UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
May 9, 2018
Commission File Number 1-14728
LATAM Airlines Group S.A.
(Translation of Registrant’s Name Into English)
Presidente Riesco 5711, 20th floor
Las Condes
Santiago, Chile
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
CONTENTS
CLP | - | CHILEAN PESO |
ARS | - | ARGENTINE PESO |
US$ | - | UNITED STATES DOLLAR |
THUS$ | - | THOUSANDS OF UNITED STATES DOLLARS |
COP | - | COLOMBIAN PESO |
brl/R$ | - | BRAZILIAN REAL |
thr$ | - | THOUSANDS OF BRAZILIAN REAL |
MXN | - | MEXICAN PESO |
VEF | - | STRONG BOLIVAR |
Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.
Notes | Page |
1 - General information | 1 |
2 - Summary of significant accounting policies | 4 |
2.1. Basis of Preparation | 4 |
2.2. Basis of Consolidation | 11 |
2.3. Foreign currency transactions | 12 |
2.4. Property, plant and equipment | 12 |
2.5. Intangible assets other than goodwill | 13 |
2.6. Goodwill | 14 |
2.7. Borrowing costs | 14 |
2.8. Losses for impairment of non-financial assets | 14 |
2.9. Financial assets | 14 |
2.10. Derivative financial instruments and hedging activities | 15 |
2.11. Inventories | 17 |
2.12. Trade and other accounts receivable | 17 |
2.13. Cash and cash equivalents | 17 |
2.14. Capital | 17 |
2.15. Trade and other accounts payables | 17 |
2.16. Interest-bearing loans | 17 |
2.17. Current and deferred taxes | 18 |
2.18. Employee benefits | 18 |
2.19. Provisions | 19 |
2.20. Revenue recognition | 19 |
2.21. Leases | 20 |
2.22. Non-current assets (or disposal groups) classified as held for sale | 21 |
2.23. Maintenance | 21 |
2.24. Environmental costs | 21 |
3 - Financial risk management | 21 |
3.1. Financial risk factors | 21 |
3.2. Capital risk management | 35 |
3.3. Estimates of fair value | 35 |
4 - Accounting estimates and judgments | 37 |
5 - Segmental information | 40 |
6 - Cash and cash equivalents | 43 |
7 - Financial instruments | 44 |
7.1. Financial instruments by category | 44 |
7.2. Financial instruments by currency | 46 |
8 - Trade, other accounts receivable and non-current accounts receivable | 47 |
9 - Accounts receivable from/payable to related entities | 50 |
10 - Inventories | 51 |
11 - Other financial assets | 52 |
12 - Other non-financial assets | 53 |
13 - Non-current assets and disposal group classified as held for sale | 54 |
14 - Investments in subsidiaries | 55 |
15 - Intangible assets other than goodwill | 58 |
16 - Goodwill | 59 |
17 - Property, plant and equipment | 61 |
18 - Current and deferred tax | 67 |
19 - Other financial liabilities | 73 |
20 - Trade and other accounts payables | 81 |
21 - Other provisions | 83 |
22 - Other non-financial liabilities | 85 |
23 - Employee benefits | 86 |
24 - Accounts payable, non-current | 89 |
25 - Equity | 89 |
26 - Revenue | 95 |
27 - Costs and expenses by nature | 95 |
28 - Other income, by function | 97 |
29 - Foreign currency and exchange rate differences | 97 |
30 - Earnings per share | 106 |
31 - Contingencies | 107 |
32 - Commitments | 119 |
33 - Transactions with related parties | 124 |
34 - Share based payments | 125 |
35 - Statement of cash flows | 127 |
36 - The environment | 130 |
37 - Events subsequent to the date of the financial statements | 131 |
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
Note | As of March 31, 2018 | As of December 31, 2017 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
Unaudited | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 6 - 7 | 814,230 | 1,142,004 | |||||||||
Other financial assets | 7 - 11 | 769,605 | 559,919 | |||||||||
Other non-financial assets | 12 | 276,497 | 221,188 | |||||||||
Trade and other accounts receivable | 7 - 8 | 1,291,933 | 1,214,050 | |||||||||
Accounts receivable from related entities | 7 - 9 | 2,284 | 2,582 | |||||||||
Inventories | 10 | 267,329 | 236,666 | |||||||||
Tax assets | 18 | 82,433 | 77,987 | |||||||||
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners | 3,504,311 | 3,454,396 | ||||||||||
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners | 13 | 140,586 | 291,103 | |||||||||
Total current assets | 3,644,897 | 3,745,499 | ||||||||||
Non-current assets | ||||||||||||
Other financial assets | 7 - 11 | 88,526 | 88,090 | |||||||||
Other non-financial assets | 12 | 219,290 | 220,807 | |||||||||
Accounts receivable | 7 - 8 | 6,499 | 6,891 | |||||||||
Intangible assets other than goodwill | 15 | 1,614,703 | 1,617,247 | |||||||||
Goodwill | 16 | 2,665,212 | 2,672,550 | |||||||||
Property, plant and equipment | 17 | 10,055,224 | 10,065,335 | |||||||||
Tax assets | 18 | 16,932 | 17,532 | |||||||||
Deferred tax assets | 18 | 376,822 | 364,021 | |||||||||
Total non-current assets | 15,043,208 | 15,052,473 | ||||||||||
Total assets | 18,688,105 | 18,797,972 | ||||||||||
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
LIABILITIES AND EQUITY
LIABILITIES | Note | As of March 31, 2018 | As of December 31, 2017 | |||||||||
ThUS$ | ThUS$ | |||||||||||
Current liabilities | Unaudited | |||||||||||
Other financial liabilities | 7 - 19 | 1,299,350 | 1,300,949 | |||||||||
Trade and other accounts payables | 7 - 20 | 1,673,944 | 1,695,202 | |||||||||
Accounts payable to related entities | 7 - 9 | 513 | 760 | |||||||||
Other provisions | 21 | 2,922 | 2,783 | |||||||||
Tax liabilities | 18 | 4,302 | 3,511 | |||||||||
Other non-financial liabilities | 22 | 2,936,754 | 2,823,963 | |||||||||
5,917,785 | 5,827,168 | |||||||||||
Liabilities included in disposal groups classified as held for sale | 13 | 20,819 | 15,546 | |||||||||
Total current liabilities | 5,938,604 | 5,842,714 | ||||||||||
Non-current liabilities | ||||||||||||
Other financial liabilities | 7 - 19 | 6,348,814 | 6,605,508 | |||||||||
Accounts payable | 7 - 24 | 481,586 | 498,832 | |||||||||
Other provisions | 21 | 385,279 | 374,593 | |||||||||
Deferred tax liabilities | 18 | 961,978 | 949,697 | |||||||||
Employee benefits | 23 | 113,175 | 101,087 | |||||||||
Other non-financial liabilities | 22 | 141,889 | 158,305 | |||||||||
Total non-current liabilities | 8,432,721 | 8,688,022 | ||||||||||
Total liabilities | 14,371,325 | 14,530,736 | ||||||||||
EQUITY | ||||||||||||
Share capital | 25 | 3,146,265 | 3,146,265 | |||||||||
Retained earnings | 25 | 531,291 | 475,118 | |||||||||
Treasury Shares | 25 | (178 | ) | (178 | ) | |||||||
Other reserves | 546,331 | 554,884 | ||||||||||
Parent’s ownership interest | 4,223,709 | 4,176,089 | ||||||||||
Non-controlling interest | 14 | 93,071 | 91,147 | |||||||||
Total equity | 4,316,780 | 4,267,236 | ||||||||||
Total liabilities and equity | 18,688,105 | 18,797,972 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION
For the period ended | ||||||||||||
March 31, | ||||||||||||
Note | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
Unaudited | ||||||||||||
Revenue | 26 | 2,613,835 | 2,359,907 | |||||||||
Cost of sales | (2,019,583 | ) | (1,857,765 | ) | ||||||||
Gross margin | 594,252 | 502,142 | ||||||||||
Other income | 28 | 116,701 | 117,542 | |||||||||
Distribution costs | (170,635 | ) | (173,465 | ) | ||||||||
Administrative expenses | (199,015 | ) | (204,913 | ) | ||||||||
Other expenses | (112,767 | ) | (89,115 | ) | ||||||||
Other gains/(losses) | (3,456 | ) | 13,576 | |||||||||
Income from operation activities | 225,080 | 165,767 | ||||||||||
Financial income | 12,187 | 22,924 | ||||||||||
Financial costs | 27 | (86,217 | ) | (95,788 | ) | |||||||
Foreign exchange gains/(losses) | 29 | 811 | 35,373 | |||||||||
Result of indexation units | 2,434 | 12 | ||||||||||
Income (loss) before taxes | 154,295 | 128,288 | ||||||||||
Income (loss) tax expense / benefit | 18 | (46,723 | ) | (53,488 | ) | |||||||
NET INCOME (LOSS) FOR THE PERIOD | 107,572 | 74,800 | ||||||||||
Income (loss) attributable to owners of the parent | 93,889 | 65,557 | ||||||||||
Income (loss) attributable to non-controlling interest | 14 | 13,683 | 9,243 | |||||||||
Net income (loss) for the year | 107,572 | 74,800 | ||||||||||
EARNINGS PER SHARE | ||||||||||||
Basic earnings (losses) per share (US$) | 30 | 0.15483 | 0.10811 | |||||||||
Diluted earnings (losses) per share (US$) | 30 | 0.15483 | 0.10811 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended March 31, | ||||||||||||
Note | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
Unaudited | ||||||||||||
NET INCOME (LOSS) | 107,572 | 74,800 | ||||||||||
Components of other comprehensive income that will not be reclassified to income before taxes | ||||||||||||
Other comprehensive income, before taxes, gains (losses) by new measurements on defined benefit plans | 25 | (2,098 | ) | 2,601 | ||||||||
Total other comprehensive income that will not be reclassified to income before taxes | (2,098 | ) | 2,601 | |||||||||
Components of other comprehensive income that will be reclassified to income before taxes | ||||||||||||
Currency translation differences | ||||||||||||
Gains (losses) on currency translation, before tax | 29 | (28,659 | ) | 109,122 | ||||||||
Other comprehensive income, before taxes, currency translation differences | (28,659 | ) | 109,122 | |||||||||
Cash flow hedges | ||||||||||||
Gains (losses) on cash flow hedges before taxes | 19 | 17,119 | (4,879 | ) | ||||||||
Other comprehensive income (losses), before taxes, cash flow hedges | 17,119 | (4,879 | ) | |||||||||
Total other comprehensive income that will be reclassified to income before taxes | (11,540 | ) | 104,243 | |||||||||
Other components of other comprehensive income (loss), before taxes | (13,638 | ) | 106,844 | |||||||||
Income tax relating to other comprehensive income that will not be reclassified to income | ||||||||||||
Income tax relating to new measurements on defined benefit plans | 18 | 525 | (1,040 | ) | ||||||||
Accumulate income tax relating to other comprehensive income that will not be reclassified to income | 525 | (1,040 | ) | |||||||||
Income tax relating to other comprehensive income that will be reclassified to income | ||||||||||||
Income tax related to cash flow hedges in other comprehensive income | (527 | ) | (720 | ) | ||||||||
Income taxes related to components of other comprehensive income that will be reclassified to income | (527 | ) | (720 | ) | ||||||||
Total Other comprehensive income | (13,640 | ) | 105,084 | |||||||||
Total comprehensive income (loss) | 93,932 | 179,884 | ||||||||||
Comprehensive income (loss) attributable to owners of the parent | 81,491 | 166,333 | ||||||||||
Comprehensive income (loss) attributable to non-controlling interests | 12,441 | 13,551 | ||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | 93,932 | 179,884 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent | |||||||||||||||||||||||||||||||||||||||
Change in other reserves | |||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | Actuarial gains or losses on defined benefit | Shares based | Other | Total | Parent’s | Non- | ||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | plans | payments | sundry | other | Retained | ownership | controlling | Total | ||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | reserve | reserve | reserve | reserve | earnings | interest | interest | equity | |||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
Equity as of January 1, 2018 | 3,146,265 | (178 | ) | (2,131,591 | ) | 18,140 | (10,926 | ) | 39,481 | 2,639,780 | 554,884 | 475,118 | 4,176,089 | 91,147 | 4,267,236 | ||||||||||||||||||||||||
Total increase (decrease) in equity Comprehensive income Gain (losses) | 25 | — | — | — | — | — | — | — | — | 93,889 | 93,889 | 13,683 | 107,572 | ||||||||||||||||||||||||||
Other comprehensive income | — | — | (27,493 | ) | 16,611 | (1,516 | ) | — | (12,398 | ) | — | (12,398 | ) | (1,242 | ) | (13,640 | ) | ||||||||||||||||||||||
Total comprehensive income | — | — | (27,493 | ) | 16,611 | (1,516 | ) | — | — | (12,398 | ) | 93,889 | 81,491 | 12,441 | 93,932 | ||||||||||||||||||||||||
Transactions with shareholdersDividens | 25 | — | — | — | — | — | — | — | — | (28,167 | ) | (28,167 | ) | — | (28,167 | ) | |||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | — | — | — | — | — | (1,938 | ) | 5,783 | 3,845 | (9,549 | ) | (5,704 | ) | (10,517 | ) | (16,221 | ) | |||||||||||||||||||||
Total transactions with shareholders | — | — | — | — | — | (1,938 | ) | 5,783 | 3,845 | (37,716 | ) | (33,871 | ) | (10,517 | ) | (44,388 | ) | ||||||||||||||||||||||
Closing balance as of March 31, 2018 (Unaudited) | 3,146,265 | (178 | ) | (2,159,084 | ) | 34,751 | (12,442 | ) | 37,543 | 2,645,563 | 546,331 | 531,291 | 4,223,709 | 93,071 | 4,316,780 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent | |||||||||||||||||||||||||||||||||||||||
Change in other reserves | |||||||||||||||||||||||||||||||||||||||
Currency | Cash flow | Actuarial gains or losses on defined benefit | Shares based | Other | Total | Parent’s | Non- | ||||||||||||||||||||||||||||||||
Share | Treasury | translation | hedging | plans | payments | sundry | other | Retained | ownership | controlling | Total | ||||||||||||||||||||||||||||
Note | capital | shares | reserve | reserve | reserve | reserve | reserve | reserve | earnings | interest | interest | equity | |||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||||||||
Equity as of January 1, 2017 | 3,149,564 | (178 | ) | (2,086,555 | ) | 1,506 | (12,900 | ) | 38,538 | 2,640,281 | 580,870 | 366,404 | 4,096,660 | 88,644 | 4,185,304 | ||||||||||||||||||||||||
Total increase (decrease) in equity Comprehensive income Gain (losses) | 25 | — | — | — | — | — | — | — | — | 65,557 | 65,557 | 9,243 | 74,800 | ||||||||||||||||||||||||||
Other comprehensive income | — | — | 104,936 | (5,718 | ) | 1,558 | — | 100,776 | — | 100,776 | 4,308 | 105,084 | |||||||||||||||||||||||||||
Total comprehensive income | — | — | 104,936 | (5,718 | ) | 1,558 | — | — | 100,776 | 65,557 | 166,333 | 13,551 | 179,884 | ||||||||||||||||||||||||||
Transactions with shareholders Dividens | 25 | — | — | — | — | — | — | — | — | (19,667 | ) | (19,667 | ) | — | (19,667 | ) | |||||||||||||||||||||||
Increase (decrease) through transfers and other changes, equity | 25-34 | — | — | — | — | — | 545 | (3,304 | ) | (2,759 | ) | — | (2,759 | ) | (11,589 | ) | (14,348 | ) | |||||||||||||||||||||
Total transactions with shareholders | — | — | — | — | — | 545 | (3,304 | ) | (2,759 | ) | (19,667 | ) | (22,426 | ) | (11,589 | ) | (34,015 | ) | |||||||||||||||||||||
Closing balance as of March 31, 2017 (Unaudited) | 3,149,564 | (178 | ) | (1,981,619 | ) | (4,212 | ) | (11,342 | ) | 39,083 | 2,636,977 | 678,887 | 412,294 | 4,240,567 | 90,606 | 4,331,173 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD
For the periods ended | ||||||||||||
March 31, | ||||||||||||
Note | 2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
(Unaudited) | ||||||||||||
Cash flows from operating activities | ||||||||||||
Cash collection from operating activities | ||||||||||||
Proceeds from sales of goods and services | 2,698,081 | 2,517,712 | ||||||||||
Other cash receipts from operating activities | 25,539 | 13,134 | ||||||||||
Payments for operating activities | ||||||||||||
Payments to suppliers for goods and services | (1,743,238 | ) | (1,757,772 | ) | ||||||||
Payments to and on behalf of employees | (559,714 | ) | (496,577 | ) | ||||||||
Other payments for operating activities | (76,643 | ) | (63,648 | ) | ||||||||
Income taxes refunded (paid) | (11,796 | ) | (18,803 | ) | ||||||||
Other cash inflows (outflows) | 35 | (6,322 | ) | (26,201 | ) | |||||||
Net cash flows from operating activities | 325,907 | 167,845 | ||||||||||
Cash flows used in investing activities | ||||||||||||
Other cash receipts from sales of equity or debt instruments of other entities | 903,496 | 742,456 | ||||||||||
Other payments to acquire equity or debt instruments of other entities | (1,083,699 | ) | (719,884 | ) | ||||||||
Amounts raised from sale of property, plant and equipment | 107,129 | 1,481 | ||||||||||
Purchases of property, plant and equipment | (178,566 | ) | (67,137 | ) | ||||||||
Purchases of intangible assets | (19,911 | ) | (18,537 | ) | ||||||||
Interest received | 3,790 | 5,676 | ||||||||||
Other cash inflows (outflows) | 35 | 11,731 | (1,697 | ) | ||||||||
Net cash flow from (used in) investing activities | (256,030 | ) | (57,642 | ) | ||||||||
Cash flows from (used in) financing activities | 35 | |||||||||||
Amounts raised from long-term loans | 5,004 | 49,726 | ||||||||||
Amounts raised from short-term loans | 80,000 | 100,000 | ||||||||||
Loans repayments | (200,841 | ) | (288,228 | ) | ||||||||
Payments of finance lease liabilities | (184,144 | ) | (84,487 | ) | ||||||||
Dividends paid | (9,716 | ) | (11,796 | ) | ||||||||
Interest paid | (60,577 | ) | (63,913 | ) | ||||||||
Other cash inflows (outflows) | (2,449 | ) | 80,581 | |||||||||
Net cash flows from (used in) financing activities | (372,723 | ) | (218,117 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change | (302,846 | ) | (107,914 | ) | ||||||||
Effects of variation in the exchange rate on cash and cash equivalents | (24,928 | ) | 11,739 | |||||||||
Net increase (decrease) in cash and cash equivalents | (327,774 | ) | (96,175 | ) | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 6 | 1,142,004 | 949,327 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 6 | 814,230 | 853,152 |
The accompanying Notes 1 to 37 form an integral part of these interim consolidated financial statements.
LATAM AIRLINES GROUP S.A.AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2018 (UNAUDITED)
NOTE 1 - GENERAL INFORMATION
LATAM Airlines Group S.A. (the “Company”) is a public company registered with the Commission for the Financial Market (1), under No.306, whose shares are quoted in Chile on the Stock Brokers - Stock Exchange (Valparaíso) - the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange (“NYSE”) in New York in the form of American Depositary Receipts (“ADRs”).
Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by their subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia.
The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca.
Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the Commission for the Financial Market (1) and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs (2).
At March 31, 2018, the Company’s capital stock is represented by 608,374,525 shares, all common shares, without par value, which is divided into: (a) the 606,407,693 subscribed and paid shares; and (b) 1,966,832 shares pending of subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plan; And (ii) 466,832 correspond to the balance of shares pending of placement of the last capital increase approved at the extraordinary meeting of shareholders of August 18, 2016.
(1) On February 23, 2017 the Law No. 21,000 was published in the Official Journal, creating the new Commission for the Financial Market (CMF), a collegiate and technical entity that replaced the Superintendency of Securities and Insurance (SVS).
The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Costa Verde Aeronáutica Tres SpA, Inversiones Nueva Costa Verde Aeronáutica Ltda., Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A. and Inversiones La Espasa Dos y Cía. Ltda., owns 27.91% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.
As of March 31, 2018, the Company had a total of 1,453 registered shareholders. At that date approximately 3.93% of the Company’s share capital was in the form of ADRs.
For the period ended March 31, 2018, the Company had an average of 43,077 employees, ending this period with a total of 42,977 employees, spread over 6,673 Administrative employees, 4,740 in Maintenance, 15,016 in Operations, 9,266 in Cabin Crew, 4,036 in Controls Crew, and 3,246 in Sales.
The main subsidiaries included in these consolidated financial statements are as follows:
a) | Participation rate |
As March 31, 2018 | As December 31, 2017 | ||||||||||||||||||||||||
Tax No. | Company | Country of origin | Functional Currency | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||
% | % | % | % | % | % | ||||||||||||||||||||
Unaudited | |||||||||||||||||||||||||
96.518.860-6 | Latam Travel Chile S.A. and Subsidary | Chile | US$ | 99.9900 | 0.0100 | 100.0000 | 99.9900 | 0.0100 | 100.0000 | ||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries | Chile | US$ | 99.8361 | 0.1639 | 100.0000 | 99.8361 | 0.1639 | 100.0000 | ||||||||||||||||
Foreign | Lan Perú S.A. | Peru | US$ | 49.0000 | 21.0000 | 70.0000 | 49.0000 | 21.0000 | 70.0000 | ||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | Chile | US$ | 99.8939 | 0.0041 | 99.8980 | 99.8939 | 0.0041 | 99.8980 | ||||||||||||||||
Foreign | Connecta Corporation | U.S.A. | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidary | U.S.A. | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | Chile | CLP | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
Foreign | Laser Cargo S.R.L. | Argentina | ARS | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries | Bahamas | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidary | Chile | US$ | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | 100.0000 | ||||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries | Chile | US$ | 99.7100 | 0.2900 | 100.0000 | 99.7100 | 0.2900 | 100.0000 | ||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | Chile | CLP | 99.8300 | 0.1700 | 100.0000 | 99.8300 | 0.1700 | 100.0000 | ||||||||||||||||
Foreign | Latam Finance Limited | Cayman Insland | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||
Foreign | Peuco Finance Limited | Cayman Insland | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||
Foreign | Profesional Airline Services INC. | U.S.A. | US$ | 100.0000 | 0.0000 | 100.0000 | 100.0000 | 0.0000 | 100.0000 | ||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | Brazil | BRL | 63.0901 | 36.9099 | 100.0000 | 63.0901 | 36.9099 | 100.0000 |
(*) As of March 31, 2018, the indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., a company over which LATAM Airlines Group S.A. it has a 99.9983% share on economic rights and 49% of political rights as a result of the provisional measure No. 714 of the Brazilian government implemented during 2016 that allows foreign capital to have up to 49% ownership. In this way, since April 2016, LATAM Airlines Group S.A. owns 901 shares with the right to vote of Holdco I S.A., which is equivalent to 49% of the total shares with voting rights of said company and TEP Chile S.A. owns 938 shares with the right to vote of Holdco I S.A., which is equivalent to 51% of the total shares with voting rights of said company.
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b) | Financial Information |
Statement of financial position | Net Income | |||||||||||||||||||||||||
For the periods ended | ||||||||||||||||||||||||||
As of March 31, 2018 | As of December 31, 2017 | March 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||
Tax No. | Company | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Gain /(loss) | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | |||||||||||||||||||||||||
96.518.860-6 | Latam Travel Chile S.A. and Subsidary | 7,135 | 1,853 | 5,282 | 6,771 | 2,197 | 4,574 | 712 | 578 | |||||||||||||||||
96.969.680-0 | Lan Pax Group S.A. and Subsidiaries (*) | 760,728 | 1,364,392 | (598,195 | ) | 499,345 | 1,101,548 | (596,406 | ) | (7,583 | ) | (20,354 | ) | |||||||||||||
Foreign | Lan Perú S.A. | 498,183 | 473,360 | 24,823 | 315,607 | 303,204 | 12,403 | 11,777 | (7,451 | ) | ||||||||||||||||
93.383.000-4 | Lan Cargo S.A. | 586,994 | 375,567 | 211,427 | 584,169 | 371,934 | 212,235 | (130 | ) | 2,958 | ||||||||||||||||
Foreign | Connecta Corporation | 40,452 | 16,834 | 23,618 | 38,735 | 17,248 | 21,487 | 2,131 | 2,151 | |||||||||||||||||
Foreign | Prime Airport Services Inc. and Subsidary (*) | 13,102 | 15,981 | (2,879 | ) | 12,671 | 15,722 | (3,051 | ) | 183 | 22 | |||||||||||||||
96.951.280-7 | Transporte Aéreo S.A. | 329,750 | 103,867 | 225,883 | 324,498 | 104,357 | 220,141 | 5,982 | 12,300 | |||||||||||||||||
96.631.520-2 | Fast Air Almacenes de Carga S.A. | 14,042 | 5,921 | 8,121 | 12,931 | 4,863 | 8,068 | (108 | ) | (381 | ) | |||||||||||||||
Foreign | Laser Cargo S.R.L. | 17 | 25 | (8 | ) | 18 | 27 | (9 | ) | — | — | |||||||||||||||
Foreign | Lan Cargo Overseas Limited and Subsidiaries (*) | 68,475 | 42,079 | 19,892 | 66,039 | 42,271 | 18,808 | 3,191 | (1,143 | ) | ||||||||||||||||
96.969.690-8 | Lan Cargo Inversiones S.A. and Subsidary (*) | 149,917 | 160,462 | (9,621 | ) | 144,884 | 156,005 | (10,112 | ) | 490 | (807 | ) | ||||||||||||||
96.575.810-0 | Inversiones Lan S.A. and Subsidiaries (*) | 12,124 | 4,749 | 7,256 | 11,681 | 5,201 | 6,377 | 837 | 962 | |||||||||||||||||
96.847.880-K | Technical Trainning LATAM S.A. | 1,619 | 371 | 1,248 | 1,967 | 367 | 1,600 | (384 | ) | (294 | ) | |||||||||||||||
Foreign | Latam Finance Limited | 678,497 | 720,407 | (41,910 | ) | 678,289 | 708,306 | (30,017 | ) | (11,893 | ) | — | ||||||||||||||
Foreign | Peuco Finance Limited | 608,191 | 608,191 | — | 608,191 | 608,191 | — | — | — | |||||||||||||||||
Foreign | Profesional Airline Services INC. | 1,989 | 1,667 | 322 | 3,703 | 3,438 | 265 | 56 | — | |||||||||||||||||
Foreign | TAM S.A. and Subsidiaries (*) | 5,104,118 | 3,513,177 | 1,513,226 | 4,490,714 | 3,555,423 | 856,829 | 48,549 | 26,866 |
(*) | The Equity reported corresponds to Equity attributable to owners of the parent, it does not include Non-controlling interest. |
Additionally, we have proceeded to consolidate the following special purpose entities: 1. Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 2. Guanay Finance Limited created to issue a bond collateralized with future credit card receivables; 3. Private investment funds. These companies have been consolidated as required by IFRS 10.
All controlled entities have been included in the consolidation.
The changes that occurred in the consolidation perimeter between January 1, 2017 and March 31, 2018, are detailed below:
(1) | Incorporation or acquisition of companies |
- | On November 2015, the company Peuco Finance Limited was created, whose ownership corresponds 100% to LATAM Airlines Group S.A. The operation of this company began in December 2017. |
- | Prismah Fidelidade Ltda. is constituted on June 29, 2012, whose ownership corresponds 99.99% to Multiplus S.A. direct subsidiary of TAM S.A. The operation of this company began in December 2017. |
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- | During the month of December 2017, a capital increase in TAM S.A was reported to the Finance Committee for up to US $ 900 million. |
The contributions were made on December 11, 2017 for US $ 210 million, January 24, 2018 for US $ 449 million and February 5, 2018 for US $ 200 million, without issuance of new shares.
These capital increases were made and integrated 100% by the shareholder LATAM Airlines Group S.A.
The foregoing, in accordance with the TAM’s shareholder Holdco I S.A., who renounces to any right arisinged from this increase.
- | As of March 31, 2018, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 4,951 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, equivalent to 0.09498%, consequently, the indirect participation of LATAM Airlines Group S.A. increases to 99.19414% |
- | On January 22, 2018, Lan Pax Group S.A., purchased 17,717 shares of Laser Cargo SRL. to Andes Airport Service S.A., remaining with 3.77922% and Lan Cargo S.A. with a 96.22078% share. |
(2) | Dissolution of companies |
- | On November 20, 2017 LATAM Airlines Group S.A. acquires 100% of the shares of Inmobiliaria Aeronáutica S.A. consequently, a merger and subsequent dissolution of said company is carried out. |
(3) | Disappropriation of companies. |
- | On May 5, 2017 Lan Pax Group S.A. and Inversiones Lan S.A., both subsidiaries of LATAM Airlines Group S.A., sold Talma Servicios Aeroportuarios S.A. and Inversiones Talma S.A.C. 100% of the capital stock of Rampas Andes Airport Services S.A. |
The sale value of Rampas Andes Airport Services S.A. it was of ThUS $ 8,624.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.
2.1. | Basis of Preparation |
The consolidated financial statements of LATAM Airlines Group S.A. for the period ended March 31, 2018, have been prepared in accordance with IAS 34 Interim Financial Reporting, which is included in the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).
4
The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments.
The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.
In order to facilitate comparison, some minor reclassifications have been made to the consolidated financial statements for the previous year.
The interim consolidated financial statements has been prepared accordance with the accounting policy used by the Group for the consolidated financial statements 2017, except for standards and interpretations adopted as from January 1, 2018.
(a) | Accounting pronouncements with implementation effective from January 1, 2018: |
Date of issue | Mandatory | |||
(i) Rules and amendments | ||||
IFRS 9: Financial instruments. | December 2009 | 01/01/2018 | ||
Amendment to IFRS 9: Financial instruments. | November 2013 | 01/01/2018 | ||
IFRS 15: Revenue from ordinary activities from contracts with customers. | May 2014 | 01/01/2018 | ||
Amendment to IFRS 15: Revenue from ordinary activities from contracts with customers. | April 2016 | 01/01/2018 | ||
Amendment to IFRS 2: Share-based payments | June 2016 | 01/01/2018 | ||
Amendment to IFRS 4: Insurance contract | September 2016 | 01/01/2018 |
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Date of issue | Mandatory | |||
(ii) Improvements | ||||
Improvements to the International Financial Reporting Standards (cycle 2014-2016) IFRS 1: Adoption for the first time of international financial reporting standards and IAS 28 Investments in associates and joint ventures.
| December 2016 | 01/01/2018 | ||
(iii) Interpretations | ||||
IFRIC 22: Transactions in foreign currency and anticipated consideration | December 2016 | 01/01/2018 |
The Company has recognized the changes identified as a result of the adoption of IFRS 9 and 15, recognizing the cumulative effect of the initial application of these standards as an adjustment to the opening balance of retained earnings as of January 1, 2018, therefore, the Financial statements as of December 31, 2017 have not been modified.
The impacts of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from ordinary contracts with customers are as follows:
Consolidated statement of financial position (extract)
As of 31 | Effect | As of 1 | ||||||||||||||||||
december | adoption | january | ||||||||||||||||||
Note | 2017 | IFRS 9 | IFRS 15 | 2018 | ||||||||||||||||
ThUS$ | THUS$ | ThUS$ | ThUS$ | |||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||
Current assets | ||||||||||||||||||||
Other non-financial assets, current | 7 - 11 | 221,188 | — | 54,361 | (4) | 275,549 | ||||||||||||||
Trade debtors and other accounts receivable, current | 7 - 8 | 1,214,050 | (11,105 | ) (1) | — | 1,202,945 | ||||||||||||||
Non-current assets | ||||||||||||||||||||
Deferred tax assets | 364,021 | 89 | (2) | 6,005 | (7) | 370,115 | ||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable commercial and other | ||||||||||||||||||||
Debts to pay | 7 - 20 | 1,695,202 | — | (22,192 | ) (5) | 1,673,010 | ||||||||||||||
Other non-financial liabilities, current | 22 | 2,823,963 | — | 77,640 | (6) | 2,901,603 | ||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Deferred tax liability | 18 | 949,697 | (1,021 | ) (2) | 4,472 | (5) | 953,148 | |||||||||||||
Equity | ||||||||||||||||||||
Accumulated earnings | 25 | 475,118 | (9,995 | ) (3) | 446 | (8) | 465,569 |
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- Effects of adopting IFRS 9
(1) Expected credit losses: The Company modified the calculation of the impairment provision to comply with the expected credit loss model, established in IFRS 9 Financial Instruments, which replaces the current loss impairment model incurred. To the calculate porcentage of credit losses, a risk matrix was used, grouping the portfolio, according to similar characteristics of risk and maturity. This change resulted in the recognition of an increase in the provision for impairment losses of US $ (11.1) million.
This standard also includes requirements related to the classification and measurement of financial assets and liabilities and an expected credit loss model that replaces the current loss impairment model incurred.
As of January 1, 2018, the calculation of the impairment losses provision are as follows:
Portfolio maturity | ||||||||||||||||||||||||
Up to date ThUS$ | Up to 90 days ThUS$ | Up to 91 to 180 days ThUS$ | Up to 181 to 365 days ThUS$ | More than 365 days ThUS$ | Total ThUS$ | |||||||||||||||||||
Expected loss rate | 1 | % | 3 | % | 54 | % | 36 | % | 98 | % | 8 | % | ||||||||||||
Gross book value | 1,040,671 | 34,153 | 12,855 | 18,577 | 69,540 | 1,175,796 | ||||||||||||||||||
Impairment provision | (6,046 | ) | (10,660 | ) | (6,977 | ) | (6,628 | ) | (68,122 | ) | (98,433 | ) |
(2) Deferred tax adjustments originated by the application of IFRS 9.
(3) Net effect on accumulated results of the adjustments indicated above.
7
In addition to the impacts on the consolidated statement of financial position, the application of IFRS 9: Financial Instruments requires the classification of financial instruments according to the business model, to determine the form of measurement of financial instruments, after their initial recognition. .. The Company analyzed the business models and classified its financial assets and liabilities according to the following:
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||||||||||||||
Assets | Loans and receivables | Hedge and derivatives | Held for traiding | Initial as fair value through profit and loss | Cost amortized | At fair value with changes in results | Total | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||
Balance as of December 31, 2017 | 2,446,864 | 62,867 | 1,915 | 501,890 | — | — | 3,013,536 | |||||||||||||||||||||
Cash and cash equivalents | (1,112,346 | ) | — | — | (29,658 | ) | 1,112,346 | 29,658 | — | |||||||||||||||||||
Other financial assets, current | (23,918 | ) | — | (1,421 | ) | (472,232 | ) | 23,918 | 473,653 | — | ||||||||||||||||||
Trade debtors and other accounts receivable, current | (1,214,050 | ) | — | — | — | 1,214,050 | — | — | ||||||||||||||||||||
Accounts receivable from entities related, current | (2,582 | ) | — | — | — | 2,582 | — | — | ||||||||||||||||||||
Other financial assets, non-current | (87,077 | ) | — | (494 | ) | — | 87,077 | 494 | — | |||||||||||||||||||
Accounts receivable, non-current | (6,891 | ) | — | — | — | 6,891 | — | — | ||||||||||||||||||||
Balance as of January 1, 2018 | — | 62,867 | — | — | 2,446,864 | 503,805 | 3,013,536 |
Classification IAS 39 | Classification IFRS 9 | |||||||||||||||
Liabilities | Others financial liabilities | Held hedge derivatives | Cost amortized | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Balance as of December 31, 2017 | 10,086,434 | 14,817 | — | 10,101,251 | ||||||||||||
Other current financial liabilities | (1,288,749 | ) | — | 1,288,749 | — | |||||||||||
Trade accounts payable and other accounts payable, current | (1,695,202 | ) | — | 1,695,202 | — | |||||||||||
Accounts payable to related entities, current | (760 | ) | — | 760 | — | |||||||||||
Other financial liabilities, not current | (6,602,891 | ) | — | 6,602,891 | — | |||||||||||
Accounts payable, not current | (498,832 | ) | — | 498,832 | — | |||||||||||
Accounts payable to entities related, not current | — | — | — | — | ||||||||||||
Balance as of January 1, 2018 | — | 14,817 | 10,086,434 | 10,101,251 |
- Effects of adopting IFRS 15
(4) Contract costs: The Company has capitalized the costs, related to the revenues from air transport of passengers, corresponding to: the commissions charged by the credit card administrators for US$ 22,0 million and the air ticket booking services through the system general distribution (GDS) for US$ 15,6 million. Additionally, there is a reclassification of commissions from travel agencies for US$ 16,8 million, which previously were presented, according IAS 18, net of the liability to fly.
(5) Contract liabilities: The Company has adjusted certain concepts that were recorded as obligations with suppliers and customers, which must now be treated as contract liabilities; therefore they must be deferred until the presentation of the service. These concepts are mainly related to the ground transportation service for US $ 15.6 million and traveler's checks for US $ 6.6 million.
