012 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:
Creditor Guarantee | Debtor | Type | Value | Release date | ||||||||
Deutsche Bank A.G. | Lan Airlines S.A. | Two letters of credit | 20,000 | Jan 31, 2013 | ||||||||
The Royal Bank of Scotland plc | Lan Airlines S.A. | Two letters of credit | 18,000 | May 20, 2012 | ||||||||
European commission | Lan Airlines S.A. | One letter of credit | 10,768 | Feb 11, 2013 | ||||||||
Dirección General de Aviación Civil de Chile | Lan Airlines S.A. | Thirty-eight performance bonds | 7,680 | May 31, 2012 | ||||||||
Washington International Insurance | Lan Airlines S.A. | Six letters of credit | 2,990 | Apr 6, 2012 | ||||||||
Dirección Seccional de Aduanas de Bogotá | Línea Aérea Carguera de Colombia S.A. | Two warranty insurance policies | 2,702 | Apr 7, 2014 | ||||||||
Metropolitan Dade County | Lan Airlines S.A. | Five letters of credit | 1,675 | May 31, 2012 | ||||||||
|
| |||||||||||
63,815 | ||||||||||||
|
|
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121
NOTE 35 – TRANSACTIONS WITH RELATED PARTIES
a) Transactions with related parties for the period ended March 31, 2012
Tax No. | Related party | Relationship | Country of origin | Other information on related party | Transaction | Currency | Amount of transactions | |||||||||
ThUS$ | ||||||||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Controlling shareholder | Chile | Investments | Revenue from services provided | CLP | 9 | |||||||||
96.847.880-K | Lufthansa Lan Technical | Associate | Chile | Training center | Leases as lessor | CLP | 203 | |||||||||
Services received | CLP | (282) | ||||||||||||||
Services received | US$ | (102) | ||||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Other related | Chile | Investments | Leases as lessor | CLP | 183 | |||||||||
Revenue from services provided | CLP | 372 | ||||||||||||||
Services received | CLP | (180) | ||||||||||||||
79.773.440-3 | Transporte San Felipe S.A. | Other related parties | Chile | Transport | Services received | CLP | (279) | |||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Other related parties | Chile | Fish farming | Revenue from services provided | CLP | 39 | |||||||||
96.812.280-0 | San Alberto S.A. y Filiales | Other related parties | Chile | Investments | Services received | US$ | (29) | |||||||||
Foreign | Inversora Aeronáutica | Other related | Argentina | Investments | Leases as lessor | US$ | (102) | |||||||||
Foreign | Tadef-Transporte Administracao e Participacao Ltda. | Other related parties | Brazil | Transport | Services received | US$ | (3) |
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b) Transactions with related parties for the period ended March 31, 2011
Tax No. | Related party | Relationship | Country of origin | Other information on related party | Transaction | Currency | Amount of transactions | |||||||||
ThUS$ | ||||||||||||||||
96.810.370-9 | Inversiones Costa | Controlling | Chile | Investments | Leases as lessor | CLP | 19 | |||||||||
Verde Ltda. y CPA. | shareholder | Revenue from services provided | CLP | 5 | ||||||||||||
96.847.880-K | Lufthansa Lan Technical | Associate | Chile | Training center | Leases as lessor | CLP | 4 | |||||||||
Training S.A. | Assignment of debt granted | CLP | 4 | |||||||||||||
Services received | CLP | (55) | ||||||||||||||
Services received | US$ | (74) | ||||||||||||||
Liquidation of liabilities on Behalf of the entity for the Related party | US$ | (4) | ||||||||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Other related parties | Chile | Fish farming | Services provided | CLP | 47 | |||||||||
Foreign | Inversora Aeronáutica | Other related | Argentina | Investments | Leases as lessor | US$ | (107) |
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c) 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 year ended March 31, | ||||||||
2012 | 2011 | |||||||
ThUS$ | ThUS$ | |||||||
Remuneration | 2,624 | 2,134 | ||||||
Management fees | 48 | 46 | ||||||
Corrections of value and non-monetary benefits | 99 | 96 | ||||||
Short-term benefits | 4,201 | 1,372 | ||||||
Share-based payments | - | 660 | ||||||
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|
|
| |||||
Total | 6,972 | 4,308 | ||||||
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NOTE 36 - SHARE-BASED PAYMENTS
The compensation plans implemented through the granting of options to subscribe and pay for shares, which have been granted since the last quarter of 2007, are shown in the consolidated statements of financial position in accordance with IFRS 2 “Share-based payments”, booking 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 the options and the date on which these become vested.
