golitr1q18_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 May, 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):

 

(Free translation into English from original previously issued in Portuguese)

 

 

Individual and consolidated

Interim Financial Information

for the quarter ended March 31, 2018

 

GOL Linhas Aéreas Inteligentes S.A.

March 31, 2018

with review report of independent auditors


 

Gol Linhas Aéreas Inteligentes S.A.

 

Individual and consolidated interim financial information

March 31, 2018

 

 

Contents   
 
 
 
Management report  01 
Comments on business projection trends  06 
Report of the Statutory Audit Committee (CAE)  07 
Declaration of the officers on the interim financial information  08 
Declaration of the officers on the independent auditors review report on the interim financial   
information  09 
Report on the review of interim financial information  10 
 
 
Statements of financial position  12 
Statements of income  14 
Statements of comprehensive income  15 
Statements of changes in equity  16 
Statements of cash flows  18 
Statements of value added  20 
Notes to the interim financial information  21 

 

Management report

 

We are proud of the continuing improvement in our results, which we believe is proof that our strategy of offering a differentiated, high quality product while relentlessly focusing on cost efficiency, is bearing fruit. We remain focused on offering the best experience in air transportation, providing punctual, exclusive services to our customers on new, modern aircraft that connect our main markets with the most convenient schedules. Our entertainment platform is the most complete and modern in Latin America with live on-board television and on-demand internet. The fleet has been retrofitted with eco-leather seats, and on-board Wi-Fi. We also offer our customers selfie check-in, GOL+Conforto seats, and an expanded menu of on-board products, while maintaining low-fare leadership.

 

We maintained our on-time leadership in Brazil for the 20th consecutive quarter (according to Infraero) in 1Q18: 93.7% of GOL’s flights (over 64,000 in the quarter) took off on schedule.

 

We expect to continually drive our efficiency and technology advantages this year, and we look forward to 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 anywhere in Latin America, as well as to our recently announced destinations in Florida.

 

In January, GOL began the sale of tickets to Miami and Orlando, its first destinations in the United States. 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.

 

GOL was the lowest operating cost airline in the region for the 17th consecutive year, a result of our simplified, standardized fleet (lower crew costs, intelligent spare parts management and best-in-class maintenance), and our lean and productive operations with reduced fixed costs. In 1Q18, aircraft utilization was 12.9 block hours per day (a 5.2% increase over 1Q17), and our load factor increased by 0.8 pp, reaching 80.4%. Our operating efficiency and cost advantage support our position as the #1 airline in Brazil,

 

We continued to effectively protect the company’s margins by managing capacity, yields and hedging. In the 1Q18 compared to 4Q17 the average price of jet fuel increased by 7.4% and we increased domestic capacity by 0.8%, increased PRASK by 11.5%, and realized R$19 million of positive results through fuel hedging.

 

We continue to reduce our cost of financing and improve our liquidity and leverage profile. On January 30, 2018, GOL subsidiary GOL Finance priced an additional issue (re-tap offering) in the amount of US$150 million of our Senior Notes due in 2025, with a coupon of 7.0% per year. In addition, we partially acquired our Senior Notes due 2020 (through a tender offer), and paid out the redemption of our Senior Notes due 2018, 2020, 2021 e 2028. As of March 31, 2018, our net debt (ex-perpetual bonds) to LTM EBITDA ratio improved to 2.5x, and our total liquidity was R$3.1 billion.

1


 

Operational and Financial Indicators

 

Traffic data – GOL (in millions)

1Q18

1Q17

% Var.

 RPK GOL – Total

9,989

9,561

4.5%

  RPK GOL – Domestic

8,694

8,507

2.2%

  RPK GOL – International

1,295

1,055

22.8%

 ASK GOL – Total

12,421

12,019

3.3%

  ASK GOL – Domestic

10,780

10,690

0.8%

  ASK GOL – International

1,641

1,329

23.5%

 GOL Load Factor – Total

80.4%

79.6%

0.8 p.p

  GOL Load Factor – Domestic

80.7%

79.6%

1.1 p.p

  GOL Load Factor – International

78.9%

79.4%

-0.5 p.p

Operating data

1Q18

1Q17

% Var.

Average Fare (R$)

334.72

295.88

13.1%

Revenue Passengers - Pax on board ('000)

8,362

8,210

1.8%

Aircraft Utilization (block hours/day)5

12.9

12.3

5.2%

Departures

64,545

64,100

0.7%

Total Seats (‘000)

10,816

10,734

0.8%

Average Stage Length (km)

1,142

1,102

3.6%

Fuel Consumption (mm liters)

364

353

3.2%

Full-time Employees (at period end)

15,043

15,051

-0.1%

Average Operating Fleet6

111

111

-0.4%

On-time Departures

93.7%

94.6%

-0.9 p.p

Flight Completion

97.8%

98.8%

-1.0 p.p

Passenger Complaints (per 1000 pax)

1.92

1.43

34.2%

Lost Baggage (per 1000 pax)

2.04

2.17

-6.2%

Financial data

1Q18

1Q17

% Var.

Net YIELD (R$ cents)

28.02

25.41

10.3%

Net PRASK (R$ cents)

22.53

20.21

11.5%

Net RASK (R$ cents)

23.87

21.57

10.7%

CASK (R$ cents)4

19.80

19.44

1.9%

CASK ex-fuel (R$ cents)4

12.69

13.32

-4.8%

CASK ex-fuel and net gains on aircraft (R$ cents)

13.35

13.32

0.2%

Breakeven Load Factor

66.7%

71.7%

-5.0 p.p

Average Exchange Rate 1

3.2433

3.1451

3.1%

End of period Exchange Rate 1

3.3238

3.1684

4.9%

WTI (avg. per barrel. US$) 2

62.89

51.78

21.5%

Price per liter Fuel (R$) 3

2.43

2.08

16.5%

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

0.50

0.40

25.9%

1. Source: Brazil’s 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; 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. * 1Q17 results have been restated based on IFRS 15. Certain variation calculations in this report may not match due to rounding.

Domestic market – GOL


GOL’s domestic supply increased by 0.8% in 1Q18 over 1Q17. Demand increased by 2.2% in 1Q18, and load factor reached 80.7%, an increase of 1.1 p.p. when compared to 1Q17.

 

GOL transported 7.7 million domestic passengers in the quarter, representing an increase of 0.9% when compared with the same period in 2017. The Company is the leader in transported passengers in Brazil’s domestic aviation market.

2


 

International market - GOL

GOL’s international supply increased by 23.5% in the quarter compared to 1Q17. International demand increased 22.8% in 1Q18 when compared to 1Q17. International load factor in 1Q18 was 78.9%, decreasing 0.5 p.p. over 1Q17. During the quarter, GOL transported 0.6 million passengers in the international market, an increase of 16.4% when compared to the first quarter of 2017.

Volume of Departures and Total seats - GOL

The total volume of GOL departures was 64,500, an increase of 0.7% in 1Q18 over 1Q17. The total number of seats available to the market was 10.8 million in the first quarter of 2018, an increase of 0.8% over the same period of 2017.

PRASK, Yield and RASK

Net PRASK increased by 11.5% in the quarter when compared to 1Q17, reaching 22.53 cents (R$), driven by a growth in net passenger revenue of 15.2% in the quarter. GOL’s Net RASK was 23.87 cents (R$) in 1Q18, an increase of 10.7% over 1Q17. Net yield increased by 10.3% in 1Q18 compared to 1Q17, reaching 28.02 cents (R$), driven by a 13.1% increase in GOL’s average fare.

Total Fleet

Final

1Q18

1Q17

Var.

