UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

¨

(Mark One)

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20142016

OR

 

¨
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨   SHELL COMPANY REPORT PURSUANT TO SECTION 23 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from  to

OR

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report_______________________________

For the transition period from   _____________to__________report

 

Commission file number33-65728

 

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

(Exact name of registrantRegistrant as specified in its charter)

 

CHEMICAL AND MINING COMPANY OF CHILE INC.

(Translation of registrant’sRegistrant’s name into English)

CHILE

(Jurisdiction of incorporation or organization)incorporation)

 

El Trovador 4285, 6th Floor,floor, Santiago, Chile +56 2 2425-20002425 2000

(Address of principal executive offices)

 

Gerardo Illanes +56 2 2425-2485gerardo.illanes@sqm.comEl Trovador 4285, 6th Floor,floor, Santiago, Chile

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

 

Securities registered or to be registered, pursuant to Section 12(b) of the Act.Act

Title of each className of each exchange on which registered
Series B shares, in the form of American Depositary Shares each
representing one Series B share
New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

NONENone

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONEAct

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.None

Series A shares142,819,552
Series B shares120,376,972

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in ruleRule 405 of the Securities Act:Act.    Yes  x    YESNo  ¨ NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange actAct of 1934:1934.     Yes  ¨    YESNo  x NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x   YESNo  ¨ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨    YESNo  ¨ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a nonan emerging growth company. See the definitions of “large accelerated filer. See definition offiler,” “accelerated filer, and large accelerated filer”“emerging growth company” in ruleRule 12b-2 of the Exchange Act.

x

Large accelerated filer  ¨x         Accelerated filer  ¨           Non- acceleratedNon-accelerated filer¨           Emerging growth company  ¨

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.¨

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨ U.S. GAAPT

International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other

by the International Accounting Standards Board  x

Other  ¨

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

Indicate by check mark which financial statement item the registrant has elected to follow. ¨    Item 17  x    Item 18¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):.    Yes  ¨    YESNo  x NO

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of business covered by the annual report.  

Series A Shares142,819,552
 
 
Series B Shares120,376,972

 

TABLE OF CONTENTS

Page

 

Page
PRESENTATION OF INFORMATIONiiiv
GLOSSARYiiiv
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSv
PART I1vii
   
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS1
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE1
ITEM 3.KEY INFORMATION1
ITEM 4.INFORMATION ON THE COMPANY2421
ITEM 4A.UNRESOLVED STAFF COMMENTS67
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS7068
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES88
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS102
ITEM 8.FINANCIAL INFORMATION104105
ITEM 9.THE OFFER AND LISTING110113
ITEM 10.ADDITIONAL INFORMATION112115
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK126128
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES127
PART II129
130
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES129131
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS129131
ITEM 15.CONTROLS AND PROCEDURES129131
ITEM 16.RESERVED[Reserved]130132
ITEM 16.A16A.AUDIT COMMITTEE FINANCIAL EXPERT130132
ITEM 16.B16B.CODE OF ETHICS131132
ITEM 16.C16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES131132
ITEM 16.D16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES132133
ITEM 16.E16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUERSISSUER AND AFFILIATED PURCHASERS132133
ITEM 16.FCHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT132
ITEM 16.G16G.CORPORATE GOVERNANCE132133
ITEM 16.H16H.MINE SAFETY AND DISCLOSURE132
PART III133
ITEM 17.FINANCIAL STATEMENTS133134
ITEM 18.FINANCIAL STATEMENTS133134
ITEM 19.EXHIBITS133134
SIGNATURES134136
  
CONSOLIDATED FINANCIAL STATEMENTSF-3137
EXHIBIT 1.1 
EXHIBIT 8.1 
EXHIBIT 12.1 
EXHIBIT 12.2 
EXHIBIT 13.1 
EXHIBIT 13.2 
EXHIBIT 23.1 
EXHIBIT 23.2 
EXHIBIT 23.3 
EXHIBIT 99.1 
EXHIBIT 99.2 
EXHIBIT 99.3 
EXHIBIT 99.4

 

i

iii 

 

PRESENTATION OF INFORMATION

 

In this Annual Report on Form 20-F, except as otherwise provided or unless the context requires otherwise, all references to “we,” “us,” “Company” or “SQM” are to Sociedad Química y Minera de Chile S.A., an open stock corporation (sociedad anónima abierta) organized under the laws of the Republic of Chile, and its consolidated subsidiaries.

 

All references to “$,” “US$,” “U.S. dollars,” “USD” and “dollars” are to United States dollars, references to “pesos,” “CLP” and “Ch$” are to Chilean pesos, references to ThUS$ are to thousands of United States dollars, references to ThCh$ are to thousands of Chilean pesos and references to “UF” are toUnidades de Fomento. The UF is an inflation-indexed, peso-denominated unit that is linked to, and adjusted daily to reflect changes in, the previous month’s Chilean consumer price index. As of December 31, 2014,2016, UF 1.00 was equivalent to US$40.5939.49 and Ch$24,627.1026,347.98 according to the Chilean Central Bank (Banco Central de Chile). As of May 11, 2015,April 20, 2017, UF 1.00 was equivalent to US$40.8840.96 and Ch$24,808.81.26,528.10.

 

The Republic of Chile is governed by a democratic government, organized in fourteen regions plus the Metropolitan Region (surrounding and including Santiago, the capital of Chile). Our production operations are concentrated in northern Chile, specifically in the Tarapacá Region and in the Antofagasta Region.

 

Our fiscal year ends on December 31. As December 31 is a publicbank holiday in Chile, certain financial information is reflected as of December 30, 2014.2016.

 

We use the metric system of weights and measures in calculating our operating and other data. The United States equivalent units of the most common metric units used by us are as shown below:

 

1 kilometer equals approximately 0.6214 miles

 

1 meter equals approximately 3.2808 feet

 

1 centimeter equals approximately 0.3937 inches

 

1 hectare equals approximately 2.4710 acres

 

1 metric ton (“MT”) equals 1,000 kilograms or approximately 2,205 pounds.

 

We are not aware of any independent, authoritative source of information regarding sizes, growth rates or market shares for most of our markets. Accordingly, the market size, market growth rate and market share estimates contained herein have been developed by us using internal and external sources and reflect our best current estimates. These estimates have not been confirmed by independent sources.

 

Percentages and certain amounts contained herein have been rounded for ease of presentation. Any discrepancies in any figure between totals and the sums of the amounts presented are due to rounding.

 

GLOSSARY

 

assay values” Chemical result or mineral component amount contained by the sample.

 

average global metallurgical recoveries” Percentage that measures the metallurgical treatment effectiveness based on the quantitative relationship between the initial product contained in the mine-extracted material and the final product produced in the plant.

 

average mining exploitation factor” Index or ratio that measures the mineral exploitation effectiveness, based on the quantitative relationship between (in-situ mineral minus exploitation losses) / in-situ mineral.

 

CAGR” Compound annual growth rate, the year over year growth rate of an investment over a specified period of time.

 

cash and cash equivalents”The International Accounting Standards Board (IASB) defines cash and cash equivalents as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

Controller Group”* A person or company or group of persons or companies that according to Chilean law, have executed a joint performance agreement, that have a direct or indirect share in a company’s ownership and have the power to influence the decisions of the company’s management.

 

ii

Corfo” Production Development Corporation (Corporación de Fomento de la Producción), formed in 1939, a national organization in charge of promoting Chile’s manufacturing productivity and commercial development.

iv 

 

cut-off grade” The minimal assay value or chemical amount of some mineral component above which exploitation is economical.

 

dilution” Loss of mineral grade because of contamination with barren material (or waste) incorporated in some exploited ore mineral.

 

exploitation losses” Amounts of ore mineral that have not been extracted in accordance with exploitation designs.

 

fertigation” The process by which plant nutrients are applied to the ground using an irrigation system.

 

geostatistical analysis” Statistical tools applied to mining planning, geology and geochemical data that allow estimation of averages, grades and quantities of mineral resources and reserves.

 

heap leaching” A process whereby minerals are leached from a heap, or pad, of ROM (run of mine) ore by leaching solutions percolating down through the heap and collected from a sloping, impermeable liner below the pad.

 

horizontal layering” Rock mass (stratiform seam) with generally uniform thickness that conform to the sedimentary fields (mineralized and horizontal rock in these cases).

 

hypothetical resources” Mineral resources that have limited geochemical reconnaissance, based mainly on geological data and samples assay values spaced between 500–1000 meters.

 

Indicated Mineral Resource” See “Resources—Indicated Mineral Resource.”

 

Inferred Mineral Resource” See “Resources—Inferred Mineral Resource.”

 

industrial crops” Refers to crops that require processing after harvest in order to be ready for consumption or sale. Tobacco, tea and seed crops are examples of industrial crops.

 

Kriging Method”A technique used to estimate ore reserves, in which the spatial distribution of continuous geophysical variables is estimated using control points where values are known.

 

“LIBOR”London Inter Bank Offered Rate.

 

limited reconnaissance” Low or limited level of geological knowledge.

 

Measured Mineral Resource” See “Resources—Measured Mineral Resource.”

 

metallurgical treatment” A set of chemical and physical processes applied to the caliche ore and to the salar brines to extract their useful minerals (or metals).

 

ore depth” Depth of the mineral that may be economically exploited.

 

ore type” Main mineral having economic value contained in the caliche ore (sodium nitrate or iodine).

 

ore” A mineral or rock from which a substance having economic value may be extracted.

 

Probable Mineral Reserve” See “Reserves—Probable Mineral Reserve.”

 

Proven Mineral Reserve” See “Reserves—Proven Mineral Reserve.”

 

Reserves—Probable Mineral Reserve”** The economically mineable part of an Indicated Mineral Resource and, in some circumstances, Measured Mineral Resource. The calculation of the reserves includes diluting of materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified. A Probable Mineral Reserve has a lower level of confidence than a Proved Mineral Reserve.

 

Reserves—Proven Mineral Reserve” ** The economically mineable part of a Measured Mineral Resource. The calculation of the reserves includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

 

iii

 

Resources—Indicated Mineral Resource” ** The part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. The calculation is based on detailed exploration, sampling and testing information gathered through appropriate sampling techniques from locations such as outcrops, trenches and exploratory drill holes. The locations are too widely or inappropriately spaced to confirm geological continuity and/or grade continuity but are spaced closely enough for continuity to be assumed. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource, but has a higher level of confidence than that applying to an Inferred Mineral Resource.

 

A deposit may be classified as an Indicated Mineral Resource when the nature, quality, amount and distribution of data are such as to allow the Competent Person, as that term is defined under Chilean Law Number 20,235, determining the Mineral Resource to confidently interpret the geological framework and to assume continuity of mineralization. Confidence in the estimate is sufficient to allow the appropriate application of technical and economic parameters and to enable an evaluation of economic viability.

 

Resources—Inferred Mineral Resource” ** The part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence, by inferring them on the basis of geological evidence and assumed but not verified geological and/or grade continuity. The estimate is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes, and this information is of limited or uncertain quality and/or reliability. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource.

 

Resources—Measured Mineral Resource” ** The part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. The estimate is based on detailed exploration, sampling and testing information gathered through appropriate sampling techniques from locations such as outcrops, trenches and exploratory drill holes. The locations are spaced closely enough to confirm geological and/or grade continuity.

 

A deposit may be classified as a Measured Mineral Resource when the nature, quality, amount and distribution of data are such as to leave no reasonable doubt, in the opinion of the Competent Person, as that term is defined under Chilean Law Number 20,235, determining the Mineral Resource, that the tonnage and grade of the deposit can be estimated within close limits and that any variation from the estimate would not significantly affect potential economic viability. This category requires a high level of confidence in, and understanding of, the geology and controls of the mineral deposit. Confidence in the estimate is sufficient to allow the appropriate application of technical and economic parameters and to enable an evaluation of economic viability.

 

Resources—Mineral Resource” ** A concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth’s crust in such form or quantity and of such grade or quality that it has reasonable prospects for economically viable extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological, metallurgical and technological evidence.

 

solar salts”A mixture of 60% sodium nitrate and 40% potassium nitrate used in the storage of thermo-energy.

 

vat leaching” A process whereby minerals are extracted from crushed ore by placing the ore in large vats containing leaching solutions.

 

waste” Rock or mineral which is not economical for metallurgical treatment.

 

Weighted average age” The sum of the product of the age of each fixed asset at a given facility and its current gross book value as of December 31, 20142016 divided by the total gross book value of the Company’s fixed assets at such facility as of December 31, 2014.2016.

 

*The definition of a Controller Group that has been provided is the one that applies to the Company. Chilean law provides for a broader definition of a Controller Group.
**The definitions we use for resources and reserves are based on those provided by the “Instituto de Ingenieros de Minas de Chile” (Chilean Institute of Mining Engineers).

 

iv

vi 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 20-F contains statements that are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not based on historical facts and reflect our expectations for future events and results. Words such as “believe,” “expect,” “predict,” “anticipate,” “intend,” “estimate,” “should,” “may,” “likely,” “could” or similar expressions may identify forward-looking information. These statements appear throughout this Form 20-F and include statements regarding the intent, belief or current expectations of the Company and its management, including but not limited to any statements concerning:

 

·trends affecting the prices and volumes of the products we sell;
·level of reserves, quality of the ore and brines, and production levels and yields;
·our capital investment program and development of new products;
·the future impact of competition; and
·regulatory changes.

 

Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements included in this Form 20-F, including, without limitation, the information under Item 4. Information on the Company, Item Number 5. Operating and Financial Review and Prospects and Item 11. Quantitative and Qualitative Disclosures About Market Risk. Factors that could cause actual results to differ materially include, but are not limited to:

 

·volatility of global prices for our products;
·political, economic and demographic developments in certain emerging market countries, where we conduct a large portion of our business;
·changes in production capacities;
·the nature and extent of future competition in our principal markets;
·our ability to implement our capital expenditures program, including our ability to obtain financing when required;
·changes in raw material and energy prices;
·currency and interest rate fluctuations;
·risks relating to the estimation of our reserves;
·changes in quality standards or technology applications;
·adverse legal, regulatory or labor disputes or proceedings;
·changes in governmental regulations; and
·additional factors discussed below under Item 3. Key Information—Risk Factors.

 

v

vii 

 

PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not Applicable.

 

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable.

 

ITEM 3.    KEY INFORMATION

 

3.A. Selected Financial Data

The following table presents selected financial data as of and for the years ended December 31, 2016, 2015, 2014, 2013, and the previous four years.2012. The selected financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto, “Item 5. Operating and Financial Review and Prospects” and other financial information included herein.

 

Since January 1, 2010, the Company��s Consolidated Financial Statements have been prepared in accordance with the International Financial Reporting Standards as published by the International Accounting Standards Board (IASB).

  As of and for the year ended December 31, 

(in millions of US$)(1)

 2016  2015  2014  2013  2012 
Statement of income:                    
Revenues  1,939.3   1,728.3   2,014.2   2,203.1   2,429.2 
Cost of sales  (1,328.3)  (1,185.6)  (1,431.2)  (1,481.7)  (1,400.6)
Gross profit  611.0   542.7   583.0   721.5   1,028.6 
                     
Other income(2)  14.8   15.3   24.1   96.7   12.7 
Administrative expenses  (88.4)  (86.8)  (96.5)  (105.2)  (106.4)
Other expenses(3)(4)(5)  (89.7)  (106.4)  (64.3)  (49.4)  (34.6)
Other gains (losses)  0.7   3.8   4.4   (11.4)  0.7 
Finance income  10.6   11.6   16.1   12.7   29.1 
Finance expenses  (57.5)  (69.9)  (63.4)  (58.6)  (54.1)
Equity income of associates and joint ventures accounted for using the equity method  13.0   10.3   18.1   18.8   24.4 
Foreign currency exchange differences  0.4   (12.4)  (16.5)  (12.0)  (26.8)
Income before income tax expense(3)  414.9   308.3   405.0   613.1   873.5 
                     
Income tax expense(6)  (133.0)  (83.8)  (160.7)  (138.5)  (216.1)
                     
Profit for the year(3)(6)  281.9   224.5   244.3   474.6   657.4 
Profit attributable to:                    
Controlling interests(3)(6)  278.3   220.4   236.9   467.1   649.2 
Non-controlling interests  3.6   4.2   7.4   7.5   8.2 
Profit for the year(3) (6)  281.9   224.5   244.3   474.6   657.4 
                     
Basic earnings per share(7)  1.06   0.84   0.90   1.77   2.47 
Basic earnings per ADS(8)(9)  1.06   0.84   0.90   1.77   2.47 
Dividends per share(9)(10)(11)  1.44   0.47   1.42   1.04   1.25 
Dividends per ADS(10)(11)(12)  1.44   0.47   1.42   1.04   1.25 
Weighted average(7)(8)shares outstanding (000s)  263,197   263,197   263,197   263,197   263,197 

 

  As of and for the year ended December 31, 
(in millions of U.S. dollars)(1) 2014  2013  2012  2011  2010 
                
Statement of income:               
Revenues  2,014.2   2,203.1   2,429.2   2,145.3   1,830.4 
Cost of sales  (1,431.2)  (1,481.7)  (1,400.6)  (1,290.5)  (1,204.4)
                     
Gross profit  583.0   721.5   1,028.6   854.8   626.0 
                     
Other income  24.1   96.7   12.7   47.7   6.5 
Administrative expenses  (96.5)  (105.2)  (106.4)  (91.8)  (78.8)
Other expenses(2)  (64.3)  (49.4)  (34.6)  (63.0)  (36.2)
Other gains (losses)  4.4   (11.4)  0.7   5.8   (7.0)
Finance income  16.1   12.7   29.1   23.2   12.9 
Finance expenses  (63.4)  (58.6)  (54.1)  (39.3)  (35.0)
Equity income of associates and joint ventures accounted for using the equity method  18.1   18.8   24.4   21.8   10.7 
Foreign currency exchange differences  (16.5)  (12.0)  (26.8)  (25.3)  (5.8)
                     
Income before income tax expense(2)  405.0   613.1   873.5   733.8   493.3 

(1)Except shares outstanding, dividend and net earnings per share and net earnings per ADS.

 

  As of and for the year ended December 31,
(in millions of U.S. dollars)(1) 2014 2013 2012 2011 2010
           
Income tax expense(3)  (160.7)  (138.5)  (216.1)  (179.7)  (106.0)
                     
Profit for the year(2)(3)  244.3   474.6   657.4   554.1   387.3 
Profit attributable to:                    
Controlling interests(2)(3)  236.9   467.1   649.2   545.8   382.1 
Non-controlling interests  7.4   7.5   8.2   8.4   5.1 
Profit for the year(2)(3)  244.3   474.6   657.4   554.1   387.3 
                     
Basic earnings per share(4)  0.90   1.77   2.47   2.07   1.45 
Basic earnings per ADS(5)(6)  0.90   1.77   2.47   2.07   1.45 
Dividends per share(6)(7)(8)  1.42   1.04   1.25   1.04   0.66 
Dividends per ADS(7)(8)  1.42   1.04   1.25   1.04   0.66 
Weighted average(4)(5)shares outstanding (000s)  263,197   263,197   263,197   263,197   263,197 

1

 

(1) Except shares outstanding, dividend and net earnings per share and net earnings per ADS.

 

(2) The 2014 figure includes provisions of approximately US$7 million corresponding to payments made in 2015 to the Chilean Internal Revenue Service (Servicio de Impuestos Internosor “SII”) for expenses that may not have qualified as tax expenses under the Chilean tax code. Such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements filed with the Chilean Superintendence of Securities and Insurance (Superintendencia de Valores y Segurosor “SVS”). Therefore, this amount was not reflected in these statutory consolidated financial statements. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks as a result of ongoing investigations by the Chilean Internal Revenue Service and the Chilean Public Prosecutor in relation to certain payments of invoices made by SQM between the tax years 2009 and 2014.”

(2)Other income for 2013 includes US$84 million for the sale of royalties for the Antucoya mining project. After taxes, this sale had a one-time effect of US$67 million on profit for the year.
(3)Other expenses for 2014 includes provisions of approximately US$7 million corresponding to payments made in 2015 to the Chilean Internal Revenue Service (Servicio de Impuestos Internos or “SII”) for expenses that may not have qualified as tax expenses under the Chilean tax code. However, since such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements filed with the Chilean Superintendence of Securities and Insurance (Superintendencia de Valores y Seguros or “SVS”), such provisions were included in net income for the period ended December 31, 2015 for purposes of the Company’s statutory consolidated financial statements. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks in Chile as a result of ongoing investigations by the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 2015.”
(4)Other expenses for 2015 include a charge of US$57.7 million for impairment and severance indemnities related to the restructuring of our Pedro de Valdivia operations.
(5)Other expenses for 2016 includes a charge of US$32.8 million for impairment related to the closing of the train between Coya Sur and Tocopilla. Other expenses for 2016 also includes charges of approximately US$30.5 million for impairment related to the Company's agreement with the U.S. Department of Justice and the administrative cease and desist order issued by the U.S. Securities and Exchange Commission in connection the inquiries arising out of the alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks in Chile as a result of ongoing investigations by the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 2015” and “Item 8.A.7 Legal Proceedings.”
(6)In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have been applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity as of December 31, 2014 was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit and income tax expense in 2014 as presented in the Company’s Audited Consolidated Financial Statements compared with profit and income tax expense presented in the Company’s statutory consolidated financial statements filed with the SVS. The effects of subsequent changes in the income tax rate will be recognized in profit or loss for the period in the Company’s statutory consolidated financial statements in accordance with IAS 12.
(7)The Company has not conducted any transaction that would give rise to a potential dilutive effect on its earnings per share in any of the indicated years. The total number of outstanding shares as of each period end is the same as the weighted average shares outstanding.
(8)The calculation of earnings per ADSs and dividends per ADS for the years indicated is based on the ratio of 1:1.
(9)Dividends per share are calculated based on 263,196,524 shares for each of the years indicated.
(10)Dividends are paid from net income as determined in accordance with SVS regulations. See “Item 8.A. Dividend Policy.” For dividends in Ch$, see “Item 8.A. Dividend Policy—Dividends.”
(11)Dividend amount paid per calendar year to shareholders of the Company. See “Item 8.A. Dividend Policy.”
(12)Dividend amounts per share paid in Chilean pesos were Ch$936.15 in 2016, Ch$316.06 in 2015, Ch$806.79 in 2014, Ch$536.16 in 2013 and Ch$604.59 in 2012.

