goldf4q17-6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of February, 2018
(Commission File No. 001-32221) ,
 

 
GOL LINHAS AÉREAS INTELIGENTES S.A.
(Exact name of registrant as specified in its charter)
 
GOL INTELLIGENT AIRLINES INC.
(Translation of Registrant's name into English)
 


 
Praça Comandante Linneu Gomes, Portaria 3, Prédio 24
Jd. Aeroporto 
04630-000 São Paulo, São Paulo
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)

 


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 ___X___ Form 40-F ______

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 ___X___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 

 

 

 

 

 

 

 

 

Individual and consolidated

Financial Statements

 

GOL Linhas Aéreas Inteligentes S.A.

December 31, 2017

with independent auditors report

 

 

 

 

 

 

 

 

 

 

 

 


 

Gol Linhas Aéreas Inteligentes S.A.

 

Individual and consolidated financial statements

December 31, 2017

 

 

 

Contents

 

Management report

01

Comments on business projection trends

07

Annual Report of the Statutory Audit Committee (CAE)

08

Statement of Executive officers on the financial statements

10

Statement of Executive officers on the independent auditors report on the financial statements

11

Independent auditors report on the individual and consolidated financial statements

12

   

Statements of financial position

18

Statements of income

20

Statements of comprehensive income

21

Statements of changes in equity

22

Statements of cash flows

24

Statements of value added

26

Notes to the financial statements

27

 

 


 

Management report

 

We remain committed to providing the best flight experience to our customers, with a focus on high-quality, on time service. We were the airline with the lowest proportion of complaints registered at ANAC in 2017: only 7 for every 100,000 passengers transported. Additionally, according to Infraero, in 4Q17 we maintained our on-time leadership in Brazil for the 19th consecutive quarter, with 92.5% of GOL’s flights (over 60,000) taking off on schedule.

“We expect to continue to drive our efficiency and technology advantage this year, as well as incorporating the new Boeing 737 MAX 8s in the second half of 2018. With a range of up to 6,500 km, the new 737 MAX 8 aircraft will allow GOL to offer non-stop flights from Brazil to any destination in Latin America, as well as to our recently announced destinations in Florida,” commented Paulo Kakinoff, CEO.

GOL began the sale of tickets to Miami and Orlando, its first destinations in the United States, in January of 2018. The new service will be flown by our new Boeing 737 MAX 8 aircraft, and will start on November 4th of this year, with departures from Brasília and Fortaleza; these cities were chosen for their privileged geographic locations and connectivity with other GOL markets. Customers will have at their disposal all the convenience and comfort already offered on the Company's flights, including in-flight internet and entertainment, leather seats with ample leg room, and free on-board drinks and meals.

“We remain focused on offering the best experience in air transportation, providing exclusive services to our customers on new, modern aircraft that connect our main markets with the most convenient schedules. Over 100 aircraft in our fleet have already been retrofitted with eco-leather seats, and more than 80 have on-board Wi-Fi. We also offer our customers selfie check-in, GOL+Conforto seats, and an expanded menu of on-board products, while remaining a low-fare leader. We recently launched live on-board television on our entertainment platform, which is the most complete and modern in Latin America and also offers on-demand internet and a free entertainment catalog,” concluded Kakinoff.

Financially, we continue to focus on reducing our cost of financing and improving our liquidity profile. In December 2017, through our subsidiary GOL Finance, we successfully completed a US$500 million issuance of Senior Notes maturing in 2025, with a 7.00% coupon. In 4Q17, our net debt (ex-perpetual bonds) to LTM EBITDA ratio improved to 3.0x, and our total liquidity increased to R$3.2 billion.

“During 2017, we were upgraded by all three major rating agencies. Fitch and S&P raised our credit rating twice, ending the year at B, stable outlook, and B-, positive outlook, respectively. In December, Moody's upgraded GOL’s corporate credit rating by four notches to B2, stable outlook. This is clear evidence that the market has now begun to acknowledge GOL’s improved credit profile, the result of the successful right-sizing and capital structure optimization plan that the Company has executed in recent years,” said Richard Lark, CFO.

We were lowest cost airline in the region for the 17th consecutive year, a result of our simplified operation with a single, standardized fleet (lower crew costs, intelligent spare parts management and best-in-class maintenance), and our lean and productive operations with reduced fixed costs. 4Q17 aircraft utilization was 12.4 block hours per day (an increase of 5.4% over 4Q16), and our load factor increased by 3.4 pp, reaching 81.0%, while our breakeven load factor decreased by 1.5 p.p. to 70.5%. "Our efficiency and cost advantage ensure our position as #1 airline in Brazil,” Richard concluded.

1

 


 

Operational and Financial Indicators

Traffic data – GOL

4Q17

4Q16

% Var.

2017

2016

% Var.

 RPK GOL – Total

9,896

9,161

8.0%

37,230

35,928

3.6%

  RPK GOL – Domestic

8,879

8,230

7.9%

33,246

32,031

3.8%

  RPK GOL – International

1,017

931

9.2%

3,984

3,897

2.2%

 ASK GOL – Total

12,213

11,800

3.5%

46,694

46,329

0.8%

  ASK GOL – Domestic

10,863

10,568

2.8%

41,459

41,104

0.9%

  ASK GOL – International

1,350

1,232

9.6%

5,235

5,226

0.2%

 GOL Load Factor – Total

81.0%

77.6%

3.4 p.p

79.7%

77.5%

2.2 p.p

  GOL Load Factor - Domestic

81.7%

77.9%

3.9 p.p

80.2%

77.9%

2.3 p.p

  GOL Load Factor - International

75.3%

75.6%

-0.3 p.p

76.1%

74.6%

1.5 p.p

Operating data

4Q17

4Q16

% Var.

2017

2016

% Var.

Average Fare (R$)

303.23

288.96

4.9%

283.73

265.21

7.0%

Revenue Passengers - Pax on board ('000)

8,606

8,106

6.2%

32,380

32,623

-0.7%

Aircraft Utilization (block hours/day)5

12.4

11.7

5.4%

12.1

11.2

8.1%

Departures

64,910

63,860

1.6%

250,654

261,514

-4.2%

Total Seats (‘000)

10,872

10,697

1.6%

41,953

43,640

-3.9%

Average Stage Length (km)

1,103

1,084

1.8%

1,094

1,043

4.8%

Fuel Consumption (mm liters)

364

350

4.1%

1,379

1,391

-0.9%

Full-time Employees (at period end)

14,532

15,261

-4.8%

14,532

15,261

-4.8%

Average Operating Fleet6

111

112

-1.3%

109

117

-6.9%

On-time Departures

92.5%

94.0%

-1.5 p.p

94.6%

94.8%

-0.2 p.p

Flight Completion

98.8%

98.3%

0.4 p.p

98.5%

94.2%

4.3 p.p

Passenger Complaints (per 1000 pax)

1.62

1.73

-6.3%

1.45

1.99

-27.4%

Lost Baggage (per 1000 pax)

2.09

2.15

-3.2%

2.06

2.23

-7.6%

Financial data

4Q17

4Q16

% Var.

