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
For the month of May 2007
Commission File Number 1-14728
Lan Airlines S.A.
(Translation of registrant’s name into English)
Presidente Riesco 5711, Piso 20 Las Condes Santiago, Chile
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover
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):
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No
If ‘‘Yes’’ is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
LAN AIRLINES S.A. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
unaudited
At March 31, | ||||||||||||
ASSETS | 2007 | 2006 | ||||||||||
(In thousands of US$) | ||||||||||||
CURRENT ASSETS | ||||||||||||
Cash | 7,760 | 9,310 | ||||||||||
Time deposits . | 68,754 | 13,342 | ||||||||||
Marketable securities | 83,210 | 105,482 | ||||||||||
Trade accounts receivable and other, net (Note 4) | 392,345 | 356,749 | ||||||||||
Notes and accounts receivable from related companies (Note 7) | 6,460 | 926 | ||||||||||
Inventories (Note 5) | 53,515 | 40,709 | ||||||||||
Prepaid and recoverable taxes | 38,244 | 24,187 | ||||||||||
Prepaid expenses | 23,257 | 22,640 | ||||||||||
Deferred income tax assets | 7,974 | 5,193 | ||||||||||
Other current assets | 23,978 | 18,493 | ||||||||||
Total current assets | 705,497 | 597,031 | ||||||||||
PROPERTY AND EQUIPMENT (net) (Note 6) | 1,865,242 | 1,300,108 | ||||||||||
OTHER ASSETS | ||||||||||||
Investments in related companies | 1,770 | 2,390 | ||||||||||
Goodwill | 42,615 | 43,921 | ||||||||||
Notes and accounts receivable from related companies (Note 7) | 78 | 4,365 | ||||||||||
Long-term accounts receivable | 5,276 | 10,788 | ||||||||||
Advances for purchases of aircraft and other deposits (Note 8) | 304,228 | 184,364 | ||||||||||
Other | 35,525 | 19,021 | ||||||||||
Total other assets | 389,492 | 264,849 | ||||||||||
Total assets | 2,960,231 | 2,161,988 | ||||||||||
The accompanying Notes 1 to 13 are an integral part of these consolidated financial statements.
F-1
LAN AIRLINES S.A. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
At March 31, | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | 2007 | 2006 | ||||||||||
(In thousands of US$) | ||||||||||||
CURRENT LIABILITIES | ||||||||||||
Short-term loans from financial institutions | 28,960 | 13,978 | ||||||||||
Current portion of long-term loans from financial institutions (Note 9) | 74,261 | 59,966 | ||||||||||
Current portion of long-term leasing obligations | 59,901 | 34,355 | ||||||||||
Securitization obligation | 12,179 | 11,367 | ||||||||||
Dividends payable | 112 | — | ||||||||||
Accounts payable | 253,997 | 210,641 | ||||||||||
Notes and accounts payable to related companies (Note 7) | 74 | 40 | ||||||||||
Air traffic liability and other unearned income | 229,183 | 156,212 | ||||||||||
Other current liabilities | 155,783 | 118,189 | ||||||||||
Total current liabilities | 814,450 | 604,748 | ||||||||||
LONG-TERM LIABILITIES | ||||||||||||
Loans from financial institutions (Note 9) | 927,569 | 585,743 | ||||||||||
Securitization obligation | 16,454 | 28,633 | ||||||||||
Notes and accounts payable to related companies (Note 7) | — | 115 | ||||||||||
Other creditors | 23,671 | 20,530 | ||||||||||
Provisions | 50,974 | 83,569 | ||||||||||
Obligations under capital leases | 273,649 | 153,079 | ||||||||||
Deferred income tax liabilities | 136,736 | 98,342 | ||||||||||
Total long-term liabilities | 1,429,053 | 970,011 | ||||||||||
MINORITY INTEREST | 4,319 | 4,861 | ||||||||||
SHAREHOLDERS’ EQUITY (Note 10) | ||||||||||||
Common stock (318,909,090 shares) | 134,303 | 134,303 | ||||||||||
Reserves | 2,620 | 2,620 | ||||||||||
Retained earnings | 575,486 | 445,445 | ||||||||||
Total shareholders’ equity | 712,409 | 582,368 | ||||||||||
Total liabilities and shareholders’ equity | 2,960,231 | 2,161,988 | ||||||||||
The accompanying Notes 1 to 13 are an integral part of these consolidated financial statements.
