INVERSIONES ALSACIA S.A. · INVERSIONES ALSACIA S.A. Separate Financial Statements as of December...

INVERSIONES ALSACIA S.A. Separate Financial Statements as of December 31, 2016 and 2015 and for the years then ended (With the Independent Auditor’s Report Thereon)

INVERSIONES ALSACIA S.A.

CONTENTS

Independent Auditors’ Report Separate Classified Statements of Financial Position Separate Statements of Comprehensive Income per Function Separate Statements of Changes in Equity Separate Statements of Cash Flows Notes to the Separate Financial Statements Ch$ : Amounts expressed in Chilean pesos ThCh$ : Amounts expressed in thousands of Chilean pesos Co$ : Amounts expressed in Colombian pesos US$ : Amounts expressed in United States dollars ThUS$ : Amounts expressed in thousands of United States dollars


Separate Financial Statements

December 31, 2016 and 2015

INVERSIONES ALSACIA S.A. SEPARATE CLASSIFIED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2016 AND 2015

The accompanying notes are an integral part of these separate financial statements.

December 31, December 31,

Statement of Financial Position Note 2016 2015

ThCh$ ThCh$

Assets

Current assets

Cash and cash equivalents 5 3,768,060 6,589,192

Other current non-financial assets 7 375,806 674,000

Trade and other receivables 8 3,861,411 4,699,931

Accounts receivable due from related parties, current 9.1 69,464,534 13,573,660

Inventories 10 624,189 735,849

Current tax assets 11 872,940 585,355

Total current assets 78,966,940 26,857,987

Non-current assets

Other non-current financial assets 6 - 3,820,265

Other non-current non-financial assets 7 115,935 113,883

Accounts receivable due from related parties, non-current 9.1 70,954,384 135,963,633

Equity accounted investees 12 7,868,358 7,785,577

Intangible assets other than goodwill 13 3,518,192 4,896,923

Property, plant and equipment 14 16,259,493 20,001,139

Total non-current assets 98,716,362 172,581,420

TOTAL ASSETS 177,683,302 199,439,407

INVERSIONES ALSACIA S.A. SEPARATE CLASSIFIED STATEMENTS OF FINANCIAL POSITION, CONTINUED




Statement of Financial Position Note 2016 2015

ThCh$ ThCh$

Liabilities and equity

Current liabilities

Other current financial liabilities 16 267,665,321 24,785,893

Trade and other payables 17 4,370,327 12,117,048

Accounts payable due to related parties 9.2 5,128,810 1,734,307

Employee benefits 18 1,543,700 1,438,206

Other provisions, current 19 7,651,299 9,276,797

Other current non-financial liabilities 20 1,047,404 1,047,404

Current tax liabilities 15 145,068 -

Total current liabilities 287,551,929 50,399,655

Non-current liabilities

Other non-current financial liabilities 16 946,331 241,275,349

Other non-current non-financial liabilities 20 872,837 1,920,242

Total non-current liabilities 1,819,168 243,195,591

TOTAL LIABILITIES 289,371,097 293,595,246

Equity

Share capital 21 10,566,074 10,566,074

Accumulated deficit (120,466,867) (102,934,911)

Other reserves 21 (1,787,002) (1,787,002)

Equity attributable to owners of the parent (111,687,795) (94,155,839)

Non-controlling interest - -

TOTAL EQUITY (111,687,795) (94,155,839)

LIABILITIES AND EQUITY 177,683,302 199,439,407

INVERSIONES ALSACIA S.A. SEPARATE STATEMENTS OF COMPREHENSIVE INCOME BY FUNCTION



Periods covered

Statements of Income From January 1 to December 31

2016 2015

Note ThCh$ ThCh$

Revenue 23 84,312,855 87,845,973

Cost of sales 24 (67,448,443) (73,328,633)

Gross profit 16,864,412 14,517,340

Administrative expenses 25 (19,996,147) (16,427,332)

Other income by function 26 344,847 1,864,238

Other expenses by type 26 (1,090,161) (891,424)

Finance income 27 10,681,957 12,062,896

Finance costs 28 (31,123,357) (22,000,222)

Share of profit of equity accounted investees 1,570,230 (4,319,477)

Foreign currency translation difference 30 5,547,412 (15,724,427)

Profit or loss for index-adjusted unit (186,081) (293,334)

Loss before tax (17,386,888) (31,211,742)

Income taxes 15 (145,068) (17,250,740)

Dilutes loss per share – continuing operations

Loss (17,531,956) (48,462,482)

Loss attributable to: Owners of the parent (17,531,956) (48,462,482)

Non-controlling interests - -

Loss for the year (17,531,956) (48,462,482)

Loss per share Basic loss per share Basic loss per share – continuing operations 29 (479.87) (1,326,47)

Basic loss per share (479.87) (1,326,47)

Dilutes loss per share – continuing operations Diluted loss per share (479.87) (1,326,47)

Other comprehensive income - -

TOTAL COMPREHENSIVE INCOME (17,531,956) (48,462,482)

INVERSIONES ALSACIA S.A. SEPARATE STATEMENTS OF CHANGES IN EQUITY



Share capital

Revaluation surplus

Other sundry

reserves

Other reserves

Retained earnings

(accumulated deficit)

Equity attributable to owners of the

parent

Non-controlling interests

Total equity

ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$

Balance as of January 1, 2016

10,566,074 - -

(1,787,002)

(102,934,911)

(94,155,839) -

(94,155,839)

Changes in equity

Comprehensive income

Loss - - - -

(17,531,956)

(17,531,956) -

(17,531,956)

Other comprehensive income - - - - - - - -

Changes in equity - - - -

(17,531,956)

(17,531,956) -

(17,531,956)

Total changes in equity - - - -

(17,531,956)

(17,531,956) -

(17,531,956)

Balance as of December 31, 2016

10,566,074 - -

(1,787,002)

(120,466,867)

(111,687,795) -

(111,687,795)

INVERSIONES ALSACIA S.A. SEPARATE STATEMENTS OF CHANGES IN EQUITY, CONTINUED



Share capital

Revaluation surplus

Other sundry

reserves

Other reserves

Retained earnings

(accumulated deficit)

Equity attributable to owners of the

parent

Non-controlling interests

Total equity

ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$

Balance as of January 1, 2015 10,566,074 - - (1,787,002)

(54,472,429)

(45,693,357) -

(45,693,357)

Changes in equity Comprehensive income

Loss - - - -

(48,462,482)

(48,462,482) -

(48,462,482)

Other comprehensive income - - - - - - -

-

Comprehensive income -- - - -

(48,462,482)

(48,462,482) -

(48,462,482)

Total changes in equity - - - -

(48,462,482)

(48,462,482) -

(48,462,482)

Balance as of December 31, 2015 10,566,074 - - (1,787,002)

(102.934.911)

(94,155,839) -

(94,155,839)

INVERSIONES ALSACIA S.A. SEPARATE STATEMENTS OF CASH FLOWS - DIRECT METHOD



2016 2015

Statement of Cash Flows

ThCh$ ThCh$

Cash flows from (used in) operating activities

Receipts from operating activities:

Cash receipts from the rendering of services 83,758,369 92,333,827

Other cash receipts from operating activities 996,725 1,917,540

Payments for operating activities

Cash payments to suppliers for goods and services (55,663,136) (49,598,529)

Cash payments to and on behalf of employees (34,685,556) (32,808,151)

Other cash payments for operating activities (108,947) (178,876)

Cash flows from operating activities (5,702,545) 11,665,811

Cash flows from (used in) investing activities

Cash receipts for loans granted to related parties 9,941,657 12,298,444

Sale (acquisition) of property, plant and equipment (948,149) (2,089,516)

Cash flows from (used in) investing activities 8,993,508 10,208,928

Cash flows from (used in) financing activities

Payments derivative financial instruments (hedge) - (2,501,852)

Repayment of loans (83,960) (4,198,186)

Interest paid (6,028,135) (12,192,773)

Net cash used in financing activities (6,112,095) (18,892,811)

Net increase (decrease) in cash and cash equivalents before changes in exchange rate

(2,821,132) 2,981,928

Cash and cash equivalents as of January 1 6,589,192 3,607,264

Cash and cash equivalents at the end of period 3,768,060 6,589,192

INVERSIONES ALSACIA S.A. CONTENTS

Page

NOTE 1 – REPORTING ENTITY ...................................................................................................................1 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES .....................................................................................3

2.1 Basis of preparation........................................................................................................................3

2.2 Basis of measurement ....................................................................................................................4

2.3 Functional and presentation currency ............................................................................................4

2.4 Use of estimates and judgments ....................................................................................................4

2.5 New accounting pronouncements ..................................................................................................6

2.6 Transactions in foreign currency ....................................................................................................7

2.7 Equity-accounted investees ...........................................................................................................8

2.8 Property, plant and equipment .......................................................................................................8

2.9 Intangible assets other than goodwill .............................................................................................9

2.10 Inventories ....................................................................................................................................10

2.11 Cash and cash equivalents ..........................................................................................................10

2.12 Employee benefits ........................................................................................................................10

2.13 Provisions .....................................................................................................................................10

2.14 Other non-financial liabilities ........................................................................................................11

2.15 Financial instruments....................................................................................................................11

2.16 Derivative financial instruments ....................................................................................................12

2.17 Impairment ....................................................................................................................................12

2.18 Leases ..........................................................................................................................................13

2.19 Share capital .................................................................................................................................14

2.20 Dividend policy .............................................................................................................................14

2.21 Revenue recognition.....................................................................................................................15

2.22 Overhaul .......................................................................................................................................15

2.23 Income tax and deferred taxes .....................................................................................................15

NOTE 3 – DETERMINATION OF FAIR VALUES ........................................................................................17 NOTE 4 – FINANCIAL RISK MANAGEMENT .............................................................................................18

4.1 Concentration and management of credit risk .............................................................................18

4.2 Market risk ....................................................................................................................................19

4.3 Liquidity risk ..................................................................................................................................20

NOTE 5 – CASH AND CASH EQUIVALENTS .............................................................................................21 NOTE 6 – OTHER FINANCIAL ASSETS, NON-CURRENT ........................................................................22 NOTE 7 – OTHER NON-FINANCIAL ASSETS ............................................................................................23 NOTE 8 – TRADE AND OTHER RECEIVABLES ........................................................................................23

INVERSIONES ALSACIA S.A. CONTENTS, Continued

NOTE 9 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES ...............................................25 9.1 Accounts receivable due from related parties ..............................................................................25

9.2 Accounts payable to related parties .............................................................................................26

9.3 Transactions with related parties ..................................................................................................27

9.4 Payments to the Board of Directors and key management personnel .........................................28

NOTE 10 – INVENTORIES ..........................................................................................................................28 NOTE 11 – CURRENT TAX ASSETS ..........................................................................................................29 NOTE 12 – EQUITY-ACCOUNTED INVESTEES ........................................................................................29 NOTE 13 – INTANGIBLE ASSETS OTHER THAN GOODWILL .................................................................31 NOTE 14 – PROPERTY, PLANT AND EQUIPMENT ..................................................................................33 NOTE 15 – INCOME TAX AND DEFERRED TAXES ..................................................................................35 NOTE 16 – OTHER FINANCIAL LIABILITIES .............................................................................................37 NOTE 17 – TRADE AND OTHER PAYABLES ............................................................................................44 NOTE 18 – PROVISION FOR EMPLOYEE BENEFITS ..............................................................................44 NOTE 19 – OTHER CURRENT PROVISIONS ............................................................................................45 NOTE 20 – OTHER NON-FINANCIAL LIABILITIES ....................................................................................45 NOTE 21 – SHARE CAPITAL ......................................................................................................................46

21.1 Share capital .................................................................................................................................46

21.2 Dividend policy .............................................................................................................................46

21.3 Capital management ....................................................................................................................46

21.4 Other reserves ..............................................................................................................................46

NOTE 22 – FINANCIAL POSITION AND MANAGEMENT PLANS .............................................................47 NOTE 23 – REVENUE .................................................................................................................................49 NOTE 24 – COST OF SALES ......................................................................................................................50 NOTE 25 – ADMINISTRATIVE EXPENSES ................................................................................................50 NOTE 26 – OTHER INCOME / OTHER EXPENSES PER FUNCTION ......................................................51 NOTE 27 – FINANCE INCOME ...................................................................................................................51 NOTE 28 – FINANCE COSTS .....................................................................................................................52 NOTE 29 – EARNINGS (LOSSES) PER SHARE ........................................................................................52 NOTE 30 – FOREIGN CURRENCY TRANSLATION DIFFERENCES ........................................................52 NOTE 31 – CONTINGENCIES .....................................................................................................................52

31.1 Pledged shares .............................................................................................................................52

31.2 Direct guarantees .........................................................................................................................53

31.3 Guarantees from third parties .......................................................................................................53

31.4 Covenants ....................................................................................................................................53

31.5 Lawsuits ........................................................................................................................................54