2017

2016

% Var.

Net YIELD (R$ cents)

26.36

25.57

3.1%

24.67

24.14

2.2%

Net PRASK (R$ cents)

21.35

19.85

7.6%

19.67

18.72

5.1%

Net RASK (R$ cents)

24.38

22.58

8.0%

22.65

21.30

6.3%

CASK (R$ cents)4

21.21

20.93

1.4%

20.53

19.79

3.7%

CASK ex-fuel (R$ cents)4

14.47

15.17

-4.6%

14.35

13.97

2.7%

Breakeven Load Factor

70.5%

72.0%

-1.5 p.p

72.3%

72.1%

0.2 p.p

Average Exchange Rate 1

3.2466

3.2953

-1.5%

3.1925

3.4878

-8.5%

End of period Exchange Rate 1

3.3080

3.2591

1.5%

3.3080

3.2591

1.5%

WTI (avg. per barrel. US$) 2

55.30

49.29

12.2%

50.85

43.44

17.1%

Price per liter Fuel (R$) 3

2.26

1.94

16.4%

2.09

1.94

8.1%

Gulf Coast Jet Fuel (avg. per liter. US$)2

0.46

0.38

22.1%

0.41

0.33

24.7%

 

1. Source: Central Bank; 2. Source: Bloomberg; 3. Fuel expenses/liters consumed; 4. Including results on the return of aircraft under finance lease contracts, sale-leaseback transactions and tax regularization program expenses; 5. Change on methodology from flight hours to block hours per day between 1Q17 and 2Q17; 5. and 6. Average operating fleet excluding sub-leased aircraft and those under MRO.

*Certain variation calculations in this report may not match due to rounding.

Domestic market – GOL

In this quarter, GOL’s domestic supply increased by 2.8% over 4Q16. Demand increased by 7.9% in 4Q17, and load factor reached 81.7%, an increase of 3.9 p.p. when compared to 4Q16.

In 2017, domestic supply expanded 0.9% in comparison to 2016, while demand had an increase of 3.8% in the same period. Load factor improved by 2.3 p.p, reaching 80.2% in 2017.

2

 


 

GOL transported 8.1 million domestic passengers in the quarter, representing an increase of 6.8% when compared with the same period in 2016. The Company is the leader in terms of transported passengers in Brazil’s domestic aviation market.

 

 

International market - GOL

GOL’s international supply increased by 9.6% in the quarter compared to 4Q16. In 2017, The Company showed an increase of 0.2% when compared to 2016.

International demand increased 9.2% in 4Q17 when compared to 4Q16 and was up 2.2% in for 2017 when compared to 2016. International load factors in 4Q17 were 75.3%, decreasing 0.3 p.p. over 4Q16. In 2017, load factors reached 76.1%, a growth of 1.5 p.p. in relation to 2016. During the quarter, GOL transported 0.5 million passengers in the international market, an increase of 6.5% when compared to the fourth quarter of 2016.

Volume of Departures and Total seats - GOL

The total volume of GOL departures was 64,910, an increase of 1.6% in 4Q17 over 4Q16. Flights totaled 250,654 departures for 2017, down 4.2% when compared to 2016, due to the rationalization of our network carried out in May 2016.

The total number of seats available to the market was 10.9 million in the fourth quarter of 2017, an increase of 1.6% over the same period of 2016. In 2017, the total number of seats was 42.0 million seats, a decrease of 3.9% over 2016.

PRASK, Yield and RASK

Net PRASK increased by 7.6% in the quarter when compared to 4Q16, reaching 21.35 cents (R$), due to the growth of net passenger revenue of 11.4% in the quarter. In 2017, net PRASK reached 19.67 cents (R$), an increase of 5.1% compared to 2016.

Our Net RASK was 24.38 cents (R$) in 4Q17, an increase of 8.0% over 4Q16. In 2017, it was 22.65 cents (R$), an increase of 6.3% over the same period of 2016.

Net yield increased by 3.1% in 4Q17 compared to 4Q16, reaching 26.36 cents (R$), largely due to the 4.9% increase in our average fare. In 2017, net yield increased by 2.2% when compared to 2016, reaching 24.67 cents (R$).

Total Fleet

Final

4Q17

4Q16

Var.

3Q17

Var.

Boeing 737-NGs

119

130

-11

120

-1

737-800 NG

92

102

-10

92

0

737-700 NG

27

28

-1

28

-1

By rental type

4Q17

4Q16

Var.

3Q17

Var.

Financial Leasing (737-NG)

31

34

-3

31

0

Operating Leasing (373-NG)

88

96

-8

89

-1

              

At the end of 2017, GOL was operating a fleet of 119 Boeing 737-NG aircraft. At the end of 2016, out of a total of 130 aircraft, GOL was operating 121 aircraft on its routes. Of the nine remaining aircraft, seven were in the process of being returned to lessors and two were sub-leased to other airlines.

3

 


 

GOL has 88 aircraft under operating leasing arrangements and 31 aircraft under financial leasing structures. 31 aircraft in the total fleet have a purchase option at the termination of their leasing contracts.

The average age of the fleet was 9.2 years at the end of 4Q17. In order to maintain this low average, the Company has 120 firm Boeing 737 MAX 8 acquisition orders for fleet renewal by 2028. The first Boeing 737 MAX aircraft is expected to be received by the Company in July 2018.

 

Fleet plan

2017

2018E

2019E

>2019E

Total

Operating Fleet (End of the year)

115

121

124

 

 

Aircraft Commitments (R$ million)*

-

-

1,117.6

43,972.8

45,090.4

Pre-Delivery Payments (R$ million)

-

316.2

773.3

5,374.1

6,463.6

                     * Considers aircraft list price

 

The Company maintains standards of excellence in its maintenance procedures, both with regards to its equipment and in the provision of services to other operators and to its partner Delta. This is supported through certifications by regulatory agencies including ANAC- National Civil Aviation Agency, the American regulatory agency FAA - Federal Aviation Administration and recently EASA - European Aviation Safety Agency, the aeronautical regulator of the European community. These certifications ratify the high standard and excellence in aircraft and component maintenance services that reaffirm GOL’s commitment to ensuring that its processes, manuals and maintenance training programs are in line with aviation global best practices.

 

Relationship with Independent Auditors

 

When hiring services that are not related to external auditing from its independent auditors, Smiles bases its conduct on principles that preserve the auditor’s independence. Pursuant to internationally accepted standards, these principles consist of: (a) the auditors must not audit their own work, (b) the auditors must not execute managing functions for their clients and (c) the auditors must not represent their clients’ legal interests.