 

(3) In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have been applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit for the year and income tax expense as presented in the Company’s Audited Consolidated Financial Statements and as presented in its statutory consolidated financial statements filed with the SVS. Subsequent amendments will be recognized in profit or loss for the period in the Company’s statutory consolidated financial statements in accordance with IAS 12.

  As of and for the year ended December 31, 
(in millions of US$) 2016  2015  2014  2013  2012 
Balance sheet data:                    
Total assets  4,218.6   4,643.8   4,663.7   4,767.6   4,416.4 
Total liabilities  1,911.4   2,243.4   2,371.1   2,335.4   2,229.0 
Total equity  2,307.3   2,400.4   2,292.5   2,432.2   2,187.4 
Equity attributable to controlling interests  2,246.1   2,339.8   2,232.6   2,376.6   2,132.8 
Equity attributable to non-controlling interest  61.2   60.6   59.9   55.6   54.7 
Capital stock  477.4   477.4   477.4   477.4   477.4 

 

(4) The Company has not conducted any type of transaction that would give rise to a potential dilutive effect on its earnings per share. The total number of outstanding shares as of each period end is the same as the weighted average shares outstanding.

2

 

(5) The calculation of earnings per ADSs and dividends per ADS is based on the ratio of 1:1.

(6) Dividends per share are calculated based on 263,196,524 shares for the periods ended December 31, 2014, 2013, 2012, 2011 and 2010.

(7) Dividends are paid from net income as determined in accordance with SVS regulations. See “Item 8.A. Dividend Policy.” For dividends in Ch$, see “Item 8.A. Dividend Policy—Dividends.”

(8) Dividend amount paid per calendar year to shareholders of the Company. See “Item 8.A. Dividend Policy.”

  As of and for the year ended December 31, 
(in millions of U.S. dollars) 2014  2013  2012  2011  2010 
Balance Sheet Data:                    
Total assets  4,663.7   4,767.6   4,416.4   3,871.6   3,372.8 
Total liabilities  2,371.1   2,335.4   2,229.0   2,007.2   1,702.0 
  As of and for the year ended December 31, 
(in millions of U.S. dollars) 2014  2013  2012  2011  2010 
Total equity  2,292.5   2,432.2   2,187.4   1,864.4   1,670.8 
Equity attributable to controlling interests  2,232.6   2,376.6   2,132.8   1,812.8   1,622.8 
Equity attributable to non-controlling interest  59.9   55.6   54.7   51.5   48.0 
Capital stock  477.4   477.4   477.4   477.4   477.4 

 

EXCHANGE RATES

 

Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) in which we conduct our transactions, and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market comprises banks and other entities authorized by the Chilean Central Bank. The Informal Exchange Market comprises entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Chilean Central Bank is empowered to determine that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market.

 

Both the Formal Exchange Market and the Informal Exchange Market are driven by free market forces. Current regulations require that the Chilean Central Bank be informed of certain transactions and that these transactions be effected through the Formal Exchange Market.

 

The Observed Exchange Rate (dólar observado), which is reported by the Chilean Central Bank and published daily in the Chilean newspapers, is computed by taking the weighted average of the previous business day’s transactions on the Formal Exchange Market. The Chilean Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range. During the past few years the Chilean Central Bank has intervened to attempt to maintain the Observed Exchange Rate within a certain range only under special circumstances. Although the Chilean Central Bank is not required to purchase or sell U.S. dollars at any specific exchange rate, it generally uses spot rates for its transactions. Other banks generally carry out authorized transactions at spot rates as well.

 

The Informal Exchange Market reflects transactions carried out at an informal exchange rate (the “Informal Exchange Rate”). There are no limits imposed on the extent to which the Informal Exchange Rate can fluctuate above or below the Observed Exchange Rate. In recent years, the variations between the Observed Exchange Rate and the Informal Exchange Rate have not been significant.

 

The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

 

The U.S. dollar is our functional currency. However, unless otherwise indicated, any amounts translated into U.S. dollars from Chilean pesos were translated using the Observed Exchange Rate for December 31, 2014,2016, which was Ch$606.75669.47 per US$1.00. As of May 11, 2015April 20, 2017 the Observed Exchange Rate was US$1.00 per Ch$606.92.647.68.

Observed Exchange Rate(1)
 
     Ch$ per US$       
             
Year Low(1)  High(1)  Average(1)(2)  Year/Month
End(3)
 
             
2010  468.01   549.17   510.22   468.01 
2011  455.91   533.74   483.57   519.20 
2012  469.65   519.69   486.59   479.96 
2013  466.50   533.95   495.18   524.61 
2014  527.53   621.41   570.34   606.75 
             
Last six months Low (1)  High (1)  Average (1)(2)  Year/Month
End (3)
 
2014                
November  580.62   605.46   593.91   605.46 
December  606.75   621.41   612.98   606.75 
2015                
January  612.47   632/03  622.11   632.03 
February  616.86   632.19   622.95   618.76 
March  617.38   642.18   628.86   626.58 
April  606.39   621.10   614.00   611.28 
May (through May 11, 2015)  605.77   614.48   609.75   606.92 

3

Observed Exchange Rate(1)

 
(Ch$ per US$)            
             
Year Low(1)  High(1)  Average(1)(2)  Year/Month
End(3)
 
             
2012  469.65   519.69   486.59   479.96 
2013  466.50   533.95   495.18   524.61 
2014  527.53   621.41   570.34   606.75 
2015  597.10   715.66   654.66   710.16 
2016  645.22   730.31   676.83   669.47 

Last six months Low(1)  High(1)  Average(1)(2)  Year/Month
End(3)
 
             
2016                
October  651.65   670.88   663.92   651.65 
November  650.72   679.24   666.12   675.48 
December  649.40   677.11   667.17   669.47 
2017                
January  648.31   673.36   661.19   648.87 
February  638.35   646.97   643.21   645.19 
March  648.88   669.52   661.20   662.66 

 

Source: Central Bank of Chile

 

(1)Reflects high and low rates on a day-to-day basis, for each period reported.

(2)The monthly average rate is calculated on a day-to-day basis for each month reported. The yearly average rate is calculated on a month-to-month basis for each year reported.

(3)Based on transactions observed during the last day of the period.

 

3.B. Capitalization and Indebtedness

Not applicable.

 

3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

3.D. Risk Factors

 

Our operations are subject to certain risk factors that may affect SQM’s business, financial condition, cash flows, or results of operations. In addition to other information contained in this Annual Report on Form 20-F, you should carefully consider the risks described below. These risks are not the only ones we face. Additional risks not currently known to us or that are known but we currently believe are not significant may also affect our business operations. Our business, financial condition, cash flows or results of operations could be materially affected by any of these risks.

 

4

Risks Relating to our Business

 

We could be subject to numerous risks in Chile as a result of ongoing investigations by the Chilean Internal Revenue Service and the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 20142015

 

The SII has been conducting tax investigations related to the payment of invoices by companies, including SQM and its subsidiaries, SQM Salar S.A. and SQM Industrial S.A., for services that may not have been properly supported.supported or that may not have been necessary to generate corporate income. The Chilean Public Prosecutor (Ministerio Público) has beenis conducting related inquiries to determine whether such payments may be linked with alleged violations by SQM, these subsidiaries and public officials of political contribution laws involving a varietyor anti-corruption laws. The SII and the Chilean Public Prosecutor are also conducting similar investigations related to the payment of invoices by other Chilean companies including SQM, and government officials.that may not have been properly supported or that may not have been necessary to generate corporate income.

On February 26, 2015, SQM’s Board of Directors resolved to establish an ad-hoc committee of the Board of Directors (the “ad-hoc Committee”) authorized to conduct an internal investigation relating to the issues referred to inthat were the above paragraphsubject of the SII and Public Prosecutor investigations and to retain such independent external advice as it deemed appropriate. The original members of the ad-hoc Committee were José María Eyzaguirre B., Juan Antonio Guzmán M. and Wolf von Appen B.

 

The ad-hoc Committee has engaged its own lawyers from Chile and the United StatesU.S. and forensic accountants from the United StatesU.S. to assist as it proceeds with its internal review. The U.S. lawyers retained by the ad-hoc Committee were principally charged with reviewing the relevant facts and analyzing those facts against the requirements of the U.S. Foreign Corrupt Practices Act (FCPA). The factual findings of the ad-hoc Committee, however, were ultimately shared with Chilean as well as U.S. authorities.

 

On March 12, 2015, José María Eyzaguirre B. resigned from the ad-hoc Committee and his position was subsequently filled by Hernán Büchi B.

 

On March 16, 2015, the Board of Directors decided to terminate the employment contract of the Company’s formerthen- CEO, Patricio Contesse G. This followed his failure to cooperate with the ad-hoc Committee’s investigation.

 

On March 17, 2015, three members of the Board of Directors resigned, all of whom had been nominated by Potash Corp.Corporation of Saskatchewan Inc. (“PCS”), one of SQM’s two principal shareholder groups. Potash Corp.PCS issued a press release stating that the directors resigned because of their concern that they could not ensure that the Company was conducting an appropriate investigation and collaborating effectively with the Public Prosecutor.

 

On March 20, 2015, the Company identified to the SII approximately US$11 million in payments of invoices that may not have been properly supported by services rendered and thereforeor that may not qualify as tax expenses under the Chilean tax code. These payments originated from the office of the former CEO, Patricio Contesse G., during the six-year tax period from 2009 to 2014. As a result, the Company subsequently submitted amendments to its tax returns for the 2009 to 2014 tax years and thereafter paid taxes and interest relating to such amended returns totaling approximately US$7 million. On April 24, 2015, the Company announced that it had identified up to an additional US$2 million in payments by its subsidiary SQM Salar S.A. during the same six-year tax period that were also authorized by the former CEO and that may be deemed not properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code. Subsequently, SQM Salar S.A. filed amended tax returns and paid taxes and interest relating to such amended returns totaling approximately US$1.2 million. On August 14, 2015, the Company announced that it had identified to the SII approximately US$1.6 million in additional payments by SQM S.A. and its subsidiary SQM Industrial S.A. that may be deemed not properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code. SQM S.A. and SQM Industrial S.A. subsequently filed amended tax returns and, in early 2016, SQM Industrial S.A. paid taxes and interest relating to such amended returns totaling approximately US$0.3 million, and SQM S.A. paid taxes and interest relating to such amended returns totaling approximately US$1.3 million. The statute of limitations under Chilean law for tax claims is up to six years, during which period the former CEO had an annual discretionary budget covering the Company and its subsidiaries of approximately US$6 million.

 

5

On March 23, 2015, the SII, based on the Income Tax Law (Ley de Impuesto a La RentaRenta)) ,filed a criminal claim against the Company’s former CEO and the current CEO and CFO in their capacities as the Company’s tax representatives relating to part of the US$11 million in payments referred to above. This and subsequent related similar claims filed by the SII against these officers and third parties are subject tocurrently under review by the Public Prosecutor in order to determine whether to pursue charges against any of the parties in their personal capacities.

On March 30, 2015, the Company submitted amendments to its tax returns for the 2009 to 2014 tax years and has paid taxes and interest relating to such amended returns totaling approximately US$7 million. The aggregate amount was approximately evenly distributed over the six-year period, but as the amounts were inconsequential in each individual year, the Company recorded a provision for the aggregate amount in the “other expenses” line-item of the income statement for the year ended December 31, 2014.Prosecutor.

 

On March 31, 2015, the SVS filed an administrative claim against five current orthen-current and former members of the Board of Directors, alleging that they did not release information in a timely manner relating to the payments that are subject to the tax claim referred to above. On September 30, 2015, the SVS proceeded to fine them UF1,000 each (approximately US$36,000). They are currently appealing this decision to the Chilean courts.

 

On April 24, 2015, the Company announced that it had identified up to an additional US$2 million in payments by its subsidiaries during the same six-year tax period that were authorized by the former CEO and that also may have been insufficiently supported. On the same date, new members were elected to the Board of Directors at the Annual General Shareholders’ Meeting, including three new members that were nominated by Potash Corp.,PCS, and the ad-hoc Committee was subsequently reconstituted by Board of Directors members Robert A. Kirkpatrick, Wolf von Appen B. and Edward J. Waitzer.

 

On April 30, 2015, the Public Prosecutor, after reviewing the claims filed by the SII, informed the Company’s former CEO that it was formally investigating allegations that he approved the payment of the invoices that weremay not be properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code and in connection therewith made intentionally false or incomplete declarations or used fraudulent procedures designed to conceal or disguise the true amount of transactions or to circumvent taxes. If as a result of the formal investigation, the former CEOhe is charged and finally adjudicated responsible, the Company may also be subject to the payment of a fine by the Chilean Criminal Court (Octavo Tribunal de Juicio Oral en lo Penal de Santiagototaling 50% to 300% of the taxtaxes paid. The Company estimates that no provision is needed at this stage.

On May 11, 2015, the SII filed an additional criminal claim against the former CEO and the current CEO and CFO in their capacities as the Company’s tax representatives alleging violations of the Chilean Inheritance and Donations Law (Ley sobre Impuesto a Las Herencias, Asignaciones y Donaciones). The claim states that the Company paid two invoices in 2009 and 2010 totaling approximately US$175,000 that are alleged to have been improperly supported. The claim states that these payments should have been classified as donations, and appropriate taxes should have been paid. These payments were accounted for in the amended tax returns filed with the SII. Subsequently, the SII filed a number of additional claims against these officers and third parties alleging violations of Chilean tax law and the Chilean Inheritance and Donations Law. The most recent of these criminal claims was filed by the SII on March 30, 2015. This claim is subject to9, 2016. All of these claims are under review by the Public Prosecutor in order to determine whether to pursue charges against anyProsecutor.

On July 31, 2015, the deputy of the partiesTarapacá region of Chile, Hugo Gutiérrez G., filed a lawsuit against the Company, broadly alleging violations of the anti-corruption and money laundering provisions of Law No. 20,393 on Criminal Liability of Legal Entities. Potential sanctions under this law could include (i) fines, (ii) loss of certain governmental benefits during a given period, (iii) a temporary or permanent bar against the Company executing contracts with governmental entities, and (iv) dissolution of the Company. This claim is under review by the Public Prosecutor.

6

On September 29, 2015, the Company was notified of a labor lawsuit by its former CEO, Patricio Contesse, claiming payment from the Company related to the termination of his employment contract. The total amount claimed in their personal capacities.the lawsuit is approximately Ch$4.0 billion (approximately US$5.7 million), including severance payments for years of service and other legal or contractual payments. The lower court held that Mr. Contesse’s claim was barred by the statute of limitations. On November 8, 2016, the Santiago Court of Appeals overruled the lower court decision. On March 27, 2017, the Company reached an agreement with Mr. Contesse to terminate the labor lawsuit Mr. Contesse filed against the Company. The amount included in the agreement was provisioned for in the financial statements as of December 31, 2016.

 

ClassOn October 14, 2015, two class action complaints have been filed in the United Statesthen pending against the Company, our former CEO and current CEO and CFO, alleging violations of the U.S. securities laws based on the failure to timely disclose matters related toin connection with the subject matter of the various Chilean investigations.investigations described above, were consolidated into a single action in the United States District Court for the Southern District of New York.  On November, 13, 2015, our former CEO and current CEO and CFO were voluntarily dismissed from the case without prejudice.  On January 15, 2016, the lead plaintiff filed a consolidated class action complaint exclusively against the Company. For more information on the consolidated class action, see “Item 8.A.7 Legal Proceedings.”

 

During 2015, the ad-hoc Committee that was established in February 15, 2015, conducted an investigation into whether the Company faced possible liability under the U.S. Foreign Corrupt Practices Act. The investigation andad-hoc Committee engaged its own separate counsel, Shearman & Sterling LLP, which presented a report to the inquiriesBoard of Directors on December 15, 2015.

Following the presentation by the Chilean regulatoryad-hoc Committee of its findings to the Board of Directors, the Company voluntarily shared the findings of the ad-hoc Committee investigation with authorities have not been completed. We cannot predict the outcome or the duration of these investigations. We could be subject to civil, criminal or regulatory proceedings in Chile and we could be subject to civil, criminal or regulatory proceedings outside of Chile, including for violation of U.S. securities or anti-corruption laws. We have been in communications with our regulators in Chile and the United States. U.S. (including the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”)).

On January 13, 2017, the Company and the DOJ reached agreement on the terms of a Deferred Prosecution Agreement (“DPA”) that would resolve the DOJ’s inquiry, based on alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. Among other terms, the DPA calls for the Company to pay a monetary penalty of US$15,487,500, and engage a compliance monitor for a term of two (2) years. Upon successful completion of the three (3) year term of the DPA, all charges against the Company would be dismissed. On the same date, the SEC agreed to resolve its inquiry through an administrative cease and desist order, arising out of the alleged violations of the same accounting provisions of the FCPA. Among other terms, the SEC order calls for the Company to pay an additional monetary penalty of US$15 million. These penalites were reflected in the 2016 financial statements.

In Chile, the authorities’ review of the questioned payments is ongoing. We are unable to predict the duration, scope, or results of this review, or how it may affect our business, financial condition, cash flows, results of operations and the prices of our securities. There can be no assurance that the authorities will agree with the conclusions of the ad-hoc Committee or that the authorities will not conclude that a violation of applicable law has occurred. There can be no assurance that authorities in Chile or the U.S. will not undertake a broader investigation or seek to commence additional litigation against the Company.

Responding to our regulator’sregulators’ inquiries and any future civil, criminal or regulatory inquiries or proceedings could divertdiverts our management’s attention from day-to-day operations. Additionally, expenses that may arise from responding to such inquiries or proceedings, our review of responsive materials, any related litigation or other associated activities may continue to be significant. Current and former employees, officers and directors may seek indemnification, advancement or reimbursement of expenses from us, including attorneys’ fees, with respect to the current inquiry or future proceedings related to this matter. We may be required to pay material damages or penalties or have other remedies imposed upon us. If, as a result of further investigations, it is determined that our financial statements were materially incorrect, we could be required to restate financial information for prior reporting periods. Chilean authorities could impose sanctions discussed above under Law No. 20,393. The occurrence of any of the foregoing could materially and adversely affect our business, financial condition, cash flows, results of operations and the prices of our securities. However, the Company’s management, based on its understanding of the investigation to date, does not believe there will be any additional material impact to the Company’s business, financial condition, cash flows or results of operations.

7

 

For more information, see “Item 8.A.8.A.7 Legal Proceedings.”

 

Arbitration proceedingsAn arbitration proceeding under the Lease Agreement for the Salar de Atacama, if determined adversely to us, would materially adversely affect our business and operations

 

Our subsidiary SQM Salar S.A. (“SQM Salar”) holds exclusive and temporary exploitation rights to mineral resources in 81,920 hectares in the Salar de Atacama pursuant to a 1993 lease agreement over mining exploitation concessions between SQM Salar and Corporación de Fomento de la Producción (“Corfo”),Corfo, a Chilean government entity (the “Lease Agreement”). The mining exploitation concessions related to such rights are owned by Corfo and leased to SQM Salar in exchange for quarterly lease payments to Corfo based on specified percentages associated to the value of the products resulting from the minerals extracted from such concessions. For the year ended December 31, 2014,2016, revenue related to products originating from the Salar de Atacama represented 39%48% of our consolidated revenues, which corresponded to revenues from our potassium product line and our lithium and derivatives product line for the period. All of our products originating from the Salar de Atacama are derived from our extraction operations under the Lease Agreement.

In May 2014, Corfo initiated an arbitration proceeding against SQM Salar alleging (i) SQM Salar had incorrectly applied the formulas to determine lease payments resulting in an underpayment to Corfo of at least US$8.9 million for 2009 through 2013 and (ii) SQM Salar had not complied with its obligation to protect the mining rights of Corfo by failing to placeconstruct or replace markers to delineate property lines. Based on the alleged breaches of the Lease Agreement, Corfo sought (i) at least US$8.9 million plus any other amount that may be due in respect of periods after 2013, (ii) early termination of the Lease Agreement, (iii) lease payments that would have been paid through 2030 as compensation for the early termination of the Lease Agreement and (iv) punitive damages (daño moral) equal to 30% of the contractual damages awarded. SQM Salar contested the claim, asserting that both parties have applied mutually agreed formulas for the calculation and payment of lease payments for more than 20 years without conflict, in accordance with the terms of the Lease Agreement and their mutual understanding of the agreements by the parties during the term of the Lease Agreement. SQM Salar also asserted that the alleged breaches would be technical breaches and that Corfo may terminate the Lease Agreement solely for a material breach. SQM Salar in consultation with external counsel believes that it is likely it will prevail in the arbitration proceeding. However, an adverse ruling awarding damages sought by Corfo or permitting early termination of the Lease Agreement would have a material adverse effect on our business, financial condition, cash flows, and results of operations.operations and share price. We cannot assure you that Corfo will not use this arbitration proceeding to seek to renegotiate the terms of the Lease Agreement in a manner that is not favorable to SQM Salar. Although

In August 2016, Corfo requested a second arbitration proceeding, demanding (i) the parties are currently discussing potential resolutions, we cannot assure you such discussions will be successful or thatearly termination of the Project Contract signed between Corfo, will not take other actions inSQM Potasio S.A., SQM Salar, and the future in relation toCompany, (ii) the dissolution of SQM Salar and (iii) the early termination of the Lease Agreement for alleged breaches of the Project Contract. In addition, Corfo demanded SQM Salar return (i) the assets Corfo contributed to it under a condition subsequent, (ii) the OMA mining properties and the aquifers included in the Lease Agreement, (iii) the water rights granted to SQM Salar and (iv) the legal mining easements identified in the lawsuit. Finally, Corfo requested that are contrarythe defendants pay damages as a result of the breaches alleged in the lawsuit. The Company believes there is insufficient evidence to ourdemonstrate that the Project Contract has been breached. However, there can be no assurance that the Company will prevail against Corfo or that other legal actions will not be taken by Corfo against the Company’s interests.