NOTE 32 – SUBSEQUENT EVENTS ..........................................................................................................54 32.1 Banco Internacional's lawsuit filed against Alsacia ......................................................................54

32.2 Request to Begin the Debt Restructuring Process .......................................................................54


NOTES TO THE SEPARATE FINANCIAL STATEMENTS

1

NOTE 1 – REPORTING ENTITY Inversiones Alsacia S.A. was incorporated as a closely held corporation via public deed dated November 27, 2004; this company is engaged mainly on providing passenger public transport services in the tendered roads of Santiago de Chile as well as any other activity related to this business purpose. At the Shareholders meeting held on December 9, 2004, it was agreed to extend the Company’s line of business to static and dynamic advertising activities through the use of advertising zones in buses and other services related to its main line of business. The Company’s registered address is Santa Clara No.555, Huechuraba, Santiago, Chile. Inversiones Alsacia S.A., was registered on January 27, 2005 in the securities register of the Chilean Superintendence of Securities and Insurance (SVS) under No.883, as part of a bidding process for the concession of the business unit Troncal No.1 of Transantiago of the Chilean Ministry of Transport and Telecommunications. As a result of Law No.20.382 dated October 2009, the Company’s registration under No.883 of the securities register was cancelled and the Company became a party of the reporting entities under No.126 on May 9, 2010. Inversiones Alsacia S.A. is controlled by Global Public Services S.A. which directly owns 99.997% of shares with voting rights. Global Public Services S.A. is a closely held corporation incorporated in the Republic of Panama and is the group’s ultimate parent. Inversiones Alsacia S.A. prepares its separate financial statements for their presentation before the Superintendence of Securities and Insurance as reporting entity; accordingly, the Company prepares consolidated financial statements. Inversiones Alsacia S.A. is the issuer of a bond issued in 2011 in New York (USA) under regulation 144-A; this bond represents the Company’s main financial obligation with third parties. Concession agreement On January 28, 2005, Inversiones Alsacia S.A., signed a Concession Agreement for the use of roads located in the city of Santiago to provide paid passenger public transport services with the Chilean Ministry of Transport and Telecommunications (hereinafter also MTT). This agreement was signed as a result of the bidding process carried out by the MTT under Article No.30 of Law No.18.696. The total term of the concession is 156 months, for the application of provisions in Articles No.3.4.4.2.1 of the bidding bases. On October 22, 2005, the Company started to provide passenger public transport services.



2

NOTE 1 – REPORTING ENTITY, continued Amendments to the Concession Agreement: Between the period from June 2006 through December 2010, a series of amendments and addendums have been entered into to establish changes in the revenue system, payment of the operative technical reserve, authorize the increase in the bus fleet, modify routes, with the main purpose of ensuring the continuity and adequate coverage of the public transportation services and a method to compensate the demand. New concession agreement

During 2012, the Concession Agreement related to the use of the roads of Santiago to provide paid public passenger transport services by means of buses, which was signed with the Chilean Ministry of Transport and Telecommunications and was replaced by a new agreement which was signed by the parties on December 22, 2011 and became effective on May 1, 2012. As part of the agreements established as part of the new agreement, the Government and the Company agreed the amount of ThCh$9,090,243 (before discounts) related to the indemnity for early termination that is estimated based on the difference resulting from the application of the revenue formula of the agreement in force up to that date and the revenue formula established in the new signed agreement. This indemnity was received on April 30, 2012. On April 17, 2012, the Chilean Controllership Office acknowledge Resolution No.258 issued by the Chilean Ministry of Transport and Telecommunications, which approves the compensation amount, terminates the Concession Agreements and approves the Ad-referendum Concession Agreement or new concession agreement. The compensation payment was recognized as deferred income amortized on a straight-line basis against operating income until the termination of current concession agreements (October 2018). Invoices owned by AFT of ThCh$2,272,648 (net of provisions) which were classified as Trade and other receivables were reduced from the amount of the indemnity. On December 12, 2013, the Chilean Controllership Office received Resolution No.183 issued by the Chilean Ministry of Transport and Telecommunications approving the Ad-referendum Concession Agreement for the use of roads for the paid public urban transport of passengers using buses on August 27, 2013. This modification changes the “Business Unit No. 1 Technical Sheet” by increasing the PPT0 Parameter to Ch$475.25 from December 14, 2012, and April 29, 2013; and subsequently, to Ch$476.29 starting from April 30, 2013. On January 30, 2014 the Chilean Controllership Office received Resolution No.191 issued by the Ministry of Chilean Transport and Telecommunications approving the Ad-referendum Concession Contract for the use of roads for the paid public urban transport of passengers using buses on August 23, 2013. Such amendment includes the following changes: a) Incentives of up to 15% on the KP of the diesel for the implementation of buses with CNG, Electric or Hybrid Technology, b) There shall be no review of PPT by AIPK mechanism, if the CIFO for the previous 24 months is lower than 97%, c) Appendixes 1, 3, 4, 6 and 7 were modified, modifying the fines and discounts of ICF and ICR applied for each level.



3

NOTE 1 – REPORTING ENTITY, continued New concession agreement, continued On April 7, 2014, the Chilean Controllership Office received Resolution No.97 issued by the Chilean Ministry of Transport and Telecommunications of Chile approving the Ad-referendum Concession Agreement for the use of roads for the paid public urban transport of passengers using buses on February 17, 2014. Such amendment, changes the “Business Unit No. 1 Technical Sheet” increasing the PPT0 Parameter from its original value of Ch$476.73 to Ch$493.73, starting on January 16, 2014. Additionally, such amendments add the requirement to add 20 new B2 buses. On April 30, 2015, the Chilean Controllership Office received Resolution No.36 issued by the Chilean Ministry of Transport and Telecommunications of Chile approving the Ad-referendum Concession Agreement for the use of roads for the paid public urban transport of passengers using buses on March 27, 2015. Such amendment, changes the “Business Unit No. 1 Technical Sheet” increasing the PPT0 Parameter from its original value of Ch$493.73 to Ch$578.73, starting on May 1, 2014. In addition, IPK 2.62 to 2.22 were modified. On December 22, 2015, the Chilean Controllership Office received Resolution No.163 issued by the Chilean Ministry of Transport and Telecommunications of Chile approving the Ad-referendum Concession Contract for the use of roads for the paid public urban transport of passengers using buses on September 25, 2015. Such amendment, changes the “Business Unit No. 1 Technical Sheet” increasing the PPT0 Parameter from its original value of Ch$578.73 to Ch$581.17, starting on May 1, 2014. On October 7, 2016, the Chilean Controllership Office received Resolution No.40 issued by the Chilean Ministry of Transport and Telecommunications of Chile approving the Ad-referendum Concession Contract for the use of roads for the paid public urban transport of passengers using buses on September 16, 2016. Such amendment, changes the “Business Unit No. 1 Technical Sheet” increasing the PPT0 Parameter from its original value of Ch$581.17 to Ch$623.24, starting on May 1, 2016. In addition, IPK of 2.22 and 2.07 are modified and an evasion rate of 29.95% is established. Finally, the payment of non-concession infrastructure (Metro) is established begining on September 2016. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been used in the preparation of these separate financial statements and have been applied consistently to all periods presented in these separate financial statements. 2.1 Basis of preparation The separate financial statements of Investments Alsacia S.A. and subsidiary as of December 31, 2016 and 2015, have been prepared in conformity with the standards issued by the Chilean Superintendence of Securities and Insurance which completely adopt the International Financial Reporting Standards (hereinafter IFRS) issued by the International Accounting Standards Board (IASB). Notwithstanding the above, there is one issue that have generated special instructions issued by the Chilean Superintendence of Securities and Insurance (SVS), as detailed below: 1 The accounting treatment of the indemnity agreed and paid by the Ministry of Transport and

Telecommunications of Chile due to the early termination of the Concession Agreement, entered into in December, 2011 has been recorded and presented in these financial statements as required by the SVS in its Official Letter No.17.967 dated August 13, 2013 and Official Letter No.6.484 dated March 7, 2014.



4

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.1 Basis of preparation, continued The information contained in these separate financial statements as of December 31, 2016, is the responsibility of the Board of Directors of Inversiones Alsacia S.A. which approved such separate financial statements on April 5, 2017. The separate financial statements as of December 31, 2015, were approved by the Board of Directors on March 30, 2016. The separate financial statements reflect fairly the Company’s financial position and equity as of December 31, 2016 and 2015 as well as the results of its separate operations, changes in equity and cash flows for the year then ended. The separate classified statement of financial position as of December 31, 2016 as well as the accompanying notes are presented on a comparative basis to the balances as of December 31, 2015; the separate statement of comprehensive income per function, separate statement of cash flows and the separate statement of changes in equity are presented for the year ended as of December 31, 2016 and 2015. These separate financial statements as of December 31, 2016 and 2015, are presented as established in IAS 27, and are related to the consolidated financial statements of Inversiones Alsacia S.A. and Subsidiaries, issued on April 5, 2017. The translation of these financial statements is provided as a free translation from the Spanish language original, which is the official and binding version. Such translation has been made solely for the convenience of non-Spanish readers. 2.2 Basis of measurement The separate financial statements have been prepared on the historical cost basis except for derivative financial instruments which are recorded at fair value. These separate financial statements are presented in thousands of Chilean pesos and have been prepared from the accounting records maintained by Inversiones Alsacia S.A. 2.3 Functional and presentation currency The separate financial statements prepared by the Company are stated using the currency of the primary economic environment in which the entity operates (functional currency). The functional currency of the Company is the Chilean peso, which is also the presentation currency of the separate financial statements. All financial information is presented in thousands of Chilean pesos and has been rounded to the nearest number (ThCh$). 2.4 Use of estimates and judgments In preparing these separate financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying judgments are reviewed on an ongoing basis. Accounting estimate reviews are recognized prospectively.



5

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.4 Use of estimates and judgments, continued

(i) Judgments

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the separate financial statements is included in the following notes:

Note 2.8 d) : Estimated useful lives of property, plant and equipment. Note 24 : Lease classification. Note 31.5 : The probability of occurrence and the amount of undetermined or contingent liabilities.

(ii) Assumptions and uncertainties in estimates

The information about assumptions and estimation uncertainties is included in the following note:

Note 13 : Key assumptions for determining the expected income for services used for the

amortization of the operative technical reserve. Note 15 : Recognition of deferred tax assets; availability of future taxable profit. Measurement of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. Management has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. Management annually reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then management assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Company's Senior Management. When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).



6

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.4 Use of estimates and judgments, continued If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period. Further information about the assumptions made in measuring fair values is included in Note 3, Determination of fair values. 2.5 New accounting pronouncements New standards, amendments to standards and interpretations exist that are mandatory for the first time for periods beginning on or after January 1, 2016:

New standards IFRS 14, Regulatory Deferral Accounts Annual periods beginning on or after January 1,

2016. Amendments to IFRS IAS 1: Disclosure Initiative Annual periods beginning on or after January 1,

2016. IFRS 11, Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations.

Annual periods beginning on or after January 1,2016.

IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortization.


IAS 27, Separate Financial Statements, IFRS 10, Consolidated Financial Statements, IFRS 12, Disclosure of Interests on Other Entities and IAS 28, Investment in Associates. Applying the consolidation exception.


IAS 41, Agriculture, and IAS 16, Property, Plant and Equipment: Bearer plants.

Annual periods beginning on or after January 1,2016. Early adoption is permitted.

IAS 27, Separate Financial Statements, Equity Method in Separate Financial Statements.


The application of these standards has not had a significant impact on the amounts reported in these separate financial statements, but may affect the accounting for future transactions or agreements.



7

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.5 New accounting pronouncements, continued The following new standards, amendments and interpretations have been issued but are not yet effective:

New IFRS Mandatory application date

IFRS 9, Financial Instruments Annual periods beginning on or after January 1, 2018. Early adoption is permitted.

IFRS 15, Revenue from Contracts with Customers Annual periods beginning on or after January 1, 2018. Early adoption is permitted.

IFRS 16, Leases Annual periods beginning on or after January 1, 2019. Early adoption is permitted.

Amendments to IFRS

IAS 7: Disclosure Initiative, amendments to IAS 7. Annual periods beginning on or after January 1, 2017. Early adoption is permitted.

IAS 12, Income Tax: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12).

Annual periods beginning on or after January 1, 2017. Early adoption is permitted.

IFRS 2, Share-based Payment: Clarifying accounting for certain types of share-based payment transactions.

Annual periods beginning on or after January 1, 2018. Early adoption is permitted.

IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Mandatory date deferred indefinitely.

IFRS 15, Revenue from Contracts with Customers: Amendment clarifying requirements and providing additional transition relief for entities implementing the new standard.

For periods beginning on or after January 1, 2018. Early adoption is permitted.