4Q17

Var.

Boeing 737-NGs

118

124

-6

119

-1

737-800 NG

92

96

-4

92

0

737-700 NG

26

28

-2

27

-1

By rental type

1Q18

1Q17

Var.

4Q17

Var.

Financial Leasing (737-NG)

29

31

-2

31

-2

Operating Leasing (373-NG)

89

93

-4

88

1

              

 

At the end of 1Q18, GOL’s total fleet was 118 Boeing 737-NG aircraft, with 117 aircraft in operation and one aircraft was sub-leased to another airline. At the end of March 2017, of a total of 124 Boeing 737-NG aircraft, GOL was operating 116 aircraft on routes. Of the eight remaining aircraft, four were in the process of being returned to lessors and four were sub-leased to other airlines.

 

GOL has 89 aircraft under operating leasing arrangements and 29 aircraft under financial lease structures. 29 aircraft in the fleet have a purchase option at the end of their lease contracts.

 

The average age of the fleet was 9.5 years at the end of 1Q18. The Company has 120 firm Boeing 737 MAX 8 acquisition orders, allowing for complete fleet renewal by 2028. The first Boeing 737 MAX 8 aircraft is expected to be received by the Company in July 2018.

 

Fleet plan

2018

2019E

2020E

>2020E

Total

Operating Fleet (End of the year)

121

124

128

 

 

Aircraft Commitments (R$ million)*

-

1,122.9

4,559.9

39,622.9

45,305.7

Pre-Delivery Payments (R$ million)

243.0

542.0

683.9

5,150.0

6,618.9

* 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 (Brazil’s National Civil Aviation Agency), the US FAA (Federal Aviation Administration), and recently EASA (European Aviation Safety Agency), the aeronautical regulator of the European community. These certifications ratify the high standard 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.

3


 

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.

|        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.

4


 

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. GOLis Brazil's largest airline, carrying 33 million passengers annually on more than 700 daily flights to 66 destinations, 55 in Brazil and 11 in South America and the Caribbean, on a fleet of 120 Boeing 737 aircraft, with a further 120 Boeing 737 MAX on order. GOLLOGis a leading cargo transportation and logistics business serving more than 2,400 Brazilian municipalities and, through partners, 205 international destinations in 95 countries. SMILESis 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). For further information, visit www.voegol.com.br/ir.

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, GOL discloses 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”. The Company’s management believes that disclosure of non-GAAP measures provides useful information to investors, financial analysts and the public in their review of its operating performance and their comparison of its 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.

 

5


 

Comments on business projection trends

 

The Company’s outlook is as follows:

 

Financial Outlook
(Consolidated, IFRS)

2018E

2019E3

Previous

Revised

Total fleet (average)

118

117

122 to 124

ASKs, System (% change)

1 to 3

1 to 2

5 to 10

- Domestic

0 to 3

0 to 2

1 to 3

- International

7 to 10

6 to 8

30 to 40

Seats, System (% change)

1 to 3

0 to 2

3 to 5

Departures, System (% change)

1 to 3

0 to 2

2 to 5

Average load factor (%)

79 to 80

79 to 80

79 to 81

Cargo and other revenues (R$ billion)

~ 1.6

~ 1.24

~ 1.64

Total net revenues (R$ billion)

~ 11

~ 11

~ 12

Non-fuel CASK (R$ cents)

~ 15

~ 14

~ 15

Fuel liters consumed (mm)

~ 1,400

~ 1,380

~ 1,440

Fuel price (R$ / liter)

~ 2.2

~ 2.5

~ 2.6

Aircraft rent (R$mm)

~ 950

~ 960

~ 1,000

EBITDA margin (%)

~ 16

~ 16

~ 18

Operating (EBIT) margin (%)

~ 11

~ 11

~ 13

Net financial expense (R$ mm)

-

~ 650

~ 500

Effective income tax rate (%)

~ 0

~ 5

~ 0

Capital expenditures¹ (R$mm)

~ 600

~ 700

~ 600

Net Debt¹ / EBITDA (x)

~ 3.0x

~ 2.8x

~ 2.5x

Fully-diluted shares outstanding (million)

347.7

348.4

348.4

Earnings per share – fully diluted²(R$)

1.20 to 1.40

0.90 to 1.10

1.70 to 2.30

Fully-diluted ADS outstanding (million)

173.9

174.2

174.2

Earnings per ADS – fully diluted² (US$)

0.75 to 0.90

0.50 to 0.65

1.00 to 1.50

 

(1) Excluding perpetual bonds;      (2) After participation of minority interest in Smiles S.A.    (3) 2019 does not consider IFRS 16;     (4) 2018 and 2019 consider IFRS 15

 

6


 

Report of the Statutory Audit Committee (CAE)

 

 

The GOL LINHAS AÉREAS INTELIGENTES S.A. Statutory Audit Committee, in compliance with its legal and statutory obligations, has reviewed the quarterly information for the quarter ended March 31, 2018. On the basis of the procedures we have undertaken, and taking into account the independent auditors’ review report issued by Ernst & Young Auditores Independentes S.S. and the information and explanations we have received during the quarter, we consider that these documents are fit to be submitted to the consideration of the Board of Directors.

 

 

 

 

São Paulo, May 8, 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

 

7


 

Declaration of the officers on the interim financial information

 

 

In compliance with CVM Instruction No. 480/09, the Executive officers declare that they have discussed, reviewed and approved the interim financial information for the quarter ended March 31, 2018.

 

 

 

São Paulo, May 8, 2018.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

8


 

Declaration of the officers on the review report of independent auditor’s review on the interim financial information

 

 

 

In compliance with CVM Instruction No. 480/09, the Executive officers declare that they have discussed, reviewed and approved the conclusions expressed in the review report of independent auditors on the review of interim financial information for the quarter ended March 31, 2018.

 

 

 

São Paulo, May 8, 2018.

 

 

 

Paulo S. Kakinoff

President and Chief Executive Officer

 

 

Richard F. Lark Jr.

Executive Vice President and Chief Financial Officer

9


 

Report on the review of interim financial information

 

(A free translation from the original in Portuguese into English)

 

To

The Shareholders, Board of Directors and Officers

GOL Linhas Aéreas Inteligentes S.A.

São Paulo - SP

 

Introduction

 

We have reviewed the accompanying individual and consolidated interim financial information of GOL Linhas Aéreas Inteligentes S.A. (“Company”), identified as Company and Consolidated, respectively, contained in the Quarterly Information (ITR) for the quarter ended March 31, 2018, which comprises the balance sheet as at March 31, 2018 and the related income statement,  statement of comprehensive income for the quarter,  the statement of changes in equity and statement of cash flows for the three-month period then ended, and a summary of significant accounting practices and other explanatory notes.

 

Company management is responsible for the preparation of interim individual financial information in accordance with the Technical Pronouncement of the Accounting Pronouncements Committee (CPC) 21 (R1) – Interim Financial Reporting and the consolidated interim financial information in accordance with CPC 21 (R1) and IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of these information in compliance with the rules issued by the Brazilian Securities Commission (“CVM”), applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The scope of a review is significantly narrower than an audit conducted in accordance with Brazilian and International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might have be identified in an audit. Therefore, we do not express an audit opinion.

 

Conclusion on the individual and consolidated interim financial information

 

Based on our review, nothing came to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the Quarterly Information referred to above was not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34 applicable to the preparation of Quarterly Financial Information, consistently with the standards issued by the Brazilian Securities Commission (CVM).