8
(6) Performance Obligations: The Company analyzed the moment in which the performance obligations identified in the contracts with customers must be recognized in the consolidated result. During this analysis, some concepts were identified which must be deferred until the moment of service provision, mainly related to land transportation services, charges for modifications to the initial contract in the sale of tickets and redeem of some products associated with loyalty programs for US$ 60,8 million. Additionally, there is the reclassification detailed in numeral (4) for US$ 16,8 million.
(7) Deferred tax adjustments originated by the application of IFRS 15.
(8) Net effect on accumulated results of the adjustments indicated above.
Additionally, the Company concluded that, in the rendering of certain services, it acted as agent in the provision of said services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.
The effects of the changes recognized in the application of IFRS 15 in the first quarter of the year 2018 in the consolidated income statement are presented below.
For the period ended March 31, 2018 | ||||||||||||||||||||||||
Reconciliation Revenue | Adjustments for reconciliation | |||||||||||||||||||||||
Results | Deferred | Results | ||||||||||||||||||||||
under | Contract | revenues | under | |||||||||||||||||||||
Note | IFRS 15 | costs (4) | recognition (5), (6) | Reclassifications | IAS 18 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Revenue | 26 | 2,613,835 | — | 30,273 | 4,830 | 2,648,938 | ||||||||||||||||||
Cost of sales | (2,019,583 | ) | — | (10,732 | ) | — | (2,030,315 | ) | ||||||||||||||||
Gross margin | 594,252 | — | 19,541 | 4,830 | 618,623 | |||||||||||||||||||
Other income | 28 | 116,701 | — | — | 18,774 | 135,475 | ||||||||||||||||||
Distribution costs | (170,635 | ) | 964 | — | (4,698 | ) | (174,369 | ) | ||||||||||||||||
Administrative expenses | (199,015 | ) | 3,381 | — | (18,906 | ) | (214,540 | ) | ||||||||||||||||
Other expenses | (112,767 | ) | — | — | — | (112,767 | ) | |||||||||||||||||
Other gains/(losses) | (3,456 | ) | — | — | — | (3,456 | ) | |||||||||||||||||
Income from operation activities | 225,080 | 4,345 | 19,541 | — | 248,966 | |||||||||||||||||||
Financial income | 12,187 | — | — | — | 12,187 | |||||||||||||||||||
Financial costs | 27 | (86,217 | ) | — | — | — | (86,217 | ) | ||||||||||||||||
Foreign exchange gains/(losses) | 29 | 811 | — | — | — | 811 | ||||||||||||||||||
Result of indexation units | 2,434 | — | — | — | 2,434 | |||||||||||||||||||
Income (loss) before taxes | 154,295 | 4,345 | 19,541 | — | 178,181 | |||||||||||||||||||
Income (loss) tax expense / benefit | 18 | (46,723 | ) | (1,240 | ) | (6,007 | ) | — | (53,970 | ) | ||||||||||||||
NET INCOME (LOSS) FOR THE PERIOD | 107,572 | 3,105 | 13,534 | — | 124,211 | |||||||||||||||||||
Income (loss) attributable to owners of the parent | 93,889 | 3,105 | 13,534 | — | 110,528 | |||||||||||||||||||
Income (loss) attributable to non-controlling interest | 14 | 13,683 | — | — | — | 13,683 | ||||||||||||||||||
Net income (loss) for the year | 107,572 | 3,105 | 13,534 | — | 124,211 |
(b) Accounting pronouncements not yet in force for financial years beginning on January 1, 2018 and which has not been effected early adoption
9
| Date of issue | Mandatory application: exercises started at from |
IFRS 16: Leases
Amendment to IFRS 9: Financial Instruments
Amendment to IAS 28: Investments in associates and joint ventures
IFRS 17: Insurance contracts
| January 2016
October 2017
October 2017
May 2017
| January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2021
|
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures. | September 2014 | To be determined |
Amendment to IAS 19: Benefits to employees | February 2018 |
January 1, 2019
|
ii) Improvements
Improvements to International Financial Reporting Standards (cycle 2015-2017) IFRS 3: Business combination; IAS 12: Income tax; IFRS 11: Joint agreements and IAS 23 Costs for loans.
(i) Interpretations
IFRIC 23: Uncertain tax positions |
December 2017
June 2017 |
January 1, 2019
January 1, 2019 |
The Company's management believes that the adoption of the standards, amendments and interpretations described above will not have a significant impact on the consolidated financial statements of the Company in the exercise of its first application, except for IFRS 16.
IFRS 16 Leases incorporates significant changes in the accounting of tenants by requiring a similar treatment to financial leases for all those leases that are currently classified as operational with a term greater than 12 months. This means, in general terms, that an asset representative of the right to use the assets subject to operational leasing contracts and a liability equivalent to the present value of the payments associated with the contract must be recognized. As for the effects on the result, the monthly lease payments will be replaced by the depreciation of the asset and the recognition of a financial expense.
We are evaluating the impact that the adoption of the new lease rule will have on the consolidated financial statements. Currently, we believe that the adoption of this new standard will have a significant impact on the consolidated statement of financial position due to the recording of an asset for right of use and a liability, corresponding to the recording of the leases that are currently registered as operating leases.
LATAM Airlines Group S.A. and subsidiaries is analyzing this rule to determine the effects it may have on its financial statements, covenants and other financial indicators.
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2.2. | Basis of Consolidation |
(a) | Subsidiaries |
Subsidiaries are all the entities (including special-purpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition.
Balances, transactions and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.
To account for and identify the financial information revealed when carrying out a business combination, such as the acquisition of an entity by the Company, is apply the acquisition method provided for in IFRS 3: Business combination.
(b) | Transactions with non-controlling interests |
The Company applies the policy of considering transactions with non-controlling interests, when not related to loss of control, as equity transactions without an effect on income.
(c) | Sales of subsidiaries |
When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the non-controlling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses).
If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value is subsequently accounted using the equity method.
(d) | Investees or associates |
Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost.
11
2.3. | Foreign currency transactions |
(a) | Presentation and functional currencies |
The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.
(b) | Transactions and balances |
Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.
(c) | Group entities |
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency other than the presentation currency are translated to the presentation currency as follows:
(i) Assets and liabilities of each consolidated statement of financial position presented are translated at the closing exchange rate on the consolidated statement of financial position date;
(ii) The revenues and expenses of each income statement account are translated at the exchange rates prevailing on the transaction dates, and
(iii) All the resultant exchange differences by conversion are shown as a separate component in other comprehensive income.
The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar.
Adjustments to the Goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed.
2.4. | Property, plant and equipment |
The land of LATAM Airlines Group S.A. and Subsidiaries, are recognized at cost less any accumulated impairment loss. The rest of the Properties, plants and equipment are recorded, both in their initial recognition and in their subsequent measurement, at their historical cost less the corresponding depreciation and any loss due to deterioration.
The amounts of advances paid to the aircraft manufacturers are activated by the Company under Construction in progress until they are received.
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Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or are recognized as a separate asset, only when it is probable that the future economic benefits associated with the elements of property, plant and equipment , they will flow to the Company and the cost of the item can be determined reliably. The value of the replaced component is written off. The rest of the repairs and maintenance are charged to the result of the year in which they are incurred.
The depreciation of the properties, plants and equipment is calculated using the linear 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 the useful life of the assets are reviewed and adjusted, if necessary, once a year.
When the value of an asset exceeds its estimated recoverable amount, its value is immediately reduced to its recoverable amount (Note 2.8).
Losses and gains from the sale of property, plant and equipment are calculated by comparing the consideration with the book value and are included in the consolidated statement of income.
2.5. | Intangible assets other than goodwill |
(a) | Airport slots and Loyalty program |
Airport slots and the Coalition and Loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows:
Airport slots – Air transport CGU
Loyalty program – Coalition and loyalty program Multiplus CGU
(See Note 16)
The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period.
The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A.
The Brands, airport Slots and Loyalty program were recognized in fair values determined in accordance with IFRS 3, as a consequence of the business combination with TAM and Subsidiaries.
(b) | Computer software |
Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 10 years.
Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets others than Goodwill when they have met all the criteria for capitalization.
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(c) | Brands |
The Brands were acquired in the business combination with TAM S.A. And Subsidiaries and recognized at fair value under IFRS. During the year 2016, the estimated useful life of the brands change from an indefinite useful life to a five-year period, the period in which the value of the brands will be amortized (See Note 15).
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 orassociateon the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually or each time that there is evidence of impairment. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.
2.7. | Borrowing costs |
Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated income statement when they are accrued.
2.8. | Losses for impairment of non-financial assets |
Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date.
2.9. | Financial assets |
As of January 1, 2018, the Company classifies its financial assets in the following categories: at fair value (either through other comprehensive income, or through gains or losses), and at amortized cost. The classification depends on the business model of the entity to manage the financial assets and the contractual terms of the cash flows.
The group reclassifies debt investments when and only when it changes its business model to manage those assets.
In the initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset classified at amortized cost, the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets accounted for at fair value through profit or loss are recorded as expenses in the income statement.
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(a) Debt instruments
The subsequent measurement of debt instruments depends on the group's business model to manage the asset and cash flow characteristics of the asset. The Company has two measurement categories in which the group classifies its debt instruments:
Amortized cost: the assets held for the collection of contractual cash flows where those cash flows represent only payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in income when the asset is derecognized or impaired. Interest income from these financial assets is included in financial income using the effective interest rate method.
Fair value through profit or loss: assets that do not meet the criteria of amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and is presented net in the income statement within other gains / (losses) in the period in which it arises.
(b) Equity instruments
Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gains / (losses) in the statement of income as appropriate.
The Company evaluates in advance the expected credit losses associated with its debt instruments recorded at amortized cost. The applied impairment methodology depends on whether there has been a significant increase in credit risk.
2.10. | Derivative financial instruments and hedging activities |
Derivatives are recognized, in accordance with IAS 39, initially at fair value on the date on which the derivative contract was made and are subsequently valued at their fair value. The method to recognize the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if so, the nature of the item being 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.
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The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities.
(a) | Fair value hedges |
Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.
(b) | Cash flow hedges |
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income under other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.
In case of variable interest-rate hedges, the amounts recognized in the statement of other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest.
For fuel price hedges, the amounts shown in the statement of other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used.
For foreign currency hedges, the amounts recognized in the statement of other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income.
When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as “Other gains (losses)”.
(c) | Derivatives not booked as a hedge |
The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in “Other gains (losses)”.
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2.11. | Inventories |
Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.
2.12. | Trade and other accounts receivable |
Commercial accounts receivable are initially recognized at their fair value and subsequently at their amortized cost in accordance with the effective rate method, less the provision for impairment according to the model of the expected credit losses. The company applies the simplified approach permitted by IFRS 9, which requires that expected lifetime losses be recognized upon initial recognition of accounts receivable.
The existence of significant financial difficulties on the part of the debtor, the probability that the debtor goes bankrupt or financial reorganization are considered indicators of a significant increase in credit risk.
The carrying amount of the asset is reduced as the provision account is used and the loss is recognized in the consolidated income statement under "Cost of sales". When an account receivable is written off, it is regularized against the provision account for the account receivable.
2.13. | Cash and cash equivalents |
Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments.
2.14. | Capital |
The common shares are classified as net equity.
Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares.
2.15. | Trade and other accounts payables |
Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost.
2.16. | Interest-bearing loans |
Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.
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Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.
2.17. | Current and deferred taxes |
The expense by current tax is comprised of income and deferred taxes.
The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income.
Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.
Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which tocompensate the temporary differences.
The tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in other comprehensive income, directly in income by function or goodwill, respectively.
2.18. | Employee benefits |
(a) | Personnel vacations |
The Company recognizes the expense for personnel vacations on an accrual basis.
(b) | Share-based compensation |
The compensation plans implemented based on the shares of the Company are recognized in the consolidated financial statements in accordance with IFRS 2: Share-based payments, for plans based on the granting of options, the effect of fair value is recorded in equity with a charge to remuneration in a linear manner between the date of grant of said options and the date on which they become irrevocable, for the plans considered as cash settled award the fair value, updated as of the closing date of each reporting period, is recorded as a liability with charge to remuneration.
(c) | Post-employment and other long-term benefits |
Provisions are made for these obligations by applying the method of the projected unit credit method, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income.
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(d) | Incentives |
The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.
2.19. | Provisions |
Provisions are recognized when:
(i) | The Companyhas a present legal or implicit obligation as a result of past events; |
(ii) | It is probable that payment is going to be necessary to settle an obligation; and |
(iii) | The amount has been reliably estimated. |
2.20. | Revenue from contracts with customers |
(a) Transportation of passengers and cargo
The Company recognizes the sale for the transportation service as a deferred revenue which one is recognized as income either when the transportation service is rendered or whent the ticket expired. In the case of air transport services sold by the Company and that will be rendered by other airlines, the liability is reduced when they are remitted to those airlines. The Company periodically reviews whether it is necessary to adjust the Deferred Revenue, mainly related to returns, changes, among others.
Compensations granted to clients for changes in the levels of services or billing of additional services such as additional baggage, change of seat, among others, are considered modifications of the initial contract, therefore, they are deferred until the corresponding service is provided.
(b) Expiration of air tickets
The Company estimates monthly the probability of expiration of air tickets, with refund clauses, based on the history of use of the same. Air tickets without refund clause are expired on the date of the flight in case the passenger does not show up.
(c) Costs associated with the contract
The costs related to the sale of air tickets are activated and deferred until the corresponding service is provided. These assets are included under Other non-financial assets in the Consolidated Classified Statement of Financial Position.
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(d) Frequent passenger program
The Company maintains the following loyalty programs: LATAM Pass, LATAM Fidelidade and Multiplus, whose objective is loyalty through the delivery of miles or points.
Members of these programs accumulate miles when flying with LATAM Airlines Group or any other member airline of the oneworld® program, as well as using the services of the associated entities.
When the miles and points are exchanged for products and services other than the services provided by the Company, the income is immediately recognized when the exchange is made through air tickets of an airline of LATAM Airlines Group S.A. and subsidiaries, the income is deferred until the provision of transportation service or expiration for non-use.
In addition, the Company has contracts with certain non-airline companies for the sale of miles or points. These contracts include some performance obligations in addition to the sale of the mile or point, such as marketing, advertising and other benefits. The income associated with these concepts is recognized in the result of the exercise to the extent that the miles are accredited.
The calculation of the deferred income by loyalty programs at the end of the period corresponds to the valuation of the miles and points awarded to the holders of the loyalty programs, pending use, weighted by the probability of their exchange.
The miles and points that the Company estimates will not be exchanged, the proportionally associated value is recognized during the period in which it is expected that the remaining miles and points will be exchanged. The Company uses statistical models to estimate the exchange probability, which is based on historical patterns and projections made by independent experts.
(e) Dividend income
Dividend income is recognized when the right to receive payment is established.
2.21. | Leases |
(a) | When the Company is the lessee – financial lease |
The Company leases certain Property, plant and equipment in which it has substantially all the risk and benefits deriving from the ownership; they are therefore classified as financial leases. Financial leases are initially recorded at the lower of the fair value of the asset leased and the present value of the minimum lease payments.
Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it produces a constant periodic rate of interest on the remaining balance of the liability for each year. The asset acquired under a financial lease is depreciated over its useful life and is included in Property, plant and equipment.
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(b) | When the Company is the lessee – operating lease |
Leases, in which the lessor retains an important part of the risks and benefits deriving from ownership, are classified as operating leases. Payments with respect to operating leases (net of any incentive received from the lessor) are charged in the consolidated statement of income on a straight-line basis over the term of the lease.
2.22. | Non-current assets or disposal groups classified as held for sale |
Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.
2.23. | Maintenance |
The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are capitalized and depreciated until the next maintenance. The depreciation rate is determined on technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.
In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based on the use of the main components is recognized, since a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels exists. These are recognized as Cost of sales.
Additionally, some leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, the recovery is requested to the lessor. At the end of the contract period, there is comparison between the reserves that have been paid and required return conditions, and compensation between the parties are made if applicable.
The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.
2.24. | Environmental costs |
Disbursements related to environmental protection are charged to results when incurred.
NOTE 3 - FINANCIAL RISK MANAGEMENT
3.1. | Financial risk factors |
The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.
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(a) | Market risk |
Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk, and (iii) interest -rate risk.
The Company has developed policies and procedures for managing market risk, which aim to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.
For this, the Administration monitors the evolution of price levels, exchange rates and interest rates, and quantifies their risk exposures (Value at Risk), and develops and implements hedging strategies.
(i) | Fuel-price risk: |
Exposition:
For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54 USGC, which is subject to the fluctuations of international fuel prices.
Mitigation:
To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, being possible use West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and greater liquidity.
Fuel Hedging Results:
During the period ended March 31, 2018, the Company recognized gains of US $ 6.5 million for fuel net premium coverage. During the same period of 2017, the Company recognized losses of US $ 2.4 million for the same concept.
As of March 31, 2018, the market value of fuel positions amounted to US $ 18.9 million (positive). At the end of December 2017, this market value was US $ 10.7 million (positive).
The following tables show the level of hedge for different periods:
Positions as of March 31, 2018 (Unaudited) (*) | Maturities | |||||||||||||||
Q218 | Q318 | Q418 | Total | |||||||||||||
Percentage of coverage over the expected volume of consumption | 45 | % | 44 | % | 23 | % | 37 | % |
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
Positions as of December 31, 2017 (*) | Maturities | |||||||||||||||
Q118 | Q218 | Q318 | Total | |||||||||||||
Percentage of coverage over the expected volume of consumption | 19 | % | 12 | % | 5 | % | 12 | % |
(*) The volume shown in the table considers all the hedging instruments (swaps and options).
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Sensitivity analysis
A drop in fuel price positively affects the Company through a reduction in costs. However, also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.
The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity.
The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2018.
The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December 2017 and the end of December, 2016.
Positions as of March 31, 2018 | Positions as of December 31, 2017 | |||
Benchmark price | effect on equity | effect on equity | ||
(US$ per barrel) | (millions of US$) | (millions of US$) | ||
Unaudited | ||||
+5 | +12.2 | +1.8 | ||
-5 | - 16.3 | -3.3 |
Given the structure of fuel coverage during 2018, considers a hedge-free portion, a vertical drop of 5 dollars in the JET reference price (considered as the monthly average), would have meant an approximate impact US $ 32.9 million of lower fuel costs. For the same period, a vertical rise of $ 5 in the JET reference price (considered as the monthly average) would have meant an impact of approximately US $ 36.5 million of higher fuel costs.
(ii) | Foreign exchange rate risk: |
Exposition:
The functional and presentation currency of the Financial Statements of the Parent Company is the US dollar, so that the risk of the Transactional and Conversion exchange rate arises mainly from the Company's business, strategic and accounting operating activities that are expressed in a monetary unit other than the functional currency.
The subsidiaries of LATAM are also exposed to foreign exchange risk whose impact affects the Company's Consolidated Income.
The largest operational exposure to LATAM's exchange risk comes from the concentration of businesses in Brazil, which are mostly denominated in Brazilian Real (BRL), and are actively managed by the company.
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At a lower concentration, the Company is also exposed to the fluctuation of other currencies, such as: euro, pound sterling, Australian dollar, Colombian peso, Chilean peso, Argentine peso, Paraguayan guarani, Mexican peso, Peruvian nuevo sol and New Zealand dollar.
Mitigation:
The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.
FX Hedging Results:
With the objective of reducing exposure to the exchange rate risk in the operational cash flows of 2018, and securing the operating margin, LATAM makes hedges using FX derivatives.
As of March 31, 2018, the market value of FX derivative positions amounted to US $ 3.7 million (positive). At the end of December 2017, this market value was US $ 4.4 million (positive).
During the period ended March 31, 2018, the Company recognized gains of US $ 0.8 million for FX net premium coverage. During the same period of 2017, the company recognized losses of US $ 2.8 million for this concept.
As of March 31, 2018, the Company has contracted FX derivatives for US $ 260 million for BRL. By the end of December 2017, the company had contracted FX derivatives for US $ 180 million for BRL.
Sensitivity analysis:
A depreciation of the R $ / US $ exchange rate, negatively affects the Company's operating cash flows, however, also positively affects the value of the positions of derivatives contracted.
FX derivatives are recorded as cash flow hedge contracts; therefore, a variation in the exchange rate has an impact on the market value of the derivatives, the changes of which affect the Company's net equity.
The following table shows the awareness of FX derivative instruments according to reasonable changes in the exchange rate and its effect on equity. The projection term was defined until the end of the last contract of coverage in force, being the last business day of the second quarter of the year 2018:
Appreciation (depreciation)* | Effect at March 31, 2018 | Effect at December 31, 2017 | |
of R$ | Millions of US$ | Millions of US$ | |
Unaudited | |||
-10% | -13.1 | -10.7 | |
+10% | +13.9 | +9.7 |
(*) Both currencies (BRL and GBP) only apply period to the closing of 2016.
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During 2017, the Company contracted derivative currency swaps to hedge debt issued the same year for a notional UF 8.7 million. As of March 31, 2018, the market value of derivative positions of currency swaps amounted to US$ 55.6 million (positive).
In the case of TAM S.A, whose functional currency is the Brazilian real, a large part of its liabilities are expressed in US dollars. Therefore, when converting financial assets and liabilities, from dollars to reais, they have an impact on the result of TAM S.A., which is consolidated in the Company's Income Statement.
With the objective of reducing the impact on the Company's results caused by appreciations or depreciations of R$/US $, the Company has executed internal operations to reduce the net exposure in US$ for TAM S.A.
The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:
Appreciation (depreciation)* | Effect at March 31, 2018 | Effect at March 31, 2017 | |
of R$/US$ | Millons of US$ | Millons of US$ | |
Unaudited | Unaudited | ||
-10% | +28.5 | +133.1 | |
+10% | -28.5 | -133.1 | |
(*) Appreciation (depreciation) of US$ regard to the covered currencies. |
Effects of exchange rate derivatives in the Financial Statements
The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 19).
Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in other comprehensive income.
The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:
Appreciation (depreciation) | Effect at March 31, 2018 | Effect at December 31, 2017 | |||
of R$/US$ | Millions of US$ | Millions of US$ | |||
Unaudited | |||||
-10% | +458.17 | +386.62 | |||
+10% | -374.86 | -316.33 |
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(iii) | Interest -rate risk: |
Exposition:
The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.
The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate ("ILC").
Mitigation:
In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 63% (63% at December 31, 2017) of the debt is fixed to fluctuations in interest rate.
Rate Hedging Results:
As of March 31, 2018, the market value of the derivative positions of interest rates amounted to US $ 4.7 million (negative). At the end of December 2017, this market value was US $ 6.6 million (negative).
Sensitivity analysis:
The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible, based on current market conditions each date.
Increase (decrease) | Positions as of March 31, 2018 | Positions as of March 31, 2017 | ||
futures curve | effect on profit or loss before tax | effect on profit or loss before tax | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
Unaudited | Unaudited | |||
+100 basis points | -28.5 | -31.92 | ||
-100 basis points | +28.5 | +31.92 |
Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.
The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.
Increase (decrease) | Positions as of March 31, 2018 | Positions as of December 31, 2017 | ||
futures curve | effect on equity | effect on equity | ||
in libor 3 months | (millions of US$) | (millions of US$) | ||
Unaudited | ||||
+100 basis points | +1.56 | +1.9 | ||
-100 basis points | -1.60 | -1.9 |
26
The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.
During the periods presented, the Company has no registered amounts by ineffectiveness in consolidated statement of income for this kind of hedging.
(b) | Credit risk |
Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an obligation due or financial instrument, leading to a loss in market value of a financial instrument (only financial assets, not liabilities).
The Company is exposed to credit risk due to its operative and financial activities, including deposits with banks and financial institutions, investments in other kinds of instruments, exchange-rate transactions and the contracting of derivative instruments or options.
To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents).
As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the Company has established maximum limits for investments which are monitored regularly.
(i) | Financial activities |
Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and other current financial assets.
In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.
The Company has no guarantees to mitigate this exposure.
(ii) | Operational activities |
The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“IATA”) organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they are excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.
27
The exposure consists of the term granted, which fluctuates between 1 and 45 days.
One of the tools the Company uses for reducing credit risk is to participate in global entities related to the industry, such as IATA, Business Sales Processing (“BSP”), Cargo Account Settlement Systems (“CASS”), IATA Clearing House (“ICH”) and banks (credit cards). These institutions fulfill the role of collectors and distributors between airlines and travel and cargo agencies. In the case of the Clearing House, it acts as an offsetting entity between airlines for the services provided between them. A reduction in term and implementation of guarantees has been achieved through these entities. Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.
Credit quality of financial assets
The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater.
To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents).The bad-debt rate in the principal countries where the Company has a presence is insignificant.
(c) | Liquidity risk |
Liquidity risk represents the risk that the Company has no sufficient funds to meet its obligations.
Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs, the Company requires liquid funds, defined as cash and cash equivalents plus other short term financial assets, to meet its payment obligations.
The liquid funds, the future cash generation and the capacity to obtain additional funding, through bond issuance and banking loans, will allow the Company to obtain sufficient alternatives to face its investment and financing future commitments.
At March 31, 2018 is US$ 1,470 million (US$ 1,614 million at December 31, 2017), invested in short term instruments through financial high credit rating levels entities.
In addition to the balance of liquid funds, the Company has access to short-term credit lines. As of March 31, 2018, LATAM has credit lines for working capital that are not committed to several banks and additionally has an unused committed line of US $ 450 million (US $ 450 million as of December 31, 2017) subject to availability of collateral.
28
Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2018 (Unaudited)
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | % | % | |||||||||||||||||||||||||||||||||||
Loans to exporters | |||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | ThUS$ | — | 75,996 | — | — | — | 75,996 | 75,000 | At Expiration | 2.64 | 2.64 | ||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | UF | 794 | 58,013 | — | — | — | 58,807 | 57,206 | At Expiration | 3.57 | 2.77 | ||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 40,261 | — | — | — | — | 40,261 | 40,000 | At Expiration | 2.67 | 2.67 | ||||||||||||||||||||||||||||||
97.030.000-7 | ES TADO | Chile | ThUS$ | 40,097 | — | — | — | — | 40,097 | 40,000 | At Expiration | 2.73 | 2.73 | ||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | ThUS$ | 100,680 | — | — | — | — | 100,680 | 100,000 | At Expiration | 2.73 | 2.73 | ||||||||||||||||||||||||||||||
97.951.000-4 | HSBC | Chile | ThUS$ | 12,070 | — | — | — | — | 12,070 | 12,000 | At Expiration | 2.32 | 2.32 | ||||||||||||||||||||||||||||||
Bank loans | |||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 10,156 | 19,708 | 38,015 | — | — | 67,879 | 64,962 | Quarterly | 3.43 | 3.43 | ||||||||||||||||||||||||||||||
0-E | BLADEX | U.S.A. | ThUS$ | 8,337 | 8,128 | 15,628 | — | — | 32,093 | 30,000 | Semiannual | 5.51 | 5.51 | ||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 2,094 | 2,416 | 207,288 | — | — | 211,798 | 207,288 | Quarterly | 4.98 | 4.98 | ||||||||||||||||||||||||||||||
Obligations with the public | |||||||||||||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | ThUS$ | 42,188 | 42,188 | 650,625 | 96,250 | 772,188 | 1,603,439 | 1,200,000 | At Expiration | 7.44 | 7.03 | ||||||||||||||||||||||||||||||
97.030.000-7 | ES TADO | Chile | UF | 10,693 | 10,693 | 42,771 | 232,079 | 251,236 | 547,472 | 388,823 | At Expiration | 5.50 | 5.50 | ||||||||||||||||||||||||||||||
Guaranteed obligations | |||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | Francia | ThUS$ | 8,528 | 25,480 | 52,006 | 9,195 | — | 95,209 | 90,324 | Quarterly | 3.00 | 2.56 | ||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 22,515 | 54,429 | 153,859 | 148,271 | 304,675 | 683,749 | 564,291 | Quarterly | 3.68 | 3.68 | ||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 7,235 | 21,695 | 57,787 | 57,686 | 64,771 | 209,174 | 195,545 | Quarterly | 2.17 | 1.82 | ||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | ThUS$ | 31,853 | 94,524 | 253,132 | 244,844 | 645,468 | 1,269,821 | 1,014,426 | Quarterly | 4.48 | 4.48 | ||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 12,568 | 38,030 | 101,440 | 93,353 | 87,512 | 332,903 | 301,222 | Quarterly | 3.57 | 2.69 | ||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | ThUS$ | 18,473 | 55,288 | 146,546 | 145,193 | 140,164 | 505,664 | 457,677 | Quarterly | 4.00 | 2.82 | ||||||||||||||||||||||||||||||
0-E | NATIXIS | Francia | ThUS$ | 17,124 | 52,047 | 121,280 | 100,079 | 156,978 | 447,508 | 381,583 | Quarterly | 3.96 | 3.94 | ||||||||||||||||||||||||||||||
0-E | P K AirFinance | U.S.A. | ThUS$ | 2,408 | 7,391 | 21,068 | 15,358 | — | 46,225 | 44,337 | Quarterly | 3.49 | 3.49 | ||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | ThUS$ | 1,749 | 5,277 | 10,706 | — | — | 17,732 | 17,222 | Quarterly | 3.54 | 3.54 | ||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | ThUS$ | 2,068 | 6,181 | 13,974 | — | — | 22,223 | 21,070 | Quarterly | 3.35 | 3.35 | ||||||||||||||||||||||||||||||
0-E | INVESTEC | England | ThUS$ | 4,551 | 8,694 | 26,645 | 26,318 | 9,155 | 75,363 | 62,005 | Monthly | 6.19 | 6.19 | ||||||||||||||||||||||||||||||
Other guaranteed obligations | |||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS$ | 1,933 | 7,008 | 245,621 | — | — | 254,562 | 241,287 | At Expiration | 3.56 | 3.56 | ||||||||||||||||||||||||||||||
Financial leases | |||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | ThUS$ | 4,025 | 12,076 | 24,209 | — | — | 40,310 | 37,609 | Quarterly | 5.70 | 5.01 | ||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 14,659 | 44,247 | 101,197 | 62,167 | 5,360 | 227,630 | 211,068 | Quarterly | 3.94 | 3.34 | ||||||||||||||||||||||||||||||
0-E | P EFCO | U.S.A. | ThUS$ | 13,354 | 26,847 | 17,440 | — | — | 57,641 | 55,257 | Quarterly | 5.49 | 4.87 | ||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 14,043 | 29,250 | 45,444 | — | — | 88,737 | 84,959 | Quarterly | 3.77 | 3.37 | ||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 32,931 | 99,261 | 259,588 | 223,928 | 142,609 | 758,317 | 711,716 | Quarterly | 2.74 | 1.99 | ||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 6,174 | 18,809 | 49,672 | 44,341 | 791 | 119,787 | 111,565 | Quarterly | 2.94 | 2.40 | ||||||||||||||||||||||||||||||
0-E | RRP F ENGINE | England | ThUS$ | 876 | 3,429 | 9,019 | 8,824 | 8,471 | 30,619 | 25,450 | Monthly | 4.01 | 4.01 | ||||||||||||||||||||||||||||||
0-E | APP LE BANK | U.S.A. | ThUS$ | 1,650 | 5,083 | 13,475 | 13,358 | 5,737 | 39,303 | 35,821 | Quarterly | 3.17 | 2.57 | ||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | ThUS$ | 3,385 | 10,307 | 27,294 | 27,017 | 10,827 | 78,830 | 71,878 | Quarterly | 3.38 | 2.79 | ||||||||||||||||||||||||||||||
0-E | DEUTSCHE BANK | U.S.A. | ThUS$ | 4,173 | 12,719 | 33,634 | 33,126 | 28,548 | 112,200 | 93,942 | Quarterly | 4.85 | 4.85 | ||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 1,653 | 4,074 | 14,252 | 3,896 | — | 23,875 | 22,487 | Quarterly | 3.66 | 3.66 | ||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | ThUS$ | 845 | 1,558 | 4,319 | 1,120 | — | 7,842 | 7,268 | Quarterly | 4.15 | 4.15 | ||||||||||||||||||||||||||||||
Other loans | |||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | ThUS$ | 25,583 | 77,932 | 181,044 | — | — | 284,559 | 264,070 | Quarterly | 6.00 | 6.00 | ||||||||||||||||||||||||||||||
Derivatives of coverage | |||||||||||||||||||||||||||||||||||||||||||
— | Others | — | ThUS$ | 1,982 | 797 | — | — | — | 2,779 | 2,878 | — | — | — | ||||||||||||||||||||||||||||||
Total | 523,708 | 939,575 | 2,938,978 | 1,586,403 | 2,634,490 | 8,623,154 | 7,342,236 |
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
29
Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2018 (Unaudited)
Debtor: TAM S .A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | % | % | |||||||||||||||||||||||||||||||||||
Bank loans | |||||||||||||||||||||||||||||||||||||||||||
0-E | NEDERLANDS CHE | ||||||||||||||||||||||||||||||||||||||||||
CREDIETVERZEKERING MAATSCHAPPIJ | Holland | ThUS $ | 176 | 499 | 1,332 | 555 | — | 2,562 | 2,253 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||
Financial leases | |||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS $ | 2,523 | 9,295 | 44,905 | 45,977 | — | 102,700 | 96,183 | Quarterly / Semiannual | 6.18 | 6.18 | ||||||||||||||||||||||||||||||
0-E | WACAPOULEAS ING S.A. | Luxembourg | ThUS $ | 838 | 2,419 | 6,517 | 2,458 | — | 12,232 | 11,351 | Quarterly | 4.31 | 4.31 | ||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | ThUS $ | 11,723 | 32,210 | 194,090 | — | — | 238,023 | 235,749 | Quarterly | 5.49 | 5.43 | ||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE | Brazil | BRL | 12 | — | — | — | — | 12 | 8 | Monthly | 6.39 | 6.39 | ||||||||||||||||||||||||||||||
Total | 15,272 | 44,423 | 246,844 | 48,990 | — | 355,529 | 345,544 |
30
Class of liability for the analysis of liquidity risk ordered by date of maturity as of March31, 2018 (Unaudited)
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | |||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | ||||||||||||||||||||||||||||||||||
Trade and other accounts payables | ||||||||||||||||||||||||||||||||||||||||||
— | OTHERS | OTHERS | ThUS$4 | 58,827 | 16,043 | — | — | — | 474,870 | 474,870 | — | — | — | |||||||||||||||||||||||||||||
CLP | 176,815 | 1,906 | — | — | — | 178,721 | 178,721 | — | — | — | ||||||||||||||||||||||||||||||||
BRL | 341,733 | 690 | — | — | — | 342,423 | 342,423 | — | — | — | ||||||||||||||||||||||||||||||||
Other currencies | 321,356 | 10,982 | — | — | — | 332,338 | 332,338 | — | — | — | ||||||||||||||||||||||||||||||||
Accounts payable to related parties currents | ||||||||||||||||||||||||||||||||||||||||||
78.997.060-2 | Viajes Falabella Ltda. | Chile | CLP | 1,032 | — | — | — | — | 1,032 | 1,032 | — | — | — | |||||||||||||||||||||||||||||
0-E | Inversora Aeronáutica Argentina | Argentina | ThUS$ | 6 | — | — | — | — | 6 | 6 | — | — | — | |||||||||||||||||||||||||||||
0-E | Consultoría Administrativa Profesional S.A. de C.V. | Mexico | MXN | 224 | — | — | — | — | 224 | 224 | — | — | — | |||||||||||||||||||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 13 | — | — | — | — | 13 | 13 | — | — | — | |||||||||||||||||||||||||||||
Total | 1,300,006 | 29,621 | — | — | — | 1,329,627 | 1,329,627 | |||||||||||||||||||||||||||||||||||
Total consolidated | 1,315,278 | 1,013,620 | 246,844 | 48,990 | — | 1,685,156 | 1,675,170 |
31
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | % | % | |||||||||||||||||||||||||||||||||||
Loans to exporters | |||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | ThUS $ | 75,863 | — | — | — | — | 75,863 | 75,000 | At Expiration | 2.30 | 2.30 | ||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | UF | — | 57,363 | �� | — | — | — | 57,363 | 55,801 | At Expiration | 3.57 | 2.77 | |||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS $ | 30,131 | — | — | — | — | 30,131 | 30,000 | At Expiration | 2.49 | 2.49 | ||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | ThUS $ | 40,257 | — | — | — | — | 40,257 | 40,000 | At Expiration | 2.57 | 2.57 | ||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | ThUS $ | 100,935 | — | — | — | — | 100,935 | 100,000 | At Expiration | 2.40 | 2.40 | ||||||||||||||||||||||||||||||
97.951.000-4 | HS BC | Chile | ThUS $ | 12,061 | — | — | — | — | 12,061 | 12,000 | At Expiration | 2.03 | 2.03 | ||||||||||||||||||||||||||||||
Bank loans | |||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 22,082 | 22,782 | 43,430 | — | — | 88,294 | 84,664 | Quarterly | 3.68 | 3.68 | ||||||||||||||||||||||||||||||
0-E | BLADEX | U.S.A. | ThUS $ | — | 16,465 | 15,628 | — | — | 32,093 | 30,000 | Semiannual | 5.51 | 5.51 | ||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS $ | 2,040 | 3,368 | 202,284 | — | — | 207,692 | 202,284 | Quarterly | 4.41 | 4.41 | ||||||||||||||||||||||||||||||
Obligations with the public | |||||||||||||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | ThUS $ | — | 84,375 | 650,625 | 96,250 | 772,188 | 1,603,438 | 1,200,000 | At Expiration | 7.44 | 7.03 | ||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | UF | — | 20,860 | 41,720 | 226,379 | 245,067 | 534,026 | 379,274 | At Expiration | 5.50 | 5.50 | ||||||||||||||||||||||||||||||
Guaranteed obligations | |||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS $ | 8,368 | 25,415 | 56,305 | 12,751 | — | 102,839 | 98,091 | Quarterly | 2.66 | 2.22 | ||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS $ | 14,498 | 59,863 | 148,469 | 145,315 | 313,452 | 681,597 | 575,221 | Quarterly | 3.41 | 3.40 | ||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS $ | 30,764 | 92,309 | 246,285 | 246,479 | 245,564 | 861,401 | 808,987 | Quarterly | 2.46 | 1.75 | ||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST COMPANY | U.S.A. | ThUS $ | 32,026 | 95,042 | 253,469 | 244,836 | 676,474 | 1,301,847 | 1,034,853 | Quarterly | 4.48 | 4.48 | ||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS $ | 14,166 | 42,815 | 114,612 | 112,435 | 102,045 | 386,073 | 351,217 | Quarterly | 3.31 | 2.47 | ||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | ThUS $ | 3,292 | 9,997 | 26,677 | 26,704 | 14,133 | 80,803 | 74,734 | Quarterly | 2.87 | 2.27 | ||||||||||||||||||||||||||||||
0-E | APPLE BANK | U.S.A. | ThUS $ | 1,611 | 4,928 | 13,163 | 13,196 | 7,369 | 40,267 | 37,223 | Quarterly | 2.78 | 2.18 | ||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | ThUS $ | 18,485 | 55,354 | 146,709 | 145,364 | 158,236 | 524,148 | 472,833 | Quarterly | 4.00 | 2.82 | ||||||||||||||||||||||||||||||
0-E | DEUTS CHE BANK | U.S.A. | ThUS $ | 4,043 | 12,340 | 32,775 | 32,613 | 32,440 | 114,211 | 96,906 | Quarterly | 4.39 | 4.39 | ||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS $ | 18,192 | 54,952 | 129,026 | 105,990 | 166,011 | 474,171 | 413,011 | Quarterly | 3.42 | 3.40 | ||||||||||||||||||||||||||||||
0-E | PK AirFinance | U.S.A. | ThUS $ | 2,375 | 7,308 | 20,812 | 18,104 | — | 48,599 | 46,500 | Monthly | 3.18 | 3.18 | ||||||||||||||||||||||||||||||
0-E | KFWIP EX-BANK | Germany | ThUS $ | 2,570 | 7,111 | 16,709 | 1,669 | — | 28,059 | 26,888 | Quarterly | 3.31 | 3.31 | ||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | ThUS $ | 2,033 | 6,107 | 15,931 | — | — | 24,071 | 22,925 | Monthly | 3.19 | 3.19 | ||||||||||||||||||||||||||||||
0-E | INVESTEC | England | ThUS $ | 1,930 | 11,092 | 26,103 | 26,045 | 11,055 | 76,225 | 63,378 | S emiannual | 6.04 | 6.04 | ||||||||||||||||||||||||||||||
Other guaranteed obligations | |||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS $ | 1,757 | 5,843 | 246,926 | — | — | 254,526 | 241,287 | At Expiration | 3.38 | 3.38 | ||||||||||||||||||||||||||||||
Financial leases | |||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | ThUS $ | 5,890 | 12,076 | 28,234 | — | — | 46,200 | 42,957 | Quarterly | 5.67 | 5.00 | ||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS $ | 12,699 | 38,248 | 91,821 | 51,222 | 2,880 | 196,870 | 184,274 | Quarterly | 3.78 | 3.17 | ||||||||||||||||||||||||||||||
0-E | PEFCO | U.S.A. | ThUS $ | 13,354 | 34,430 | 23,211 | — | — | 70,995 | 67,783 | Quarterly | 5.46 | 4.85 | ||||||||||||||||||||||||||||||
0-E | BNP P ARIBAS | U.S.A. | ThUS $ | 13,955 | 35,567 | 50,433 | 2,312 | — | 102,267 | 98,105 | Quarterly | 3.66 | 3.25 | ||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS $ | 12,117 | 38,076 | 98,424 | 66,849 | 21,253 | 236,719 | 221,113 | Quarterly | 3.17 | 2.67 | ||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS $ | 6,049 | 18,344 | 48,829 | 47,785 | 3,156 | 124,163 | 117,023 | Quarterly | 2.51 | 1.96 | ||||||||||||||||||||||||||||||
0-E | RRPF ENGINE | England | ThUS $ | 370 | 3,325 | 8,798 | 8,692 | 9,499 | 30,684 | 25,983 | Monthly | 4.01 | 4.01 | ||||||||||||||||||||||||||||||
Other loans | |||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | ThUS $ | 25,783 | 77,810 | 206,749 | — | — | 310,342 | 285,891 | Quarterly | 6.00 | 6.00 | ||||||||||||||||||||||||||||||
Derivatives of coverage | |||||||||||||||||||||||||||||||||||||||||||
— | Others | — | ThUS $ | 5,656 | 6,719 | 6,228 | — | — | 18,603 | 17,407 | — | — | — | ||||||||||||||||||||||||||||||
Total | 535,352 | 960,284 | 3,010,385 | 1,630,990 | 2,780,822 | 8,917,833 | 7,633,613 |
(*) Bonus securitized with the future flows of credit card sales in the United States and Canada.