Management is assessing the impact of the application of IFRS 9, IFRS 15 and IFRS 16. However, a reasonable estimation of the effects of such standards is not possible until Management conducts a detailed review. In Management's opinion, the future application of other standards and amendments will have no significant effect on the financial statements. 2.6 Transactions in foreign currency Transactions in foreign currencies and Unidad de Fomento (UF) are translated into the functional currency at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies and indexation-adjusted units at the date of the statement of financial position are translated into the functional currency at the exchange rate. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined.



8

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.6 Transactions in foreign currency, continued The balances of assets and liabilities in foreign currency and UF have been translated to Chilean pesos using the following exchange rates:

Currency December 31, 2016 December 31, 2015

United States dollar US$ 669.47 710.16

Unidad de fomento UF 26,347.98 25,629.09

2.7 Equity-accounted investees Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In the separate financial statements interest in the subsidiaries is recorded using the equity method of accounting, which is initially recognized at cost and includes transaction costs. Subsequent to initial recognition, the separate financial statements include the Company's interests of share of the profit or loss and OCI of equity accounted investees. Direct subsidiaries are as follows: 2016 2015

Inversiones Lorena S.p.A. 100.00% 100.00%

Inversión Eco Uno S.A. 21.59% 21.59% 2.8 Property, plant and equipment a) Measurement and adjustments Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Land is not subject to depreciation. New property, plant and equipment are recognized at acquisition cost. Acquisitions in a currency other than the functional currency are translated at the exchange rate on the date of the acquisition.

b) Subsequent expenditure Subsequent expenditure (replacement of components, improvements and extensions) are included in the initial cost of the asset or recognized as a separate asset only when it is probable that the future economic benefits associated with the item of property, plant and equipment will flow to the Company and the cost of the item can be estimated reliably. The cost of the replaced component is derecognized. Other repair and maintenance expenditure are expensed as incurred. Ongoing repairs and overhauls are expensed as incurred unlike the replacement of significant parts or strategic spare parts which are deemed to be improvements and are capitalized and depreciated over the remaining life of the assets under the component approach.



9

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.8 Property, plant and equipment, continued Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.

c) Depreciation method Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. d) Estimated useful lives The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:

Minimum useful life in years

Maximum useful life inyears

Buildings 10 40 Plant and equipment 5 10 Information technology equipment 3 6 Fixed facilities and fixtures 5 10 Motor vehicles 5 11 Other property, plant and equipment 1 10

The residual values, depreciation method and useful lives of items of property, plant and equipment at each reporting date are reviewed annually and adjusted if required. 2.9 Intangible assets other than goodwill a) Computer program licenses Acquired licenses related to computer programs are capitalized based on their acquisition cost and the costs incurred in preparing them for the use of the specific program. These costs are amortized over their estimated useful lives of 5 years.

Expenses related to the maintenance of computer programs are recognized as expenses as incurred. Costs directly related to the production of unique and identifiable computer programs controlled by Inversiones Alsacia S.A. which are likely to generate economic benefits higher than costs for more than one year are recognized as intangible assets. Direct costs include the expenses related to the personnel developing the computer programs and any other expense related to their development and maintenance. b) Operative technical reserve The operative technical reserve is defined as a provision included in the rate paid by users intended to cover possible temporary mismatches between the revenues and expenses of the Transantiago passenger transport system. Amounts paid and owed to the Transantiago Financial Administrator (AFT) in relation to the operative technical reserve for the Troncal No.1 business unit are recorded as a deferred tax that is amortized against operating profit during the operation period of the concession based on the projected revenue curve to be obtained from the rendering of transport services.



10

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued

2.10 Inventories Inventories are measured at the lower of cost or net realizable value. This include expenditure incurred in acquiring the inventories required to bringing them to their existing location and condition, net of commercial discounts and other discounts. The inventory cost of spare parts, fuel and supplies are measured at its weighted average cost. 2.11 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and in bank, term deposits and other financial investments (highly liquid marketable securities) with maturities of three months or less from the acquisition date. Cash and cash equivalents also includes investments related to cash management such as buy-back and reverse repurchase agreements maturing within three months or less from the acquisition date. Bank overdrafts used are recorded within other financial liabilities. 2.12 Employee benefits

Employee benefit obligations correspond to accrued vacations recognized as obligations as an employee provides services to the employer. These obligations are measured on an undiscounted basis and are recognized as expenses as the related services is provided. Such amounts are recognized as current trade and other payables. The Company records no other benefit plans for its employees. 2.13 Provisions

Provisions are recognized when the Company has a present obligation legal or constructive as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. (i) Legal matters

Provisions for litigation and lawsuits are recorded in the event of legal actions, Government investigations, proceeding or other pending actions that are likely to be filed against the Company in the future, as a result of past events, and it is probable that an outflow of economic benefits will be required to settle the obligation, and when the obligation can be estimated reliably.



11

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.13 Provisions, continued (ii) Environmental matters

Disbursements related to environmental preservation, which relate to income for future and current operations, are recognized as costs or assets, as appropriate. Disbursements related to operations conducted in past that do not relate to current or future income, are recognized in profit or loss. The recognition of these provisions is consistent with the identification of a related obligation containing environmental remediation, for which the Company has proper information to determine a reasonable estimate of the related cost. Subsequent adjustments to estimates, if required, are conducted when obtaining further information.

2.14 Other non-financial liabilities The deferred revenue related to the indemnity received due to the change in the concession agreement entered into with MTT on December 21, 2011, is recorded on a straight-line basis within profit from continuing operations up to the end of the concession in October 2018, as required in Letter No.6484 issued on March 7, 2014 by the SVS. 2.15 Financial instruments The Company classifies non-derivative financial assets under Loans and receivables and non-derivative financial liabilities under Other financial liabilities.

(i) Non-derivative financial assets and financial liabilities – Recognition and derecognition The Company initially recognizes loans and receivables on the date that they are originated. All other financial assets and financial liabilities are recognized initially on the trade date, when the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.



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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.15 Financial instruments, continued

(ii) Non-derivative financial assets- Measurement (ii.1) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Held-to-maturity financial assets are initially recognized at fair value plus any transaction cost directly attributable. Subsequent to initial recognition, these are measured at amortized cost using the effective interest method. Loans and receivables comprise cash and cash equivalents, trade and other receivables, and other financial assets. Held-to-maturity financial assets are initially recognized at fair value plus any transaction cost directly attributable. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. (iii) Non-derivative financial liabilities – Measurement Non-derivative financial liabilities correspond to other financial liabilities (bank borrowings), trade and other payables and payables due to related entities, which are initially recognized at fair value less directly attributable transaction costs. Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method. 2.16 Derivative financial instruments The Company holds derivative financial instruments to hedge its foreign currency risk exposure. Embedded derivatives are separated from the host contract and accounted for separately if certain criteria are met. Derivatives are initially recognized at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss. Derivative financial instruments are recognized at cost if their fair value cannot be measured reliably. The fair value of forward exchange contracts is based using current forward contract exchange rates with similar maturities. In conformity with the treasury department policy, the Company has no derivative financial instruments held-for-trading. 2.17 Impairment (i) Non-financial assets At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.



13

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.17 Impairment, continued

(i) Non-financial assets, continued The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (ii) Non-derivative financial assets Financial assets not classified as at fair value through profit or loss, including an interest in an equity accounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, disappearance of an active market for a security as a result of financial difficulties and observable data that indicate there is a measurable decrease in expected cash flows of a group of assets. (iii) Financial assets measured at amortized cost The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. The impairment estimate is calculated considering a percentage of the current debt, as well as the total of balances due exceeding 180 days. Trade and other receivables are written-off when lawyers inform that all collection instances have been exhausted. 2.18 Leases (i) Determining whether an arrangement contains a lease At inception of an arrangement, the Company determines whether the arrangement is or contains a lease. This will apply if the following two points are compiled:

• compliance with the contract depends on the use of specific assets; and • the contract grants the right to use the asset.



14

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.18 Leases, continued

At inception or on reassessment of an arrangement that contains a lease, the Company separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset identified. Subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognized using the Company’s incremental borrowing rate. (ii) Leased assets

Leases of property, plant and equipment that transfer to the Company substantially all the risks and rewards related to the ownership of the asset are classified as finance leases. The leased assets measured initially at the lower of the fair value and the present value of minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognized in the Company’s statement of financial position.

(iii) Lease payments

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. 2.19 Share capital Ordinary shares are classified as equity. If exist, incremental costs attributable to the issue of new shares are recognized as a deduction from revenue obtained in equity, net of tax. Discretionary dividends thereon are recognized as distributions within equity upon approval by the Company’s shareholders. 2.20 Dividend policy

Article No.79 of the Chilean Public Company Act establishes that, except otherwise unanimously agreed in at the related shareholders meeting, shareholders’ corporations must annually distribute as cash dividend to their shareholders, at pro rata of their interests or in the proportional amount established by the Company’s by-laws, in the event preference shares exist, at least 30% of net profit for each year. In the case of closely-held corporation, they will follow the provisions in their by-laws; if none, the standards stated above will be follow.



15

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, continued 2.21 Revenue recognition a) Revenue from transport services Revenue from the rendering of transport services includes the fair value of the consideration received or paid for the rendering of the passenger transport service in the course of ordinary activities. The Company recognizes the revenue from transport services once the service has been provided. b) Revenue from indemnity for change in concession agreement The revenue from the change in concession agreement is recognized on a straight-line basis up to the termination date of the agreement (October 2018) in conformity with the instructions contained in Letter No.6484 issued on March 7, 2014 by the SVS. c) Revenue from advertising Revenue from advertising is stated net of the tax on sales, returns, rebates and discounts (if any) and after eliminating sales within the group. Inversiones Alsacia S.A. recognizes the revenue from advertising activities when they can be estimated reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the specific conditions for each of the Company’s activities are met. Revenue from the sale of advertising services are recorded when the service has been totally provided. A service is deemed to have been rendered when it is accepted by the client. 2.22 Overhaul Costs incurred in major overhaul that involves extending the useful life of a tapped good (overhauls) are capitalized and depreciated until the moment of the next overhaul. The depreciation rate is determined using a technical basis based on use expressed in cycles and kilometers. Non-programmed as well as minor overhauls are expenses as incurred. 2.23 Income tax and deferred taxes Income tax expense comprises current and deferred tax. Current taxes and deferred taxes are recognized in profit or loss. (i) Current tax

On September 29, 2014, the Tax Reform Law No. 20.780 was enacted, which, among other aspects, defines the by default tax system applicable to the Company, the corporate income tax rate that will be gradually applied to companies between 2014 and 2018 and allows that companies may opt for one of two tax systems established therein the attributed income system or the partially-integrated system, which results in entities being subject to different tax rates starting on 2017.



16


2.23 Income tax and deferred taxes, continued Note that, in accordance with the Tax Reform established by Laws Nos.20.780, and 20.899 the latter simplifying the former, companies could have been, by default or choice, subject to one of these tax systems or regimes established by the new tax regulation. The attributed-income system implies that the companies must pay a corporate tax rate of 25% for 2017. The partially-integrated system, implies that the Company must pay a corporate tax rate of 25.5% for 2017 and 27% for 2018 and thereafter. The by default tax system applicable to the Company is the Partially-Integrated system. For 2016, the current income tax rate will be 24%. The deferred tax rate for companies subject to the attributed income regime is 25%, and 25.5% for companies subject to the partially-integrated system, if the Company expects that temporary differences will reverse during commercial year 2017, and 27% if they are expected to reverse beginning in commercial year 2018 or in subsequent years. (ii) Deferred taxes Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax assets and liabilities are offset in the statement of financial position if there is a legal right to offset assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity. Deferred tax assets and liabilities are offset only if certain criteria are met. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date, as follows:

Year Tax rate

2015 22.5%

2016 24.0%

2017 25.5%

2018 27.0%



17


2.23 Income tax and deferred taxes, continued (iii) Tax exposures In determining the amount of current and deferred taxes, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. NOTE 3 – DETERMINATION OF FAIR VALUES A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. Administration and Finance Management used third party information to measure fair values, then assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Derivative financial instruments are measured at fair value based on Level 2 variables. The Company has no financial instruments measured in Levels 1 and 3. The carrying amount of financial instruments formed by cash, trade and other receivables, other financial liabilities, trade and other payables, receivables due from related parties and trade payables due to related parties is an approximation to the fair value, due to the short-term maturity of such financial instruments. Accounting classifications and fair values

As of December 31, 2016 and 2015, the detail of the carrying amounts and fair values of financial assets and liabilities is the following. The following table does not include information on the fair value hierarchies for financial assets and liabilities not measured at fair value if the carrying amount is an approximation to the fair value:

