UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

August 14, 2019

 

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 LOGO) 

  

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 2019

 

CONTENTS

 

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

 

CLP - CHILEAN PESO
ARS - ARGENTINE PESO
US$ - UNITED STATES DOLLAR
THUS$ - THOUSANDS OF UNITED STATES DOLLARS
COP - COLOMBIAN PESO
BRL/R$  - BRAZILIAN REAL
THR$ - THOUSANDS OF BRAZILIAN REAL

 

 

 

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

 

Notes   Page 
     
1 - General information   1
2 - Summary of significant accounting policies   5
2.1. Basis of Preparation   5
2.2. Basis of Consolidation   14
2.3. Foreign currency transactions   15
2.4. Property, plant and equipment   17
2.5. Intangible assets other than goodwill   17
2.6. Goodwill   18
2.7. Borrowing costs   18
2.8. Losses for impairment of non-financial assets   18
2.9. Financial assets   19
2.10. Derivative financial instruments and hedging activities   20
2.11. Inventories   21
2.12. Trade and other accounts receivable   21
2.13. Cash and cash equivalents   21
2.14. Capital   21
2.15. Trade and other accounts payables   21
2.16. Interest-bearing loans   22
2.17. Current and deferred taxes   22
2.18. Employee benefits   22
2.19. Provisions   23
2.20. Revenue recognition   23
2.21. Leases   24
2.22. Non-current assets (or disposal groups) classified as held for sale   26
2.23. Maintenance   26
2.24. Environmental costs   26
3 - Financial risk management   26
3.1. Financial risk factors   26
3.2. Capital risk management   40
3.3. Estimates of fair value   40
4 - Accounting estimates and judgments   43
5 - Segmental information   46
6 - Cash and cash equivalents   51
7 - Financial instruments   52
7.1. Financial instruments by category   52
7.2. Financial instruments by currency   54
8 - Trade, other accounts receivable and non-current accounts receivable   55
9 - Accounts receivable from/payable to related entities   58
10 - Inventories   59
11 - Other financial assets   60
12 - Other non-financial assets   61
13 - Non-current assets and disposal group classified as held for sale   62

 

 

 

14 - Investments in subsidiaries   63
15 - Intangible assets other than goodwill   66
16 - Goodwill   67
17 - Property, plant and equipment   69
18 - Current and deferred tax   74
19 - Other financial liabilities   79
20 - Trade and other accounts payables   88
21 - Other provisions   90
22 - Other non financial liabiliies   92
23 - Employee benefits   94
24 - Accounts payable, non-current   96
25 - Equity   96
26 - Revenue   101
27 - Costs and expenses by nature   102
28 - Other income, by function   103
29 - Foreign currency and exchange rate differences   104
30 - Earnings per share   112
31 - Contingencies   113
32 - Commitments   125
33 - Transactions with related parties   127
34 - Share based payments   128
35 - Statement of cash flows   131
36 - The environment   133
37 - Events subsequent to the date of the financial statements   134

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS

 

   Note   As of
June 30,
2019
   As of
December 31,
2018
   As of
January 1,
2018
 
         ThUS$
Unaudited
    ThUS$
Restated
Unaudited
    ThUS$
Restated
Unaudited
 
Cash and cash equivalents                    
Cash and cash equivalents   6 - 7    1,061,348    1,081,642    1,142,004 
Other financial assets   7 - 11    396,752    383,984    559,919 
Other non-financial assets   12    281,441    290,476    244,778 
Trade and other accounts receivable   7 - 8    1,208,917    1,162,582    1,202,945 
Accounts receivable from related entities   7 - 9    6,849    2,931    2,582 
Inventories   10    335,913    279,344    236,666 
Current tax assets   18    77,421    69,134    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        3,368,641    3,270,093    3,466,881 
                     
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners   13    51,407    5,768    291,103 
                     
Total current assets        3,420,048    3,275,861    3,757,984 
Non-current assets                    
Other financial assets   7 - 11    53,389    58,700    88,090 
Other non-financial assets   12    215,695    227,541    212,203 
Accounts receivable   7 - 8    4,884    5,381    6,891 
Intangible assets other than goodwill   15    1,456,644    1,441,072    1,617,247 
Goodwill   16    2,319,106    2,294,072    2,672,550 
Property, plant and equipment   17    12,580,143    12,501,809    12,930,652 
Current tax assets   18    757    757    17,532 
Deferred tax assets   18    278,378    273,529    370,564 
Total non-current assets        16,908,996    16,802,861    17,915,729 
Total assets        20,329,044    20,078,722    21,673,713 