10


 

 

Emphasis

 

Restatement of corresponding values

 

As mentioned in note 2.3, as a result of the adoption of the new accounting standards, CPC 45 and IFRS 15 – Revenue from contracts with costumers, the corresponding individual and consolidated amounts related to the balance sheet as of December 31, 2017 and the related interim accounting information related to the statements of income, of the comprehensive income, changes in shareholders' equity, cash flows and value added for the quarter ended March 31, 2017 presented for comparison purposes have been adjusted and are being restated as provided for in CPC 23 - Accounting Policies, Change of Estimate and Rectification of Errors and CPC 26 (R1) - Presentation of Financial Statements. Our conclusion contains no modification related to this subject.

 

Other matters

 

Statements of value added

 

We have also reviewed the individual and consolidated statements of value added for the three-month period ended March 31, 2018, prepared under the responsibility of management, the presentation of which in the interim financial information is required by rules issued by the Brazilian Securities Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR), and as supplementary information by IFRS, whereby no statement of value added presentation is required. These statements have been subjected to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in accordance with the overall accompanying interim individual and consolidated interim financial information.

 

 

 

São Paulo, May 8, 2018.

 

 

 

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP034519/O-6

           

 

 

Vanessa Martins Bernardi

Accountant CRC-1SP244569/O-3   

11


 

Statements of financial position

As of March 31, 2018 and December 31, 2017

(In thousands of Brazilian reais - R$)

 

 

   

Parent Company

Consolidated

Assets

Note

03/31/2018

12/31/2017

03/31/2018

12/31/2017

     

 

   

Current assets

         

Cash and cash equivalents

4

21,502

103,727

532,446

1,026,862

Short-term investments

5

727,702

730,900

1,270,607

955,589

Trade receivables

7

-

-

1,011,877

936,478

Inventories

8

-

-

180,914

178,491

Recoverable taxes

9.1

7,612

19,446

117,338

83,210

Derivatives

28

-

-

26,074

40,647

Other current assets

 

59,393

55,563

130,744

123,721

Total current assets

 

816,209

909,636

3,270,000

3,344,998

 

 

 

 

 

 

Noncurrent assets

 

 

 

 

 

Deposits

10

68,866

64,736

1,164,704

1,163,759

Restricted cash

6

38,031

38,432

293,272

268,047

Recoverable taxes

9.1

18,859

6,163

20,082

7,045

Deferred taxes

9.2

27,686

27,703

249,749

276,514

Related parties

11

1,625,342

1,570,591

-

-

Investments

13

465,372

388,235

1,314

1,333

Property, plant and equipment

15

304,825

323,013

3,145,333

3,195,767

Intangible assets

16

-

-

1,744,719

1,747,285

Total noncurrent assets

 

2,548,981

2,418,873

6,619,173

6,659,750

 

 

 

 

 

 

Total

 

3,365,190

3,328,509

9,889,173

10,004,748

 

The accompanying notes are an integral part of the interim financial information.

12


 

Statements of financial position

As of March 31, 2018 and December 31, 2017

(In thousands of Brazilian reais - R$)

 

 

 

 

Parent Company

Consolidated

Liabilities and equity

Note

03/31/2018

12/31/2017

03/31/2018

12/31/2017

 

 

 

(Restated)

 

(Restated)

           

Current liabilities

         

Short-term debt

17

67,808

95,027

1,188,819

1,162,872

Suppliers

 

12,648

13,473

1,133,459

1,249,124

Suppliers - Forfaiting

18

-

-

434,502

78,416

Salaries

 

311

311

321,614

305,454

Taxes payable

19

8,453

7,856

134,122

134,951

Landing fees

 

-

-

257,661

365,651

Advance ticket sales

20

-

-

1,053,862

1,476,514

Mileage program

 

-

-

748,408

765,114

Advances from customers

 

-

-

81,658

21,718

Provisions

21

-

-

38,624

46,561

Derivatives

28

-

-

15,224

34,457

Operating leases

27

-

-

158,986

28,387

Other current liabilities

 

1,166

2,357

83,692

100,401

Total current liabilities

 

90,386

119,024

5,650,631

5,769,620

 

 

 

 

 

 

Noncurrent liabilities

 

 

 

 

 

Long-term debt

17

3,954,758

3,939,948

5,827,793

5,942,795

Suppliers

 

-

-

193,712

222,026

Provisions

21

-

-

605,493

562,628

Mileage program

 

-

-

184,490

188,204

Deferred taxes

9.2

-

-

178,419

188,005

Taxes payable

19

13,045

14,678

58,785

66,196

Related companies

11

143,507

135,010

-

-

Provision for loss on investment

13

2,478,713

2,610,078

-

-

Operating leases

27

-

-

-

110,723

Other noncurrent liabilities

 

24,077

10,305

49,223

43,072

Total noncurrent liabilities

 

6,614,100

6,710,019

7,097,915

7,323,649

 

 

 

 

 

 

Equity

22

 

 

 

 

Capital stock

 

3,084,302

3,082,802

3,084,302

3,082,802

Shares to be issued

 

5,799

-

5,799

-

Share issuance costs

 

(42,290)

(42,290)

(155,618)

(155,618)

Treasury shares

 

(4,168)

(4,168)

(4,168)

(4,168)

Capital reserves

 

88,762

88,762

88,762

88,762

Equity valuation adjustments

 

(78,656)

(79,316)

(78,656)

(79,316)

Share-based payments reserve

 

124,002

119,308

124,002

119,308

Gains on change in investment

 

759,984

760,545

759,984

760,545

Accumulated losses

 

(7,277,031)

(7,426,177)

(7,163,703)

(7,312,849)

Deficit attributable to equity holders of the parent

 

(3,339,296)

(3,500,534)

(3,339,296)

(3,500,534)

 

 

 

 

 

 

Non-controlling interests

from Smiles

 

-

-

479,923

412,013

 

 

 

 

 

 

Total deficit

 

(3,339,296)

(3,500,534)

(2,859,373)

(3,088,521)

 

 

 

 

 

 

Total liabilities and deficit

 

3,365,190

3,328,509

9,889,173

10,004,748

 

The accompanying notes are an integral part of the interim financial information.

13


 

Statements of income

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$, except basic and diluted earnings (loss) per share)

 

 

 

Parent Company

Consolidated

 

Note

03/31/2018

03/31/2017

03/31/2018

03/31/2017

 

 

 

(Restated)

 

(Restated)

Net revenue

 

 

 

 

 

Passenger

 

-

-

2,798,857

2,429,276

Cargo and other

 

-

-

165,410

162,800

Total net revenue

23

-

-

2,964,267

2,592,076

 

 

 

 

 

 

Cost of services provided

24

-

-

(2,121,485)

(1,909,868)

Gross profit

 

-

-

842,782

682,208

 

 

 

 

 

 

Operating income (expenses)

24

 

 

 

 

Selling expenses

 

-

-

(173,929)

(185,725)

Administrative expenses

 

(3,030)

(2,478)

(245,520)

(239,217)

Other operating (expenses) income, net

 

55,679

(2,683)

80,978

(1,989)

Total operating (expenses) income

 

52,649

(5,161)

(338,471)

(426,931)

 

 

 

 

 

 

Equity results

13

214,423

173,450

(19)

126

 

 

 

 

 

 

Income before

financial result, net and income taxes

 

267,072

168,289

504,292

255,403

 

 

 

 

 

 

Financial result

25

 

 

 

 

Financial income

 

21,925

20,276

64,639

45,718

Financial expenses

 

(134,396)

(67,981)

(260,987)

(286,472)

Exchange rate variation, net

 

(6,808)

42,010

(21,515)

141,153

Total financial result

 

(119,279)

(5,695)

(217,863)

(99,601)

 

 

 

 

 

 

Income before

  income taxes

 

147,793

162,594

286,429

155,802

 

 

 

 

 

 

Income and social contribution taxes

 

 

 

 

 

Current

 

(305)

-

(49,293)

(85,095)

Deferred

 

(17)

(8)

(16,299)

164,185

Total income and social contribution taxes

9

(322)

(8)

(65,592)

79,090

 

 

 

 

 

 

Net income for the period before

  non-controlling interests

 

147,471

162,586

220,837

234,892

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

Equity holders of the parent

 

147,471

162,586

147,471

162,586

Non-controlling interests from Smiles

 

-

-

73,366

72,306

 

 

 

                            

 

 

Basic earnings per share

 

 

 

 

 

Per common share

14

0.012

0.013

0.012

0.013

Per preferred share

14

0.424

0.469

0.424

0.469

 

 

 

 

 

 

Diluted earnings per share

 

 

 

 

 

Per common share

14

0.012

0.013

0.012

0.013

Per preferred share

14

0.418

0.465

0.418

0.465

 

The accompanying notes are an integral part of the interim financial information.