F-2
LAN AIRLINES S.A. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the three months ended
March 31, |
||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
OPERATING RESULTS | ||||||||||||
Operating revenues | 831,305 | 728,157 | ||||||||||
Operating expenses | (707,834 | ) | (659,480 | ) | ||||||||
Operating income | 123,471 | 68,677 | ||||||||||
OTHER INCOME AND EXPENSES | ||||||||||||
Interest income | 2,926 | 2,401 | ||||||||||
Interest expense | (18,223 | ) | (12,323 | ) | ||||||||
Other (expenses) income – net (Note 11) | (4,429 | ) | 38,167 | |||||||||
Total other income (expense) | (19,726 | ) | 28,245 | |||||||||
Income before minority interest | 103,745 | 96,922 | ||||||||||
Minority interest | (24 | ) | (1,525 | ) | ||||||||
Income before income taxes | 103,721 | 95,397 | ||||||||||
Income taxes | (17,632 | ) | (15,742 | ) | ||||||||
NET INCOME | 86,089 | 79,655 | ||||||||||
The accompanying Notes 1 to 13 are an integral part of these consolidated financial statements.
F-3
LAN AIRLINES S.A. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months ended
March 31, |
||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Collection of trade accounts receivable | 823,903 | 489,006 | ||||||||||
Interest income | 2,341 | 2,358 | ||||||||||
Other income received | 2,311 | 5,926 | ||||||||||
Payments to suppliers and personnel | (691,435 | ) | (432,908 | ) | ||||||||
Interest paid | (18,182 | ) | (12,066 | ) | ||||||||
Income tax paid | (4,394 | ) | (422 | ) | ||||||||
Other expenses paid | (5,307 | ) | (5,908 | ) | ||||||||
Value-added tax and similar payments | (9,458 | ) | (8,986 | ) | ||||||||
Net cash provided by operating activities | 99,779 | 37,000 | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Loans obtained | 42,752 | 107,627 | ||||||||||
Dividend payments | (67,727 | ) | (35,000 | ) | ||||||||
Loans repaid | (18,332 | ) | (34,749 | ) | ||||||||
Other | (2,916 | ) | (3,352 | ) | ||||||||
Net cash provided by (used in) financing activities | (46,223 | ) | 34,526 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Acquisitions of property and equipment | (113,956 | ) | (108,257 | ) | ||||||||
Proceeds from sales of property and equipment | 1,415 | 5,851 | ||||||||||
Sale of financial instruments and other investments | 4,751 | 17,066 | ||||||||||
Other | (1,083 | ) | (10 | ) | ||||||||
Net cash used in investing activities | (108,873 | ) | (85,350 | ) | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (55,317 | ) | (13,824 | ) | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 199,496 | 111,271 | ||||||||||
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD | 144,179 | 97,447 | ||||||||||
The accompanying Notes 1 to 13 are an integral part of these consolidated financial statements.
F-4
LAN AIRLINES S.A. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(unaudited)
For the three months ended
March 31, |
||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
NET INCOME FOR THE PERIOD | 86,089 | 79,655 | ||||||||||
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||||||
Depreciation | 35,306 | 27,146 | ||||||||||
Gain on sales and retirements of property and equipment | (457 | ) | (247 | ) | ||||||||
Proportional share of results of equity method investments | (292 | ) | (910 | ) | ||||||||
Amortization of goodwill | 843 | 819 | ||||||||||
Minority interest | 24 | 1,525 | ||||||||||
Write-offs and provisions | 4,283 | 3,390 | ||||||||||
Foreign exchange gains | (604 | ) | (150 | ) | ||||||||
Other | 5,198 | (39,078 | ) | |||||||||
CHANGES IN ASSETS AND LIABILITIES | ||||||||||||
(Increase) decrease in accounts receivable – trade | (3,629 | ) | (20,069 | ) | ||||||||
(Increase) decrease in inventories | (2,917 | ) | (3,429 | ) | ||||||||
(Increase) decrease in other assets | (3,966 | ) | (15,630 | ) | ||||||||
(Decrease) increase in accounts payable | (33,771 | ) | (14,689 | ) | ||||||||
(Decrease) increase in other liabilities | 13,672 | 18,667 | ||||||||||
Net cash provided by operating activities | 99,779 | 37,000 | ||||||||||
The accompanying Notes 1 to 13 are an integral part of these consolidated financial statements.
