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 December 31, 2017 amounts to ThUS$ 3,146,265 (*) divided into 606,407,693 common stock of a same series (ThUS$ 3,149,564 (**) divided into 606,407,693 shares as of December 31, 2016), 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.
(**) Includes adjustment for placement of the aforementioned 10,282 shares for ThUS $ 156.
| (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, 2017, 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 December 31, 2017, the number Company shares subscribed and paid amounts to 606,407,693.
At December 31, 2017, 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.
During 2016, the Company's capital stock was expressed in 613,164,243 shares, all of the same and unique series, nominative, ordinary, with no par value, that is, 551,847,819 shares already authorized at the beginning of the year and 61,316,424 shares authorized in the last Capital increase dated August 18, 2016. However, on December 21, 2016, the deadline for the subscription and payment of 4,789,718 shares that were destined to compensation plans for workers expired, so that the Company's capital stock was reduced to 608,374,525 shares.
The following table shows the movement of the authorized and fully paid shares described above:
Movement of authorized shares
| Nro. Of | ||||
| shares | ||||
| Autorized shares as of January 1, 2016 | 551,847,819 | |||
| Increase capital approved at Extraordinary Shareholders meeting dated August 18, 2016 | 61,316,424 | |||
| Full capital decrease due to maturity of the subscription and payment period of the compensation plan 2011, December 21, 2016 (*) | (4,789,718 | ) | ||
| Authorized shares as of December 31, 2016 | 608,374,525 | |||
| 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 | |||
(*) 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, 2016 | 545,547,819 | 2,552,066 | (6,361 | ) | 2,545,705 | |||||||||||
| Approved at Extraordinary Shereholders meeting dated August 18, 2016 | 60,849,592 | 608,496 | - | 608,496 | ||||||||||||
| Capital reserve | - | - | (4,793 | ) | (4,793 | ) | ||||||||||
| Increase (decrease) by transfers and other changes (4) | 10,282 | 156 | - | 156 | ||||||||||||
| Paid shares as of December 31, 2016 | 606,407,693 | 3,160,718 | (11,154 | ) | 3,149,564 | |||||||||||
| 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) | 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 December 31, 2017, 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))
(c) Treasury stock
At December 31, 2017, 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 | Deferred | Net movement | Closing | ||||||||||||||||
| Periods | balance | plan | tax | of the period | balance | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
| From January 1 to December 31, 2015 | 29,642 | 8,924 | (2,919 | ) | 6,005 | 35,647 | ||||||||||||||
| From January 1 to December 31, 2016 | 35,647 | 3,698 | (807 | ) | 2,891 | 38,538 | ||||||||||||||
| From January 1 to December 31, 2017 | 38,538 | 943 | - | 943 | 39,481 | |||||||||||||||
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 December 31, 2015 | 2,635,748 | (1,069 | ) | 2,634,679 | ||||||||
| From January 1 to December 31, 2016 | 2,634,679 | 5,602 | 2,640,281 | |||||||||
| From January 1 to December 31, 2017 | 2,640,281 | (501 | ) | 2,639,780 | ||||||||
Balance of Other sundry reserves comprises the following:
| As of | As of | As of | ||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||
| Higher value for TAM S.A. share exchange (1) | 2,665,692 | 2,665,692 | 2,665,692 | |||||||||
| Reserve for the adjustment to the value of fixed assets (2) | 2,620 | 2,620 | 2,620 | |||||||||
| Transactions with non-controlling interest (3) | (25,911 | ) | (25,911 | ) | (25,891 | ) | ||||||
| Cost of issuance and placement of shares | 0 | (9 | ) | (4,793 | ) | |||||||
| Others | (2,621 | ) | (2,111 | ) | (2,949 | ) | ||||||
| Total | 2,639,780 | 2,640,281 | 2,634,679 | |||||||||
| (1) | Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012. |
| (2) | Corresponds to the technical revaluation of fixed assets authorized by the 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 December 31, 2017, correspond to the loss generated by the participation of Lan Pax Group S.A. and Inversiones Lan S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480) and ThUS$ (20), respectively; the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526). |
(f) Reserves with effect in other comprehensive income.