32
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | |||||||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | % | % | ||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||
0-E | NEDERLANDSCHE | |||||||||||||||||||||||||||||||||||||||||
CREDIETVERZEKERING MAATS CHAPPIJ | Holland | ThUS $ | 176 | 497 | 1,332 | 722 | — | 2,727 | 2,382 | Monthly | 6.01 | 6.01 | ||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS $ | 4,248 | 7,903 | 23,141 | 71,323 | — | 106,615 | 99,036 | Quarterly / Semiannual | 5.59 | 5.59 | |||||||||||||||||||||||||||||
0-E | WACAPOU LEAS ING S.A. | Luxembourg | ThUS $ | 837 | 2,411 | 6,509 | 3,277 | — | 13,034 | 12,047 | Quarterly | 3.69 | 3.69 | |||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | ThUS $ | 11,735 | 32,230 | 204,836 | — | — | 248,801 | 244,513 | Quarterly | 4.87 | 4.81 | |||||||||||||||||||||||||||||
0-E | BANCO IBM S.A | Brazil | BRL | 34 | — | — | — | — | 34 | 21 | Monthly | 6.89 | 6.89 | |||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE | France | BRL | 161 | 12 | — | — | — | 173 | 109 | Monthly | 6.89 | 6.89 | |||||||||||||||||||||||||||||
Total | 17,191 | 43,053 | 235,818 | 75,322 | — | 371,384 | 358,108 |
33
Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total | Nominal value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | % | % | |||||||||||||||||||||||||||||||||
Trade and other accounts payables | |||||||||||||||||||||||||||||||||||||||||
— | OTHERS | OTHERS | ThUS$ | 566,838 | — | — | — | — | 566,838 | 566,838 | — | — | — | ||||||||||||||||||||||||||||
CLP | 165,299 | — | — | — | — | 165,299 | 165,299 | — | — | — | |||||||||||||||||||||||||||||||
BRL | 315,605 | — | — | — | — | 315,605 | 315,605 | — | — | — | |||||||||||||||||||||||||||||||
Other currencies | 290,244 | 11,215 | — | — | — | 301,459 | 301,459 | — | — | — | |||||||||||||||||||||||||||||||
Accounts payable to related parties currents | |||||||||||||||||||||||||||||||||||||||||
78.997.060-2 | Viajes Falabella Ltda. | Chile | CLP | 534 | — | — | — | — | 534 | 534 | — | — | — | ||||||||||||||||||||||||||||
0-E | Inversora Aeronáutica Argentina | Argentina | ThUS$4 | — | — | — | — | 4 | 4 | — | — | — | |||||||||||||||||||||||||||||
0-E | Consultoría Administrativa Profesional S.A. de C.V. | Mexico | MXN | 210 | — | — | — | — | 210 | 210 | — | — | — | ||||||||||||||||||||||||||||
78.591.370-1 | Bethia S.A. y Filiales | Chile | CLP | 12 | — | — | — | — | 12 | 12 | — | — | — | ||||||||||||||||||||||||||||
Total | 1,338,746 | 11,215 | — | — | — | 1,349,961 | 1,349,961 | ||||||||||||||||||||||||||||||||||
Total consolidated | 1,891,289 | 1,014,552 | 3,246,203 | 1,706,312 | 2,780,822 | 10,639,178 | 9,341,682 |
34
The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.
At the end of 2016, the Company provided US$ 30.2 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2017, the Company had provided US$ 16.4 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The decrease was due at: i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate and interest rates.
3.2. | Capital risk management |
The Company’s objectives, with respect to the management of capital, are (i) to comply with the restrictions of minimum equity and (ii) to maintain an optimal capital structure.
The Company monitors its contractual obligations and the regulatory limitations in the different countries where the entities of the group are domiciled to assure they meet the limit of minimum net equity, where the most restrictive limitation is to maintain a positive net equity.
Additionally, the Company periodically monitors the short and long term cash flow projections to assure the Company has adequate sources of funding to generate the cash requirement to face its investment and funding future commitments.
The Company international credit rating is the consequence of the Company capacity to face its long terms financing commitments. As of December 31, 2017 the Company has an international long term credit rating of BB- with stable outlook by Standard & Poor’s, a B+ rating with stable outlook by Fitch Ratings and a B1 rating with stable outlook by Moody’s.
3.3. | Estimates of fair value. |
At March 31, 2018, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:
1. | Hedge Instruments: |
This category includes the following instruments:
- | Interest rate derivative contracts, |
- | Fuel derivative contracts, |
- | Currency derivative contracts. |
35
2. | Financial Investments: |
This category includes the following instruments:
- | Investments in short-term Mutual Funds (cash equivalent), |
- | Private investment funds. |
The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.
The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.
The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:
As of March 31, 2 018 | As of December 31, 2017 | |||||||||||||||||||||||||||||||
Fair value measurements using values considered as | Fair value measurements using values considered as | |||||||||||||||||||||||||||||||
Fair value | Level I | Level II | Level III | Fair value | Level I | Level II | Level III | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | 125,391 | 125,391 | — | — | 29,658 | 29,658 | — | — | ||||||||||||||||||||||||
Short-term mutual funds | 125,391 | 125,391 | — | — | 29,658 | 29,658 | — | — | ||||||||||||||||||||||||
Other financial assets, current | 74 7,815 | 655,911 | 84,501 | — | 536,001 | 473,653 | 62,348 | — | ||||||||||||||||||||||||
Fair value derived interest rate | 7,40 3 | — | — | — | 3,113 | — | 3,113 | — | ||||||||||||||||||||||||
Fair value of fuel derivatives | 20,554 | — | 20 ,554 | — | 10,711 | — | 10,711 | — | ||||||||||||||||||||||||
Fair value derived from foreign currency | 63,947 | — | 63,947 | — | 48,322 | — | 48,3 22 | — | ||||||||||||||||||||||||
Interest accrued since the last payment date of Cross Currency Swap | — | — | — | — | 202 | — | 202 | — | ||||||||||||||||||||||||
Private investment funds | 655,911 | 655,911 | — | — | 472,232 | 472,232 | — | — | ||||||||||||||||||||||||
Domestic and foreign bonds | — | — | — | — | 1,421 | 1,421 | — | — | ||||||||||||||||||||||||
Other financial assets, not current | 488 | — | 488 | — | — | — | 519 | — | ||||||||||||||||||||||||
Fair value derived from foreign currency | 488 | — | 488 | — | 519 | — | 519 | — | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Other financial liabilities, current | 6,239 | — | 6,239 | — | 12,200 | — | 12,200 | — | ||||||||||||||||||||||||
Fair value of interest rate derivatives | 3,256 | — | 3,256 | — | 8,919 | — | 8,919 | — | ||||||||||||||||||||||||
Fair value of foreign currency derivatives | 319 | — | 319 | — | 2,092 | — | 2,092 | — | ||||||||||||||||||||||||
Interest accrued since the last payment date of Currency Swap | 2,664 | — | 2,664 | — | 1,189 | — | 1,189 | — | ||||||||||||||||||||||||
Other financial liabilities, non current | 1,615 | — | 1,615 | — | 2,617 | — | 2,617 | — | ||||||||||||||||||||||||
Fair value of interest rate derivatives | 1,615 | — | 1,615 | — | 2,617 | — | 2,617 | — |
36
Additionally, at March 31, 2018, 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, 2018 | As of December 31, 2017 | |||||||||||||||
Book | Fair | Book | Fair | |||||||||||||
value | value | value | value | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | ||||||||||||||||
Cash and cash equivalents | 688,839 | 688,839 | 1,112,346 | 1,112,346 | ||||||||||||
Cash on hand | 491 | 491 | 8,562 | 8,562 | ||||||||||||
Bank balance | 319,923 | 319,923 | 330,430 | 330,430 | ||||||||||||
Overnight | 154,930 | 154,930 | 239,292 | 239,292 | ||||||||||||
Time deposits | 213,495 | 213,495 | 534,062 | 534,062 | ||||||||||||
Other financial assets, current | 21,790 | 21,790 | 23,918 | 23,918 | ||||||||||||
Other financial assets | 21,790 | 21,790 | 23,918 | 23,918 | ||||||||||||
Trade debtors, other accounts receivable and Current accounts receivable | 1,291,933 | 1,291,933 | 1,214,050 | 1,214,050 | ||||||||||||
Accounts receivable from entities related, current | 2,284 | 2,284 | 2,582 | 2,582 | ||||||||||||
Other financial assets, not current | 88,038 | 88,038 | 87,571 | 87,571 | ||||||||||||
Accounts receivable, non-current | 6,499 | 6,499 | 6,891 | 6,891 | ||||||||||||
Other current financial liabilities | 1,293,111 | 1,469,922 | 1,288,749 | 1,499,495 | ||||||||||||
Accounts payable for trade and other accounts payable, current | 1,673,944 | 1,673,944 | 1,695,202 | 1,695,202 | ||||||||||||
Accounts payable to entities related, current | 513 | 513 | 760 | 760 | ||||||||||||
Other financial liabilities, not current | 6,347,199 | 6,374,639 | 6,602,891 | 6,738,872 | ||||||||||||
Accounts payable, not current | 481,586 | 481,586 | 498,832 | 498,832 |
The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.
The fair value of other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments (Level II). In the case of Other financial assets, the valuation was performed according to market prices at period end.
NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS
The Company has used estimates to value and record some of the assets, liabilities, income, expenses and commitments. Basically these estimates refer to:
(a) Evaluation of possible losses due to impairment of goodwill and intangible assets with indefinite useful life
As of March 31, 2018, the capital gain amounts to ThUS $ 2,665,212 (ThUS $ 2,672,550 as of December 31, 2017), while the intangible assets comprise the Airport Slots for ThUS $ 960,108 (ThUS $ 964,513 as of December 31, 2017) and Loyalty Program for ThUS $ 319,912 (ThUS $ 321,440 as of December 31, 2017).
37
The Company checks at least once a year whether goodwill and intangible assets with an indefinite useful life have suffered an impairment loss. For this evaluation, the Company has identified two cash generating units (CGU), “Air transport” and “Multiplus coalition and loyalty program”. The book value of the surplus value assigned to each CGU as of March 31, 2018 amounts to ThUS $ 2,141,854 and ThUS $ 523,358 (ThUS $ ThUS $ 2,146,692 and ThUS $ 525,858 as of December 31, 2017), which include the following intangible assets with an indefinite useful life:
Air Transport CGU | Coalition and loyalty Program Multiplus CGU | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Airport Slots | 960,108 | 964,513 | — | — | ||||||||||||
Loyalty program | — | — | 319,912 | 321,440 | ||||||||||||
The recoverable value of these cash-generating units (CGUs) has been determined based on calculations of their value in use. The principal assumptions used by the management include: growth rate, exchange rate, discount rate, fuel prices, and other economic assumptions. The estimation of these assumptions requires significant judgment by the management, as these variables feature inherent uncertainty; however, the assumptions used are consistent with Company’s internal planning. Therefore, management evaluates and updates the estimates on an annual basis, in light of conditions that affect these variables. The mainly assumptions used as well as, the corresponding sensitivity analyses are showed in Note 16.
(b) | Useful life, residual value, and impairment of property, plant, and equipment |
The depreciation of assets is calculated based on the linear model, except for certain technical components depreciated on cycles and hours flown. These useful lives are reviewed on an annual basis according with the Company’s future economic benefits associated with them.
Changes in circumstances such as: technological advances, business model, planned use of assets or capital strategy may render the useful life different to the lifespan estimated. When it is determined that the useful life of property, plant, and equipment must be reduced, as may occur in line with changes in planned usage of assets, the difference between the net book value and estimated recoverable value is depreciated, in accordance with the revised remaining useful life.
Residual values are estimated in accordance with the market value that these assets will have at the end of their useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, once a year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).
38
(c) | Recoverability of deferred tax assets |
Deferred taxes are calculated according to the liability method, on the temporary differences that arise between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets on tax losses are recognized to the extent that it is probable that future tax benefits will be available with which to offset the temporary differences. The Company makes financial and fiscal projections to evaluate the realization in time of this deferred tax asset. Additionally, it ensures that these projections are consistent with those used to measure other long-lived assets. As of March 31, 2018, the Company has recognized deferred tax assets of ThUS $ 376,822 (ThUS $ 364,021 as of December 31, 2017) and has ceased to recognize deferred tax assets on tax losses of ThUS $ 82,500 (ThUS $ 81,155 December 31, 2017) (Note 18).
(d) Air tickets sold that will not be finally used.
The Company records the advance sale of air tickets as deferred revenue. Revenue from the sale of tickets is recognized in the income statement when the passenger transport service is provided or expired due to non-use. The Company evaluates monthly the probability of expiration
of air tickets, with refund clauses, based on the history of use of air tickets. A change in this probability could have an impact on ordinary income in the year in which the change occurs and in future periods. As of March 31, 2018, deferred revenues associated with air tickets sold amounted to ThUS $ 1,533,770 (ThUS $ 1,550,447 as of December 31, 2017). A hypothetical change of one percentage point in passenger behavior with respect to use would result in an impact of up to ThUS $ 6,000 per month.
(e) Valuation of miles and points awarded to holders of loyalty programs, pending use.
As of March 31, 2018, the deferred revenue associated with the LATAM Pass loyalty program amounts to ThUS $ 853,062 (ThUS $ 853,505 as of December 31, 2017). A hypothetical change of one percentage point in the exchange probability would result in an impact of ThUS $ 26,000 on the results of 2018 (ThUS $ 25,000 in 2017). The deferred revenues associated with the LATAM Fidelidade and Multiplus loyalty programs amount to ThUS $ 491,036 as of March 31, 2018 (ThUS $ 364,866 as of December 31, 2017). A hypothetical change of two percentage points in the number of points pending to be exchanged would result in an impact of ThUS $ 3,855 on the results of 2018 (ThUS $ 4,486 in 2017).
(f) | Provisions needs, and their valuation when required |
Known contingencies are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The Company applies professional judgment, experience, and knowledge to use available information to determine these values, in light of the specific characteristics of known risks. This process facilitates the early assessment and valuation of potential risks in individual cases or in the development of contingent eventualities.
(g) | Investment in subsidiary (TAM) |
The management has applied its judgment in determining that LATAM Airlines Group S.A. controls TAM S.A. and Subsidiaries, for accounting purposes, and has therefore consolidated the financial statements.
39
The grounds for this decision are that LATAM issued ordinary shares in exchange for the majority of circulating ordinary and preferential shares in TAM, except for those TAM shareholders who did not accept the exchange, which were subject to a squeeze out, entitling LATAM to substantially all economic benefits generated by the LATAM Group, and thus exposing it to substantially all risks relating to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the controlling shareholders of TAM, thus insuring that the shareholders and directors of TAM shall have no incentive to exercise their rights in a manner that would be beneficial to TAM but detrimental to LATAM. Furthermore, all significant actions necessary of the operation of the airlines require votes in favor by the controlling shareholders of both LATAM and TAM.
Since the integration of LAN and TAM operations, the most critical airline operations in Brazil have been managed by the CEO of TAM while global activities have been managed by the CEO of LATAM, who is in charge of the operation of the LATAM Group as a whole and reports to the LATAM Board.
The CEO of LATAM also evaluates the performance of LATAM Group executives and, together with the LATAM Board, determines compensation. Although Brazilian law currently imposes restrictions on the percentages of voting rights that may be held by foreign investors, LATAM believes that the economic basis of these agreements meets the requirements of accounting standards in force, and that the consolidation of the operations of LAN and LATAM is appropriate.
These estimates were made based on the best information available relating to the matters analyzed.
In any case, it is possible that events that may take place in the future could lead to their modification in future reporting periods, which would be made in a prospective manner.
NOTE 5 - SEGMENTAL INFORMATION
The Company considers that it has two operating segments: air transport and the Multiplus loyalty and coalition program.
The air transport segment corresponds to the route network for air transport and is based on the way in which the business is managed and managed, according to the centralized nature of its operations, the ability to open and close routes, as well as reallocating resources (aircraft, crew, personnel, etc.) within the network, which implies a functional interrelation between them, making them inseparable. This segment definition is one of the most common at the level of the airline industry worldwide.
The Multiplus Coalition and Loyalty Program segment, unlike the LATAM Pass and LATAM Fidelidade programs, which are frequent flyer programs that operate as a unilateral loyalty system, offers a flexible, interrelated coalition system among its members, which has 19,9 million members, together with being an entity with a separate administration and a business not directly related to air transport.
40
For the periods ended | Coalition and | |||||||||||||||||||||||||||||||
Air | loyalty program | |||||||||||||||||||||||||||||||
transportation | Multiplus | Eliminations | Consolidated | |||||||||||||||||||||||||||||
At March 31, | At March 31, | At March 31, | At March 31, | |||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | ThUS $ | |||||||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||||||||||
Income from ordinary activities from external customers (*) | 2,613,835 | 2,239,425 | — | 120,482 | — | — | 2,613,835 | 2,359,907 | ||||||||||||||||||||||||
Passengers | 2,318,015 | 1,985,679 | — | 120,482 | — | — | 2,318,015 | 2,106,161 | ||||||||||||||||||||||||
Freight | 295,820 | 253,746 | — | — | — | — | 295,820 | 253,746 | ||||||||||||||||||||||||
Income from ordinary activities from transactions with other operating segments | — | 120,482 | 13,498 | 18,586 | (13,498 | ) | (139,068 | ) | — | — | ||||||||||||||||||||||
Other operating income | 72,050 | 61,142 | 44,651 | 56,400 | — | — | 116,701 | 117,542 | ||||||||||||||||||||||||
Interest income | 5,009 | 9,032 | 7,178 | 13,892 | — | 12,187 | 22,924 | |||||||||||||||||||||||||
Interest expense | (86,217 | ) | (95,788 | ) | — | — | — | (86,217 | ) | (95,788 | ) | |||||||||||||||||||||
Total net interest expense | (81,208 | ) | (86,756 | ) | 7,178 | 13,892 | — | — | (74,030 | ) | (72,864 | ) | ||||||||||||||||||||
Depreciation and amortization | (249,345 | ) | (250,179 | ) | (2,115 | ) | (2,036 | ) | — | — | (251,460 | ) | (252,215 | ) | ||||||||||||||||||
Material non-cash items other than depreciation and amortization | (6,132 | ) | 23,176 | — | (5 | ) | — | — | (6,132 | ) | 23,171 | |||||||||||||||||||||
Disposal of fixed assets and inventory losses | (5,779 | ) | (8,625 | ) | — | — | — | — | (5,779 | ) | (8,625 | ) | ||||||||||||||||||||
Doubtful accounts | (3,598 | ) | (3,584 | ) | — | (5 | ) | — | — | (3,598 | ) | (3,589 | ) | |||||||||||||||||||
Exchange differences | 811 | 35,373 | — | — | — | — | 811 | 35,373 | ||||||||||||||||||||||||
Result of indexation units | 2,434 | 12 | — | — | — | — | 2,434 | 12 | ||||||||||||||||||||||||
Income (loss) attributable to owners of the parents | 58,416 | 24,565 | 35,473 | 40,992 | — | — | 93,889 | 65,557 | ||||||||||||||||||||||||
Expenses for income tax | (32,341 | ) | (32,589 | ) | (14,382 | ) | (20,899 | ) | — | — | (46,723 | ) | (53,488 | ) | ||||||||||||||||||
Segment profit / (loss) | 72,099 | 33,808 | 35,473 | 40,992 | — | — | 107,572 | 74,800 | ||||||||||||||||||||||||
Assets of segment | 17,173,563 | 17,620,116 | 1,521,024 | 1,492,854 | (6,482 | ) | (7,569 | ) | 18,688,105 | 19,105,401 | ||||||||||||||||||||||
Segment liabilities | 13,700,151 | 14,194,740 | 717,929 | 640,219 | (46,755 | ) | (45,907 | ) | 14,371,325 | 14,789,052 | ||||||||||||||||||||||
Amount of non-current asset additions | 160,425 | 49,430 | — | — | — | — | 160,425 | 49,430 | ||||||||||||||||||||||||
Property, plant and equipment | 140,591 | 49,430 | — | — | — | — | 140,591 | 49,430 | ||||||||||||||||||||||||
Intangibles other than goodwill | 19,834 | — | — | — | — | — | 19,834 | — | ||||||||||||||||||||||||
Purchase of non-monetary as sets of segment | 169,566 | 85,674 | — | — | — | — | 169,566 | 85,674 |
(*) The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.
41
For the periods ended | Coalition and | |||||||||||||||||||||||||||||||
Air | loyalty program | |||||||||||||||||||||||||||||||
transportation | Multiplus | Eliminations | Consolidated | |||||||||||||||||||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | |||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Net cash flows from | Unaudited | |||||||||||||||||||||||||||||||
Purchases of property, plant and equipment | 149,655 | 67,137 | — | — | — | — | 149,655 | 67,137 | ||||||||||||||||||||||||
Additions associated with maintenance | 88,872 | 31,162 | — | — | — | — | 88,872 | 31,162 | ||||||||||||||||||||||||
Other additions | 60,783 | 35,975 | — | — | — | — | 60,783 | 35,975 | ||||||||||||||||||||||||
Purchases of intangible assets (**) | 18,940 | 18,419 | — | — | — | — | 18,940 | 18,419 | ||||||||||||||||||||||||
Other additions | 18,940 | 18,419 | — | — | — | — | 18,940 | 18,419 | ||||||||||||||||||||||||
Net cash flows from (used in) operating activities | 343,216 | 14,081 | 13,038 | 171,233 | (10,050 | ) | (17,470 | ) | 346,204 | 167,844 | ||||||||||||||||||||||
Net cash flow from (used in) investing activities | (226,837 | ) | (52,319 | ) | (282 | ) | (5,323 | ) | — | — | (227,119 | ) | (57,642 | ) | ||||||||||||||||||
Net cash flows from (used in) financing activities | (399,322 | ) | (52,472 | ) | (2,688 | ) | (165,645 | ) | — | — | (402,010 | ) | (218,117 | ) |
(**) The company does not have the cash flows of intangible asset acquisitions associated with maintenance.
42
The Company’s revenues by geographic area are as follows:
For the period ended | ||||||||
At March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Peru | 154,974 | 146,101 | ||||||
Argentina | 333,712 | 319,297 | ||||||
U.S.A. | 255,511 | 224,324 | ||||||
Europe | 200,166 | 170,728 | ||||||
Colombia | 89,109 | 74,317 | ||||||
Brazil | 894,854 | 791,929 | ||||||
Ecuador | 49,018 | 43,401 | ||||||
Chile | 424,800 | 405,411 | ||||||
Asia Pacific and rest of Latin America | 211,691 | 184,399 | ||||||
Income from ordinary activities | 2,613,835 | 2,359,907 | ||||||
Other operating income | 116,701 | 117,542 |
The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area.
The Company has no customers that individually represent more than 10% of sales.
NOTE 6 - CASH AND CASH EQUIVALENTS
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Cash on hand | 491 | 8,562 | ||||||
Bank balances | 319,923 | 330,430 | ||||||
Overnight | 154,930 | 239,292 | ||||||
Total Cash | 475,344 | 578,284 | ||||||
Cash equivalents | ||||||||
Time deposits | 213,495 | 534,062 | ||||||
Mutual funds | 125,391 | 29,658 | ||||||
Total cash equivalents | 338,886 | 563,720 | ||||||
Total cash and cash equivalents | 814,230 | 1,142,004 |
43
Cash and cash equivalents are denominated in the following currencies:
As of | As of | |||||||
Currency | March 31, | December 31, | ||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Argentine peso | 18,585 | 12,135 | ||||||
Brazilian real | 85,149 | 106,499 | ||||||
Chilean peso | 18,717 | 81,845 | ||||||
Colombian peso | 9,794 | 7,264 | ||||||
Euro | 19,892 | 11,746 | ||||||
US Dollar | 604,586 | 882,114 | ||||||
Other currencies | 57,507 | 40,401 | ||||||
Total | 814,230 | 1,142,004 |
NOTE 7 - FINANCIAL INSTRUMENTS
7.1. Financial instruments by category
As of March 31, 2018 (Unaudited)
Assets | Measured | At fair value | ||||||||||||||
at amortized | with | Hedge | ||||||||||||||
cost | changes in | derivatives | Total | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Cash and cash equivalents | 688,839 | 125,391 | — | 814,230 | ||||||||||||
Other financial assets, current (*) | 21,790 | 655,911 | 91,904 | 769,605 | ||||||||||||
Trade and others accounts receivable, current | 1,291,933 | — | — | 1,291,933 | ||||||||||||
Accounts receivable from related entities, current | 2,284 | — | — | 2,284 | ||||||||||||
Other financial assets, non current (*) | 88,038 | — | 488 | 88,526 | ||||||||||||
Accounts receivable, non current | 6,499 | — | — | 6,499 | ||||||||||||
Total | 2,099,383 | 781,302 | 92,392 | 2,973,077 |
Liabilities | Measured | |||||||||||
at amortized | Hedge | |||||||||||
cost | derivatives | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Other liabilities, current | 1,293,111 | 6,239 | 1,299,350 | |||||||||
Trade and others accounts payable, current | 1,673,944 | — | 1,673,944 | |||||||||
Accounts payable to related entities, current | 513 | — | 513 | |||||||||
Other financial liabilities, non-current | 6,347,199 | 1,615 | 6,348,814 | |||||||||
Accounts payable, non-current | 481,586 | — | 481,586 | |||||||||
Total | 9,796,353 | 7,854 | 9,804,207 |
(*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.
44
As of December 31, 2017
Initial | ||||||||||||||||||||
Assets | Loans | Held | as fair value | |||||||||||||||||
and | Hedge | for | through | |||||||||||||||||
receivables | derivatives | trading | profit and loss | Total | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Cash and cash equivalents | 1,112,346 | — | — | 29,658 | 1,142,004 | |||||||||||||||
Other financial assets, current (*) | 23,918 | 62,348 | 1,421 | 472,232 | 559,919 | |||||||||||||||
Trade and others | ||||||||||||||||||||
accounts receivable, current | 1,214,050 | — | — | — | 1,214,050 | |||||||||||||||
Accounts receivable from related entities, current | 2,582 | — | — | — | 2,582 | |||||||||||||||
Other financial assets, | ||||||||||||||||||||
non current (*) | 87,077 | 519 | 494 | — | 88,090 | |||||||||||||||
Accounts receivable, non current | 6,891 | — | — | — | 6,891 | |||||||||||||||
Total | 2,446,864 | 62,867 | 1,915 | 501,890 | 3,013,536 |
Liabilities | Other | Held | ||||||||||
financial | Hedge | |||||||||||
liabilities | derivatives | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Other liabilities, current | 1,288,749 | 12,200 | 1,300,949 | |||||||||
Trade and others accounts payable, current | 1,695,202 | — | 1,695,202 | |||||||||
Accounts payable to related entities, current | 760 | — | 760 | |||||||||
Other financial liabilities, non-current | 6,602,891 | 2,617 | 6,605,508 | |||||||||
Accounts payable, non-current | 498,832 | — | 498,832 | |||||||||
Total | 10,086,434 | 14,817 | 10,101,251 |
(*) The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.
45
7.2. | Financial instruments by currency |
As of | As of | |||||||
March 31, | December 31, | |||||||
a ) Assets | 2018 | 2017 | ||||||
ThUS $ | ThUS $ | |||||||
Unaudited | ||||||||
Cash and cash equivalents | 814,230 | 1,142,004 | ||||||
Argentine peso | 18,585 | 12,135 | ||||||
Brazilian real | 85,149 | 106,499 | ||||||
Chilean peso | 18,717 | 81,845 | ||||||
Colombian peso | 9,794 | 7,264 | ||||||
Euro | 19,892 | 11,746 | ||||||
US Dollar | 604,586 | 882,114 | ||||||
Other currencies | 57,507 | 40,401 | ||||||
Other financial assets (current and non-current) | 858,131 | 648,009 | ||||||
Argentine peso | 293 | 297 | ||||||
Brazilian real | 666,233 | 475,810 | ||||||
Chilean peso | 26,705 | 26,679 | ||||||
Colombian peso | 544 | 1,928 | ||||||
Euro | 8,373 | 7,853 | ||||||
US Dollar | 153,387 | 133,431 | ||||||
Other currencies | 2,596 | 2,011 | ||||||
Trade and other accounts receivable, current | 1,291,933 | 1,214,050 | ||||||
Argentine peso | 76,038 | 49,958 | ||||||
Brazilian real | 682,158 | 635,890 | ||||||
Chilean peso | 89,369 | 83,415 | ||||||
Colombian peso | 8,596 | 3,249 | ||||||
Euro | 60,260 | 48,286 | ||||||
US Dollar | 182,771 | 257,324 | ||||||
Other currencies (*) | 192,741 | 135,928 | ||||||
Accounts receivable, non-current | 6,499 | 6,891 | ||||||
Brazilian real | 4 | 4 | ||||||
Chilean peso | 6,495 | 6,887 | ||||||
Accounts receivable from related entities, current | 2,284 | 2,582 | ||||||
Brazilian real | 101 | 2 | ||||||
Chilean peso | 130 | 735 | ||||||
US Dollar | 2,053 | 1,845 | ||||||
Total assets | 2,973,077 | 3,013,536 | ||||||
Argentine peso | 94,916 | 62,390 | ||||||
Brazilian real | 1,433,645 | 1,218,205 | ||||||
Chilean peso | 141,416 | 199,561 | ||||||
Colombian peso | 18,934 | 12,441 | ||||||
Euro | 88,525 | 67,885 | ||||||
US Dollar | 942,797 | 1,274,714 | ||||||
Other currencies | 252,844 | 178,340 |
(*) | See the composition of the others currencies in Note 8 Trade, other accounts receivable and non-current accounts receivable. |
b) | Liabilities |
Liabilities information is detailed in the table within Note 3 Financial risk management.
46
NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON-CURRENT ACCOUNTS RECEIVABLE
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Trade accounts receivable | 1,229,631 | 1,175,796 | ||||||
Other accounts receivable | 169,736 | 133,054 | ||||||
Total trade and other accounts receivable | 1,399,367 | 1,308,850 | ||||||
Less: Allowance for impairment loss | (100,935 | ) | (87,909 | ) | ||||
Total net trade and accounts receivable | 1,298,432 | 1,220,941 | ||||||
Less: non-current portion – accounts receivable | (6,499 | ) | (6,891 | ) | ||||
Trade and other accounts receivable, current | 1,291,933 | 1,214,050 |
The fair value of trade and other accounts receivable does not differ significantly from the book value.
The maturity of the portfolio as of December 31, 2017 is as follows:
Up to date | 1,040,671 | |||
Matured accounts receivable, but not impaired | ||||
Expired from 1 to 90 days | 34,153 | |||
Expired from 91 to 180 days | 10,141 | |||
More than 180 days overdue (*) | 2,922 | |||
Total matured accounts receivable, but not impaired | 47,216 | |||
Matured accounts receivable and impaired | ||||
Judicial, pre-judicial collection and protested documents | 43,175 | |||
Debtor under pre-judicial collection process and portfolio sensitization | 44,734 | |||
Total matured accounts receivable and impaired | 87,909 | |||
Total | 1,175,796 |
(*) Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision.