 

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
June 30,
2019
    As of
December 31,
2018
    As of
January 1,
2018
 
         ThUS$    ThUS$    ThUS$ 
         Unaudited    Restated    Restated 
Current liabilities             Unaudited    Unaudited 
Other financial liabilities   7 - 19    2,314,264    1,794,286    1,619,979 
Trade and other accounts payables   7 - 20    1,687,751    1,674,303    1,668,612 
Accounts payable to related entities   7 - 9    214    382    760 
Other provisions   21    4,996    4,794    2,783 
Current tax liabilities   18    2,199    3,738    3,511 
Other non-financial liabilities   22    2,437,210    2,454,746    2,901,603 
Total current liabilities other than (or disposal groups) classified as held for sale        6,446,634    5,932,249    6,197,248 
Liabilities included in disposal groups classified as held for sale   13            15,546 
Total current liabilities        6,446,634    5,932,249    6,212,794 
Non-current liabilities                    
Other financial liabilities   7 - 19    8,341,443    8,359,462    9,433,450 
Accounts payable   7 - 24    526,634    529,277    559,443 
Other provisions   21    307,386    303,495    374,593 
Deferred tax liabilities   18    772,884    786,571    877,748 
Employee benefits   23    91,099    82,365    101,087 
Other non-financial liabilities   22    792,518    644,702    158,305 
Total non-current liabilities        10,831,964    10,705,872    11,504,626 
Total liabilities        17,278,598    16,638,121    17,717,420 
EQUITY                    
Share capital   25    3,146,265    3,146,265    3,146,265 
Retained earnings   25    96,080    218,971    (41,012)
Treasury Shares   25    (178)   (178)   (178)
Other reserves        (211,531)   (4,365)   760,761 
Parent’s ownership interest        3,030,636    3,360,693    3,865,836 
Non-controlling interest   14    19,810    79,908    90,457 
Total equity        3,050,446    3,440,601    3,956,293 
Total liabilities and equity        20,329,044    20,078,722    21,673,713 

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

      For the 6 month period ended
June 30,
  For the 3 month period ended
June 30,
   Note  2019  2018  2019  2018
      ThUS$
Unaudited

ThUS$
Restated
Unaudited

  ThUS$
Unaudited
  ThUS$
Restated
Unaudited
Revenue   26    4,720,414    4,870,093    2,288,936    2,256,258 
Cost of sales        (3,948,361)   (3,847,586)   (1,926,806)   (1,871,608)
Gross margin        772,053    1,022,507    362,130    384,650 
Other income   28    174,811    217,797    81,021    101,096 
Distribution costs        (288,319)   (323,106)   (145,459)   (153,423)
Administrative expenses        (329,635)   (386,649)   (167,220)   (184,052)
Other expenses        (206,592)   (207,451)   (90,278)   (95,617)
Other gains/(losses)        1,927    27,675    5,912    31,131 
Income from operation activities        124,245    350,773    46,106    83,785 
Financial income        12,200    24,927    6,309    12,740 
Financial costs   27    (280,245)   (272,526)   (141,799)   (139,171)
Foreign exchange gains/(losses)   29    32,954    (176,953)   24,005    (177,764)
Result of indexation units        94    3,089    (1,817)   655 
Income (loss) before taxes        (110,752)   (70,690)   (67,196)   (219,755)
Income (loss) tax expense / benefit   18    (9,274)   (29,331)   3,767    13,882 
NET INCOME (LOSS) FOR THE PERIOD        (120,026)   (100,021)   (63,429)   (205,873)
Income (loss) attributable to owners of the parent        (122,891)   (115,581)   (62,817)   (207,750)
Income (loss) attributable to non-controlling interest   14    2,865    15,560    (612)   1,877 
                          
Net income (loss) for the year        (120,026)   (100,021)   (63,429)   (205,873)
EARNINGS PER SHARE                         
Basic earnings (losses) per share (US$)   30    (0.20265)   (0.19060)   (0.10359)   (0.34259)
Diluted earnings (losses) per share (US$)   30    (0.20265)   (0.19060)   (0.10359)   (0.34259)