14


 

Statements of comprehensive income

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

 

 

Parent Company

Consolidated

 

Note

03/31/2018

03/31/2017

03/31/2018

03/31/2017

 

 

 

(Restated)

 

(Restated)

 

 

 

 

 

 

Net income for the period

 

147,471

162,586

220,837

234,892

 

 

 

 

 

 

Cash flow hedges

 

660

17,078

660

17,078

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

28

660

17,078

660

17,078

 

 

 

 

 

 

Total comprehensive income for the period

 

148,131

179,664

221,497

251,970

 

 

 

 

 

 

Comprehensive income attributable to:

 

 

 

 

 

Equity holders of the parent

 

148,131

179,664

148,131

179,664

Non-controlling interests from Smiles

 

-

-

73,366

72,306

 

The accompanying notes are an integral part of the interim financial information.

15


 
 

Statements of changes in equity - Parent Company

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

 

 

 

 

 

 

 

Capital reserves

Equity valuation adjustments

 

 

 

 

 

Note

Capital

stock

Advance for future capital increase

Share issuance

costs

Treasury shares

Goodwill on transfer

of shares

Special

goodwill

reserve of subsidiary

Unrealized

hedge

result

Share-

based

payments

Gains on change in investment

Accumulated losses

Total

Balances as of December 31, 2016 (Restated)

2.3

3,080,110

-

 (42,290)

 (13,371)

20,420

70,979

 (147,229)

113,918

     693,251

(7,444,969)

(3,669,181)

Other comprehensive income, net

 

-

-

-

-

-

-

17,078

-

-

-

17,078

Share-based payments

 

-

-

-

-

-

-

-

683

-

-

683

Gains on change in investment

 

-

-

-

-

-

-

-

-

3,849

-

3,849

Net income for the period (Restated)

2.3

-

-

-

-

-

-

-

-

-

162,586

162,586

Balances as of March 31, 2017 (Restated)

2.3

3,080,110

-

 (42,290)

 (13,371)

20,420

70,979

(130,151)

114,601

697,100

(7,282,383)

(3,484,985)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2017 (Restated)

2.3

3,082,802

-

(42,290)

(4,168)

17,783

70,979

(79,316)

119,308

760,545

(7,426,177)

(3,500,534)

Initial adoption of accounting standard – CPC 48 (IFRS 9) (*)

2.3

-

-

-

-

-

-

-

-

-

1,675

1,675

Other comprehensive income, net

 

-

-

-

-

-

-

660

-

-

-

660

Stock options exercised

 

1,500

5,799

-

-

-

-

-

-

-

-

7,299

Share-based payments

22

-

-

-

-

-

-

-

4,694

-

-

4,694

Gains on change in investment

13

-

-

-

-

-

-

-

-

(561)

-

(561)

Net income for the period

 

-

-

-

-

-

-

-

-

-

147,471

147,471

Balances as of March 31, 2018

 

3,084,302

5,799

(42,290)

(4,168)

17,783

70,979

(78,656)

124,002

759,984

(7,277,031)

(3,339,296)

 

(*) On January 1, 2018, the Company adopted the new standard IFRS 9 – “Financial instruments”, resulting in an initial adjustment to estimated losses with doubtful accounts. For further information, see Note 2.3.

 

The accompanying notes are an integral part of the interim financial information.

16


 
 

Statements of changes in equity - Consolidated

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

 

 

 

 

 

 

Capital

reserves

Equity valuation adjustments

 

 

 

 

 

 

 

 

Note

 

Capital stock

Advance for future capital increase

Share issuance

costs

Treasury shares

Goodwill on transfer

of shares

Special goodwill reserve of subsidiary

Unrealized hedge result

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, 2016 (Restated)

2.3

3,080,110

-

(155,618)

 (13,371)

20,420

70,979

 (147,229)

113,918

693,251

(7,331,641)

(3,669,181)

293,247

(3,375,934)

Other comprehensive income (loss), net

 

 -

-

 -

17,078

17,078

17,078

Capital increase from exercise of stock option in subsidiary

 

-  

-

 -

-  

1,932

1,932

Share-based payments

 

 -

-

 -

683

683

76

759

Gains on change in investment

 

 -

-

 -

3,849

3,849

49

3,898

Net income for the period (Restated)

2.3

 -

-

 -

162,586

162,586

72,306

234,892

Dividends distributed by Smiles

 

-

 -

-  

(185,779)

(185,779)

Balances as of March 31, 2017 (Restated)

 

3,080,110

-

(155,618)

 (13,371)

20,420

70,979

(130,151)

114,601

697,100

(7,169,055)

(3,484,985)

181,831

(3,303,154)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2017 (Restated)

2.3

3,082,802

-

(155,618)

(4,168)

17,783

70,979

(79,316)

119,308

760,545

(7,312,849)

(3,500,534)

412,013

(3,088,521)

Initial adoption of accounting standard – CPC 48 (IFRS 9) (*)

2.3

-

-

-

-

-

-

-

-

-

1,675

1,675

39

1,714

Other comprehensive income (loss), net

 

-

-

-

-

-

-

660

-

-

-

660

-

660

Stock options exercised

 

1,500

5,799

-

-

-

-

-

-

-

-

7,299

-

7,299

Capital increase from exercise of stock option in subsidiary

 

-

-

-

-

-

-

-

-

-

-

-

875

875

Share issuance costs

 

-

-

-

-

-

-

-

-

-

-

-

-

-

Share-based payments

22

-

-

-

-

-

-

-

4,694

-

-

4,694

41

4,735

Gains on change in investment

13

-

-

-

-

-

-

-

-

(561)

-

(561)

561

-

Net income for the period

 

-

-

-

-

-

-

-

-

-

147,471

147,471

73,366

220,837

Interest on equity distributed by Smiles

 

-

-

-

-

-

-

-

-

-

-

-

(6,972)

(6,972)

Balances as of March 31, 2018

 

3,084,302

5,799

(155,618)

(4,168)

17,783

70,979

(78,656)

124,002

759,984

(7,163,703)

(3,339,296)

479,923

(2,859,373)

 

(*) On January 1, 2018, the Company adopted the new standard IFRS 9 – “Financial instruments”, resulting in an initial adjustment to estimated losses with doubtful accounts. For further information, see Note 2.3.

 

The accompanying notes are an integral part of the interim financial information.