F-5
LAN AIRLINES S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 2007 and 2006
(unaudited)
NOTE 1 — THE COMPANY
Lan Airlines S.A., formerly Lan Chile S.A., (‘‘Lan’’ or the ‘‘Company’’) is the largest domestic and international passenger/cargo air carrier in Chile and one of the largest airlines in Latin America, together with its code-share arrangements and affiliated airlines. Through its own operations and code-share arrangements, the LAN Alliance serves 15 destinations in Chile, 11 destinations in Peru, 9 destinations in Argentina, 2 in Ecuador, 30 destinations in other Latin American countries, 25 in North America, 13 destinations in Europe and 4 in the South Pacific. Lan has alliances with American Airlines, Alaska Airlines, AeroMexico, British Airways, Iberia, Korean Air, Lufthansa Cargo, Mexicana, Qantas and TAM and is an official member of the oneworldTM global allian ce.
The Company is a Chilean corporation (‘‘Sociedad Anónima Abierta’’) whose common stock is listed on the Santiago Stock Exchange, the Chilean Electronic Stock Exchange, and the Valparaiso Stock Exchange and whose American Depositary Receipts are traded on the New York Stock Exchange. Accordingly, the Company is subject to the regulations of both the Chilean Superintendency of Securities and Insurance (the ‘‘Superintendency’’) and the U.S. Securities and Exchange Commission.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) | Presentation |
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Chile and the accounting regulations of the Chilean Superintendency of Securities and Insurance, SVS.
All significant accounting policies followed for the preparation of the interim consolidated financial statements are described in Note 2 to the audited consolidated financial statements for the year ended December 31, 2006 already filed under the Form 20F.
The Company has issued its unaudited statutory consolidated financial statements in Spanish and in conformity with accounting principles generally accepted in Chile, which include certain notes and additional information required by the SVS for statutory purposes. Management believes that these additional notes and information are not essential for the complete understanding of the consolidated financial statements and, accordingly, these notes and additional information have been excluded from the accompanying financial statements.
b) | Use of estimates |
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent liabilities. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management.
NOTE 3 — ACCOUNTING CHANGES
Effective January 1, 2006, the Company changed its method of accounting for heavy aircraft and engine maintenance costs associated with its owned aircraft. Previously, the Company accrued a liability for these costs in its consolidated balance sheet under the caption ‘‘Provisions’’, for both short
F-6
and long-term. Such provision was established based on the total cycles and flight hours flown by an aircraft since its incorporation into the Company’s fleet, or since its last repair. Under the new method, the costs incurred in heavy owned aircraft and engine maintenance are capitalized and amortized to the next overhaul.
The cumulative effect of this accounting change at January 1, 2006, increased non-operating income by US$ 40.3 million. For the three months ended March 31, 2006, this change resulted in a ThUS$ 759 reduction to Operating expenses in the Consolidated Statement of Income.
NOTE 4 — ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
At March 31, | ||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Accounts receivable | 239,830 | 185,760 | ||||||||||
Notes receivable | 4,920 | 4,490 | ||||||||||
Sundry debtors | 147,595 | 166,499 | ||||||||||
Total | 392,345 | 356,749 | ||||||||||
Accounts receivable are shown net of an allowance for bad debts of ThUS$ 27,239 at March 31, 2007 and ThUS$ 26,652 at March 31, 2006.