8

 

Our market reputation, commercial dealings or the price of our securities could be adversely affected by the negative outcome of certain proceedings against certain recentformer members of our Board and certain other named defendants

 

On September 10, 2013, the SVS issued a press release disclosing it had instituted certain administrative proceedings (the “Cascading Companies Proceedings”) against (i) Mr. Julio Ponce Lerou (who was the Chairman of the Board and a director of the Company until April 24, 2015), (ii) Mr. Patricio Contesse Fica, who was a director of the Company until April 24, 2015 and is the son of Mr. Patricio Contesse González (who was the Company’s CEO until March 16, 2015), and (iii) other named defendants. The Company has been informed that Mr. Ponce and persons related personsto him beneficially owned 29.94%29.97% of SQM’s total shares as of December 31, 2014.2016. See “Item 6.E. Share Ownership.” The SVS alleged breaches of Chilean corporate and securities laws in connection with acts performed by entities with direct or indirect share ownership interests in SQM (the “Cascading Companies”). The allegations made in connection with the Cascading Companies Proceedings do not relate to the Company’s operations, nor do they relate to any acts or omissions of the Company or any of its directors, officers or employees in their capacities as such.

 

In connection with the Cascading Companies Proceedings, the SVS alleged the existence of a scheme involving the named defendants whereby, through a number of transactions occurring between 2009 and 2011, the Cascading Companies allegedly sold securities of various companies, including securities of SQM, at below-market prices to companies related to Mr. Ponce and other named defendants. These companies allegedly subsequently sold such securities after a lapse of time, in most cases back to the Cascading Companies, at prices higher than the purchase price. The SVS alleged violationviolations by the defendants of a number of Chilean corporate and securities laws in furtherance of the alleged scheme.

On January 31, 2014, the SVS added a number of Chilean financial institutions and asset managers, and certain of their controlling persons, executives or other principals, as named defendants to the Cascading Companies Proceedings. On September 2, 2014, the SVS issued a decision imposing an aggregate fine against all of the defendants of UF 4,0110,0004.0 million (approximately US$162.8144.7 million as of December 31, 2014)2015), including a fine against Mr. Ponce of UF 1,700,0001.7 million (approximately US$69.061.4 million as of December 31, 2014)2015) and a fine against Mr. Contesse Fica of UF 60,000 (approximately US$2.42.2 million as of December 31, 2014)2015). The defendants are currently challenging the SVS administrative decision before a Chilean Civil Court.

 

The High Complexity Crimes Unit (Unidad de Delitos de Alta Complejidad) of the Metropolitan District Central Northern Attorney’s Office (Fiscalía Metropolitana Centro Norte) is also investigating various criminal complaints filed against various parties to the Cascading Companies Proceedings. In addition, theThe SII announced an investigationrequested payment of the transactions alleged to have occurred intaxes by the Cascading Companies, Proceedings in order to determine whetherand the individuals or companies involved violated ChileanCascading Companies filed a complaint with the tax laws or filed false returns for the purpose of evading taxes.courts.

 

If, for any reason, the Company is unable to differentiate itself from the named defendants, such failure could have a material adverse effect on the Company’s market reputation and commercial dealings. Furthermore, we cannot assure you that a non-appealable ruling in connection with the current Cascading Companies Proceedings or the investigations of the High Complexity Crimes Unit or the SII that is adverse to Mr. Ponce or Mr. Contesse Fica will not have a material adverse effect on our market reputation, commercial dealings and the price of our securities, or that the Cascading Companies will not sell shares of the Company or vote to increase the dividends we pay to our shareholders.

We recently identified a material weakness in our internal controls over payments directed by the office of the former Chief Executive Officer

 

OurIn the past, our management assessed the effectiveness of its internal control over financial reporting as of December 31, 2014. The assessment was based on criteria established in the framework “Internal Controls — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management has determined that the Company did not maintain effective control over payments directed by the office of the former CEO. Based onThis determination was reported in our annual report for the assessment, our management has concluded that as ofyear ended December 31, 2014 on Form 20-F, filed with the Company’s internal control over financial reporting was not effective. See “Item 15. Controls and Procedures—Disclosure Control and Procedures.”SEC on May 18, 2015.

 

9

Although

We believe we have initiatedtaken the necessary steps to remediate the identified material weakness and enhance our internal controls,controls. However, any failure to implement and maintain such measures or difficulties encountered in their implementationeffective internal control over financial reporting could (i) result in a material misstatement in our financial reporting or financial statements that would not be prevented or detected, (ii) cause us to fail to meet our reporting obligations under applicable securities laws or (iii) cause investors to lose confidence in our financial reporting or financial statements, the occurrence of any of which could materially and adversely affect our business, financial condition, cash flows, results of operations and the prices of our securities.

Volatility of world fertilizer and chemical prices and changes in production capacities could affect our business, financial condition and results of operations

 

The prices of our products are determined principally by world prices, which, in some cases, have been subject to substantial volatility in recent years. World fertilizer and chemical prices vary depending upon the relationship between supply and demand at any given time. Supply and demand dynamics for our products are tied to a certain extent to global economic cycles, and have been impacted by circumstances related to such cycles. Furthermore, the supply of certain fertilizers or chemical products, including certain products that we provide, varies principally depending on the production of the major producers, (including us) and their respective business strategies.

Since 2008, world prices of potassium-based fertilizers (including some of our specialty plant nutrients and potassium chloride) have fluctuated as a result of the broader global economic and financial conditions. Although prices of potassium-based fertilizers stabilized in 2009 after the conclusion of important contract negotiations between major producers and buyers, during the second half of 2013, potassium prices declined as a result of an unexpected announcement made by the Russian company OAO Uralkali (“Uralkali”) that it was terminating its participation in Belarus Potash Corporation (“BPC”). As a result of the termination of Uralkali’s participation in BPC, there was increased price competition in the market. In addition, during the first half of 2014,in 2016, we observed lower pricing of contracts between Chinese purchasers and major potash producers, which increased volatility in the price of fertilizers. The average price for our potassium chloride and potassium sulfate business line was approximately 11%24% lower in 20142016 compared to 2013.2015. Our sales volumes for this business line were approximately 24% higher in 2016 compared to 2015. We cannot assure you that potassium-based fertilizer prices and sales volumes will not decline in the future.

 

Iodine prices followed an upward trend beginning at the end of 2008 and continuing through 2012, reaching an average price of approximately US$53 per kilogram in 2012, over 40% higher than average prices in 2011. During 2013, even though iodinethe following years, supply growth outpaced demand reached record highs, demand growth, softened, and supply increased, causing a decline in iodine prices. TheWe obtained an average price offor iodine seen by SQM wasof approximately US$3823 per kilogram in 2014,2016, approximately 23%19% less than average prices seen by the Companyobtained in 2013.2015. We cannot assure you that iodine prices or sales volumes will not continue to decline in the future.

 

As a result of events in global markets during 2009, demand for lithium carbonate declined, causing a decrease in lithium prices and sales volumes. In September 2009, we announced a 20% reduction in lithium carbonate and lithium hydroxide prices as a means of stimulating demand. As a result, in 2010 we observed demand recovery in the lithium carbonate market, whichand this upward trend has continued in 2011 and 2012. In 2013, we continued to see strong market growth,over the last few years, driven mostly by an increase in demand related to battery use. Nevertheless,In 2016, demand growth was accompanied by an increase in supply from existing competitors. In 2014,that was lower than expected, and as a result, average prices remained at similar levels averaging US$5,235 per metric ton in 2014 for this business line which was 4% lowerincreased approximately 80% compared to 2013.2015. We cannot assure you that lithium prices and sales volumes will not decline in the future.

 

We expect that prices for the products we manufacture will continue to be influenced, among other things, by worldwide supply and demand and the business strategies of major producers. Some of the major producers (including us) have increased or have the ability to increase production. As a result, the prices of our products may be subject to substantial volatility. High volatility or a substantial decline in the prices or sales volumes of one or more of our products could have a material adverse effect on our business, financial condition and results of operations.

 

10

Our sales to emerging markets and expansion strategy expose us to risks related to economic conditions and trends in those countries

 

We sell our products in more than 110115 countries around the world. In 2014,2016, approximately 46% of our sales were made in emerging market countries: 18%12% in Central and SouthLatin America (excluding Chile); 7%9% in Africa and the Middle East; 11%East (excluding Israel); 8% in Chile and 10%16% in Asia and Oceania (excluding Australia, Japan, New Zealand, South Korea and Singapore). We expect to expand our sales in these and other emerging markets in the future. In addition, we may carry out acquisitions or joint ventures in jurisdictions in which we currently do not operate, relating to any of our businesses or to new businesses in which we believe we may have sustainable competitive advantages. The results of our operations and our prospects in other countries in which we establish operations will depend, in part, on the general level of political stability and economic activity and policies in those countries. Future developments in the political systems or economies of these countries or the implementation of future governmental policies in those countries, including the imposition of withholding and other taxes, restrictions on the payment of dividends or repatriation of capital, the imposition of import duties or other restrictions, the imposition of new environmental regulations or price controls or changes in relevant laws or regulations, could have a material adverse effect on our business, financial condition and results of operations in those countries.

Our inventory levels may increase because of the globalfor economic slowdownor operational reasons

 

In general, world economic conditions or operational factors can affect our inventory levels. At the end of 2014,2016, our inventory levels were relatively high compared to prior years.years, but lower than 2015. Higher inventories carry a financial risk due to increased need for cash to fund working capital and could imply increased risk of loss of product. We cannot assure you that inventory levels will not continue to remain high or increase further in the future. These factors could have a material adverse effect on our business, financial condition and results of operations.

 

Our level of and exposure to unrecoverable accounts receivable may significantly increase

 

Potentially negative effects of adverse global economic conditions on the financial condition of our customers may include the extension of the payment terms of our accounts receivable and may increase our exposure to bad debt. While we have implemented certain safeguards, such as using credit insurance, letters of credit and prepayment for a portion of sales, to minimize this risk, the increase in our accounts receivable coupled with the financial condition of customers may result in losses that could have a material adverse effect on our business, financial condition and results of operations.

 

New production of iodine or lithium carbonate from current or new competitors in the markets in which we operate could adversely affect prices

 

In recent years, new and existing competitors have increased the supply of iodine and lithium carbonate, which has affected prices for both products. Further production increases could negatively impact prices. There is limited information on the status of new iodine or lithium carbonate production capacity expansion projects being developed by current and potential competitors and, as such, we cannot make accurate projections regarding the capacities of possible new entrants into the market and the dates on which they could become operational. If these potential projects are completed in the short term, they could adversely affect market prices and our market share, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

 

We have a capital expenditure program that is subject to significant risks and uncertainties

 

Our business is capital intensive. Specifically, the exploration and exploitation of reserves, mining and processing costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. We must continue to invest capital to maintain or to increase our exploitation levels and the amount of finished products we produce.

 

11

In addition, we require environmental permits for our new projects. Obtaining permits in certain cases may cause significant delays in the execution and implementation of new projects and, consequently, may require us to reassess the related risks and economic incentives. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient investments, loans or other financing alternatives, to continue our activities at or above present levels, or that we will be able to implement our projects or receive the necessary permits required for them in time. Any or all of these factors may have a material adverse effect on our business, financial condition and results of operations.

 

14

High raw materials and energy prices could increase our production costs and cost of sales, and energy may become unavailable at any price

 

We rely on certain raw materials and various energy sources (diesel, electricity, liquefied natural gas, fuel oil and others) to manufacture our products. Purchases of energy and raw materials we do not produce constitute an important part of our cost of sales, approximately 15%13% in 2014.2016. In addition, we may not be able to obtain energy at any price if supplies are curtailed or otherwise become unavailable. To the extent we are unable to pass on increases in the prices of energy and raw materials to our customers or we are unable to obtain energy, our business, financial condition and results of operations could be materially adversely affected.

 

Our reserves estimates could be subject to significant changes

 

Our caliche ore mining reserves estimates are prepared by our own geologists and were most recently validated in January 20152017 by Mrs. Marta AguileraMr. Sergio Alarcón and Mr. Orlando Rojas. Mrs. AguileraMr. Alarcón is a geologist with over 2030 years of experience in the field. SheHe is currently employed by SQM as Manager of Geology and Mining Development. Mrs. AguileraSupervisor. Mr. Alarcón is a Competent Person (Persona Competente), as that term is defined under Chilean Law No. 20,235, known as the Law that Regulates the Position of Competent Person and Creates the Qualifying Committee for Competencies in Mining Resources and Reserves (Ley que Regula la Figura de las Personas Competentes y Crea la Comisión Calificadora de Competencias de Recursos y Reservas Mineras or “Competent Person Law”), and shehe is registered under No. 163164 in the Public Registry of Competent Persons in Mining Resources and Reserves in accordance with such law and related regulations. Mr. Orlando Rojas is a civil mining engineer and independent consultant. He is Partner and Chief Executive Officer of the company EMI-Ingenieros y Consultores S.A., whose offices are located at Renato Sánchez No. 3357, Las Condes, Santiago, Chile. He is a member of the Institute of Mining Engineers and is registered under No. 118 in the Public Registry of Competent Persons in Mining Resources and Reserves in accordance with the Competent Person Law and related regulations. He has worked as a mining engineer for 3539 years since graduating from university, including more than 3033 years working on estimates for reserves and resources.

 

Our Salar de Atacama brine mining reserve estimates are prepared by our own hydrogeologists and geologists and were most recently validated in March 20152017 by Mr. Álvaro Henríquez and Mr. Orlando Rojas. Mr. Henríquez is a geologist with more than 10ten years of experience in the field of hydrogeology. He is currently employed by SQM as Superintendent of Geology, in the Salar Hydrogeology department. He is a Competent Person and is registered under No. 226 in the Public Registry of Competent Persons in Mining Resources and Reserves, in accordance with the Competent Person Law and related regulations. As a hydrogeologist, he has evaluated multiple brine-based projects and has experience evaluating resources and reserves.

 

Estimation methods involve numerous uncertainties as to the quantity and quality of the reserves, and reserve estimates could change upwards or downwards. In addition, our reserve estimates are not subject to review by external geologists or an external auditing firm. A downward change in the quantity and/or quality of our reserves could affect future volumes and costs of production and therefore have a material adverse effect on our business, financial condition and results of operations.

 

12

Quality standards in markets in which we sell our products could become stricter over time

 

In the markets in which we do business, customers may impose quality standards on our products and/or governments may enact stricter regulations for the distribution and/or use of our products. As a result, if we cannot meet such new standards or regulations, we may not be able to sell our products. In addition, our cost of production may increase in order to meet any such newly imposed or enacted standards.standards or regulations. Failure to sell our products in one or more markets or to important customers could materially adversely affect our business, financial condition and results of operations.

Chemical and physical properties of our products could adversely affect their commercialization

 

Since our products are derived from natural resources, they contain inorganic impurities that may not meet certain customer or government standards. As a result, we may not be able to sell our products if we cannot meet such requirements. In addition, our cost of production may increase in order to meet such standards. Failure to meet such standards could materially adversely affect our business, financial condition and results of operations if we are unable to sell our products in one or more markets or to important customers in such markets.

 

Our business is subject to many operating and other risks for which we may not be fully covered under our insurance policies

 

Our facilities and business operations in Chile and abroad are insured against losses, damage or other risks by insurance policies that are standard for the industry and that would reasonably be expected to be sufficient by prudent and experienced persons engaged in businesses similar to ours.

 

We may be subject to certain events that may not be covered under our insurance policies, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, as a result of recent major earthquakes and unexpected rains and flooding in Chile, andas well as other natural disasters worldwide, conditions in the insurance market have changed and may continue to change in the future, and as a result, we may face higher premiums and reduced coverage, which could have a material adverse effect on our business, financial condition and results of operations.

 

Changes in technology or other developments could result in preferences for substitute products

 

Our products, particularly iodine, lithium and their derivatives, are preferred raw materials for certain industrial applications, such as rechargeable batteries and LCDs. Changes in technology, the development of substitute raw materials or other developments could adversely affect demand for these and other products which we produce. In addition, other alternatives to our products may become more economically attractive as global commodity prices shift. Any of these events could have a material adverse effect on our business, financial condition and results of operations.

 

We are exposed to labor strikes and labor liabilities that could impact our production levels and costs

 

Over 96%95% of our employees are employed in Chile, of which approximately 68%65% were represented by 2522 labor unions as of December 31, 2014. As in previous years, during 20142016. During 2016, we renegotiated collective labor contracts with individual unions one year before the expiration of such contracts. AsDuring 2017, we expect to renegotiate collective labor contracts with three unions. Our collective labor contracts with 16 unions, representing 80% of December 31, 2014, we had concluded negotiations with 21 labor unions, which represent 91.9% of our totalthe unionized workers, signing new agreementswill expire in 2019. Our collective labor contracts with each forfive unions, representing 20% of the next three years. In January of 2015, we concluded negotiations with two additional unions, covering a total of 99.7% of our unionized workers. In order to finalize the current collective bargaining cycle, we need to conduct negotiations with the remaining two unions.

workers will expire in 2020. We are exposed to labor strikes and illegal work stoppages that could impact our production levels. If a strike or illegal work stoppage occurs and continues for a sustained period of time, we could be faced with increased costs and even disruption in our product flow that could have a material adverse effect on our business, financial condition and results of operations.

13

Chilean Law No. 20,123, known as the Subcontracting Law, provides that when a serious workplace accident occurs, athe company in charge of the workplace must halt work at the site where the accident took place until authorities from either the National Geology and Mining Service (Servicio Nacional de Geología y Mineríaor “Sernageomin”), the Labor Board (Dirección del Trabajo or “Labor Board”), or the National Health Service (Servicio Nacional de Salud), inspect the site and prescribe the measures such company must take to minimize the risk of similar accidents taking place in the future. Work may not be resumed until suchthe respective company has taken the prescribed measures, and the period of time before work may be resumed may last for a number of hours, days, or longer. The effects of this law could have a material adverse effect on our business, financial condition and results of operations.

 

On December 29, 2014, the Government of Chile sent theSeptember 8, 2016, Chilean Congress a bill introducing modifications toLaw No. 20,940 was published and modified the Labor Code by introducing, among other things, changes to the formation of trade unions, the election of inter-company union delegates, the presence of women on union boards, anti-union practices and related sanctions, and collective negotiations. Due to these changes to the labor regulations, we may face an increase in relation to collective rights. The objectiveour expenses that may have a significant adverse effect on our business, financial condition, and results of such bill is to modernize the Chilean labor relations system, giving more power to union organizations. This bill could undergo modifications after being discussed by the parliament during the year 2015. Therefore, we are not able to predict the potential effects of such bill on the Company.operations.

Lawsuits and arbitrations could adversely impact us

 

We are party to a range of lawsuits and arbitrations involving different matters as described in Note 19.1 of our Consolidated Financial Statements and Item“Item 8.A. Legal Proceedings.Proceedings”. Although we intend to defend our positions vigorously, our defense of these actions may not be successful. JudgmentsAdverse judgments or settlements in these lawsuits may have a material adverse effect on our business, financial condition and results of operations. In addition, our strategy of being a world leader includes entering into commercial and production alliances, joint ventures and acquisitions to improve our global competitive position. As these operations increase in complexity and are carried out in different jurisdictions, we might be subject to legal proceedings that, if settled against us, could have a material adverse effect on our business, financial condition and results of operations.

In 2009, the Chilean labor code (Código del Trabajo or “Labor Code”) established new procedures for labor matters which include oral trials conducted by specialized judges. The information available indicates that the majority of these oral trials have found in favor of the employee. These new procedures have increased the probability of adverse judgments in labor lawsuits which could have a material adverse effect on our business, financial condition and results of operations.

 

We have operations in multiple jurisdictions with differing regulatory, tax and other regimes

 

We operate in multiple jurisdictions with complex regulatory environments that are subject to different interpretations by companies and respective governmental authorities. These jurisdictions may have different tax codes, environmental regulations, labor codes and legal framework, which adds complexity to our compliance with these regulations. Any failure to comply with such regulations could have a material adverse effect on our business, financial condition and results of operations.

 

Environmental laws and regulations could expose us to higher costs, liabilities, claims and failure to meet current and future production targets

 

Our operations in Chile are subject to national and local regulations relating to environmental protection. In accordance with such regulations, we are required to conduct environmental impact studies or statements before we conduct any new projects or activities or significant modifications of existing projects that could impact the environment or the health of people in the surrounding areas. We are also required to obtain an environmental license for certain projects and activities. The Environmental Evaluation Service (Servicio de Evaluación Ambientalor “Environmental Evaluation Service”) evaluates environmental impact studies submitted for its approval. The public, government agencies or local authorities may review and challenge projects that may adversely affect the environment, either before these projects are executed or once they are operating, if they fail to comply with applicable regulations. In order to ensure compliance with environmental regulations, Chilean authorities may impose fines up to approximately US$9 million per infraction, revoke environmental permits or temporarily or permanently close facilities, among other enforcement measures.

14

Chilean environmental regulations have become increasingly stringent in recent years, both with respect to the approval of new projects and in connection with the implementation and development of projects already approved, and we believe that this trend is likely to continue. Given public interest in environmental enforcement matters, these regulations or their application may also be subject to political considerations that are beyond our control.

 

We regularly monitor the impact of our operations on the environment and on the health of people in the surrounding areas and have, from time to time, made modifications to our facilities to minimize any adverse impact. Future developments in the creation or implementation of environmental requirements or their interpretation could result in substantially increased capital, operation or compliance costs or otherwise adversely affect our business, financial condition and results of operations.