17


 
 

Statements of cash flows

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

Parent Company

Consolidated

 

03/31/2018

03/31/2017

03/31/2018

03/31/2017

 

 

(Restated)

 

(Restated)

 

 

 

 

 

Net income for the period

147,471

162,586

220,837

234,892

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

 

 

 

 

Depreciation and amortization

-

-

150,568

 106,608

Allowance for doubtful accounts

-

-

(988)

 1,818

Provision for legal proceedings

-

-

 72,531

  38,567

Provision for inventory obsolescence

-

-

 1,512

33

Deferred taxes

17

8

16,299

 (164,185)

Equity results

(214,423)

(173,450)

19

(126)

Share-based payments

4,694

-

4,735

3,324

Exchange and monetary variations, net

8,745

(43,388)

18,311

(113,539)

Interest on debt, financial lease and other liabilities

89,745

49,346

168,551

143,123

Unrealized hedge results

-

-

(16,086)

11,664

Provision for profit sharing

-

-

15,157

6,069

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

21,904

-

2,500

4,978

Adjusted net income (loss)

58,153

(4,898)

653,946

273,226

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

Trade receivables

-

-

(73,669)

(65,366)

Short-term investments

8,712

(2)

10,904

105,886

Inventories

-

-

(3,935)

(5,479)

Deposits

(4,064)

(3,636)

2,426

(21,463)

Suppliers

(838)

2

(143,270)

11,558

Suppliers - Forfaiting

-

-

342,060

-

Advance ticket sales

-

-

(422,652)

(247,666)

Mileage program

-

-

(20,420)

(51,436)

Advances from customers

-

-

59,940

215,687

Salaries

-

-

1,003

(2,096)

Landing fees

-

-

(107,990)

49,707

Taxes payable

343

192

44,821

269,245

Derivatives

-

-

12,086

(20,065)

Provisions

-

-

(48,089)

(69,442)

Operating leases

-

-

19,876

59,520

Other assets (liabilities)

11,854

65,151

(70,974)

(190,337)

Interest paid

(83,454)

(99,211)

(150,591)

(205,345)

Income tax paid

-

-

(53,805)

(59,279)

Net cash flows (used in) from operating activities

(9,294)

(42,402)

51,667

46,855

 

 

 

 

 

Transactions with related parties

(29,088)

244,736

-

-

Short-term investments of Smiles

-

-

(320,408)

201,644

Restricted cash

401

(1,376)

(25,117)

(19,979)

Capital increase in subsidiary and investee

-

(275,000)

-

-

Dividends and interest on shareholders’ equity received

2,569

216,211

-

-

Advances for property, plant and equipment acquisition, net

(3,717)

-

(11,373)

-

Property, plant and equipment

-

-

(162,448)

(129,463)

Intangible assets

-

-

(8,022)

(13,910)

Net cash flows (used in) from investing activities

(29,835)

184,571

(527,368)

38,292

 

18


 
 

Statements of cash flows

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

Parent Company

Consolidated

 

03/31/2018

03/31/2017

03/31/2018

03/31/2017

 

 

 

 

 

Loan funding, net of issuance costs

486,735

-

604,571

31,818

Loan funding and exchange offer costs

(8,737)

-

(10,742)

-

Loan payments

-

-

(37,751)

(18,908)

Early payment of Senior Notes

(531,907)

-

(531,907)

-

Finance lease payments

-

-

(52,970)

(57,319)

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

-

-

-

(185,779)

Capital increase

1,500

-

1,500

-

Capital increase from non-controlling interests

-

-

875

-

Advance for future capital increase

5,799

-

5,799

-

Transactions with related parties

6,000

-

-

-

Net cash flows used in financing activities

(40,610)

-

(20,625)

(230,188)

 

 

 

 

 

Foreign exchange variation on cash held in foreign currencies

(2,486)

206

1,910

(31,056)

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

(82,225)

142,375

(494,416)

(176,097)

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

103,727

57,378

1,026,862

 562,207

Cash and cash equivalents at the end of the period

21,502

199,753

532,446

386,110

 

The accompanying notes are an integral part of the interim financial information.

19


 
 

Statements of value added

Quarters ended March 31, 2018 and 2017

(In thousands of Brazilian reais - R$)

 

 

Parent Company

Consolidated

 

03/31/2018

03/31/2017

03/31/2018

03/31/2017

Revenues

 

(Restated)

 

(Restated)

Passengers, cargo and other

-

-

3,129,809

2,823,135

Other operating income

57,760

(1,989)

57,760

8,373

Allowance for doubtful accounts

-

-

14,702

1,260

 

57,760

(1,989)

3,202,271

2,832,768

Inputs acquired from third parties (including ICMS and IPI)

 

 

 

 

Suppliers of aircraft fuel

-  

-

(897,012)

 (748,589)

Material, electricity, third-party services and others

 (3,851)

(2,352)

(610,164)

 (748,580)

Aircraft insurance

-  

-

(4,917)

 (140)

Sales and marketing

 (267)

(322)

(142,053)

 (118,873)

Gross value added

53,642

(4,663)

1,548,125

1,216,586

 

 

 

 

 

Depreciation and amortization

-  

-

(150,568)

 (106,608)

Value added produced

53,642

(4,663)

1,397,557

1,109,978

 

 

 

 

 

Value added received in transfer

 

 

 

 

Equity results

214,423

173,450

(19)

 126

Financial income

37,040

71,125

331,688

 314,185

Value added for distribution

305,105

239,912

1,729,226

1,424,289

 

 

 

 

 

Distribution of value added:

 

 

 

 

Salaries

 838

427

 390,516

 323,600

Benefits

-  

-

 38,235

 38,668

FGTS

-  

-

 27,646

 26,829

Personnel

 838

427

 456,397

 389,097

 

 

 

 

 

Federal taxes

 1,752

311

250,327

 126,355

State taxes

-  

-

 5,065

 8,622

Municipal taxes

-  

-

 885

 702

Tax, charges and contributions

 1,752

311

256,277

 135,679

 

 

 

 

 

Interest

155,658

76,588

545,345

 408,312

Rent

-  

-

 250,967

 256,274

Other

 (614)

-

 (597)

 35

Third-party capital remuneration

155,044

76,588

  795,715

 664,621

 

 

 

 

 

Net income for the period

147,471

162,586

147,471

162,586

Net income for the period attributable to non-controlling interest of Smiles

-

-

73,366

 72,306

Remuneration of own capital

147,471

162,586

220,837

 234,892

 

 

 

 

 

Value added for distribution

305,105

239,912

1,729,226

1,424,289

 

The accompanying notes are an integral part of the interim financial information.

20


 

Notes to the interim financial information

March 31, 2018

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

 

1.    General information

 

Gol Linhas Aéreas Inteligentes S.A. (the “Company” or “GLAI”) is a publicly-listed company incorporated on March 12, 2004, under the Brazilian Corporate Law. The Company is a holding company of the following main subsidiaries: (i) Gol Linhas Aéreas S.A. (“GLA”), which is mainly engaged in (a) the regular and non-regular flight transportation services of passengers, cargo and mailbags, domestically or internationally, according to the concessions granted by the regulator; and (b) other activities in relation to flight transport services provided in its by-laws; and (ii) Smiles Fidelidade S.A. (“Smiles Fidelidade”, formerly Webjet Participações S.A. prior to the change in the corporate name on July 1, 2017), which mainly operates (a) the development and management of its own or third party’s customer loyalty program, and (b) sale of redemption rights of awards related to the loyalty program.

    

Additionally, the Company is the direct parent company of the wholly-owned subsidiaries GAC Inc. (“GAC”), Gol Finance Inc., Gol Finance, formerly Gol LuxCo S.A., and Gol Dominicana Lineas Aereas SAS (“Gol Dominicana”).