As of March 31, 2018, in order to determine the expected credit losses, the company groups accounts receivable for passenger and cargo transportation; depending on the characteristics of shared credit risk and maturity.
47
Portfolio maturity | ||||||||||||||||||||||||
from 1 to | from 91 to | from 181 to | more of | |||||||||||||||||||||
Up to date | 90 days | 180 days | 360 days | 360 days | Total | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Expected loss rate (1) | 1 | % | 3 | % | 35 | % | 48 | % | 88 | % | 8 | % | ||||||||||||
Gross book value (2) | 975,666 | 124,463 | 23,813 | 35,699 | 69,990 | 1,229,631 | ||||||||||||||||||
Provision Deterioration | (9,784 | ) | (4,187 | ) | (8,510 | ) | (17,135 | ) | (61,319 | ) | (100,935 | ) |
(1) Corresponds to the expected average rate.
(2) the gross book value represents the maximum growth risk value of trade accounts receivable.
Currency balances that make up the Trade and other accounts receivable and non-current accounts receivable are the following:
As of | As of | |||||||
March 31, | December 31, | |||||||
Currency | 2018 | 2017 | ||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Argentine Peso | 76,038 | 49,958 | ||||||
Brazilian Real | 682,162 | 635,894 | ||||||
Chilean Peso | 95,864 | 90,302 | ||||||
Colombian peso | 8,596 | 3,249 | ||||||
Euro | 60,260 | 48,286 | ||||||
US Dollar | 182,771 | 257,324 | ||||||
Other currency (*) | 192,741 | 135,928 | ||||||
Total | 1,298,432 | 1,220,941 | ||||||
(*) Other currencies | ||||||||
Australian Dollar | 54,750 | 40,303 | ||||||
Chinese Yuan | 950 | 37 | ||||||
Danish Krone | 680 | 197 | ||||||
Pound Sterling | 11,424 | 5,068 | ||||||
Indian Rupee | 5,108 | 3,277 | ||||||
Japanese Yen | 28,165 | 18,756 | ||||||
Norwegian Kroner | 693 | 133 | ||||||
Swiss Franc | 4,361 | 2,430 | ||||||
Korean Won | 23,025 | 18,225 | ||||||
New Taiwanese Dollar | 4,472 | 2,983 | ||||||
Other currencies | 59,113 | 44,519 | ||||||
Total | 192,741 | 135,928 |
48
The movements of the provision for impairment losses of the Trade Debtors and other accounts receivable are as follows:
Adjustment | ||||||||||||||||||||||
Opening | adoption | (Increase) | Closing | |||||||||||||||||||
Periods | balance | IFRS 9 (*) | Punishments | Decrease | balance | |||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||
From January 1 as of March 31, 2017 (IAS 39) (Unaudited) | (77,054 | ) | — | 676 | (5,795 | ) | (82,173 | ) | ||||||||||||||
From April 1 to December 31, 2017 | (82,173 | ) | — | 7,573 | (13,309 | ) | (87,909 | ) | ||||||||||||||
From January 1 as of March 31, 2018 (IAS 39) (Unaudited) | (87,909 | ) | (10,499 | ) | 1,307 | (3,834 | ) | (100,935 | ) | |||||||||||||
(*) Adjustment to the balance as of December 31, 2017 registered in retained earnings as of 01.01.2018 for the adoption of IFRS 9.
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.
The historical and current renegotiations are not very relevant and the policy is to analyze case by case to classify them according to the existence of risk, determining if their reclassification corresponds to pre-judicial collection accounts.
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, 2018 | As of December 31, 2017 | |||||||||||||||||||||||
Gross exposure | Gross | Exposure net | Gross exposure | Gross | Exposure net | |||||||||||||||||||
according to | impaired | of risk | according to | Impaired | of risk | |||||||||||||||||||
balance | exposure | concentrations | balance | exposure | concentrations | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Trade accounts receivable | 1,229,631 | (100,935 | ) | 1,128,696 | 1,175,796 | (87,909 | ) | 1,087,887 | ||||||||||||||||
Other accounts receivable | 169,736 | — | 169,736 | 133,054 | — | 133,054 |
There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.
49
NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES
(a) | Accounts Receivable |
As of | As of | |||||||||||||||||||
Country | March 31, | December 31, | ||||||||||||||||||
Tax No. | Related party | Relationship | of origin | Currency | 2018 | 2017 | ||||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | ||||||||||||||||||||
Foreign | Qatar Airways | Indirect shareholder | Qatar | ThU$ | 2,057 | 1,845 | ||||||||||||||
78.591.370-1 | Bethia S.A. and Subsidiaries | Related director | Chile | CLP | 209 | 728 | ||||||||||||||
Foreign | TAM Aviação Executiva e Taxi Aéreo S.A. | Related director | Brazil | BRL | 8 | 2 | ||||||||||||||
87.752.000-5 | Granja Marina Tornagaleones S.A. | Common shareholder | Chile | CLP | 8 | 5 | ||||||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda. y CPA. | Related director | Chile | CLP | 2 | 2 | ||||||||||||||
Total current assets | 2,284 | 2,582 |
(b) | Accounts payable |
As of | As of | |||||||||||||||||||
Country | March 31, | December 31, | ||||||||||||||||||
Tax No. | Related party | Relationship | of origin | Currency | 2018 | 2017 | ||||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | ||||||||||||||||||||
78.997.060-2 | Viajes Falabella Ltda. | Related director | Chile | CLP | 270 | 534 | ||||||||||||||
78.591.370-1 | Bethia S.A. and Subsidiaries | Related director | Chile | CLP | 13 | 12 | ||||||||||||||
Foreign | Inversora Aeronáutica Argentina S.A. | Related director | Argentina | ThUS$ | 6 | 4 | ||||||||||||||
Foreign | Consultoría Administrativa Profesional S.A. de C.V. | Related company | México | MXN | 224 | 210 | ||||||||||||||
Total current liabilities | 513 | 760 |
Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary.
50
NOTE 10 -INVENTORIES
The composition of Inventories is as follows:
As of March 31, 2018 | As of December 31, 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Technical stock | 223,261 | 195,530 | ||||||
Non-technical stock | 44,068 | 41,136 | ||||||
Total | 267,329 | 236,666 |
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, as per the following detail:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Provision for obsolescence Technical stock | 22,207 | 21,839 | ||||||
Provision for obsolescence Non-technical stock | 7,223 | 6,488 | ||||||
Total | 29,430 | 28,327 |
The resulting amounts do not exceed the respective net realization values.
As of March 31, 2018, the Company recorded ThUS $ 32,456 (ThUS $ 38,035 as of March 31, 2017) in product results, mainly on-board consumption and maintenance, which is part of the Cost of sales.
51
NOTE 11 - OTHER FINANCIAL ASSETS
The composition of other financial assets is as follows:
Current Assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
(a) Other financial assets | ||||||||||||||||||||||||
Private investment funds | 655,911 | 472,232 | — | — | 655,911 | 472,232 | ||||||||||||||||||
Deposits in guarantee (aircraft) | 14,606 | 15,690 | 40,378 | 41,058 | 54,984 | 56,748 | ||||||||||||||||||
Guarantees for margins of derivatives | 631 | 2,197 | — | — | 631 | 2,197 | ||||||||||||||||||
Other investments | — | — | 844 | 494 | 844 | 494 | ||||||||||||||||||
Domestic and foreign bonds | — | 1,421 | — | — | — | 1,421 | ||||||||||||||||||
Other guarantees given | 6,553 | 6,031 | 46,816 | 46,019 | 53,369 | 52,050 | ||||||||||||||||||
Subtotal of other financial assets | 677,701 | 497,571 | 88,038 | 87,571 | 765,739 | 585,142 | ||||||||||||||||||
(b) Hedging assets | ||||||||||||||||||||||||
Interest accrued since the last payment date of Cross currency swap | — | 202 | — | — | — | 202 | ||||||||||||||||||
Fair value of interest rate derivatives | 7,403 | 3,113 | — | — | 7,403 | 3,113 | ||||||||||||||||||
Fair value of foreign currency derivatives | 63,947 | 48,322 | 488 | 519 | 64,435 | 48,841 | ||||||||||||||||||
Fair value of fuel price derivatives | 20,554 | 10,711 | — | — | 20,554 | 10,711 | ||||||||||||||||||
Subtotal of hedging assets | 91,904 | 62,348 | 488 | 519 | 92,392 | 62,867 | ||||||||||||||||||
Total Other Financial Assets | 769,605 | 559,919 | 88,526 | 88,090 | 858,131 | 648,009 |
The types of derivative hedging contracts maintained by the Company at the end of each period are described in Note 19.
52
NOTE 12 - OTHER NON-FINANCIAL ASSETS
The composition of other non-financial assets is as follows:
Current assets | Non-current assets | Total Assets | ||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||||||||
March 31, | December | March 31, | December | March 31, | December | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(a) Advance payments | ||||||||||||||||||||||||
Aircraft leases | 33,774 | 31,322 | 2,662 | 4,718 | 36,436 | 36,040 | ||||||||||||||||||
Aircraft insurance and other | 14,800 | 17,681 | — | — | 14,800 | 17,681 | ||||||||||||||||||
Others | 9,868 | 10,012 | 1,095 | 1,186 | 10,963 | 11,198 | ||||||||||||||||||
Subtotal advance payments | 58,442 | 59,015 | 3,757 | 5,904 | 62,199 | 64,919 | ||||||||||||||||||
(b) Contract assets (1) | ||||||||||||||||||||||||
GDS costs | 14,614 | — | — | — | 14,614 | — | ||||||||||||||||||
Commissions credit cards | 18,614 | — | — | — | 18,614 | — | ||||||||||||||||||
Commissions travel agencies | 13,015 | — | — | — | 13,015 | — | ||||||||||||||||||
Subtotal assets of contracts | 46,243 | — | — | — | 46,243 | — | ||||||||||||||||||
(c) Other assets | ||||||||||||||||||||||||
Aircraft maintenance reserve (2) | 17,977 | 21,505 | 51,836 | 51,836 | 69,813 | 73,341 | ||||||||||||||||||
Sales tax | 145,625 | 137,866 | 29,360 | 37,959 | 174,985 | 175,825 | ||||||||||||||||||
Other taxes | 3,741 | 2,475 | — | — | 3,741 | 2,475 | ||||||||||||||||||
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”) | 327 | 327 | 670 | 670 | 997 | 997 | ||||||||||||||||||
Judicial deposits | — | — | 133,667 | 124,438 | 133,667 | 124,438 | ||||||||||||||||||
Others | 4,142 | — | — | — | 4,142 | — | ||||||||||||||||||
Subtotal other assets | 171,812 | 162,173 | 215,533 | 214,903 | 387,345 | 377,076 | ||||||||||||||||||
Total Other Non - Financial Assets | 276,497 | 221,188 | 219,290 | 220,807 | 495,787 | 441,995 |
(1) As of March 31, 2018, the costs of activated contracts recognized in results amount to ThUS $ 57,919 and the amortization of the period is ThUS $ 69,400.
(2) Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.
These amounts are calculated based on performance measures, such as flight hours or cycles, are paid periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.
In some cases (five lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. The cost of aircraft maintenance in the last years has been higher than the related maintenance reserves for all aircraft.
53
As of March 31, 2018, the maintenance reserves amount to ThUS $ 69,813 (ThUS $ 74,341, December 31, 2017), corresponding to 13 aircraft that maintain remaining balances, which will be settled in the next maintenance or return.
Aircraft maintenance reserves are classified as current or non-current depending on the dates when the related maintenance is expected to be performed (Note 2.23)
NOTE 13 - NON-CURRENT ASSETS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE
Non-current assets and groups in expropriation held for sale at March 31, 2018 and December 31, 2017, are detailed below:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Current assets | ||||||||
Aircraft | 96,117 | 236,022 | ||||||
Engines and rotables | 9,181 | 9,197 | ||||||
Other assets | 35,288 | 45,884 | ||||||
Total | 140,586 | 291,103 | ||||||
Current liabilities | ||||||||
Other liabilities | 20,819 | 15,546 | ||||||
Total | 20,819 | 15,546 |
The balances are presented at the lower of book value and fair value less cost to sell. The fair value of these assets was determined based on quoted prices in active markets for similar assets or liabilities. This is a level II measurement as per the fair value hierarchy set out in note 3.3 (2). There were no transfers between levels for recurring fair value measurements during the year.
(a) Assets reclassified from Property, plant and equipment to Non-current assets or groups of assets for disposal classified as held for sale
During fiscal year 2017, adjustments were recognized for US $ 17.4 million to register these assets at their net realizable value.
In addition, during 2017, two Airbus A330 aircraft and seven spare Airbus A330 engines were sold.
During fiscal year 2018, adjustments for US $ 2.3 million were recognized to record these assets at their net realizable value.
Additionally, during the fiscal year 2018, the sale of a Boeing 777 aircraft took place and a transfer was made to the item Properties, plants and equipment of an Airbus A320 aircraft.
54
The detail of fleet classified as non-current assets or groups of assets for disposal classified as held for sale is the following:
As of | As of | |||||||
March 31, | December 31, | |||||||
Aircraft | 2018 | 2017 | ||||||
Unaudited | ||||||||
Boeing 777 Freighter | 1 | (*) | 2 | (*) | ||||
Airbus A330-200 | 1 | 1 | ||||||
Airbus A320-200 | — | 1 | ||||||
ATR42-300 | 1 | 1 | ||||||
Total | 3 | 5 |
(*) One aircraft leased to DHL.
(b) Assets reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale
During in the first quarter of 2017, stocks of the fleet Airbus A330, were reclassified from Inventories to Non-current assets or groups of assets for disposal classified as held for sale.
During 2017 an adjustment of US $ 1.3 million was recognized to record these assets at their net realizable value.
In addition, during 2017 there was the partial sale of A330 inventory.
NOTE 14 - INVESTMENTS IN SUBSIDIARIES
(a) Investments in subsidiaries
The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities.
Detail of significant subsidiaries and summarized financial information:
Ownership | ||||||||||||||||
As of | As of | |||||||||||||||
Country of | Functional | March 31, | December 31, | |||||||||||||
Name of significant subsidiary | incorporation | currency | 2018 | 2017 | ||||||||||||
% | % | |||||||||||||||
Unaudited | ||||||||||||||||
Lan Perú S.A. | Peru | US$ | 70.00000 | 70.00000 | ||||||||||||
Lan Cargo S.A. | Chile | US$ | 99.89803 | 99.89803 | ||||||||||||
Lan Argentina S.A. | Argentina | ARS | 99.86560 | 99.86560 | ||||||||||||
Transporte Aéreo S.A. | Chile | US$ | 100.00000 | 100.00000 | ||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | Ecuador | US$ | 100.00000 | 100.00000 | ||||||||||||
Aerovías de Integración Regional, AIRES S.A. | Colombia | COP | 99.19061 | 99.19061 | ||||||||||||
TAM S.A. | Brazil | BRL | 99.99938 | 99.99938 |
The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.
55
Summary financial information of significant subsidiaries
Results for the period | ||||||||||||||||||||||||||||||||
Statement of financial position as of March 31, 2018 | ended March 31, 2018 | |||||||||||||||||||||||||||||||
Total | Current | Non-current | Total | Current | Non-current | Net | ||||||||||||||||||||||||||
Name of significant subsidiary | Assets | Assets | Assets | Liabilities | Liabilities | Liabilities | Revenue | Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Unaudited | Unaudited | |||||||||||||||||||||||||||||||
Lan Perú S.A. | 498,183 | 477,644 | 20,539 | 473,360 | 471,376 | 1,984 | 292,954 | 5,771 | ||||||||||||||||||||||||
Lan Cargo S.A. | 586,994 | 276,404 | 310,590 | 375,567 | 298,508 | 77,059 | 64,885 | (130 | ) | |||||||||||||||||||||||
Lan Argentina S.A. | 342,556 | 308,831 | 33,725 | 301,695 | 297,653 | 4,042 | 111,013 | (10,236 | ) | |||||||||||||||||||||||
Transporte Aéreo S.A. | 329,750 | 38,357 | 291,393 | 103,867 | 33,430 | 70,437 | 89,652 | 5,982 | ||||||||||||||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | 112,186 | 90,440 | 21,746 | 94,912 | 88,964 | 5,948 | 57,204 | 2,518 | ||||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 143,142 | 64,117 | 79,025 | 93,162 | 81,555 | 11,607 | 75,501 | (221 | ) | |||||||||||||||||||||||
TAM S.A. (*) | 5,104,118 | 2,457,744 | 2,646,374 | 3,513,177 | 2,039,770 | 1,473,407 | 1,211,235 | 48,549 |
Results for the period | ||||||||||||||||||||||||||||||||
Statement of financial position as of December 31, 2017 | ended March 31, 2017 | |||||||||||||||||||||||||||||||
Total | Current | Non-current | Total | Current | Non-current | Net | ||||||||||||||||||||||||||
Name of significant subsidiary | Assets | Assets | Assets | Liabilities | Liabilities | Liabilities | Revenue | Income | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||||||||||
Lan Perú S.A. | 315,607 | 294,308 | 21,299 | 303,204 | 301,476 | 1,728 | 255,619 | (7,451 | ) | |||||||||||||||||||||||
Lan Cargo S.A. | 584,169 | 266,836 | 317,333 | 371,934 | 292,529 | 79,405 | 59,880 | 2,958 | ||||||||||||||||||||||||
Lan Argentina S.A. | 198,951 | 166,445 | 32,506 | 143,731 | 139,914 | 3,817 | 105,039 | (8,071 | ) | |||||||||||||||||||||||
Transporte Aéreo S.A. | 324,498 | 30,909 | 293,589 | 104,357 | 36,901 | 67,456 | 84,353 | 12,300 | ||||||||||||||||||||||||
Aerolane Líneas Aéreas Nacionales del Ecuador S.A. | 96,407 | 66,166 | 30,241 | 84,123 | 78,817 | 5,306 | 48,239 | (5,536 | ) | |||||||||||||||||||||||
Aerovías de Integración Regional, AIRES S.A. | 138,138 | 64,160 | 73,978 | 91,431 | 80,081 | 11,350 | 57,339 | (7,347 | ) | |||||||||||||||||||||||
TAM S.A. (*) | 4,490,714 | 1,843,822 | 2,646,892 | 3,555,423 | 2,052,633 | 1,502,790 | 1,121,038 | 26,866 |
56
(b) Non-controlling interest
As of | As of | As of | As of | |||||||||||||||||
Equity | Country | March 31, | December 31, | March 31, | December 31, | |||||||||||||||
Tax No. | of origin | 2018 | 2017 | 2018 | 2017 | |||||||||||||||
% | % | ThUS$ | ThUS$ | |||||||||||||||||
Unaudited | Unaudited | |||||||||||||||||||
Lan Perú S.A | 0- E | Peru | 30.00000 | 30.00000 | 7,448 | 3,722 | ||||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000- 4 | Chile | 0.10196 | 0.10196 | (536 | ) | 849 | |||||||||||||
Promotora Aérea Latinoamericana S.A. and Subsidiaries | 0- E | Mexico | 51.00000 | 51.00000 | 4,577 | 4,578 | ||||||||||||||
Inversora Cordillera S.A. and Subsidiaries | 0- E | Argentina | 0,13940 | 0,13940 | 4,291 | 3,502 | ||||||||||||||
Lan Argentina S.A. | 0- E | Argentina | 0,02842 | 0,02842 | (461 | ) | 79 | |||||||||||||
Americonsult de Guatemala S.A. | 0- E | Guatemala | 1.00000 | 1.00000 | 1 | 1 | ||||||||||||||
Americonsult Costa Rica S.A. | 0- E | Costa Rica | 1.00000 | 1.00000 | 12 | 12 | ||||||||||||||
Linea Aérea Carguera de Colombiana S.A. | 0- E | Colombia | 10.00000 | 10.00000 | (463 | ) | (520 | ) | ||||||||||||
Aerolíneas Regionales de Integración Aires S.A. | 0- E | Colombia | 0.80944 | 0.80944 | 487 | 461 | ||||||||||||||
Transportes Aereos del Mercosur S.A. | 0- E | Paraguay | 5.02000 | 5.02000 | 1,563 | 1,324 | ||||||||||||||
Multiplus S.A. | 0- E | Brazil | 27.26000 | 27.26000 | 76,152 | 77,139 | ||||||||||||||
Total | 93,071 | 91,147 |
For the period ended | For the period ended | |||||||||||||||||||
Incomes | Country | March 31, | March 31, | |||||||||||||||||
Tax No. | of origin | 2018 | 2017 | 2018 | 2017 | |||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||
Unaudited | Unaudited | |||||||||||||||||||
Lan Perú S.A | 0- E | Peru | 30.00000 | 30.00000 | 3,533 | (2,235 | ) | |||||||||||||
Lan Cargo S.A. and Subsidiaries | 93.383.000- 4 | Chile | 0.10196 | 0.10196 | 12 | 15 | ||||||||||||||
Promotora Aerea Latinoamericana S.A. and Subsidiaries | 0- E | Mexico | 51.00000 | 51.00000 | 261 | 234 | ||||||||||||||
Inversora Cordillera S.A. and Subsidiaries | 0- E | Argentina | 0,13940 | 0,70422 | — | 90 | ||||||||||||||
Lan Argentina S.A. | 0- E | Argentina | 0,02842 | 0,13440 | — | 19 | ||||||||||||||
Americonsult de Guatemala S.A. | 0- E | Guatemala | 1.00000 | 1.00000 | — | — | ||||||||||||||
Linea Aérea Carguera de Colombiana S.A. | 0- E | Colombia | 10.00000 | 10.00000 | 58 | (94 | ) | |||||||||||||
Aerolíneas Regionales de Integración Aires S.A. | 0- E | Colombia | 0.80944 | 0.80944 | (2 | ) | (59 | ) | ||||||||||||
Transportes Aereos del Mercosur S.A. | 0- E | Paraguay | 5.02000 | 5.02000 | 220 | 99 | ||||||||||||||
Multiplus S.A. | 0- E | Brazil | 27.26000 | 27.26000 | 9,601 | 11,174 | ||||||||||||||
Total | 13,683 | 9,243 |
57
NOTE 15 - INTANGIBLE ASSETS OTHER THAN GOODWILL
The details of intangible assets are as follows:
Classes of intangible assets | Classes of intangible assets | |||||||||||||||
(net) | (gross) | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Airport slots | 960,108 | 964,513 | 960,108 | 964,513 | ||||||||||||
Loyalty program | 319,912 | 321,440 | 319,912 | 321,440 | ||||||||||||
Computer software | 184,211 | 160,970 | 543,522 | 509,377 | ||||||||||||
Developing software | 106,390 | 123,415 | 106,390 | 123,415 | ||||||||||||
Trademarks (1) | 43,574 | 46,909 | 62,242 | 62,539 | ||||||||||||
Other assets | 508 | — | 1,315 | — | ||||||||||||
Total | 1,614,703 | 1,617,247 | 1,993,489 | 1,981,284 |
Movement in Intangible assets other than goodwill:
Computer | Trademarks | |||||||||||||||||||
software | Developing | Airport | and loyalty | |||||||||||||||||
Net | software | slots (2) | Program (1) (2) | Total | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Opening balance as of January 1, 2017 | 157,016 | 91,053 | 978,849 | 383,395 | 1,610,313 | |||||||||||||||
Additions | 944 | 17,600 | — | — | 18,544 | |||||||||||||||
Withdrawals | — | (642 | ) | — | — | (642 | ) | |||||||||||||
Transfer software | 8,741 | (8,545 | ) | — | — | 196 | ||||||||||||||
Foreing exchange | 2,080 | 677 | 28,021 | 10,975 | 41,753 | |||||||||||||||
Amortization | (11,380 | ) | — | — | (2,448 | ) | (13,828 | ) | ||||||||||||
Closing balance as of March 31, 2017 (Unaudited) | 157,401 | 100,143 | 1,006,870 | 391,922 | 1,656,336 | |||||||||||||||
Opening balance as of April 1, 2017 | 157,401 | 100,143 | 1,006,870 | 391,922 | 1,656,336 | |||||||||||||||
Additions | 7,509 | 61,280 | — | — | 68,789 | |||||||||||||||
Withdrawals | (244 | ) | (42 | ) | — | — | (286 | ) | ||||||||||||
Transfer software | 37,042 | (37,035 | ) | — | — | 7 | ||||||||||||||
Foreing exchange | (3,295 | ) | (931 | ) | (42,357 | ) | (16,434 | ) | (63,017 | ) | ||||||||||
Amortization | (37,443 | ) | — | — | (7,139 | ) | (44,582 | ) | ||||||||||||
Closing balance as of December 31, 2017 | 160,970 | 123,415 | 964,513 | 368,349 | 1,617,247 | |||||||||||||||
Opening balance as of January 1, 2018 | 160,970 | 123,415 | 964,513 | 368,349 | 1,617,247 | |||||||||||||||
Additions | 750 | 19,084 | — | — | 19,834 | |||||||||||||||
Withdrawals | (27 | ) | (2 | ) | — | — | (29 | ) | ||||||||||||
Transfer software | 35,956 | (35,960 | ) | — | — | (4 | ) | |||||||||||||
Foreing exchange | (340 | ) | (147 | ) | (4,405 | ) | (1,751 | ) | (6,643 | ) | ||||||||||
Amortization | (12,590 | ) | — | — | (3,112 | ) | (15,702 | ) | ||||||||||||
Closing balance as of March 31, 2018 (Unaudited) | 184,719 | 106,390 | 960,108 | 363,486 | 1,614,703 |
(1) | In 2016, after the extensive work of integration after the association between LAN and TAM, during which there has been solid progress in the homologation of the optimization processes of its air connections, in addition to the restructuring and modernization of the fleet of aircraft, the Company has resolved adopt a unique name and identity, and announce that the brand of the group will be LATAM”, which would unite all companies under a single image. |
58
Given the above, we have proceeded to review the brands useful life, concluding that these should go from an indefinite to defined useful life. The estimated new useful life is 5 years, equivalent to the period for finishing all the image changes necessary.
(2) See Note 2.5
The amortization of each period is recognized in the consolidated income statement in the administrative expenses. The cumulative amortization of computer programs and brands as of March 31, 2018, amounts to ThUS $ 389,165 (ThUS $ 373,463 as of December 31, 2017).
NOTE 16 – GOODWILL
Goodwill as of March 31, 2018, amounts to ThUS $ 2,665,212 (ThUS $ 2,672,550 as of December 31, 2017). The goodwill movement, separated by CGU, includes the following:
Coalition | ||||||||||||
Movement of Goodwill, separated by CGU: | and loyalty | |||||||||||
Air | program | |||||||||||
Transport | Multiplus | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2017 | 2,176,634 | 533,748 | 2,710,382 | |||||||||
Increase (decrease) due to exchange rate differences | 61,360 | 15,280 | 76,640 | |||||||||
Closing balance as of March 31, 2017 (Unaudited) | 2,237,994 | 549,028 | 2,787,022 | |||||||||
Opening balance as of April 1, 2017 | 2,237,994 | 549,028 | 2,787,022 | |||||||||
Increase (decrease) due to exchange rate differences | (91,302 | ) | (23,170 | ) | (114,472 | ) | ||||||
Closing balance as of December 31, 2017 | 2,146,692 | 525,858 | 2,672,550 | |||||||||
Opening balance as of January 1, 2018 | 2,146,692 | 525,858 | 2,672,550 | |||||||||
Increase (decrease) due to exchange rate differences | (4,838 | ) | (2,500 | ) | (7,338 | ) | ||||||
Closing balance as of March 31, 2018 (Unaudited) | 2,141,854 | 523,358 | 2,665,212 |
The Company has two cash- generating units (CGUs), “Air transportation” and, “Coalition and loyalty program Multiplus”. The CGU “Air transport” considers the transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, and in a developed series of regional and international routes in America, Europe and Oceania, while the CGU “Coalition and loyalty program Multiplus” works with an integrated network associated companies in Brazil.
The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of expected cash flows, 5 years after tax, which are based on the budget approved by the Board. Cash flows beyond the budget period are extrapolated using the estimated growth rates, which do not exceed the average rates of long-term growth.
Management establish rates for annual growth, discount, inflation and exchange for each cash generating, as well as fuel prices, based on their key assumptions. The annual growth rate is based on past performance and management’s expectations over market developments in each country where it operates. The discount rates used are in American Dollars for the CGU “Air transportation” and Brazilian Reals for CGU “Program coalition loyalty Multiplus”, both after taxes and reflect specific risks related to each country where the Company operates. Inflation and exchange rates are based on available data for each country and the information provided by the Central Bank of each country, and the fuel price is determined based on estimated production levels, competitive environment market in which they operate and its business strategy.
59
As of December 31, 2017 the recoverable values were determined using the following assumptions presented below:
Air transportation | Coalition and loyalty | |||||||||||
CGU | program Multiplus CGU (2) | |||||||||||
Annual growth rate (Terminal) | % | 1.0 - 2.0 | 4.0 - 5.0 | |||||||||
Exchange rate (1) | R$/US$ | 3.3 - 3.9 | 3.3 - 3.9 | |||||||||
Discount rate based on the weighted average | ||||||||||||
cost of capital (WACC) | % | 7.55 - 8.55 | — | |||||||||
Discount rate based on cost of equity (Ke) | % | — | 12.4 - 13.4 | |||||||||
Fuel Price from futures price curves | ||||||||||||
commodities markets | US$/barrel | 73-78 | — |
The result of the impairment test, which includes a sensitivity analysis of the main variables, showed that the estimated recoverable amount is higher than carrying value of the book value of net assets allocated to the cash generating unit, and therefore impairment was not detected.
CGU´s are sensitive to rates for annual growth, discount and exchanges rates. The sensitivity analysis included the individual impact of changes in estimates critical in determining the recoverable amounts, namely:
Decrease | ||||||||||||
Increase | Increase | Minimum | ||||||||||
Maximum | Maximum | terminal | ||||||||||
WACC | CoE | growth rate | ||||||||||
% | % | % | ||||||||||
Air transportation CGU | 8.55 | — | 1.0 | |||||||||
Coalition and loyalty program Multiplus CGU | — | 13.4 | 4.0 |
In none of the previous cases impairment in the cash- generating unit was presented.
As of March 31, 2018, no signs of deterioration have been identified for the CGU Multiplus Coalition and Loyalty Program and for the UGE Transporte Aéreo that require a deterioration test.
60
NOTE 17 - PROPERTY, PLANT AND EQUIPMENT
The composition by category of Property, plant and equipment is as follows:
Gross Book Value | Acumulated depreciation | Net Book Value | ||||||||||||||||
As of | As of | As of | As of | As of | As of | |||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||
Construction in progress (1) | 599,362 | 556,822 | — | — | 599,362 | 556,822 | ||||||||||||
Land | 49,675 | 49,780 | — | — | 49,675 | 49,780 | ||||||||||||
Buildings | 189,134 | 190,552 | (67,119 | ) | (66,004 | ) | 122,015 | 124,548 | ||||||||||
Plant and equipment | 7,952,028 | 9,222,540 | (2,173,205 | ) | (2,390,142 | ) | 5,778,823 | 6,832,398 | ||||||||||
Own aircraft (2) | 7,255,791 | 8,544,185 | (1,913,651 | ) | (2,138,612 | ) | 5,342,140 | 6,405,573 | ||||||||||
Other (3) | 696,237 | 678,355 | (259,554 | ) | (251,530 | ) | 436,683 | 426,825 | ||||||||||
Machinery | 38,976 | 39,084 | (29,906 | ) | (29,296 | ) | 9,070 | 9,788 | ||||||||||
Information technology equipment | 168,395 | 166,713 | (139,025 | ) | (136,557 | ) | 29,370 | 30,156 | ||||||||||
Fixed installations and accessories | 189,246 | 186,989 | (109,142 | ) | (106,212 | ) | 80,104 | 80,777 | ||||||||||
Motor vehicles | 70,183 | 70,290 | (60,256 | ) | (58,812 | ) | 9,927 | 11,478 | ||||||||||
Leasehold improvements | 196,224 | 186,679 | (110,519 | ) | (102,454 | ) | 85,705 | 84,225 | ||||||||||
Other property, plants and equipment | 5,057,024 | 3,640,838 | (1,765,851 | ) | (1,355,475 | ) | 3,291,173 | 2,285,363 | ||||||||||
Financial leasing aircraft (2) | 4,979,874 | 3,551,041 | (1,738,221 | ) | (1,328,421 | ) | 3,241,653 | 2,222,620 | ||||||||||
Other | 77,150 | 89,797 | (27,630 | ) | (27,054 | ) | 49,520 | 62,743 | ||||||||||
Total | 14,510,247 | 14,310,287 | (4,455,023 | ) | (4,244,952 | ) | 10,055,224 | 10,065,335 |
(1) As of March 31, 2018, includes advances paid to aircraft manufacturers for ThUS $ 584,722 (ThUS $ 543,720 as of December 31, 2017)
(2) In the period ended March 31, 2018, the Company sold its interest in seven special purposes companies. As a result of this, 23 aircraft were reclassified from the category Plants and equipment to the category Other properties, plants and equipment.
(3) Consider mainly rotables and tools.
61
a) Movement in the different categories of Property, plant and equipment:
Other | ||||||||||||||||||||||||||||||
Information | Fixed | property, | Property, | |||||||||||||||||||||||||||
Plant and | technology | installations | Motor | Leasehold | plant and | Plant and | ||||||||||||||||||||||||
Construction | Buildings | equipment | equipment | & accessories | vehicles | improvements | equipment | equipment | ||||||||||||||||||||||
in progress | Land | net | net | net | net | net | net | net | net | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||
Opening balance as of January 1, 2017 | 470,065 | 50,148 | 130,219 | 7,789,875 | 39,714 | 83,912 | 1,045 | 104,541 | 1,828,630 | 10,498,149 | ||||||||||||||||||||
Additions | 3,106 | — | — | 42,917 | 787 | 72 | — | 390 | 2,158 | 49,430 | ||||||||||||||||||||
Disposals | — | — | — | — | (1 | ) | — | (12 | ) | — | (9 | ) | (22 | ) | ||||||||||||||||
Retirements | (8 | ) | — | — | (3,137 | ) | (399 | ) | (80 | ) | — | 2 | (1,266 | ) | (4,888 | ) | ||||||||||||||
Depreciation expenses | — | — | (2,443 | ) | (138,506 | ) | (3,580 | ) | (3,886 | ) | (48 | ) | (6,829 | ) | (35,655 | ) | (190,947 | ) | ||||||||||||
Foreing exchange | 505 | 881 | 846 | 8,537 | 528 | 1,483 | 6 | 538 | 10,019 | 23,343 | ||||||||||||||||||||
Other increases (decreases ) | 14,279 | — | — | (11,038 | ) | — | 9,515 | — | (415 | ) | (900 | ) | 11,441 | |||||||||||||||||
Changes, total | 17,882 | 881 | (1,597 | ) | (101,227 | ) | (2,665 | ) | 7,104 | (54 | ) | (6,314 | ) | (25,653 | ) | (111,643 | ) | |||||||||||||
Closing balance as of March 31, 2017 (Unaudited) | 487,947 | 51,029 | 128,622 | 7,688,648 | 37,049 | 91,016 | 991 | 98,227 | 1,802,977 | 10,386,506 | ||||||||||||||||||||
Opening balance as of April 1, 2017 | 487,947 | 51,029 | 128,622 | 7,688,648 | 37,049 | 91,016 | 991 | 98,227 | 1,802,977 | 10,386,506 | ||||||||||||||||||||
Additions | 8,039 | — | — | 215,698 | 4,921 | 257 | 77 | 7,766 | 39,325 | 276,083 | ||||||||||||||||||||
Disposals | — | — | — | (16,004 | ) | (5 | ) | (10 | ) | (31 | ) | — | (18 | ) | (16,068 | ) | ||||||||||||||
Retirements | (119 | ) | — | (6 | ) | (21,204 | ) | (74 | ) | (417 | ) | — | (2 | ) | (344 | ) | (22,166 | ) | ||||||||||||
Depreciation expenses | — | — | (5,503 | ) | (358,351 | ) | (11,007 | ) | (10,238 | ) | (139 | ) | (20,437 | ) | (168,582 | ) | (574,257 | ) | ||||||||||||
Foreing exchange | (398 | ) | (1,249 | ) | (1,121 | ) | (13,140 | ) | (711 | ) | (2,303 | ) | (14 | ) | (781 | ) | (15,132 | ) | (34,849 | ) | ||||||||||
Other increases (decreases ) | 61,353 | — | 2,556 | (642,419 | ) | (17 | ) | 2,472 | (448 | ) | (548 | ) | 627,137 | 50,086 | ||||||||||||||||
Changes, total | 68,875 | (1,249 | ) | (4,074 | ) | (835,420 | ) | (6,893 | ) | (10,239 | ) | (555 | ) | (14,002 | ) | 482,386 | (321,171 | ) | ||||||||||||
Closing balance as of December 31, 2017 | 556,822 | 49,780 | 124,548 | 6,853,228 | 30,156 | 80,777 | 436 | 84,225 | 2,285,363 | 10,065,335 | ||||||||||||||||||||
Opening balance as of January 1, 2018 | 556,822 | 49,780 | 124,548 | 6,853,228 | 30,156 | 80,777 | 436 | 84,225 | 2,285,363 | 10,065,335 | ||||||||||||||||||||
Additions | 1,210 | — | — | 135,306 | 2,729 | 51 | 3 | — | 1,292 | 140,591 | ||||||||||||||||||||
Disposals | — | — | (791 | ) | — | — | (45 | ) | — | — | — | (836 | ) | |||||||||||||||||
Retirements | (6 | ) | — | — | (6,830 | ) | (86 | ) | (22 | ) | — | (4 | ) | (14 | ) | (6,962 | ) | |||||||||||||
Depreciation expenses | — | — | (1,614 | ) | (114,678 | ) | (3,376 | ) | (3,348 | ) | (45 | ) | (7,188 | ) | (65,910 | ) | (196,159 | ) | ||||||||||||
Foreing exchange | (6 | ) | (105 | ) | (128 | ) | (1,403 | ) | (58 | ) | (111 | ) | (1 | ) | (81 | ) | (1,623 | ) | (3,516 | ) | ||||||||||
Other increases (decreases ) | 41,342 | — | — | (1,068,196 | ) | 5 | 2,802 | — | 8,753 | 1,072,065 | 56,771 | |||||||||||||||||||
Changes, total | 42,540 | (105 | ) | (2,533 | ) | (1,055,801 | ) | (786 | ) | (673 | ) | (43 | ) | 1,480 | 1,005,810 | (10,111 | ) | |||||||||||||
Closing balance as of March 31, 2018 (Unaudited) | 599,362 | 49,675 | 122,015 | 5,797,427 | 29,370 | 80,104 | 393 | 85,705 | 3,291,173 | 10,055,224 |
(1) During 2016 the sale of two Airbus A330 aircraft was materialized.