On June 6, 2016, the Superintendence of the Environment filed charges against SQM S.A. regarding the operations at Nueva Victoria for possible non-compliance with RCA No. 890/2010. The charges related to certain variables of a monitoring plan and to the implementation of a mitigation measure considered in the respective environmental impact study.

On November 28, 2016, the Superintendence of the Environment filed charges against SQM Salar S.A. regarding possible non-compliance with RCA No. 226/2006 as a result of the company’s operations at Salar de Atacama. The charges referred to certain aspects of the monitoring and contingency plans, and the condition of a group of trees in the Camar sector considered as a part of the environmental monitoring.

For both cases, we have presented compliance programs that detail the actions and commitments we will take to resolve the issues raised by the environmental authority. The Superintendence of the Environment is reviewing both compliance programs and will release an opinion on them.

 

The success of our current investments at the Salar de Atacama and Nueva Victoria is dependent on the behavior of the ecosystem variables being monitored over time. If the behavior of these variables in future years does not meet environmental requirements, our operation may be subject to important restrictions by the authorities on the maximum allowable amounts of brine and water extraction.

 

Our future development depends on our ability to sustain future production levels, which requires additional investments and the submission of the corresponding environmental impact studies or statements. If we fail to obtain approval or required environmental licenses, our ability to maintain production at specified levels will be seriously impaired, thus having a material adverse effect on our business, financial condition and results of operations.

 

In addition, our worldwide operations are subject to international and other local environmental regulations. Since environmental laws and regulations in the different jurisdictions in which we operate may change, we cannot guarantee that future environmental laws, or changes to existing environmental laws, will not materially adversely impact our business, financial condition and results of operations.

 

Our water supply could be affected by geological changes or climate change

 

Our access to water may be impacted by changes in geology, climate change or other natural factors, such as wells drying up or reductions in the amount of water available in the wells or rivers from which we obtain water, that we cannot control. Any such change may have a material adverse effect on our business, financial condition and results of operations.

 

15

Any loss of key personnel may materially and adversely affect our business

 

Our success depends in large part on the skills, experience and efforts of our senior management team and other key personnel. The loss of the services of key members of our senior management or employees with critical skills could have a negative effect on our business, financial condition and results of operations. If we are not able to attract or retain highly skilled, talented and qualified senior managers or other key personnel, our ability to fully implement our business objectives may be materially and adversely affected.

18

 

Risks Relating to Financial Markets

 

Currency fluctuations may have a negative effect on our financial performance

 

We transact a significant portion of our business in U.S. dollars, and the U.S. dollar is the currency of the primary economic environment in which we operate. In addition, the U.S. dollar is our functional currency for financial statement reporting purposes. A significant portion of our costs, however, is related to the Chilean peso. Therefore, an increase or decrease in the exchange rate between the Chilean peso and the U.S. dollar would affect our costs of production. The Chilean peso has been subject to large devaluations and revaluations in the past and may be subject to significant fluctuations in the future. As of December 31, 2014,2016, the Chilean peso exchange rate was Ch$606.75669.47 per U.S. dollar, while as of December 31, 2013,2015, the Chilean peso exchange rate was Ch$524.61710.16 per U.S. dollar. The Chilean peso therefore depreciatedappreciated against the U.S. dollar by 16%6.0% in 2014.2016. As of April 28, 2015,20, 2017, the Observed Exchange Rate was Ch$611.08647.68 per U.S. dollar.

 

As an international company operating in several other countries, we also transact business and have assets and liabilities in other non-U.S. dollar currencies, such as, among others, the euro, the South African rand, the Mexican peso, the Chinese yuan, the Thai baht and the Brazilian real. As a result, fluctuations in the exchange rates of such foreign currencies to the U.S. dollar may have a material adverse effect on our business, financial condition and results of operations.

 

Interest rate fluctuations may have a material impact on our financial performance

 

We have outstanding short and long-term debt that bears interest based on the London Interbank Offered Rate (“LIBOR”),LIBOR, plus a spread. Since we are currently hedging only a portion of these liabilities into fixed rates, we are exposed to interest rate risk relating to LIBOR fluctuations. As of December 31, 2014,2016, approximately 14%2% our financial debt had LIBOR-based pricing that was not hedged into fixed rates. A relative increase in the rate could materially impact our business, financial condition and results of operations.

 

Risks Relating to Chile

 

As we are a company based in Chile, we are exposed to Chilean political risks

 

Our business, results of operations, financial condition and prospects could be affected by changes in policies of the Chilean government, other political developments in or affecting Chile, legal changes in the standards or administrative practices of Chilean authorities or the interpretation of such standards and practices, over which we have no control.

 

Changes in regulations regarding, or any revocation or suspension of our concessions could negatively affect our business

 

Any changes to regulations to which we are subject or adverse changes to our concession rights, or a revocation or suspension of our concessions, could have a material adverse effect on our business, financial condition and results of operations.

 

1916

 

Changes in mining or port concessions could affect our operating costs

 

We conduct our mining operations, including brine extraction, under exploitation and exploration concessions granted in accordance with provisions of the Chilean constitution and related laws and statutes. Our exploitation concessions essentially grant a perpetual right (with the exception of the Salar de Atacama rights, which have been leased to us until 2030) to conduct mining operations in the areas covered by the concessions, provided that we pay annual concession fees. Our exploration concessions permit us to explore for mineral resources on the land covered thereby for a specified period of time and to subsequently request a corresponding exploitation concession. Our subsidiary SQM Salar, as leaseholder, holds exclusive and temporary rights over the mineral resources in an area covering approximately 140,000 hectares of land in the Salar de Atacama in northern Chile, of which SQM Salar is entitled to exploit the mineral resources of 81,920 hectares. These rights are owned by Corfo and leased to SQM Salar pursuant to the Lease Agreement between Corfo and SQM Salar. Corfo may not unilaterally modify the Lease Agreement,and Project Agreements, and the rights to exploit the mineral substances cannot be transferred. The Lease Agreement establishes that SQM Salar is responsible for making quarterly lease payments to Corfo, maintaining Corfo’s rights over the mining exploitation concessions, and making annual payments to the Chilean government for such concession rights. The Lease Agreement expires on December 31, 2030. Furthermore, under the regulations of the Chilean Nuclear and Energy Commission (Comisión Chilena de Energía Nuclear or “CCHEN”), we are limited to 180,100 tons of total lithium (958,672 tons of lithium carbonate equivalent) extraction in the aggregate for all periods. We are over halfway through the term of the Lease Agreement and have extracted approximately half59% of the total accumulated extraction limit of lithium. However, thereThere can be no assurance that we will not reach the lithium extraction limit prior to the term of the lease agreement.

In addition, we cannot assure you thatAugust 2016, Corfo will not take other actions inrequested a second arbitration proceeding, demanding (i) the future in respectearly termination of the Project Contract signed between Corfo, SQM Potasio S.A., SQM Salar, and the Company, (ii) the dissolution of SQM Salar and (iii) the early termination of the Lease Agreement for alleged breaches of the Project Contract. In addition, Corfo demanded SQM Salar return (i) the assets Corfo contributed to it under a condition subsequent, (ii) the OMA mining properties and the aquifers included in the Lease Agreement, (iii) the water rights granted to SQM Salar and (iv) the legal mining easements identified in the lawsuit. Finally, Corfo requested that are contrarythe defendants pay damages as a result of the breaches alleged in the lawsuit. The Company believes there is insufficient evidence to our interests.demonstrate that the Project Contract has been breached. However, there can be no assurance that the Company will prevail against Corfo or that other legal actions will not be taken by Corfo against the Company’s interests See -Risk“—Risks Relating to our Business-Arbitration proceedingsBusiness—An arbitration proceeding under the Lease Agreement for the Salar de Atacama, if determined adversely to us, would materially adversely affect our business and operations.”

 

We also operate port facilities at Tocopilla, Chile for the shipment of products and the delivery of raw materials pursuant to maritime concessions, which have been granted under applicable Chilean laws and are normally renewable on application, provided that such facilities are used as authorized and annual concession fees are paid.

 

Any significant changes to any of these concessions could have a material adverse effect on our business, financial condition and results of operations.

 

Changes in water rights laws and other regulations could affect our operating costs

 

We hold water use rights that are key to our operations. These rights were obtained from the Chilean Water Authority (Dirección General de Aguas) for supply of water from rivers and wells near our production facilities, which we believe are sufficient to meet current operating requirements. However, the Chilean water rights code (Código de Aguas or the “Water Code”) is subject to changes, which could have a material adverse impact on our business, financial condition and results of operations. For example, an amendment published on June 16, 2005 modifieda series of bills are currently being discussed at the WaterChilean National Congress that seek desalinate seawater for use in mining production processes, amend the Mining Code allowing, under certain conditions, the granting of permanentfor water rights of up to two liters per second for each well built prior to June 30, 2004,use in the areas where we conduct our mining operations, without consideringamend the availabilityPolitical Constitution on water and introduce changes to the regulatory framework governing the terms of water, or how the new rights may affect holdersinspection and sanction of existing rights. Therefore,water. As a result, the amount of water that we can effectively extract based onactually use under our existing rights couldmay be reduced if these additional rights are exercised. In addition, we must pay annual fees to maintain water rights that have been granted to us and that we are not exercising.or the cost of such use could increase. These and potential future changes to the Water Code or other relevant regulations could have a material adverse effect on our business, financial condition and results of operations.

 

17

The Chilean government could levy additional taxes on corporations operating in Chile

 

In 2005, the Chilean Congress approved Law No. 20,026 known as the Law to Establish a Specific Tax on Mining Activity” (Ley que Establece un Impuesto Específico a la Actividad Minera or the “Royalty Law”), establishingChile, there is a royalty tax to bethat is applied to mining activities developed in Chile.the country.

 

Following the earthquake and tsunami in February in 2010, the Chilean government raised the corporate income tax rate in order to pay for reconstruction. Such legislation increased the general corporate tax rate from its historic rate of 17.0% to 20.0% for the income accrued in 2011, which was declared and paid in 2012. On September 27,In 2012, Law No. 20,630 introduced new amendments to existing tax legislation. Among the amendments introduced, the corporate income tax was maintained at 20% beginningThere can be no assurance that this legislation will not be modified in the 2013 calendar year.future.

On September 29, 2014, Law No. 20,780 was published (the “Tax Reform”), introducing significant changes to the Chilean taxation system and strengthening the powers of the SII to control and prevent tax avoidance. The Tax Reform contemplates, amongSubsequently, on February 8, 2016, Law No. 20,899 that simplifies the income tax system and modifies other matters, changeslegal tax provisions was published. As a result of these reforms, open stock corporations like SQM are subject to the corporate tax regime to create two tax regimes. Starting on January 1, 2017, Chilean companies will be able to opt between two tax regimes: (i) the partially integrated shareholder tax regime (sistema(sistema parcialmente integrado) or (ii) the attributed income shareholder taxation regime (sistema de renta atribuida)integrado). In both regimes, theThe corporate tax rate will beapplicable to us increased to 21%24% in 2014, 22.5% in 2015 and 24% by 2016. On or after January 1, 2017, and depending on the tax regime chosen by the company, tax rates may be increasedIt will increase to a maximum rate of 25% in 2017 for the attributed income shareholder taxation regime or to a rate of 25.5% in 2017 and subsequentlyincrease to a maximum rate of 27% in 2018 for the partially integrated shareholder tax regime.2018.

 

As an open stock corporation, the default regime that applies to us is the partially integrated regime, unless at a future shareholders’ meeting our shareholders agree to opt for the attributed income shareholder taxation regime. Under the partially integrated shareholder taxation regime, shareholders bear the tax on dividends when paid,upon payment, but they will only be permitted to credit against such shareholder taxes only a portion of the Chilean corporate tax paid by us on our earnings, unless the shareholder is resident in a country with a tax treaty in force with Chile or signed with Chile prior to January 1, 2017, whether or not in whichforce. In that case, 100% of the Chilean corporate tax paid by us may be credited against suchthe final taxes at the shareholder taxes. level.

As a result, foreign shareholders resident in a non-treaty jurisdiction (such as the United States) will be subject to a higher effective tax rate than residents of treaty jurisdictions. Under the attributed-income shareholder taxation regime, shareholders bear the ChileanThere is a temporary rule in effect from January 1, 2017 through December 31, 2019 that treaty jurisdictions for this purpose will include jurisdictions with tax on our accrued earnings (whethertreaties signed with Chile prior to January 1, 2017, whether or not dividends have been distributed), but may creditsuch treaties are in force. This is currently the full amountstatus of the Chilean corporate tax we pay on such earnings against such shareholder taxes.treaty signed between Chile and United States.

 

The Tax Reform tax increase prompted a US$52.3 million increase in our deferred tax liabilities as of December 31, 2014.In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have beenwere applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity as of December 31, 2014 was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit for the year and income tax expense as presented in the Company’s Audited Consolidated Financial Statements compared with profit and income tax expense as presented in itsthe Company’s statutory consolidated financial statements filed with the SVS.

 

Given the difference in accounting treatments between IFRS and the instructions of the SVS, we will continue to analyze the effects of the Tax Reform on our financial statements and reporting obligations, and we cannot be sure of how our future financial statements will reflect these changes.

 

In addition, the Tax Reform may have other material adverse effects on our business, financial condition and results of operations. Likewise, we cannot assure you that the manner in which the Royalty Law or the corporate tax rate are interpreted and applied will not change in the future. The Chilean government may decide to levy additional taxes on mining companies or other corporations in Chile. Such changes could have a material adverse effect on our business, financial condition and results of operations.

 

18

Ratification of the International Labor Organization’s Convention 169 concerning indigenous and tribal peoples might affect our development plans

 

Chile, a member of the International Labor Organization (“ILO”), has ratified the ILO’s Convention 169 (the “Indigenous Rights Convention”) concerning indigenous and tribal people. The Indigenous Rights Convention established several rights for indigenous people and communities. Among other rights, the Indigenous Rights Convention states that (i) indigenous groups should be notified and consulted prior to the development of any project on land deemed indigenous, although veto rights are not mentioned and (ii) indigenous groups have, to the extent possible, a stake in benefits resulting from the exploitation of natural resources in indigenous land. The extent of these benefits has not been defined by the Chilean government. The Chilean government has addressed item (i) above through Supreme Decree No. 66, issued by the Social Development Ministry. This decree requires government entities to consult indigenous groups that may be directly affected by the adoption of legislative or administrative measures, and it also defines criteria for the projects or activities that must be reviewed through the environmental evaluation system that also require such consultation. To the extent that the new rights outlined in the Indigenous Rights Convention become laws or regulations in Chile, they could affect the development of our investment projects in lands that have been defined as indigenous, which could have a material adverse effect on our business, financial condition and results of operations.

Chile is located in a seismically active region

 

Chile is prone to earthquakes because it is located along major fault lines. The most recent major earthquake in Chile occurred offshore in April 20142015 and had a magnitude of 8.28.3 on the Richter scale. This earthquake followed another oneThere were also earthquakes in February2014 and 2010 whichthat caused substantial damage to some areas of the country. Chile has also experienced volcanic activity. A major earthquake or a volcanic eruption could have significant negative consequences for our operations and for the general infrastructure, such as roads, rail, and access to goods, in Chile. Although we maintain industry standard insurance policies that include earthquake coverage, we cannot assure you that a future seismic or volcanic event will not have a material adverse effect on our business, financial condition and results of operations.

 

Risks Relating to our Shares and to our ADSs

The price of our ADSs and the U.S. dollar value of any dividends will be affected by fluctuations in the U.S. dollar/Chilean peso exchange rate

 

Chilean trading in the shares underlying our ADSs is conducted in Chilean pesos. The depositary will receive cash distributions that we make with respect to the shares in Chilean pesos. The depositary will convert such Chilean pesos to U.S. dollars at the then prevailing exchange rate to make dividend and other distribution payments in respect of ADSs. If the value of the Chilean peso falls relative to the U.S. dollar, the value of the ADSs and any distributions to be received from the depositary will decrease.

 

Developments in other emerging markets could materially affect the value of our ADSs and our shares

 

The Chilean financial and securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries or regions of the world. Although economic conditions are different in each country or region, investor reaction to developments in one country or region can have significant effects on the securities of issuers in other countries and regions, including Chile and Latin America. Events in other parts of the world may have a material effect on Chilean financial and securities markets and on the value of our ADSs.ADSs and our shares.

 

19

The volatility and low liquidity of the Chilean securities markets could affect the ability of our shareholders to sell our ADSs

 

The Chilean securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. The volatility and low liquidity of the Chilean markets could increase the price volatility of our ADSs and may impair the ability of a holder to sell our ADSs into the Chilean market in the amount and at the price and time he wishes to do so.

 

Our share or ADS price may react negatively to future acquisitions and investments

 

As world leaders in our core businesses, part of our strategy is to look for opportunities that will allow us to consolidate and strengthen our competitive position in jurisdictions in which we currently do not operate. Pursuant to this strategy, we may carry out acquisitions or joint ventures relating to any of our businesses or to new businesses in which we believe we may have sustainable competitive advantages. Depending on our capital structure at the time of such acquisitions or joint ventures, we may need to raise significant debt and/or equity which will affect our financial condition and future cash flows. Any change in our financial condition could affect our results of operations, negatively impacting our share or ADS price.

You

ADS holders may be unable to enforce rights under U.S. Securities Lawssecurities laws

 

Because we are a Chilean company subject to Chilean law, the rights of our shareholders may differ from the rights of shareholders in companies incorporated in the United States, and youADS holders may not be able to enforce or may have difficulty enforcing rights currently in effect under U.S. Federalfederal or Statestate securities laws.

 

Our Company is an open stock corporation incorporated under the laws of the Republic of Chile. Most of our directors and officers reside outside the United States, principally in Chile. All or a substantial portion of the assets of these persons are located outside the United States. As a result, if any of our shareholders, including holders of our ADSs, were to bring a lawsuit against our officers or directors in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons. Likewise, it may be difficult for them to enforce judgments obtained in United States courts based upon the civil liability provisions of the federal securities laws in the United States against them in the United States.

 

In addition, there is no treaty between the United States and Chile providing for the reciprocal enforcement of foreign judgments. However, Chilean courts have enforced judgments rendered in the United States, provided that the Chilean court finds that the United States court respected basic principles of due process and public policy. Nevertheless, there is doubt as to whether an action could be brought successfully in Chile in the first instance on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.

As preemptive rights may be unavailable for our ADS holders, they have the risk of their holdings being diluted if we issue new stock

 

Chilean laws require companies to offer their shareholders preemptive rights whenever issuing new shares of capital stock so shareholders can maintain their existing ownership percentage in a company. If we increase our capital by issuing new shares, a holder may subscribe for up to the number of shares that would prevent dilution of the holder’s ownership interest.

 

If we issue preemptive rights, United States holders of ADSs would not be able to exercise their rights unless a registration statement under the Securities Act were effective with respect to such rights and the shares issuable upon exercise of such rights or an exemption from registration were available. We cannot assure holders of ADSs that we will file a registration statement or that an exemption from registration will be available. We may, in our absolute discretion, decide not to prepare and file such a registration statement. If our holders were unable to exercise their preemptive rights because we did not file a registration statement, the depositary bank would attempt to sell their rights and distribute the net proceeds from the sale to them, after deducting the depositary’s fees and expenses. If the depositary could not sell the rights, they would expire and holders of ADSs would not realize any value from them. In either case, ADS holders’ equity interest in us would be diluted in proportion to the increase in our capital stock.

 

23
20 

 

If we were classified as a Passive Foreign Investment Company by the U.S. Internal Revenue Service, there could be adverse consequences for U.S. investors

 

We believe that we were not classified as a Passive Foreign Investment Company (“PFIC”) for 2014.2016. Characterization as a PFIC could result in adverse U.S. tax consequences to you if you are a U.S. investor in our shares or ADSs. For example, if we (or any of our subsidiaries) are a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we (or any of our subsidiaries or portfolio companies) are a PFIC is made on an annual basis and will depend on the composition of our (or their) income and assets from time to time. See “Item 10.E. Taxation—United States Tax Considerations.”

 

Changes in Chilean tax regulations could have adverse consequences for U.S. investors

 

Currently cash dividends paid by us to foreign shareholders are subject to a 35% Chilean withholding tax. If we have paidWhen the Company pays a corporate income tax (the “First Category Tax”) on the income from which the dividend is paid, known as a “First Category Tax”, a credit for the full amount of the First Category Tax effectively reduces the rate of Withholding Tax. Changes in Chilean tax regulations could have adverse consequences for U.S. investors. See “Item 3.3.D. Risk Factors—Risks Relating to Chile—The Chilean Government Could Levy Additional Taxes on Corporations Operating in Chile” and “Item 10.10.E. Taxation—Chilean Tax Considerations.”

 

ITEM 4.    INFORMATION ON THE COMPANY

 

4.A.    History and Development of the Company

 

Historical Background

 

Sociedad Química y Minera de Chile S.A. is an open stock corporation organized under the laws of the Republic of Chile. We were constituted by public deed issued on June 17, 1968 by the Notary Public of Santiago, Mr. Sergio Rodríguez Garcés. Our existence was approved by Decree No. 1,164 of June 22, 1968 of the Ministry of Finance, and we were registered on June 29, 1968 in the Registry of Commerce of Santiago, on page 4,537 No. 1,992. Our headquarters is located at El Trovador 4285, Fl. 6, Las Condes, Santiago, Chile. Our telephone number is +56 2 2425-2000. Our U.S. representative is SQM NA located at 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA 30339. The phone number is +1 (770) 916-9407.

 

Commercial exploitation of the caliche ore deposits in northern Chile began in the 1830s, when sodium nitrate was extracted from the ore for use in the manufacturing of explosives and fertilizers. By the end of the nineteenth century, nitrate production had become the leading industry in Chile, and the country was the world’s leading supplier of nitrates. The accelerated commercial development of synthetic nitrates in the 1920s and the global economic depression in the 1930s caused a serious contraction of the Chilean nitrate business, which did not recover significantly until shortly before the Second World War. After the war, the widespread commercial production of synthetic nitrates resulted in a further contraction of the natural nitrate industry in Chile, which continued to operate at depressed levels into the 1960s.