 

Based on the subparagraph III, article 2 of the CVM Instruction 381/2003, the Company adopts a formal procedure to hire services other than external auditing from our auditors. The procedure consists of consulting its Audit Committee to ensure that those services shall not affect the independence and the objectivity, required for the independent audit performance. Additionally, formal statements are required from the auditors regarding their independence while providing such services.

 

The Company informs that its independent auditor for the period, Ernst & Young Auditores Independentes (“EY”) did not provide additional services not related to auditing in the 2017 fiscal year.

4

 


 

 

Glossary of industry terms

|        AIRCRAFT LEASING: an agreement through which a company (the lessor), acquires a resource chosen by its client (the lessee) for subsequent rental to the latter for a determined period.

|        AIRCRAFT UTILIZATION: the average number of hours operated per day by the aircraft.

|        AVAILABLE SEAT KILOMETERS (ASK): the aircraft seating capacity multiplied by the number of kilometers flown.

|        AVAILaBLE FREIGHT TONNE KILOMETER (AFTK):  cargo capacity in tonnes multiplied by number of kilometers flown.

|        AVERAGE STAGE LENGTH: the average number of kilometers flown per flight.

|        BLOCK HOURS: the time an aircraft is in flight plus taxiing time.

|        BREAKEVEN LOAD FACTOR: the passenger load factor that will result in passenger revenues being equal to operating expenses.

|        BRENT: oil produced in the North Sea, traded on the London Stock Exchange and used as a reference in the European and Asian derivatives markets.

|        CHARTER: a flight operated by an airline outside its normal or regular operations.

|        EBITDAR: earnings before interest, taxes, depreciation, amortization and rent. Airlines normally present EBITDAR, since aircraft leasing represents a significant operating expense for their business.

|        FREIGHT LOAD FACTOR (FLF): percentage of cargo capacity that is actually utilized (calculated dividing FTK by AFTK)

|        FREIGHT TONNE KILOMETERS (FTK):  weight of revenue cargo in tonnes multiplied by number of kilometers flown by such tonnes.

|        LESSOR: the party renting a property or other asset to another party, the lessee.

|        LOAD FACTOR: the percentage of aircraft seating capacity that is actually utilized (calculated by dividing RPK by ASK).

|        LONG-HAUL FLIGHTS: long-distance flights (in GOL’s case, flights of more than four hours’ duration).

|        OPERATING COST PER AVAILABLE SEAT KILOMETER (CASK): operating expenses divided by the total number of available seat kilometers.

|        OPERATING COST PER AVAILABLE SEAT KILOMETER EX-FUEL (CASK EX-FUEL): operating cost divided by the total number of available seat kilometers excluding fuel expenses.

|        OPERATING REVENUE PER AVAILABLE SEAT KILOMETER (RASK): total operating revenue divided by the total number of available seat kilometers.

|        PASSENGER REVENUE PER AVAILABLE SEAT KILOMETER (PRASK): total passenger revenue divided by the total number of available seat kilometers.

|        REVENUE PASSENGERS: the total number of passengers on board who have paid more than 25% of the full flight fare.

|        REVENUE PASSENGER KILOMETERS (RPK): the sum of the products of the number of paying passengers on a given flight and the length of the flight.

5

 


 

|        SALE-LEASEBACK: a financial transaction whereby a resource is sold and then leased back, enabling use of the resource without owning it.

|        SLOT: the right of an aircraft to take off or land at a given airport for a determined period of time.

|        SUB-LEASE: an arrangement whereby a lessor in a rent agreement leases the item rented to a fourth party.

|        TOTAL CASH: the sum of cash, financial investments and short and long-term restricted cash.

|        WTI Barrel: West Texas Intermediate – the West Texas region, where US oil exploration is concentrated. Serves as a reference for the US petroleum byproduct markets.

|        Yield pEr PASSENGER KILOMETER: the average value paid by a passenger to fly one kilometer.

 

Investor Relations

ri@voegol.com.br

www.voegol.com.br/ir

+55(11)2128-4700

About GOL Linhas Aéreas Inteligentes S.A. (“GOL”)

Brazil's largest airline group. GOL is Brazil's largest airline, carrying 33 million passengers annually on more than 700 daily flights to 64 destinations, 53 in Brazil and 11 in South America and the Caribbean, on a fleet of 119 Boeing 737 aircraft, with a further 120 Boeing 737 MAX on order. GOLLOG is a leading cargo transportation and logistics business serving more than 2,400 Brazilian municipalities and, through partners, 205 international destinations in 95 countries. SMILES is one of the largest coalition loyalty programs in Latin America, with over 13 million registered participants, allowing clients to accumulate miles and redeem tickets for more than 700 locations worldwide. GOL has a team of more than 15,000 highly skilled aviation professionals delivering Brazil's top on-time performance, and an industry leading 17 year safety record. GOL's shares are traded on the NYSE (GOL) and the B3 (GOLL4).

Disclaimer

This release contains forward-looking statements relating to the prospects of the business, estimates for operating and financial results, and those related to growth prospects of GOL. These are merely projections and, as such, are based exclusively on the expectations of GOL’s management. Such forward-looking statements depend, substantially, on external factors, in addition to the risks disclosed in GOL’s filed disclosure documents and are, therefore, subject to change without prior notice. The Company's non-financial information was not reviewed by the independent auditors.

Non-GAAP Measures

To be consistent with industry practice, we disclose so-called non-GAAP financial measures which are not recognized under IFRS or U.S. GAAP, including “Net Debt”, “Adjusted Net Debt”, ”total liquidity”, "EBITDA" and EBITDAR”. Our management believes that disclosure of non-GAAP measures provides useful information to investors, financial analysts and the public in their review of our operating performance and their comparison of our operating performance to the operating performance of other companies in the same industry and other industries. However, these non-GAAP items do not have standardized meanings and may not be directly comparable to similarly-titled items adopted by other companies. Potential investors should not rely on information not recognized under IFRS as a substitute for the GAAP measures of earnings or liquidity in making an investment decision.

 

6

 


 

Comments on business projection trends

 

The Company's financial perspectives are detailed below:

 

Financial Outlook

Full year 2017 Guidance

2017 Results

2018E    Guidance

2019E1    Preliminary

Total fleet (average)

116

117

118

122 to 124

ASKs, System (% change)

+ 0.5%

+ 0.8%

1% to 3%

5% to 10%

- Domestic

+ 0.5%

+ 0.9%

0% to 3%

1% to 3%

- International

+ 0.2%

+ 0.2%

7% to 10%

30% to 40%

Seats, System (% change)

- 3%

- 3.9%

1% to 3%

3% to 5%

Departures, System (% change)

-5%

- 4.2%

1% to 3%

2% to 5%

Average load factor (%)

~ 79%

79.7%

79% to 80%

79% to 81%

Cargo and other revenues (R$ billion)

~ 1.4

1.4

~ 1.6

~ 2

Total net revenues (R$ billion)

~ 10.4

10.6

~ 11

~ 12

Non-fuel CASK (R$ cents)

~ 14

14.5

~ 15

~ 15

Fuel liters consumed (mm)

~ 1,370

1,379

~ 1,400

~ 1,440

Fuel price (R$ / liter)

~ 2.1

2.1

~ 2.2

~ 2.6

Aircraft rent (R$mm)

~ 950

940

~ 950

~ 1,000

EBITDA margin (%)

~ 14%

14.1%

~ 16%

~ 18%

Operating (EBIT) margin (%)

~ 9%

9.4%

~ 11%

~ 13%

Effective income tax rate (%)

-

N.M.