 

The Company’s corporate address is located at Praça Comandante Linneu Gomes, s/n, concierge 3, building 24, Jardim Aeroporto, São Paulo, Brazil.

 

The Company’s shares are traded on B3 S.A. - Brasil, Bolsa, Balcão (“B3”) and on the New York Stock Exchange (“NYSE”). The Company adopted Level 2 Differentiated Corporate Governance Practices from the B3 and is included in the Special Corporate Governance Stock Index (“IGC”) and the Special Tag Along Stock Index (“ITAG”), which were created for companies committed to apply differentiated corporate governance practices.

 

GLA is highly sensitive to the economy and also to the U.S. dollar, since approximately 50% of its costs are denominated in U.S. dollar. The Company has been improving in safe levels its liquidity, operating margin and ability to respond effectively to the adverse events caused by the instability of the Brazilian economic scenario. The diligent work performed to adjust the fleet size to the economy growth and match seat supply to demand are some of the ongoing initiatives implemented to maintain a high load factor and maximize revenue per available seat kilometer. The Company maintains its solid strategy of initiatives to improve the operating result, such as the adjustment of the route network and the increased productivity per fleet aircraft. It is also worth mentioning initiatives to reduce costs through the intensive use of technology, increase liquidity and adjust its capital structure.

 

Moving forward with its liquidity plan, at the end of December 2017, the Company began implementing several initiatives to restructure its debt, reducing the financial cost of its debt structure. The result of the issue carried out on December 11, 2017, which raised US$500 million, and of the additional issue carried out on February 2, 2018, which raised US$150 million, at more attractive rates, was partially used to amortize the Company’s most onerous debt and will significantly reduce the financial cost as of 2018. Other initiatives are scheduled for 2018, reinforcing the Company’s commitment to reducing the financial cost in order to solidify its high-liquidity strategy.

 

Even in a scenario with an outlook for improvement, the Company is subject to uncertainties in the Brazilian economy and political scenario that may directly impact the effectiveness of the expected results.

 

Management understands that the business plan prepared, presented and approved by the Board of Directors on January 11, 2018, shows strong elements to continue as going concern.

 

In 2016, the Company received inquiries from Brazilian tax authorities regarding certain payments to firms that turned out to be owned by politically exposed persons in Brazil. Following an internal investigation, the Company engaged U.S. and Brazilian external legal counsels to conduct an independent investigation to ascertain the facts with regard to these and any other payments identified as irregular and to analyze the adequacy and effectiveness of the Company’s internal control and compliance programs in light of the findings of the investigation.

 

In December 2016, the Company entered into a leniency agreement with the Brazilian Federal Public Ministry (the “Leniency Agreement”), under which the Company agreed to pay R$12.0 million in fines and to make improvements to its compliance program. In turn, the Federal Public Ministry agreed not to raise any criminal or civil charges related to activities that are the subject to the Leniency Agreement and that may be characterized as (i) acts of administrative impropriety and related acts involving politically exposed persons or (ii) other possible actions, which at the date of the Leniency Agreement had not been identified by the ongoing investigation (any such actions possibly resulting in an increase in the fines under the Leniency Agreement). In addition, the Company paid R$4.2 million in fines to the Brazilian tax authorities related to the above-mentioned payments. The Company voluntarily informed the U.S. Department of Justice, the SEC and the Brazilian Securities and Exchange Commission (“CVM”) of the external independent investigation and the Leniency Agreement.

21


 
 

Notes to the interim financial information

March 31, 2018

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

 

 

The external independent investigation was concluded in April 2017. It revealed that certain additional irregular payments were made to politically exposed persons; however, 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. The Company reported the conclusions of the investigation to the relevant authorities and will keep them informed of any future developments regarding this issue, as well as keep watch on the analyses initiated by these bodies. These authorities may impose fines and possibly other sanctions to the Company.

 

Since 2016, the Company has taken steps to strengthen its compliance program and internal control environment, such as monitoring its relations with politically exposed persons, enhancing its procurement procedures and monitoring services provided by third parties. Reinforcing its commitment to continue improving, the Company hired specialized companies to review and improve its compliance program and internal control environment, mainly focusing on assessing fraud and corruption risks at first. In addition, at the end of 2017, the Company created the Corporate Risk and Compliance executive area by hiring an external seasoned expert who reports directly to the Chief Executive Officer and has independent access to the Board of Directors and the Statutory Audit Committee.

 

On July 1, 2017, in order to optimize and simplify GOL’s organizational structure, and to generate tax savings from the use of accumulated tax losses, the Company approved a corporate restructuring through the merger of Smiles S.A. and Smiles Fidelidade S.A. (“Merger”). As a result of the Merger, Smiles S.A. was dissolved and all its assets, rights and obligations were transferred to Smiles Fidelidade S.A., pursuant to articles 224, 225, 227 and 264 of Brazilian Corporation Law.

 

2.    Approval and summary of significant accounting policies applied in preparing the interim financial information

 

This interim financial information was authorized for issue by Management on May 8, 2018.

 

2.1.      Compliance Statement

 

The individual and consolidated interim information for the three-month period ended March 31, 2018, has been prepared in accordance with International Accounting Standards (“IAS”) No. 34, Accounting Pronouncement nº 21 (R1) (“CPC 21”), which deal with interim statements, and the requirements issued by the CVM, applicable to the preparation of interim information.

 

When preparing the interim financial information, the Company uses the following disclosure criteria: (i) regulatory requirements; (ii) the relevance and specificity of the information on the Company’s operations provided to users; (iii) the information needs of the users of the interim information form; and (iv) information from other entities in the same sector, mainly in the international market. Accordingly, Management confirms that all the material information presented in this interim financial information is being demonstrated and corresponds to the information used by Management in the course of its duties and is in accordance with the requirements issued by the CVM, applicable to the preparation of interim information.

 

2.2.      Basis of preparation

 

This interim financial information was prepared based on historical cost, except for certain financial assets and liabilities that are measured at fair value and investments measured using the equity method.

 

Except for the subsidiary Gol Dominicana, the functional currency of which is the U.S. dollar, the functional currency of the Company and its subsidiaries is the Brazilian real. The presentation currency of this consolidated interim financial information is the Brazilian real.

 

This interim information does not include all the information or disclosures required in the annual financial statements, and it should therefore be read in conjunction with the financial statements for the year ended December 31, 2017, which were prepared in accordance with the accounting practices adopted in Brazil and in the International Financial Reporting Standards (IFRS).

 

The Company adopted CPC 48 - “Financial Instruments” (IFRS 9) and CPC 47 - “Revenue from Contracts with Customers” (IFRS 15) on January 1, 2018, the effective date, resulting in the following changes to the basis of preparation of this individual and consolidated interim financial information.

22


 

 

Notes to the interim financial information

March 31, 2018

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

 

a)      Trade receivables

 

Trade receivables are measured based on cost (net of estimated losses from doubtful accounts) and approximate their fair value, given their short-term nature. Due to the adoption of CPC 48 (IFRS 9) – Financial Instruments, the allowance for doubtful accounts is now measured using the simplified approach, which considers the adoption of a provision matrix based on historical data to measure the expected loss during the contract lifecycle, through the segmentation of the receivables portfolio into groups that have the same receipt patterns, based on the  maturity dates. Additionally, the Company carries out a case-by-case analysis to assess risks of default in specific cases.

 

b)      Financial assets and liabilities

 

The Company adopts CPC 48 (IFRS 9) requirements for its financial assets and liabilities and operations designated as hedge accounting. The measurement of financial assets and liabilities is based on the categories below. The subsequent measurement of a specific item depends on the classification of the instrument, which is determined at initial recognition and annually reviewed, and considers the Company’s business model for the management of assets and the analysis of contracted cash flows. Instruments comprise short-term investments, investment in debt instruments, trade receivables and other receivables, short and long-term debt, other payables and debt and derivative contracts.