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

      For the 6 months period ended
June 30,
  For the 3 months period ended
June 30,
   Note   2019   2018   2019   2018 
         ThUS$
Unaudited
    ThUS$
Restated
Unaudited
    ThUS$
Unaudited
    ThUS$
Restated
Unaudited
 
NET INCOME (LOSS)        (120,026)   (100,021)   (63,429)   (205,873)
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    (2,987)   (1,973)   (592)   125 
Total other comprehensive income that will not be reclassified to income before taxes        (2,987)   (1,973)   (592)   125 
Components of other comprehensive income that will be reclassified to income before taxes                         
Currency translation differences                         
Gains (losses) on currency translation, before tax   29    (33,408)   (518,987)   (13,741)   (495,250)
Other comprehensive income, before taxes, currency translation differences        (33,408)   (518,987)   (13,741)   (495,250)
Cash flow hedges                         
Gains (losses) on cash flow hedges before taxes   19    35,203    32,509    8,579    15,390 
Other comprehensive income (losses), before taxes, cash flow hedges        35,203    32,509    8,579    15,390 
Total other comprehensive income that will be reclassified to income before taxes        1,795    (486,478)   (5,162)   (479,860)
Other components of other comprehensive income (loss), before taxes        (1,192)   (488,451)   (5,754)   (479,735)
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    806    505    150    (20)
Accumulate income tax relating to other comprehensive income that will not be reclassified to income        806    505    150    (20)
Income tax relating to other comprehensive income that will be reclassified to income                         
Income tax related to cash flow hedges in other comprehensive income        167    192    (259)   719 
Income taxes related to components of other                         
comprehensive income that will be reclassified to income        167    192    (259)   719 
Total Other comprehensive income        (219)   (487,754)   (5,863)   (479,036)
Total comprehensive income (loss)        (120,245)   (587,775)   (69,292)   (684,909)
Comprehensive income (loss) attributable to owners of the parent        (148,075)   (593,340)   (55,642)   (678,033)
Comprehensive income (loss) attributable to non-controlling interests        27,830    5,565    (13,650)   (6,876)
TOTAL COMPREHENSIVE INCOME (LOSS)        (120,245)   (587,775)   (69,292)   (684,909)

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

     Attributable to owners of the parent         
           Change in other reserves                 
   Note   Share capital   Treasury shares   Currency translation reserve   Cash flow hedging reserve   Actuarial gains or losses on defined benefit plans reserve   Shares based payments reserve   Other sundry reserve   Total other reserve   Retained earnings   Parent’s ownership interest  

Non-

controlling interest

   Total equity 
       ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
Equity as of January 1, 2019 Restated (Unaudited)      3,146,265   (178)  (2,656,644)  (9,333)  (15,178)  37,874   2,638,916   (4,365)  218,971   3,360,693   79,908   3,440,601 
Total increase (decrease) in equity Comprehensive income Gain (losses)  25                           (122,891)  (122,891)  2,865   (120,026)
Other comprehensive income            (58,168)  35,164   (2,180)         (25,184)     (25,184)  24,965   (219)
Total comprehensive income            (58,168)  35,164   (2,180)        (25,184)  (122,891)  (148,075)  27,830   (120,245)
Transactions with shareholders Dividens  25                                     
Increase (decrease) through transfers and other changes, equity  25-34                  (1,804)  (180,178)  (181,982)     (181,982)  (87,928)  (269,910)
Total transactions with shareholders                     (1,804)  (180,178)  (181,982)     (181,982)  (87,928)  (269,910)
Closing balance as of June 30, 2019 (Unaudited)      3,146,265   (178)  (2,714,812)  25,831   (17,358)  36,070   2,458,738   (211,531)  96,080   3,030,636   19,810   3,050,446 

  

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                 
   Note   Share capital   Treasury shares   Currency translation reserve   Cash flow hedging reserve   Actuarial gains or losses on defined benefit plans reserve   Shares based payments reserve   Other sundry reserve   Total other reserve   Retained earnings   Parent’s ownership interest  