During the last quarter of 2009, the original terms of the plan were amended regarding subscription and payment of options. These modifications were carried out during the first quarter of 2010 and established a new term and exercise price. Escuchar
Leer fonéticamente
The original grant and subsequent amendments have been formalized through the signing of option contracts for the subscription of shares according to the proportions shown in the accrual schedule, which are related to the permanence of the executive on those dates for exercising the options:
Percentage | Period | |
30% | From October 29, 2010 until March 31, 2012 | |
70% | From October 30, 2010 until March 31, 2012 |
These options have been valued and booked at their fair value on the grant date, determined using the “Black-Scholes-Merton” method.
All options expired on March 31, 2012.
Number of share options | ||||
Stock options under a share-based payment agreement | ||||
balance as of January 1, 2011 | 673,569 | |||
Stock options annulled | (91) | |||
Stock options exercised | (673,478) | |||
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| |||
balance as of March 31, 2012 | - | |||
|
|
Entry data for option valuation model used for stock options granted.
Weighted average share price | Exercise price | Expected volatility | Life of option | Dividends expected | Risk-free interest | |||||
US$ 17.3 | US$ 14.5 | 33.20% | 1.9 years | 50% | 0.0348 |
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In accordance with the General Environment Bases Law issued in Chile and its complementary regulations, there are no provisions that affect the operation of air transport services.
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At the ordinary Shareholders’ Meeting on April 26, 2012, a final dividend distribution of 50% of profits for the year 2011 was approved, equivalent to ThUS$ 160,098. This dividend includes the interim dividends N° 44 and N° 45 distributed in 2011 for a total of ThUS$ 141,636, leaving to pay ThUS$ 18,462 equivalent to US$ 0.05414 per share, payment which will be made from May 17, 2012.
In this ordinary Shareholders’ Meeting proceeded to elect the members of the board of Lan Airlines S.A., which shall hold office for two years. The following persons were elected:
1. | Juan José Cueto Plaza; |
2. | José Cox Donoso; |
3. | Darío Calderón González; |
4. | Carlos Heller Solari; |
5. | Ramón Eblen Kadis; |
6. | Jorge Alberto Awad Mehech; |
7. | Bernardo Fontaine Talavera; |
8. | Juan Gerardo Jofré Miranda; and |
9. | Jorge Salvatierra Pacheco. |
Directors listed in items 6 to 9 above were elected as Independent Directors, according to article 50 bis of Corporation Law N° 18,046 active in Chile.
On April 5, 2012, the Supreme Court upheld the resolution of the Chilean Antitrust Court dismissing the appeal filed by LAN and TAM with the Supreme Court on October 3, 2011 to contest three of the 14 mitigative measures set down in the ruling of September 21, 2011 in which the Antitrust Court approved the LAN-TAM merger.
On May 7, 2012, the Bearer Securities Commission (“CVM”), the securities authority in the Federal Republic of Brazil, granted authorization to list the Common Stock Issue Depositary Receipts Program of LAN Airlines S.A., Level III, also known as the Brazilian Depositary Receipts program (the “BDRs”), which were assigned the stock symbol “LATM11.” They will begin to be exchange-traded on the business day following consummation of the Brazilian Exchange Offer (as defined below).
Holdco II S.A., LAN Airlines S.A. and Banco Itaú BBA S.A., this latter acting through Itaú Corretora de Valores S.A. (“Itaú Corretora”), asked CVM and BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (“BM&FBOVESPA”) to list the offer to exchange shares in TAM S.A. in Brazil, initially for shares in Holdco II S.A. and ultimately for shares in Lan Airlines S.A. (as the legal successor of Holdco II S.A. after the Mergers) in the form of BDRs, and to cancel the listing of TAM S.A. on BM&FBOVESPA (the “Brazilian Exchange Offer”).
On May 7, 2012, CVM granted authorization for the listing of the Brazilian Exchange Offer. According to Brazilian regulations, it must begin within the next 10 days.
On the same date, Holdco II S.A. and LAN Airlines S.A. filed a request with the Securities and Exchange Commission (the “SEC”) to accelerate the effective date of the Registration Statement in Form F-4 (Registration No. 333-177984) (“Form F-4”) to 10:00 a.m., New York time, on May 9, 2012. At 10:00 a.m., New York time, on May 9,
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2012, the SEC declared that Form F-4 had taken effect, which allowed Holdco II S.A. and LAN Airlines S.A. to commence the Holdco II S.A. U.S. Exchange Offer for shares in TAM S.A.