 

Amortized cost: financial assets from which the Company’s main purpose is to obtain contractual cash flows, which represent only the payment of principal and interest, and liabilities that are measured at amortized cost based on the effective interest rate method. Monetary restatement, interest and exchange variation, less impairment losses (where applicable), are recognized as financial income or expenses in profit or loss, when incurred. The Company’s main instruments in this category are trade receivables, deposits and other receivables, short and long-term debt (including finance leases) and suppliers.

 

Measured at fair value through profit or loss or held for trading: interest rates, exchange variation and variations arising from the fair value measurement are recognized in profit or loss as financial income or expenses. The Company has investments classified as cash equivalents, short-term investments and restricted cash in this category.

 

Derivatives: changes in interest rates, exchange rates and fuel prices expose the Company and its subsidiaries to risks that may affect their financial performance. In order to mitigate said risks, the Company contracts derivative financial instruments that may or may not be designated for hedge accounting. If they are designated for hedge accounting, they are classified as cash flow hedge or fair value hedge.

 

·    Not designated as hedge accounting: the Company can contract derivative financial instruments not designated for hedge accounting when the Risk Management goals do not require this classification. Changes in the fair value of operations not designated as hedge accounting are booked directly in the financial result.

 

23


 

 

Notes to the interim financial information

March 31, 2018

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

 

·    Designated as cash flow hedge: hedge future expenses against fluctuations in fuel prices and interest rates. The effectiveness of said fluctuations is estimated based on the analysis of the economic relationship between the hedged item and the hedging instrument. Effective fair value variations are booked in equity under “Other comprehensive income” until the hedged revenue or expense is recognized in the same line of the statement of income in which said item is recognized. The ineffectiveness identified in each reporting period are recognized in the financial result. When designating the intrinsic value of options as a hedging instrument, the Company recognizes the aligned time value of the options designated in equity, recognizing it in profit or loss in accordance with the characteristic of the hedge relationship. Deferred taxes on hedge transactions are recorded in “Other comprehensive income, net”, only when the tax credits are expected to be realized.

 

Hedge accounting is likely to be discontinued prospectively when: (i) the derivative instrument matures or is sold, terminated or executed; (ii) the hedged item is unlikely to be realized; (iii) it no longer fulfills the criteria for qualification, or there is no longer an economic relationship between the hedged item and the hedging instrument. If the operation is discontinued, any gains or losses previously recognized under “Other comprehensive income” and accrued in equity until that date are recognized in profit or loss when the transaction is also recorded in profit or loss. When the transaction is unlikely to occur, gains or losses accrued and deferred in equity are immediately booked in profit or loss.

 

Derecognition and write-off of financial assets and liabilities: the Company only writes off a financial item when the contractual rights and obligations of the cash flows arising from this item expire, or when it transfers substantially all its risks and benefits to a third party. If the Company does not transfer or retain substantially all the risks and benefits together with the ownership of the financial item, but continues to control or maintain an obligation regarding said object, it should recognize the interest held and the respective liability based on the amount payable. If it retains substantially all the risks and benefits of ownership of the transferred financial asset, the asset will continue being recognized by the Company.

 

c)       Revenues

 

The Company’s main source of revenue comes from domestic and international passenger flight transportation, as well as the respective additional services related to fulfilling this performance obligation.

 

Nature of goods and services

 

Air transportation services consist of selling airline tickets that grant passengers the right to be transported in the contracted route. Subject to conditions envisaged in the contracted fare, between the moment the ticket is purchased and the actual flight, customers may alter the services previously contracted, as well as add additional services that improve customers’ experience while using the Company’s services. Additional services include revenues related to flight transportation, such as: excess baggage, baggage allowance, pets in the cabin, unaccompanied minor services, special seats (Gol+ Conforto) and priority check-in, boarding and baggage handling, among others. In addition to additional services, the Company also charges penalty fees related to air transportation, such as: rebooking, cancellation, no-show and refund fees.  

 

The Company’s fare classes have specific characteristics that change according to the type of flight and include additional services and the exemption of or reduction in cancellation, no-show and rebooking fees, among other benefits, pursuant to the applicable commercial policy. The Company charters aircraft as a special service for certain customers. The time, date and route of the flights are determined by the customers. The Company also offers customers paid access to a VIP lounge in the country’s main airports, as well as sales on board.

 

In addition, the Company transports cargo and packages of several products, such as: animals, documents, internet purchases and perishables, among others. The type of transportation changes according to customers’ needs and the item transported (Express, Standard or Special Boarding).

 

The Smiles Program is a loyalty program, whose purpose is to increase customer loyalty by granting mileage credits to its members through the acquisition of airline tickets, the use of credit cards and purchases made in its extensive network of retail partners, among other partnerships. The Company also offers members Miles Money, a product that allows members to combine miles and money to redeem rewards, such as airline tickets, Shopping Smiles products, hotel reservations and car rentals, among others.  There is also the Smiles Club, through which members accumulate miles according to the contracted plan.

24


 

 

Notes to the interim financial information

March 31, 2018

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

 

 

Performance obligation

 

The transportation of passengers is a performance obligation for the Company, which, in turn, is entitled to the proceeds for the contracted service. Tickets sold but not yet used are recorded under “Advance ticket sales” and represent deferred revenue of tickets sold to be used on a future date. This revenue is recognized when passengers use the tickets. Customers may not show up for their flights (no-show) or cancel previously booked flights, and, according to their fare class, be entitled to a residual amount, corresponding to the total amount of the booking minus the cost of the rebooking. The balance will remain as credit for the customers, until they request a refund or rebook their flight within one year as of the original booking.

 

The Company has codeshare and interline agreements with the main global airline companies. In situations when the Company is the party responsible for fulfilling the performance obligation, revenue is recognized based on the gross value of the transaction (price of the ticket to the final customer), and in situations when the Company is the agent, revenue is recognized based on the net value of the transaction (sale price less the amount payable to the partner company).

 

Additional services and penalty fees related to flight transportation are recognized when flight transportation services are provided to customers. Revenues arising from cargo shipment, charter services, sales on board and the VIP lounge are recognized when the service is performed and the Company fulfills its respective performance obligations. The value of each performance obligation is directly allocated to the services offered, based on the individual price of each service.

 

The timing of revenue recognition may differ from the moment they are received, due to the offer of installment payment options to customers.

 

The obligation generated by the issue of miles is measured based on the price at which miles are sold to airline and non-airline partners of Smiles, classified as the fair value of the transaction. Revenue from the redemption of third-party goods and services is recognized when miles are redeemed by the members of the Smiles Program, for the net amount of costs directly related to the acquisition of those goods and services. The Company acts as an agent in the fulfillment of its performance obligation of redeeming miles in exchange for third-party goods or services, given that it does not have inventory risk before transferring the goods and services to the program's members. From a consolidated perspective, the revenue recognition cycle related to miles from the Smiles program exchanged for flight tickets is only complete when the passengers are effectively transported, and the amount corresponding to the miles redeemed in exchange for GLA flight tickets is included in the balance of advance ticket sales before the flight occurs.

 

The Company records under assets the commission paid to travel agencies and credit card companies for selling airline tickets. This expense is only recorded when the respective air transportation revenue is recognized.