Non-

controlling interest

   Total 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 
Increase (decrease) by application of new accounting standards  2 - 25         205,877               205,877   (516,130)  (310,253)  (690)  (310,943)
Initial balance Restated (Unaudited)      3,146,265   (178)  (1,925,714)  18,140   (10,926)  39,481   2,639,780   760,761   (41,012)  3,865,836   90,457   3,956,293 
Total increase (decrease) in equity                                                    
Comprehensive income Gain (losses)  25                           (115,581)  (115,581)  15,560   (100,021)
Other comprehensive income            (509,625)  33,277   (1,411)        (477,759)     (477,759)  (9,995)  (487,754)
Total comprehensive income            (509,625)  33,277   (1,411)        (477,759)  (115,581)  (593,340)  5,565   (587,775)
Transactions with shareholders Dividens  25                                     
Increase (decrease) through transfers and other changes, equity  25-34                  (1,420)  (235)  (1,655)  (9,549)  (11,204)  (17,506)  (28,710)
Total transactions with shareholders                     (1,420)  (235)  (1,655)  (9,549)  (11,204)  (17,506)  (28,710)
Closing balance as of June 30, 2018 Restated (Unaudited)      3,146,265   (178)  (2,435,339)  51,417   (12,337)  38,061   2,639,545   281,347   (166,142)  3,261,292   78,516   3,339,808 

 

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 6 month period ended June 30, 
   Note   2019   2018 
       ThUS$   ThUS$ 
         Unaudited    Restated Unaudited 
Cash flows from operating activities               
Cash collection from operating activities               
Proceeds from sales of goods and services        5,666,473    4,923,137 
Other cash receipts from operating activities        52,441    48,217 
Payments for operating activities               
Payments to suppliers for goods and services        (3,686,587)   (3,057,890)
Payments to and on behalf of employees        (974,992)   (983,543)
Other payments for operating activities        (152,217)   (127,326)
Income taxes refunded (paid)        (29,750)   (40,145)
Other cash inflows (outflows)   35    (26,071)   (15,745)
Net cash flows from operating activities        849,297    746,705 
Cash flows used in investing activities               
Cash flows from losses of control of subsidiaries or other businesses            40,248 
Cash flows used to obtain control of subsidiaries or other businesses        (6)    
Cash flows used in the purchase of non-controlling interest        (289,582)    
Other cash receipts from sales of equity or debt instruments of other entities        2,057,987    1,937,709 
Other payments to acquire equity or debt instruments of other entities        (2,043,453)   (1,931,759)
Amounts raised from sale of property, plant and equipment        28,702    215,904 
Purchases of property, plant and equipment        (406,557)   (277,352)
Purchases of intangible assets        (41,084)   (44,830)
Cash advances and loans granted to third parties        (37,000)    
Interest received        10,316    5,836 
Other cash inflows (outflows)   35    (1,251)   5,757 
Net cash flow from (used in) investing activities        (721,928)   (48,487)
Cash flows from (used in) financing activities   35           
Amounts raised from long-term loans        1,038,473    382,663 
Amounts raised from short-term loans        50,000    205,000 
Loans repayments        (617,926)   (960,696)
Payments of lease liabilities        (190,567)   (191,308)
Dividends paid        (55,116)   (63,359)
Interest paid        (255,892)   (275,798)
Other cash inflows (outflows)        (57,827)   (6,890)
Net cash flows from (used in) financing activities        (88,855)   (910,388)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change        38,514    (212,170)
Effects of variation in the exchange rate on cash and cash equivalents        (58,808)   (155,945)
Net increase (decrease) in cash and cash equivalents        (20,294)   (368,115)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD   6    1,081,642    1,142,004 
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD   6    1,061,348    773,889 

 

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

 

 

 

LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2019 (UNAUDITED)

 

NOTE 1 - GENERAL INFORMATION

 

LATAM Airlines Group S.A. (the “Company”) is a public limited company registered with the Commission for the Financial Market under No. 306, whose shares are listed in Chile on the Electronic Stock Exchange of Chile - Stock Exchange and the Santiago Stock Exchange - Stock Exchange, besides being listed in the United States of America on the New York Stock Exchange (“NYSE”), in the form of American Depositary Receipts (“ADRs”).

 

Its main business is the air transport of passengers and cargo, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil, as well as in a series of regional and international routes in America, Europe and Oceania. These businesses are developed directly or by its subsidiaries in Ecuador, Peru, Brazil, Colombia, Argentina and Paraguay. In addition, the Company has subsidiaries that operate in the cargo business in Chile, Brazil and Colombia.