~ 0%

~ 0%

Capital expenditures2 (R$mm)

~ 600

560

~ 600

~ 600

Net Debt2 / EBITDA (x)

~ 3.4x

3.0x

~ 3.0x

~ 2.5x

Fully-diluted shares outstanding (million)

347.7

347.7

347.7

347.7

Earnings per share – fully diluted3(R$)

0.80 to 0.90

0.42

1.20 to 1.40

1.70 to 2.30

Fully-diluted ADS outstanding (million)

173.8

173.9

173.9

173.9

Earnings per ADS – fully diluted3 (US$)

0.50 to 0.56

0.27

0.75 to 0.90

1.00 to 1.50

 

 

 

 

7

 


 

Annual Report of the Statutory Audit Committee (CAE)

 

 

General Information and Responsibilities

 

The Statutory Audit Committee (CAE) is a statutory body linked to the Board of Directors of Gol Linhas Aéreas Inteligentes S.A. (“Company”), which is composed of three independent members of the Board of Directors, who are elected by the Board members on annual basis, one of whom must be qualified as a Financial Expert. Pursuant to its internal regulations, the CAE is responsible for overseeing the quality and integrity of financial reports and statements; compliance with legal, regulatory and statutory standards; the suitability of risk management processes, internal control policies and procedures; internal audit activities. It is also responsible for overseeing the independent auditors’ work, including their independence and the quality and appropriateness of the services provided, as well as any differences of opinion with management. It determines the registration and exercise of the independent audit within the scope of the Brazilian Securities and Exchange Commission (CVM) and performs the function of an Audit Committee, in compliance with the Sarbanes Oxley Act, to which the Company is subject to, since it is registered at the Securities and Exchange Commission – SEC. The CAE is also responsible for overseeing related-party transactions and operating the complaints channel.

 

CAE’s Activities in 2017: In order to discuss the matters related to the year ended December 31, 2017, the CAE met eight times and, within its scope, carried out the following activities:

 

Its coordinator established the agendas and presided over the meetings;

 

It assessed the annual work plan and discussed the results of the activities performed by the independent auditors in 2017;

 

It supervised the activities and performance of the Company’s internal audit, analyzing the annual work plan, discussing the result of the activities and reviews. Any issues raised by the internal audit about improvements in the internal control environment are discussed with the respective managers/officers in order to implement continuous improvements. It supervised and analyzed the effectiveness, quality and integrity of internal control mechanisms in order to, among others, monitor compliance with the provisions related to the integrity of the financial statements, including quarterly financial information and other interim financial statements;

 

It supervised, together with management and the internal audit, the different agreements entered into between the Company or its subsidiaries, on the one hand, and the controlling shareholder, on the other hand, in order to verify compliance with the Company’s policies and controls regarding related-party transactions;

 

It met with the independent auditors, Ernst & Young, and addressed the following topics: the relationship and communication between the CAE and the external auditors, the scope of the auditors’ work, and the findings based on the implementation of the independent auditor’s work plan, among others; and

 

It prepared the CAE’s activities and operation report in 2017, in accordance with good corporate governance practices and the applicable regulation.

 

 

8

 


 

Internal Control Systems

Based on the agenda defined for 2017, the CAE addressed the main topics related to the Company’s internal controls, assessing risk mitigation initiatives and the senior management’s commitment to its continuous improvement. As a result of the meetings with the Company’s internal areas, the Statutory Audit Committee had the opportunity to make suggestions to the Board of Directors for improvements in the processes, overseeing the results already obtained in 2017. Considering that in 2016, the Company received requests from the Internal Revenue Service to provide clarifications on specific expenses incurred in 2012 and 2013, the CAE installed a Special Committee to initiate a procedure to monitor the Company’s controls, as well as overlook the external independent audit hired to conduct an investigation and clarify all the facts. The Special Committee’s activities were concluded in 2017 and revealed that, although additional irregular payments were made to politically exposed persons, none of the amounts paid was material (individually or in the aggregate) in terms of cash flow, and none of our current employees, representatives or members of our board or Management was knowledgeable of any illegal purpose behind any of the identified transactions or of any illicit benefit to the Company arising from the investigated transactions.

 

Based on the information obtained, the Statutory Audit Committee recommended improvements to the internal control system. As a result of the implementation of these changes, the CAE considers the internal control system of the Company and its subsidiaries to be suitable for the size and complexity of their businesses and structured in order to ensure the efficiency of their operations and the systems that generate the financial reports, as well as compliance with applicable internal and external regulations.

 

Corporate Risk Management

 

CAE members, in the exercise of their duties and legal responsibilities, received information from the Company’s Administration about the relevant corporate risks, including the continuity risks, making evaluations and recommendations to increase the effectiveness of the risk management processes directly at Board of Directors’ meetings, contributing to and ratifying the initiatives implemented in 2017.

 

Conclusion

 

The CAE considers that the facts that have been presented to it, based on the works carried out and described in this Report, to be appropriate, and recommended, in its report, the approval of the Company’s audited financial statements for the year ended December 31, 2017.

 

 

São Paulo, March 6, 2018.

 

 

André Jánszky

Member of the Statutory Audit Committee

 

 

Antônio Kandir

Member of the Statutory Audit Committee

 

 

James Meaney

Member of the Statutory Audit Committee

 

9

 


 

Declaration of the officers on the financial statements

 

 

In compliance with CVM Instruction No. 480/09, the Executive officers declare that they have discussed, reviewed and approved the financial statements for the year ended December 31, 2017.

 

 

 

São Paulo, March 6, 2018.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

10

 


 

Declaration of the officers on the independent auditors report on the financial statements

 

 

 

In compliance with CVM Instruction No. 480/09, the Executive officers declare that they have discussed, reviewed and approved the conclusions expressed in the independent auditors report on the individual and consolidated financial statements for the year ended December 31, 2017.

 

 

 

São Paulo, March 6, 2018.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

11

 


 

(A free translation from Portuguese into English of the independent auditor’s report originally issued in Portuguese)

 

Independent auditor’s report on the individual and consolidated financial statements

 

To the shareholders and Board members and Officers of

Gol Linhas Aéreas Inteligentes S.A.             