NOTE 5 — INVENTORIES
Inventories are summarized as follows:
At March 31, | ||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Spare parts and materials used for maintenance(1) | 42,646 | 36,100 | ||||||||||
Aircrafts for sale(2) | 4,789 | — | ||||||||||
Spare parts for sale | 1,694 | 822 | ||||||||||
Duty-free inventories | 4,386 | 3,787 | ||||||||||
Total | 53,515 | 40,709 | ||||||||||
(1) | Spare parts and materials for sale are shown net of provision for market value adjustment of ThUS$ 3,324 at March 31, 2007 and ThUS$ 2,118 at March 31, 2006. |
(2) | Corresponding to 5 Boeing 737 Aircrafts shown net of a provision for retirement of ThUS$ 1,600 at March 31, 2007. |
F-7
NOTE 6 — PROPERTY AND EQUIPMENT AND FLEET COMPOSITION
a) | Property and equipment |
Property and equipment are summarized as follows:
At March 31, | ||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Flight equipment: | ||||||||||||
Boeing 767 aircraft under capital lease | 637,665 | 379,650 | ||||||||||
Boeing 737 – 200ADV aircraft | 18,843 | 50,211 | ||||||||||
Boeing 767 – 200ER aircraft | 70,574 | 70,574 | ||||||||||
Boeing 767 – 300ER aircraft | 338,884 | 82,011 | ||||||||||
Boeing 767 – 300F freighter aircraft | 273,343 | 464,053 | ||||||||||
Airbus A-319 aircraft | 342,142 | 67,364 | ||||||||||
Airbus A-320 aircraft | 144,892 | 142,455 | ||||||||||
Engines and rotating parts | 291,790 | 236,322 | ||||||||||
Spare parts | 18,316 | 18,180 | ||||||||||
Other | 42,215 | 40,827 | ||||||||||
Land and buildings: | ||||||||||||
Land | 10,739 | 10,739 | ||||||||||
Buildings | 64,430 | 61,952 | ||||||||||
Other installations | 37,564 | 25,917 | ||||||||||
Construction in progress | 1,162 | 10,718 | ||||||||||
Other fixed assets: | ||||||||||||
Communication and computer equipment | 104,457 | 93,374 | ||||||||||
Furniture and office equipment | 15,971 | 15,244 | ||||||||||
Other | 63,813 | 42,323 | ||||||||||
Property and equipment (gross) | 2,476,800 | 1,811,914 | ||||||||||
Less: Accumulated depreciation | (611,558 | ) | (511,806 | ) | ||||||||
Property and equipment (net) | 1,865,242 | 1,300,108 | ||||||||||
On September 30, 2004, the Company sold its 100% interests in Condor Leasing LLC and Eagle Leasing LLC, who were the owners of 5 Boeing 767 aircraft (3 and 2, respectively). The capital lease agreement under which Lan Airlines S.A. leased these aircraft has remained unchanged. As a result of this, these aircraft retain their balance sheet classification under flight equipment; however, they are now under the caption flight equipment under capital lease. Long-term debt (with its related current portion) associated with these aircraft is included in Obligations under capital leases.
On June 30, 2006, the Company sold its ownership on Seagull Leasing LLC, who owns a Boeing 767-300F aircraft and is leasing the aircraft to Lan Cargo S.A. The existing financial leasing contract between Seagull and Lan Cargo S.A regarding this aircraft remained unchanged. As a result of the sale transaction, this aircraft has been reclassified from owned Property and equipment to Property and equipment under capital lease.
On March 31, 2007, the Company sold its ownership on Bluebird Leasing LLC, who owns two Boeing 767-300F aircraft and is leasing the aircraft to Lan Cargo S.A. The existing financial leasing contract between Seagull and Lan Cargo S.A regarding this aircraft remained unchanged. As a result of the sale transaction, these aircraft have been reclassified from owned Property and equipment to Property and equipment under capital lease.
F-8
Included in Property and equipment at March 31, 2007 and 2006, are ThUS$ 637,665 and ThUS$ 379,650 of equipment under capital leases with accumulated depreciation aggregating ThUS$ 212,295 and ThUS$ 123,485, respectively.
Depreciation expense for the three months ended March 31, 2007 and 2006, amounted to ThUS$ 35,306 and ThUS$ 27,146, respectively.
The balance of spare parts is presented net of a provision for obsolescence amounting to ThUS$ 12,867 at March 31, 2007 and ThUS$ 13,003 at March 31, 2006.
As of March 31, 2007, Property and equipment is shown net of a provision for retirement of ThUS$ 6,500 for the Boeing 737 Aircrafts.
In 2002, the Company entered into a sale-leaseback transaction. Under the arrangement, engines were sold for ThUS$13,100 and leased backed over a 7-year operating lease agreement. The gain on the sale of ThUS$ 6,883 is being amortized over the term of the operating lease agreement.
b) Fleet composition
At March 31, 2007, the fleet of the Company consists of 79 aircrafts, of which 35 aircrafts are owned by, or under capital lease to, the Company and 44 aircrafts are leased under operating leases.