 

The Company is located in Chile, in the city of Santiago, on Avenida Americo Vespucio Sur No. 901, Renca commune.

 

As of June 30, 2019 the statutory capital of the Company is represented by 606,874,525 shares, all ordinary, without par value, which is divided into: (a) 606,407,693 subscribed and paid shares; and (b) 466,832 shares pending subscription and payment, which correspond to the balance of shares pending placement of the last capital increase approved at the extraordinary shareholders meeting of August 18, 2016.

 

The controller of the Company is the Cueto Group, which through the companies 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, so it is the controller of the Company in accordance with the provisions of letter b) of Article 97 and Article 99 of the Market Law of Values, taken care of that it influences decisively in the administration of this one.

 

As of June 30, 2019, the Company had a total of 1,423 shareholders in its registry. At that date, approximately 2.35% of the Company’s property was in the form of ADRs.

 

For the period ended June 30, 2019, the company had an average of 40,816 employees, ending this period with a total number of 41,018 people, distributed in 6,637 Administration employees, 4,977 in Maintenance, 13,058 in Operations, 9,131 Cabin Crew, 4,301 Cockpit Crew and 2,914 in Sales.

 

1 

 

 

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

 

a)Participation rate

 

             As June 30, 2019   As December 31, 2018 
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  Latam Airlines 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$    99.8940    0.0041    99.8980    99.8939    0.0041    99.8980 
Foreign  Connecta Corporation  U.S.A.   US$    100.0000    0.0000    100.0000    0.0000    100.0000    100.0000 
Foreign  Prime Airport Services Inc. and Subsidary  U.S.A.   US$    99.9714    0.0286    100.0000    0.0000    100.0000    100.0000 
96.951.280-7  Transporte Aéreo S.A.  Chile   US$    99.9999    0.0001    100.0000    0.0000    100.0000    100.0000 
96.631.520-2  Fast Air Almacenes de Carga S.A.  Chile   CLP    99.8900    0.1100    100.0000    0.0000    100.0000    100.0000 
Foreign  Laser Cargo S.R.L.  Argentina   ARS    96.2208    3.7792    100.0000    0.0000    100.0000    100.0000 
Foreign  Lan Cargo Overseas Limited and Subsidiaries  Bahamas   US$    99.9800    0.0200    100.0000    0.0000    100.0000    100.0000 
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidary  Chile   US$    99.0000    1.0000    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  Jarletul S.A.  Uruguay   US$    99.0000    1.0000    100.0000    99.0000    1.0000    100.0000 
Foreign  TAM S.A. and Subsidiaries (*)  Brazil   BRL    63.0901    36.9099    100.0000    63.0901    36.9099    100.0000 

 

(*)        As of June 30, 2019, 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 51.04% of political rights its percentage arise as a result of the provisional measure No. 863 of the Brazilian government implemented in December 2018 that allows foreign capital to have up to 100% of the property.

 

2 

 

 

b) Financial Information

 

      Statement of financial position   Net Income 
              For the period ended
June 30,
 