Movement of Reserves with effect in other comprehensive income:
| Actuarial gain | ||||||||||||||||
| Currency | Cash flow | or loss on defined | ||||||||||||||
| translation | hedging | benefit plans | ||||||||||||||
| reserve | reserve | reserve | Total | |||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
| Opening balance as of January 1, 2015 | (1,193,871 | ) | (151,340 | ) | - | (1,345,211 | ) | |||||||||
| Derivatives valuation gains (losses) | - | 82,730 | - | 82,730 | ||||||||||||
| Deferred tax | - | (21,900 | ) | - | (21,900 | ) | ||||||||||
| Actuarial reserves by employee benefit plans | - | - | (14,627 | ) | (14,627 | ) | ||||||||||
| Deferred tax actuarial IAS by employee benefit plans | - | - | 3,910 | 3,910 | ||||||||||||
| Difference by subsidiaries conversion | (1,382,170 | ) | - | - | (1,382,170 | ) | ||||||||||
| Closing balance as of December 31, 2015 | (2,576,041 | ) | (90,510 | ) | (10,717 | ) | (2,677,268 | ) | ||||||||
| Opening balance as of January 1, 2016 | (2,576,041 | ) | (90,510 | ) | (10,717 | ) | (2,677,268 | ) | ||||||||
| Derivatives valuation gains (losses) | - | 126,360 | - | 126,360 | ||||||||||||
| Deferred tax | - | (34,344 | ) | - | (34,344 | ) | ||||||||||
| Actuarial reserves by employee benefit plans | - | - | (3,104 | ) | (3,104 | ) | ||||||||||
| Deferred tax actuarial IAS by employee benefit plans | - | - | 921 | 921 | ||||||||||||
| Difference by subsidiaries conversion | 489,486 | - | - | 489,486 | ||||||||||||
| Closing balance as of December 31, 2016 | (2,086,555 | ) | 1,506 | (12,900 | ) | (2,097,949 | ) | |||||||||
| Opening balance as of January 1, 2017 | (2,086,555 | ) | 1,506 | (12,900 | ) | (2,097,949 | ) | |||||||||
| Derivatives valuation gains (losses) | - | 18,436 | - | 18,436 | ||||||||||||
| Deferred tax | - | (1,802 | ) | - | (1,802 | ) | ||||||||||
| Actuarial reserves by employee benefit plans | - | - | 2,758 | 2,758 | ||||||||||||
| Deferred tax actuarial IAS by employee benefit plans | - | - | (784 | ) | (784 | ) | ||||||||||
| Difference by subsidiaries conversion | (45,036 | ) | - | - | (45,036 | ) | ||||||||||
| Closing balance as of December 31, 2017 | (2,131,591 | ) | 18,140 | (10,926 | ) | (2,124,377 | ) | |||||||||
(f.1) Currency translation reserve
These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.
(f.2) Cash flow hedging reserve
These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.
(f.3) 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:
| Result | Other | |||||||||||||||||||
| Opening | for the | increase | Closing | |||||||||||||||||
| Periods | balance | period | Dividends | (decreases) | balance | |||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
| From January 1 to December 31, 2015 | 536,190 | (219,274 | ) | - | 1,034 | 317,950 | ||||||||||||||
| From January 1 to December 31, 2016 | 317,950 | 69,220 | (20,766 | ) | - | 366,404 | ||||||||||||||
| From January 1 to December 31, 2017 | 366,404 | 155,304 | (46,590 | ) | - | 475,118 | ||||||||||||||
(h) Dividends per share
| Minimum mandatory | Final dividend | |||||||
| dividend | dividend | |||||||
| Description of dividend | 2017 | 2016 | ||||||
| Date of dividend | 12/31/2017 | 12-31-2016 | ||||||
| Amount of the dividend (ThUS$) | 46,590 | 20,766 | (*) | |||||
| Number of shares among which the dividend is distributed | 606,407,693 | 606,407,693 | ||||||
| Dividend per share (US$) | 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.
The payment was made on May 18, 2017.