Aircraft owned:
Aircraft | Model | Use | 2007 | 2006 | ||||||||||||||
Boeing 737 | 200ADV | Passenger | 4 | 10 | ||||||||||||||
Boeing 737 | 200ADV | Freight | 1 | 1 | ||||||||||||||
Boeing 767 | 300ER | Passenger | 7 | 4 | ||||||||||||||
Boeing 767 | 300F | Freight | 8 | 7 | ||||||||||||||
Boeing 767(*) | 200ER | Passenger | 1 | 1 | ||||||||||||||
Airbus A-319 | 100 | Passenger | 10 | 2 | ||||||||||||||
Airbus A-320 | 200 | Passenger | 4 | 4 | ||||||||||||||
Total owned | 35 | 29 | ||||||||||||||||
(*) | Subleased to Aerovías de México S.A. under a 9-year contract beginning June 16, 1996. The sublease expired in the year 2005 and was extended until 2007. |
Leased aircraft under operating leases:
Aircraft | Model | Use | 2007 | 2006 | ||||||||||||||
Boeing 767 | 300ER | Passenger | 13 | 13 | ||||||||||||||
Boeing 767 | 300F | Freight | 1 | 1 | ||||||||||||||
Boeing 737 | 200ADV | Passenger | 10 | 14 | ||||||||||||||
Airbus A 319 | 100 | Passenger | 5 | 5 | ||||||||||||||
Airbus A 320 | 200 | Passenger | 11 | 11 | ||||||||||||||
Airbus A 340 | 300 | Passenger | 4 | 4 | ||||||||||||||
Total leased | 44 | 48 | ||||||||||||||||
Total owned and leased | 79 | 77 | ||||||||||||||||
F-9
NOTE 7 — BALANCES AND TRANSACTIONS WITH RELATED COMPANIES
a) | Accounts receivable and payable with related parties are summarized as follows: |
Current assets
Notes and accounts receivable from related companies:
At March 31, | |||||||||||||||
Company | Relationship | 2007 | 2006 | ||||||||||||
(In thousands of US$) | |||||||||||||||
San Alberto S.A. and subsidiaries | Common ownership | 29 | 29 | ||||||||||||
Florida West International Airways Inc. | Equity method investee | 6,137 | 258 | ||||||||||||
Choice Air Courier del Perú S.A. | Equity method investee | 96 | 44 | ||||||||||||
Concesionaria Chucumata S.A. | Equity method investee | — | 74 | ||||||||||||
Austral Sociedad Concesionaria S.A. | Equity method investee | — | 195 | ||||||||||||
Lufthansa Lan Technical Training S.A. | Equity method investee | 67 | 118 | ||||||||||||
Other | Common ownership | 131 | 208 | ||||||||||||
Total | 6,460 | 926 | |||||||||||||
Current liabilities
Notes and accounts payable to related companies:
At March 31, | |||||||||||||||
Company | Relationship | 2007 | 2006 | ||||||||||||
(In thousands of US$) | |||||||||||||||
Austral Sociedad Concesionaria S.A. | Equity method investee | 35 | — | ||||||||||||
Sociedad Concesionaria Aerosur S.A. | Equity method investee | 15 | — | ||||||||||||
Bancard S.A. | Common ownership | 10 | 20 | ||||||||||||
Aguas del Sur S.A. | Common ownership | 7 | 20 | ||||||||||||
Concesionaria Chucumata S.A. | Equity method investee | 7 | — | ||||||||||||
Total | 74 | 40 | |||||||||||||
Long-term assets
Notes and accounts receivable from related companies:
At March 31, | |||||||||||||||
Company | Relationship | 2007 | 2006 | ||||||||||||
(In thousands of US$) | |||||||||||||||
Choice Air Courier del Perú S.A. | Equity method investee | 78 | — | ||||||||||||
Florida West International Airway Inc. | Equity method investee | — | 4,365 | ||||||||||||
Total | 78 | 4,365 | |||||||||||||
Long-term liabilities
Notes and accounts receivable from related companies:
At March 31, | |||||||||||||||
Company | Relationship | 2007 | 2006 | ||||||||||||
(In thousands of US$) | |||||||||||||||
Choice Air Courier del Perú S.A. | Equity method investee | — | 115 | ||||||||||||
Total | — | 115 | |||||||||||||
F-10
b) | The main transactions with related entities are summarized as follows: |
Amount | ||||||||||||||||||
Company | Relationship | Description of transaction | 2007 | 2006 | ||||||||||||||
(In thousands of US$) | ||||||||||||||||||
Florida West International Airways Inc. | Equity method investee | Aircraft rents received | 8,910 | 10,546 | ||||||||||||||
Lan owns 25% | Aircraft maintenance provided | 818 | 844 | |||||||||||||||
Aircraft rents provided | 7,690 | 4,199 | ||||||||||||||||
Others transactions provided | 274 | 196 | ||||||||||||||||
Jet fuel payments | 8 | 2,311 | ||||||||||||||||
Interline collection | 1,776 | 752 | ||||||||||||||||
Other payments | 331 | 1,041 | ||||||||||||||||
Agents commissions | 1,579 | 1,303 | ||||||||||||||||
The Company’s objective is to transact business with its related companies or individuals at prices and at terms equivalent to those used in transacting business with unrelated parties.