Total Note December 31, 2016 December 31, 2015

Carrying Fair Carrying Fair amount value amount value ThCh$ ThCh$ ThCh$ ThCh$ Current financial assets Cash and cash equivalents 5 3,768,060 3,768,060 6,589,192 6,589,192Trade and other receivables 8 3,861,411 3,861,411 4,699,931 4,699,931Receivables due from related parties 9.1 69,464,534 69,464,534 13,573,660 13,573,660Non-current financial assets Other financial assets - - 3,820,265 3,820,265Receivables due from related parties 9.2 70,954,384 70,954,384 135,963,633 135,963,633Total financial assets 148,048,389 148,048,389 164,646,681 164,646,68136.660.124 40,492,162 #### Current financial liabilities Other financial liabilities 16 267,665,321 267,665,321 24,785,893 24,785,893Trade and other payables 17 4,370,327 4,370,327 12,117,048 12,117,048Payables due to related parties 9.1 5,128,810 5,128,810 1,734,307 1,734,307Non-current financial liabilities Other financial liabilities 16 946,331 946,331 241,275,349 241,275,349Total financial liabilities 278,110,789 278,110,789 279,912,597 279,912,597



18

NOTE 4 – FINANCIAL RISK MANAGEMENT

The Company is exposed to the risks related to the industry in which it performs business and the risks related to the Company's financial structure, mainly related to the credit, market and liquidity risks. Senior Management oversees the risk management controlling the compliance with the regulatory framework in relation to the financial risk. 4.1 Concentration and management of credit risk

Approximately 99.5% of the Company’s revenue results from the services provided to the Chilean Government as per the concession agreement in effect with the Chilean Ministry of Transport and Telecommunications. The Chilean Ministry of Transport and Telecommunications in turn delegates the payment function to the Administrador Financiero del Transantiago. The way in which such revenue is determined is included in the concession agreement and consists mainly of the following: (i) The amount of validations made by passengers in the buses operated by the Company; and (ii) The number of kilometers run by buses. The risk of collection is very low as the final client is the MTT, which pays for the services received within a 15-day period based on the Concession Agreement. In addition, approximately 0.5% of revenue relates to the sale of advertising space. Such customers have demonstrated a good payment behavior and the related sales are made under agreements with customers with good commercial background. Credit quality of financial assets Financial assets held by the Company are classified in two large groups: (i) Commercial loans with clients – for purposes of measuring their risk they are classified based on

aging and allowances for doubtful accounts are accrued for; (ii) Financial investments held in appropriate financial institutions classified according to the Company's

policies.


Current and non-current assets 2016 2015

ThCh$ ThCh$

Cash and cash equivalents 3,768,060 6,589,192

Total 3,768,060 6,589,192

Trade and other receivables without credit rating, current 3,861,411 4,699,931

Total 3,861,411 4,699,931

None of the financial assets pending maturity recorded renegotiated terms during the year.



19

NOTE 4 – FINANCIAL RISK MANAGEMENT, continued

4.2 Market risk The main market risks the Company is exposed to are price risk, exchange rate risk, inflation risk and interest rate risk.

Currency risk - Foreign currency transactions The Company is exposed to exchange risks arising from the net exposure assets and liabilities in foreign currencies arising mainly on other financial liabilities (bond placement). Assets and liabilities per currency at each reporting date are as follows:

Currency December 31, December 31,

2016 2015

ThCh$ ThCh$

Cash and cash equivalents US$ - 1,161,283

Receivables due from related parties US$ 140,213,395 142,668,597

Other financial liabilities US$ (254,543,020) (260,201,056)

Trade and other payables US$ - (41,092) Total net liability position (114,329,625) (116,412,268)

Until February 2016, in order to cover the exchange risk arising from the obligation of bond 144-A for the notional amount of US$70,768,698 (recognized in other financial liabilities), the Company entered into derivative instruments with Bank of America Merrill Lynch to reduce the Company's exposure in the event of a depreciation of the Chilean peso in a range from 650 to 725 Chilean pesos per US$1 (see Note 6). The Company is assessing the program structure for hedging the foreign currency mismatches, given the Company's policy will continue to maintain a proper hedging of possible currency mismatches. The exchange rate affects the Company’s separate financial statements because its obligations are expressed in foreign currency and, therefore, changes, whether positive or negative are reflected in the foreign currency translation gain (loss) account in the statement of profit or loss which affects the Company’s equity but it does not directly affect cash flows. Exchange rate sensitivity analysis As of December 31, 2016, the effect of exchange differences recognized in the separate statement of comprehensive income related to assets and liabilities denominated in foreign currency amount to a gain of ThCh$5,547,412 (loss of ThCh$15,724,226 in 2015). A variation of 100 base points in the exchange rate would have increased or decreased equity in 2016 by ThCh$1,164,599 after taxes (ThCh$1,175,735 in 2015).



20


4.2 Market risk, continued

Price risk (Unaudited) For other price fluctuations, the Company has a natural coverage based on the indexation mechanism of the Concession Agreement which includes a mechanism related to the adjustment of revenue based on price changes in the main operating costs and supplies. This mechanism was designed from the early stages of the concession. As a result, the adjustment of revenue closely reflects the composition of costs.

As of December 31, 2016 and 2015, such indexes are as follows:

30.0%= Consumer Price Index (CPI) 23.4% = Labor cost index 29.2% = Diesel Price 10.5% = Exchange rate Chilean Peso / US Dollar 6.9% = Tire and lubricant cost

The revenue adjustment formula included in the Concession Agreement includes a variation in the price of diesel in Chilean pesos weighting it at 29.2%. The weighting of diesel in relation to total costs is approximately 4% lower than revenue. However, the adjustment formula provides high degree of hedging against variations in the cost of fuel. Accordingly, price increases in Chile may result in an improvement in the Company’s or a decrease in operating profit, in case of decreases in fuel prices. Interest rate risk Interest rate risk arises from financing sources with variable interest rates, which may increase the Company's finance expenses if significant fluctuation exist. The Company records almost no exposure to interest rate risk as its debts have a fixed interest rate up to 2018 and financial investments have a maturity under 180 days.

4.3 Liquidity risk The Company manages liquidity by following conservative policies and complying with the conditions established in the bond issuance contract. Under the Company’s policies, investments are made only in banks or institutions rated as AA or higher and with maturities under 180 days. In relation to the bond issuance contract, the Company is obligated to maintain all the funds required to cover 15 days of operating expenses and 1 month of investment in major maintenance (overhauls). In addition, these agreements require that the Company, beyond its own policies, maintain a responsible financial position, and it is subject to limitations to invest in property, plant and equipment and pay dividends. The Company’s cash flow generation has not been sufficient to meet is financial obligations. In addition, no significant investments have been made or are planned to be made in the medium term, except for investments in major maintenance (overhauls).



21


4.3 Liquidity risk, continued As of December 31, 2016 and 2015, the detail of contractual maturities of financial liabilities is as follows:

Note Carryingamount

Less than 1 year

Between 1and 5 years

Over 5years

December 31, 2016 ThCh$ ThCh$ ThCh$ ThCh$ Other financial liabilities 16 268,611,652 267,665,321 946,331 - Trade and other payables 17 4,370,327 4,370,327 - - Payables due to related parties 9.2 5,128,810 5,128,810 - - December 31, 2015 Other financial liabilities 16 322,771,684 25,672,718 297,098,966 - Trade and other payables 17 12,117,048 12,117,048 - - Payables due to related parties 9.2 1,734,307 1,734,307 - -

NOTE 5 – CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and in bank, term deposits and other financial investments with maturities of 90 days or less from the acquisition date. Cash and cash equivalents also includes investments related to cash management such overnight maturing within three months or less from the acquisition date.

As of December 31, 2016 and 2015, cash and cash equivalents are as follows: December 31, December 31,

2016 2015

Classes of cash and cash equivalents Currency ThCh$ ThCh$

Cash on hand Ch$ 9,560 4,652

Cash in bank Ch$ 406,253 247,010

Mutual funds (1) Ch$ 3,352,247 5,176,247

Time deposits (2) US$ - 1,161,283Total cash and cash equivalents 3,768,060 6,589,192

(1) As of December 31, 2016, cash and cash equivalents relate to 1,780,895.6883 deposits from the “Ejecutiva”

series of Ch$1,8882.3375. As of December 31, 2015, cash and cash equivalents correspond to 2,842,463.39 deposits from the “Ejecutiva” series of Ch$1,821.04.

(2) As of December 31, 2015, the Company had fixed-term bank deposits amounting to USD1,635,117.93 maturing on January 19, 2015. During 2016, there were no investments in time deposits.



22

NOTE 5 – CASH AND CASH EQUIVALENTS, continued Term deposits were purchased in December 2015 and their maturity is part of the current regulation to consider them as cash equivalents:

December 31, 2015 Currency

Time deposit amount

Currency US$ ThCh$

Current

Term deposit Santander Chile US$ 913,516.61 648,743

Term deposit Santander Chile US$ 721,601.32 512,540

Total 1,161,283 NOTE 6 – OTHER FINANCIAL ASSETS, NON-CURRENT

As of December 31, 2016 and 2015, other non-current financial assets are as follows:

Fair value adjustment

Other financial assets

Capital Fair value

adjustment Other financial

assets

Hedge rights Capital US$ US$ US$ US$ ThCh$

2016 2016 2016 2015 2015 2015

Bank of America Merrill Lynch - - - 112,857,469 116,677,734 3,820,265

Total other financial assets, non-current - 3,820,265

On January 13, 2016, Inversiones Alsacia S.A. sold the hedge entered into in 2015 for ThUS$4,460, equivalent to ThCh$3,257,099 and the effects recognized in profit and loss of ThCh$536,131, described in Note 28.



23

NOTE 7 – OTHER NON-FINANCIAL ASSETS

As of December 31, 2016 and 2015, other non-financial assets are as follows:


2016 2015

Other non-financial assets ThCh$ ThCh$

Current:

Prepaid insurance 258,567 446,506

Other prepaid expenses 23,440 138,485

Guarantee certificates 93,799 89,009

Total other non-financial assets – current 375,806 674,000

Non-current:

Lease guarantee 115,935 113,883

Total other non-financial assets – non-current 115,935 113,883

Total other non-financial assets 491,741 787,883 NOTE 8 – TRADE AND OTHER RECEIVABLES As of December 31, 2016 and 2015, trade and other receivables are as follows:

December 31, December 31, 2016 2015

Trade and other receivables ThCh$ ThCh$

Domestic trade receivables 3,711,993 4,554,508

Accumulated impairment on trade receivables (52,912) (52,912)

Trade receivables - net 3,659,081 4,501,596

Other accounts receivable 41,431 96,566

Personnel loans 160,899 101,769

Total trade receivables 3,861,411 4,699,931 The Company accrues provisions for impairment in case there is evidence of impairment of trade receivables. The criteria applied to determine whether there is objective evidence of impairment losses are the maturity of the portfolio, actual impairment (default) and actual market signals.



24

NOTE 8 – TRADE AND OTHER RECEIVABLES, continued Trade and other receivables classified by category are as follows:

December 31, December 31, 2016 2015Concept ThCh$ ThCh$

Provision for revenue from payments (1) 3,267,859 3,414,830

PPT AIPK adjustment mechanism (2) 102,454 651,761

Provision for AIPK Income (3) - 478,649

Advertising 288,768 82,810

Other 202,330 71,881

Total trade receivables, current 3,861,411 4,699,931 (1) Provision for revenue from payments received between December 15 and 31, 2016 and December

15 and 31, 2015, which were paid by the Transantiago Financial Administrator during January 2017 and January 2016, respectively, in conformity with the basis of the Concession Agreement and its subsequent amendments.

(2) This balance relates to the revenue accrued as of December 31, 2016, under the mechanism named AIPK which compensates the Company based on the changes in user demand as a result of a base value defined at the beginning of the validity of the Concession Agreement. This mechanism is estimated every 24 settlements that is, every 12 months, and it operates within a range of application.

(3) This relates to the adjustment of Ch$2.44 in the PPT0 approved by the Experts' Panel, associated

with Heavy-duty of Bus Operators, for which the Company made an allowance based on a calculation for the period between May 2014 and December 2015.

As of December 31, 2016 and 2015, the Company’s trade receivables are as follows:


2016 2015 Maturity of trade and other receivables ThCh$ ThCh$

Maturity under three months 3,861,411 4,699,931Total trade and other receivables, current 3,861,411 4,699,931

During the years ended December 31, 2016 and 2015, the detail of receivable impairment movements is the following:


2016 2015 ThCh$ ThCh$

Opening balance (52,912) (1,178)Impairment for the period - (51,734)Impairment reversal - -Closing balance (52,912) (52,912)



25

NOTE 9 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES

9.1 Accounts receivable due from related parties In general, transactions with related parties correspond to actual payment and collection transactions not subject to special conditions. These transactions are in conformity with Articles 44 and 49 of Law No.18.046 for public companies. Short and long-term fund transfers from and to the parent of between related parties which do not relate to the collection or payment of services are recorded as commercial current accounts. As of December 31, 2016 and 2015, accounts receivable due from related parties are as follows:

December 31, 2016

December 31, 2015

Tax ID No. Company Country Relationship Currency ThCh$ ThCh$

Current

99.577.390-2 Express de Santiago Uno S.A. (1) Chile Affiliate US$ 69,259,011 12,570,020

59.141.620-0 Desarrollo y Soluciones Informáticas Chile Common owner Ch$ 13,026 13,026

76.416.052-5 Lavabus Chile S.P.A. Chile Common owner Ch$ 1,040 1,040

76.195.710-4 Inversiones Eco Uno S.A. Chile Subsidiary Ch$ 191,457 173,337

76.099.998-9 Camden Servicios S.P.A.(2) Chile Affiliate Ch$ - 513,237

76.284.543-1 Recticenter SpA (3) Chile Common director Ch$ - 303,000

Total accounts receivable due from related parties, current 69,464,534 13,573,660

(1) Corresponds to a documented debt of Express de Santiago Uno S.A. of US$198,709,385 entered into in February

2012, which accrues an annual interest of 8.05%, payable every six months. The loan granted to Express de Santiago Uno S.A. is associated with Bond 144-A, in which the Company acts as the guarantor. The restructuring of debt associated with bond 144-A agreed on November 30, 2015 amended the schedule of payments. As of December 31, 2016, the status of the compliance with the payment schedule is as follows: As stated above, this loan to the subsidiary is related to the 144-A bond entered into by Alsacia and, as such, it considers the same scheduled maturity established with bond holders.