 

21

We were formed in 1968 through a joint venture between Compañía Salitrera Anglo Lautaro S.A. (“Anglo Lautaro”) and Corfo.Corfo, a Chilean government entity. Three years after our formation, in 1971, Anglo Lautaro sold all of its shares to Corfo, and we were wholly owned by the Chilean Government until 1983. In 1983, Corfo began a process of privatization by selling our shares to the public and subsequently listing such shares on the Santiago Stock Exchange. By 1988, all of our shares were publicly owned. Our Series B ADSs have traded on the NYSE under the ticker symbol “SQM” since 1993. We accessed international capital markets again for the issuance of additional ADSs in 1995 and 1999. On December 21, 2006, two groups of shareholders, the “Pampa Group” (which includes the company Sociedad de Inversiones Pampa Calichera S.A. (“Pampa Calichera”) and its related companies, Inversiones Global Mining Chile Limitada and Potasios de Chile S.A.) and Kowa Group (which includes the companies Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A and La Esperanza Delaware Corporation) signed a joint agreement and became the controlling group of SQM.

Since our inception, we have produced nitrates and iodine, which are obtained from the caliche ore deposits in northern Chile. In 1985, we began to use heap leaching processes to extract nitrates and iodine, and in 1986 we started to produce potassium nitrate at our Coya Sur facility. Between 1994 and 1999, we invested approximately US$300 million in the development of the Salar de Atacama project in northern Chile, which enabled us to produce potassium chloride, lithium carbonate, potassium sulfate and boric acid.

 

From 2000 through 2004, we principally consolidated the investments carried out in the preceding five years. We focused on reducing costs and improving efficiencies throughout the organization. In addition, in 2001, we signed a commercial distribution agreement with the Norwegian company Yara International ASA, in order to take advantage of cost synergies in the Specialty Plant Nutrition business line.

 

Starting in 2005, we began strengthening our leadership position in our core businesses through a combination of capital expenditures and advantageous acquisitions and divestitures. Our acquisitions have included the Kemira Emirates Fertiliser Company (“Kefco”) in Dubai in 2005 and the iodine business of Royal DSM N.V. (“DSM”) in 2006. We also entered into a number of joint ventures, including a joint venture with Migao Corporation (“Migao”), signed in 2008, for the production of potassium nitrate, and SQM VITAS, our joint venture with the French Roullier Group. Pursuant to the latter joint venture, in 2010, we launched a new line of soluble phosphate products, and in 2012 we built new plants for the production of water-soluble fertilizers in Brazil (Candeias), Peru and South Africa (Durban). We have also sold: (i) Fertilizantes Olmeca, our former Mexican subsidiary, in 2006, (ii) our stake in Impronta S.R.L., our former Italian subsidiary, in 2007 and (iii) our former butyllithium plant located in Houston, Texas, in 2008. These sales allowed us to concentrate our efforts on our core products.

 

The capital expenditure program has allowed us to add new products to our product linelines and increase the production capacity of our existing products. In 2005, we started production of lithium hydroxide at a plant in the Salar del Carmen, near the city of Antofagasta in the north of Chile. In 2007, we completed the construction of a new prilling and granulating plant.plant for nitrates in Coya Sur. In 2011, we completed expansions of our lithium carbonate capacity, achieving 48,000 metric tons of capacity per year. Since 2010, we have continued to expand our production capacity of potassium products in our operations in the Salar de Atacama. In 2011, we completed the construction of a new potassium nitrate facility in Coya Sur, increasing our overall production capacity of potassium nitrate by 300,000 metric tons per year. In 2013, we completed expansions in the production capacity of our iodine plants in Nueva Victoria. Our capital expenditure program also includes exploration for metallic minerals. Our exploration efforts have led to discoveries that in some cases may result in sales of the discovery and the generation of royalty income in the future. Within this context, in 2013 we sold our royalty rights to the Antucoya mining project to Antofagasta Minerals. In 2013 we also opened a trading office in Thailand.

 

In 2014, we invested in the development of new extraction sectors and production increases in both nitrates and iodine at Nueva Victoria, reaching an approximate production capacity (including the Iris facility) of 6,5008,500 metric tons per year of iodine at the facility. We also issued a bond in the international capital markets for US$250 million, primarily to refinance existing indebtedness.

 

22

In 2015, we focused on increasing the efficiency of our operations. Within this context, we announced a plan to restructure our iodine and nitrate operations. In an effort to take advantage of our highly efficient production facilities at our Nueva Victoria site, we decided to suspend the mining and nitrate operations and reduce iodine production at our Pedro de Valdivia site. During the year, we increased our iodine production capacity at Nueva Victoria to approximately 9,000 metric tons per year. Including Pedro de Valdivia and Nueva Victoria our effective iodine capacity is approximately 10,000 metric tons per year.

In 2016, we entered into a 50/50 joint venture with Lithium Americas to develop the Caucharí-Olaroz lithium project in the Jujuy province of Argentina. The project’s production capacity is targeted at 50,000 tons per year of lithium carbonate equivalent. Under the current project timeline, we expect to commission plant production by 2019. We also made a capital contribution of US$20 million to Elemental Minerals Limited (“Elemental Minerals”), an Australian based company whose main assets are various potassium deposits in the Republic of Congo. We invested approximately US$20 million in exchange for 18% of the company, and a right of first refusal for approximately 20% of the total potash production of Elemental Minerals. Following this transaction at the end of 2016, Elemental Minerals changed its name to Kore Potash Limited. The State General Reserve Fund of Oman contributed US$20 million. These investments are not included in the capital expenditure program amounts discussed in the section below. These investments were carried out with internal financing.

Capital Expenditure Program

 

We regularly review different opportunities to improve our production methods, reduce costs, increase production capacity of existing products and develop new products and markets. Additionally, significant capital expenditures are required every year in order to sustain our production capacity. We are focused on developing new products in response to identified customer demand, as well as new products that can be derived as part of our existing production or other products that could fit our long-term development strategy. Our capital expenditures during the past five years were mainly related to the organic growth and sustainability of our business, including the construction of new facilities and the renovation of plants and equipment.equipment; during 2016, we begin new investment projects associated with our lithium, potassium nitrate and iodine business lines. These investments were carried out with internal financing through our capital expenditure program for investments in Chile.

Our capital expenditures for the years ended December 31, 2014, 20132016, 2015 and 20122014 were as follows:

 

(in millions of U.S. dollars) 2014  2013  2012 
Capital Expenditures  112.1   386.5   450.0 
(in millions of US$) 2016  2015  2014 
Capital expenditures  131.3   111.3   112.1 

During 2016, we had total capital expenditures of US$131.3 million, primarily related to:

·Completion of the project related to the expansion of ponds at Nueva Victoria to increase the production of iodine and nitrates;
·Capacity expansion projects related to our potassium nitrate production;
·Capacity expansion project related to our lithium hydroxide production;
·Improvements in the open storage areas at the Port of Tocopilla;
·General maintenance of all production units in order to ensure the fulfillment of production targets and the safety of all of our employees.

During 2015, we had total capital expenditures of US$111.3 million, primarily related to:

·expansion of ponds at Nueva Victoria in order to increase the production of iodine and nitrates;

23

·refining system at potassium nitrate plants;
·exploration and construction of new wells to sustain production at the Salar de Atacama and
·maintenance of production facilities in order to ensure production goals are met, as well as improvements in the open storage areas at the Port of Tocopilla.

 

During 2014, we had total capital expenditures of US$112.1 million, primarily related to:

 

·development of new extraction sectors and production increases for both nitrates and iodine at Nueva Victoria;
·investments aimed at maintaining and improving the quality of finished nitrate products;
·exploration and construction of wells to sustain long-term production at the Salar de Atacama;
·consolidation of our corporate enterprise resource planning into SAP and
·maintenance across all production units in order to ensure fulfillment of production targets.

 

During 2013, we had total capital expenditures of US$386.5 million, primarily related to:

·improvement of nitrate-based products at Coya Sur;
·investment relating to increasing production capacity of potassium-based products at the Salar de Atacama;
·ongoing investment relating to increasing production capacity and efficiency in our nitrate and iodine facilities;
·optimization of our potassium chloride facility at the Salar de Atacama;
·projects to increase the efficiency of our human resources and logistics departments and
·various projects designed to maintain production capacity, increase yields, and reduce costs.

During 2012, we had total capital expenditures of US$450.0 million, primarily related to:

·projects to increase capacity and efficiencies at nitrate and iodine facilities in the Tarapacá region;
·continued investments related to increasing production capacity of potassium-based products at the Salar de Atacama, including several projects related to production of finished products and
·various projects designed to maintain production capacity, increase yields and reduce costs.

The Board of Directors has approved a capital expenditures plan for 20152017 of approximately US$182170 million primarily focused on the maintenance of our production facilities. Our 2015facilities in order to strengthen our ability to meet our production goals and to increase lithium and nitrates production capacity. This amount does not include an approximately US$100 million investment in the development of the Caucharí-Olaroz lithium project in Argentina, which we expect to begin construction on, as planned, during the first half of 2017. In addition, we will begin the engineering and preliminary supply purchases related to the potassium nitrate plant, and we will complete the construction of a new lithium hydroxide plant. We do not expect that our 2017 capital investment program will not require any external financing; however,financing. However, we reservealways have the rightoption to access capital markets in order to optimize our financial position.

 

4.B. Business Overview

 

The Company

 

We believe that we are the world’s largest producer of potassium nitrate and iodine chemicals.iodine. We also produce specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals (including industrial nitrates and solar salts). Our products are sold in over 110115 countries through our worldwide distribution network, with 89%92% of our sales in 20142016 derived from countries outside Chile.

Our products are mainly derived from mineral deposits found in northern Chile. We mine and process caliche ore and brine deposits. The caliche ore in northern Chile contains the only known nitrate and iodine deposits in the world and is the world’s largest commercially exploited source of natural nitrates. The brine deposits of the Salar de Atacama, a salt-encrusted depression in the Atacama Desert in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate and boron.

 

From our caliche ore deposits, we produce a wide range of nitrate-based products used for specialty plant nutrients and industrial applications, as well as iodine and iodine derivatives. At the Salar de Atacama, we extract brines rich in potassium, lithium, sulfate and boron in order to produce potassium chloride, potassium sulfate, lithium solutions boric acid and bischofite (magnesium chloride). We produce lithium carbonate and lithium hydroxide at our plant near the city of Antofagasta, Chile, from the solutions brought from the Salar de Atacama. We market all of these products through an established worldwide distribution network.

 

24

Our products are divided into six categories: specialty plant nutrients; iodine and its derivatives; lithium and its derivatives; potassium chloride and potassium sulfate; industrial chemicals;chemicals and other commodity fertilizers. Specialty plant nutrients are premium fertilizers that enable farmers to improve yields and the quality of certain crops. Iodine and its derivatives are mainly used in the X-ray contrast media and biocides industries and in the production of polarizing film, which is an important component in LCD screens. Lithium and its derivatives are mainly used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by us worldwide. In addition, we complement our portfolio of plant nutrients through the buying and selling of other commodity fertilizers for use mainly in Chile. Potassium sulfate is a specialty fertilizer used primarily in crops such as vegetables, fruits and industrial crops. Industrial chemicals have a wide range of applications in certain chemical processes such as the manufacturing of glass, explosives and ceramics, and, more recently, industrial nitrates are being used in concentrated solar power plants as a means for energy storage. In addition, we complement our portfolio of plant nutrients through the buying and selling of other commodity fertilizers for use mainly in Chile.

 

For the year ended December 31, 2014,2016, we had revenues of US$2,014.21,939.3 million, gross profit of US$583.0611.0 million and profit attributable to controlling interests of US$236.9278.3 million. Our worldwide market capitalization as of December 31, 20142016 was approximately US$6.37.9 billion.

 

Specialty Plant Nutrition: We produce four main types of specialty plant nutrients: potassium nitrate, sodium nitrate, sodium potassium nitrate and specialty blends. Furthermore, we sell other specialty fertilizers including trading of third party products. All of these specialty plant nutrients are used in either solid or liquid form mainly on high value crops such as vegetables, fruits and flowers. They are widely used in crops that employ modern agricultural techniques such as hydroponics, greenhousing,green housing, fertigation (where fertilizer is dissolved in water prior to irrigation) and foliar application. According to the type of use or application, our products are primarily marketed under the following brands: Ultrasol™ (fertigation), Qrop™ (open field application), Speedfol™ (foliar application) and Allganic™ (organic farming). Specialty plant nutrients have certain advantages over commodity fertilizers, such as rapid and effective absorption (without requiring nitrification), superior water solubility, increased soil pH (which reduces soil acidity) and low chloride content. One of the most important products in this business line is potassium nitrate, which is available in crystalline and prill form, allowing for multiple application methods. Crystalline potassium nitrate products are ideal for application by fertigation and foliar sprays, and potassium nitrate prills are suitable for soil applications.

The needs of more sophisticated customers are causing the industry to provide solutions rather than individual products. The advantages of our products, plus customized specialty blends that meet specific needs along with the agronomic service provided, allow us to create plant nutrition solutions that add value to crops through higher yields and better quality production. Because our products are derived from natural nitrate compounds or natural potassium brines, they have certain advantages over synthetically produced fertilizers, including the presence of certain beneficial trace elements, which makes them more attractive to customers who prefer products of natural origin. As a result, specialty plant nutrients are sold at a premium price compared to commodity fertilizers.

 

Iodine and its Derivatives:We believe that we are the world’s leading producer of iodine and iodine derivatives, which are used in a wide range of medical, pharmaceutical, agricultural and industrial applications, including x-ray contrast media, polarizing films for LCD and LED, antiseptics, biocides and disinfectants, in the synthesis of pharmaceuticals, herbicides, electronics, pigments and dye components. We market iodine using the brand QIodine™.

 

Lithium and its Derivatives: We are a leading producer of lithium carbonate, which is used in a variety of applications, including electrochemical materials for batteries, frits for the ceramic and enamel industries, heat-resistant glass (ceramic glass), air conditioning chemicals, continuous casting powder for steel extrusion, primary aluminum smelting process, pharmaceuticals and lithium derivatives. We are also a leading supplier of lithium hydroxide, which is primarily used as an input for the lubricating greases industry and for certain cathodes for batteries. We market lithium using the following brands: QLithiumCarbonate™, QLithiumHydroxide™ and QLubelith™.

 

25

Potassium:We produce potassium chloride and potassium sulfate from brines extracted from the Salar de Atacama. Potassium chloride is a commodity fertilizer used to fertilize a variety of crops including corn, rice, sugar, soybean and wheat. Potassium sulfate is a specialty fertilizer used mainly in crops such as vegetables, fruits and industrial crops. We market potassium chloride using the brand Qrop™. MOP.

 

Industrial Chemicals: We produce fourthree industrial chemicals: sodium nitrate, potassium nitrate boric acid and potassium chloride. Sodium nitrate is used primarily in the production of glass, explosives, charcoal briquettes and metal treatment. Potassium nitrate is used in the manufacturing of specialty glass, and it is also an important raw material for the production of frits for the ceramics and enamel industries. Solar salts, a combination of potassium nitrate and sodium nitrate, are used as a thermal storage medium in concentrated solar power plants. Boric acid is used in the manufacture of frits for the ceramics and enamel industries, LCDs, glass and fiberglass. Potassium chloride is a basic chemical used to produce potassium hydroxide, and it is also used as an additive in oil drilling as well as in food processing, among other uses. We market our industrial chemicals using the following brands: QSodiumNitrate™,QPotassiumNitrate, QPotassiumChloride, QBoricAcidand UltrasolQPotassiumChloride.

 

Other Products and Services:We also sell other fertilizers and blends, some of which we do not produce. We are the onlylargest company that produces and distributes the three main potassium sources: potassium nitrate, potassium sulfate and potassium chloride.

 

The following table shows the percentage breakdown of our revenues for 2014, 20132016, 2015 and 20122014 according to our product lines:

  

2014

  

2013

  

2012

 
Specialty Plant Nutrition  35%  31%  28%
Iodine and Derivatives  17%  21%  24%
Lithium and Derivatives  10%  9%  9%
Potassium  29%  28%  25%
Industrial Chemicals  5%  7%  10%
Other  4%  4%  4%
Total  100%  100%  100%

  2016  2015  2014 
Specialty Plant Nutrition  32%  38%  35%
Iodine and Derivatives  12%  15%  17%
Lithium and Derivatives  27%  13%  10%
Potassium  21%  25%  29%
Industrial Chemicals  5%  6%  5%
Other  3%  4%  4%
Total  100%  100%  100%

 

28

Business Strategy

 

Our general business strategy is to:to be a mining operator that selectively integrates the production and sale of products, while efficiently supplying products to industries essential for human development (e.g. food, health, technology). This strategy was built on the following six principles:

 

·maintain leadershipstrengthen internal processes to ensure access to key resources required for the sustainability of the business;

·extend M1 (lean operations) to the entire organization to strengthen our cost position, increase quality and ensure safety;

·invest in specialty plant nutrients, iodine, lithium and industrial nitrates, in terms of production capacity, competitive pricing and the development of new products;a specialty fertilizer market, including product differentiation, sales channel management and price optimization;

·recover the iodine market share, seek consolidation and vertical integration opportunities, and invest in the development of industrial nitrate applications;

·search and invest in lithium and potassium assets outside of Chile to leverage our operational capabilities and take advantage of the current lithium market appeal and ensure access to raw materials for our potassium nitrate production; and

·seek diversification opportunities in gold, copper and zinc projects in the region to leverage our mining operating capabilities and provide business continuity to our exploration program.

26

These principles are based on the following four concepts:

·build an organization with strategic clarity, inspirational leaders, responsible personnel and strong values;
·maintain our competitiveness throughdevelop a strategic planning process that responds to the continued increase in the efficiencyneeds of our production processescustomers and cost reduction;market trends, while ensuring coordination between all segments of the business, including sales and operations;
·evaluatedevelop a robust risk control and execute acquisitions, joint ventures or commercial alliances which have concrete synergies withmitigation process to actively manage our current core businesses or provide sustainable competitive advantagesrisk; and
·maintain a solid, conservative financial positionimprove our stakeholder management to establish links with the community and investment grade ratingscommunicate to Chile and worldwide our contribution to industries essential for our debt securities.human development.

 

We have identified market demand in each of our major product lines, both within our existing customer base and in new markets, for existing products and for additional products that can be produced from our natural resources. In order toTo take advantage of these opportunities, we have developed specific strategies for each of our product lines.

 

Specialty Plant Nutrition

Our strategy in our specialty plant nutrition business is to: (i) continue expanding our sales of natural nitrates by continuing to leverage the advantages of our specialty products over commodity-type fertilizers; (ii) selectively expand by increasing our sales of higher margin specialty plant nutrients based on potassium and natural nitrates, particularly soluble potassium nitrate and NPK blends; (iii) pursue investment opportunities in complementary businesses to enhance our product portfolio, increase production, reduce costs, and add value to and improve the marketing of our products; (iv) develop new specialty nutrient blends produced in our mixing plants that are strategically located in or near our principal markets in order to meet specific customer needs; (v) focus primarily on the markets for plant nutrients in soluble and foliar applications in order to establish a leadership position; (vi) further develop our global distribution and marketing system directly and through strategic alliances with other producers and global or local distributors; (vii) reduce our production costs through improved processes and higher labor productivity so as to compete more effectively and (viii) supply a product with consistent quality according to the requirements of our customers.

 

Iodine and its Derivatives

Our strategy in our iodine business is to: (i) increasereach or at least maintain our market share of over 30% in the iodine market in order to optimize the use of our available production capacity; (ii) encourage demand growth and promote new iodine uses; (iii) participate in iodine recycling projects through the Ajay-SQM Group (“ASG”); (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively and (v) supply a product with consistent quality according to the requirements of our customers.

 

Lithium and its Derivatives

Our strategy in our lithium business is to: (i) strategically allocate our sales of lithium carbonate and lithium hydroxide sales;hydroxide; (ii) encourage demand growth and promote new lithium uses; (iii) selectively pursue opportunities in the lithium derivatives business by creating new lithium compounds; (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively and (v) supply a product with consistent quality according to the requirements of our customers.

 

Potassium

Our strategy in our potassium business is to: (i) offer a portfolio of potassium products, including potassium sulfate, potassium chloride and other fertilizers, to our traditional markets; (ii) create flexibility to offer crystalized (standard) or granular (compacted) form products according to market requirements; (iii) focus on markets where we have logistical advantages and synergies with our specialty plant nutrition business and (iv) supply a product with consistent quality according to the requirements of our customers.

27

Industrial Chemicals

Our strategy in our industrial chemical business is to: (i) maintain our leadership position in the industrial nitrates market as well as increase our supply of potassium chloride in markets where we have natural advantages; (ii) encourage demand growth in different applications; (iii) become a long-term, reliable supplier for the thermal storage industry;industry, maintaining close relationships with R&D programs; (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively and (v) supply a product with consistent quality according to the requirements of our customers.

 

New Business Ventures

From time to time we evaluate opportunities to expand in our current core businesses or within new businesses in which we believe we may have sustainable competitive advantages, both within and outside Chile, and we expect to continue to do so in the future.

 

We are continuously exploring the possibility of acquiring controlling stakes or other interests in companies that have mining properties in our core business areas and are in early stages of development. Consistent with our business strategy, we will continue to evaluate acquisitions, joint ventures and alliances in our core businesses and, depending on all facts and circumstances, may seek to acquire controlling stakes or other interests related to our core businesses both inside and outside of Chile, including other emerging markets.