NOTE 8 — ADVANCES FOR PURCHASES OF AICRAFT AND OTHER DEPOSIT
Advances for purchases of aircraft and other deposits are summarized as follows:
At December 31, | ||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Advances for purchases of Boeing 767 and lease of Airbus aircraft | 290,312 | 171,591 | ||||||||||
Deposits on aircraft leases | 10,021 | 9,487 | ||||||||||
Other deposits | 3,895 | 3,286 | ||||||||||
Total | 304,228 | 184,364 | ||||||||||
NOTE 9 — LOANS FROM FINANCIAL INSTITUTIONS (LONG-TERM)
Long-term loans from financial institutions are summarized as follows:
At March 31, | ||||||||||||||||||
Payable during
the years |
Interest rate at
March 31, 2007 |
2007 | 2006 | |||||||||||||||
% | (In thousands of US$) | |||||||||||||||||
Loan in US dollars | 2001 – 2012 (quarterly) | — | — | 59,039 | ||||||||||||||
Loan in US dollars | 2001 – 2013 (quarterly) | — | — | 134,862 | ||||||||||||||
Loan in US dollars | 2002 – 2014 (quarterly) | LIBOR+0.9714 | 115,445 | 121,296 | ||||||||||||||
Loan in US dollars | 2002 – 2007 (quarterly) | LIBOR+1.4 | 7,574 | 8,110 | ||||||||||||||
Loan in US dollars | 2005 – 2012 (quarterly) | LIBOR+1.25 | 22,124 | 25,392 | ||||||||||||||
Loan in US dollars | 2005 – 2017 (quarterly) | LIBOR+0.9633 | 61,367 | 216,671 | ||||||||||||||
Loan in US dollars | 2005 – 2017 (quarterly) | 4.6760 | 141,187 | — | ||||||||||||||
Loan in US dollars | 2006 – 2008 (quarterly) | LIBOR+0.4 | 83,391 | — | ||||||||||||||
Loan in US dollars | 2006 – 2013 (quarterly) | 4.9539 | 74,610 | 80,339 | ||||||||||||||
Loan in US dollars | 2006 – 2018 (quarterly) | 4.9825 | 496,132 | — | ||||||||||||||
Total | 1,001,830 | 645,709 | ||||||||||||||||
Less – current portion | 74,261 | 59,966 | ||||||||||||||||
Long – term portion | 927,569 | 585,743 | ||||||||||||||||
All of our loans from financial institutions are collateralized and thus they are secured by the same asset that is subject of the financing. These include nine Boeing aircraft, fourteen Airbus aircraft, spare engines and our corporate building. There are no additional collateral arrangements in connection with these financings.
Information with respect to restrictive covenants is detailed under the heading ‘‘Covenants’’ in Note 10 to the financial statements.