Due date Amortization of loan

in U.S. dollars Status

06-22-2015 1,621,670.49 Pending

12-22-2015 632,176.63 Pending

06-22-2016 2,569,935.43 Mature

12-22-2016 2,569,935.43 Mature 06-22-2017 2,776,079.99 Pending 12-22-2017 2,776,079.99 Pending 06-22-2018 659,662.57 Pending 12-22-2018 4,645,123.94 Pending 12-31-2018 81,917,301.16 Pending 100,167,965.63

(2) This balance relates to transactions made under the purchase of spare parts and management and logistic

administration services contract.

(3) This balance relates to prepayments for overhaul service accounts



26

NOTE 9 – BALANCES AND TRANSACTIONS WITH RELATED PARTIES, continued

9.1 Accounts receivable due from related parties, continued

December 31, 2016 December 31, 2015 Tax ID No. Company Country Relationship Currency ThCh$ ThCh$

Non-current 99.577.390 - 2 Express de Santiago Uno S.A. (1) Chile Affiliate US$ - 63,913,09999.577.390 - 2 Express de Santiago Uno S.A. (1) Chile Affiliate Ch$ - 907,562

0-E Panamerican Investment S.A.(4) Panama Common owner

US$ 68,771,663 68,954,419

59.164.000 - 0 Panamerican Investment S.A.(2) Chile Common owner

US$ 2,182,721 2,188,553

Total accounts receivable due from related parties, non-current

70,954,384 135,963,633

(4) This balance relates to a documented debt maintained by Panamerican Investment S.A. for an initial capital of

US$72,118,294.94 which accrues interest at an annual rate of 8.05% and has one single maturity on August 20, 2018.

9.2 Accounts payable to related parties As of December 31, 2016 and 2015, accounts payable to related parties are as follows:


2016 2015

Tax ID No. Company Country Relationship Currency ThCh$ ThCh$

Current

99.577.390- 2 Express de Santiago Uno S.A. (1) Chile Affiliate Ch$ 3,459,637 539,55576.099.998-9 Camden Servicios SpA Chile Affiliate Ch$ 98,282 -

76.130.466-6 Inversiones Lorena S.p.A. Chile Subsidiary Ch$ 1,221,282 981,104

76.416.052-5 Lavabus SpA. Chile Common owner Ch$ 269,962 213,64876.284.543.-1 Recticenter SpA. Chile Common director Ch$ 79,647 -

Total payables to related parties, current 5,128,810 1,734,307

(1) This balance relates to amounts provided by Express de Santiago Uno S.A. as cash reserve intended to

cover obligations acquired as a result of the bond issuance by Inversiones Alsacia S.A.



27


9.3 Transactions with related parties As of December 31, 2016 and 2015, transactions with related parties are as follows:

Tax ID No. Company Country Relationship CurrencyTransaction

2016 2015

Amount

Credit (debit) to profit or

loss Amount

Credit (debit) to profit or

loss

6.814.033-1 Julio Gibrán Harcha S. Chile Director ThCh$ Director payment 44,991 (44,991) - -

21.922.672-1 Carlos Ríos Velilla Colombia Shareholder-director ThCh$ Director payment 20,400 (20,400) 36,000 (36,000)

21.864.367-1 Javier Rios Velilla Colombia Director ThCh$ Director payment 33,885 (33,885) - -

58431 Per Gabell Peru Director ThCh$ Director payment 36,000 (36,000) 36,000 (36,000)

0-E P.S.C. Consulting Panama Company Director ThCh$ Board advisory services 194,703 (194,703) 200,868 (200,868)

21.822.663-9 Edgard Mac Allister Colombia Director ThCh$ Director payment 24,000 (24,000) 24,000 (24,000)

14.629.483-9 Santiago Hernando Perez Spain Director ThCh$ Director payment 36,000 (36,000) 24,000 (24,000)

76.501.761-0 Inversiones el Morro SpA. Chile Company Director ThCh$ Board advisory services - - 12,000 (12,000)

99.577.390-2 Express de Santiago Uno S.A. Chile Affiliate ThCh$ Transfer of funds received 9,941,657 - 10,813,186 -

99.577.390-2 Express de Santiago Uno S.A. Chile Affiliate ThCh$ Collection of loan - - 1,485,258 -

99.577.390-2 Express de Santiago Uno S.A. Chile Affiliate ThCh$ Accrued interest on loan 5,176,319 (5,176,319) 5,296,617 (5,296,617)

59.164.000-0 Panamerican Investment S.A. Chile Common shareholder ThCh$ Accrued interest on loan 3,971,176 (3,971,176) 4,362,149 (4,362,149)

76.099.998-9 Camden Servicios S.P.A. Chile Affiliate ThCh$ Purchases of spare parts and logistic administration 15,466,945 (15,466,945) 13,285,342 (13,285,342)

78.131.470-6 Rentas y Asesorías Harfield S.P.A. Chile Related Company Director

ThCh$ Board advisory services 128,310 (128,310) 118,440 (118,440)

76.284.543-1 Recticenter SpA. Chile Common director ThCh$ Advance payments 1,418,356 (683,462) 303,000 -

76.416.052-5 Lavabus SpA Chile Common shareholder ThCh$ Bus cleaning services 699,425 (699,425) 798,648 (798,648) Remunerations to the Board of Directors are presented in net amounts, net of withholding taxes. Inversiones Alsacia S.A. policy is to report all transactions with related parties during the year except for dividends paid and capital contributions received which are not deemed to be transactions.



28


9.4 Payments to the Board of Directors and key management personnel As of December 31, 2016 and 2015, payments, salaries as well as financial, commercial and management advisories received by members of the Board of Directors amount to ThCh$116,400 and ThCh$132,000, respectively. Inversiones Alsacia S.A. have an incentive system based on the Company’s operating profit which consists of an annual bond payable to main executives and individuals in other eligible positions. The incentive system has the purpose of motivating and recognizing executives through a formal scheme that rewards good individual performance as well as team work. The main managers and executives are those individuals with the authority and responsibility for directly or indirectly planning, directing and controlling the entity’s activities, including any member (whether executive or not) of the Company’s Administration Board or governing body. Total payments made to the Company’s main executives and managers for the year from January to December 2016 and 2015 amounted to ThCh$1,838,964 and ThCh$2,242,815, respectively. During the years ended December 31, 2016 and 2015, no provision for severance payments has been accrued. NOTE 10 – INVENTORIES As of December 31, 2016 and 2015, inventories are follows:

December 31, 2016 December 31, 2015 Inventories ThCh$ ThCh$

Spare parts and technical inventories 743,322 862,411

Allowance for obsolescence (136,293) (136,293)

Total spare parts inventories 607,029 726,118

Fuel 17,160 9,731

Total inventories 624,189 735,849 735.49 and 1.137.851 Inventories correspond to spare parts and fuel to be used in maintenance services; such inventories are measured at their average acquisition cost. As of December 31, 2016 and 2015, the Company does not record pledges or guarantees over inventories. The amount of inventories recognized as cost was ThCh$991,453 as of December 31, 2016. (ThCh$1,366,199 as of December 31, 2015).



29

NOTE 10 – INVENTORIES, continued As of December 31, 2016 and 2015, changes in the provision for obsolescence of spare parts and technical inventory is as follows:

December 31, 2016 December 31, 2015 Movements ThCh$ ThCh$

Opening balance (136,293) (58,712)

Increases - (77,581)

Provision used - -

Closing balance (136,293) (136,293) NOTE 11 – CURRENT TAX ASSETS As of December 31, 2016 and 2015, current tax assets are as follows:

Current tax assets December 31, 2016 December 31, 2015

ThCh$ ThCh$

SENCE training credit (1) 872,940 585,355

Total current assets 872,940 585,355

(1) This balance relates to training expenses made by the Company during the year which are used as credit against income taxes.

NOTE 12 – EQUITY-ACCOUNTED INVESTEES (a) Inversiones Lorena S.p.A.

Inversiones Alsacia S.A. has an interest of 100% in Inversiones Lorena S.p.A., and it recognizes such investment in accordance with IAS 28 Investments in Associates and Joint Ventures. Inversiones Lorena was incorporated via public deed dated January 14, 2011, under Taxpayer ID Number 76.130.466-6 and its registered office is located at Av. Santa Clara N°555, Huechuraba, Santiago. This company is engaged in making investments and receiving income from movable property.

Ownership

Investment Carrying amount

Equity Profit or loss Profit or loss Ownership %

2016 % ThCh$ ThCh$ ThCh$ ThCh$

Inversiones Lorena SpA 100.00% 7,785,577 82,781 82,781 7,868,358

Total 7,785,577 82,781 82,781 7,868,358

Ownership


Equity Profit or loss Profit or loss Ownership %


Inversiones Lorena SpA 100.00% 7,704,564 81,013 81,013 7,785,577

Total 7,704,564 81,013 81,013 7,785,577



30

NOTE 12 – EQUITY-ACCOUNTED INVESTEES, continued

(b) Inversiones Eco Uno S.A.

Inversiones Alsacia S.A. has an interest of 21.59% in Inversiones Eco Uno S.A., and it recognizes such investment in accordance with IAS 28 Investments in Associates and Joint Ventures. Inversiones Eco Uno S.A. was incorporated via public deed dated November 22, 2004, under Tax ID Number 76.195.710-4, its registered office located at El Roble 200 ENEA, Pudahuel, Santiago. This company is engaged in making investments and receiving income from movable property.

Ownership


Equity Profit or

loss Profit or loss Ownership %


Inversiones Eco Uno S.A. 21.59% (37,772,862) 6,889,526 1,487,449 (6,667,712)

Total (37,772,862) 6,889,526 1,487,449 (6,667,712)

Ownership


Equity Profit or

loss Profit or loss Ownership %


Inversiones Eco Uno S.A. 21.59% (17,390,788) (20,382,074) (4,400,490) (8,155,161)

Total (17,390,788) (20,382,074) (4,400,490) (8,155,161) As December 31, 2016 and 2015, Inversiones Eco Uno S.A. recorded shareholders’ deficit. Accordingly, this investment is presented in the caption of Other current provisions. (see Note 19 Other provisions).



31

NOTE 13 – INTANGIBLE ASSETS OTHER THAN GOODWILL

As of December 31, 2016 and 2015, separately acquired intangible assets are as follows:

Gross value

Accumulated amortization

Net value

December 31, 2016 ThCh$ ThCh$ ThCh$

RTO (1) 12,950,228 (10,727,603) 2,222,625 AFT contributions (2) 2,247,539 (1,861,798) 385,741 Computer licenses (3) 3,589,666 (2,679,840) 909,826 Total intangible assets other than goodwill

18,787,433 (15,269,241) 3,518,192

Gross

value Accumulated amortization

Net value

December 31, 2015 ThCh$ ThCh$ ThCh$

RTO (1) 12,950,228 (9,643,901) 3,306,327 AFT contributions (2) 2,247,539 (1,673,720) 573,819 Computer licenses (3) 3,255,470 (2,238,693) 1,016,777 Total intangible assets other than goodwill

18,453,237 (13,556,314) 4,896,923

) 6.1.236

(1) This balance relates to the total contribution made to the Operative Technical Reserve (RTO) by the Troncal No.1 business unit. The RTO is defined as a provision included in the tickets paid by users which is intended to cover temporary mismatches between the system’s revenues and expenses. This amount is amortized based on the projected revenue curve to be obtained from the rendering of transport services. The amortization expense is part of the cost to sell within the separate statement of comprehensive income per function.