São Paulo - SP

 

Opinion

 

We have audited the individual and consolidated financial statements of GOL Linhas Aéreas Inteligentes S.A. (the “Company”), identified as Parent and Consolidated, respectively, which comprise the balance sheets as at December 31, 2017, and the statements of operations, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying financial statements present fairly, in all material respects, the individual and consolidated financial position of the Company as at December 31, 2017, and of its individual and consolidated financial performance and its individual and consolidated cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

Basis for opinion

 

We conducted our audit in accordance with the Brazilian and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the individual and consolidated financial statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Accountants (Código de Ética Profissional do Contador) and the professional requirements issued by the Federal Accounting Council (Conselho Federal de Contabilidade), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, the description of how our audit addressed the matter, including any commentary on the findings or outcome of our procedures, is provided in that context.

 

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the individual and consolidated financial statements section of our report, including in relation to these matters.  Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

 

12

 


 
 

 

Revenue recognition from passenger transportation

 

Revenue recognition from passenger transportation is highly dependent on information technology (IT) systems and their internal controls for the revenue recognition from passenger transportation when the air transportation service is provided. This process also takes into consideration other complex aspects that may affect the proper revenue recognition, such as recording of tickets sold but not used, unused tickets recorded as credits to passengers, and subject to expiration, in addition to agreements with other airline companies, interline and codeshare agreements with other airline companies. Revenues recognized by the Company are disclosed in Note 23 and the recognition criteria are described in Note 2.2 (k).

 

This subject was considered significant to our audit due to the complexity of the technology environment and its respective controls related to revenue recognition, including ticket prices in different currencies, as well as, the acquisition of tickets through miles programs.

 

How our audit addressed this matter:

 

Our audit procedures included, among others, the involvement of systems specialists to support us in assessing the operational design and effectiveness of IT controls and internal controls that comprise the process of ticket sales, registration, execution of passenger transportation and revenue recognition; the execution of audit tests with the purpose of assessing the integrity of the data in the IT systems involved in the revenue recognition process, through selection of tickets samples for each revenue group and tests on tickets used and unused; other passenger revenues, and passenger no-show, rebooking and cancellation charges; tests of internal controls on the tickets sales process and revenue recognition; discussion with Management the assessment of the audit differences identified, review of the audit differences recorded by the Company, as well as, the assessment on the internal controls impacted by the audit differences identified.

 

Additionally, we assessed the adequacy of disclosures made by the Company on this matter, included in Notes 2.2 (k) and 23 to the financial statements.

 

Deficiencies in the design and operation of internal controls regarding the reconciliation and review of revenue recognition process changed our assessment of the nature, timing and extent of our detailed audit procedures designed to obtain sufficient and adequate audit evidence related to revenue recognition of passenger transportation. Taking this into consideration, based on the results of our audit procedures performed on the revenue recognition for passenger transportation, we consider acceptable the assumptions and criteria related to the revenue recognition process prepared by Management, and the related disclosures, in the context of the financial statement taken as a whole.

 

 

 

 

 

 

 

13

 


 
 

Breakage revenue

 

The Company’s revenues take into consideration the estimated number of tickets and miles that are not expected to be used or redeemed up to their expiration date, and are recognized as breakage revenue based on a statistical calculation of tickets and miles with high potential for expiration due to their expiration or no use. The analyses and assumptions for the revenue recognition of breakage is reviewed annually by the Company’s Management to take into consideration the historical trend of tickets and miles expired, as well, as those with high potential to expire.

 

This matter was considered significant to our audit, considering the subjectivity involved in this analysis and the high level of judgment adopted by Management to determine the assumptions used to determine the expected number of tickets and miles that will expire.

 

How our audit addressed this matter:

 

Our audit procedures included, among others, the assessment of the design and operational effectiveness of controls implemented by Management for the revenue recognition of breakage; assessment of the reasonableness of assumptions related to the tickets and miles expected to expire, based on the historical data of tickets and miles expired; tests on a sampling based of miles earned, redeemed and expired; and analysis of the reasonableness of the other assumptions and methodology adopted by Management to determine the breakage rate used to recognize revenue.

 

Additionally, we assessed the adequacy of disclosures made by the Company on this matter, included in Notes 2.2 (k) e 2.2 (q) to the financial statements.

 

Deficiencies in the design and operation of internal controls regarding the review of breakage revenue balances changed our assessment of the nature, timing and extent of our detailed audit procedures designed to obtain sufficient and adequate audit evidence related to breakage revenue. Taking this into consideration, based on the results of our audit procedures performed on the assumptions and calculations of breakage revenue prepared by Management, we consider acceptable the estimates prepared by the Company and the related disclosures, in the context of the financial statement taken as a whole.

 

Deferred income tax

 

The Company recognized deferred income tax assets on unused tax losses and temporary differences between tax and books basis. As of December 31, 2017, the amount of deferred tax assets recorded in noncurrent assets in the consolidated financial statements was R$ 276,514 thousand.

 

The deferred tax assets was recognized based on the Management’s projections of future taxable profits for the next 5 years. These projections were prepared and based on assumptions, among others, (i) forecast of future market conditions and economy; (ii)  revenue growth; (iii) discount rate; and (iv) changes in costs and expenses. These assumptions consider significant judgement and uncertainties, and it would be materially different based on future outcomes, which may impact the realization of deferred tax assets.

14

 


 
 

 

This matter was considered significant to our audit, considering the subjectivity involved in this analysis and the high level of judgment adopted by Management to determine the assumptions used and the projections of future profits.

 

How our audit addressed this matter:

 

Our audit procedures included, among others, the involvement of valuation specialists to assist us on the review of the business plan used in the projections of future profit and assumptions utilized by Management on the projections of future taxable profits, review of the discount rate, assessment on the off-set of deferred tax assets and liabilities on temporary differences.

Additionally, we assessed the adequacy of the disclosures made by the Company on this matter.

 

Based on the results of the audit procedures performed on the recognition, measurement and realization of the deferred tax assets, which is consistent with Management’s assessment, we consider that the criteria and assumptions on the recoverable value of deferred tax assets prepared by Management, as well as the related disclosure in Note 8.2 are acceptable, in the context of the financial statement taken as a whole.

 

Other matters

 

Statements of value added

 

The individual and consolidated statements of value added for the year ended December 31, 2017, prepared under the responsibility of the Company’s Management and presented as supplementary information under IFRS, were submitted to the same audit procedures performed in accordance with the audit of the Company’s financial statements. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and whether their form and content are in accordance with the criteria provided for in Accounting Pronouncement CPC 9 - Statement of Value Added. In our opinion, these statements of value added were prepared fairly, in all material respects, in accordance with the criteria defined in Accounting Pronouncement CPC 9 and are consistent with the overall individual and consolidated financial statements as a whole.

 

Other information accompanying the individual and consolidated financial statements and the auditor’s report

 

The Company’s Management is responsible for other information that includes the Management Report. Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of audit conclusion on the Management Report.