In view of the listings and authorizations obtained in Brazil and the USA and the authorizations obtained in other jurisdictions, including the resolution of the Chilean Antitrust Court dated September 21, 2011 that was confirmed by the Supreme Court of Chile on April 5, 2012 and the registration of Lan’s share issue under No. 955 on April 17, 2012 with the Chilean Securities and Exchange Commission, on May 10, 2012, Holdco II S.A. and Lan Airlines S.A. commenced the offer to exchange shares in TAM simultaneously in Brazil and the USA. It will continue until 5:00 p.m., New York time (6:00 p.m., Sao Paulo time) on June 11, 2012 and the auction will be held on BM&FBOVESPA at 9:00 a.m., New York time (10:00 a.m., Sao Paulo time) on June 12, 2012.
All of the foregoing was disclosed by Lan Airlines S.A. to the Chilean Securities and Insurance Commission on May 7, 9 and 10, 2012.
The consolidated financial statements of Lan Airlines S.A. and Subsidiaries as of March 31, 2012 have been approved in extraordinary session of the Board May 11, 2012.
Subsequent to March 31, 2012 until the date of issuance of these financial statements, the Company has no knowledge of any other subsequent events that may significantly affect the balances or their interpretation.
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NOTE 39 – BUSINESS COMBINATIONS
(a) Aerovías de Integración Regional, AIRES S.A.
On November 26, 2010 Lan Pax Group S.A., a subsidiary of Lan Airlines S.A., acquired 98.942% of the Colombian company Aerovías de Integración Regional, AIRES S.A.
This acquisition was made through the purchase of 100% of the shares of the Panamanian corporations AKEMI Holdings S.A. and SAIPAN Holding S.A., which owned the aforementioned percentage of AIRES S.A. The purchase price was ThUS$ 12,000.
Aerovías de Integración Regional, AIRES S.A., founded in 1980, at the date of acquisition it was the second largest operator within the Colombian domestic market with a market share of 22%. AIRES S.A. offers regular service to 27 domestic destinations within Colombia as well as 3 international destinations. Synergies are expected between the combination of AIRES S.A. in the Colombian market and efficiency of the business model of LAN Airlines S.A. Additionally, better performance is expected by the business of Lan Airlines S.A. (passengers and cargo) through an increase in coverage in Latin America.
The Company has measured the non-controlling interest in AIRES S.A. using the proportionate share of the non-controlling interest in net identifiable assets acquired.
The business combination is recognized in the statement of financial position of Lan Airlines S.A. and Subsidiaries as goodwill of ThUS$ 94,224.
Summary statement of financial position at acquisition date: | ||||||||||||
ThUS$ | ThUS$ | |||||||||||
Current assets | 27,315 | Current liabilities | 125,193 | |||||||||
Non-current assets | 31,652 | Non-current liabilities | 20,327 | |||||||||
Equity | (86,553) | |||||||||||
|
|
|
| |||||||||
Total assets | 58,967 | Total liabilities | 58,967 | |||||||||
|
|
|
| |||||||||
Controlling interest | (82,224) | |||||||||||
Goodwill determination: | ||||||||||||
ThUS$ | ||||||||||||
Controlling interest | 82,224 | |||||||||||
Purchase price | 12,000 | |||||||||||
|
| |||||||||||
Goodwill | 94,224 | |||||||||||
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(b) AEROASIS S.A.
Dated February 15, 2011, Lan Pax Group S.A. subsidiary of Lan Airlines S.A. acquired 100% of Colombian society AEROASIS S.A. The purchase price was ThUS$ 3,541.
AEROASIS S.A. is a corporation incorporated under the laws of the Republic of Colombia through Public Deed No. 1,206 dated May 2, 2006.
The business combination is recognized in the statement of financial position of Lan Airlines S.A. and Subsidiaries as goodwill of ThUS$ 6,736.
Summary statement of financial position at acquisition date: | ||||||||||||
ThUS$ | ThUS$ | |||||||||||
Current assets | 1,802 | Current liabilities | 8,007 | |||||||||
Non-current assets | 3,010 | Non-current liabilities | - | |||||||||
Equity | (3,195) | |||||||||||
|
|
|
| |||||||||
Total activos | 4,812 | Total liabilities | 4,812 | |||||||||
|
|
|
| |||||||||
Controlling interest | (3,195) | |||||||||||
Goodwill determination: | ||||||||||||
ThUS$ | ||||||||||||
Controlling interest | 3,195 | |||||||||||
Purchase price | 3,541 | |||||||||||
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| |||||||||||
Goodwill | 6,736 | |||||||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 2012
LAN AIRLINES S.A. | ||||
By: | /s/ Alejandro de la Fuente | |||
Name: | Alejandro de la Fuente | |||
Title: | Chief Financial Officer |