(2) From the beginning of the stage I defined in the bidding bases Transantiago 2003, the AFT will be the exclusive issuer of tickets related to the collection of coins paid by users to access the system’s transport services. The AFT provides such tickets to Inversiones Alsacia S.A. which pays a total of $20 per ticket. From this amount, Ch$16 corresponds to a deposit intended to increase the system’s RTO and are to be credited by the AFT to the transitory account 2. The AFT can freely dispose of the remaining $4. This reserve corresponds to the total amount resulting from the $16 per ticket acquired by the Company during 2006 and 2005. This amount is amortized based on the projected revenue curve to be obtained from the rendering of transport services. In accordance with the amendment to the Concession Agreement, Article No.4, signed on September 30, 2006 between the Company and the Chilean Ministry of Transport and Telecommunications, starting from July 1, 2006 the Company stopped paying the $16 per each ticket bought from the AFT. The amortization expense is part of the cost to sell within the separate statement of comprehensive income per function.

(3) Computer licenses were classified as intangible assets with definite useful lives and relate to software acquired from third parties. These licenses have an estimated useful life from 3 to 5 years and are amortized on a straight-line basis.



32

NOTE 13 – INTANGIBLE ASSETS OTHER THAN GOODWILL, Continued Changes in intangible assets as of December 31, 2016 are as follows: Operative

technical reserve

AFT reserve Computer Licenses

Total

2016 ThCh$ ThCh$ ThCh$ ThCh$

Pending amortization period 26 months 24 months 13 months

Net value as of January 1, 2016 3,306,327 573,819 1,016,777 4,896,923

Acquisitions - - 334,196 334,196

Amortization for the year (1,083,702) (188,078) (441,147) (1,712,927)

Net value as of December 31, 2016 2,222,625 385,741 909,826 3,518,192

Changes in intangible assets as of December 31, 2014 are as follows:

Operativetechnical reserve

AFT reserve Computer Licenses

Total

2015 ThCh$ ThCh$ ThCh$ ThCh$

Pending amortization period 38 months 36 months 13 months

Net value as of January 1, 2015 4,372,031 758,775 976,430 6,107,236

Separate acquisitions - - 409,451 409,451

Amortization for the year (1,065,704) (184,956) (369,104) (1,619,764)

Net value as of December 31, 2015 3,306,327 573,819 1,016,777 4,896,923



33

NOTE 14 – PROPERTY, PLANT AND EQUIPMENT As of December 31, 2016, property, plant and equipment and changes therein are as follows:

Land Net buildings

Net plant and

equipment

Net Information technology equipment

Net fixed facilities and

fixtures

Net motor vehicle

Net leasehold improvements

Other net property,

plant and equipment

Total net property, plant and equipment

ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$

Gross balance as of January 1, 2016 2,394,670 12,649,235 1,926,299 1,493,389 192,352 69,054,449 256,546 534,872 88,501,812

Accumulated depreciation - (5,395,591) (1,112,385) (1,149,446) (171,650) (60,043,327) (175,778) (452,496) (68,500,673)

Net cost December 31, 2016 2,394,670 7,253,644 813,914 343,943 20,702 9,011,122 80,768 82,376 20,001,139

Acquisitions - - - - - - 2,091 - 2,091

Other increases (overhaul) - - 33,220 46,927 - 750,850 550 18,859 850,406

Disposals - - - - - (236,490) - - (236,490)

Depreciation - (770,165) (191,658) (115,340) (5,209) (3,217,383) (27,623) (30,275) (4,357,653)

Balance as of December 31, 2016

2,394,670 6,483,479 655,476 275,530 15,493 6,308,099 55,786 70,960 16,259,493



34

NOTE 14 – PROPERTY, PLANT AND EQUIPMENT, continued As of December 31, 2015, property, plant and equipment and changes therein are as follows:

December 31, 2015

Land Net buildings

Net plant and

equipment

Net Information technology equipment

Net fixed facilities and

fixtures

Net motor vehicle

Net leasehold improvements

Other net property,

plant and equipment

Total net property, plant and equipment

ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$

Gross balance as of January 1, 2015

2,394,670 12,649,235 1,655,453 1,333,247 180,143 68,479,402 238,774 492,736 87,423,660

Accumulated depreciation (4,624,681) (955,905) (1,085,279) (154,811) (57,552,792) (155,458) (436,473) (64,965,399)

Net cost December 31, 2015 2,394,670 8,024,554 699,548 247,968 25,332 10,926,610 83,316 56,263 22,458,261

Acquisitions - - 270,846 160,142 12,209 - 17,772 42,136 503,105

Other increases (overhaul) - - - - - 1,765,639 - - 1,765,639

Disposals - - - - - (1,190,592) - - (1,190,592)

Depreciation - (770,910) (156,480) (64,167) (16,839) (2,490,535) (20,320) (16,023) (3,535,274)

Net balance as of December 31, 2015 2,394,670 7,253,644 813,914 343,943 20,702 9,011,122 80,768 82,376 20,001,139



35

NOTE 15 – INCOME TAX AND DEFERRED TAXES As of December 31, 2016 and 2015, the detail of the income tax expense is as follows: December 31, December 31,

2016 2015

(Expenses) Income tax expense ThCh$ ThCh$

Tax under Article No. 21 (145,068) -Deferred tax - (17,250,740)

Total income tax (expense) benefit (145,068) (17,250,740)

The table below shows a detail of the reconciliation between the income tax benefit (expense) using the effective tax rate and the domestic tax rate: December 31, December 31, Reconciliation between the income tax expenseusing the effective tax rate and the domestic tax rate

2016 2015

ThCh$ ThCh$

Income tax benefit using the domestic tax rate (4,172,853) 7,022,642 Non-deductible tax expenses 568,254 (504,230) Annual tax losses not recognizing deferred taxes 3,604,599 (5,197,638) Changes in estimates related to prior years - (18,571,514)

(Expense) benefit using the effective tax rate - (17,250,740)

Reconciliation between the domestic tax rate and the effective tax rate

December 31, 2016

December 31, 2015

ThCh$ ThCh$

Legal tax rate 24.00 22.50Tax effect of non-deductible expenses (2.43) (1.62)Annual tax losses not recognizing deferred taxes - (16.65)Changes in estimates related to prior years (20.73) (59.50)

Total tax rate 0.84 (55.27)



36

NOTE 15 – INCOME TAX AND DEFERRED TAXES, Continued Current tax As of December 31, 2016 and 2015, the Company had tax losses of ThCh$14,783,160 and ThCh$21,271,835, respectively, and accordingly determined no current income tax. As of December 31, 2016 and 2015, the tax loss carryforwards are detailed as follows:

2016 ThCh$

2015ThCh$

Tax loss as of January 1 (98,624,283) (77,352,448) Tax loss for the year (14,783,102) (21,271,835) Tax loss as of December 31 (113,407,385) (98,624,283)

Deferred tax As of December 31, 2016 and 2015, the detail of deferred tax assets and liabilities is as follows:

Deferred taxes December 31, 2016 December 31, 2015

Deferred tax

assets

Deferred tax

liabilities

Deferred tax

assets

Deferred tax

liabilities

ThCh$ ThCh$ ThCh$ ThCh$

Property, plant and equipment

- 1,646,010 - 2,283,946

Intangible assets - 584,220 - 989,437

Tax losses 2,230,231 - 3,273,383 -

Total 2,230,231 2,230,231 3,273,383 3,273,383

Net deferred taxes - - - -

In accordance with the covenants included in sections 4.05 and 5.01 of the Indenture for Bond 144-A, the Company is not allowed to sell assets granted as guarantee as part of the bond issuance. As a result, the difference between the tax and financial value of land corresponds to a permanent difference and no deferred taxes have been recognized. As of December 31, 2016, the Company has not recognized deferred tax assets derived from tax loss carried forward, because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom. The amount of unrecognized deferred taxes amounts to ThCh$3,604,599.



37

NOTE 15 – INCOME TAX AND DEFERRED TAXES, Continued As of December 31, 2016 and 2015, changes in deferred tax assets are as follows:

December 31, December 31, 2016 2015 Movements ThCh$ ThCh$

Opening balance 3,273,383 21,027,021

Employee benefits 24,498 (284,726)

Trade receivables – impairment (316) (266)

Other assets (287,343) (225,663)

Other non-financial liabilities - (903,386)

Tax losses (779,991) (16,339,597)

Closing balance 2,230,231 3,273,383 As of December 31, 2016 and 2015, changes in deferred tax liabilities are as follows: December 31, December 31, 2016 2015Movements ThCh$ ThCh$

Opening balance 3,273,383 3,776,281

Property, plant and equipment (652,898) (217,707)

Intangible assets (390,254) (285,191)

Closing balance 2,230,231 3,273,383 3.273.383 3.776.281 NOTE 16 – OTHER FINANCIAL LIABILITIES

As of December 31, 2016 and 2015, this caption includes obligations related to the issuance of the bond under the United States rule 144–A and borrowings with Banco Internacional de Chile, which accrue interest at rates of 8% and 6.87%, respectively. The subsidiaries Inversiones Lorena S.P.A., Inversiones Eco Uno S.A. and Express de Santiago Uno S.A., are guarantors of bond 144-A and the debt with Banco Internacional de Chile.

Financial liabilities

December 31, 2016 December 31, 2015

Current Non-current Current Non-current


Bond 144-A (a) 240,508,384 - 13,279,992 234,118,152

Bank loans (b) 5,697,391 - 924,592 4,925,546

Drafts payable (c) 1,019,112 946,331 933,493 2,231,651

Interests accrued by Bond 144-A 20,231,682 - 9,637,768 -

Interests accrued by bank loans 208,752 - 10,048 -

Total other financial liabilities 267,665,321 946,331 24,785,893 241,275,349



38

NOTE 16 – OTHER FINANCIAL LIABILITIES, Continued a) Bond 144–A and restructuring process

On February 28, 2011, Inversiones Alsacia S.A. acquired 100% of the shares of BRT Scrow Corporation S.P.A and, as a result, it has become the debtor of a bond issued under the Rule 144-A and Regulation S of the U.S. Securities Act of 1933 and its related amendments, for US$464,000,000, for a term of 7.5 years, at an annual rate of 8% considering semiannual payments of interest and repayment of principal owed through February 18, 2018.

On August 18, 2014, the Company performed a restructuring process of the bond for the amount owed at such date of US$347,304,000, by issuing new bonds to be exchanged for the original bonds, where the principal owed amounted to US$364,433,466, including the capitalization of interest not paid in August 2014 of US$13,892,000 and the accrued interest from August 18, 2014 through September 30, 2014 of US$3,237,466, maintaining the same annual interest rate of 8%, which is paid on December 22 and June 22 of each year. The schedule of payments of principal owed is detailed as follows:

Maturity date US$

Status

12-22-2014 1,000,000 Paid

06-22-2015 4,900,000 Paid

12-22-2015 2,300,000 Paid

06-22-2016 9,350,000 Mature

12-22-2016 9,350,000 Mature

06-22-2017 10,100,000 Pending

12-22-2017 10,100,000 Pending

06-22-2018 2,400,000 Pending

12-22-2018 16,900,000 Pending

12-31-2018 298,033,466 Pending

Total 364,433,466

In conformity with the aforementioned restructuring process, the following conditions described in Note 31.4 that might modify the amounts payable were established: b) Compliance with the contract

In January 2016, interest amounting to US$11,172,378 were paid, related to a coupon maturing in December 2015. Because of the Company's delicate cash position, it was unable to comply with the payment of coupons maturing in June 2016 and December 2016 of US$ 23,698,969 and US$ 23,325,813, respectively, in accordance with the "Bond 144-A debt agreement" and the "Opening of line of credit with Banco Internacional". As a result, the Company is in default with respect to sections 4.03 and 7.01, respectively, and consequently, the schedule of payments of obligations associated with the agreements mentioned above, might be accelerated. Accordingly, this obligation has been presented as part of current liabilities and the effects thereof have been recognized in profit or loss, due to the recognition of the capitalized restructuring process expenses under the effective interest rate not amortized of ThCh$7,442,781.



39

NOTE 16 – OTHER FINANCIAL LIABILITIES, continued c) Bank loans

Because of restructuring of the 144-A bond, the payment schedule of the bank borrowing with the Banco Internacional de Chile was amended, maintaining the annual interest rate of 6.87% and establishing the payment of principal owed and interest for June and December of each year through 2018.

d) Drafts payable

Drafts payable relate to drafts signed with VTF Latin America S.A. for the purchase-sale of spare parts from Volvo Commercial Vehicles and Construction Equipment South Cone SpA, which accrue interest at an annual rate of 7.5% and are payable in 9 equal installments starting from August 18, 2014 and up through August 18, 2018.



40

NOTE 16 – OTHER FINANCIAL LIABILITIES, continued As of December 31, 2016, other current financial liabilities are as follows:

Debtor’s ID number Debtor’s name

Current

Debtor’s Creditor’s Creditor’s AmortizationEffective rate

Nominal rate

1 to 3 4 to 12

Country ID number name Country Currency type months months Total

ThCh$ ThCh$ ThCh$

Bond 144-A

99.577.400-3 Inversiones Alsacia S.A. Chile 0-E

Various debtors

Various US$ Semi-annual 8.00% 8.00% 240,508,384 240,508,384

Total Bono 144 – A, current 240,508,384 - 240,508,384

Bank loans

99.577.400-3 Inversiones Alsacia S.A.