 

In connection with the audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or based on our knowledge obtained in the audit, or otherwise, whether this report appears to be materially misstated. If based on our work performed, we conclude that there is material misstatement in the Management Report, we are required to report this fact. We have nothing to report on this matter.

15

 


 
 

 

Responsibilities of Management and those charged with governance for the individual and consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the individual and consolidated financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance of the Company and its subsidiaries are responsible for overseeing the financial reporting process.

 

Auditor’s responsibilities for the audit of the individual and consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with the Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

·

Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 
·

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company and its subsidiaries.

 
·

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

 
·

Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.

 

16

 


 
 

 

·

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 
·

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

São Paulo, March 6, 2018, 2017

 

 

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

 

 

 

Vanessa Martins Bernardi                                          

Accountant CRC-1SP244569/O-3

 

 

 

 

 

 

 

 

17

 


 

Statements of financial position

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

   

Parent Company

Consolidated

Assets

Note

2017

2016

2017

2016

           

Current assets

         

Cash and cash equivalents

3

103,727

57,378

1,026,862

       562,207

Short-term investments

4

730,900

49

955,589

       431,233

Trade receivables

6

-

-

936,478

       760,237

Inventories

7

-

-

178,491

       182,588

Recoverable taxes

8.1

19,446

9,289

83,210

         27,287

Derivatives

28

-

-

40,647

3,817

Other current assets

 

55,563

64,770

123,721

       113,345

Total current assets

 

909,636

     131,486

3,344,998

  2,080,714

 

 

 

 

 

 

Noncurrent assets

 

 

 

 

 

Deposits

9

64,736

38,760

1,163,759

    1,188,992

Restricted cash

5

38,432

32,656

268,047

       168,769

Recoverable taxes

8.1

6,163

17,286

7,045

         72,060

Deferred taxes

8.2

27,703

13,409

276,514

       107,159

Other noncurrent assets

 

-

-

-

4,713

Related parties

10

1,570,591

1,873,350

-

-  

Investments

12

388,235

281,758

1,333

         17,222

Property, plant and equipment

14

323,013

323,013

3,195,767

    3,025,010

Intangible assets

15

-

-

1,747,285

    1,739,716

Total noncurrent assets

 

2,418,873

  2,580,232

6,659,750

  6,323,641

 

 

 

 

 

 

Total assets

 

3,328,509

  2,711,718

10,004,748

  8,404,355

 

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

 

18

 

shape

 

Statements of financial position

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

Parent Company

Consolidated

Liabilities and equity

Note

2017

2016

2017

2016

           

Current liabilities

         

Short-term debt

16

95,027

277,219

1,162,872

835,290

Suppliers

 

13,473

1,314

1,249,124

1,097,997

Suppliers - Forfaiting

17

-

-

78,416

-

Salaries

 

311

309

305,454

283,522

Taxes payable

18

7,856

119

134,951

146,174

Landing fees

 

-

  -   

365,651

239,566

Advance ticket sales

19

-

  -   

1,456,939

1,185,945

Mileage program

20

-

  -   

765,114

781,707

Advances from customers

 

-

  -   

21,718

16,823

Provisions

21

-

  -   

46,561

66,502

Derivatives

28

-

  -   

34,457

89,211

Operating leases

27

-

-

28,387

7,233

Other current liabilities

 

2,357

2,252

100,401

98,772

Total current liabilities

 

119,024

281,213

5,750,045

4,848,742

 

 

 

 

 

 

Noncurrent liabilities

 

 

 

 

 

Long-term debt

16

3,939,948

2,984,495

5,942,795

5,543,930

Suppliers

 

-

 -

222,026

13,517

Provisions

21

-

  -   

562,628

723,713

Mileage program

20

-

  -   

188,204

219,325

Deferred taxes

8.2

-

  -   

188,005

338,020

Taxes payable

18

14,678

  -   

66,196

42,803

Related companies

10

135,010

21,818

-

  -   

Provision for loss on investment

12

2,590,503

3,074,190

-

  -   

Operating leases

27

-

-

110,723

-

Other noncurrent liabilities

 

10,305

  -   

43,072

31,056

Total noncurrent liabilities

 

6,690,444

6,080,503

7,323,649

6,912,364

 

 

 

 

 

 

Equity

22

 

 

 

 

Capital stock

 

3,082,802

3,080,110

3,082,802

3,080,110

Share issuance costs

 

(42,290)

 (42,290)

(155,618)

 (155,618)

Treasury shares

 

(4,168)

 (13,371)

(4,168)

 (13,371)

Capital reserves

 

88,762

91,399

88,762

91,399

Equity valuation adjustments

 

(79,316)

 (147,229)

(79,316)

 (147,229)

Share-based payments reserve

 

119,308

113,918

119,308

113,918

Gains on change in investment

 

760,545

693,251

760,545

693,251

Accumulated losses

 

(7,406,602)

 (7,425,786)

(7,293,274)

 (7,312,458)

Deficit attributable to equity holders of the parent

 

(3,480,959)

 (3,649,998)

(3,480,959)

 (3,649,998)

 

 

 

 

 

 

Non-controlling interests

from Smiles

 

-

  -   

412,013

293,247

 

 

 

 

 

 

Total deficit

 

(3,480,959)

 (3,649,998)

(3,068,946)

 (3,356,751)

 

 

 

 

 

 

Total liabilities and deficit

 

3,328,509

2,711,718

10,004,748

8,404,355

 

The accompanying notes are an integral part of the financial statements.

19

shape


 

Statements of income

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

 

Parent Company

Consolidated

 

Note

2017

2016

2017

2016

Net revenue

 

 

 

 

 

Passenger

 

-

-

9,185,805

8,671,442

Cargo and other

 

-

-

1,390,217

1,195,893

Total net revenue

23

-

-

10,576,022

9,867,335

 

 

 

 

 

 

Cost of services provided

24

-

-

(7,681,376)

(7,610,920)

 

 

 

 

 

 

Gross profit

 

-

-

2,894,646

2,256,415

 

 

 

 

 

 

Operating income (expenses)

 

 

 

 

 

Selling expenses

24

-

-

(922,298)

(989,269)

Administrative expenses

24

(31,693)

 (7,276)

(976,065)

(671,869)

Other operating (expenses) income, net

24

(7,072)

219,434

(7,072)

102,548

Total operating (expenses) income

 

(38,765)

212,158

(1,905,435)

(1,558,590)

 

 

 

 

 

 

Equity results

12

365,938

(18,955)

544

(1,280)

 

 

 

 

 

 

Income before

  financial result, net and income taxes

 

327,173

193,203

989,755

696,545

 

 

 

 

 

 

Financial result

25

 

 

 

 

Financial income

 

89,153

384,650

213,446

 568,504

Financial expenses

 

(389,509)

(363,016)

(1,050,461)

 (1,271,564)

Exchange rate variation, net

 

(24,612)

      629,325

(81,744)

 1,367,937

 Total financial result

 

(324,968)

      650,959

(918,759)

 664,877

 