(2) | During 2016 the reclassification to non-current assets or groups of assets for disposal classified as held for sale (see Note 13) of two Airbus A319 aircraft, two Airbus A320 aircraft, six Airbus A330 aircraft and two Boeing 777 aircraft was materialized. |
62
(b) Composition of the fleet:
Aircraft included in Property, plant and equipment | Operating | Total | |||||||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | ||||||||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||||||||||||
Aircraft | Model | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||
Unaudited | Unaudited | Unaudited | |||||||||||||||||||||||||||
Boeing 767 | 300ER | 34 | 34 | 2 | 2 | 36 | 36 | ||||||||||||||||||||||
Boeing 767 | 300F | 8 | 8 | (1) | 1 | 2 | 9 | (1) | 10 | (1) | |||||||||||||||||||
Boeing 777 | 300ER | 4 | 4 | 6 | 6 | 10 | 10 | ||||||||||||||||||||||
Boeing 777 | Freighter | — | — | — | — | — | — | ||||||||||||||||||||||
Boeing 787 | 800 | 6 | 6 | 4 | 4 | 10 | 10 | ||||||||||||||||||||||
Boeing 787 | 900 | 4 | 4 | 10 | 10 | 14 | 14 | ||||||||||||||||||||||
Airbus A319 | 100 | 37 | 37 | 9 | 9 | 46 | 46 | ||||||||||||||||||||||
Airbus A320 | 200 | 95 | (2) | 93 | (2) | 37 | 38 | 132 | (2) | 131 | (2) | ||||||||||||||||||
Airbus A320 | NEO | 1 | 1 | 3 | 3 | 4 | 4 | ||||||||||||||||||||||
Airbus A321 | 200 | 30 | 30 | 19 | 17 | 49 | 47 | ||||||||||||||||||||||
Airbus A330 | 200 | — | — | 1 | — | 1 | — | ||||||||||||||||||||||
Airbus A350 | 900 | 5 | (3) | 5 | (3) | 2 | (3) | 2 | (3) | 7 | (3) | 7 | (3) | ||||||||||||||||
Total | 224 | 222 | 94 | 93 | 318 | 315 |
(1) An aircraft leased to FEDEX as of December 2017
(2) Three aircraft leased to Salam Air and two to Sundair
(3) Two aircraft leased to Qatar Air. One in operating leases and one in property, plant and equipment.
(c) Method used for the depreciation of Property, plant and equipment:
Method | Useful life (years) | |||||||||
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 | 23 | |||||||
Information technology equipment | Straight line without residual value | 5 | 10 | |||||||
Fixed installations and accessories | Straight line without residual value | 10 | 10 | |||||||
Motor vehicle | Straight line without residual value | 10 | 10 | |||||||
Leasehold improvements | Straight line without residual value | 5 | 5 | |||||||
Other property, plant and equipment | Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*) | 10 | 23 |
(*) Except for the Boeing 767 300ER and Boeing 767 300F fleets which consider a lower residual value due to the extension of their useful life to 22 and 23 years respectively. Additionally certain technical components, which are depreciated based on the basis of cycles and flight hours.
The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values are estimated according to market value at the end of such contracts.
(**) Aircraft with remarketing clause are those that are required to sell at the end of the contract.
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As of March 31, 2018, the charge to income for the depreciation of the period, which is included in the consolidated statement of income, amounts to ThUS $ 196,159 (ThUS $ 173,975 as of March 31, 2017). This charge is recognized in the cost of sales and administrative expenses of the consolidated statement of income.
(d) �� Additional information regarding Property, plant and equipment:
(i) Property, plant and equipment pledged as guarantee:
Description of Property, plant and equipment pledged as guarantee:
As of | As of | ||||||||||||||||||||
March 31, | December 31, | ||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||
Guarantee | As sets | Existing | Book | Existing | Book | ||||||||||||||||
agent (*) | committed | Fleet | Debt | Value | Debt | Value | |||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||
Unaudited | |||||||||||||||||||||
Wilmington | Aircraft and engines | Airbus A321 / A350 | 625,356 | 711,742 | 637,934 | 721,602 | |||||||||||||||
Trust Company | Boeing 767 | 195,545 | 271,729 | 593,655 | 888,948 | ||||||||||||||||
Boeing 787 | 565,299 | 622,531 | 720,267 | 842,127 | |||||||||||||||||
Banco Santander S.A. | Aircraft and engines | Airbus A320 | 192,551 | 286,172 | 199,165 | 291,649 | |||||||||||||||
Airbus A321 | 28,395 | 39,949 | 29,296 | 40,584 | |||||||||||||||||
BNP Paribas | Aircraft and engines | Airbus A319 | 30,704 | 47,292 | 84,767 | 136,407 | |||||||||||||||
Airbus A320 | 10,783 | 20,864 | 110,267 | 175,650 | |||||||||||||||||
Credit Agricole | Aircraft and engines | Airbus A319 | 19,572 | 38,062 | 20,874 | 38,826 | |||||||||||||||
Airbus A320 | 43,048 | 101,830 | 46,895 | 98,098 | |||||||||||||||||
Airbus A321 | 27,704 | 82,688 | 30,322 | 85,463 | |||||||||||||||||
Wells Fargo | Aircraft and engines | Airbus A320 | 217,782 | 302,294 | 224,786 | 306,660 | |||||||||||||||
Bank of Utah | Aircraft and engines | Airbus A320 / A350 | 603,757 | 652,817 | 614,632 | 666,665 | |||||||||||||||
Natixis | Aircraft and engines | Airbus A320 | 14,912 | 34,044 | 34,592 | 72,388 | |||||||||||||||
Airbus A321 | 366,672 | 473,808 | 378,418 | 481,397 | |||||||||||||||||
Citibank N. A. | Aircraft and engines | Airbus A320 | 90,713 | 139,164 | 94,882 | 141,817 | |||||||||||||||
Airbus A321 | 34,281 | 70,808 | 36,026 | 72,741 | |||||||||||||||||
KfW IP EX-Bank | Aircraft and engines | Airbus A319 | 5,106 | 5,590 | 5,592 | 5,505 | |||||||||||||||
Airbus A320 | 12,117 | 12,890 | 21,296 | 30,513 | |||||||||||||||||
Airbus Financial Services | Aircraft and engines | Airbus A319 | 21,071 | 26,400 | 22,927 | 26,973 | |||||||||||||||
P K AirFinance US, Inc. | Aircraft and engines | Airbus A320 | 44,337 | 55,487 | 46,500 | 56,539 | |||||||||||||||
Banco BBVA | Land and buildings (2) | 55,801 | 66,280 | 55,801 | 66,876 | ||||||||||||||||
Total direct guarantee | 3,205,506 | 4,062,441 | 4,008,894 | 5,247,428 |
(*) Due to the characteristics of a syndicated loan, the guarantee agent is the representative of the creditors.
(1) Corresponds to a debt classified in item loans to exporters (see Note 19).
The amounts of the current debt are presented at their nominal value. The book value corresponds to the goods granted as collateral.
Additionally, there are indirect guarantees associated with assets registered in properties, plants and equipment whose total debt as of March 31, 2018, amounts to ThUS$ 1,707,978 (ThUS $ 1,087,052 as of December 31, 2017). The book value of the assets with indirect guarantees as of March 31, 2018, amounts to ThUS $ 3,241,653 (ThUS $ 2,222,620 as of December 31, 2017).
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(ii) | Commitments and others |
Fully depreciated assets and commitments for future purchases are as follows:
As of March 31, 2018 | As of December 31, 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Gross book value of fully depreciated property, plant and equipment still in use | 140,848 | 136,811 | ||||||
Commitments for the acquisition of aircraft (*) | 15,400,000 | 15,400,000 |
(*) Acording to the manufacturer’s price list.
Purchase commitment of aircraft
Year of delivery | ||||||||||||||||||||||||
Manufacturer | 2018 | 2019 | 2020 | 2021 | 2022 | Total | ||||||||||||||||||
Airbus S.A.S. | 13 | 11 | 16 | 21 | 11 | 72 | ||||||||||||||||||
A320-NEO | 7 | 3 | 9 | 8 | 5 | 32 | ||||||||||||||||||
A321 | — | 1 | — | — | — | 1 | ||||||||||||||||||
A321-NEO | 2 | 3 | 5 | 5 | 4 | 19 | ||||||||||||||||||
A350-1000 | — | — | 2 | 8 | 2 | 12 | ||||||||||||||||||
A350-900 | 4 | 4 | — | — | — | 8 | ||||||||||||||||||
The Boeing Company | — | 6 | 2 | 2 | — | 10 | ||||||||||||||||||
Boeing 777 | — | 2 | — | — | — | 2 | ||||||||||||||||||
Boeing 787-9 | — | 4 | 2 | 2 | — | 8 | ||||||||||||||||||
Total | 13 | 17 | 18 | 23 | 11 | 82 |
As of March 31, 2018, as a result of the different aircraft purchase agreements signed with Airbus SAS, there remain to receive 52 Airbus aircraft of the A320 family, with deliveries between 2018 and 2022, and 20 Airbus aircraft of the A350 family with dates delivery between 2018 and 2022. The approximate amount, according to manufacturer's list prices, is ThUS $ 12,600,000.
As of March 31, 2018, as a result of the different aircraft purchase agreements signed with The Boeing Company, there remain 8 Boeing 787 Dreamliner aircraft, with delivery dates between 2019 and 2021, and 2 Boeing 777 aircraft, with delivery planned for the year 2019. The approximate amount, according to manufacturer's list prices, is ThUS $ 2,800,000.
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(iii) | Capitalized interest costs with respect to Property, plant and equipment. |
For the periods ended | ||||||||||||
March 31, | ||||||||||||
2018 | 2017 | |||||||||||
Unaudited | ||||||||||||
Average rate of capitalization of capitalized interest costs | % | 4.47 | 3.62 | |||||||||
Costs of capitalized interest | ThUS$ | 5,456 | 3,583 |
(iv) | Financial leases |
The detail of the main financial leases is as follows:
Lessor | Aircraft | Model | As of March 31, 2018 | As of December 31, 2017 | ||||||||||||
Unaudited | ||||||||||||||||
Azalea Leasing Limited | Airbus A320 | 200 | 2 | — | ||||||||||||
Bailarin Leasing LLC | Boeing B787 | 800 | 2 | — | ||||||||||||
Bandurria Leasing Limitd | Airbus A319 | 100 | 3 | 3 | ||||||||||||
Bandurria Leasing Limitd | Airbus A320 | 200 | 4 | 4 | ||||||||||||
Becacina Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
Chucao Leasing Limited | Airbus A319 | 100 | 2 | — | ||||||||||||
Caiquen Leasing LLC | Boeing 767 | 300F | 1 | 1 | ||||||||||||
Cisne Leasing LLC | Boeing 767 | 300ER | 2 | 2 | ||||||||||||
Conure Leasing Limited | Airbus A320 | 200 | 2 | 2 | ||||||||||||
Flamenco Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
FLYAFI 1 S.R.L. | Boeing 777 | 300ER | 1 | 1 | ||||||||||||
FLYAFI 2 S.R.L. | Boeing 777 | 300ER | 1 | 1 | ||||||||||||
FLYAFI 3 S.R.L. | Boeing 777 | 300ER | 1 | 1 | ||||||||||||
Fragata Leasing LLC | Boeing B787 | 800 | 1 | — | ||||||||||||
Garza Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
Jilguero Leasing LLC | Boing B767 | 300ER | 3 | 3 | ||||||||||||
Loica Leasing Limited | Airbus A319 | 100 | 2 | 2 | ||||||||||||
Loica Leasing Limited | Airbus A320 | 200 | 2 | 2 | ||||||||||||
Manaca Leasing Limited | Airbus A320 | 200 | 1 | — | ||||||||||||
Mirlo Leasing LLC | Boeing 767 | 300ER | 1 | 1 | ||||||||||||
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM) | Airbus A320 | 200 | 1 | 1 | ||||||||||||
NBB São Paulo Lease CO. Limited (BBAM) | Airbus A321 | 200 | 1 | 1 | ||||||||||||
Osprey Leasing Limited | Airbus A319 | 100 | 8 | 8 | ||||||||||||
Patagon Leasing Limited | Airbus A319 | 100 | 3 | 3 | ||||||||||||
Petrel Leasing LLC | Boeing 767 | 300ER | — | 1 | ||||||||||||
Pochard Leasing LLC | Boeing 767 | 300ER | 2 | 2 | ||||||||||||
Quetro Leasing LLC | Boeing 767 | 300ER | 3 | 3 | ||||||||||||
SG Infraestructure Italia S.R.L. | Boeing 777 | 300ER | 1 | 1 | ||||||||||||
SL Alcyone LTD (Showa) | Airbus A320 | 200 | 1 | 1 | ||||||||||||
Tagua Leasing LLC | Boeing B767 | 300ER | 9 | — | ||||||||||||
Tiuque Leasing Limited | Airbus A319 | 100 | 1 | — | ||||||||||||
Tiuque Leasing Limited | Airbus A320 | 200 | 5 | — | ||||||||||||
Torcaza Leasing Limited | Airbus A320 | 200 | 8 | 8 | ||||||||||||
Tricahue Leasing LLC | Boeing 767 | 300ER | 3 | 3 | ||||||||||||
Wacapou Leasing S.A | Airbus A320 | 200 | 1 | 1 | ||||||||||||
Wells Fargo Bank North National Association | Airbus A319 | 100 | 1 | 1 | ||||||||||||
Total | 82 | 60 |
66
Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.
Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircrafts, perform maintenance on the aircrafts and update the airworthiness certificates at their own cost.
The assets acquired under the financial leasing modality are classified under Other property, plant and equipment. As of March 31, 2018, the Company registers under this modality eighty-two aircraft (sixty aircraft as of December 31, 2017).
The book value of the assets by financial leasing as of March 31, 2018, amounts to ThUS$ 3,268,822 (ThUS$ 2,107,526 as of December 31, 2017).
The minimum payments under financial leases are as follows:
As o f March 31, 2018 | As o f December 31, 2017 | |||||||||||||||||||||||
Gross Value | Interest | Present Value | Gross Value | Interest | Present Value | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
No later than one year | 291,050 | (31,733 | ) | 259,317 | 303,863 | (32,447 | ) | 271,416 | ||||||||||||||||
Between one and five years | 786,639 | (28,589 | ) | 758,050 | 835,696 | (30,050 | ) | 805,646 | ||||||||||||||||
Over five years | 25,243 | (669 | ) | 24,574 | 36,788 | (816 | ) | 35,972 | ||||||||||||||||
Total | 1,102,932 | (60,991 | ) | 1,041,941 | 1,176,347 | (63,313 | ) | 1,113,034 |
NOTE 18 - CURRENT AND DEFERRED TAXES
In the period ended March 31, 2018, the income tax provision was calculated for such period, applying the rate of 27% for the business year 2018, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.
Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System" is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System" the top rate would reach 25% in 2017.
As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System", unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System". This decision was taken in the last quarter of 2016.
On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System" and could not elect to use the other system.
67
The Partially Integrated Taxation System is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.
Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities always correspond to the same entity and tax authority.
(a) | Current taxes |
(a.1) | The composition of the current tax assets is the following: |
Current assets | Non- current assets | Total assets | ||||||||||||||||||||||
As of March 31, 2018 | As of December 31, 2017 | As of March 31, 2018 | As of December 31, 2017 | As of March 31, 2018 | As of December 31, 2017 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
Provisional monthly payments (advances) | 68,652 | 65,257 | — | — | 68,652 | 65,257 | ||||||||||||||||||
Other recoverable credits | 13,778 | 12,730 | 16,932 | 17,532 | 30,710 | 30,262 | ||||||||||||||||||
Total assets by current tax | 82,430 | 77,987 | 16,932 | 17,532 | 99,362 | 95,519 |
(a.2) | The composition of the current tax liabilities are as follows: |
Current liabilities | Non- current liabilities | Total liabilities | ||||||||||||||||||||||
As of March 31, 2018 | As of December 31, 2017 | As of March 31, 2018 | As of December 31, 2017 | As of March 31, 2018 | As of December 31, 2017 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
Income tax provision | 4,302 | 3,511 | — | — | 4,302 | 3,511 | ||||||||||||||||||
Additional tax provision | — | — | — | — | — | — | ||||||||||||||||||
Total liabilities by current tax | 4,302 | 3,511 | — | — | 4,302 | 3,511 |
(b) | Deferred taxes |
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The balances of deferred tax are the following:
Assets | Liabilities | |||||||||||||||
Concept | As of March 31, 2018 | As of December 31, 2017 | As of March 31, 2018 | As of December 31, 2017 | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Depreciation | 225,948 | 210,855 | 1,318,825 | 1,401,277 | ||||||||||||
Leased assets | (105,519 | ) | (103,201 | ) | 397,869 | 275,142 | ||||||||||
Amortization | (1,113 | ) | (484 | ) | 54,776 | 54,335 | ||||||||||
Provisions | (18,972 | ) | (9,771 | ) | 15,648 | 690 | ||||||||||
Revaluation of financial instruments | — | (734 | ) | (7,779 | ) | (4,484 | ) | |||||||||
Tax losses | 275,344 | 290,973 | (1,205,035 | ) | (1,188,586 | ) | ||||||||||
Intangibles | — | — | 378,964 | 406,536 | ||||||||||||
Others | 1,134 | (23,617 | ) | 8,710 | 4,787 | |||||||||||
Total | 376,822 | 364,021 | 961,978 | 949,697 |
The balance of deferred tax assets and liabilities are composed primarily of temporary differences to be reversed in the long term.
Movements of Deferred tax assets and liabilities
(a) From January 1 to March 31, 2017 (Unaudited)
Opening balance Assets /(liabilities) | Recognized in consolidated income | Recognized in comprehensive income | Exchange rate variation | Ending balance Asset (liability) | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Depreciation | (1,376,025 | ) | (144,697 | ) | — | (623 | ) | (1,521,345 | ) | |||||||||||
Leased assets | (239,758 | ) | 32,673 | — | (569 | ) | (207,654 | ) | ||||||||||||
Amortization | (77,480 | ) | 13,296 | — | (336 | ) | (64,520 | ) | ||||||||||||
Provisions | 281,369 | 24,476 | (1,040 | ) | 9,253 | 314,058 | ||||||||||||||
Revaluation of financial instruments | 3,223 | 2,666 | (720 | ) | 232 | 5,401 | ||||||||||||||
Tax losses (*) | 1,328,736 | 31,278 | — | 2,434 | 1,362,448 | |||||||||||||||
Revaluation propety, plant and equipment | — | (1,074 | ) | — | 1,074 | — | ||||||||||||||
Intangibles | (430,705 | ) | 23,483 | — | (12,208 | ) | (419,430 | ) | ||||||||||||
Others | (20,539 | ) | (7,916 | ) | — | 618 | (27,837 | ) | ||||||||||||
Total | (531,179 | ) | (25,815 | ) | (1,760 | ) | (125 | ) | (558,879 | ) |
69
(b) From April 1 to December 31, 2017
Opening | Recognized in | Recognized in | Exchange | Ending | ||||||||||||||||
balance | consolidated | comprehensive | rate | balance | ||||||||||||||||
Assets /(liabilities) | income | income | variation | Asset (liability) | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Depreciation | (1,521,345 | ) | 329,979 | — | 945 | (1,190,421 | ) | |||||||||||||
Leased assets | (207,654 | ) | (171,552 | ) | — | 863 | (378,343 | ) | ||||||||||||
Amortization | (64,520 | ) | 9,190 | — | 510 | (54,820 | ) | |||||||||||||
Provisions | 314,058 | (310,743 | ) | 255 | (14,031 | ) | (10,461 | ) | ||||||||||||
Revaluation of financial instruments | 5,401 | (249 | ) | (1,050 | ) | (352 | ) | 3,750 | ||||||||||||
Tax losses (*) | 1,362,448 | 120,803 | — | (3,691 | ) | 1,479,560 | ||||||||||||||
Intangibles | (419,430 | ) | 953 | — | 11,941 | (406,536 | ) | |||||||||||||
Others | (27,837 | ) | 369 | — | (937 | ) | (28,405 | ) | ||||||||||||
Total | (558,879 | ) | (21,250 | ) | (795 | ) | (4,752 | ) | (585,676 | ) |
(a) From January 1 to March 31, 2018 (Unaudited)
Opening | Recognized in | Recognized in | Exchange | Ending | ||||||||||||||||
balance | consolidated | comprehensive | rate | balance | ||||||||||||||||
Assets /(liabilities) | income | income | variation | Asset (liability) | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Depreciation | (1,190,421 | ) | 97,442 | — | 102 | (1,092,877 | ) | |||||||||||||
Leased assets | (378,343 | ) | (125,138 | ) | — | 93 | (503,388 | ) | ||||||||||||
Amortization | (54,820 | ) | (1,124 | ) | — | 55 | (55,889 | ) | ||||||||||||
Provisions | (10,461 | ) | (22,385 | ) | (260 | ) | (1,514 | ) | (34,620 | ) | ||||||||||
Revaluation of financial instruments | 3,750 | 6,364 | (2,297 | ) | (38 | ) | 7,779 | |||||||||||||
Tax losses (*) | 1,479,560 | 1,217 | — | (398 | ) | 1,480,379 | ||||||||||||||
Intangibles | (406,536 | ) | 29,721 | — | (2,150 | ) | (378,965 | ) | ||||||||||||
Others | (28,405 | ) | 20,931 | — | (101 | ) | (7,575 | ) | ||||||||||||
Total | (585,676 | ) | 7,028 | (2,557 | ) | (3,951 | ) | (585,156 | ) |
Deferred tax assets not recognized: | As of | As of | ||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Tax losses | 82,500 | 81,155 | ||||||
Total Deferred tax assets not recognized | 82,500 | 81,155 |
Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization of future tax benefit By the above at March 31, 2018, the Company has not recognized deferred tax assets of ThUS$ 82,500 (ThUS$ 81,155 at December 31, 2017) according with a loss of ThUS$ 252,120 (ThUS$ 247,920 at December 31, 2017).
70
Deferred tax expense and current income taxes:
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Current tax expense | ||||||||
Current tax expense | 39,695 | 23,815 | ||||||
Adjustment to previous period’s current tax | — | 1,267 | ||||||
Total current tax expense, net | 39,695 | 25,082 | ||||||
Deferred tax expense | ||||||||
Deferred expense for taxes related to the creation and reversal of temporary differences | 7,028 | 28,387 | ||||||
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness | — | 19 | ||||||
Total deferred tax expense, net | 7,028 | 28,406 | ||||||
Income tax expense | 46,723 | 53,488 |
Composition of income tax expense (income):
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Current tax expense, net, foreign | 38,965 | 23,900 | ||||||
Current tax expense, net, Chile | 730 | 1,201 | ||||||
Total current tax expense, net | 39,695 | 25,101 | ||||||
Deferred tax expense, net, foreign | (208 | ) | (8,307 | ) | ||||
Deferred tax expense, net, Chile | 7,236 | 36,694 | ||||||
Deferred tax expense, net, total | 7,028 | 28,387 | ||||||
Income tax expense | 46,723 | 53,488 |
Profit before tax by the legal tax rate in Chile (27% and 25.5% at March 31, 2018 and 2017, respectively)
71
For the period ended | For the period ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | % | % | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Tax expense using the legal rate (*) | 41,660 | 32,712 | 27.00 | 25.50 | ||||||||||||
Tax effect by change in tax rate (*) | — | — | — | — | ||||||||||||
Tax effect of rates in other jurisdictions | 6,627 | 8,903 | 4.30 | 6.94 | ||||||||||||
Tax effect of non-taxable operating revenues | 97 | (44,658 | ) | 0.06 | (34.81 | ) | ||||||||||
Tax effect of disallowable expenses | 4,023 | 71,862 | 2.61 | 56.02 | ||||||||||||
Tax effect of the use of tax losses not previously recognized | 1,087 | (10,423 | ) | 0.70 | (8.13 | ) | ||||||||||
Other increases (decreases) in legal tax charge | (6,771 | ) | (4,908 | ) | (4.39 | ) | (3.83 | ) | ||||||||
Total adjustments to tax expense using the legal | 5,063 | 20,776 | 3.28 | 16.19 | ||||||||||||
Tax expense using the effective rate | 46,723 | 53,488 | 30.28 | 41.69 |
(*) On September 29, 2014, Law No. 20,780 “Amendment to the system of income taxation and introduces various adjustments in the tax system.” was published in the Official Journal of the Republic of Chile. Within major tax reforms that this law contains, the First- Category Tax rate is gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.
Thus, at March 31, 2018 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.
Deferred taxes related to items charged to net equity:
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Aggregate deferred taxation of components of other comprehensive income | 2,557 | (1,760 | ) |
72
NOTE 19 - OTHER FINANCIAL LIABILITIES
The composition of other financial liabilities is as follows:
As of | As of | ||||||||||
March 31, | December 31, | ||||||||||
2018 | 2017 | ||||||||||
ThUS$ | ThUS$ | ||||||||||
Unaudited | |||||||||||
Current | |||||||||||
(a) | Interest bearing loans | 1,293,111 | 1,288,749 | ||||||||
(b) | Hedge derivatives | 6,239 | 12,200 | ||||||||
Total current | 1,299,350 | 1,300,949 | |||||||||
Non-current | |||||||||||
(a) | Interest bearing loans | 6,347,199 | 6,602,891 | ||||||||
(b) | Hedge derivatives | 1,615 | 2,617 | ||||||||
Total non-current | 6,348,814 | 6,605,508 |
(a) Interest bearing loans
Obligations with credit institutions and debt instruments:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Current | ||||||||
Loans to exporters | 325,648 | 314,618 | ||||||
Bank loans (1) | 44,722 | 59,017 | ||||||
Guaranteed obligations | 404,399 | 531,173 | ||||||
Other guaranteed obligations | 2,228 | 2,170 | ||||||
Subtotal bank loans | 776,997 | 906,978 | ||||||
Obligation with the public (2) | 42,157 | 14,785 | ||||||
Financial leases | 382,229 | 276,541 | ||||||
Other loans | 91,728 | 90,445 | ||||||
Total current | 1,293,111 | 1,288,749 | ||||||
Non-current | ||||||||
Bank loans | 260,382 | 260,433 | ||||||
Guaranteed obligations (3) (7) | 2,690,125 | 3,505,669 | ||||||
Other guaranteed obligations | 240,220 | 240,007 | ||||||
Subtotal bank loans | 3,190,727 | 4,006,109 | ||||||
Obligation with the public (4) (5) (6) | 1,578,813 | 1,569,281 | ||||||
Financial leases (7) | 1,406,018 | 832,964 | ||||||
Other loans | 171,641 | 194,537 | ||||||
Total non-current | 6,347,199 | 6,602,891 | ||||||
Total obligations with financial institutions | 7,640,310 | 7,891,640 |
73
(1) On September 29, 2016 TAM Linhas Aéreas S.A. obtained financing for US$ 200 million, guaranteed with 18% of the shares of Multiplus S.A., percentage adjustable depending on the shares price. Additionally, TAM obtained a hedging economic (Cross Currency Swap) for the same amount and period, in order to convert the commitment currency from US$ to BRL.
On March 30, 2017, TAM Linhas Aéreas S.A. restructured the financing mentioned in the previous paragraph, modifying the nominal amount of the transaction to US $ 137 million.
On September 27, 2017, TAM Linhas Aéreas S.A. made the payment of capital plus interest corresponding to the last installment of the financing described above. Simultaneously, all the garments were lifted on the shares of Multiplus S.A. delivered as collateral.
(2) On April 25, 2017, the payment of the principal plus interest on the long-term bonds issued by the company TAM Capital Inc. for an amount of US$ 300,000,000 at an interest rate of 7.375% annual. The payment consisted of 100% of the capital, US$ 300,000,000, and interest accrued as of the date of payment for ThUS $ 11,063.
(3) On April 10, 2017, the issuance and private placement of debt securities in the amount of US$ 140,000,000 was made under the current structure of the Enhanced Equipment Trust Certificates (“EETC”) issued and placed the year 2015 to finance the acquisition of eleven Airbus A321-200, two Airbus A350-900 and four Boeing 787-9 with arrivals between July 2015 and April 2016. The offer is made up of Class C Certificates, which are subordinate to the Current Class A Certificates and Class B Certificates held by the Company. The term of the Class C Certificates is six years and expires in 2023.
(4) On April 11, 2017, LATAM Finance Limited, a company incorporated in the Cayman Islands with limited liability and exclusively owned by LATAM Airlines Group SA, has issued and placed on the international market, pursuant to Rule 144 -A and Regulation S of the securities laws of the United States of America, long-term unsecured bonds in the amount of US$ 700,000,000, maturing in 2024 at an annual interest rate of 6.875%.
As reported in the essential fact of April 6, 2017, the Issue and placement of the 144-A Bonds was intended to finance general corporate purposes of LATAM.
(5) On August 17, 2017, LATAM made the placement in the local market (Santiago Stock Exchange) of the Series A Bonds (BLATM-A), Series B (BLATM-B), Series C (BLATM-) C) and Series D (BLATM-D), which correspond to the first issue of bonds charged to the line inscribed in the Securities Registry of the Commission for the Financial Market (“CMF”), under number 862 for a total of UF 9,000,000.
The total amount placed of the Series A Bond was UF 2,500,000; The total amount placed of the Series B Bond was UF 2,500,000. The total amount placed of the Series C Bond was UF 1,850,000. The total amount placed of the Series D Bond was UF 1,850,000, thus totaling UF 8,700,000.
The Series A Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series B Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%. The Series C Bonds have an expiration date on June 1, 2022 and an annual interest rate of 5.25%. The Series D Bonds have an expiration date on January 1, 2028 and an annual interest rate of 5.75%.
74
The proceeds of the placement of the Series A, Series B, Series C and Series D Bonds were allocated in full to the partial financing of the early redemption of the total bonds of TAM Capital 3 inc.
(6) On September 1, 2017, TAM Capital 3 Inc., a company controlled indirectly by TAM S.A. through its subsidiary TAM Linhas Aéreas SA, which consolidates its financial statements with LATAM, made the full advance redemption of the bonds it placed abroad on June 3, 2011, for an amount of US $ 500 million at a 8.375% rate and with an expiration date on June 3, 2021. The total redemption was partially financed with the placement of bonds in the local market described in number (5) above, and the balance, with other funds available from the Company.
(7) In the period ended March 31, 2018, the Company sold its interest in seven special purposes companies. As a result of this, the classification of the financial liabilities associated with 23 aircraft from guaranteed obligations to financial leases was modified.
All interest-bearing liabilities are recorded according to the effective rate method. Under IFRS, in the case of fixed rate loans, the effective rate determined does not vary over the duration of the loan, whereas in variable rate loans, the effective rate changes to the date of each payment of interest.
Currency balances that make the interest bearing loans:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
Currency | ThUS$ | ThUS$ | ||||||
Unaudited | ||||||||
Brazilian real | 8 | 130 | ||||||
Chilean peso (U.F.) | 518,150 | 521,122 | ||||||
US Dollar | 7,122,152 | 7,370,388 | ||||||
Total | 7,640,310 | 7,891,640 |
75
Interest-bearing loans due in installments to March 31, 2018 (Unaudited)
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Nominal values | Accounting values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | ThUS$ | — | 75,000 | — | — | — | 75,000 | — | 75,401 | — | — | — | 75,401 | At Expiration | 2.64 | 2.64 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | UF | — | 57,206 | — | — | — | 57,206 | 522 | 57,206 | — | — | — | 57,728 | At Expiration | 3.57 | 2.77 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 40,000 | — | — | — | — | 40,000 | 40,068 | — | — | — | — | 40,068 | At Expiration | 2.67 | 2.67 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | ThUS$ | 40,000 | — | — | — | — | 40,000 | 40,006 | — | — | — | — | 40,006 | At Expiration | 2.73 | 2.73 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | ThUS$ | 100,000 | — | — | — | — | 100,000 | 100,437 | — | — | — | — | 100,437 | At Expiration | 2.73 | 2.73 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.951.000-4 | HSBC | Chile | ThUS$ | 12,000 | — | — | — | — | 12,000 | 12,008 | — | — | — | — | 12,008 | At Expiration | 2.32 | 2.32 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 9,594 | 18,456 | 36,912 | — | — | 64,962 | 9,674 | 18,456 | 36,631 | — | — | 64,761 | Quarterly | 3.43 | 3.43 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BLADEX | U.S.A. | ThUS$ | 7,500 | 7,500 | 15,000 | — | — | 30,000 | 8,082 | 7,500 | 14,750 | — | — | 30,332 | Semiannual | 5.51 | 5.51 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | — | — | 207,288 | — | — | 207,288 | 459 | — | 207,288 | — | — | 207,747 | Quarterly | 4.98 | 4.98 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | ThUS$ | — | — | 500,000 | — | 700,000 | 1,200,000 | 22,857 | 12,172 | 492,745 | — | 697,535 | 1,225,309 | At Expiration | 7.44 | 7.03 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | UF | — | — | — | 194,412 | 194,411 | 388,823 | 7,128 | — | — | 194,267 | 194,266 | 395,661 | At Expiration | 5.50 | 5.50 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS$ | 7,876 | 23,740 | 49,773 | 8,935 | — | 90,324 | 8,217 | 23,740 | 48,926 | 8,935 | — | 89,818 | Quarterly | 3.00 | 2.56 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 16,380 | 39,119 | 115,349 | 119,530 | 273,913 | 564,291 | 20,550 | 39,481 | 111,883 | 117,578 | 271,361 | 560,853 | Quarterly | 3.68 | 3.68 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 6,344 | 19,197 | 52,422 | 54,261 | 63,321 | 195,545 | 7,343 | 19,197 | 45,243 | 51,331 | 61,902 | 185,016 | Quarterly | 2.17 | 1.82 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST | U.S.A. | ThUS$ | 20,491 | 61,866 | 177,033 | 185,485 | 569,551 | 1,014,426 | 26,551 | 61,866 | 171,359 | 182,786 | 566,471 | 1,009,033 | Quarterly | 4.48 | 4.48 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 10,546 | 32,087 | 89,041 | 86,201 | 83,347 | 301,222 | 11,714 | 32,087 | 83,726 | 83,736 | 81,262 | 292,525 | Quarterly | 3.57 | 2.69 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | ThUS$ | 15,244 | 46,254 | 127,272 | 133,197 | 135,710 | 457,677 | 17,381 | 46,254 | 110,983 | 126,153 | 132,042 | 432,813 | Quarterly | 4.00 | 2.82 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 13,332 | 40,868 | 97,463 | 84,514 | 145,406 | 381,583 | 14,290 | 40,868 | 95,502 | 83,538 | 143,797 | 377,995 | Quarterly | 3.96 | 3.94 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | PK AIRFINANCE | U.S.A. | ThUS$ | 2,202 | 6,840 | 20,091 | 15,204 | — | 44,337 | 2,268 | 6,840 | 20,091 | 15,204 | — | 44,403 | Monthly | 3.49 | 3.49 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | ThUS$ | 1,654 | 5,052 | 10,516 | — | — | 17,222 | 1,682 | 5,052 | 10,516 | — | — | 17,250 | Quarterly | 3.54 | 3.54 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | ThUS$ | 1,870 | 5,699 | 13,501 | — | — | 21,070 | 1,912 | 5,699 | 13,501 | — | — | 21,112 | Monthly | 3.35 | 3.35 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | INVESTEC | England | ThUS$ | 3,246 | 6,198 | 20,613 | 23,172 | 8,776 | 62,005 | 4,153 | 6,311 | 19,996 | 22,979 | 8,753 | 62,192 | Semiannual | 6.19 | 6.19 | ||||||||||||||||||||||||||||||||||||||||||||||||||
- | SWAP Aircraft arrive | — | ThUS$ | 276 | 667 | 571 | — | — | 1,514 | 276 | 667 | 571 | — | — | 1,514 | Quarterly | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS$ | — | — | 241,287 | — | — | 241,287 | 2,228 | — | 240,220 | — | — | 242,448 | At Expiration | 3.56 | 3.56 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | ThUS$ | 3,552 | 10,914 | 23,143 | — | — | 37,609 | 3,872 | 10,914 | 22,865 | — | — | 37,651 | Quarterly | 5.70 | 5.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 12,872 | 39,247 | 93,699 | 59,968 | 5,282 | 211,068 | 13,741 | 39,247 | 91,366 | 59,544 | 5,266 | 209,164 | Quarterly | 3.94 | 3.34 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | PEFCO | U.S.A. | ThUS$ | 12,696 | 25,640 | 16,921 | — | — | 55,257 | 13,070 | 25,640 | 16,659 | — | — | 55,369 | Quarterly | 5.49 | 4.87 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 13,322 | 27,643 | 43,994 | — | — | 84,959 | 13,723 | 27,643 | 43,514 | — | — | 84,880 | Quarterly | 3.77 | 3.37 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 29,228 | 88,688 | 239,325 | 214,064 | 140,411 | 711,716 | 31,678 | 88,688 | 224,687 | 208,565 | 138,361 | 691,979 | Quarterly | 2.74 | 1.99 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 5,492 | 16,627 | 45,655 | 43,005 | 786 | 111,565 | 5,877 | 16,627 | 44,339 | 42,749 | 785 | 110,377 | Quarterly | 2.94 | 2.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | RRPF ENGINE | England | ThUS$ | 804 | 2,463 | 6,950 | 7,543 | 7,690 | 25,450 | 804 | 2,463 | 6,950 | 7,543 | 7,690 | 25,450 | Monthly | 4.01 | 4.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | APPLE BANK | U.S.A. | ThUS$ | 1,422 | 4,300 | 11,907 | 12,556 | 5,636 | 35,821 | 1,613 | 4,300 | 11,408 | 12,404 | 5,618 | 35,343 | Quarterly | 3.17 | 2.57 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | ThUS$ | 2,886 | 8,735 | 24,166 | 25,439 | 10,652 | 71,878 | 3,129 | 8,735 | 23,167 | 25,140 | 10,617 | 70,788 | Quarterly | 3.38 | 2.79 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | DEUTSCHE BANK | U.S.A. | ThUS$ | 3,020 | 9,206 | 26,113 | 28,516 | 27,087 | 93,942 | 3,611 | 9,206 | 25,417 | 28,052 | 26,681 | 92,967 | Quarterly | 4.85 | 4.85 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 1,497 | 3,633 | 13,553 | 3,804 | — | 22,487 | 1,586 | 3,633 | 13,553 | 3,804 | — | 22,576 | Quarterly | 3.73 | 3.73 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | ThUS$ | 768 | 1,367 | 4,030 | 1,103 | — | 7,268 | 771 | 1,367 | 4,030 | 1,103 | — | 7,271 | Quarterly | 4.15 | 4.15 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | ThUS$ | 21,951 | 69,075 | 173,043 | — | — | 264,069 | 22,653 | 69,075 | 171,641 | — | — | 263,369 | Quarterly | 6.00 | 6.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 418,065 | 753,287 | 2,496,631 | 1,300,909 | 2,371,979 | 7,340,871 | 475,934 | 766,335 | 2,423,527 | 1,275,411 | 2,352,407 | 7,293,614 |
(*) Securitized bond with the future flows from the sales with credit card in United States and Canada.