Chile 97.011.000-3

Banco Internacional de Chile

Chile Ch$ Semi-annual 6.87% 6.87% 5,697,391 5,697,391

Current bank borrowings: 5,697,391 - 5,697,391

Interest accrued by bank loans


Chile 97.011.000-3


Chile Ch$ Semi-annual 6.87% 6.87% 208,752 208,752

Total interest accrued by bank loans, current 208,752 - 208,752

Interests accrued by Bond 144-A


Various debtors

Various US$ Semi-annual 9.50% 8.00% 20,231,682 - 20,231,682

Total interest accrued by Bond 144 – A, current 20,231,682 - 20,231,682

Drafts payable


Chile 0-E

VTF Latin América S.A.

Various US$ Semi-annual 7.50% 7.50% 521,750 497,362 1,019,112

Total drafts payable, current 521,750 497,362 1,019,112

Total current financial liabilities as of December 31, 2016 267,167,959 497,362 267,665,321

In the table above, when the nominal rate is not equal to the effective rate this means that there were costs directly associated with the transaction; in such cases, the obligation is recorded at the effective rate.



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NOTE 16 – OTHER FINANCIAL LIABILITIES, continued As of December 31, 2016, other non-current financial liabilities are as follows:

Non-current

Debtor’s ID Debtor’s Debtor’s Creditor’s Creditor’s Country Amortization Effective

rate Nominal

rate 2 to 3 3 to 6

Over 5 years

Total

number name country ID number name Currency type years years years


Drafts payable



Various US$ Semi-annual 7.50% 7.50%

946,331 - -

946,331

Total drafts payable, non-current

946,331 - -

946,331

Total non-current financial liabilities as of December 31, 2015

946,331 - -

946,331



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NOTE 16 – OTHER FINANCIAL LIABILITIES, continued As of December 31, 2015, other current financial liabilities are as follows:

Debtor’s ID number

Debtor’s name

Current

Debtor’s Creditor’s Creditor’s AmortizationEffective

rate Nominal

rate 1 to 3 4 to 12

Country ID number name Country Currency type months months Total

ThCh$ ThCh$ ThCh$

Bond 144-A

99.577.400-3 Inversiones Alsacia S.A. Chile 0-E Various debtors Various US$ Semi-annual 9.50% 8.00% 13,279,992 13,279,992Total Bono 144 – A, current - 13,279,992 13,279,992

Bank loans

99.577.400-3 Inversiones Alsacia S.A. Chile 97.011.000-3


Chile Ch$ Semi-annual 6.87% 6.87% 308,197 616,395 924,592

Total current bank borrowings: 308,197 616,395 924,592

Interests accrued by bank loans



Chile Ch$ Semi-annual 6.87% 6.87% - 10,048 10,048

Total interest accrued by bank loans, current - 10,048 10,048

Interests accrued by Bond 144-A

99.577.400-3 Inversiones Alsacia S.A. Chile 0-E Various debtors Various US$ Semi-annual 9.50% 8.00% 9,227,650 410,118 9,637,768Total interest accrued by Bond 144 – A, current 9,227,650 410,118 9,637,768

Drafts payable



Various US$ Semi-annual 7.50% 7.50% 491,135 442,358 933,493

Total drafts payable, current 491,135 442,358 933,493

Total current financial liabilities as of December 31, 2015 10,026,982 14,758,911 24,785,893




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NOTE 16 – OTHER FINANCIAL LIABILITIES, continued As of December 31, 2015, other non-current financial liabilities are as follows:

Non-current

Debtor’s ID Debtor’s Debtor’s Creditor’s Creditor’s Country Amortization Effective

rate Nominal

rate 2 to 3 3 to 6

Over 5 years

Total

number name country ID number name Currency type years years ThCh$ ThCh$ ThCh$ ThCh$

Bond 144-A


Various debtors

Various US$ Semi-annual 9.50% 8.00% 234,118,152 - - 234,118,152

Total Bono 144 – A, non-current 234,118,152 - - 234,118,152

Bank loans



Chile Ch$ Semi-annual 6.87% 6.87% 4,925,546 - - 4,925,546

Total interest accrued by bank loans, non-current 4,925,546 - - 4,925,546

Drafts payable



Various US$ Semi-annual 7.50% 7.50% 2,231,651 - - 2,231,651

Total drafts payable, non-current 2,231,651 - - 2,231,651

Total non-current financial liabilities as of December 31, 2015 241,275,349 - - 241,275,349




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NOTE 17 – TRADE AND OTHER PAYABLES As of December 31, 2016 and 2015, trade and other payables are composed of the following:

December 31, 2016

December 31, 2015

ThCh$ ThCh$

Suppliers (a) 2,938,341 10,881,546

Personnel withholdings 1,089,232 980,800

Other payables (b) 342,754 254,702

Total trade and other payables, current 4,370,327 12,117,048 a) In the case of common suppliers, the Company’s policy is to pay the related invoices within 60 days from

reception; for strategic suppliers, the payment is made within 30 to 45 days.

b) Other payables include obligations related to notes payable, insurance and other accounts payable.

NOTE 18 – PROVISION FOR EMPLOYEE BENEFITS

This caption corresponds to provisions for legal holidays to personnel, and is detailed as follows: December 31,

2016 December 31,

2015 Movements ThCh$ ThCh$

Opening balance 1,438,206 1,265,450

Increases 1,860,860 1,363,734

Provision used (1,755,366) (1,190,978)

Closing balance 1,543,700 1,438,206 As of December 31, 2016 and 2015, employee benefits amounts to ThCh$1,860,860 and ThCh$1,363,734, respectively, and are recognized in the item of Salaries and benefits from cost of sales.



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NOTE 19 – OTHER CURRENT PROVISIONS

As of December 31, 2016 and 2015, other provisions are as follows:

Other provisions December 31,

2016 December 31,

2015 ThCh$ ThCh$

Provision for legal claims (1) 983,587 1,121,636

Provision for negative equity of investee (2) 6,667,712 8,155,161

Total other current provisions 7,651,299 9,276,797 (1) This balance corresponds to the provision accrued for claims filed against the Company by former employees,

regulatory agencies and others. The provision is recognized in the separate statement of income within administrative expenses. The current balance as of December 31, 2016 and 2015, is expected to be used within the following 12 months.

(2) This balance represents a provision generated for the shareholders' deficit of subsidiary Inversiones Eco Uno S.A as of December 31, 2016 and 2015 (see Note 12).

As of December 31, 2016 and 2015, changes in provisions are as follows:

Changes in provisions ThCh$

Balance as of December 31, 2015 4,531,746

New legal claims 344,561

Provision for shareholders' deficit of investee in Eco Uno S.A. 4,400,490

Balance as of December 31, 2015 9,276,797

Reversal of provision for legal claims (138,049)

Provision for shareholders' deficit of investee in Eco Uno S.A. (1,487,449)

Balance as of December 31, 2016 7,651,299 NOTE 20 – OTHER NON-FINANCIAL LIABILITIES Resolution No.258 issued by the Chilean Ministry of Transport and Telecommunications approved the indemnity agreement signed between the Ministry of Transport and Telecommunications and Inversiones Alsacia S.A. which establishes the amount of ThCh$9,090,243 as final indemnity for the early termination of the Concession Agreement for the Use of the Roads of the City of Santiago. For purposes of these separate financial statements, this payment is recognized as deferred income to be amortized on a straight-line basis against operating profit up to the termination of the Concession Agreement in force in October 2018, as required in Letter No.6484 issued on March 7, 2014 by the SVS.

Concept Currency

December 31, 2016 December 31, 2015

Current Non-

current Current

Non-current

Deferred revenue Ch$ 1,047,404 872,837 1,047,404 1,920,242

Closing balance 1,047,404 872,837 1,047,404 1,920,242



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NOTE 21 – SHARE CAPITAL 21.1 Share capital The Company’s subscribed and paid capital amounts to ten million five hundred sixty-six thousand seventy-four (ThCh$10,566,074) which is divided into thirty-six thousand five hundred thirty-five shares (36,535), which are nominative, without par value and with the same series. The Company’s shares are distributed as follows: 21.2 Dividend policy In conformity with Article No.79 of the Corporate Act and unless otherwise unanimously agreed by the shareholders, the public companies are obligated to pay to their shareholders a mandatory minimum cash dividend equivalent to 30% of the profit for the period in an amount proportional to the shares they own or as established by the by-laws should preferred shares exist, except if accumulated losses from prior periods have to be absorbed. The Company records accumulated losses during 2016 and 2015; therefore, no dividends were paid. 21.3 Capital management Capital management relates to the administration of the Company’s equity. Inversiones Alsacia S.A. and subsidiary’ capital management has the purpose of maintaining a balance between the cash flows required to carry out its operations (complying with the Concession Agreement) and performing investments in assets that allow maintaining an operation compliance level covering an adequate leverage level thus optimizing the return for shareholders and maintaining a conservative financial position. The Company manages liquidity by following conservative policies and complying with the conditions established in the bond issuance contract. Under these policies, investment are made only in banks or institutions with a rating of AA or higher and with maturities under 180 days. In conformity with the terms of the bond issuance contract, the Company is obligated to maintain a reserve including the funds required to cover 15 days of operating expenses and 1 month of investments in major bus maintenance (overhaul). In addition, these agreements require that the Company, beyond its own policies, maintain a responsible financial position, and the Company is also subject to restrictions to perform investments in property, plant and equipment and pay dividends. 21.4 Other reserves

As of December 31, 2016 and 2015, other reserves amount to ThCh$1,787,002.

Shareholders Paid shares Ownership

Carlos Ríos Velilla 1 0.003%

Global Public Services S.A. 36,534 99.997%

Total 36,535 100%



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NOTE 22 – FINANCIAL POSITION AND MANAGEMENT PLANS

a) Financial position

Inversiones Alsacia S.A. has had recurring net losses over the most recent financial years, and as of December 31, 2016 and 2015, it had a shareholders' deficit of ThCh$111,687,795 and ThCh$94,155,839, negative working capital of ThCh$208,584,989 and ThCh$23,541,660, and net losses of ThCh$17,531,956 and ThCh$48,462,482, respectively. Accordingly, the Company believes the existing economic imbalance under the terms of the concession agreement indicated below, has a direct impact on the Company’s economic sustainability. However, the Company has taken steps to resolve the disputes related to the concession agreement, which are currently outstanding against the Chilean Government. b) Economic imbalance of the concession agreement

The Company’s financial position comes from a recurring economic imbalance with respect to the concession agreement, for which on several occasions the Company has requested that Chilean Ministry of Transport and Telecommunications (MTT) adopts measures intended to its reestablishment, but the MTT has not responded to such requests. From the formal recognition of insufficient fleet by the Authority, the Company has drafted a work schedule to express its discrepancies before the Experts' Panel, within the framework of the 2016 scheduled review, which has been recently completed resulting in a favorable opinion from such Panel with respect to several aspects of the concession agreement which have been addressed by the Ministry, beginning on April 1, 2017 exceptional reviews of the economic conditions established in the concession. On March 16, 2017, the Company filed the preliminary background for the exceptional review and technical meetings, required by the MTT through Official Communications Nos. 500, 501 and 512, where all the aspects that should be resolved were exposed by the authority for achieving such balance. This communication clearly states the rights and obligations which, within the interdependence framework inherent to the public-private relationship established in the public service concession agreement and the agreement for the use of roads, the Government has disregarded despite the fact that such agreement establishes as basic principles the contractual balance and the economic sustainability of the Concessionaire at short and long-term as basic principles, such agreement also establishes that, during its execution, the parties may agree on the amendments necessary and leading to a better satisfaction of the public transport needs of Santiago. The concession agreement is subject to the two purposes that give meaning to its performance: the maintaining of economic balance and service continuity. Crucial factors that have permanently and structurally affected the Company’s economic balance are detailed as follows:

1) 1- No control on evasion. Evasion has become a structural pitfall for Transantiago operating

companies, and such issue has increased since the implementation of the system through the present date. In accordance with the official measurement figures reported by the Chilean Government, evasion in the system has increased from 19.9% in late 2012 to 30.6% in 2016, compared to 28% at Alsacia. Control has been considerably weak and critical for the concessionaires’ economic balance.

2) 2.- Insufficient fleet. The authority has recognized that the fleet is insufficient by 7% to comply with the Semiannual Operating plan required by the MTT. However, semiannual Operating Plans continue to show no changes disregarding such situation, which seriously affects the Company’s management ratios and directly result in lower validations, a significant increase in discounts and the impairment of operations.



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NOTE 22 – FINANCIAL POSITION AND MANAGEMENT PLANS, continued In addition, the reserve fleet authorized insufficiently covers our operations. 3) Age and condition of fleet. The Company’s fleet is the oldest in the system, where most buses were

introduced during 2005 and 2006. This situation has not been acknowledged by Government Authorities in weighing operational requirements, as well as in their approved reserve fleet and cost indexation factors, in spite of the significant impact of such situation on the Company’s indicators and compliance with the Operational Plan, and incremental costs for a proper maintenance. This is aggravated by the constant vandalism to which the Company is exposed due to a lack of public policies to safeguard the fleet’s operations, which has worsened its condition and has resulted in additional efforts for the Company’s operating and maintenance programs.