 

 

 

 

 

Income before 

  income taxes

 

2,205

844,162

70,996

1,361,422

 

 

 

 

 

 

Income and social contribution taxes

 

 

 

 

 

Current

 

-

-

(239,846)

 (257,944)

Deferred

 

16,979

5,457

547,059

(1,114)

Total income and social contribution taxes

8

16,979

5,457

307,213

(259,058)

 

 

 

 

 

 

Net income for the year before

  non-controlling interests

 

19,184

849,619

378,209

1,102,364

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

Equity holders of the parent

 

19,184

849,619

19,184

849,619

Non-controlling interests from Smiles

 

-

-

359,025

252,745

 

 

 

                         

 

 

Basic earnings per share

 

 

 

 

 

Per common share

13

0.002

0.070

0.002

0.070

Per preferred share

13

0.055

2.455

0.055

2.455

 

 

 

 

 

 

Diluted earnings per share

 

 

 

 

 

Per common share

13

0.002

0.070

0.002

0.070

Per preferred share

13

0.055

2.450

0.055

2.450

 

The accompanying notes are an integral part of the financial statements.

 

20

 

shape

 
 

Statements of comprehensive income

(In thousands of Brazilian reais - R$, except when otherwise indicated)

Fiscal year ended December 31, 2017

 

 

 

 

Parent Company

Consolidated

 

Note

2017

2016

2017

2016

 

 

 

 

 

 

Net income for the year

 

19,184

849,619

378,209

1,102,364

 

 

 

 

 

 

Other comprehensive income to be reclassified to profit or loss in subsequent periods

28

 

 

 

 

Cash flow hedges

 

67,913

 123,889

67,913

 123,889

Tax effect

 

-

 (92,179)

-

 (92,179)

 

 

67,913

 31,710

67,913

 31,710

 

 

 

 

 

 

Total comprehensive income for the year

 

87,097

881,329

446,122

1,134,074

 

 

 

 

 

 

Comprehensive income attributable to:

 

 

 

 

 

Equity holders of the parent

 

87,097

881,329

87,097

881,329

Non-controlling interests from Smiles

 

-

-

359,025

252,745

 

 

 

The accompanying notes are an integral part of the financial statements.

 

21

 

shape

 

Statements of changes in equity - Parent Company

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

 

 

 

 

 

Capital reserves

Equity valuation adjustments

 

 

 

 

 

 

 

Note

Capital

stock

Share issuance costs

Treasury shares

Goodwill on transfer of shares

Special goodwill reserve of subsidiary

Unrealized

hedge gain

(losses)

Share-based

payments

Gains on change in investment

Accumulated losses

Total

Balances as of December 31, 2015

 

3,080,110

(41,895)

(22,699)

27,882

70,979

(178,939)

103,126

690,379

(8,275,405)

(4,546,462)

Other comprehensive income, net

 

-

-

-

-

-

31,710

-

-

-

31,710

Share issuance costs

 

-

 (395)

-

-

-

-

-

-

-

 (395)

Share-based payments

 

-

-

-

-

-

-

12,658

-

-

12,658

Gains on change in investment

 

-

-

-

-

-

-

-

        2,872

-

2,872

Net income for the year

 

-

-

-

-

-

-

-

-

849,619

849,619

Restricted shares transferred

 

-

-

9,328

(7,462)

-

-

 (1,866)

-

-

-

Balances as of December 31, 2016

 

3,080,110

 (42,290)

 (13,371)

20,420

70,979

 (147,229)

113,918

     693,251

(7,425,786)

(3,649,998)

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercised

 

2,692

-

-

-

-

-

-

-

-

2,692

Other comprehensive income, net

 

-

-

-

-

-

67,913

-

-

-

67,913

Share-based payments

22

-

-

-

-

-

-

11,956

-

-

11,956

Gains on change in investment

 

-

-

-

-

-

-

-

3,994

-

3,994

Sale of interest in subsidiary

12

-

-

-

-

-

-

-

63,300

-

63,300

Treasury shares transferred

 

-

-

9,203

(2,637)

-

-

(6,566)

-

-

-

Net income for the year

 

-

-

-

-

-

-

-

-

19,184

19,184

Balances as of December 31, 2017

 

3,082,802

(42,290)

(4,168)

17,783

70,979

(79,316)

119,308

760,545

(7,406,602)

(3,480,959)

                       

 

 

 

 

The accompanying notes are an integral part of the financial statements.

22

 

shape

 

 

Statements of changes in equity - Consolidated

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

 

 

 

Capital

reserves

Equity valuation adjustments

 

 

 

 

 

 

 

 

 

 

Note

Capital stock

Share issuance

costs

Treasury shares

Goodwill on transfer

of shares

Special goodwill reserve of subsidiary

Unrealized hedge gains

(losses)

Share-based

payments

Gains on change in investment

Accumulated losses

Deficit attributable to equity holders of the parent

Smiles’

non-controlling

interests

Total

Balances as of December 31, 2015

 

3,080,110

(155,223)

(22,699)

27,882

70,979

(178,939)

103,126

690,379

(8,162,077)

(4,546,462)

224,022

(4,322,440)

Capital increase from exercise of stock option in subsidiary

 

-  

 -

-  

3,507

3,507

Other comprehensive income (loss), net

 

 -

 -

31,710

31,710

31,710

Share issuance costs

 

 -

 (395)

 -

 (395)

 (395)

Share-based payments

 

 -

 -

12,658

12,658

413

13,071

Gains on change in investment

 

 -

 -

2,872

2,872

313

3,185

Net income for the year

 

 -

 -

849,619

849,619

252,745

1,102,364

Restricted shares transferred

 

           9,328

(7,462)

(1,866)

-

-

Interest on equity paid

 

-  

 (10,422)

 (10,422)

Dividends distributed

 

 -

-  

(177,331)

(177,331)

Balances as of December 31, 2016

 

3,080,110

(155,618)

 (13,371)

20,420

70,979

 (147,229)

113,918

693,251

(7,312,458)

(3,649,998)

293,247

(3,356,751)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

2,692

-

-

-

-

-

-

-

-

2,692

-

2,692

Other comprehensive income (loss), net

 

-

-

-

-

-

67,913

-

-

-

67,913

-

67,913

Capital increase from exercise of stock option in subsidiary

 

-

-

-

-

-

-

-

-

-

-

1,988

1,988

Share issuance costs

 

-

-

-

-

-

-

-

-

-

-

(523)

(523)

Share-based payments

23

-

-

-

-

-

-

11,956

-

-

11,956

192

12,148

Gains on change in investment

 

-

-

-

-

-

-

-

3,994

-

3,994

-

3,994

Sale of interest in subsidiary

13

-

-

-

-

-

-

-

63,300

-

63,300

4,865

68,165

Treasury shares transferred

 

-

-

9,203

(2,637)

-

-

(6,566)

-

-

-

-

-

Net income for the year

 

-

-

-

-

-

-

-

-

19,184

19,184

359,025

378,209

Interest on equity distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

(14,071)

(14,071)

Minimum dividends distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

(46,931)

(46,931)

Additional dividends distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

(185,779)

(185,779)

Balances as of December 31, 2017

 

3,082,802

(155,618)

(4,168)

17,783

70,979

(79,316)

119,308

760,545

(7,293,274)

(3,480,959)

412,013

(3,068,946)


The accompanying notes are an integral part of the financial statements.