 

In addition, we are actively conducting exploration for metallic minerals in the mining properties we own, through the generation of prospects and the progressive exploration of such prospects.own. If such minerals are found, we may decide to exploit, sell or enter into an association to extract these resources. We have already identified several areas in which weOur exploration efforts are conducting more targeted exploration, which may lead us to carry out further studies in order to finally decide how to proceed with any prospect or prospects of interest. We have flexibility in determining which strategy we consider appropriate, dependingcurrently focused on the characteristicslayer of each prospect. We may also decide not to move forward with anybedrock that lies beneath the caliche ore that we use as the primary raw material in the production of iodine and nitrates. This bedrock has significant potential for metallic prospects discovered frommineralization, particularly copper and gold. A significant portion of our exploration operations. Between 2011 and 2014 exploration expenses have averaged US$8.5 million per year, while for 2015 expensesmining properties are not expected to exceed US$5 million as a resultlocated in the Antofagasta region of a new strategy to optimize our exploration plan.Chile, where many large copper producers operate.

 

We have an in-house geological exploration team that explores the area directly, drilling targets and assessing new prospects. In parallel2016, the team identified 15 new targets and confirmed mineralization in four of the targets, using its own truck-mounted drill rigs. The number of perforated meters reached 32,000 meters, and were made with three machines of which two were internal and the other external. We also have a metal business development team that works to engage partners interested in investing in metal exploration within our own exploration operations, asmining properties. As of March 2015,December 31, 2016, we had 12ten option agreements in effectplace with third parties andeight companies, including small junior mining companies, related to metallic mineral exploration. In all these agreements, we retain the rights over the caliche ore, which contains nitrates, iodineprivate equity firms and potassium, among others. We continue to develop our program of exploration alliances with third parties through option contracts, in particular through minority participation and maintaining royalties on sales if the prospect is exploited. These alliances have enabled us to finance the metallic exploration efforts carried out by SQM. Our current plan is to achieve and maintain closer to one million hectares under exploration alliances and maintain exploration investment of approximately US$20 million per year by our current and future partners in these exploration alliances.large mining companies.

 

Main Business Lines

Specialty Plant Nutrition

We believe we are the world’s largest producer of potassium nitrate. We estimate that our sales accounted for approximately 46%44% of global potassium nitrate sales for all applications by volume in 2014. This estimate does2016, an increase from 43% in 2015. During 2016, the potassium nitrate market increased by around 3%. These estimates do not include potassium nitrate produced and sold locally in China, only net imports/exports. During 2014, the

In addition to potassium nitrate, market grew around 10% (considering only agricultural use of potassium nitrate, and excluding sales by Chinese producers to the domestic Chinese market), with global sales exceeding one million metric tons. This was due in part to the substitution of potassium nitrate for potassium sulfate and also to the more competitive pricing between these chloride-free sources of potassium. Wewe also produce the following specialty plant nutrients: sodium nitrate, sodium potassium nitrate and specialty blends (containing various combinations of nitrogen, phosphate and potassium and generally known as “NPK blends”).

These specialty plant nutrients have specific characteristics that increase productivity and enhance quality when used on certain crops and soils. Our specialty plant nutrients have significant advantages for certain applications over commodity fertilizers based on nitrogen and potassium, such as urea and potassium chloride.

28

 

In particular, our specialty plant nutrients:

 

·are fully water soluble, allowing their use in hydroponics, fertigation, foliar applications and other advanced agricultural techniques;
·improve the water use efficiency of crops and help conserve water;
·are chloride-free, which prevents chloride toxicity in certain crops associated with high levels of chlorine in plant nutrients;
·provide nitrogen in nitric form, thereby allowing crops to absorb nutrients faster than they absorb urea or ammonium-based fertilizers;
·do not release hydrogen after application, thereby avoiding increased soil acidity;
·possess trace elements, which promote disease resistance in plants and
·are more attractive to customers who prefer products of natural origin.

 

In 2014,2016, our specialty plant nutrients sales increasedrevenues decreased to US$708.0623.9 million, representing 35%32% of our total salesrevenues for that year and a 3.0% increase4.4% decrease from US$687.5652.3 million in specialty plant nutrients salesrevenues in 2013.2015. This increasedecrease was athe result of higher sales volumes, which increased 3.6%lower prices compared to 2015. Prices decreased approximately 5% in 2014.2016.

 

Specialty Plant Nutrition: Market

 

The target market for our specialty plant nutrients includes producers of high-value crops such as vegetables, fruits, industrial crops, flowers, cotton and others. Furthermore, we sell specialty plant nutrients to producers of chloride-sensitive crops. Since 1990, the international market for specialty plant nutrients has grown at a faster rate than the international market for commodity-type fertilizers. This is mostly due to: (i) the application of new agricultural technologies such as fertigation and hydroponics, and the increasing use of greenhouses; (ii) the increase in the cost of land and the scarcity of water, which has forced farmers to improve their yields and reduce water use; and (iii) the increase in demand for higher quality crops, such as fruits and vegetables.

 

Over the last 10ten years, the compound annual growth rate for vegetable production per capita was 3.0%3% while the compound annual growth rate for the world population was only 1.5%closer to 1%.

 

Worldwide scarcity of water and arable land drives the development of new agricultural techniques to maximize the use of these resources. Irrigation has grown at an average annual rate of 1.5%1% during the last 20 years (a pace equal withsimilar to population growth). However, micro-irrigationmicroirrigation has grown at 10% per year over the same period. Microirrigation systems, which include drip-irrigationdrip irrigation and micro-sprinklers, are the most efficient forms of technical irrigation. These applications require fully water-soluble plant nutrients. Our nitrate-based specialty plant nutrients provide nitrogen in nitric form, which helps crops absorb these nutrients faster than they absorb urea- or ammonium-based fertilizers, facilitating a more efficient application of nutrients to the plant and thereby increasing the crop’s yield and improving its quality.

Asia is the region with the lowest ratio (micro-irrigation/microirrigation to total irrigated hectares)hectares ratio in the world, reaching around 3%. This represents a high potential for this technology, which is reflected in the high growth rates in recent years. For example, the growth rate of hectares under micro-irrigation in China is estimated to have exceeded 6% in 2014.

 

The market for potassium nitrate in China is 385,000an important market for this product, although its demand is largely fulfilled by domestic producers. Demand totals approximately 400,000 to 400,000420,000 metric tons, of which approximately 150,000 is related to the tobacco industry and 75,000 to 80,000120,000 is related to the horticulture business. Of the total, between 40,00020,000 and 50,00030,000 metric tons are imports.

 

29

Specialty Plant Nutrition: Our Products

 

Potassium nitrate, sodium potassium nitrate and specialty blends are higher margin products derived from, or consisting of, sodium nitrate, and they are all produced in crystallized or prilled form. Specialty blends are produced using our own specialty plant nutrients and other components at blending plants operated by us or our affiliates and related companies in Chile, the United States, Mexico, the United Arab Emirates, South Africa, Turkey, China, India, Thailand, Brazil, Spain, Netherlands and Peru.

 

The following table shows our sales volumes of and revenues from specialty plant nutrients for 2014, 20132016, 2015 and 2012:2014:

  

2014

  

2013

  

2012

 
Sales Volume (Th. MT)            
Sodium nitrate  15.8   26.2   24.4 
Potassium nitrate and sodium potassium nitrate  531.6   512.6   469.3 
Specialty blends(1)  228.0   208.1   197.5 
Other specialty plant nutrients(2)  102.5   100.8   89.0 
Total Revenues(in US$ millions)  708.0   687.5   675.3 

  2016  2015  2014 
Sales volumes(Th. MT)            
Sodium nitrate  24.4   26.0   15.8 
Potassium nitrate and sodium potassium nitrate  475.8   493.6   531.6 
Specialty blends(1)  213.5   203.9   228.0 
Other specialty plant nutrients(2)  127.2   108.4   102.5 
             
Total revenues(in US$ millions)  623.9   652.3   708.0 

 

(1)Includes Yara’s products sold pursuant to our commercial agreement.
(2)Includes trading of other specialty fertilizers.

 

Depending on the systems used to apply specialty nutrients, fertilizers can be classified as specialty field fertilizers or water-soluble fertilizers.

 

Specialty field fertilizers are applied directly to the soil, manually or in a mechanized fashion. Their high solubility levels, lack of harmful chlorine and absence of acidic reactions make them particularly advantageous for tobacco, potatoes, coffee, cotton and a wide range of fruits and vegetables.

 

Water-soluble fertilizers are specialty nutrients that are delivered to the crops using modern irrigation systems. As these systems feature refined technology, the products used in them must be highly soluble, rich in nutrients, free of impurities and insoluble substances, and with a low salinity index. The leading nutrient in this segment is potassium nitrate, whose optimal balance of nitric nitrogen and chlorine-free potassium (the two macronutrients most needed by plants) make it an indispensable source of nutrition for crops that use modern irrigation systems.

 

In addition, potassium nitrate is widely known to be a vital component in foliar feeding applications, where usage is recommended in order to stave off nutritional deficiencies before the first symptoms appear, correct any deficiencies that arise and prevent physiological stress. This nutrient also helps promote a suitable balance between fruit production and/or growth, and plant development, particularly in crops with physiological disorders.

Foliar feeding with potassium nitrate can have beneficial effects:

 

·when soil chemistry limits nutrient solubility and availability (pH, organic matter, type and percentage of clay);
·when nutrient absorption through the roots is limited as a result of conditions that hamper root growth (temperature, moisture, oxygen and loss of soil structure);
·when the plant’s local internal demand may surpass real internal nutrient redistribution capacity, leaving the demand unsatisfied;
·when nutrient mobility is limited, when plants flower before the leaf growth phase, imposing limiting factors on xylem nutrient transport;transport and

30

·to promote rapid recovery from leaf stress caused by climatic conditions, soil conditions and irrigation management.

Another benefit of our potassium nitrate is that, according to a 2014 study by the consulting firm Arthur D. Little Benelux, our production process generates up to 40% less greenhouse gases compared to other major potassium nitrate producers in the world.

 

In addition to these products, SQM has consolidated a product portfolio of over 200 specialty fertilizer blends, including top brands such as UltrasolTM, for fertigation; QropTM, for application to the soil; SpeedfolTM, for foliar feeding;feeding and AllganicTM, for organic crops.

 

In 2015, we added a new product to our portfolio of specialty field fertilizers: QropTMKS. This product was developed by our research and development team and is an improvement to existing products. It is more physically stable and is not required to be transported as hazardous cargo, which means it can be sold in other markets.

Specialty Plant Nutrition: Marketing and Customers

 

In 2014,2016, we sold our specialty plant nutrients in over 85approximately 98 countries. During the same year, sales of our specialty plant nutrients were as per the table below. No singleOne customer represented more than 10% of our specialty plant nutrient salesrevenues during 2014,2016, representing approximately 27% of our total specialty plant nutrition revenues, and we estimate that our 10ten largest customers accounted in the aggregate for approximately 34%50% of salesrevenues during that period. No supplier accounted for more than 10% of the costs of sales for this business line.

 

Sales Breakdown

 

2014

  

2013

  

2012

 
North America  30%  27%  27%
Europe  21%  20%  17%
Central and South America  31%  32%  38%
Asia and Others  18%  21%  18%

The table below shows the geographical breakdown of our revenues:

Revenues breakdown 2016  2015  2014 
North America  33%  33%  30%
Europe  18%  22%  21%
Central and South America  11%  28%  31%
Asia and Others  37%  16%  18%

 

We sell our specialty plant nutrition products outside Chile mainly through our own worldwide network of representative offices and through our distribution affiliates.

 

We maintain stocksinventory of our specialty plant nutrients in the main markets of the Americas, Asia, Europe, the Middle East and Africa in order to facilitate prompt deliveries to customers. In addition, we sell specialty plant nutrients directly to some of our large customers. Sales are made pursuant to spot purchase orders and short-term contracts.

 

In connection with our marketing efforts, we provide technical and agronomical assistance and support to some of our customers. By working closely with our customers, we are able to identify new, higher-value-added products and markets. Our specialty plant nutrients are used on a wide variety of crops, particularly value-added crops, where the use of our products enables our customers to increase yieldyields and command a premium price.

 

In 2013, we launched the global Speedfol™ Crop SP project in order to promote a range of crop-specific, predominantly potassium nitrate-based, locally-produced, water-soluble NPK formulations for foliar spray applications. The Speedfol™ Crop SP project has a duration of five years and targets a variety of crops such as cereals grains, citrus, mango, cotton, soybean and coffee, in countries such as Brazil, China, India, Mexico, South Africa and the United States of America. Scientifically proven benefits of Speedfol™ Crop SP applications include increased yields, better quality (such as larger-sized fruits) and reduced crop losses (such as less premature fruit drop and lower lodging incidence in cereals).

Our customers are located in both the northern and southern hemispheres. Consequently, we do not believe there are any seasonal or cyclical factors that can materially affect the sales of our specialty plant nutrients.

 

31

Specialty Plant Nutrition: Joint Ventures and Agreements

 

Consistent with our business strategy, from time to time we evaluate opportunities to expand in our current core businesses, including our specialty plant nutrition business, or within new businesses in which we believe we may have sustainable competitive advantages. We evaluate potential acquisitions, joint ventures and alliances with companies both within and outside of Chile, including in other emerging markets.

 

In May 2008, we signed a commitment letter for a joint venture agreement with Migao Corporation (“Migao”) for the production and distribution of specialty plant nutrients in China. Through the joint venture, we constructed a potassium nitrate plant with a production capacity of 40,000 metric tons per year. The plant began operating in January 2011, and has allowed us to increase our presence in China, which is one of the most important and fastest growing markets for the fertilizer industry.

 

In May 2009, our subsidiary Soquimich European Holdings entered into an agreement with Coromandel Fertilizers Ltd. to create a joint venture for the production and distribution of water soluble fertilizers in India. The agreement established a 50⁄50 contribution to the joint venture. As part of the agreement, a new 15,000 metric ton facility was constructed in the city of Kakinada to produce water soluble NPK grade fertilizers. This new facility began operating in January 2012.

 

In December 2009, we signed an agreement with the French Roullier Group to form the joint venture SQM Vitas. This agreement joins two of the largest companies in the businesses of specialty plant nutrition, specialty animal nutrition and professional hygiene. Peru, Brazil and South Africa are the main focus markets of this joint venture, and Dubai is the main productive unit. As part of the agreement, our phosphate plant located in Dubai became part of this joint venture.

 

Between 2010 and 2012, we continued to expand our production capacity of potassium products in our operations in the Salar de Atacama. In 2011, we completed the construction of a new potassium nitrate facility in Coya Sur, increasing our overall production capacity of potassium nitrate by 300,000 metric tons.

In 2012, SQM Vitas started the construction of new plants in Brazil (Candeias), Peru and South Africa (Durban) for the production of water soluble fertilizers containing different relative amounts of nitrogen, phosphorus and potassium, and at times, smaller amounts of other chemicals. The Candeias Industrial Complex plant in Brazil began operating in March 2012 and has a production capacity of 25,000 metric tons per year.

Between 2010 and 2012, we continued to expand our production capacity of potassium products in our operations in the Salar de Atacama. In 2011, we completed the construction of a new potassium nitrate facility in Coya Sur, increasing our overall production capacity of potassium nitrate by 300,000 metric tons.

 

In 2013, the operations of SQM Vitas in Spain began with a water soluble NPK fertilizer plant that has a production capacity of 15,000 metric tons per year.

 

During 2013, the marketing activities of our joint ventures integrated in SQM (Beijing). This change aims to enhance the efficiency of distribution channels for fertilizer products by consolidating marketing into a unified brand and management team, thus reducing costs. In addition, our strategy in this segment is to increase production of water soluble fertilizers and extend our technologies and their applications in order to increase popularity and expand the use of these products.

On March 8, 2013, SQM VITAS acquired the Controlled Release Fertilizer (“CRF”) Technology and Plantacote® business and brand name from AGLUKON. Plantacote® is highly efficient in nutrient utilization and is environmentally friendly due to prevention of leaching, volatilization and fixation of nutrients in the soils as well as the degradation of the coating by microorganisms after complete nutrient release. The unique coating technology and quality standards make Plantacote® very reliable for growing high-quality plants. This new global facility will produce both premium and standard CRFs under the Plantacote® brand name in order to supply worldwide customers that are active in horticulture, agriculture, turf, growing media and consumer markets. Due to this acquisition, SQM VITAS will be able to further expand its current product portfolio of specialty plant nutrition solutions for the benefit of its customers.

 

In December 2014,2015, an asset transfer agreement was signed in December 2014 between Plantacote BV and Plantacote NV (a new company that is 99.99% owned by Doctor Tarsa, which is a company that was created in 2000 in which SQM holds a 50% stake).entered into effect. As a result of this agreement, the business and Plantacote® brand were transferred to the new company Plantacote NV, but with no changes to the business or the CRFControlled Release Fertilizer project. SQM continues to hold a 50% ownership stake in the company.

 

In 2015, SQM Vitas South Africa, was acquired by Roulliers. As a result, Roullier manages the operations, and the production facilities are owned by SQM.

In 2016, we began operating soluble specialty plant nutrient production facilities through our joint ventures in Peru and Netherlands. We also began operating a third facility in Mexico.

32

Specialty Plant Nutrition: Fertilizer Sales in Chile

We market specialty plant nutrients in Chile through our subsidiary Soquimich Comercial S.A. (SQMC)(“SQMC”).

 

SQMC is currently one of the main players in the Chilean market, offering a wide range of products developed specifically for the crops grown in the country. As specialty plant nutrients have differentiating qualities with respect to traditional fertilizers, they play a key role in this market.

 

SQMC sells local products as well as products imported from different countries around the world, including China, Mexico and Venezuela.world.

 

All contracts and agreements between Soquimich Comercial S.A. and its foreign suppliers of fertilizers generally contain standard and customary commercial terms and conditions. SQMC has been able to obtain adequate supplies of these products with good pricing conditions.

 

Soquimich Comercial S.A.’s fertilizer sales of fertilizers represented approximately 30%24% of total fertilizer sales in Chile during 2014.2016. No customer accounted for more than 10% of Soquimich Comercial S.A.’s revenues in 2016. Soquimich Comercial S.A.’s consolidated revenues were approximately US$214150 million and US$230177 million in 20142016 and 2013,2015, respectively.

 

Specialty Plant Nutrition: Competition

 

We believe we are the world’s largest producer of sodium nitrate and potassium nitrate for agricultural use. Our sodium nitrate products compete indirectly with specialty and commodity-type substitutes, which may be used by some customers instead of sodium nitrate depending on the type of soil and crop to which the product will be applied. Such substitute products include calcium nitrate, ammonium nitrate and calcium ammonium nitrate.

 

In the potassium nitrate market our largest competitor is Haifa Chemicals Ltd. (“Haifa”), in Israel, which is a subsidiary of Trans Resources International Inc. We estimate that sales of potassium nitrate by Haifa accounted for approximately 31% of total world sales during 20142016 (excluding sales by Chinese producers to the domestic Chinese market), compared to our share of the market which accounted for approximately 46%44% of global potassium nitrate sales by volume for the period.

 

ACF, another Chilean producer, mainly oriented to iodine production, has produced potassium nitrate from caliche ore and potassium chloride since 2005. Kemapco, a Jordanian producer owned by Arab Potash, produces potassium nitrate in a plant located close to the Port of Aqaba, Jordan. In addition, there are several potassium nitrate producers in China, the largest of which are Yuantong (Qinghai Salt Lake 75.5% and Wentong 24.5%) and Migao. Most of the Chinese production is consumed by the Chinese domestic market.

The principal means of competition in the sale of potassium nitrate are product quality, customer service, location, logistics, agronomic expertise and price.

 

In Chile, our products mainly compete with imported fertilizer blends that use calcium ammonium nitrate or potassium magnesium sulfate. Our specialty plant nutrients also compete indirectly with lower-priced synthetic commodity-type fertilizers such as ammonia and urea, which are produced by many producers in a highly price-competitive market. Our products compete on the basis of advantages that make them more suitable for certain applications as described above.

 

33

Iodine and its Derivatives

 

We believe we are the world’s largest producer of iodine. In 2014,2016, our revenues from iodine and iodine derivatives amounted to US$335.4231.1 million, representing 17%12% of our total revenues in that year. We estimate that our sales accounted for approximately 26%29% of world iodine sales by volume in 2014.2016.

 

Iodine: Market

 

Iodine and iodine derivatives are used in a wide range of medical, agricultural and industrial applications as well as in human and animal nutrition products. Iodine and iodine derivatives are used as raw materials or catalysts in the formulation of products such as X-ray contrast media, biocides, antiseptics and disinfectants, pharmaceutical intermediates, polarizing films for LCDs,LCD and LED screens, chemicals, herbicides, organic compounds and pigments. Iodine is also added in the form of potassium iodate or potassium iodide to edible salt to prevent iodine deficiency disorders.

 

X-ray contrast media is the leading application of iodine, accounting for 22%approximately 23% of demand. Iodine’s high atomic number and density make it ideally suited for this application, as its presence in the body can help to increase contrast between tissues, organs, and blood vessels with similar X-ray densities. Other applications include pharmaceuticals, which we believe account for 13% of demand; LCD and LED screens, 12%; iodophors and povidone-iodine, 12%; LCD screens, 12%10%; animal nutrition, 8%; fluoride derivatives, 7%; biocides, 5%; nylon, 4% and; human nutrition, 3% and other applications, 16%.

 

We have seen consistentDuring 2016, iodine demand grew slightly compared to 2015, partly as a result of very minimal growth in the iodine market over the last ten years, with the exception of 2009, which was affected by the global financial crisis, with demand being led byfor uses related to X-ray contrast mediaLEC and pharmaceuticals. During 2014,LCD and the reuse of iodine demand grew moderately compared to 2013 as a result of inertia following the high prices observed in the industry from 2011iodine market related to 2013. However, the lower prices observed during 2014 have continued, which could have a positive effect on demand growth in 2015.plastics. We estimate that the global market size in 20142016 was approximately 31,60033,500 metric tons, with around 56%57% of supply coming from Chilean producers, including us.

Iodine: Our Products

 

We produce iodine in our Nueva Victoria plant, near Iquique, and our Pedro de Valdivia plant, close to María Elena. We have a total effective production capacity of approximately 13,30010,000 metric tons per year of iodine, including the Iris plant, which is located next to the Nueva Victoria plant.