4) Inadequate mechanism for adjusting revenue to the behavior of operating costs. The Cost Adjustment Mechanism (MAC) has not been adjusted to be consistent with the reality faced by the industry, and continues to calculate and weigh costs in a manner which differs from what the Company has been confronted with. This situation has also adversely impacted the Company’s level of operating costs, because it does not have an adequate compensation mechanism.

5) PPT adjustment by IPK mechanism. The systematic decline in the demand for the system has

evidenced the need for making an adjustment to maintain the revenue levels needed to face the operation of the services. The three-year gap generates a loss of revenue which is not recovered. The aforementioned is particularly sensitive as the final close of the PPT review process for 2014 is still pending

6) Discount level and technical feasibility for compliance with the indicators. The agreement establishes discounts in accordance with operational performance, which as explained in sections 2 and 3 above, are technically unfeasible to comply with, which resulted in ThCh$7,290,447 as of 2016, and accelerated the agreement’s economic imbalance.

7) Illegal reduction in the number of services. During 2016, the Authorities established as measure in order to solve the lack of fleet expressly recognized by it, to reduce the number of the Company's services to reassign them to other companies in the system. This illegal measure and not included in the contract negatively increases the imbalance of the concession; therefore, a lawsuit was filed at the appropriate authorities.

c) Disputes with respect to the concession agreement pending resolution with the Chilean

Government In conformity with that indicated above, the Company has filed a number of claims with Government Authorities aimed at the reestablishing of economic and operating conditions which would allow the sustainability for provisioning public transport services to passengers. Additionally, the Company has been involved in direct discussions with the authorities to outline the agreements necessary to ensure the Company’s operating continuity. The outcome of such discussions are still pending.

These controversies refer to the following:

1) Paid zones. The Company has requested the Government to reverse its decision to end its

administration of paid zones, as this is the only mechanism which to date has proved to be efficient to control evasion. The abandonment of this procedure by the Ministry implies a breach of the concession agreement, which establishes a joint task for controlling evasion, and has an impact on the Company’s revenue.



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NOTE 22 – FINANCIAL POSITION AND MANAGEMENT PLANS, continued 2) Fleet. As previously mentioned, Government Authorities have not established a mechanism to allow

the Company to address the insufficiency of its fleet as formally acknowledged during 2016.

3) Amendment of the Operations Plan for the first half of 2017. For the fifth consecutive semester, the Company has requested that the Ministry adjusts the Operations Plan to make feasible that it provides its services, considering the number of buses needed to cover such services as acknowledged by the authorities. During the last two semiannual periods, such amendments have not been approved.

d) PPT 2014 review process. As explained above, the close of the PPT 2014 review process is still pending, because of the abstention by the Experts’ Panel to provide its view on PPT as reference to calculate the adjustment and with respect to the impact of the evasion control on demand, which has been formally reiterated to the Ministry in the Company’s 2016 request for review.

e) Discount challenges. A number of resources and challenges are still pending resolution by the authorities, through which the Company claims the underapplication of discounts, determined based on operating indicators and requirements which are not consistent with the actual number and conditions of the Company’s buses.

NOTE 23 – REVENUE As of December 31, 2016 and 2015, revenue is detailed as follows:

Revenue corresponds mainly to the payment of services associated with the Concession Agreement and the lease of static and dynamic advertising in buses. The revenue related to the indemnity received as a result of the early termination of the Concession Agreement are recognized as the deferred revenue is amortized on a straight-line basis as discussed in Note 20, Other non-financial liabilities.

Revenue


ThCh$ ThCh$

Collection Troncal No. 1 82,839,485 86,277,947

Indemnity for early termination of Concession Agreement 1,047,404 1,047,404

Static and dynamic advertising in buses 425,966 520,622

Total revenue 84,312,855 87,845,973



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NOTE 24 – COST OF SALES

As of December 31, 2016 and 2015, the cost of sales is as follows: December 31, December 31, 2016 2015 Cost of sales ThCh$ ThCh$

Salaries and benefits (1) (27,458,198) (30,091,770)

Operating costs (30,008,239) (33,034,933)

Operating leases (2) (834,376) (804,596)

Disposal of assets (overhaul) (236,483) (365,596)

General expenses (3,429,627) (3,564,278)

Amortization and depreciation (5,481,520) (5,467,460)

Total cost of sales (67,448,443) (73,328,633)

(1) As of December 31, 2016 and 2015, the Company's headcount was 3,315 and 3,354 employees, respectively.

(2) Operating leases

Operating costs include the lease of bus fleet for performing its business activities. As of December 31, 2016 and 2015, future minimum lease payments associated with operating leases are detailed as follows:

Maturity 2017 2018 TotalOperating leases ThCh$ ThCh$ ThCh$

Bus leases 901,012 750,843 1,651,855

Total 901,012 750,843 1,651,855

The Company leases a bus fleets under operating lease agreements. Leases are usually in effect until the termination of the concession agreement.

NOTE 25 – ADMINISTRATIVE EXPENSES

As of December 31, 2016 and 2015, administrative expenses are as follows: December 31, December 31, 2016 2015Administrative expenses ThCh$ ThCh$

Employee salaries and benefits (9,357,452) (5,494,264)

Bank commissions and expenses (41,650) (62,749)

General expenses (9,844,503) (10,288,483)

Amortization and depreciation (752,542) (581,836)

Total administrative expenses (19,996,147) (16,427,332)



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NOTE 26 – OTHER INCOME / OTHER EXPENSES PER FUNCTION As of December 31, 2016 and 2015, other income by function is as follows:

December 31, December 31, 2016 2015 Other income by function ThCh$ ThCh$

Reimbursement from suppliers - 567,202

Leases - 477,879

Indemnity for bus accidents 191,519 166,959

Recovery of expenses 107,061 212,084

Other income 46,267 440,114

Total other income by function 344,847 1,864,238 As of December 31, 2016 and 2015, other expenses by function are as follows: December 31, December 31, 2016 2015 Other expenses by type ThCh$ ThCh$

Other expenses (414,256) (40,507)

Withholding tax (535,696) (779,633)

Fine (140,209) (71,284)

Total other expenses by type (1,090,161) (891,424)

NOTE 27 – FINANCE INCOME As of December 31, 2016 and 2015, finance income is detailed as follows: December 31, December 31, 2016 2015Finance income ThCh$ ThCh$

Interest and adjustments on mutual funds and time deposits 105,755 73,366

MTM profit and hedge compensation 1,428,707 2,330,764

Interest on loan with related parties (1 and 2) 9,147,495 9,658,766

Total finance income 10,681,957 12,062,896 (1) The loan granted to Express de Santiago Uno S.A. was for US$198,709,385 and accrues interest at

an annual rate of 8.05% which is payable on a semi-annual basis. (2) The loan granted to Panamerican Investment was for US$72,118,294.94, accrues interest at an

annual rate of 8.05% and is payable on a single installment on August 20, 2018.



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NOTE 28 – FINANCE COSTS As of December 31, 2016 and 2015, finance costs are as follows:

December 31, December 31, 2016 2015Finance costs ThCh$ ThCh$

Finance interest (1) (28,749,853) (20,969,710)

Amortization of hedging agreement (1,991,924) (536,121)

Interest from banks and other financial institutions (381,580) (494,391)

Total finance costs (31,123,357) (22,000,222) (1) Balances as of December 31, 2016 include defaulted interest of US$ 761,788, equivalent to ThCh$ 509,994,

accrued, and acceleration costs of ThCh$7,442,781 related to obligations with banks and financial institutions, as well as accrued interest of ThUS$29,459 equivalent to ThCh$19,721,688 associated with the breach of conditions and/or covenants indicated in Note 16 a).

NOTE 29 – EARNINGS (LOSSES) PER SHARE


Disclosures about earnings (losses) per share ThCh$ ThCh$

Loss attributable to equity holders (17,531,956) (48,462,482)

Loss available to common shareholders, basic (17,531,956) (48,462,482)

Weighted average number of shares, basic 36,535 36,535

Loss per share (479.87) (1,326.47)

NOTE 30 – FOREIGN CURRENCY TRANSLATION DIFFERENCES As of December 31, 2016 and 2015, gains (losses) resulting from the translation of assets and liabilities in foreign currencies other than the functional currency were recognized in profit or loss as follows:

December 31, December 31, 2016 2015 Gains (losses) from translation of assets and liabilities in foreign currency

ThCh$ ThCh$

Assets in foreign currency - 22,974,102

Liabilities in foreign currency 5,547,412 (38,698,529)

Total foreign currency translation difference 5,547,412 (15,724,427)

NOTE 31 – CONTINGENCIES 31.1 Pledged shares The Company’s shares were pledged by its shareholders in favor of Banco Santander Chile as the custodian of the guarantees securing the issued bonds.



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NOTE 31 – CONTINGENCIES, continued

31.2 Direct guarantees The Company has mortgaged its main assets in favor of Banco Santander Chile as the custodian of the guarantees securing the issued bonds. 31.3 Guarantees from third parties At the reporting date, the Company have not received any significant guarantees from third parties. 31.4 Covenants As a bond issuer, the Company is obligated to comply with certain obligations and covenants that secure the issued bonds. Such obligations and covenants are as follows:

1) The Company needs to maintain its legal existence, rights, privileges, licenses and franchises

significant to carry out its activities. 2) The Company needs to comply with all the applicable laws, regulations and standards issued by any

Government authority, the timely payment of all taxes, and maintaining its assets in good operating conditions and insured.

3) The Company needs to maintain up to date all Government licenses, authorizations or permits

required to carry out its activities. 4) The Company must provide quarterly and annual financial statements and an activity analysis to

the bond holders.

5) The Company must provide periodical additional information regarding the financial evolution of its activities and the changes in reserve accounts in guarantee.

6) The Company is restricted to invest in property, plant and equipment; to enter into debts; to sell

property, plant and equipment; to pay dividends; and to perform transactions with related parties. 7) Minimum balance to be maintained in the Reserve O&M Account: the minimum required balance to

be maintained was changed from 1 month to 15 days of operating expenses.

8) Minimum balance to be maintained in the Reserve Overhaul Account: the minimum required balance to be maintained was changed from 6 months to 1 month of expenses.



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NOTE 31 – CONTINGENCIES, continued 31.5 Lawsuits During 2016 and 2015, civil and labor lawsuits have been filed against the Company related to its ordinary course of business. Civil lawsuits have been filed by third parties affected by damages, injury or death caused by the Company’s operations. Likewise, labor lawsuits have been filed by employees, former employees and unions, and correspond mainly to unjustified dismissals and the collection of amounts owed per employment contracts. Such lawsuits which are still in progress. As of December 31, 2016 and 2015, the Company has recognized a provision for ongoing legal claims based on opinions of its legal advisors as to probability of occurrence thereof, considering case-laws of previous cases (see Note 18). NOTE 32 – SUBSEQUENT EVENTS Between January 1, 2017 and the date of issuance of these financial statements, the following subsequent events have occurred: 32.1 Banco Internacional's lawsuit filed against Alsacia On February 10, 2017, the Company was notified of a civil lawsuit filed with the 30th Civil Court of Santiago, Case: C-29180-2016, on promissory note collection issued by Banco Internacional S.A. The aforementioned lawsuit intends to enforce compliance by the Company, as the main defendant, of the amount owed (calculated as of June 22, 2016) of UF 216,236.322. Additionally, the seizure of property on Huechuraba's Bus Terminal, on which a mortgage was constituted in favor of Banco Internacional, was put on hold and levied as assets subject to the concession.

32.2 Request to Begin the Debt Restructuring Process As of March 17, 2017, the Company had recourse to the Law on Reorganization and Liquidation of Companies and Individuals No. 20.720, formalizing the "Request to begin the debt restructuring process", which was communicated to the Chilean Superintendence of Securities and Insurance (SVS) on the same date. This process aims at restructuring all the Company's assets and liabilities to finally comply with its obligations. The Corporate Reorganization process is currently being processed by the Civil Court of Santiago, Case: C-5162-2017. This relates to the Company's inability of paying the Bond installments maturing on June 22, 2016 and December 22, 2016, due to insufficient resources to comply the operating and financial obligations resulting from the extremely delicate financial position, associated with the spiral of economic imbalance in its concession, generated by the reasons described in Note 22. The economic imbalance was notified to the Authority in a number of occasions, requesting the adoption of adequate measures and resulting in a number of pending claims and unresolved administrative appeals. Between January 1, 2017 and the date of issuance of these separate financial statements, there are no other subsequent events that might significantly affect the amounts presented in the financial statements, or the economic and/or financial position of the Company, that should be disclosed in the notes to the financial statements.

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