      As of June 30, 2019   As of December 31, 2018   2019     2018 
Tax No.  Company  Assets   Liabilities   Equity   Assets   Liabilities   Equity   Gain /(loss) 
       ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$    ThUS$ 
                     Restated         Restated 
      Unaudited   Unaudited   Unaudited 
96.518.860-6  Latam Travel Chile S.A. and Subsidary   8,678    2,685    5,993    10,841    3,909    6,932    1,443    1,451 
96.969.680-0  Lan Pax Group S.A. and Subsidiaries (*)   662,163    1,431,429    (756,464)   526,017    1,281,800    (751,960)   (95,592)   (86,928)
Foreign  Latam Airlines Perú S.A.   482,767    484,046    (1,279)   419,325    409,221    10,104    (5,807)   (6,169)
93.383.000-4  Lan Cargo S.A.   513,524    288,859    224,665    513,367    336,715    176,652    13,450    13,392 
Foreign  Connecta Corporation   36,670    4,764    31,906    66,593    28,183    38,410    10,419    10,419 
Foreign  Prime Airport Services Inc. and Subsidary (*)   14,670    16,365    (1,695)   15,817    17,654    (1,837)   1,367    1,367 
96.951.280-7  Transporte Aéreo S.A.   330,115    112,157    217,958    331,496    129,233    202,263    (1,664)   (1,836)
96.631.520-2  Fast Air Almacenes de Carga S.A.   17,004    9,455    7,549    17,057    9,614    7,443    119    63 
Foreign  Laser Cargo S.R.L.   11    17    (6)   26    13    13        —  
Foreign  Lan Cargo Overseas Limited and Subsidiaries (*)   58,429    36,038    15,917    53,326    13,040    40,028    (784)   (784)
96.969.690-8  Lan Cargo Inversiones S.A. and Subsidary (*)   154,776    164,085    (8,568)   181,522    192,059    (9,614)   1,543    1,543 
96.575.810-0  Inversiones Lan S.A. and Subsidiaries (*)   1,427    48    1,379    1,383    50    1,333    (4,728)   (4,728)
96.847.880-K  Technical Trainning LATAM S.A.   1,812    336    1,476    2,879    1,031    1,848    (32)   (32)
Foreign  Latam Finance Limited   678,691    732,359    (53,668)   679,034    756,774    (77,740)   (23,651)   (23,651)
Foreign  Peuco Finance Limited   608,191    608,191    —     608,191    608,191             
Foreign  Profesional Airline Services INC.   1,951    2,086    (135)   2,430    1,967    463    (401)   (401)
Foreign  Jarletul S.A.               18    125    (107)        
Foreign  TAM S.A. and Subsidiaries (*)   5,040,470    4,309,048    659,434    4,420,546    3,256,017    1,095,695    (200,988)   (48,163)

  

(*)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.

 

3 

 

 

The changes that occurred in the consolidation perimeter between January 1, 2018 and June 30, 2019, are detailed below:

 

(1)Incorporation or acquisition of companies

 

-On January 22, 2018, Lan Pax Group S.A., purchased 17,717 shares of Laser Cargo SRL. to Andes Airport Service S.A., consequently Lan Pax Group S.A. ownsership is 3.77922% and Lan Cargo S.A. with a 96.22078% share of Laser Cargo SRL.

 

-On March 13, 2018, the company Jarletul S.A., was create. The company ownership is 99% of LATAM Airlines Group S.A. and a 1% is from Inversiones Lan S. A.. The company main activity is a Travel Agency.

 

-As of December 31, 2018, Inversiones LAN S.A., subsidiary of LATAM Airlines Group S.A., acquired 5,319 shares of Aerovías de Integración Regional Aires S.A. a non-controlling shareholder, consequently, the indirect participation of LATAM Airlines Group S.A. corresponds to 99.2012%.

 

-In April 2019, TAM Linhas Aereas S.A, through a public offering of shares, acquired 26.08% of the shares of Multiplus S.A., owned by minority shareholders. Subsequently, the Company TAM S.A assigned 73.98% of its stake in Multiplus S.A., through a capital increase, to TAM Linhas Aerea S.A .; Because of 100% of the shares remain under the control of TAM Linhas Aereas S.A. a merge with Multiplus S.A. was materialized, leasing to be Multiplus S.A.an independent company on May 31, 2019. As a result of the merger by incorporation, the Coalition and Loyalty Program of Multiplus S.A. which was identified as an independent Cash Generating Unit (CGU), and which also represented an operating segment, becomes part, as well as, the other loyalty programs of the group (LATAM Pass and LATAM Fidelidade), of the CGU Air Transport. Additionally leaving from that moment Latam as a single operating segment within the Group.

 

(2)Disposition of companies.

 

-On May 7, 2018 LATAM Airlines Group S.A. and its subsidiaries Inversiones LAN S.A. and LAN Pax Group S.A., sold, assigned and transferred to the Spanish companies Acciona Airport Services, S.A. and Acciona Aeropuertos, S.L., 100% of its shares in the subsidiary Andes Airport Services S.A.

 

The sale value of Andes Airport Services S.A. it was ThUS$ 39,108

 

-On November 30, 2018, Mas Investment Limited, a subsidiary of LATAM Airlines Group S.A., sold to Puente Aéreo Corporación S.A. de C.V. his participation in the companies Air Transportes Mas de Carga S.A. de C.V. and Promotora Aérea Latino Americana S.A. de C.V.