 

23

 

shape
 

Statements of cash flows

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Parent Company

Consolidated

 

2017

2016

2017

2016

Net income for the year

19,184

849,619

378,209

1,102,364

Adjustment to reconcile net income to net cash provided by operating activities

 

 

 

 

Depreciation and amortization

-

-

505,425

447,668

Allowance for doubtful accounts

-

-

24,913

9,806

Provision for legal proceedings

-

-

158,263

189,244

Provision for inventory obsolescence

-

-

3,059

-

Deferred taxes

(16,979)

(5,457)

(547,059)

1,114

Equity results

(365,938)

18,955

(544)

1,280

Share-based payments

-

775

14,849

13,524

Exchange and monetary variations, net

52,589

(463,800)

95,132

(1,149,616)

Interest on debt, financial lease and other liabilities

210,639

239,368

566,902

682,188

Unrealized hedge results

-

-

8.639

82,990

Provision for profit sharing

-

-

65,573

56,238

Write-off of property, plant and equipment and intangible assets

-

104,287

145,855

181,308

Write-off of goodwill on investment acquisition in associate

-

-

15,184

-

Losses from capital increase in associate

-

-

-

1,368

Other provisions

-

-

-

16,232

Gain on redemption of debt

-

(286,799)

-

(286,799)

Adjusted net income (loss)

(100,505)

456,948

1,434,400

1,348,909

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

Trade receivables

-

-

 (198,370)

(307,574)

Short-term investments

(730,851)

179,077

(353,231)

83,062

Inventories

-

-

1,038

16,648

Deposits

(22,500)

(7,479)

46,388

(323,641)

Suppliers

12,156

(5,559)

(202,462)

204,184

Suppliers - Forfaiting

-

-

76,157

-

Advance ticket sales

-

-

270,994

(20,710)

Mileage program

-

-

(47,714)

9,374

Advances from customers

-

-

4,895

3,364

Salaries

2

(75)

(43,641)

(23,351)

Landing fees

-

-

126,085

(74,090)

Taxes payable

25,099

(183)

460,980

257,464

Derivatives

-

-

(32.310)

(13,384)

Provisions

-

-

(270,970)

(253,643)

Operating leases

-

-

131,877

(158,994)

Other assets

21,361

29,871

18,157

64,220

Interest paid

(272,597)

(325,397)

(528,398)

(606,405)

Income tax paid

-

-

(221,122)

(226,500)

Net cash flows (used in) from operating activities

(1,067,835)

327,203

672,753

(21,067)

 

 

 

 

 

Sale of interest in subsidiary

68,163

-

68,163

-

Transactions with related parties

372,582

(1,160,978)

-

-

Short-term investments of Smiles

-

-

(171,174)

(45,651)

Restricted cash

(5,776)

46,091

(100,835)

542,107

Capital increase in associate

-

-

-

(3,439)

Capital increase in subsidiary and investee

(451,610)

(191,587)

-

-

Advances for property, plant and equipment acquisition, net

-

555,519

68,679

536,444

Property, plant and equipment

-

-

(370,438)

(409,709)

Intangible assets

-

-

(55,449)

(29,656)

Dividends and interest on shareholders’ equity received from associate

293,651

166,411

1,249

1,993

Net cash flows (used in) from investing activities

277,010

(584,544)

(559,805)

592,089

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

24

 

shape

 

Statements of cash flows

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

 

 

 

 

 

Parent Company

Consolidated

 

2017

2016

2017

2016

 

 

 

 

 

Loan funding, net of issuance costs

1,654,000

-

1,898,738

-

Loan funding and exchange offer costs

(56,950)

(27,249)

(65,628)

(27,249)

Loan payments

(166,752)

(50,298)

(274,480)

(520,519)

Early payment of Senior Notes

(707,142)

-

(707,142)

-

Finance lease payments

-

-

(239,092)

(342,791)

 

 

 

Dividends and interest on equity paid to non-controlling interests of Smiles

-

-

(254,892)

(171,829)

Capital increase

2,692

-

2,692

-

Share issuance costs

-

(395)

(523)

(395)

Transactions with related parties

111,551

(1,161)

-

-

Net cash flows (used in) from financing activities

837,399

(79,103)

359,673

(1,062,783)

 

 

 

 

 

Foreign exchange variation on cash held in foreign currencies

(225)

6,499

(7,966)

(18,364)

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

46,349

(329,945)

464,655

(510,125)

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

57,378

387,323

562,207

1,072,332

Cash and cash equivalents at the end of the year

103,282

57,378

1,026,862

562,207

 

 

 

 

 

Statements of cash flows - Additional

information

 

 

 

 

 

 

 

 

 

Non-cash transactions

 

 

 

 

 

 

 

 

 

Interest on shareholders’ equity and dividends, net of taxes

55,343

-

(49,602)

-

Costs on sale in subsidiary’s interest

4,865

-

-

-

Escrow deposits

10,307

-

10,307

-

Write-off of finance lease agreements

-

-

(15,334)

-

Renegotiation of finance lease agreements

-

-

-

549,144

Provision for aircraft return

-

-

-

97,423

Software acquisition

-

-

-

25,660

Engine maintenance financing

-

-

529,775

201,170

Property, plant and equipment acquisition through Finimp

-

-

63,066

-

 

 

 

 

 

         

 

The accompanying notes are an integral part of the financial statements.

25

 

shape

 

 

Statements of value added

Fiscal year ended December 31, 2017

(In thousands of Brazilian reais - R$, except when otherwise indicated)

 

 

Parent Company

Consolidated

 

2017

2016

2017

2016

Revenues

 

 

 

 

Passengers, cargo and other

-

 -  

11,292,388

10,547,831

Other operating income

268

 299,177

40,607

 336,933

Allowance for doubtful accounts

-

 -  

(4,499)

16,207

 

268

 299,177

11,328,496

10,900,971

Inputs acquired from third parties (including ICMS and IPI)

 

 

 

 

Suppliers of aircraft fuel

-

 -  

(2,930,442)

 (2,753,918)

Material, electricity, third-party services and others

(32,796)

(84,198)

(2,940,355)

(3,105,132)

Aircraft insurance

-

 -  

(12,495)

 (35,938)

Sales and marketing

(326)

(215)

(586,513)

(572,388)

Gross value added

(32,854)

214,764

4,858,691

4,433,595

 

 

 

 

 

Depreciation and amortization

-