 

Through ASG, we produce organic and inorganic iodine derivatives. ASG was established in the mid-1990s and has production plants in the United States, Chile and France. ASG is the world’s leading inorganic and organic iodine derivatives producer.

 

Consistent with our business strategy, we are constantly working on the development of new applications for our iodine-based products, pursuing a continuing expansion of our businesses and maintaining our market leadership.

We manufacture our iodine and iodine derivatives in accordance with international quality standards and have qualified our iodine facilities and production processes under the ISO-9001:2008 program, providing third party certification of the quality management system and international quality control standards that we have implemented.

 

The following table shows our total sales volumes and revenues from iodine and iodine derivatives for 2014, 20132016, 2015 and 2012:2014:

  

2014

  

2013

  

2012

 
Sales Volume(Th. MT)            
Iodine and derivatives  8.8   9.3   11.0 
Revenues(in US$ millions)  335.4   461.0   578.1 

  2016  2015  2014 
Sales volumes(Th. MT)            
Iodine and derivatives  10.2   9.3   8.8 
             
Total revenues(in US$ millions)  231.1   262.6   335.4 

34

 

Our sales revenues decreased fromto US$461.0231.1 million in 2013 to2016 from US$335.4262.6 million in 2014.2015. This decrease was primarily attributable to the decrease in iodine prices during 2014.2016. Average iodine prices were more than 20%19% lower in 20142016 when compared to 2013.2015. Our sales volumes increased 9% in 2016, outpacing global iodine demand growth.

 

Iodine: Marketing and Customers

 

In 2014,2016, we sold our iodine products to approximately 260300 customers in over 6055 countries, and most of our sales were exports: 31% was sold toexports. Two in the aggregate customers in North America, 35% to customers in Europe, 4% to customers in Central and South America, and 30% to customers in Asia and other regions. Only two customerseach accounted for more than 10% of our iodine salesrevenues in 2014. Together, these2016. These two customers accounted for approximately 31%40% of sales,revenues, and we estimate that our ten largest customers accounted in the aggregate for approximately 61%77% of sales.revenues. No supplier accounted for more than 10% of the cost of sales of this business line.

 

The following table shows the geographical breakdown of our salesrevenues for 2014, 20132016, 2015 and 2012:2014:

 

Sales Breakdown 2014  2013  2012 
Revenues breakdown 2016  2015  2014 
North America  31%  35%  36%  25%  29%  31%
Europe  35%  36%  30%  36%  34%  35%
Central & South America  4%  4%  3%
Central and South America  0%  4%  4%
Asia and Others  30%  25%  31%  38%  33%  30%

 

We sell iodine through our own worldwide network of representative offices and through our sales, support and distribution affiliates. We maintain inventories of iodine at our facilities throughout the world to facilitate prompt delivery to customers. Iodine sales are made pursuant to spot purchase orders or within the framework of supply agreements. Supply agreements generally specify annual minimum and maximum purchase commitments, and prices are adjusted periodically, according to prevailing market prices.

 

Iodine: Competition

 

The world’s main iodine producers are based in Chile, Japan and the United States. Iodine is also produced in Russia, Turkmenistan, Azerbaijan, Indonesia and China.

 

Iodine is produced in Chile using a unique mineral known as caliche ore, whereas in Japan, the United States, Russia, Turkmenistan, Azerbaijan, and Indonesia, producers extract iodine from underground brines that are mainly obtained together with the extraction of natural gas and petroleum. In China, iodine is extracted from seaweed.

Six

Five Chilean companies accounted for approximately 56%57% of total global sales of iodine in 2014,2016, including SQM, with approximately 26%29%, and fivefour other producers, accounting for the remaining 30%28%. The other Chilean producers are: Atacama Chemical S.A. (Cosayach), controlled by the Chilean holding Inverraz S.A.; ACF Minera S.A. owned by the Chilean family De Urruticoechea; Algorta Norte S.A., a joint venture between ACF Minera S.A. and Toyota Tsusho; SCM Bullmine and RB Energy (a Canadian company previously known as Sirocco Mining Inc. or as Atacama Minerals).

 

We estimate that eight Japanese iodine producers accounted for approximately 31%30% of global iodine sales in 2014,2016, including recycled iodine.

 

We estimate that iodine producers in the United States (one of which is owned by Toyota Tsusho and another is owned by Ise Chemicals Ltd., aboth of which are Japanese company)companies) accounted for nearly 5% of world iodine sales in 2014.2016.

35

 

Iodine recycling is a growing trend worldwide. Several Japanese producers have recycling facilities where they recover iodine and iodine derivatives from iodine waste streams. Iodine recycling, mainly related to LCD and LED consumption, has increased over the past few years and currently represents approximately 17%18% of world iodine sales. It is estimated that approximately 74%75% of total world iodine recycling was done by Japanese iodine producers.

 

We, throughThrough ASG or alone, we are also actively participating in the iodine recycling business using iodinated side-streams from a variety of chemical processes in Europe and the United States.

 

The prices of iodine and iodine derivative products are determined by market conditions. World iodine prices vary depending upon, among other things, the relationship between supply and demand at any given time. Iodine supply varies primarily as a result of the production levels of the iodine producers (including us) and their respective business strategies. Our annual average iodine sales prices decreased to approximately US$3823 per kilogram in 2014, as a result of supply growth outpacing demand growth.2016, continuing the downward trend observed in 2015.

 

Demand for iodine varies depending upon overall levels of economic activity and the level of demand in the medical, pharmaceutical, industrial and other sectors that are the main users of iodine and iodine-derivative products. Certain substitutes for iodine are available for certain applications, such as antiseptics and disinfectants, which could represent a cost-effective alternative to iodine depending on prevailing prices.

 

The main factors of competition in the sale of iodine and iodine derivative products are reliability, price, quality, customer service and the price and availability of substitutes. We believe we have competitive advantages compared to other producers due to the size and quality of our mining reserves and the available production capacity. We believe our iodine is competitive with that produced by other manufacturers in certain advanced industrial processes. We also believe we benefit competitively from the long-term relationships we have established with our largest customers.

Lithium and its Derivatives

 

We believe we are one of the world’s largest producers of lithium carbonate and lithium hydroxide. In 2014,2016, our revenues from lithium sales amounted to US$206.8514.6 million, representing 10%27% of our total revenues. We estimate that our sales volumes accounted for approximately 27% of the sale of global lithium chemicals sales by volume.volumes.

 

Lithium: Market

 

Lithium is mainly marketedsold as lithium carbonate. The next most traded compound is lithium hydroxide. Both of these compounds are used to produce the cathodes for rechargeable batteries, taking advantage of lithium’s extreme electrochemical potential and low density. Batteries are the leading application for lithium, accounting for 46%approximately 53% of total demand, including batteries for electric vehicles, which accounted for approximately 20% of total lithium demand. Lithium carbonate is also used in applications such as ceramic and enamel frits (5%(approximately 4% of demand), heat resistant glass (ceramic glass) (5%(approximately 4% of demand), air conditioning chemicals (4%(approximately 3% of demand), continuous casting powder for steel extrusion (2%(approximately 2% of demand), primary aluminum smelting process (1%(approximately 1% of demand), and others, including the synthesis of pharmaceuticals and lithium derivatives.

Lithium hydroxide is primarilyalso used as a raw material in the lubricating greasegreases industry (11%(approximately 9% of total lithium chemical demand), as well as in the dyes and the battery industries.

Lithium chloride solutions are primarily used as an input for the production of other lithium derivatives.

 

Lithium’s main properties, which facilitate its use in this range of applications, are:

36

·it is the lightest solid element at room temperature;
·it has a low coefficient of thermal expansion;
·it has high electrochemical potential and low density and
·it is the solid with the highest specific heat capacity.

 

During 2014,2016, lithium chemicals demand increased by approximately 9%14%, reaching approximately 142,000182,000 metric tons, with close to 50%44% supplied by Chilean producers. We expect applications related to energy storage to continue driving demand in the coming years.

 

Lithium: Our Products

 

We produce lithium carbonate at our Salar del Carmen facilities, near Antofagasta, Chile, from solutions with high concentrations of lithium, in the form of lithium chloride, coming fromas a by-product of the potassium chloride production at the Salar de Atacama. The annual production capacity of our lithium carbonate plant is 48,000 metric tons per year. We also sell the lithium chloride solutions that we produce at the Salar de Atacama, which are purified in the Salar del Carmen. We believe that the technologies we use, together with the high concentrations of lithium and uniquethe characteristics of the Salar de Atacama, such as high evaporation rate and concentration of other minerals, allow us to be one of the lowest cost producers worldwide.

 

We also produce lithium hydroxide at our facilities at the Salar del Carmen, next to the lithium carbonate operation. The lithium hydroxide facility has a production capacity of 6,000 metric tons per year and is one of the largest plants in the world. During 2017, we plan to increase this capacity to 13,500 through increased efficiencies and the construction of a 7,000 metric ton plant.

 

The following table shows our total sales volumes and revenues from lithium carbonate and its derivatives for 2014, 20132016, 2015 and 2012:2014:

 

  

2014

  

2013

  

2012

 
Sales Volume(Th. MT)            
Lithium and derivatives  39.5   36.1   45.7 
Revenues(in US$ millions)  206.8   196.5   222.2 
  2016  2015  2014 
Sales volumes(Th. MT)            
Lithium and derivatives  49.7   38.7   39.5 
             
Total revenues(in US$ millions)  514.6   223.0   206.8 

 

Our revenues in 20142016 were US$206.8514.6 million, a 5.3%131.0% increase from US$196.5223.0 million in 2013,2015, due to higher prices and higher sales volumes supported by strongvolumes. The average price for 2016 was approximately 80% higher than the average price in 2015, as global demand growth outpaced supply growth.

 

Lithium: Marketing and Customers

 

In 2014,2016, we sold our lithium products to over 220235 customers in around 50 countries. Only oneapproximately 44 countries, and most of our sales were to customers outside of Chile. One customer accounted for more than 10% of our lithium salesrevenues in 2014,2016, accounting for approximately 11%12% of our lithium sales. We estimate that our 10revenues. Our ten largest customers accounted in aggregate for approximately 58%62% of sales.revenues. Only one supplier accounted for over 10% of the cost of sales of this business line, accounting for approximately 13% of the cost of sales.

The following table shows the geographical breakdown of our salesrevenues for 2014, 20132016, 2015 and 2012:2014:

 

Sales Breakdown 2014  2013  2012 
Revenues breakdown 2016  2015  2014 
North America  11%  12%  10%  8%  11%  11%
Europe  22%  25%  22%  19%  21%  22%
Central & South America  1%  2%  2%
Central and South America  1%  1%  1%
Asia and Others  66%  62%  66%  73%  67%  66%

37

 

We sell lithium carbonate and lithium hydroxide through our own worldwide network of representative offices and through our sales, support and distribution affiliates. We maintain inventories of these products at our facilities throughout the world to facilitate prompt delivery to customers. Sales of lithium carbonate, lithium hydroxide and lithium hydroxidechloride solutions are made pursuant to spot purchase orders or within the framework of supply agreements. Supply agreements generally specify annual minimum and maximum purchase commitments, and prices are adjusted periodically, according to prevailing market prices.

 

Lithium: Competition

 

Our main competitors in the lithium carbonate and lithium hydroxide businesses are Rockwood Lithium (“Rockwood”), which was recently acquired by Albemarle, and which, according to our estimates, has a market share of approximately 22%17%, and FMC Corporation (“FMC”), which has an estimated market share of approximately 12%10%. In addition, a number of Chinesethere are at least ten lithium producers in China that, together, accounted forsupplied approximately 37% of the world market in 2014, by volume. Rockwood2016. These producers can be divided according to the type of raw material they use: brines (6%) or hard rock (31%). A significant portion of the hard rock that is processed in China is imported from Australia. The largest producer in China is Sichuan Tianqi Lithium Industries (“Tianqi”). Albemarle produces lithium carbonate at its operations in Chile and in Nevada, United States. Its production of downstream lithium products is mostly performed in the United States, Germany and Taiwan. RockwoodAlbemarle and Tianqi are 49%/51% partners in Talison Lithium Pty Ltd., an Australian company that produces lithium mineral concentrate in Western Australia. Tianqi is in the process of purchasing Galaxy, an Australian company that has a lithium carbonate plant in China. FMC has production facilities in Argentina through Minera del Altiplano S.A., where it produces lithium chloride and lithium carbonate. Production of its downstream lithium products is mostly performed in the United States and the United Kingdom. In 2015, Orocobre Ltd. began producing lithium carbonate in Argentina. It is estimated that it had a market share of approximately 8% in 2016.

 

We believe that lithium production will increase in the near future, balancing the expected growth in demand. Recently, Orocobre began operating in Argentina, and a number of new projects to develop lithium deposits have been announced recently. Some of these projects are already under advanced development and others could materialize in the medium term.

 

Potassium

 

We produce potassium chloride and potassium sulfate by extracting brines from the Salar de Atacama that are rich in potassium chloride and other salts.

 

Since 2009, our effective end product capacity has increased to over 2 million metric tons per year, granting us improved flexibility and market coverage.

 

In 2014,2016, our potassium chloride and potassium sulfate revenues amounted to US$584.3403.3 million, representing 29%21% of our total revenues and a 3.6%6.3% decrease compared to 2013.2015.

 

Potassium is one of the three macronutrients that a plant needs to develop. Although potassium does not form part of a plant’s structure, it is essential to the development of its basic functions. Potassium chloride is the most commonly used potassium-based fertilizer. It is used to fertilize crops that can tolerate relatively high levels of chloride, and to fertilize crops that are grown under conditions with sufficient rainfall or irrigation practices that prevent chloride from accumulating to excess levels in the rooting systems of the plant.

 

Some benefits that may be obtained through the use of potassium are:

·increased yield and quality;
·increased production of proteins;
·increased photosynthesis;
·intensified transport and storage of assimilates;

38

·prolonged and more intense assimilation period;
·improved water efficiency;
·regulated opening and closure of stomatastomata; and
·synthesis of lycopene.

Potassium chloride is also an important component for our specialty plant nutrition product line, where it is used as a raw material to produce potassium nitrate.

 

Potassium: Market

 

During the last decade, thegrowth in demand for potassium chloride, marketand for fertilizers in general, has experienced rapid growth due tobeen driven by several key factors, such as a growing world population, higher demand for protein-based diets and less arable land. All of these factors have contributedcontribute to growingfertilizer demand for fertilizers and, in particular, potassium chloride,growth as a result of efforts are being made to maximize crop yields and use resources more efficiently. For the last 10ten years, the compound annual growth for the global potassium chloride market was approximately 2.3%1% to 2%. We estimate that demand totaled approximately 58 million metric tons in 2016, similar to demand in 2015.

 

According to the most recent studies prepared by the International Fertilizer Industry Association, from 2010 to 2011, cereals received 10.3 MT K2O, (i.e., 37.4%account for approximately 37% of world Kpotassium consumption, with a low contribution of wheat (6.2%including corn (15%) compared to, rice (12.6%(12%) and maize (14.9%)wheat (6%). In contrast, oilseeds represented 19.8%Oilseeds, predominantly soybeans and palm oil, represent approximately 20% of the total (5.4 MT K2O), with more than four fifths being applied to soybean (9.0%)potassium demand. Fruits and oil palm (7.2%) together. K fertilizer use on fibre cropsvegetables account for around 17% of world potassium demand, and roots and tubers was modest (2.8 and 3.8%, respectively) compared to sugar crops (7.7%) and fruits and vegetables (16.6%). The remaining 11.8% were appliedaccount for close to other crops.

Demand in the potassium chloride market increased in 2014. We estimate that demand reached between 61 and 62 million metric tons for potassium chloride during 2014, an increase of approximately 15% as compared to 2013, with record levels of shipments from the producers Uralkali, in Russia, and Belaruskali, in Belarus. Demand was affected by the economic uncertainty from the previous year, as some customers pushed their purchases back from the second half of 2013 to 2014. We do not expect to see demand growth in 2015.

Average prices in the potassium market decreased significantly during 2013 and the first quarter of 2014 due to unusual events. Uralkali, a leading company in the potash market, abandoned the business arrangement that it held with BPC and generated market uncertainty which affected the commodity’s price levels. Beginning in the second quarter of 2014, the price slowly began to recover, but prices did not return to the levels prevailing prior to these events.8%.

 

Potassium: Our Products

 

Potassium chloride differs from our specialty plant nutrition products because it is a commodity fertilizer and contains chloride. We offer potassium chloride in two grades: standard and compacted. Potassium sulfate is considered a specialty fertilizer and we offer three grades: standard, compacted and soluble.this product in soluble grades.

 

The following table shows our sales volumes of and revenues from potassium chloride and potassium sulfate for 2014, 20132016, 2015 and 2012:2014:

 

  

2014

  

2013

  

2012

 
Sales Volume(Th. MT)            
Potassium chloride & potassium sulfate  1,556.2   1,434.9   1,209.5 
Revenues(in US$ millions)  584.3   606.3   605.1 

41
  2016  2015  2014 
Sales volumes(Th. MT)            
Potassium chloride and potassium sulfate  1,534.7   1,241.8   1,556.2 
             
Total revenues(in US$ millions)  403.3   430.6   584.3 

 

Potassium: Marketing and Customers

 

In 2014,2016, we sold potassium chloride and potassium sulfate to approximately 500 customers in over 6080 countries. No single customerThere were three individual customers that each accounted for more than 11%10% of our salesrevenues of potassium chloride and potassium sulfate in 2014,2016, totaling approximately 35% of the revenues of potassium chloride and wepotassium sulfate during this period. We estimate that our 10ten largest customers accounted in the aggregate for approximately 47%55% of such sales.revenues. One supplier accounted for 12% of the cost of sales for the business line and was the only supplier representing more than 10% of the cost of sales of this business line, accounting for approximately 16% of the cost of sales for the business line.

The following table shows the geographical breakdown of our salesrevenues for 2014, 20132016, 2015 and 2012:2014:

 

Sales Breakdown 

2014

 

2013

 

2012

 
Revenues breakdown 2016  2015  2014 
North America  23%  17%  15%  20%  22%  23%
Europe  13%  16%  21%  20%  12%  13%
Central & South America  45%  44%  47%
Central and South America  38%  42%  45%
Asia and Others  19%  23%  17%  22%  24%  19%

 

39

Potassium: Competition

 

We estimate that we accounted for less than 3% of global sales of potassium chloride in 2014.2016. Our main competitors are Uralkali, Belaruskali, PCS Belaruskali and Mosaic. We estimate that in 2014,2016, Uralkali accounted for approximately 18%19% of global sales, Belaruskali accounted for approximately 16% of global sales, PCS aroundaccounted for approximately 15%, of global sales, and The Mosaic around 14%, and BelaruskaliCompany accounted for approximately 13% of global sales.

 

In the potassium sulfate market, we have several competitors, of which the most important are K+S KALI GmbH (Germany), Tessenderlo Chemie (Belgium) and Great Salt Lake Minerals Corp. (United States). We estimate that these three producers account for approximately 30% of the worldwide production of potassium sulfate. SQM accounts for less than 2% of global production.

 

Industrial Chemicals

 

In addition to producing sodium and potassium nitrate for agricultural applications, we produce different grades of these products for industrial applications. The different grades differ mainly in their chemical purity. We enjoy certain operational flexibility when producing industrial nitrates, because they are produced from the same process as their equivalent agricultural grades, needing only an additional step of purification. We may, with certain constraints, shift production from one grade to the other depending on market conditions. This flexibility allows us to maximize yields and to reduce commercial risk.

 

In addition to producing industrial nitrates, we produce, market and market other industrial chemicals such assell industrial-grade potassium chloride and boric acid, a by-product of the production of potassium sulfate.chloride.

 

In 2014,2016, our revenues from industrial chemicals were US$101.9104.1 million, representing approximately 5% of our total revenues for that year.

 

Industrial Chemicals: Market

 

Industrial sodium and potassium nitrates are used in a wide range of industrial applications, including the production of glass, ceramics, explosives, charcoal briquettes, metal treatments and various chemical processes.

In addition, this product line has also experienced growth from the use of industrial nitrates as thermal storage in concentrated solar power plants (commonly known as “CSP”). Solar salts for this specific application contain a blend of 60% sodium nitrate and 40% potassium nitrate by weight ratio used as a storage and heat transfer medium. Unlike traditional photovoltaic plants, these new plants use a “battery” or tank“thermal battery” that contains molten sodium nitrate salts,and potassium nitrate, which store energy as heat.the heat collected during the day. The salts are kept hotheated up during the day, while the plants are operating under direct sunlight, and at night they release the solar energy that they have captured, during the night, allowing the plantplants to operate even during hours of darkness. Another difference withDepending on the photovoltaicpower plant technology, issolar salts are also used as a heat transfer fluid in the plant system and thereby make CSP plants even more efficient, increasing their output and reducing the Levelized Cost of Electricity (LCOE).

Experts believe that CSP plants are ofplays a critical role in electricity grid stabilization and manageability due to its inherent large scale storage capability. Nevertheless, such large installations are capital intensive and only take a few years betweenare strongly influenced by the development stage and the commercial operation date. Their development is mainly driven by implementation of renewable programs deployed by different governments worldwide, along with demand for electricity generation. This market fluctuates according to these factors and is based on long-term agreements. In 2014 and 2015, the supply ofgeneration mix in each country. Therefore, fluctuations in solar salts has been lower thandemand are unavoidable in terms of quantity and timing. During 2017 and thereafter, we expect to see further developments in new markets such as the previous years because of the delay of some large projects. However, demand is recoveringMiddle East, Chile and we have closed agreements for some deliveries in 2015, with larger volumes in 2016China, as well as recently developed markets such as Morocco and 2017.South Africa that continue to make progress on their programs.

 

Industrial-grade potassium chloride is a basic chemical used to produce potassium hydroxide, and is used as an additive in oil drilling as well as in food processing, among other applications.

 

Boric acid is primarily used as raw material in the manufacturing of glass, fiberglass, ceramic and enamel frits and LCD flat panel displays.