F-11
NOTE 10 — SHAREHOLDERS’ EQUITY
a) | Changes in Shareholders’ equity |
The changes in shareholders’ equity during 2006 and 2007 were as follows:
Retained earnings | ||||||||||||||||||||||||||||||||||||||||||
Number
of shares |
Common
stock |
Reserves | Accumulated
earnings |
Interim
dividends |
Net income
for the year |
Total | ||||||||||||||||||||||||||||||||||||
(In thousands of US$ except Number of shares) | ||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2006 | 318,909,090 | 134,303 | 2,620 | 290,640 | (71,451 | ) | 146,601 | 502,713 | ||||||||||||||||||||||||||||||||||
Transfer of net income from prior year | — | — | — | 146,601 | — | (146,601 | ) | — | ||||||||||||||||||||||||||||||||||
Net income for the period | — | — | — | — | — | 79,655 | 79,655 | |||||||||||||||||||||||||||||||||||
Balances at March 31, 2006 | 318,909,090 | 134,303 | 2,620 | 437,241 | (71,451 | ) | 79,655 | 582,368 | ||||||||||||||||||||||||||||||||||
Balances at January 1, 2007 | 318,909,090 | 134,303 | 2,620 | 363,947 | (115,850 | ) | 241,300 | 626,320 | ||||||||||||||||||||||||||||||||||
Transfer of net income from prior year | — | — | — | 241,300 | — | (241,300 | ) | — | ||||||||||||||||||||||||||||||||||
Net income for the period | — | — | — | — | — | 86,089 | 86,089 | |||||||||||||||||||||||||||||||||||
Balances at March 31, 2007 | 318,909,090 | 134,303 | 2,620 | 605,247 | (115,850 | ) | 86,089 | 712,409 | ||||||||||||||||||||||||||||||||||
b) | Capital |
The authorized and paid-in capital of the Company is ThUS$ 134,303 at both March 31, 2006 and 2007 and corresponds to 318,909,090 shares without par value.
c) | Other reserves |
Reserves at March 31 of each year were as follows:
At March 31, | ||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Reserve for adjustment of the value of fixed assets | 2,556 | 2,556 | ||||||||||
Reserve for adjustment of the value of leased fixed assets | 64 | 64 | ||||||||||
Total | 2,620 | 2,620 | ||||||||||
These reserves are not distributable and may only be used for capitalization of the Company.
d) | Dividends |
At a meeting of the Board of Directors held on January 31, 2006, the directors agreed to distribute an interim dividend of US$ 0.10975 per share with respect to net income for 2005. These dividends were during March, 2006 and they are classified in Dividends Payable at December 31, 2005.
At the Annual General Meeting held on April 28, 2006, the shareholders agreed to distribute a final dividend amounting to US$ 0.22983 per share after deducting the interim dividends distributed during August 2005 and January 2006 amounting to US$ 0.11430 per share and US$ 0.10975 per share, respectively. A remaining balance of US$ 0.00578 per share was paid during May 2006.
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e) | Major shareholders |
The major shareholders of the Company at March 31, 2007, were as follows:
Percentage of
Ownership |
|||||||||
% | |||||||||
Inversiones Costa Verde Ltda. y
Compañía en Comandita por Acciones |
27.01 | ||||||||
Axxion S.A. | 20.64 | ||||||||
The Bank of New York. (on behalf of ADR holders) | 13.65 | ||||||||
Total | 61.30 | ||||||||
In July 2004, Inversiones Costa Verde Ltda. y Compañía en Comandita por Acciones, Axxion S.A. and Inversiones Santa Cecilia S.A. (shareholder with 7.34% ownership) entered into a management and control agreement. At March 31, 2007 this agreement is still in effect.
NOTE 11 — OTHER (EXPENSE) INCOME – NET
Other (expense) income - net for each period are summarized as follows:
For the three months
ended March 31, |
||||||||||||
2007 | 2006 | |||||||||||
(In thousands of US$) | ||||||||||||
Effect of accounting change mentioned in Note 3 | — | 40,344 | ||||||||||
Swap fuel contracts | (4,506 | ) | (2,892 | ) | ||||||||
Other net | 77 | 715 | ||||||||||
Other (expense) income – net | (4,429 | ) | 38,167 | |||||||||
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Commitments
On March 20, 1998, the Company entered into a purchase agreement for twenty Airbus A320 aircraft (with the option to purchase an additional twenty aircraft). The estimated cost of these twenty aircraft were ThUS$ 840,000. This agreement was subsequently amended to require the delivery of A319 aircraft instead of A320 aircraft.