76
Interest-bearing loans due in installments to March 31, 2018 (Unaudited)
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Nominal values | Accounting values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | Creditor country | Currency | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90 days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NEDERLANDSCHE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CREDIETVERZEKERING MAATSCHAPPIJ | Holland | ThUS$ | 132 | 408 | 1,179 | 534 | — | 2,253 | 143 | 408 | 1,179 | 534 | — | 2,264 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 1,557 | 7,585 | 41,739 | 45,302 | — | 96,183 | 1,906 | 7,585 | 41,739 | 45,302 | — | 96,532 | Quarterly/ Semiannual | 6.18 | 6.18 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WACAPOU LEASING S.A. | Luxemburg | ThUS$ | 701 | 2,152 | 6,081 | 2,417 | — | 11,351 | 736 | 2,152 | 6,081 | 2,417 | — | 11,386 | Quarterly | 4.31 | 4.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | ThUS$ | 9,093 | 27,854 | 198,802 | — | — | 235,749 | 10,050 | 27,854 | 198,602 | — | — | 236,506 | Quarterly | 5.49 | 5.43 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | SOCIETE GENERALE | France | BRL | 8 | — | — | — | — | 8 | 8 | — | — | — | — | 8 | Monthly | 6.39 | 6.39 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 11,491 | 37,999 | 247,801 | 48,253 | — | 345,544 | 12,843 | 37,999 | 247,601 | 48,253 | — | 346,696 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total consolidado | 429,556 | 791,286 | 2,744,432 | 1,349,162 | 2,371,979 | 7,686,415 | 488,777 | 804,334 | 2,671,128 | 1,323,664 | 2,352,407 | 7,640,310 |
77
Interest-bearing loans due in installments to December 31, 2017
Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.
Nominal values | Accounting values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | Creditor country | Currency | Up to 90days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans to exporters | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | ThUS$ | 75,000 | — | — | — | — | 75,000 | 75,781 | — | — | — | — | 75,781 | At Expiration | 2.30 | 2.30 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.032.000-8 | BBVA | Chile | UF | — | 55,801 | — | — | — | 55,801 | — | 55,934 | — | — | — | 55,934 | At Expiration | 3.57 | 2.77 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 30,000 | — | — | — | — | 30,000 | 30,129 | — | — | — | — | 30,129 | At Expiration | 2.49 | 2.49 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | ThUS$ | 40,000 | — | — | — | — | 40,000 | 40,071 | — | — | — | — | 40,071 | At Expiration | 2.57 | 2.57 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.003.000-K | BANCO DO BRASIL | Chile | ThUS$ | 100,000 | — | — | — | — | 100,000 | 100,696 | — | — | — | — | 100,696 | At Expiration | 2.40 | 2.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.951.000-4 | HSBC | Chile | ThUS$ | 12,000 | — | — | — | — | 12,000 | 12,007 | — | — | — | — | 12,007 | At Expiration | 2.03 | 2.03 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
97.023.000-9 | CORPBANCA | Chile | UF | 21,298 | 21,360 | 42,006 | — | — | 84,664 | 21,542 | 21,360 | 41,548 | — | — | 84,450 | Quarterly | 3.68 | 3.68 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BLADEX | U.S.A. | ThUS$ | — | 15,000 | 15,000 | — | — | 30,000 | — | 15,133 | 14,750 | — | — | 29,883 | Semiannual | 5.51 | 5.51 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | — | — | 202,284 | — | — | 202,284 | 439 | — | 202,284 | — | — | 202,723 | Quarterly | 4.41 | 4.41 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Obligations with the public | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BANK OF NEW YORK | U.S.A. | ThUS$ | — | — | 500,000 | — | 700,000 | 1,200,000 | — | 13,047 | 492,745 | — | 697,536 | 1,203,328 | At Expiration | 7.44 | 7.03 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.030.000-7 | ESTADO | Chile | UF | — | — | — | 189,637 | 189,637 | 379,274 | — | 1,738 | 189,500 | 189,500 | 380,738 | At Expiration | 5.50 | 5.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS$ | 7,767 | 23,840 | 54,074 | 12,410 | — | 98,091 | 8,101 | 23,840 | 52,924 | 12,026 | — | 96,891 | Quarterly | 2.66 | 2.22 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 10,929 | 44,145 | 114,800 | 119,948 | 285,399 | 575,221 | 13,328 | 44,781 | 111,319 | 117,987 | 282,714 | 570,129 | Quarterly | 3.41 | 3.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 27,223 | 82,402 | 225,221 | 233,425 | 240,716 | 808,987 | 30,143 | 82,402 | 203,371 | 224,295 | 236,179 | 776,390 | Quarterly | 2.46 | 1.75 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WILMINGTON TRUST | U.S.A. | ThUS$ | 20,427 | 61,669 | 175,334 | 183,332 | 594,091 | 1,034,853 | 26,614 | 61,669 | 169,506 | 180,520 | 590,723 | 1,029,032 | Quarterly | 4.48 | 4.48 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 11,994 | 36,501 | 101,230 | 104,308 | 97,184 | 351,217 | 13,231 | 36,501 | 95,208 | 101,558 | 94,807 | 341,305 | Quarterly | 3.31 | 2.47 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BTMU | U.S.A. | ThUS$ | 2,856 | 8,689 | 24,007 | 25,278 | 13,904 | 74,734 | 3,082 | 8,689 | 22,955 | 24,941 | 13,849 | 73,516 | Quarterly | 2.87 | 2.27 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | APPLE BANK | U.S.A. | ThUS$ | 1,401 | 4,278 | 11,828 | 12,474 | 7,242 | 37,223 | �� | 1,583 | 4,278 | 11,303 | 12,303 | 7,212 | 36,679 | Quarterly | 2.78 | 2.18 | |||||||||||||||||||||||||||||||||||||||||||||||||
0-E | US BANK | U.S.A. | ThUS$ | 15,157 | 45,992 | 126,550 | 132,441 | 152,693 | 472,833 | 17,364 | 45,992 | 109,705 | 125,006 | 148,318 | 446,385 | Quarterly | 4.00 | 2.82 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | DEUTSCHE BANK | U.S.A. | ThUS$ | 2,965 | 9,127 | 25,826 | 28,202 | 30,786 | 96,906 | 3,534 | 9,127 | 25,130 | 27,739 | 30,323 | 95,853 | Quarterly | 4.39 | 4.39 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 14,645 | 44,627 | 107,068 | 91,823 | 154,848 | 413,011 | 15,642 | 44,627 | 105,056 | 90,823 | 153,124 | 409,272 | Quarterly | 3.42 | 3.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | PK AIRFINANCE | U.S.A. | ThUS$ | 2,163 | 6,722 | 19,744 | 17,871 | — | 46,500 | 2,225 | 6,722 | 19,744 | 17,871 | — | 46,562 | Monthly | 3.18 | 3.18 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | KFW IPEX-BANK | Germany | ThUS$ | 2,397 | 6,678 | 16,173 | 1,640 | — | 26,888 | 2,428 | 6,677 | 16,174 | 1,640 | — | 26,919 | Quarterly | 3.31 | 3.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | AIRBUS FINANCIAL | U.S.A. | ThUS$ | 1,855 | 5,654 | 15,416 | — | — | 22,925 | 1,900 | 5,654 | 15,416 | — | — | 22,970 | Monthly | 3.19 | 3.19 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | INVESTEC | England | ThUS$ | 1,374 | 7,990 | 20,440 | 22,977 | 10,597 | 63,378 | 1,808 | 8,181 | 19,801 | 22,769 | 10,565 | 63,124 | Semiannual | 6.04 | 6.04 | ||||||||||||||||||||||||||||||||||||||||||||||||||
- | SWAP Aviones llegados | — | ThUS$ | 301 | 749 | 765 | — | — | 1,815 | 301 | 749 | 765 | — | — | 1,815 | Quarterly | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other guaranteed obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CREDIT AGRICOLE | France | ThUS$ | — | — | 241,287 | — | — | 241,287 | 2,170 | — | 240,007 | — | — | 242,177 | At Expiration | 3.38 | 3.38 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | ING | U.S.A. | ThUS$ | 5,347 | 10,779 | 26,831 | — | — | 42,957 | 5,717 | 10,779 | 26,500 | — | — | 42,996 | Quarterly | 5.67 | 5.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK | U.S.A. | ThUS$ | 11,206 | 34,267 | 86,085 | 49,853 | 2,863 | 184,274 | 12,013 | 34,267 | 84,104 | 49,516 | 2,859 | 182,759 | Quarterly | 3.78 | 3.17 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | PEFCO | U.S.A. | ThUS$ | 12,526 | 32,850 | 22,407 | — | — | 67,783 | 12,956 | 32,850 | 22,088 | — | — | 67,894 | Quarterly | 5.46 | 4.85 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BNP PARIBAS | U.S.A. | ThUS$ | 13,146 | 33,840 | 48,823 | 2,296 | — | 98,105 | 13,548 | 33,840 | 48,253 | 2,293 | — | 97,934 | Quarterly | 3.66 | 3.25 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WELLS FARGO | U.S.A. | ThUS$ | 10,630 | 33,866 | 91,162 | 64,471 | 20,984 | 221,113 | 11,460 | 33,866 | 88,674 | 63,860 | 20,903 | 218,763 | Quarterly | 3.17 | 2.67 | ||||||||||||||||||||||||||||||||||||||||||||||||||
97.036.000-K | SANTANDER | Chile | ThUS$ | 5,459 | 16,542 | 45,416 | 46,472 | 3,134 | 117,023 | 5,813 | 16,542 | 44,010 | 46,153 | 3,128 | 115,646 | Quarterly | 2.51 | 1.96 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | RRPF ENGINE | England | ThUS$ | 265 | 2,430 | 6,856 | 7,441 | 8,991 | 25,983 | 265 | 2,430 | 6,856 | 7,441 | 8,991 | 25,983 | Monthly | 4.01 | 4.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | CITIBANK (*) | U.S.A. | ThUS$ | 21,822 | 67,859 | 196,210 | — | — | 285,891 | 22,586 | 67,859 | 194,537 | — | — | 284,982 | Quarterly | 6.00 | 6.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 482,153 | 713,657 | 2,562,843 | 1,346,299 | 2,513,069 | 7,618,021 | 508,477 | 729,534 | 2,484,733 | 1,318,241 | 2,490,731 | 7,531,716 |
78
Interest-bearing loans due in installments to December 31, 2017
Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.
Nominal values | Accounting values | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax No. | Creditor | Creditor country | Currency | Up to 90days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total nominal value | Up to 90days | More than 90 days to one year | More than one to three years | More than three to five years | More than five years | Total accounting value | Amortization | Effective rate | Nominal rate | ||||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NEDERLANDSCHE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CREDIETVERZEKERING MAATSCHAPPIJ | Holland | ThUS$ | 130 | 401 | 1,161 | 690 | — | 2,382 | 142 | 401 | 1,161 | 690 | — | 2,394 | Monthly | 6.01 | 6.01 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Financial leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | NATIXIS | France | ThUS$ | 2,853 | 6,099 | 19,682 | 70,402 | — | 99,036 | 3,592 | 6,099 | 19,682 | 70,402 | — | 99,775 | Quarterly/ Semiannual | 5.59 | 5.59 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | WACAPOU LEASING S.A. | Luxemburg | ThUS$ | 696 | 2,125 | 6,020 | 3,206 | — | 12,047 | 732 | 2,125 | 6,020 | 3,207 | — | 12,084 | Quarterly | 3.69 | 3.69 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | SOCIÉTÉ GÉNÉRALE MILAN BRANCH | Italy | ThUS$ | 8,964 | 27,525 | 208,024 | — | — | 244,513 | 9,992 | 27,525 | 208,024 | — | — | 245,541 | Quarterly | 4.87 | 4.81 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | BANCO IBM S.A | Brazil | BRL | 21 | — | — | — | — | 21 | 21 | — | — | — | — | 21 | Monthly | 6.89 | 6.89 | ||||||||||||||||||||||||||||||||||||||||||||||||||
0-E | SOCIETE GENERALE | France | BRL | 101 | 8 | — | — | — | 109 | 101 | 8 | — | — | — | 109 | Monthly | 6.89 | 6.89 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 12,765 | 36,158 | 234,887 | 74,298 | — | 358,108 | 14,580 | 36,158 | 234,887 | 74,299 | — | 359,924 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total consolidated | 494,918 | 749,815 | 2,797,730 | 1,420,597 | 2,513,069 | 7,976,129 | 523,057 | 765,692 | 2,719,620 | 1,392,540 | 2,490,731 | 7,891,640 |
79
(b) | Hedge derivatives |
Current liabilities | Non-current liabilities | Total hedge derivatives | ||||||||||||||||||||||
As of March 31, 2018 | As of December 31, 2017 | As of December 31, 2018 | As of December 31, 2017 | As of December 31, 2018 | As of December 31, 2017 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
Accrued interest from the last date of interest rate swap | 2,664 | 1,189 | — | — | 2,664 | 1,189 | ||||||||||||||||||
Fair value of interest rate derivatives | 3,256 | 8,919 | 1,615 | 2,617 | 4,871 | 11,536 | ||||||||||||||||||
Fair value of foreign currency derivatives | 319 | 2,092 | — | — | 319 | 2,092 | ||||||||||||||||||
Total hedge derivatives | 6,239 | 12,200 | 1,615 | 2,617 | 7,854 | 14,817 |
The foreign currency derivatives correspond to options, forwards and swaps.
Hedging operation
The fair values of net assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below:
As of March 31, 2018 | As of December 31, 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Cross currency swaps (CCS) (1) | 61,616 | 38,875 | ||||||
Interest rate swaps (2) | (4,981 | ) | (6,542 | ) | ||||
Fuel options (3) | 14,330 | 10,711 | ||||||
Currency options R$/US$ (4) | 3,723 | 4,370 | ||||||
Currency options CLP/US$ (4) | 626 | 636 |
(1) | Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate and the exchange rate US$/UF of bank loans. These contracts are recorded as cash flow hedges and fair value. |
(2) | Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3 months LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedges. |
(3) | Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges. |
(4) | Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$, US$/EUR and US$/GBP. These contracts are recorded as cash flow hedges. |
During the periods presented, the Company only has cash flow and fair value hedges (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will occur and will impact results in the next 3 months from the date of the consolidated statement of financial position, while in the case of hedges of interest rates, these they will occur and will impact results throughout the life of the associated loans, up to their maturity. In the case of currency hedges through a CCS, there is a group of hedging relationships, in which two types of hedge accounting are generated, one of cash flow for the US $ / UF component; and another of fair value, for the floating rate component US $. The other group of hedging relationships only generates cash flow hedge accounting for the US $ / UF component.
80
During the periods presented, no hedging operations of future highly probable transaction that have not been realized have occurred.
Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.
The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:
For the period ended March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Debit (credit) recognized in comprehensive income during the period | 15,533 | (4,879 | ) | |||||
Debit (credit) transferred from net equity to income during the period | 4,097 | (18,653 | ) |
NOTE 20 - TRADE AND OTHER ACCOUNTS PAYABLES
The composition of Trade and other accounts payables is as follows:
As of March 31, 2018 | As of December 31, 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Current | ||||||||
(a) Trade and other accounts payables | 1,328,352 | 1,349,201 | ||||||
(b) Accrued liabilities at the reporting date | 345,592 | 346,001 | ||||||
Total trade and other accounts payables | 1,673,944 | 1,695,202 |
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(a) Trade and other accounts payable:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Trade creditors | 1,098,960 | 1,096,540 | ||||||
Leasing obligation | 4,920 | 4,448 | ||||||
Other accounts payable | 224,472 | 248,213 | ||||||
Total | 1,328,352 | 1,349,201 |
The details of Trade and other accounts payables are as follows:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Boarding Fee | 230,002 | 249,898 | ||||||
Aircraft Fuel | 215,052 | 219,601 | ||||||
Suppliers technical purchases | 144,015 | 114,690 | ||||||
Airport charges and overflight | 126,885 | 106,534 | ||||||
Professional services and advisory | 91,261 | 81,679 | ||||||
Other personnel expenses | 90,846 | 89,621 | ||||||
Handling and ground handling | 88,692 | 103,784 | ||||||
Services on board | 69,335 | 68,605 | ||||||
Marketing | 62,120 | 75,220 | ||||||
Leases, maintenance and IT services | 61,965 | 69,873 | ||||||
Crew | 28,925 | 24,163 | ||||||
Air companies | 28,530 | 31,381 | ||||||
Land services | 21,071 | 31,151 | ||||||
Maintenance | 15,092 | 26,244 | ||||||
Aviation insurance | 10,003 | 5,108 | ||||||
Achievement of goals | 4,920 | 4,285 | ||||||
Communications | 4,127 | 5,732 | ||||||
Aircraft and engines leasing | 2,228 | 5,273 | ||||||
Others | 33,283 | 36,359 | ||||||
Total trade and other accounts payables | 1,328,352 | 1,349,201 |
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(b) Liabilities accrued:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Accrued personnel expenses | 148,404 | 125,246 | ||||||
Aircraft and engine maintenance | 124,534 | 92,711 | ||||||
Accounts payable to personnel (*) | 38,101 | 99,862 | ||||||
Others accrued liabilities | 34,553 | 28,182 | ||||||
Total accrued liabilities | 345,592 | 346,001 |
(*) Profits and bonds participation (Note 23 letter b)
NOTE 21 - OTHER PROVISIONS
Other provisions:
Current liabilities | Non-current liabilities | Total Liabilities | |||||||||||||||||
As of | As of | As of | As of | As of | As of | ||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
Unaudited | Unaudited | Unaudited | |||||||||||||||||
Provision for contingencies (1) | |||||||||||||||||||
Tax contingencies | 1,913 | 1,913 | 263,746 | 258,305 | 265,659 | 260,218 | |||||||||||||
Civil contingencies | 635 | 497 | 67,675 | 62,858 | 68,310 | 63,355 | |||||||||||||
Labor contingencies | 374 | 373 | 28,466 | 28,360 | 28,840 | 28,733 | |||||||||||||
Other | — | — | 15,285 | 15,187 | 15,285 | 15,187 | |||||||||||||
Provision for European Commision investigation (2) | — | — | 10,107 | 9,883 | 10,107 | 9,883 | |||||||||||||
Total other provisions (3) | 2,922 | 2,783 | 385,279 | 374,593 | 388,201 | 377,376 |
(1) Provisions for contingencies:
The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.
The civil contingencies correspond to different demands of civil order filed against the Company.
The labor contingencies correspond to different demands of labor order filed against the Company.
The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.
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(2) | Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market. |
(3) | Total other provision at March 31, 2018, and 2017, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3. |
Movement of provisions:
European | ||||||||||||
Legal | Commission | |||||||||||
claims (1) | Investigation (2) | Total | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Opening balance as of January 1, 2017 | 416,473 | 8,664 | 425,137 | |||||||||
Increase in provisions | 14,353 | — | 14,353 | |||||||||
Provision used | (3,444 | ) | — | (3,444 | ) | |||||||
Difference by subsidiaries conversion | 11,290 | — | 11,290 | |||||||||
Reversal of provision | (13,896 | ) | — | (13,896 | ) | |||||||
Exchange difference | 339 | 118 | 457 | |||||||||
Closing balance as of March 31, 2017 (Unaudited) | 425,115 | 8,782 | 433,897 | |||||||||
Opening balance as of April 1, 2017 | 425,115 | 8,782 | 433,897 | |||||||||
Increase in provisions | 92,590 | — | 92,590 | |||||||||
Provision used | (11,416 | ) | — | (11,416 | ) | |||||||
Difference by subsidiaries conversion | (17,120 | ) | — | (17,120 | ) | |||||||
Reversal of provision | (121,213 | ) | — | (121,213 | ) | |||||||
Exchange difference | (463 | ) | 1,101 | 638 | ||||||||
Closing balance as of December 31, 2017 | 367,493 | 9,883 | 377,376 | |||||||||
Opening balance as of January 1, 2018 | 367,493 | 9,883 | 377,376 | |||||||||
Increase in provisions | 27,623 | — | 27,623 | |||||||||
Provision used | (9,956 | ) | — | (9,956 | ) | |||||||
Difference by subsidiaries conversion | (1,642 | ) | — | (1,642 | ) | |||||||
Reversal of provision | (5,670 | ) | — | (5,670 | ) | |||||||
Exchange difference | 246 | 224 | 470 | |||||||||
Closing balance as of March 31, 2018 (Unaudited) | 378,094 | 10,107 | 388,201 |
(1) | Cumulative balances include judicial deposit delivered as security, with respect to the “Aerovía Fundo” (FA), for US $ 101 million, made in order to suspend the application of the tax credit. The Company is discussing in the Court the constitutionality of the requirement made by FA in a lawsuit. Initially it was covered by the effects of a precautionary measure, this means that the Company would not be obliged to collect the tax, as long as there is no judicial decision in this regard. However, the decision taken by the judge in the first instance was published unfavorably, revoking the injunction. As the lawsuit is still underway (TAM appealed this first decision), the Company needed to make the judicial deposit, for the suspension of the enforceability of the tax credit; deposit that was classified in this item, discounting the existing provision for this purpose. Finally, if the final decision is favorable to the Company, the deposit made will return to TAM. On the other hand, if the court confirms the first decision, said deposit will become a final payment in favor of the Government of Brazil. The procedural stage as of March 31, 2018 is described in Note 31 in the Role of the case 2001.51.01.012530-0. |
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(2) European Commission Provision:
Provision constituted on the occasion of the process initiated in December 2007 by the General Competition Directorate of the European Commission against more than 25 cargo airlines, among which is Lan Cargo SA, which forms part of the global investigation initiated in 2006 for possible infractions of free competition in the air cargo market, which was carried out jointly by the European and United States authorities.
With respect to Europe, the General Directorate of Competition imposed fines totaling € 799,445,000 (seven hundred and ninety-nine million four hundred and forty-five thousand Euros) for infractions of European Union regulations on free competition against eleven (11 ) airlines, among which are LATAM Airlines Group SA and its subsidiary Lan Cargo S.A .. For its part, LATAM Airlines Group S.A. and Lan Cargo S.A., jointly and severally, have been fined for the amount of € 8,220,000 (eight million two hundred and twenty thousand Euros), for these infractions, an amount that was provisioned in the financial statements of LATAM. On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. They appealed the decision before the Court of Justice of the European Union. On December 16, 2015, the European Court resolved the appeal and annulled the Commission’s Decision. The European Commission did not appeal the judgment, but on March 17, 2017, the European Commission again adopted its original decision to impose on the eleven lines original areas, the same fine previously imposed, amounting to a total of 776,465,000 Euros In the case of LAN Cargo and its parent, LATAM Airlines Group S.A. imposed the same fine of 8.2 million Euros. The procedural stage as of March 31, 2018 is described in Note 31 in section (ii) judgments received by LATAM Airlines Group S.A. and Subsidiaries.
NOTE 22 - OTHER NON-FINANCIAL LIABILITIES
Current liabilities | Non-current liabilities | Total Liabilities | |||||||||||||||||
As of | As of | As of | As of | As of | As of | ||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
Unaudited | Unaudited | Unaudited | |||||||||||||||||
Deferred revenues(*) | 2,761,877 | 2,690,961 | 141,889 | 158,305 | 2,903,766 | 2,849,266 | |||||||||||||
Sales tax | 13,751 | 22,902 | — | — | 13,751 | 22,902 | |||||||||||||
Retentions | 42,681 | 38,197 | — | — | 42,681 | 38,197 | |||||||||||||
Others taxes | 5,826 | 8,695 | — | — | 5,826 | 8,695 | |||||||||||||
Dividends payable | 74,757 | 46,590 | — | — | 74,757 | 46,590 | |||||||||||||
Other sundry liabilities | 37,862 | 16,618 | — | — | 37,862 | 16,618 | |||||||||||||
Total other non-financial liabilities | 2,936,754 | 2,823,963 | 141,889 | 158,305 | 3,078,643 | 2,982,268 |
(*) Note 2.20.
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The balance comprises, mainly, deferred income by services not yet rendered at March 31, 2018 and 2017; and programs such as: LATAM Pass, LATAM Fidelidade y Multiplus:
LATAM Pass is the frequent passenger program created by LAN to reward the preference and loyalty of its customers with multiple benefits and privileges, through the accumulation of miles that can be exchanged for free flight tickets or for a varied range of products and services. Customers accumulate LATAM Pass miles every time they fly on LAN, TAM, oneworld® member companies and other airlines associated with the program, as well as buying at stores or using the services of a vast network of companies that have an agreement with the program around the world.
For its part, TAM, thinking of people who travel constantly, created the LATAM Fidelidade program, in order to improve the service and give recognition to those who choose the company. Through the program, customers accumulate points in a wide variety of loyalty programs in a single account and can redeem them in all TAM destinations and associated airline companies, and even more, participate in the Multiplus Fidelidade Network.
Multiplus is a coalition of loyalty programs, with the objective of operating accumulation and exchange of points. This program has a network integrated by associated companies, including hotels, financial institutions, retail companies, supermarkets, vehicle leases and magazines, among many other partners from different segments.
Movement of Other non-financial liabilities:
Deferred income | ||||
Air transport | ||||
and other | ||||
ThUS$ | ||||
Opening balance as of january 1, 2018 | 2,849,266 | |||
Recognition of deferred income | 2,065,620 | |||
Use deferred income | (2,083,793 | ) | ||
Expiration of tickets | (59,506 | ) | ||
Deferred revenue loyalty (accreditation and exchange) | 124,959 | |||
Others | 7,220 | |||
Closing balance as of march 31,2018 (Unaudited) | 2,903,766 |
NOTE 23 - EMPLOYEE BENEFITS
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Retirements payments | 58,376 | 55,119 | ||||||
Resignation payments | 10,496 | 10,124 | ||||||
Other obligations | 44,303 | 35,844 | ||||||
Total liability for employee benefits | 113,175 | 101,087 |
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(a) The movement in retirements and resignation payments and other obligations:
Increase (decrease) | Actuarial | ||||||||||||||||||||||||
Opening | current service | Benefits | (gains) | Currency | Closing | ||||||||||||||||||||
balance | provision | paid | losses | translation | balance | ||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||
From January 1 to March 31, 2017 (Unaudited) | 82,322 | 6,078 | (1,638 | ) | (2,736 | ) | — | 84,026 | |||||||||||||||||
From January 1 to December 31, 2017 | 84,026 | 15,557 | (3,761 | ) | (27 | ) | 5,292 | 101,087 | |||||||||||||||||
From January 1 to March 31, 2018 (Unaudited) | 101,087 | 4,921 | (1,470 | ) | 2,098 | 6,539 | 113,175 |
The principal assumptions used in the calculation to the provision in Chile are presented below:
As of | ||||||||
March 31, | ||||||||
Assumptions | 2018 | 2017 | ||||||
Unaudited | ||||||||
Discount rate | 4.47 | % | 4.22 | % | ||||
Expected rate of salary increase | 4.50 | % | 4.50 | % | ||||
Rate of turnover | 6.98 | % | 6.98 | % | ||||
Mortality rate | RV-2014 | RV-2014 | ||||||
Inflation rate | 2.72 | % | 2.58 | % | ||||
Retirement age of women | 60 | 60 | ||||||
Retirement age of men | 65 | 65 |
The discount rate corresponds to the 20-year term rate of the BCP Central Bank of Chile Bonds. The RV-2014 mortality tables correspond to those established by the Commission for the Financial Market of Chile and for the determination of the inflation rates; the market performance curves of Central Bank of Chile papers of the BCUs have been used. BCP long term at the date of scope.
The calculation of the present value of the defined benefit obligation is sensitive to the variation of some actuarial assumptions such as discount rate, salary increase, rotation and inflation.
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The sensitivity analysis for these variables is presented below:
Effect on the liability | |||||||
As of | As of | ||||||
March 31, | December 31, | ||||||
2018 | 2017 | ||||||
ThUS$ | ThUS$ | ||||||
Unaudited | |||||||
Discount rate | |||||||
Change in the accrued liability an closing for increase in 100 p.b. | (6,055 | ) | (5,795 | ) | |||
Change in the accrued liability an closing for decrease of 100 p.b. | 6,912 | 6,617 | |||||
Rate of wage growth | |||||||
Change in the accrued liability an closing for increase in 100 p.b. | 6,690 | 6,412 | |||||
Change in the accrued liability an closing for decrease of 100 p.b. | (6,003 | ) | (5,751 | ) |
(b) The liability for short-term:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Profit-sharing and bonuses (*) | 38,101 | 99,862 |
(*) Accounts payables to employees (Note 20 letter b)
The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives.
(c) Employment expenses are detailed below:
For the periods ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Salaries and wages | 414,634 | 420,497 | ||||||
Short-term employee benefits | 33,743 | 38,859 | ||||||
Termination benefits | 14,622 | 19,964 | ||||||
Other personnel expenses | 51,544 | 45,898 | ||||||
Total | 514,543 | 525,218 |
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NOTE 24 - ACCOUNTS PAYABLE, NON-CURRENT
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Aircraft and engine maintenance | 466,117 | 483,795 | ||||||
Provision for vacations and bonuses | 15,154 | 14,725 | ||||||
Other sundry liabilities | 315 | 312 | ||||||
Total accounts payable, non-current | 481,586 | 498,832 |
NOTE 25 - EQUITY
(a) Capital
The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.
The paid capital of the Company at March 31, 2018 amounts to ThUS$ 3,146,265 divided into 606,407,693 common stock of a same series (ThUS$ 3,146,265 (*) divided into 606,407,693 shares as of December 31, 2017), a single series nominative, ordinary character with 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.
(*) Includes deduction of issuance costs for ThUS $ 3,299 and adjustment for placement of 10,282 shares for ThUS $ 156, approved at the Extraordinary Shareholders Meeting of the Company on April 27, 2017.
(b) Subscribed and paid shares
On August 18, 2016, the Company held an extraordinary meeting of shareholders in which it was approved to increase the capital by issuing 61,316,424 shares of payment, all ordinary shares, without par value. As of December 31, 2016, 60,849,592 shares had been placed against this increase, according to the following breakdown: (a) 30,499,685 shares subscribed and paid at the end of the preferred subscription period, which expired on, December 2016, raising the equivalent of US$ 304,996,850; and (b) 30,349,907 additional shares subscribed on December 28, 2016, earning the equivalent of US$ 303,499,070.
As a result of the last placement, as of March 31, 2018, the number Company shares subscribed and paid amounts to 606,407,693.
At March 31, 2018, the Company’s capital stock is represented by 608,374,525 shares, all of the same and unique series, nominative, ordinary, with no par value, which is divided into: (a) the 606,407,693 subscribed and paid shares mentioned above; And (b) 1,966,832 shares pending subscription and payment, of which: (i) 1,500,000 shares are allocated to compensation stock option plans; And (ii) 466,832 correspond to the balance of shares pending placement of the last capital increase.
89
The following table shows the movement of the authorized and fully paid shares described above:
Movement of authorized shares | Nro. Of | |||
shares | ||||
Autorized shares as of January 1, 2017 | 608,374,525 | |||
There is no movement of authorized shares during the period 2017 | — | |||
Authorized shares as of December 31, 2017 | 608,374,525 | |||
Autorized shares as of January 1, 2018 | 608,374,525 | |||
There is no movement of authorized shares during the period 2018 | — | |||
Authorized shares as of March 31, 2018 (Unaudited) | 608,374,525 |
(*) See Note 34 (a.1)
Movement fully paid shares | ||||||||||||||||
Movement | ||||||||||||||||
value | Cost of issuance | |||||||||||||||
of shares | and placement | Paid- in | ||||||||||||||
N° of | (1) | of shares (2) | Capital | |||||||||||||
shares | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Paid shares as of January 1, 2017 | 606,407,693 | 3,160,718 | (11,154 | ) | 3,149,564 | |||||||||||
Capital reserve | — | — | (3,299 | ) | (3,299 | ) | ||||||||||
Paid shares as of December 31, 2017 | 606,407,693 | 3,160,718 | (14,453 | ) | 3,146,265 | |||||||||||
Paid shares as of January 1, 2018 | 606,407,693 | 3,160,718 | (14,453 | ) | 3,146,265 | |||||||||||
Capital reserve | — | — | — | — | ||||||||||||
Paid shares as of March 31, 2018 (Unaudited) | 606,407,693 | (3) | 3,160,718 | (14,453 | ) | 3,146,265 |
(1) Amounts reported represent only those arising from the payment of the shares subscribed.
(2) Decrease of capital by capitalization of reserves for cost of issuance and placement of shares established according to Extraordinary Shareholder´s Meetings, where such decreases were authorized.
(3) At March 31, 2018, the difference between authorized shares and fully paid shares are 1,966,832 shares, of which 1,500,000 correspond to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 34(a.2)) and 466,832 correspond to the shares issued and unsubscribed from the capital increase approved at the Extraordinary Shareholders Meeting held on August 18, 2016.
(4) These 10,282 shares were placed in January 2014 and charged to the Compensation plan 2011 (See Note 34 (a.1))
90
(c) Treasury stock
At March 31, 2018, the Company held no treasury stock, the remaining of ThUS$ (178) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares which held in its portfolio.