 

The sale value of this transaction was ThUS$ 29,466.

 


4 

 

 

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 June 30, 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting.

 

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.

 

The consolidated interim financial statements have been prepared in accordance with the accounting policies used by the Company for the consolidated financial statements 2018, except for the standards and interpretations adopted as of January 1, 2019.

 

5 

 

 

(a)Accounting pronouncements with implementation effective from January 1, 2019:

 

Date of issue

Effective Date:

     
(i)     Standars and amendments     
     
IFRS 16: Leases. january 2016 01/01/2019
     
Amendment to IFRS 9: Financial instruments october 2017 01/01/2019
     

Amendment to IAS 28: Investments in associates and joint ventures

october 2017 01/01/2019
     
Amendment to IAS 19: Benefits to employees february  2018 01/01/2019
     
(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. december 2017 01/01/2019
     
(iii)   Interpretations    
     
IFRIC 23: Uncertain tax positions june 2017 01/01/2019

 

During the reporting period, the Company has recognized the changes, in the consolidated financial statements, as a result of the adoption of IFRS 16 retrospectively; restating the comparative figures, in accordance with the provisions of IAS 8 Accounting policies, changes in accounting estimates and errors.

 

The Company has modified the initial balances corresponding to January 1, 2018. The disclosures corresponding to the initial application of IFRS 9 and IFRS 15, which also originated changes, have been maintained in the consolidated financial statements.

 

6 

 

 

The impacts of the adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases are as follows:

 

Consolidated statement of financial position (extract)

 

a) As of January 1, 2018:

 

       As of   Adoption   As of   Adoption   As of 
       December 31,   effect   January 1   effect   January 1, 
   Note   2017   IFRS 9   IFRS 15   2018   IFRS 16   2018 
       ThUS$   THUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                       Unaudited   Restated 
                           Unaudited 
Current assets                            
Other non-financial assets, current  12   221,188      54,361(4)  275,549   (30,772)(9)  244,777 
Trade debtors and other accounts receivable, current  7 - 8   1,214,050   (11,105)(1)     1,202,945      1,202,945 
                             
Non-current assets                            
Other non-financial assets, non current  12   220,807         220,807   (8,603)(9)  212,204 
Properties, plants and equipment  17   10,065,335         10,065,335   2,865,317(9)  12,930,652 
Deferred tax assets  18   364,021   89(2)  6,005(7)  370,115   449(10)  370,564 
                             
Current liabilities                            
Other current financial liabilities  7 - 19   1,300,949         1,300,949   319,030(11)  1,619,979 
Trade and other accounts payables  7 - 20   1,695,202      (22,192)(5)  1,673,010   (4,398)(9)  1,668,612 
Other non-financial liabilities, current  22   2,823,963      77,640(6)  2,901,603      2,901,603 
                             
Non-current liabilities                            
Other non current financial liabilities  7-19   6,605,508         6,605,508   2,827,942(11)  9,433,450 
Accounts payable commercial and other  7 - 24   498,832         498,832   60,611(9)  559,443 
Deferred tax liability  18   949,697   (1,021)(2)  4,472(5)  953,148   (75,400)(10)  877,748 
Equity                            
Equity attributable to the owners of the Accumulated earnings  25   475,118   (9,995)(3)  446(8)  465,569   (506,581)(12)  (41,012)
Other reserves  25   554,885         554,885   205,877(12)  760,762 
Non-controlling interest  14   91,147         91,147   (690)(12)  90,457 

 

7 

 

 

b) As of December 31, 2018:

 

       As of   Adoption   As of 
       December 31,   effect   December 31, 
   Note   2018   IFRS 16   2018 
         ThUS$    ThUS$    ThUS$ 
              Unaudited    Restated 
                   Unaudited 
Current assets                    
Other non-financial assets, current   12    320,977    (30,501)(9)   290,476 
                     
Non-current assets                    
Other non-financial assets, non current   12    233,741    (6,200)(9)   227,541 
Properties, plants and equipment   17    9,953,365    2,548,444(9)   12,501,809 
Deferred tax assets   18    273,327    201(10)   273,528 
                     
Current liabilities                    
Other current financial liabilities   7 - 19    1,430,789    363,497(11)   1,794,286 
                     
Non-current liabilities                    
Other non current financial liabilities   7-19    5,864,910    2,494,552(11)   8,359,462 
Accounts payable commercial and other   7 - 24    483,656    45,621(10)   529,277 
Deferred tax liability   18    872,121    (85,550)(9)   786,571 
Equity                    
Equity attributable to the owners of the Accumulated earnings   25    597,675    (378,705)(12)   218,970 
Other reserves   25    (76,926)   72,561(12)   (4,365)
Non-controlling interest   14    79,940    (32)(12)   79,908 

 

- 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.