In August 1999, the Company entered into a purchase agreement for seven Airbus A340 aircraft (with an option to purchase an additional fourteen aircraft in the future). As of March 31, 2007, four of these aircraft have been received, and three of them were canceled.
On April 28, 2005, the Company entered into a purchase agreement for three Boeing 767-300 aircraft. This purchase agreement provides for flexibility to choose between passenger and freighter aircraft. One of this aircraft was received during 2006, the two remaining aircraft are scheduled for delivery during 2007 with an estimated maximum cost of ThUS$ 300,000.
On July 20, 2005, the Company entered into a purchase agreement for an additional 3 Boeing 767-300 ER aircraft. One of these aircraft is for passengers and the Company has the flexibility to choose between passenger or freighter for the remaining two aircraft. The delivery is scheduled for 2007 and 2008 with an estimated maximum cost of ThUS$ 450,000.
On October 4, 2005, the Company agreed with Airbus Industries to a new modification with respect to the agreement signed on March 20, 1998. This amendment is related to the purchase of thirty two new Airbus family aircraft (with an option to purchase an additional fifteen aircraft in the future). 8 of this aircraft were received in 2006. The remaining aircraft are expected to be delivered during 2007 and 2008 with an estimated maximum cost of ThUS$ 800,000.
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On March 31, 2006, the Company entered into a purchase agreement for three Boeing 767-300 aircraft. These aircraft are scheduled for delivery during 2007 and 2008 with an estimated maximum cost of ThUS$ 450,000.
On December 14, 2006, the Company entered into a purchase agreement for three Boeing 767-300. These aircraft are scheduled for delivery during 2009 with an estimated maximum cost of ThUS$ 450,000.
On March 6, 2007, the Company exercised call options with Airbus Industrie to purchase fifteen additional A320 Airbus family aircraft. This aircraft are expected to be delivered between 2010 and 2011, with an estimated maximum cost of ThUS$ 700,000.
Contingencies
At March 31, 2007, the Company was a defendant in one labor dispute filed by the Pilots’ Union and the Cabin Crew Union, requesting the payment of bonuses for the years ended December 31, 1998, 1999, 2000, 2001 and 2002. The Company has made no provision for these amounts because management believes that the outcome of the suits will be favorable to the Company and any losses incurred will not be material.
At March 31, 2007, the Company was a defendant in a number of commercial lawsuits of the type normally associated with the Company’s business and involving claims for damages for insignificant amounts. The Company has made no provision for these amounts because management believes that most of the resulting judgments will be favorable and any losses incurred will not result in any material liability to the Company.
Covenants
As a result of the various contracts entered into by the Company to finance the Boeing 767 aircraft that are financed by the Export — Import Bank of the United States, the Company is required to comply with certain restrictions regarding shareholder composition and disposal of assets.
As a result of the securitization contract with Pelican Finance Ltd. in August 2002, there are certain restrictions on the use of the future cash flows which have been securitized.
The loan agreement with BBVA — Banco Bhif has placed restrictions on the Company’s ability to dispose of certain of its fixed assets.
As a result of the various contracts entered into by the Company to finance the Airbus A320 aircraft that are guaranteed by various European export credit agencies, the Company is required to comply with certain restrictions regarding shareholder composition and disposal of assets.
As of March 31, 2007, the Company was in compliance with all covenants.
NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS
As mentioned in Note 3, the Company changed its method of accounting for heavy aircraft and engine maintenance costs associated with its owned aircraft from the accrual method to the deferral method. In August 2006, the FASB issued FASB Staff Position No. AUG AIR-1 (‘‘FSP AIR-1’’), which also eliminated the use of the accrual method for US GAAP effective January 1, 2007. Despite the fact the current financial statements are in accordance with accounting principles generally accepted in Chile, for US GAAP purposes the Company will adopt the FSP AIR-1 for leased aircraft in 2007, and is evaluating the impact of this adoption on the US GAAP results of operation and financial position. While the management believes the effect of adoption will not be material, this new accounting pronouncement will require the Company to adopt an accounting policy under US GAAP that is different from that under Chilean GAAP, leading to an additional difference in the reconciliation between Chilean and US GAAP.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 7, 2007
Lan Airlines S.A. |
/s/ Alejandro de la Fuente Goic
By: Alejandro de la Fuente Goic General Counsel |