(d) Reserve of share- based payments
Movement of Reserves of share- based payments:
Stock | |||||||||||||||||
Opening | option | Net movement | Closing | ||||||||||||||
Periods | balance | plan | of the period | balance | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||
From January 1 to March 31, 2017 (Unaudited) | 38,538 | 545 | 545 | 39,083 | |||||||||||||
From April 1 to December 31, 2017 | 39,083 | 398 | 398 | 39,481 | |||||||||||||
From January 1 to March 31, 2018 (Unaudited) | 39,481 | (1,938 | ) | (1,938 | ) | 37,543 |
These reserves are related to the “Share-based payments” explained in Note 34.
(e) Other sundry reserves
Movement of Other sundry reserves:
Opening | Legal | Closing | |||||||||||
Periods | balance | reserves | balance | ||||||||||
ThUS$ | ThUS$ | ThUS$ | |||||||||||
From January 1 to March 31, 2017 (Unaudited) | 2,640,281 | (3,304 | ) | 2,636,977 | |||||||||
From April 1 to December 31, 2017 | 2,636,977 | 2,803 | 2,639,780 | ||||||||||
From January 1 to March 31, 2018 (Unaudited) | 2,639,780 | 5,783 | 2,645,563 |
Balance of Other sundry reserves comprises the following:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Higher value for TAM S.A. share exchange (1) | 2,665,692 | 2,665,692 | ||||||
Reserve for the adjustment to the value of fixed assets (2) | 2,620 | 2,620 | ||||||
Transactions with non-controlling interest (3) | (25,911 | ) | (25,911 | ) | ||||
Others | 3,162 | (2,621 | ) | |||||
Total | 2,645,563 | 2,639,780 |
(1) Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012.
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(2) Corresponds to the technical revaluation of fixed assets authorized by the Commission for the Financial Market in 1979, in Circular N° 1529. The revaluation was optional and could be taken only once, the reserve is not distributable and can only be capitalized.
(3) The balance at March 31, 2018, correspond to the loss generated by the participation of Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526).
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(f) Reserves with effect in other comprehensive income.
Movement of Reserves with effect in other comprehensive income:
Actuarial gain | ||||||||||||||||
Currency | Cash flow | or loss on defined | ||||||||||||||
translation | hedging | benefit plans | ||||||||||||||
reserve | reserve | reserve | Total | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Opening balance as of January 1, 2017 | (2,086,555 | ) | 1,506 | (12,900 | ) | (2,097,949 | ) | |||||||||
Derivatives valuation gains (losses) | — | (5,058 | ) | — | (5,058 | ) | ||||||||||
Deferred tax | — | (660 | ) | — | (660 | ) | ||||||||||
Actuarial reserves by employee benefit plans | — | — | 2,597 | 2,597 | ||||||||||||
Deferred tax actuarial IAS by employee benefit plans | — | — | (1,039 | ) | (1,039 | ) | ||||||||||
Difference by subsidiaries conversion | 104,936 | — | — | 104,936 | ||||||||||||
Closing balance as of March 31, 2017 (Unaudited) | (1,981,619 | ) | (4,212 | ) | (11,342 | ) | (1,997,173 | ) | ||||||||
Opening balance as of April 1, 2017 | (1,981,619 | ) | (4,212 | ) | (11,342 | ) | (1,997,173 | ) | ||||||||
Derivatives valuation gains (losses) | — | 23,494 | — | 23,494 | ||||||||||||
Deferred tax | — | (1,142 | ) | — | (1,142 | ) | ||||||||||
Actuarial reserves by employee benefit plans | — | — | 161 | 161 | ||||||||||||
Deferred tax actuarial IAS by employee benefit plans | — | — | 255 | 255 | ||||||||||||
Difference by subsidiaries conversion | (149,972 | ) | — | — | (149,972 | ) | ||||||||||
Closing balance as of December 31, 2017 | (2,131,591 | ) | 18,140 | (10,926 | ) | (2,124,377 | ) | |||||||||
Opening balance as of January 1, 2018 | (2,131,591 | ) | 18,140 | (10,926 | ) | (2,124,377 | ) | |||||||||
Derivatives valuation gains (losses) | — | 17,148 | — | 17,148 | ||||||||||||
Deferred tax | — | (537 | ) | — | (537 | ) | ||||||||||
Actuarial reserves by employee benefit plans | — | — | (2,041 | ) | (2,041 | ) | ||||||||||
Deferred tax actuarial IAS by employee benefit plans | — | — | 525 | 525 | ||||||||||||
Difference by subsidiaries conversion | (27,493 | ) | — | — | (27,493 | ) | ||||||||||
Closing balance as of March 31, 2018 (Unaudited) | (2,159,084 | ) | 34,751 | (12,442 | ) | (2,136,775 | ) |
(f.1) Currency translation reserve
These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.
93
(f.2) Cash flow hedging reserve
These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.
(f.3) Reserves of actuarial gains or losses on defined benefit plans
Correspond to the increase or decrease in the obligation present value for defined benefit plan due to changes in actuarial assumptions, and experience adjustments, which is the effects of differences between the previous actuarial assumptions and what has actually occurred.
(g) Retained earnings
Movement of Retained earnings:
Periods | balance | period | Dividends | (decreases) | balance | ||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||
From January 1 to March 31, 2017 (Unaudited) | 366,404 | 65,557 | (19,667 | ) | — | 412,294 | |||||||||||||||
From April 1 to December 31, 2017 | 412,294 | 89,747 | (26,923 | ) | — | 475,118 | |||||||||||||||
From January 1 to March 31, 2018 (Unaudited) | 475,118 | 93,889 | (28,167 | ) | (9,549 | ) (*) | 531,291 |
(*) Adjustment of adoption of IFRS 9 and IFRS 15 (See note 2).
(h) Dividends per share
Minimum mandatory | Minimum mandatory | Final dividend | ||||||||||
dividend | dividend | dividend | ||||||||||
Description of dividend | 2018 | 2017 | 2016 | |||||||||
Date of dividend | 03-31-2018 | 12-31-2017 | 12-31-2016 | |||||||||
Amount of the dividend (ThUS$) | 28,167 | 46,590 | 20,766 | (*) | ||||||||
Number of shares among which the dividend is distributed | 606,407,693 | 606,407,693 | 606,407,693 | |||||||||
Dividend per share (US$) | 0.0464 | 0.0768 | 0.0342 |
(*) In accordance with the Material Fact issued on April 27, 2017, LATAM Airlines Group S.A. shareholders approved the distribution of the final dividend proposed by the board of directors in the Ordinary Session of April 4, 2017, amounting to ThUS $ 20,766, which corresponds to 30% of the profits for the year corresponding to the year 2016.
94
The payment was made on May 18, 2017.
NOTE 26 - REVENUE
The detail of revenues is as follows:
For the periods ended | |||||||||
March 31, | |||||||||
2018 | 2017 | ||||||||
ThUS$ | ThUS$ | ||||||||
Unaudited | |||||||||
Passengers | 2,318,015 | 2,106,161 | |||||||
Cargo | 295,820 | 253,746 | |||||||
Total | 2,613,835 | 2,359,907 |
NOTE 27 - 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, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Aircraft fuel | 717,854 | 595,031 | ||||||
Other rentals and landing fees | 310,218 | 278,219 | ||||||
Aircraft rentals | 135,761 | 150,396 | ||||||
Aircraft maintenance | 101,642 | 85,186 | ||||||
Comissions | 60,120 | 61,692 | ||||||
Passenger services | 79,756 | 74,316 | ||||||
Other operating expenses | 330,646 | 302,985 | ||||||
Total | 1,735,997 | 1,547,825 |
95
(b) Depreciation and amortization
Depreciation and amortization are detailed below:
For the period ended | |||||||||
March 31, | |||||||||
2018 | 2017 | ||||||||
ThUS$ | ThUS$ | ||||||||
Unaudited | |||||||||
Depreciation (*) | 235,758 | 238,387 | |||||||
Amortization | 15,702 | 13,828 | |||||||
Total | 251,460 | 252,215 |
(*) Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at March 31, 2018 is ThUS$ 89,270 and ThUS$ 92,650 for the same period of 2017.
(c) Personnel expenses
The costs for personnel expenses are disclosed in Note 23 liability for employee benefits.
(d) Financial costs
The detail of financial costs is as follows:
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Bank loan interest | 68,977 | 82,925 | ||||||
Financial leases | 15,730 | 10,836 | ||||||
Other financial instruments | 1,510 | 2,027 | ||||||
Total | 86,217 | 95,788 |
Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 23, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.
96
NOTE 28 - OTHER INCOME, BY FUNCTION
Other income by function is as follows:
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Coalition and loyalty program Multiplus | 44,651 | 56,400 | ||||||
Tours | 32,463 | 26,532 | ||||||
Aircraft leasing | 16,029 | 16,625 | ||||||
Customs and warehousing | 6,510 | 5,434 | ||||||
Maintenance | 517 | 1,633 | ||||||
Duty free | 1,379 | 2,348 | ||||||
Other miscellaneous income | 15,152 | 8,570 | ||||||
Total | 116,701 | 117,542 |
NOTE 29 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES
The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the chilean peso, argentine peso, colombian peso, brazilian real and guaraní.
The functional currency is defined as the currency of the primary economic environment in which an entity operates and in each entity and all other currencies are defined as foreign currency.
Considering the above, the balances by currency mentioned in this note correspond to the sum of foreign currency of each of the entities that make LATAM Airlines Group S.A. and Subsidiaries.
97
(a) | Foreign currency |
The foreign currency detail of balances of monetary items in current and non-current assets is as follows:
As of | As of | |||||||
March 31, | December 31, | |||||||
Current assets | 2018 | 2017 | ||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Cash and cash equivalents | 234,931 | 260,092 | ||||||
Argentine peso | 14,278 | 7,309 | ||||||
Brazilian real | 26,986 | 14,242 | ||||||
Chilean peso | 18,425 | 81,693 | ||||||
Colombian peso | 942 | 1,105 | ||||||
Euro | 19,892 | 11,746 | ||||||
U.S. dollar | 103,591 | 108,327 | ||||||
Other currency | 50,817 | 35,670 | ||||||
Other financial assets, current | 39,019 | 36,484 | ||||||
Argentine peso | 20 | 21 | ||||||
Brazilian real | 4,499 | 17 | ||||||
Chilean peso | 26,629 | 26,605 | ||||||
Colombian peso | 161 | 150 | ||||||
U.S. dollar | 6,863 | 9,343 | ||||||
Other currency | 847 | 348 | ||||||
Other non - financial assets, current | 100,969 | 107,170 | ||||||
Argentine peso | 15,252 | 16,507 | ||||||
Brazilian real | 20,089 | 19,686 | ||||||
Chilean peso | 32,671 | 34,258 | ||||||
Colombian peso | 348 | 340 | ||||||
Euro | 2,824 | 2,722 | ||||||
U.S. dollar | 18,991 | 21,907 | ||||||
Other currency | 10,794 | 11,750 |
98
As of | As of | |||||||
March 31, | December 31, | |||||||
Activos corrientes | 2018 | 2017 | ||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Trade and other accounts receivable, current | 513,785 | 373,447 | ||||||
Argentine peso | 64,018 | 49,680 | ||||||
Brazilian real | 84,954 | 22,006 | ||||||
Chilean peso | 88,605 | 82,369 | ||||||
Colombian peso | 445 | 1,169 | ||||||
Euro | 60,260 | 48,286 | ||||||
U.S. dollar | 23,906 | 34,268 | ||||||
Other currency | 191,597 | 135,669 | ||||||
Accounts receivable from related entities, current | 183 | 958 | ||||||
Chilean peso | 130 | 735 | ||||||
U.S. dollar | 53 | 223 | ||||||
Tax current assets | 44,156 | 33,575 | ||||||
Argentine peso | 1,851 | 1,679 | ||||||
Brazilian real | 3,270 | 3,934 | ||||||
Chilean peso | 5,033 | 3,317 | ||||||
Colombian peso | 918 | 660 | ||||||
Euro | 200 | 179 | ||||||
U.S. dollar | 350 | 327 | ||||||
Peruvian sol | 30,976 | 21,948 | ||||||
Other currency | 1,558 | 1,531 | ||||||
Total current assets | 933,043 | 811,726 | ||||||
Argentine peso | 95,419 | 75,196 | ||||||
Brazilian real | 139,798 | 59,885 | ||||||
Chilean peso | 171,493 | 228,977 | ||||||
Colombian peso | 2,814 | 3,424 | ||||||
Euro | 83,176 | 62,933 | ||||||
U.S. dollar | 153,754 | 174,395 | ||||||
Other currency | 286,589 | 206,916 |
99
As of | As of | |||||||
Non-current assets | March 31, | December 31, | ||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Other financial assets, non-current | 21,781 | 20,975 | ||||||
Brazilian real | 4,001 | 3,831 | ||||||
Chilean peso | 76 | 74 | ||||||
Colombian peso | 301 | 281 | ||||||
Euro | 8,373 | 7,853 | ||||||
U.S. dollar | 7,281 | 7,273 | ||||||
Other currency | 1,749 | 1,663 | ||||||
Other non - financial assets, non-current | 9,142 | 9,108 | ||||||
Argentine peso | 161 | 172 | ||||||
Brazilian real | 6,737 | 6,368 | ||||||
U.S. dollar | 3 | 38 | ||||||
Other currency | 2,241 | 2,530 | ||||||
Accounts receivable, non-current | 6,495 | 6,887 | ||||||
Chilean peso | 6,495 | 6,887 | ||||||
Deferred tax assets | 4,862 | 2,081 | ||||||
Colombian peso | 91 | 86 | ||||||
U.S. dollar | 2,773 | — | ||||||
Other currency | 1,998 | 1,995 | ||||||
Total non-current assets | 42,280 | 39,051 | ||||||
Argentine peso | 161 | 172 | ||||||
Brazilian real | 10,738 | 10,199 | ||||||
Chilean peso | 6,571 | 6,961 | ||||||
Colombian peso | 392 | 367 | ||||||
Euro | 8,373 | 7,853 | ||||||
U.S. dollar | 10,057 | 7,311 | ||||||
Other currency | �� | 5,988 | 6,188 |
100
The foreign currency detail of balances of monetary items in current liabilities and non-current is as follows:
Up to 90 days | 91 days to 1 year | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
Current liabilities | March 31, | December 31, | March 31, | December 31, | ||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Other financial liabilities, current | 59,176 | 36,000 | 120,789 | 115,182 | ||||||||||||
Chilean peso | 46,341 | 21,542 | 82,790 | 79,032 | ||||||||||||
U.S. dollar | 12,835 | 14,458 | 37,999 | 36,150 | ||||||||||||
Trade and other accounts payables, current | 941,956 | 919,373 | 35,332 | 33,707 | ||||||||||||
Argentine peso | 145,141 | 122,452 | 12,203 | 8,636 | ||||||||||||
Brazilian real | 37,216 | 28,810 | 690 | 669 | ||||||||||||
Chilean peso | 210,105 | 233,202 | 8,450 | 11,311 | ||||||||||||
Colombian peso | 5,006 | 2,964 | 321 | 855 | ||||||||||||
Euro | 70,676 | 58,081 | 4,858 | 9,165 | ||||||||||||
U.S. dollar | 405,005 | 409,380 | 2,347 | 1,154 | ||||||||||||
Peruvian sol | 38,471 | 39,064 | 5,072 | 825 | ||||||||||||
Mexican peso | 2,011 | 2,732 | 206 | 115 | ||||||||||||
Pound sterling | 5,568 | 5,839 | 254 | 199 | ||||||||||||
Uruguayan peso | 980 | 1,890 | — | — | ||||||||||||
Other currency | 21,777 | 14,959 | 931 | 778 | ||||||||||||
Accounts payable to related entities, current | 212 | 760 | — | — | ||||||||||||
Chilean peso | 12 | 546 | — | — | ||||||||||||
U.S. dollar | — | 4 | — | — | ||||||||||||
Other currency | 200 | 210 | — | — | ||||||||||||
Other provisions, current | 961 | 959 | — | — | ||||||||||||
Chilean peso | 31 | 30 | — | — | ||||||||||||
Other currency | 930 | 929 | — | — | ||||||||||||
Tax liabilities, current | 232 | — | — | 174 | ||||||||||||
Argentine peso | 232 | — | — | 174 |
101
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, | ||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Other non-financial | Unaudited | Unaudited | ||||||||||||||
liabilities, current | 42,844 | 25,190 | — | — | ||||||||||||
Argentine peso | 1,036 | 393 | — | — | ||||||||||||
Brazilian real | 1,874 | 542 | — | — | ||||||||||||
Chilean peso | 22,402 | 11,283 | — | — | ||||||||||||
Colombian peso | 557 | 837 | — | — | ||||||||||||
Euro | 3,466 | 5,954 | — | — | ||||||||||||
U.S. dollar | 4,778 | 3,160 | — | — | ||||||||||||
Other currency | 8,731 | 3,021 | — | — | ||||||||||||
Total current liabilities | 1,040,381 | 982,282 | 156,121 | 149,063 | ||||||||||||
Argentine peso | 146,409 | 122,845 | 12,203 | 8,810 | ||||||||||||
Brazilian real | 39,090 | 29,352 | 690 | 669 | ||||||||||||
Chilean peso | 278,891 | 266,603 | 91,240 | 90,343 | ||||||||||||
Colombian peso | 563 | 3,801 | 321 | 855 | ||||||||||||
Euro | 74,142 | 64,035 | 4,858 | 9,165 | ||||||||||||
U.S. dollar | 422,618 | 427,002 | 40,346 | 37,304 | ||||||||||||
Other currency | 78,668 | 68,644 | 6,463 | 1,917 |
102
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, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Unaudited | Unaudited | Unaudited | ||||||||||||||||||||||
Other financial liabilities, non-current | 284,233 | 276,436 | 242,519 | 263,798 | 194,266 | 189,500 | ||||||||||||||||||
Chilean peso | 36,631 | 41,548 | 194,267 | 189,500 | 194,266 | 189,500 | ||||||||||||||||||
U.S. dollar | 247,602 | 234,888 | 48,252 | 74,298 | — | — | ||||||||||||||||||
Accounts payable, non-current | 337,439 | 362,964 | — | — | — | — | ||||||||||||||||||
Chilean peso | 13,589 | 13,251 | — | — | — | — | ||||||||||||||||||
U.S. dollar | 322,359 | 348,329 | — | — | — | — | ||||||||||||||||||
Other currency | 1,491 | 1,384 | — | — | — | — | ||||||||||||||||||
Other provisions, non-current | 42,092 | 41,514 | — | — | — | — | ||||||||||||||||||
Argentine peso | 899 | 940 | — | — | — | — | ||||||||||||||||||
Brazillian real | 24,432 | 24,074 | — | — | — | — | ||||||||||||||||||
Colombian peso | 589 | 551 | — | — | — | — | ||||||||||||||||||
Euro | 10,107 | 9,883 | — | — | — | — | ||||||||||||||||||
U.S. dollar | 6,065 | 6,066 | — | — | — | — | ||||||||||||||||||
Provisions for employees benefits, non-current | 83,531 | 77,579 | — | — | — | — | ||||||||||||||||||
Chilean peso | 77,351 | 73,399 | — | — | — | — | ||||||||||||||||||
U.S. dollar | 6,180 | 4,180 | — | — | — | — | ||||||||||||||||||
Other non-financial liabilities, non-current | 4 | — | — | — | — | — | ||||||||||||||||||
Colombian peso | 4 | — | — | — | — | — | ||||||||||||||||||
Total non-current liabilities | 747,299 | 758,493 | 242,519 | 263,798 | 194,266 | 189,500 | ||||||||||||||||||
Argentine peso | 899 | 940 | — | — | — | — | ||||||||||||||||||
Brazilian real | 24,432 | 24,074 | — | — | — | — | ||||||||||||||||||
Chilean peso | 127,571 | 128,198 | 194,267 | 189,500 | 194,266 | 189,500 | ||||||||||||||||||
Colombian peso | 593 | 551 | — | — | — | — | ||||||||||||||||||
Euro | 10,107 | 9,883 | — | — | — | — | ||||||||||||||||||
U.S. dollar | 582,206 | 593,463 | 48,252 | 74,298 | — | — | ||||||||||||||||||
Other currency | 1,491 | 1,384 | — | — | — | — |
103
As of | As of | |||||||
General summary of foreign currency: | March 31, | December 31, | ||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Total assets | 975,323 | 850,777 | ||||||
Argentine peso | 95,580 | 75,368 | ||||||
Brazilian real | 150,536 | 70,084 | ||||||
Chilean peso | 178,064 | 235,938 | ||||||
Colombian peso | 3,206 | 3,791 | ||||||
Euro | 91,549 | 70,786 | ||||||
U.S. dollar | 163,811 | 181,706 | ||||||
Other currency | 292,577 | 213,104 | ||||||
Total liabilities | 2,385,587 | 2,343,136 | ||||||
Argentine peso | 159,511 | 132,595 | ||||||
Brazilian real | 64,212 | 54,095 | ||||||
Chilean peso | 886,235 | 864,144 | ||||||
Colombian peso | 6,477 | 5,207 | ||||||
Euro | 89,108 | 83,083 | ||||||
U.S. dollar | 1,093,422 | 1,132,067 | ||||||
Other currency | 86,622 | 71,945 | ||||||
Net position | ||||||||
Argentine peso | (63,931 | ) | (57,227 | ) | ||||
Brazilian real | 86,324 | 15,989 | ||||||
Chilean peso | (708,171 | ) | (628,206 | ) | ||||
Colombian peso | (3,271 | ) | (1,416 | ) | ||||
Euro | 2,441 | (12,297 | ) | |||||
U.S. dollar | (929,611 | ) | (950,361 | ) | ||||
Other currency | 205,955 | 141,159 |
104
(b) | Exchange differences |
The exchange differences recognized in profit or loss, except for financial instruments measured at fair value through profit or loss, for the period ended March 31, 2018 and 2017, meant a payment of ThUS $ 811 and ThUS $ 35,373, respectively.
The exchange differences recognized in equity as reserves for exchange differences for conversion, for the period ended March 31, 2018 and 2017, meant a charge of ThUS $ 76,154 and a payment of ThUS $ 109,122, respectively.
The following shows the current exchange rates for the U.S. dollar, on the dates indicated:
As of | ||||||||||||||||
March 31, | As of December 31, | |||||||||||||||
2018 | 2017 | 2016 | 2015 | |||||||||||||
Unaudited | ||||||||||||||||
Argentine peso | 20.13 | 18.57 | 15.84 | 12.97 | ||||||||||||
Brazilian real | 3.31 | 3.31 | 3.25 | 3.98 | ||||||||||||
Chilean peso | 603.39 | 614.75 | 669.47 | 710.16 | ||||||||||||
Colombian peso | 2,792.10 | 2,984.77 | 3,000.25 | 3,183.00 | ||||||||||||
Euro | 0.81 | 0.83 | 0.95 | 0.92 | ||||||||||||
Strong bolivar | 49,498.00 | 3,345.00 | 673.76 | 198.70 | ||||||||||||
Australian dollar | 1.30 | 1.28 | 1.38 | 1.37 | ||||||||||||
Boliviano | 6.86 | 6.86 | 6.86 | 6.85 | ||||||||||||
Mexican peso | 18.21 | 19.66 | 20.63 | 17.34 | ||||||||||||
New Zealand dollar | 1.38 | 1.41 | 1.44 | 1.46 | ||||||||||||
Peruvian Sol | 3.22 | 3.24 | 3.35 | 3.41 | ||||||||||||
Uruguayan peso | 28.31 | 28.74 | 29.28 | 29.88 |
105
NOTE 30 - EARNINGS / (LOSS) PER SHARE
For the period ended | ||||||||
March 31, | ||||||||
Basic earnings / (loss) per share | 2018 | 2017 | ||||||
Unaudited | ||||||||
Earnings / (loss) attributable to owners of the parent (ThUS$) | 93,889 | 65,557 | ||||||
Weighted average number of shares, basic | 606,407,693 | 606,407,693 | ||||||
Basic earnings / (loss) per share (US$) | 0.15483 | 0.10811 |
For the period ended | ||||||||
December 31, | ||||||||
Diluted earnings / (loss) per share | 2018 | 2017 | ||||||
Unaudited | ||||||||
Earnings / (loss) attributable to owners of the parent (ThUS$) | 93,889 | 65,557 | ||||||
Weighted average number of shares, basic | 606,407,693 | 606,407,693 | (*) | |||||
Weighted average number of shares, diluted | 606,407,693 | 606,407,693 | ||||||
Diluted earnings / (loss) per share (US$) | 0.15483 | 0.10811 |
(*) In the calculation of diluted earnings per share have not been considered the compensation plan disclosed in Note 34 (a.1), because the average market price is lower than the price of options.
106
NOTE 31 – CONTINGENCIES
I. | Lawsuits |
1) | Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries |
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Atlantic Aviation Investments LLC (AAI).
| Supreme Court of the State of New York County of New York. | 07-6022920 | Atlantic Aviation Investments LLC. (“AAI”), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 29th , 2007 Varig Logistics S.A. (“Variglog”) for non-payment of four documented loans in credit agreements governed by New York law. These contracts establish the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A. | The decision ordering Variglog to pay principal, interest and costs to AAI is in the enforcement stage in Switzerland. A settlement for CHF 24,541,781.45 was reached in Brazil for the Swiss funds, and it was agreed that it would be divided as follows: (i) 54.6% of Variglog’s assets for the Swiss funds; and (ii) 45.4% to AAI, subject to approval of the Brazilian Bankruptcy Commission. Variglog also filed a petition in Switzerland for recognition of the decision declaring its condition of being in judicial recovery, and subsequently, of being declared in bankruptcy. The Brazilian courts approved the AAI settlement and Variglog’s bankruptcy on April 11, 2016, which were confirmed by those courts on September 21, 2016. The final decision approving the agreement was certified September 23, 2016. US$8,9 thousand had been recovered as of December 2017. US$2,246,499.02 were recovered on January 30, 2018, so there is no balance pending. As a result, AAI has begun the process to release the lien on Variglog accounts in Switzerland.. | 10,976 Plus interests and costs
| |||||
Tam Viagens S.A. | Fazenda Pública do Município de São Paulo. | 1004194-37.2018.8.26.0053 | This is a voidance action appealing the charges for violations and fines (67.168.795 / 67.168.833 / 67.168.884 / 67.168.906 / 67.168.914 / 67.168.965). We are arguing that numbers are missing from the ISS calculation base since the company supposedly made improper deductions. | The lawsuit was assigned on January 31, 2018. That same day, a decision was rendered suspending the charges without any bond. We are waiting for the deadline for the municipality to appeal to expire. | 95,202 |
107
2) | Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries |
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
LATAM Airlines Group S.A. y Lan Cargo S.A. | European Commission. | - | Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th , 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight. | On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011.
On May 11, 2015, we attended a hearing at which we petitioned for the vacation of the Decision based on discrepancies in the Decision between the operating section, which mentions four infringements (depending on the routes involved) but refers to Lan in only one of those four routes; and the ruling section (which mentions one single conjoint infraction).
On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of ThUS$ 10,106 (8,220,000 Euros)
This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. On December 16, 2015, the European Court of Justice revoked the Commission’s decision because of discrepancies. The European Commission did not appeal the decision, but presented a new one on March 17, 2017 reiterating the imposition of the same fine on the eleven original airlines. The fine totals 776,465,000 Euros. It imposed the same fine as before on Lan Cargo and its parent, LATAM Airlines Group S.A., totaling 8.2 million Euros. On May 31, 2017 Lan Cargo S.A. and LATAM Airlines Group S.A. filed a petition with the General Court of the European Union seeking vacation of this decision. We presented our defense in December 2017. | 10,106 |
108
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Lan Cargo S.A. y LATAM Airlines Group S.A. | In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway) y Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands) , Cologne Regional Court (Landgerich Köln Germany). | - | Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany.
| Cases are in the uncovering evidence stage. | -0- | |||||
Aerolinhas Brasileiras S.A. | Federal Justice. | 0008285-53.2015.403.6105 | An action seeking to quash a decision and petioning for early protection in order to obgain a revocation of the penalty imposed by the Brazilian Competition Authority (CADE) in the investigation of cargo airlines alleged fair trade violations, in particular the fuel surcharge.
| This action was filed by presenting a guaranty – policy – in order to suspend the effects of the CADE’s decision regarding the payment of the following fines: (i) ABSA: ThUS$10,438; (ii) Norberto Jochmann: ThUS$201; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer :ThUS$ 102. The action also deals with the affirmative obligation required by the CADE consisting of the duty to publish the condemnation in a widely circulating newspaper. This obligation had also been stayed by the court of federal justice in this process. Awaiting CADE’s statement. ABSA began a judicial review in search of an additional reduction in the fine amount. At this time we cannot predict the final amount of the fine as the judicial review by the Federal Court Judge is still pending. | 11,904 | |||||
Aerolinhas Brasileiras S.A.
| Federal Justice.
| 0001872-58.2014.4.03.6105
| An annulment action with a motion for preliminary injunction, was filed on 28/02/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006.43. | We have been waiting since August 21, 2015 for a statement by Serasa on TAM’s letter of indemnity and a statement by the Union. The statement was authenticated on January 29, 2016. A petition on evidence and replications were filed on June 20, 2016. A new insurance policy was submitted on March 3, 2016 with the change to the guarantee requested by PGFN, which wasdeclared on June 3, 2016. A decision is pending. | 15,851 |
109
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Tam Linhas Aéreas S.A.
| Department of Federal Revenue of Brazil | 19515.720476/2015-83
| Alleged irregularities in the SAT payments for the periods 01/2011 to 12/2012 | A judgment by CARF is pending since April 12, 2016.
| 66,483 | |||||
Tam Linhas Aéreas S.A.
| Court of the Second Region. | 2001.51.01.012530-0 | Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to collect the Air Fund.
| Unfavorable court decision in first instance. Currently expecting the ruling on the appeal filed by the company. In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered for MUS$106. The court decision requesting that the Expert make all clarifications requested by the parties in a period of 30 days was published on March 29, 2016. The plaintiffs’ submitted a petition on June 21, 2016 requesting acceptance of the opinion of their consultant and an urgent ruling on the dispute. No amount additional to the deposit that has already been made is required if this case is lost. | 100,603 |
110
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Tam Linhas Aéreas S.A.
| Internal Revenue Service of Brazil.
| 10880.725950/2011-05
| Compensation credits of the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS) Declared on DCOMPs.
| The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed. The case was assigned to the 1st Ordinary Group of Brazil’s Administrative Council of Tax Appeals (CARF) on June 8, 2015. TAM’s appeal was included in the CARF session held August 25, 2016. An agreement that converted the proceedings into a formal case was published on October 7, 2016. | 64,524
|
111
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Aerovías de Integración Regional, AIRES S.A. | United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A. | 2013-20319 CA 01 | The July 30th , 2012 Aerovías de Integración Recional, Aires S.A. ( LATAM AIRLINES COLOMBIA) initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LATAM AIRLINES COLOMBIA arising from breach of contractual obligations of the aircraft HK-4107.
The June 20th , 2013 AIRES SA And / Or LATAM AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LATAM AIRLINES COLOMBIA customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.
| This case is being heard by the 45th Civil Court of the Bogotá Circuit in Colombia. The court issued an order on August 16, 2016 setting the hearing date pursuant to Article 101 for February 2, 2017. At that hearing, a reconciliation should have been attempted, the facts in dispute determined, interrogatories made and evidence admitted. At the petition of Regional One’s attorneys on January 27, 2017, which was accepted by the respondent, the hearing to be held on February 2, 2017 was postponed. A reconciliation hearing was held on June 14, 2017 that failed. This commenced the evidentiary stage in which the legal representative of LATAM Airlines Colombia was interrogated. The judge must now decree which evidence must be presented and analyzed. The measure was suspended on January 17, 2018 and rescheduled to February 12, 2018. Witnesses for Regional One and VAS made statements on February 12, 2018. The court received the expert opinions requested by Regional One and VAS and at the request of these latter two, asked the experts to expand upon those opinions. It also replaced the experts requested by LAN Colombia. These opinions must be received before a new hearing can be scheduled. The U.S. Federal Court for the State of Florida rendered a decision on March 26, 2014 sustaining the petition of Lan Colombia Airlines to stay the proceedings in the U.S. as long as the lawsuit in Colombia was pending. The U.S. Court also closed the case administratively. The Federal Court of Appeals confirmed the closing of the U.S. case on April 1, 2015. On October 13, 2015, Regional One filed a petition with the U.S. Court seeking a reopening of the case. Lan Colombia Airlines presented its arguments for keeping the case closed, which were sustained by the Court on August 23, 2016. On January 1, 2018, Regional One again petitioned the U.S. Court to reopen the case. Both parties have filed their arguments on Regional One’s latest petition. The U.S. case remains closed until the Court renders a decision. | 12,443 |
112
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
Tam Linhas Aéreas S.A.
| Internal Revenue Service of Brazil | 10880.722.355/2014-52 | On August 19th, 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.
| An administrative objection was filed on September 17th, 2014. A first-instance ruling was rendered on June 1, 2016 that was partially favorable. The separate fine was revoked. A voluntary appeal was filed on June 30, 2016, which is pending a decision by CARF. On January 9, 2016, the case was referred to the Second Division, Fourth Chamber, of the Third Section of the Administrative Council of Tax Appeals (CARF). | 74,094 | |||||
Tam Linhas Aéreas S.A.
| Labor Court of São Paulo.
| 0001734-78.2014.5.02.0045
| Action filed by the Ministry of Labor, which requires compliance with legislation on breaks, extra hours and others. | This case is in the initial stages. It could possibly impact both operations and employee work shift control. TAM won in the first instance, but the Prosecutor’s Office has appealed the trial court’s decision. That decision was sustained by the appellate court. A petition by the Prosecutor’s Office for clarification is now pending before the courts. The Office of the Public Prosecutor withdrew the petition for clarification and the case was closed in favor of LATAM. Now pending are the measures pertaining to lawsuit management so that transfer to the court is declared. | 16,093 | |||||
TAM S.A. | Conselho Administrativo de Recursos Fiscais. | 13855.720077/2014-02 | Notice of an alleged infringement presented by Secretaria da Receita Federal do Brasil requiring the payment of IRPJ and CSLL, taxes related to the income earned by TAM on March, 2011, in relation of the reduction of the statute capital of Multiplus S.A. | On January 12, 2014, it was filed an appeal against the object of the notice of infringement. Currently, the company is waiting for the court judgment regarding the appeal filed in the Conselho Administrativo de Recursos Fiscais (CARF) The case will be put into the system again for re-assignment for hearing and reporting because of the departure of Eduardo de Andrade, a CARF council member. The decision was against TAM. The lawsuit was on August 13, 2017. The administrative court’s decision was that TAM Linhas Aereas must pay Corporate Income Tax (IRPJ) and the Social Contribution based on Net Profits (CSLL). The Company was summoned to hear a decision on December 18, 2017. TAM filed an appeal on December 28, 2017. TAM’s appeal was not heard on January 17, 2018. A decision is pending service.
| 149,398 |
113
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
TAM Linhas Aéreas S.A. | Sao Paulo Labor Court, Sao Paulo
| 1001531-73.2016.5.02.0710 | The Ministry of Labor filed an action seeking that the company adapt the ergonomics and comfort of seats.
| In August 2016, the Ministry of Labor filed a new lawsuit before the competent Labor Court in Sao Paulo, in the same terms as case 0000009-45.2016.5.02.090, as previously reported. The judgment is pending. (22/06/2018). | 17,668 | |||||
LATAM Airlines Group S.A.
| 22° Civil Court of Santiago
| C-29.945-2016
| The Company received notice of a civil liability claim by Inversiones Ranco Tres S.A. on January 18, 2017. It is represented by Mr. Jorge Enrique Said Yarur. It was filed against LATAM Airlines Group S.A. for an alleged contractual default by the Company and against Ramon Eblen Kadiz, Jorge Awad Mehech, Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, directors and officers, for alleged breaches of their duties. In the case of Juan Jose Cueto Plaza, Enrique Cueto Plaza and Ignacio Cueto Plaza, it alleges a breach, as controllers of the Company, of their duties under the incorporation agreement. LATAM has retained legal counsel specializing in this area to defend it.
| The claim was answered on March 22, 2017 and the plaintiff filed its replication on April 4, 2017. LATAM filed its rejoinder on April 13, 2017, which concluded the argument stage of the lawsuit. A reconciliation hearing was held on May 2, 2017, but the parties did not reach an agreement.The Court issued the evidentiary decree on May 12, 2017. We filed a petition for reconsideration because we disagreed with certain points of evidence. That petition was partially sustained by the Court on June 27, 2017. The evidentiary stage commenced and then concluded on July 20, 2017. Observations to the evidence must now be presented. That period expires August 1, 2017. We filed our observations to the evidence on August 1, 2017. We were served the decision on December 13, 2017 that dismissed the claim since LATAM was in no way liable. The plaintiff filed an appeal on December 26, 2017. We are currently waiting for the case to be heard by the Court of Appeals. | 21,969 |
114
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
TAM Linhas Aéreas S.A.