 

8 

 

 

As of January 1, 2018, the calculation of the impairment losses provision are as follows:

 

   Portfolio maturity 
           Up to   Up to   More than     
       Up to   91 to   181 to    360     
   Up to date   90 days   180 days   360 days   days   Total 
   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
                         
Expected loss rate  1%  21%  46%  67%  94%  8%
Gross book value  1,046,909   36,241   12,001   14,623   66,022   1,175,796 
Impairment provision  (13,570)  (7,774)  (5,499)  (9,803)  (61,787)  (98,433)

 

(2) Deferred tax adjustments originated by the application of IFRS 9.

 

(3) Net effect on accumulated results of the adjustments indicated above.

 

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 
                             
               Initial             
 Assets  Loans   Hedge   Held   as fair value       At fair value     
   and   and   for   through profit   Cost   with changes     
   receivables   derivatives   traiding   and loss   amortized   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 

 

9 

 

 

                 
   Classification IAS 39   Classification IFRS 9 
Liabilities  Others   Held         
   financial   hedge   Cost     
   liabilities   derivatives   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    
Balance as of January 1, 2018 (*)     14,817   10,086,434   10,101,251 

 

(*) Balances as of January 1, 2018 do not contain the re-expression effects originated by IFRS 16.

 

- 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 in other non-financial liabilities.

 

(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 benefit of the service have been rendered. These concepts are mainly related to the ground transportation service for US $ 15.6 million and traveler’s checks for US $ 6.6 million.

 

(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 these services, therefore some reclassifications were made in the consolidated income statement to reflect the corresponding commission.

 

10 

 

 

- Effects of adopting IFRS 16

 

(9) Company recognized under Property, plant and equipment right of use assets for US $ 2,865.3 million as of January 1, 2018 and US $ 2,548.4 as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 17).

 

The Company decrease other financial assets related to advance payments for leases for US $ 39.4 million as of January 1, 2018 and US $ 36.7 as of December 31, 2018, since with the application of the standard these amounts are considered in the initial measurement of the right of use asset.

 

The Company increased the cost of restoration associated with the return of aircraft and engines for US $ 56.2 million as of January 1, 2018 and US $ 45.6 million as of December 31, 2018. With the application of the standard, the net present value of this cost was included in the asset for right of use and its counterpart in the line of accounts payable, current or non-current, depending on the return date of the aircraft or engines.

 

(10) Deferred taxes: adjustments originated by the application of IFRS 16.

 

(11) Lease liabilities: The Company recognized within the Other financial liabilities for lease for US $ 3,147.0 million as of January 1, 2018 and US $ 2,858.0 million as of December 31, 2018, associated with contracts that meet the definition of lease (note 2.21 & 19).

 

(12) The effect of the recognition of the leases under IFRS 16 generated a decrease in retained earnings of US $ 506.6 million as of January 1, 2018 (US $ 378.7 million as of December 31, 2018). The increase in Other reserves of US $ 205.9 million as of January 1, 2018 (decrease of US $72,5 million as of December 31, 2018), was caused by the Cumulative translation adjustment of those subsidiaries with functional currencies other than the US dollar. The application of IFRS 16 also affected non-controlling interests.

 

11 

 

 

The effects of the changes recognized in the application of IFRS 15 and IFRS 16 as of June 30, 2018 are presented in the consolidated income statement:

 

       For the six months ended june 30, 2018 
                                 
Reconciliation Revenue              Adjustments for reconciliation     
                                 
       Results   Adoption   Results       Deferred       Results  
       under   Effect   under   Contract   revenues       under  
   Nota   IFRS 15   IFRS16   IFRS 15   costs (4)   recognition [(5), (6)]   Reclassifications   IAS 18 
                                 
       ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$ 
       Published       Restated                 
               IFRS 16                 
       Unaudited 
                                 
Revenue  26