 

Significant judgments

 

Breakage is the statistical calculation, based on historical figures, of issued tickets or accumulated miles that expired without being used, i.e. tickets acquired by passengers or miles accumulated by members of the Smiles Program that are likely to expire. Airline tickets expire 12 months after the ticket is booked. According to the Smiles Program, all miles in the customers’ accounts are cancelled after 36 months, with the exception of Ouro and Diamante (Gold and Diamond) customers, whose miles expire after 48 and 120 months, respectively. Smiles Club miles expire after 120 months.

 

The Company periodically updates breakage balances in order to reflect the behavior of the expired tickets.

 

25


 

Notes to the interim financial information

March 31, 2018

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

 

d)    Basis of consolidation

 

The consolidated interim financial information comprises Gol Linhas Aéreas Inteligentes S.A., its subsidiaries, jointly controlled and associates, as follows:

 

Entity

Date of

constitution

Location

Operational

activity

Type of control

% equity interest

03/31/2018

12/31/2017

Extensions (*):

 

 

 

 

 

 

GAC

03/23/2006

Cayman Islands

Aircraft acquisition

Direct

100.0

100.0

Gol Finance Inc.

03/16/2006

Cayman Islands

Financial funding

Direct

100.0

100.0

Gol Finance 

06/21/2013

Luxembourg

Financial funding

Direct

100.0

100.0

Subsidiaries:

 

 

 

 

 

 

GLA

04/09/2007

Brazil

Flight transportation

Direct

100.0

100.0

Smiles Fidelidade

08/01/2011

Brazil

Loyalty program

Direct

52.7

52.7

Smiles Viagens

08/10/2017

Brazil

Travel agency

Indirect

52.7

52.7

Gol Dominicana

02/28/2013

Dominican Republic

Non-

operational

Direct

100.0

100.0

Jointly controlled:

 

 

 

 

 

SCP Trip

04/27/2012

Brazil

Flight magazine

Indirect

60.0

60.0

Associate:

 

 

 

 

 

 

Netpoints

11/08/2013

Brazil

Loyalty program

Indirect

25.4

25.4

 

(*) These entities were created solely to act as an extension of the Company’s operations or which represent rights and/or obligations established solely to meet the Company’s needs. In addition, they do not have an independent management structure and are unable to make independent decisions. The assets and liabilities of these companies are consolidated line by line in the Parent Company’s interim information.

 

2.3.      New standards, amendments and interpretations

 

a)    Issued by the IASB, not effective until the date of this interim information and have not been early adopted by the Company:

 

IFRS 16 – Leases

 

In January 2016, the IASB issued the final version of “IFRS 16 – Leases”, which establishes the principles for recognition, measurement and disclosure of lease operations. IFRS 16 will be effective for annual periods beginning on or after January 1, 2019. Although the adoption is permitted by the IASB on January 1, 2018, local regulatory requirements issued by the CVM do not allow the adoption before the effective date of this standard. IFRS 16 requires that, for the majority of leases, the lessor will record an asset related to the right of use of the leased item, and a liability related to the lease. It is expected that the adoption of this standard will have a material impact on the Company’s financial position, with the potential increase in assets representing the right of use of the leased item and a corresponding liability, since 89 out of 118 of the Company’s aircraft are currently accounted for as operating leases. The Company will continue assessing the impacts from the adoption of the new standard and will disclose additional information as the analyses are concluded.

 

26


 

Notes to the interim financial information

March 31, 2018

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

 

IFRIC 23 – Uncertainty over Income Tax Treatments

 

In June 2017, the IASB issued IFRIC 23, which clarifies the application of requirements in IAS 12 “Income Taxes” when there is uncertainty over the acceptance of income tax treatments by the tax authority. The interpretation clarifies that, if it is not probable that the tax authority will accept the income tax treatments, the amounts of tax assets and liabilities shall be adjusted to reflect the best resolution of the uncertainty. IFRIC 23 will be effective for annual periods beginning on or after January 1, 2019, and the Company does not expect significant impacts from the adoption of this standard.

 

b) Standards applicable to annual periods beginning on or after January 1, 2018:

 

IFRS 9 (CPC 48) – Financial Instruments

 

In July 2014, the International Accounting Standards Board (IASB) issued the final version of “IFRS 9 – Financial Instruments”, which replaces “IAS 39 – Financial Instruments: Recognition and Measurement” and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 will be effective for annual periods beginning on or after January 1, 2018. The Company adopted this standard on the effective date. This standard must be applied retrospectively; however, it is not mandatory to fully present comparative information. The adoption of IFRS 9 did not affect the classification and measurement of the Company’s financial assets.

 

Due to the adoption of this standard, the Company now measures the allowance for doubtful accounts based on expected losses instead of incurred losses. The Company used the practical expedient provided for in the standard and applied the simplified model to the measurement of the expected loss during the contract lifecycle, which considers historical data to determine the expected loss, through the segmentation of the receivables portfolio into groups that have the same behavior patterns, based on the maturity dates. IFRS 9 was applied retrospectively; however, it did not impact the comparative periods presented. Due to the adoption of expected losses for the allowance for doubtful accounts, the Company recognized the difference between the previous book balance and the book value at the beginning of the period, as an adjustment to the opening balance of accumulated losses (R$1,714), net of tax effects.

 

The IFRS 9 requirements for hedge accounting were applied prospectively. The main impact is related to the documentation of strategy policies, which now have more specific and detailed descriptions of the transactions and instruments designated as hedge accounting.

 

IFRS 15 (CPC 47) – Revenue from Contracts with Customers

 

This standard establishes a new constant five-step model to be applied to all contracts with customers, in accordance with the entity’s performance obligations. The Company adopted the new standard on the date it became effective, as of January 1, 2018, using the full retrospective method. The main impacts from the adoption of this standard are as follows:

 

27


 

Notes to the interim financial information

March 31, 2018

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

 

Ancillary revenue: comprises all revenue related to flight transportation services. These revenues were assessed and classified as “related to the main service”, and will be recognized only when the flight transportation service is provided. These revenues are now recorded under “Passenger”, instead of under “Other revenue”.

 

Mileage program: the Company will now present in the statement of income revenue from mileage redemption under the Smiles Fidelidade Program as “agent”, and will recognize gross revenue from reward redemption net of the respective variable direct costs related to the availability of goods and services to its members.

 

Restatement of previous period

 

The adoption of IFRS 15 - “Revenue from Contracts with Customers” impacted the figures for the period ended March 31, 2017 and year ended December 31, 2017, as previously disclosed by the Company.

 

On December 31, 2017, the adoption of this standard had an impact in the amount of R$19,575 on the consolidated statement of financial position in “Advance ticket sales”, against the “Accumulated losses” line under equity, related to ancillary revenues whose timing of recognition changed. In the parent company statement of financial position, the adoption of this standard increased the “Provision for loss on investment” by the same amount.

 

As of March 31, 2017, the consolidated statement of income was impacted due to: (i) the reclassification of R$135,265 in ancillary revenue from “Other revenue” to “Passenger” in the subsidiary GLA; and (ii) the additional recognition of R$2,207 in ancillary revenue, whose timing of recognition changed. The impact on the parent company statement of income led to an increase by the same amount in the “Equity results” line.

 

Due to the classification of Smiles Fidelidade as an agent, the consolidated statement of income, excluding transactions with GLA, was impacted by R$55,970 as of March 31, 2017, due to the reclassification of variable direct costs from “Cost of services provided” to “Mileage revenue”, with no impact on the parent company statement of income.

 

The tables below show the adjustments per item and for each restated line of the statement of financial position and the consolidated statement of income, excluding the lines that remained unchanged. Consequently, the result, subtotals and totals show only the impacts of the changes made, as follows:

 

28


 

Notes to the interim financial information

March 31, 2018

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