| 10th Jurisdiction of Federal Tax Enforcement of Sao Paulo
| 0061196-68.2016.4.03.6182
| Tax Enforcement Lien No. 0020869-47.2017.4.03.6182 on Profit-Based Social Contributions from 2004 to 2007.
| This tax enforcement was referred to the 10th Federal Jurisdiction on February 16, 2017. A petition reporting our request to submit collateral was recorded on April 18, 2017. At this time, the period is pending for the plaintiff to respond to our petition. The bond was replaced. | 43,675 | |||||
TAM Linhas Aéreas S.A.
| Federal Revenue Bureau
| 10880.900360/2017-55 | A claim regarding the negative Company Income Tax (IRPJ) balance. Appraisals of compensation that were not accepted.
| The case was referred to the National Claims Management Center of the Federal Revenue Bureau for Sao Paulo on May 11, 2017. | 15,989 | |||||
TAM Linhas Aéreas S.A.
| Internal Revenue Service of Brazil
| 16643.000085/2009-47
| Notice of claim to recover income taxes and social contributions paid on the basis of net profits (SCL) according to the royalty expenses and use of the TAM trademark.
| Before the Internal Revenue Service of Brazil. A service of process is expected in the lawsuit on admissibility of the special appeal, filed by the General Counsel of the National Treasury, as well as notification of the decision rendered by the Administrative Council of Tax Appeals (CARF). The decision was made to file a lawsuit on December 5, 2017. | 17,674
| |||||
TAM Linhas Aéreas S.A.
| Internal Revenue Service of Brazil
| 10831.012344/2005-55
| Notice of an infringement filed by the Company to request the import tax (II), the Social Integration Program (PIS) of the Social Security Funding Contribution (COFINS) as a result of an unidentified international cargo loss. | Before the Internal Revenue Service of Brazil. The administrative decision was against the company. The matter is pending a decision by the CARF.
| 17,841
| |||||
TAM Linhas Aéreas S.A.
| Treasury Department of the State of Sao Paulo
| 3.123.785-0
| Notice of an infringement to demand payment of the tax on the circulation of merchandise and services (ICMS) assessable on aircraft imports.
| Before the Treasury Department of the State of Sao Paulo. A decision is now pending on the appeal that the company has filed with the Federal Supreme Court (STF). | 14,662
|
115
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
TAM Linhas Aéreas S.A.
| Treasury Department of the State of Sao Paulo
| 4.037.054
| Action brought by the Treasury Department of the State of Sao Paulo because of non-payment of the tax on the circulation of merchandise and services (ICMS) in relation to telecommunications services.
| Before the Treasury Department of the State of Sao Paulo. Defensive arguments have been presented. The first-instance decision sustained all parts of the notice. We filed an ordinary appeal on which a decision is pending by the Sao Paulo Tax Court. | 10,839
| |||||
TAM Linhas Aéreas S.A.
| DERAT SPO (Delegacía de Receita Federal)
| 13808.005459/2001-45
| Collection of the Social Security Funding Contribution (COFINS) based on gross revenue of the company in the period 1999-2000. | The decision on collection was pending through June 2, 2010.
| 27,190
| |||||
Pantanal Linhas Aéreas S.A. | Tax Enforcement Court
| 0253410-30.2012.8.26.0014
| A lawsuit seeking enforcement of the fine and ICMS.
| A decision is pending on the appeal.
| 10,898
| |||||
TAM Linhas Aéreas S.A.
| Federal Revenue Bureau
| 10880.938.664/2016-12
| An administrative lawsuit about compensation not being proportional to the negative corporate income tax balance. | A decision is pending by CARF on the appeal.
| 27.486
| |||||
TAM Linhas Aéreas S.A.
| Delegacía de Receita Federal | 10611.720630/2017-16 | This is an administrative claim about a fine for the incorrectness of an import declaration (new lawsuit). | The administrative defensive arguments were presented September 28, 2017. | 22,374 | |||||
TAM Linhas Aéreas S.A.
| Delegacía de Receita Federal
| 10611.720852/2016-58
| An improper charge of the Contribution for the Financing of Social Security (COFINS) on an import (new lawsuit).
| We are currently awaiting a decision. There is no predictable decision date because it depends on the court of the government agency | 16,154
| |||||
TAM Linhas Aéreas S.A
| Delegacía de Receita Federal
| 16692.721.933/2017-80
| The Internal Revenue Service of Brazil issued a notice of violation because TAM applied for credits offsetting the contributions for the Social Integration Program (PIS) and the Social Security Funding Contribution (COFINS) that do not bear a direct relationship to air transport. | We are awaiting the presentation of an administrative defense.
| 34,322 |
116
Company | Court | Case Number | Origin | Stage of trial | Amounts Committed (*) | |||||
ThUS$ | ||||||||||
SNEA (Sindicato Nacional das empresas aeroviárias) | União Federal
| 0012177-54.2016.4.01.3400
| A claim against the 72% increase in airport control fees (TAT-ADR) and approach control fees (TAT-APP) charged by the Airspace Control Department (“DECEA”). | A decision is now pending on the appeal presented by SNEA.
| 29,460
| |||||
TAM Linhas Aéreas S/A
| União Federal
| 2001.51.01.020420-0
| TAM and other airlines filed a recourse claim seeking a finding that there is no legal or tax basis to be released from collecting the Additional Airport Fee (“ATAERO”).
| A decision by the superior court is pending. The amount is indeterminate because even though TAM is the plaintiff, if the ruling is against it, it could be ordered by the trial judge to pay certain fees. | -0-
| |||||
TAM Linhas Aéreas S/A
| Delegacia da Receita Federal | 10880-900.424/2018-07 | This is a claim for a negative Legal Entity Income Tax (IRPJ) balance for the 2014 calendar year (2015 fiscal year) because set-offs were not allowed. | The administrative defensive arguments were presented March 19, 2018. An administrative decision is now pending. | 18,983
| |||||
117
- | In order to deal with any financial obligations arising from legal proceedings in effect at March 31, 2018, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 21. |
- | The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome. |
(*) | The Company has reported the amounts involved only for the lawsuits for which a reliable estimation can be made of the financial impacts and of the possibility of any recovery, pursuant to Paragraph 86 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. |
II. | Governmental Investigations. |
1) | On July 25, 2016, LATAM reached agreements with theU.S. Department of Justice (“DOJ”) and theU.S. Securities and Exchange Commission (“SEC”) regarding the investigation of payments for US$1,150,000 by Lan Airlines S.A. in 2006-2007 to a consultant advising it in the resolution of labor matters in Argentina. |
The purpose of the investigation was to determine whether these payments violated the U.S. Foreign Corrupt Practices Act (“FCPA”) that: (i) forbids bribery of foreign government authorities in order to obtain a commercial advantage; and (ii) requires the companies that must abide by the FCPA to keep appropriate accounting records and implant an adequate internal control system. The FCPA is applicable to LATAM because of its ADR program in effect on the U.S. securities market.
After an exhaustive investigation, the DOJ and SEC concluded that there was no violation of the bribery provisions of the FCPA, which is consistent with the results of LATAM’s internal investigation. However, the DOJ and SEC consider that LAN accounted for these payments incorrectly and, consequently, infringed the part of the FCPA requiring companies to keep accurate accounting records. These authorities also consider that LAN’s internal controls in 2006-2007 were weak, so LAN would have also violated the provisions in the FCPA requiring it to maintain an adequate internal control system.
The agreements signed, included the following:
(a) | The agreement with the DOJ involves: (i) entering into a Deferred Prosecution Agreement (“DPA”), which is a public contract under which the DOJ files public charges alleging an infringement of the FCPA accounting regulations. LATAM is not obligated to answer these charges, the DOJ will not pursue them for a period of 3 years, and the DOJ will dismiss the charges after expiration of that 3-year period provided LATAM complies with all terms of the DPA. In exchange, LATAM must admit to the negotiated events described in the DPA and agree to pay the negotiated fine explained below and abide by other terms stipulated in the agreement; (ii) clauses in which LATAM admits that the payments to the consultant in Argentina were incorrectly accounted for and that at the time those payments were made (2006-2007), it did not have adequate internal controls in place; (iii) LATAM’s agreement to have an outside consultant monitor, evaluate and report to the DOJ on the effectiveness of LATAM’s compliance program for a period of 27 months; and LATAM’s agreement to continue evaluating and reporting directly to the DOJ on the effectiveness of its compliance program for a period of 9 months after the consultant’s work concludes; and (iv) LATAM paid a fine of KUS$12,750. |
118
(b) | The agreement with the SEC involves: (i) accepting a Cease and Desist Order, which is an administrative resolution of the SEC closing the investigation, in which LATAM will accept certain obligations and statements of fact that are described in the document; (ii) accepting the same obligations regarding the consultant mentioned above; and (iii) LATAM paid a fine of KUS$6,744 and interest of KUS$2,694. |
NOTE 32 – COMMITMENTS
(a) | Loan covenants |
With respect to various loans signed by the Company for the financing of Boeing 767, 767F, 777F and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis, for which, in any case non-compliance does not generate acceleration of the loans.
Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership, in relation to the ownership structure and the controlling group, and disposal of the assets which mainly refers to important transfers of assets.
The Company and its subsidiaries do not maintain financial credit contracts with banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries.
The Revolving Credit Facility (“Revolving Credit Facility”) with guaranteed aircraft, engines, spare parts and supplies for a total amount of US $ 450 million includes restrictions of minimum liquidity measured at the level of the Consolidated Company and measured at the individual level for the companies LATAM Airlines Group S.A. and TAM Linhas Aéreas S.A. which remain stand by while the credit line is not used. This credit line established with a consortium of eleven banks led by Citibank, is not used as of March 31, 2018.
As of March 31, 2018, the Company is in compliance with all the indicators detailed above.
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(b) | Commitments under operating leases as lessee |
Details of the main operating leases are as follows:
As of | As of | |||||||||||
March 31, | December 31, | |||||||||||
Lessor | Aircraft | 2018 | 2017 | |||||||||
Unaudited | ||||||||||||
ACS Aero 1 Alpha limited | Airbus A320 | — | 1 | |||||||||
Aircraft 76B-26329 Inc. | Boeing 767 | 1 | 1 | |||||||||
Aircraft 76B-28206 Inc. | Boeing 767 | 1 | 1 | |||||||||
Aviación Centaurus, A.I.E. | Airbus A319 | 3 | 3 | |||||||||
Aviación Centaurus, A.I.E. | Airbus A321 | 1 | 1 | |||||||||
Aviación Real A.I.E. | Airbus A319 | 1 | 1 | |||||||||
Aviación Real A.I.E. | Airbus A320 | 1 | 1 | |||||||||
Aviación Tritón A.I.E. | Airbus A319 | 3 | 3 | |||||||||
Avolon Aerospace AOE 62 Limited | Boeing 777 | 1 | 1 | |||||||||
Avolon Aerospace AOE 100 Limited | Airbus A320 | 2 | 2 | |||||||||
Avolon Aerospace AOE 134 Limited | Airbus A321 | 2 | — | |||||||||
AWAS 5234 Trust | Airbus A320 | 1 | 1 | |||||||||
Baker & Spice Aviation Limited | Airbus A320 | 1 | 1 | |||||||||
Bank of America | Airbus A321 | 2 | 2 | |||||||||
Bank of Utah | Boeing 787 | 2 | 2 | |||||||||
CIT Aerospace International | Airbus A320 | 1 | 1 | |||||||||
ECAF I 2838 DAC | Airbus A320 | 1 | 1 | |||||||||
ECAF I 40589 DAC | Boeing 777 | 1 | 1 | |||||||||
Eden Irish Aircr Leasing MSN 1459 | Airbus A320 | 1 | 1 | |||||||||
IC Airlease One Limited | Airbus A321 | 1 | 1 | |||||||||
JSA Aircraft 38484, LLC | Boeing 787 | 1 | 1 | |||||||||
JSA Aircraft 7126, LLC | Airbus A320 | 1 | 1 | |||||||||
JSA Aircraft 7128, LLC | Airbus A321 | 1 | 1 | |||||||||
JSA Aircraft 7239, LLC | Airbus A321 | 1 | 1 | |||||||||
JSA Aircraft 7298, LLC | Airbus A321 | 1 | 1 | |||||||||
Macquarie Aerospace Finance 5125-2 Trust | Airbus A320 | 1 | 1 | |||||||||
Macquarie Aerospace Finance 5178 Limited | Airbus A320 | 1 | 1 |
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As of | As of | |||||||||||
March 31, | December 31, | |||||||||||
Lessor | Aircraft | 2018 | 2017 | |||||||||
Unaudited | ||||||||||||
Merlin Aviation Leasing (Ireland) 18 Limited | Airbus A320 | 1 | 1 | |||||||||
Merlin Aviation Leasing (Ireland) 7 Limited | Airbus A320 | 1 | 1 | |||||||||
NBB Cuckoo Co., Ltd | Airbus A321 | 1 | 1 | |||||||||
NBB Grosbeak Co., Ltd | Airbus A321 | 1 | 1 | |||||||||
NBB Redstart Co. Ltd | Airbus A321 | 1 | 1 | |||||||||
NBB-6658 Lease Partnership | Airbus A321 | 1 | 1 | |||||||||
NBB-6670 Lease Partnership | Airbus A321 | 1 | 1 | |||||||||
Orix Aviation Systems Limited | Airbus A320 | 4 | 4 | |||||||||
PAAL Aquila Company Limited | Airbus A321 | 2 | 2 | |||||||||
PAAL Gemini Company Limited | Airbus A321 | 1 | 1 | |||||||||
Shenton Aircraft Leasing Limited | Airbus A320 | 1 | 1 | |||||||||
Sky High XXIV Leasing Company Limited | Airbus A320 | 5 | 5 | |||||||||
Sky High XXV Leasing Company Limited | Airbus A320 | 2 | 2 | |||||||||
SMBC Aviation Capital Limited | Airbus A320 | 4 | 4 | |||||||||
SMBC Aviation Capital Limited | Airbus A321 | 2 | 2 | |||||||||
Volito Aviation August 2007 AB | Airbus A320 | — | 2 | |||||||||
Volito Aviation November 2006 AB | Airbus A320 | — | 2 | |||||||||
Volito November 2006 AB | Airbus A320 | — | 2 | |||||||||
Wamos Air S.A. | Airbus A320 | 1 | — | |||||||||
Wells Fargo Bank North National Association | Airbus A319 | 2 | 2 | |||||||||
Wells Fargo Bank Northwest National Association | Airbus A320 | 11 | 5 | |||||||||
Wells Fargo Bank Northwest National Association | Airbus A350 | 2 | 2 | |||||||||
Wells Fargo Bank Northwest National Association | Boeing 767 | 1 | 2 | |||||||||
Wells Fargo Bank Northwest National Association | Boeing 777 | 4 | 4 | |||||||||
Wells Fargo Bank Northwest National Association | Boeing 787 | 11 | 11 | |||||||||
Total | 94 | 93 |
The rentals are shown in results for the period for which they are incurred.
The minimum future lease payments not yet payable are the following:
As of | As of | |||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
No later than one year | 507,860 | 462,205 | ||||||
Between one and five years | 1,766,913 | 1,620,253 | ||||||
Over five years | 1,464,833 | 1,498,064 | ||||||
Total | 3,739,606 | 3,580,522 |
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The minimum operating lease payments charged to income are the following:
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Minimum operating lease payments | 135,761 | 150,396 | ||||||
Total | 135,761 | 150,396 |
During 2018, two (2) Airbus A321-200 aircraft were added for a period of 10 years each and one (1) Airbus A330-200 aircraft for a period of 4 months. On the other hand, one (1) Boeing 767-300 Freighter aircraft was returned.
The operating lease agreements entered into by the Parent Company and its subsidiaries establish that aircraft maintenance must be carried out in accordance with the technical provisions of the manufacturer and in the margins agreed in the contracts with the lessor, a cost assumed by the lessee. Additionally, for each aircraft, the lessee must purchase policies that cover the associated risk and the amount of the assets involved. As for the rent payments, they are unrestricted, and can not be netted from other accounts receivable or payable by the lessor and the lessee.
The ACMI lease agreements entered into by the Parent Company and its subsidiaries establish that the costs of the aircraft, crew, maintenance and insurance must be provided by the lessor. As for the rent payments, they are unrestricted, and cannot be netted from other accounts receivable or payable by the lessor and the lessee. At March 31, 2018 the Company has existing letters of credit related to operating leasing as follows:
Value | Release | |||||||||||
Creditor Guarantee | Debtor | Type | ThUS$ | date | ||||||||
GE Capital Aviation Services Limited | Lan Cargo S.A. | One letter of credit | 1,100 | Nov 30, 2018 | ||||||||
ACS Aero 1 Alpha Limited | LATAM Airlines Group S.A. | One letter of credit | 3,255 | Aug 31, 2018 | ||||||||
Bank of America | LATAM Airlines Group S.A. | Three letter of credit | 1,043 | Jul 2, 2018 | ||||||||
Bank of Utah | LATAM Airlines Group S.A. | One letter of credit | 2,000 | Mar 24, 2019 | ||||||||
Engine Lease Finance Corporation | LATAM Airlines Group S.A. | One letter of credit | 4,750 | Oct 8, 2018 | ||||||||
GE Capital Aviation Services Ltd. | LATAM Airlines Group S.A. | Six letter of credit | 22,105 | Apr 30, 2018 | ||||||||
International Lease Finance Corp | LATAM Airlines Group S.A. | Three letter of credit | 1,450 | Aug 5, 2018 | ||||||||
ORIX Aviation Systems Limited | LATAM Airlines Group S.A. | Two letter of credit | 7,366 | Dec 11, 2018 | ||||||||
Wells Fargo Bank | LATAM Airlines Group S.A. | Nine letter of credit | 15,160 | Jun 16, 2018 | ||||||||
CIT Aerospace International | Tam Linhas Aéreas S.A. | One letter of credit | 6,500 | Jul 15, 2018 | ||||||||
Wells Fargo Bank North N.A. | Tam Linhas Aéreas S.A. | One letter of credit | 5,500 | Oct 25, 2018 | ||||||||
70,229 |
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(c) Other commitments
At March 31, 2018 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:
Value | Release | |||||||||||
Creditor Guarantee | Debtor | Type | ThUS$ | date | ||||||||
Servicio Nacionalde Aduana del | Líneas Aéreas Nacionales | |||||||||||
Ecuador | del Ecuador S.A. | Three letter of credit | 1,705 | Aug 5, 2018 | ||||||||
Corporación Peruana de Aeropuertos y Aviación Comercial | Lan Perú S.A. | Seventeen letter of credit | 1,781 | May 16, 2018 | ||||||||
Lima Airport Partners S.R.L. | Lan Perú S.A. | Twenty two letter of credit | 2,364 | Apr 30, 2018 | ||||||||
Superintendencia Nacionalde Aduanas y de Administración Tributaria | Lan Perú S.A. | Ten letter of credit | 88,000 | Jun 30, 2018 | ||||||||
Aena Aeropuertos S.A. | LATAM Airlines Group S.A. | Four letter of credit | 2,770 | Nov 15, 2018 | ||||||||
American Alternative Insurance Corporation | LATAM Airlines Group S.A. | Six letter of credit | 3,690 | Jun 9, 2018 | ||||||||
Comisión Europea | LATAM Airlines Group S.A. | One letter of credit | 9,734 | Jun 16, 2018 | ||||||||
Deutsche Bank A.G. | LATAM Airlines Group S.A. | One letter of credit | 5,000 | Mar 31, 2018 | ||||||||
Dirección General de Aeronáutica Civil | LATAM Airlines Group S.A. | Fifty eigth letter of credit | 19,848 | Apr 30, 2018 | ||||||||
Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador | LATAM Airlines Group S.A. | One letter of credit | 5,500 | Jun 18, 2018 | ||||||||
Metropolitan Dade County | LATAM Airlines Group S.A. | Eight letter of credit | 2,273 | May 31, 2018 | ||||||||
4ª Vara Mista de Bayeux | Tam Linhas Aéreas S.A. | One insurance policies guarantee | 1,040 | Mar 25, 2021 | ||||||||
Conselho Administrativo de Conselhos Federais | Tam Linhas Aéreas S.A. | One insurance policies guarantee | 12,646 | May 19, 2020 | ||||||||
Fundação de Proteão de Defesa do Consumidor Procon | Tam Linhas Aéreas S.A. | Four insurance policies guarantee | 5,175 | Oct 28, 2019 | ||||||||
União Federal | Tam Linhas Aéreas S.A. | Three insurance policies guarante | 9,219 | Sep 28, 2021 | ||||||||
União Federal -Fazenda Nacional | Tam Linhas Aéreas S.A. | One insurance policies guarantee | 41,057 | Jul 30, 2020 | ||||||||
União Federal - Procuradoira - Gral da fazenda Nacional | Tam Linhas Aéreas S.A. | Four insurance policies guarantee | 50,961 | Jan 4, 2020 | ||||||||
União Federal Vara Comarca de SP | Tam Linhas Aéreas S.A. | One insurance policies guarantee | 19,181 | Feb 22, 2021 | ||||||||
281,944 |
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NOTE 33 - TRANSACTIONS WITH RELATED PARTIES
(a) Details of transactions with related parties as follows:
Nature of relationship with | Country | Nature of related parties | Transaction amount with related parties As of March 31, | ||||||||||||||||
Tax No . | Related party | related parties | of origin | transactions | Currency | 2018 | 2017 | ||||||||||||
ThUS$ | ThUS$ | ||||||||||||||||||
Unaudited | |||||||||||||||||||
96.810.370-9 | Inversiones Costa Verde Ltda. yCPA. | Related director | Chile | Tickets sales | CLP | 4 | 7 | ||||||||||||
65.216.000-K | Comunidad Mujer | Related director | Chile | Tickets sales | CLP | — | 6 | ||||||||||||
78.591.370-1 | Bethia S.A and subsidiaries | Related director | Chile | Services received of cargo transport | CLP | 212 | 442 | ||||||||||||
Services received from National and International | (17 | ) | (127 | ) | |||||||||||||||
65.216.000-K | Viajes Falabella Ltda. | Related director | Chile | Sales commissions | CLP | (353 | ) | (210 | ) | ||||||||||
87.752.000-5 | Granja Marina To rnagaleo nes S.A. | Common shareholder | Chile | Tickets sales | CLP | 14 | 21 | ||||||||||||
Foreign | Consultoría Administrativa Profesional S.A. de C.V. | Associate | Mexico | Professional counseling services received | MXN | (668 | ) | (474 | ) | ||||||||||
Foreign | Invers o ra Aero náutica Argentina | Related director | Argentina | Leases as lessor | ARS | (66 | ) | (67 | ) | ||||||||||
Foreign | TAM Aviação Executiva e Taxi Aéreo S/A | Related director | Brazil | Services received of transfer of passengers | BRL | 17 | — | ||||||||||||
Services received of cargo transport | BRL | 1 | 1 | ||||||||||||||||
Services received at airports | BRL | — | (19 | ) | |||||||||||||||
Fo reign | Qatar Airways | Indirect shareholder | Qatar | Services provided by aircraft lease | US$ | 5,325 | 1,770 | ||||||||||||
Interlineal received service | US$ | (306 | ) | (262 | ) | ||||||||||||||
Interlineal provided service | US$ | 1,330 | 168 | ||||||||||||||||
Services provided of handling | US$ | 441 | 36 | ||||||||||||||||
Other services received/provided | US$ | 159 | — |
The balances of Accounts receivable and accounts payable to related parties are disclosed in Note 9.
Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.
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(b) | Compensation of key management |
The Company has defined for these purposes that key management personnel are the executives who define the Company’s policies and major guidelines and who directly affect the results of the business, considering the levels of Vice-Presidents, Chief Executives and Directors (Senior).
For the period ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Remuneration | 3,427 | 5,493 | ||||||
Management fees | 34 | 74 | ||||||
Non-monetary benefits | 186 | 219 | ||||||
Short-term benefits | 22,284 | 10,644 | ||||||
Share-based payments | 7,735 | 3,608 | ||||||
Total | 33,666 | 20,038 |
NOTE 34 - SHARE-BASED PAYMENTS
(a) | Compensation plan for increase of capital |
Compensation plans implemented by providing options for the subscription and payment of shares that have been granted by LATAM Airlines Group S.A. to employees of the Company and its subsidiaries, are recognized in the financial statements in accordance with the provisions of IFRS 2 “Share-based Payment”, showing the effect of the fair value of the options granted under compensation in linear between the date of grant of such options and the date on which these irrevocable.
(a.1) | Compensation plan 2013 |
At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, in conformity with the stipulations established in Article 24 of the Corporations Law. With regard to this compensation, a defined date for implementation does not exist.
(b) | Compensation plan 2016-2018 |
The company implemented a retention plan long-term for executives, which lasts until December 2018, with a vesting period between October 2018 and March 2019, which consists of an extraordinary bonus whose calculation formula is based on the variation the value to experience the action of LATAM Airlines Group S.A. for a period of time.
125
This benefit is recognized in accordance with the provisions of IFRS 2 “Share-based Payments” and has been considered as cash settled award and therefore recorded at fair value as a liability, which is updated to the closing date of each financial statement with effect on profit or loss.
Base Units | |||||||||||||||||||||
Opening | Closing | ||||||||||||||||||||
Periods | balance | Granted | Annulled | Exercised | Balance | ||||||||||||||||
From January 1 to December 31, 2017 | 4,719,720 | 37,359 | (1,193,286 | ) | (630,897 | ) | 2,932,896 | ||||||||||||||
From January 1 to March 31, 2018 (Unaudited) | 2,932,896 | — | — | — | 2,932,896 |
The fair value has been determined on the basis of the best estimate of the future value of the Company share multiplied by the number of units granted bases.
At March 31, 2018, the carrying amount of ThUS$ 7,735, is classified under “Administrative expenses” in the Consolidated Statement of Income by Function.
(c) Subsidiaries compensation plans
(c.1) Stock Options
Multiplus S.A., subsidiaries of TAM S.A., have outstanding stock options at March 31, 2018, which amounted to 247,500 shares (at December 31, 2017, the distribution of outstanding stock options amounted to 316,025 for Multiplus S.A.).
Multiplus S.A.
4nd Extraordinary | ||||||||||||||||
3rd Grant | 4th Grant | Grant | ||||||||||||||
Description | 03-21-2012 | 04-03-2013 | 11-20-2013 | Total | ||||||||||||
Outstanding option number as December 31, 2017 | 84,249 | 163,251 | 68,525 | 316,025 | ||||||||||||
Outstanding option number as March 31, 2018 (Unaudited) | 84,249 | 163,251 | — | 247,500 |
For Multiplus S.A., the plan’s terms provide that the options granted to the usual prizes are divided into three equal parts and employees may exercise one-third of their two, three and four, options respectively, as long as they keep being employees of the company. The agreed term of the options is seven years after the grant of the option. The first extraordinary granting was divided into two equal parts, and only half of the options may be exercised after three years and half after four years. The second extraordinary granting was also divided into two equal parts, which may be exercised after one and two years respectively.
126
The acquisition of the share’s rights, in both companies is as follows:
Number of shares Accrued options | Number of shares Non accrued options | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||
Company | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Unaudited | Unaudited | |||||||||||||||
Multiplus S.A. | — | — | — | 316,025 |
In accordance with IFRS 2 - Payments based on shares, the fair value of the option must be recalculated and recorded in the liability of the Company, once cash payment is made (cash-settled). The fair value of these options was calculated using the “Black-Scholes-Merton” method, where the assumptions were updated with information from LATAM Airlines Group S.A. As of March 31, 2018 and 2017 there is no value recorded in liabilities and results.
(c.2) Payments based on restricted stock
In May of 2014 the Management Council of Multiplus S.A. approved a plan to grant restricted stock, a total of 91,103 ordinary, registered book entry securities with no face value, issued by the Company to beneficiaries.
The quantity of restricted stock units was calculated based on employees’ expected remunerations divided by the average price of shares in Multiplus S.A. traded on the BM&F Bovespa exchange in the month prior to issue, April of 2014. This benefits plan will only grant beneficiaries the right to the restricted stock when the following conditions have been met:
a. Compliance with the performance goal defined by this Council as return on Capital Invested.
b. The Beneficiary must remain as an administrator or employee of the Company for the period running from the date of issue to the following dates described, in order to obtain rights over the following fractions: (i) 1/3 (one third) after the 2nd year from the issue date; (ii) 1/3 (one third) after the 3rd year from the issue date; (iii) 1/3 (one third) after the 4th year from the issue date.
Number shares in circulation
Opening | Not acquired due to breach of employment retention | Closing | |||||||||||||||||
balance | Granted | Exercised | conditions | balance | |||||||||||||||
From January 1to December 31, 2017 | 237,856 | 129,218 | (41,801 | ) | (15,563) | 309,710 | |||||||||||||
From January 1to March 31, 2018 (Unaudited) | 309,710 | — | (69,934 | ) | — | 239,776 |
NOTE 35 - STATEMENT OF CASH FLOWS
(a) The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 17 letter (d), additional information in numeral (iv) Financial leases.
127
(b) Other inflows (outflows) of cash:
2018 | 2017 | |||||||
ThUS$ | ThUS$ | |||||||
Unaudited | ||||||||
Guarantees | 1,799 | (799 | ) | |||||
Fuel hedge | 14,654 | 14,023 | ||||||
Fuel derivatives premiums | 1,566 | (3,790 | ) | |||||
Hedging margin guarantees | (5,844 | ) | (1,620 | ) | ||||
Tax paid on bank transaction | (3,308 | ) | (1,270 | ) | ||||
Bank commissions, taxes paid and other | (3,319 | ) | (4,998 | ) | ||||
Change reservation systems | — | (16,120 | ) | |||||
Currency hedge | (1,064 | ) | (3,634 | ) | ||||
Court deposits | (10,806 | ) | (7,993 | ) | ||||
Total Other inflows (outflows) Operation flow | (6,322 | ) | (26,201 | ) | ||||
Tax paid on bank transaction | (621 | ) | (1,218 | ) | ||||
Others | 12,352 | (479 | ) | |||||
Total Other inflows (outflows) Investment flow | 11,731 | (1,697 | ) | |||||
Loan guarantee | — | 79,051 | ||||||
Aircraft Financing advances | — | 13,107 | ||||||
Settlement of derivative contracts | (2,449 | ) | (11,577 | ) | ||||
Total Other inflows (outflows) Financing flow | (2,449 | ) | 80,581 |
Dividends:
For the periods ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Unaudited | ||||||||
ThUS$ | ThUS$ | |||||||
Multiplus S.A. (*) | (9,716 | ) | (11,796 | ) | ||||
Total dividends paid | (9,716 | ) | (11,796 | ) |
(*) Dividends paid to minority shareholders
128
d) Reconciliation of liabilities arising from financing activities:
As of | Cash flows | Non-Flow Movements | As of | |||||||||||||||||||||||||
Obligations with | December 31, | Obtainment | Payment | Interest accrued | March 31, | |||||||||||||||||||||||
financial institutions | 2017 | Capital | Capital | Interest | and others | Reclassifications | 2018 | |||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||||||
Loans to exporters | 314,619 | 79,989 | (70,000 | ) | (2,246 | ) | 3,287 | — | 325,649 | |||||||||||||||||||
Bank loans | 321,633 | 5,003 | (21,788 | ) | (3,367 | ) | 5,804 | — | 307,285 | |||||||||||||||||||
Guaranteed obligations | 4,036,843 | — | (87,713 | ) | (30,300 | ) | 30,550 | (854,854 | ) | 3,094,526 | ||||||||||||||||||
Other guaranteed obligations | 242,175 | — | 213 | (2,274 | ) | 2,333 | — | 242,447 | ||||||||||||||||||||
Obligation with the public | 1,584,066 | — | — | — | 36,906 | — | 1,620,972 | |||||||||||||||||||||
Financial leases | 1,109,504 | — | (183,839 | ) | (17,903 | ) | 25,627 | 854,854 | 1,788,243 | |||||||||||||||||||
Other loans | 282,800 | — | (21,551 | ) | (4,560 | ) | 4,499 | — | 261,188 | |||||||||||||||||||
Total Obligations with financial institutions | 7,891,640 | 84,992 | (384,678 | ) | (60,650 | ) | 109,006 | — | 7,640,310 |
(e) Advances of aircraft
Below are the cash flows associated with aircraft purchases, which are included in the statement of consolidated cash flow, in the item Purchases of properties, plants and equipment:
For the periods ended March 31, | ||||||||
2018 | 2017 | |||||||
MUS$ | MUS$ | |||||||
(Unaudited) | ||||||||
Increases (payments) | (33,772 | ) | (19,314 | ) | ||||
Total cash flows | (33,772 | ) | (19,314 | ) |
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NOTE 36 - THE ENVIRONMENT
LATAM Airlines Group S.A has a commitment to sustainable development seeking to generate value taking into account the governance, environmental and social aspects. The company manages environmental issues at a corporate level, centralized in the Sustainability Management. For the company to monitor and minimize its impact on the environment is a commitment of the highest level; where the continuous improvement and contribute to the solution of the global climate change problem, generating added value to the company and the region, are the pillars of its management.
One of the functions of the Sustainability Management in environmental issues, together with the various areas of the Company, is to ensure environmental compliance, implement a management system and environmental programs that comply with the requirements every day more. demanding worldwide; in addition to continuous improvement programs in their internal processes, which generate environmental, social and economic benefits and which are added to those currently carried out.
Within the sustainability strategy, the Environment dimension of LATAM Airlines Group S.A., is called Climate Change and is based on the goal of achieving world leadership in this area, and for which we work on the following aspects:
i. Carbon footprint
ii. Eco Efficiency
iii. Sustainable Alternative Energy
iv. Standards and Certifications
This is how, during 2018, the following initiatives have been carried out:
- | Implementation of an Environmental Management System for the main operations of the company. It is highlighted that the company during 2016 has recertified its environmental management system in Miami facilities following the guidelines of the international standard ISO 14.001. |
- | Maintenance of the Stage 2 Certification of IATA Environmental Assestment (IEnvA) whose scope is the international flights operated from Chile, the most advanced level of this certification; being the first in the continent and one of the four airlines in the world that have this certification. |
- | Preparation of the environmental chapter for the sustainability report of the company, which allows to measure progress in environmental issues. |
- | Answer to the questionnaire of the DJSI. |
- | Measurement and external verification of the Corporate Carbon Footprint. |
- | Neutralization of land operations in the operations of Colombia and Peru with emblematic reforestation projects in the respective countries. |
It is highlighted that in 2017, LATAM Airlines Group maintained its inclusion for the fourth consecutive year in the world category of the Dow Jones Sustainability Index, with only 3 airlines in the world belonging to this select group.
130
NOTE 37 - EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS
(1) On April 10, 2018, The Company has reached a preliminary agreement for the sale of its stake of Aerotransportes Mas de Carga, S.A. de C.V. ("Mas Air") and Promotora Aerea Latinoamericana S.A. de C.V. to the Company Mas Aviation Group LTD. If the conditions stipulated in the agreement are met, the transaction is expected to be executed in early August of this year. The transaction amount is not considered material for LATAM Airlines Group financial statments.
(2) At the Ordinary Shareholders’ Meeting held on April 26, 2018, the shareholders approved the distribution of the final dividend proposed by the Board in the last meeting held on April 3 which proposed consists in distributing as dividend 30% of the Profit for the year 2017, equivalent to an amount of US $ 46,591,192.86, which will be paid on May 17, 2018.
(3) On May 7, 2018, LATAM Airlines and its subsidiaries Inversiones LAN S.A. and LAN Pax Group S.A. (collectively, the "Sellers"), sold, assigned and transferred to the Spanish companies Acciona Airport Services, S.A. and Acciona Aeropuertos, S.L. (collectively, the "Buyers") 100% of their shares (the"Shares") in the subsidiary that develops the ground handling business at the Santiago airport, Andes Aiport Services S.A.
The purchase price is the amount of $ 24,300 million Chilean pesos, which may be adjusted according to variations in net debt and working capital at the date of closing.
This operation will have a positive effect in the order of USD$ 25 million in the results of the Company.
(4) Subsequent to the closing date of the financial statements as of March 31, 2018, there has been a significant variation in the exchange rate (Central Bank of Brazil) R $ / US $, from R $ 3.32 to US$ to R $ 3.58 per US$ to May 8, 2018, which represents a depreciation of 7.67% of the Brazilian currency.
At the date of issuance of these financial statements, given the complexity of this matter, the administration has not yet concluded the analysis and determination of the financial effects of this situation.
Subsequent to March 31, 2018 and until the date of issuance of these financial statements, there is no knowledge of other financial or other events that significantly affect the balances or their interpretation.
The consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries as of March 31, 2018, have been approved in an Extraordinary Board Meeting on May 8, 2018.
131
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 8, 2018 | LATAM AIRLINES GROUP S.A. | |||||
By: | /s/Ramiro Alfonsín | |||||
Name: | Ramiro Alfonsín | |||||
Title: | Chief Financial Officer |