40

 

Industrial Chemicals: Our Products

 

The following table shows our sales volumes of industrial chemicals and total revenues for 2014, 20132016, 2015 and 2012:2014:

  

2014

  

2013

  

2012

 
Sales Volume(Th. MT)            
Industrial nitrates  124.7   173.5   277.7 
Boric Acid  0.8   2.0   1.8 
Revenues(in US$ millions)  101.9   154.0   245.2 

  2016  2015  2014 
Sales volumes(Th. MT)            
Industrial chemicals  128.9   126.1   125.5 
             
Total revenues(in US$ millions)  104.1   97.6   101.9 

 

Sales ofRevenues for industrial chemicals decreasedincreased from US$154.097.6 million in 20132015 to US$101.9104.1 million in 2014, primarily2016, as a result of a decrease inhigher sales volumes of solar salts.in this business line.

 

Industrial Chemicals: Marketing and Customers

 

We sold our industrial nitrate products in over 70approximately 54 countries in 2014, with 32% percent of our sales of industrial chemicals2016 to approximately 317 customers. Two customers in North America, 37% to customers in Europe, 14% to customers in Central and South America and 17% to customers in Asia and other regions. One customer accounted for more than 10% of our salesrevenues of industrial chemicals in 2014,2016, accounting for approximately 19%46%, and we estimate that our 10ten largest customers accounted in the aggregate for approximately 49%62% of such sales.revenues. No supplier accounted for more than 10% of the cost of sales of this business line.

 

The following table shows the geographical breakdown of our salesrevenues for 2014, 20132016, 2015 and 2012:2014:

 

Sales Breakdown 2014  2013  2012 
Revenues breakdown 2016  2015  2014 
North America  32%  45%  49%  24%  31%  32%
Europe  37%  34%  35%  14%  15%  37%
Central & South America  14%  12%  10%
Central and South America  9%  11%  14%
Asia and Others  17%  9%  6%  54%  43%  17%

 

We sell our industrial chemical products mainly through our own worldwide network of representative offices and through our sales and distribution affiliates. We maintain inventories of our different grades of sodium nitrate and potassium nitrate products at our facilities in Europe, North America, South Africa, Asia and South America to achieve prompt deliveries to customers. Our Research and Development department, together with our foreign affiliates, provides technical support to our customers and continuously works with them to develop new products or applications for our products.

Industrial Chemicals: Competition

 

We believe we are one of the world’s largest producerleading producers of industrial sodium nitrate, potassium nitrate and potassium nitrate.chloride for industrial uses. In the case of industrial sodium nitrate, we estimate that our sales represented close to 45%33% of world demand in 20142016 (excluding internal demand for China and India, for which we believe reliable estimates are not available). Our competitors are mainly based in Europe and Asia, producing sodium nitrate as a by-product of other production processes. In refined grade sodium nitrate, BASF AG, a German corporation and several producers in China and Eastern Europe are highly competitive in the European and Asian markets. Our industrial sodium nitrate products also compete indirectly with substitute chemicals, including sodium carbonate, sodium sulfate, calcium nitrate and ammonium nitrate, which may be used in certain applications instead of sodium nitrate and are available from a large number of producers worldwide.

 

Our main competitor in the industrial potassium nitrate business is Haifa Chemicals, which we estimate had a market share of 23%25%. We estimate that our market share was approximately 25%24% for 2014.2016.

41

In the solar salts business, we believe we have been the market leader since we started selling to commercial projects in 2007. Our competitors include Haifa Chemicals, which is a potassium nitrate supplier, and BASF AG, which is a sodium nitrate supplier.

 

Producers compete in the market for industrial sodium and potassium nitrate based on reliability, product quality, price and customer service. We believe that we are a low cost producer of both products and are able to produce high quality products.

 

In the industrial potassium chloride and boric acid markets,market, we are a relatively small producer, mainly supplying regional needs.

 

Other Products

 

A large part of our other revenue is related to fertilizer trading, usually commodities. These fertilizers are traded in large volumes worldwide. We have developed a trade, supply and inventory management business that allows us to respond quickly and effectively to the changing fertilizer market in which we operate and profit on these trades.

 

Production Process

 

Our integrated production process can be classified according to our natural resources:

 

·caliche ore deposits, which contain nitrates, iodine and potassium; and
·brines from the Salar de Atacama, which contain potassium, lithium, sulfate, boron and magnesium.

 

Caliche Ore Deposits

 

Caliche ore deposits are located in northern Chile. During 2014,2016, we operated two surface minesone mine in this region: Nueva Victoria. We also began establishing a new mining area called Tente en el Aire, which is also located in northern Chile, about 15 kilometers northwest of our Nueva Victoria operations. We believe this new mine will allow us to capture operating synergies that will increase efficiency and reduce costs. In November 2015, mining and nitrate operations at Pedro de Valdivia were suspended, and iodine production was reduced at the Pedro de Valdivia site, in order to take advantage of the highly efficient production facilities at Nueva Victoria. OperationsMining operations at the Pampa Blanca site and the El Toco surface mine (which is part of the María Elena site) were temporarily suspended in March 2010 and November 2013, respectively, in an effort to optimize our production facilities with lower production costs.

 

Caliche ore is found under a layer of barren overburden in seams with variable thickness from 20 centimetersone centimeter to fivefour meters, and with the overburden varying in thickness between 50zero centimeters and 1.5two meters.

Before proper mining begins, the exploration stage is carried out, including complete geological reconnaissance, sampling and drilling caliche ore to determine the quality and characteristics of each deposit. Drill-hole samples are properly identified and tested at our chemical laboratories. With the exploration information on a closed grid pattern of drill holes, the ore evaluation stage provides information for mine planning purposes. Mine planning is done on a long-term basis (10(ten years), medium-term basis (three years) and short-term basis (one year). Once all of this information has been compiled, detailed planning for the exploitation of the mine takes place.

 

The mining process generally begins with bulldozers first rippingbreaking and then removing the overburden in the mining area. This process is followed by an inspection and review of the drill holes before production drilling and blasting occurs to break the caliche seams. Front-end loaders load the ore onto off-road trucks, which take it to be processed.

 

42

At the Pedro de Valdivia mine, trucks deliver the ore to stockpiles next to rail loading stations. The stockpiled ore is later loaded onto railcars that take the mineral to the processing facilities, where it is crushed and leached in vats in order to produce concentrated solutions containing nitrate and iodine.

 

At the Nueva Victoria site, theThe run of mine ore is loaded in heaps and leached with water to produce concentrated solutions containing nitrate, iodine and potassium. These solutions are then sent to plants where iodine is extracted through both solvent-extraction and blow out processes. The remaining solutions are subsequently sent to solar evaporation ponds where the solutions are evaporated and rich nitrate salts are produced. These concentrated nitrate salts are then sent to Coya Sur where they are used to produce potassium nitrate.

 

Currently, the Pedro de Valdivia and María Elena sites continue to generate solutions that are produced by leaching the mine tailings. These solutions are treated at the iodide plants at María Elena and Pedro de Valdivia. The iodide that is produced at the María Elena plant is subsequently sent to Pedro de Valdivia in order to produce prilled iodine. After iodide is obtained at both plants, the remaining solutions, which are rich in nitrate and potassium, are sent to the solar evaporation ponds at Coya Sur in order to be used in the production of potassium nitrate.

Caliche Ore-Derived Products

 

Caliche ore-derived products are: sodium nitrate, potassium nitrate, sodium potassium nitrate iodine, and iodine derivatives.iodine.

 

Sodium Nitrate

 

During 2014,2016, sodium nitrate for both agricultural and industrial applications was produced by inventory generated at the Pedro de Valdivia facility and subsequently processed at the Coya Sur plants. At the Pedro de Valdivia facility, until November 2015, the caliche ore iswas crushed, creating two products: a coarse fraction and a fine fraction. The coarse fraction is processed usingIn preparation for the Guggenheim method, which was originally patented in 1921 and is based on a closed-circuit methodeventual suspension of leaching vats. This process uses heated brines to leach the crushed caliche in vats and selectively dissolve the contents. The concentrated solution is then cooled, producingnitrates operations at Pedro de Valdivia, we had increased our sodium nitrate crystals, which can then be separated from the brine using basket centrifuges. After the crystallization and separation processes, the nitrate crystals are sent to the processing plant, and the brine is pumped to the iodine facilities, where the iodide is separated in a solvent extraction plant. Finally, the brine is returned to the vat leaching process.

The fine fraction from the caliche crushing process is leached at ambient temperature with water, producing a solution that is pumped to a fines pond. After goinginventory levels through a separation process, the solution is pumped to the iodine facilities. After a solvent extraction process, the brine is pumped to solar evaporation ponds in Coya Sur, 15 km southNovember 2015. As of María Elena, for the concentrationDecember 2016, we had approximately 450,000 tons of nitrates.

Our total current crystallized sodium nitrate in inventory, which will provide us with enough sodium nitrate to produce finished nitrates for approximately three years. For subsequent production, capacitywe are in the process of adapting the crystallization plant at the Pedro de Valdivia facility is approximately 500,000 metric tons per year. to be able to produce sodium nitrate using nitrate salts from our Nueva Victoria facility.

Crystallized sodium nitrate is an intermediate product that is subsequently processed further at the Coya Sur and María Elena production plants to produce sodium nitrate, potassium nitrate and sodium potassium nitrate in different chemical and physical qualities, including crystallized and prilled products. Finally, the products are transported by railway or truck to our port facilities in Tocopilla for shipping to customers and distributors worldwide.

 

45

Potassium Nitrate

 

Potassium nitrate is produced at our Coya Sur facility using a production process developed by us. The brine leached usingbrines generated by the fine fraction of the crushed calicheleaching processes at Pedro de Valdivia and the brines produced by the heap leaching process at María Elena are pumped to Coya Sur’s solar evaporation ponds for a nitrate concentration process. After the nitrate concentration process, the brine is pumped to a conversion plant where potassium salts with lowerfrom the Salar de Atacama and nitrate and potassium content,salts produced at Nueva Victoria or Coya Sur, are added. A chemical reaction begins, producing brine with dissolved potassium nitrate. This brine is pumped to a crystallization plant, which crystallizes the potassium nitrate by cooling it and separating it from the liquid by centrifuge.

 

Our current potassium nitrate production capacity at Coya Sur is approximately 1,000,0001,100,000 metric tons per year. In March 2011, a newSince the end of 2013, we have been working with external advisors to implement the “lean” method of manufacturing in our potassium nitrate plants. We achieved complete implementation of this method of manufacturing during 2015. The improvements we have achieved have enabled us to reduce costs, improve energy consumption, increase the production plant (NPT3) started operations.of potassium nitrate and decrease our accident rates. This plant has been graduallymethod is based on increasing its annualthe involvement of our workers in decision-making, and strengthening the leadership of our production reaching approximately 283,000 tons in 2014. Thissupervisors. The goal is to identify opportunities to improve the production process and reduce waste on an ongoing basis.

43

During 2016, the potassium nitrate refining plants entered into operation, allowing the production of a higher quality product with lower impurity content as required by the new plant was designedmarket conditions. These new facilities enable integrated production at the plants of Coya Sur, allowing the Company to use raw material salts harvested at Nueva Victoria (nitrate salts)reuse rinsing solutions, and thereby reducing the Salar de Atacama (potassium salts).total cost of production.

 

The potassium nitrate produced in crystallized or prilled form at Coya Sur has been certified by TÜV-Rheiland under the quality standard ISO 9001:2008. The potassium nitrate produced at Coya Sur is transported to Tocopilla for shipping and delivery to customers and distributors.

 

Sodium Potassium Nitrate

 

Sodium potassium nitrate is a mixture of approximately two parts sodium nitrate per one part potassium nitrate. We produce sodium potassium nitrate at our Coya Sur and María Elena prilling facilities using standard, non-patented production methods we have developed. Crystallized sodium nitrate is mixed with the crystallized potassium nitrate to make sodium potassium nitrate, which is then prilled. The prilled sodium potassium nitrate is transported to Tocopilla for bulk shipment to customers.

 

The production process for sodium potassium nitrate is basically the same as that for sodium nitrate and potassium nitrate. With certain production restraints and following market conditions, we may supply sodium nitrate, potassium nitrate or sodium potassium nitrate, either in prilled or crystallized form.

 

Iodine and Iodine Derivatives

 

During 2014,2016, we produced iodine at our facilities at Nueva Victoria (including the Iris facility), Pedro de Valdivia and María Elena, and Nueva Victoria facilities (including the Iris facility, which is part of the Nueva Victoria facility).At the María Elena and Nueva Victoria facilities, iodineElena.Iodine is extracted from solutions produced by heap leaching caliche ore. At the Pedro de Valdivia facility, iodine is produced from the vat leaching of caliche ore.In August 2014, iodine production operations at the Iris plant were restarted after being temporarily suspended in October 2013.

 

As in the case of nitrates, the process of extracting iodine from the caliche ore is well established, but variations in the iodine and other chemical contents of the treated ore and other operating parameters require a high level of know-how to manage the process effectively and efficiently.

 

The solutions resulting from the leaching of caliche carry iodine in iodate form. Part of the iodate solution is reduced to iodide using sulfur dioxide, which is produced by burningcombusting sulfur. The resulting iodide is combined with the rest of the untreated iodate solution to release elemental iodine in low concentrations. The iodine is then extracted from the aqueous solutions and concentrated as iodide form using a solvent extraction and stripping plant in the Pedro de Valdivia and Nueva Victoria facilities and using a blow out plant in Iris. The concentrated iodide is oxidized to solid iodine, which is then refined through a smelting process and prilled. We have obtained patents in the United States and Chile (Chilean patent number 47,080) for our iodine prilling process.

Prilled iodine is tested for quality control purposes, using international standard procedures that we have implemented. It is then packed in 20 to 50 kilogram drums or 350 to 700 kilogram maxibags and transported by truck to Antofagasta, Mejillones, or Iquique for export. Our iodine and iodine derivatives production facilities have qualified under the ISO-9001:2008 program, providing third-party certification—by TÜV-Rheiland—of the quality management system. The last recertification process was approved in February 2011. Iodine from the Iris plant was certified under ISO-9001:2008 in April 2012.

 

Our total iodine production in 20142016 was approximately 9,6028,542 metric tons: approximately 5,9877,744 metric tons from Nueva Victoria and Iris; 3,242610 metric tons from Pedro de Valdivia; and 373188 metric tons from María Elena. The Nueva Victoria facility is also used for recycling iodine from the potassium iodide contained in the LCD waste solutions imported mainly from Korea. Nueva Victoria is also equipped to toll iodine from iodide delivered from our other SQM facilities. We have the flexibility to adjust our production according to market conditions. OurFollowing the production facility restructuring at Pedro de Valdivia and Nueva Victoria announced in 2015, our total current effective production capacity at our iodine production plants is approximately 13,30010,000 metric tons per year.

44

 

We use a portion of the iodine we produce to manufacture inorganic iodine derivatives, which are intermediate products used for manufacturing agricultural and nutritional applications, at facilities located near Santiago, Chile. We also produce inorganic and organic iodine derivative products together with Ajay, which purchases iodine from us. In the past, we have primarily sold our iodine derivative products in South America, Africa and Asia, while Ajay and its affiliates have primarily sold their iodine derivative products in North America and Europe.

 

In September 2010, the National Commission for the Environment of Chile (Comisión Nacional del Medio Ambiente or “CONAMA”),CONAMA, currently known as the Environmental Evaluation Service, approved the environmental study of our Pampa Hermosa project in the Tarapacá Region of Chile. This approvalenvironmental permit allows us tofor an increase in the production capacity of our Nueva Victoria operations to 11,000 metric tons of iodine per year and to produce up to 1.2 million metric tons of crystallized nitrates, mine up to 3337 million metric tons of caliche per year and use new water rights of up to 570.8 liters per second. In recent years, we have made investments in order to increase the water capacity in the Nueva Victoria operations from two water sources approved by the environmental study of Pampa Hermosa, expand the capacity of solar evaporation ponds, and implement new areas of mining and collection of solutions. Our current production capacity at Nueva Victoria is approximately 8,5009,000 metric tons per year of iodine (including the Iris operations) and 700,000 metric tons per year of nitrates. Additional expansions may be done from time to time in the future, depending on market conditions.

In October 2013, the Environmental Evaluation Service approved the Pampa Blanca Environmental Impact Study, to increase our caliche ore extraction in the Antofagasta Region in order to increase production capacity of iodine by 10,000 tons and nitrates by 1.3 million tons. The project also requested permission to build a pipeline from the Pacific Ocean to the mining site. Operations at Pampa Blanca were temporarily suspended in March 2010.

 

Salar de Atacama Brine Deposits

 

The Salar de Atacama, located approximately 250 kilometers east of Antofagasta, is a salt-encrusted depression in the Atacama Desert, within which lies an underground deposit of brines contained in porous sodium chloride rock fed by an underground inflow from the Andes mountains. The brines are estimated to cover a surface of approximately 2,800 square kilometers and contain commercially exploitable deposits of potassium, lithium, sulfates and boron. Concentrations vary at different locations throughout the Salar de Atacama. Our productionmining exploitation rights to the Salar de Atacama are pursuant to the Lease Agreement, between SQM Salar and Corfo, which expires in 2030. The Lease Agreement permits the CCHEN to establish a total accumulated extraction and sales limit of 180,100 tons of lithium metal (958,672 tons of lithium carbonate equivalent) in the aggregate for all periods. We are over halfway through the term of the Lease Agreement and have extracted approximately 59% of the total accumulated extraction and sales limit of lithium.

Brines are pumped from depths of 1.5 to 60 meters below surface, through a field of wells that are located in areas of the Salar de Atacama, thatdistributed in areas authorized for exploitation, and which contain relatively high concentrations of potassium, lithium, sulfate, boron and other minerals.

 

Products Derived from the Salar de Atacama Brines

 

The products derived from the Salar de Atacama brines are: potassium chloride, potassium sulfate, potassium salts, lithium carbonate, lithium hydroxide, lithium chloride, boric acid and bischofite (magnesium chloride).

 

Potassium Chloride

 

We use potassium chloride in the production of potassium nitrate. Production of our own supplies of potassium chloride provides us with substantial raw material cost savings. We also sell potassium chloride to third parties, primarily as a commodity fertilizer.

 

45

In order to produce potassium chloride, brines from the Salar de Atacama are pumped to solar evaporation ponds. Evaporation of the brineswater contained in the brine, results in a complex crystallized mixture of salts with various content levels of potassium, sodium and magnesium. WasteIn the first stage of the precipitation, sodium chloride salts are removed by precipitation.removed; these salts are not used in the production process of other products. After further evaporation, the sodium and potassium salts are harvested and sent for treatment at one of the wet potassium chloride plants where potassium chloride is separated by a grinding, flotation, and filtering process. PotassiumIn the final evaporation stage, salts also containing potassium and magnesium are harvested and sent for treatment at one of the cold leach plants where magnesium is removed. Potassium chloride is transported approximately 300 kilometers to our Coya Sur facilities via a dedicated truck transport system, where it is used in the production of potassium nitrate. We sell potassium chloride produced at the Salar de Atacama in excess of our needs to third parties. All of our potassium-related plants in the Salar de Atacama currently have anominal production capacity in excess of up to 2.6 million metric tons per year. Actual production capacity depends on volume, metallurgical recovery rates and quality of the mining resources pumped from the Salar de Atacama. 

 

The by-products of the potassium chloride production process are (i) brinessolutions remaining after removal of the potassium chloride, which are used to produce lithium carbonate as described below, with the excess amount not required for lithium carbonate production being reinjected into the Salar de Atacama; (ii) sodium chloride, which is similar to the surface material of the Salar de Atacama and is deposited at sites near the production facility and (iii) other salts containing magnesium chloride.

Lithium Carbonate and Lithium Chloride

 

After the production of potassium chloride, a portion of the brinessolutions remaining is sent to additional solar concentration ponds adjacent to the potassium chloride production facility. Following further evaporation,concentration ponds. At this stage, the solution is concentrated and purified by precipitation to remove impurities it may still contain, including calcium, sulfate, potassium, sodium and magnesium. Next is the process of concentration and purification of the remaining concentrated solution of lithium chloride, which is transported by truck to athe Salar del Carmen production facility located near Antofagasta, approximately 230 kilometers from the Salar de Atacama. At the production facility,this plant, the solution is further purified and treated with sodium carbonate to produce lithium carbonate, which is dried and then, if necessary, compacted and finally packaged for shipment. A portion of this purified lithium chloride solution is packaged and shipped to customers. The production capacity of our lithium carbonate facility is approximately 48,000 metric tons per year. Future production will depend on the actual volumes and quality of the lithium solutions sent by the Salar de Atacama operations, as well as prevailing market conditions. Our future production is also subject to the extraction limit of 180,100 tons of lithium (958,672 tons of lithium carbonate equivalent) in the aggregate for all periods of the Lease Agreement mentioned above.

 

Our lithium carbonate production quality assurance program has been certified by TÜV-Rheiland under ISO 9001:2000 since 2005 and under ISO 9001:2008 since October 2009.

Lithium Hydroxide

 

Lithium carbonate is sold to customers, and we also use it as a raw material for our lithium hydroxide facility,production, which started operations at the end of 2005. This facility has a production capacity of 6,000 metric tons per year and is located in the Salar del Carmen, adjacent to our lithium carbonate operations. In the production process, lithium carbonate is reacted with a lime solution to produce lithium hydroxide brine and calcium carbonate salt, which is filtered and piled in reservoirs. The brinelithium hydroxide solution is evaporated in a multiple effect evaporator and crystallized to produce the lithium hydroxide, which is filtered, dried and packaged for shipment to customers.

 

Our lithium hydroxide production quality assurance program has been certified by TÜV-Rheiland under ISO 9001:2000 since 2007 and under ISO 9001:2008 since October 2009.

 

46

Potassium Sulfate and Boric Acid

 

Approximately 12 kilometers northeast of the potassium chloride facilities at the Salar de Atacama, we use the brines from the Salar de Atacama to produce potassium sulfate, potassium chloride (as a by-product of the potassium sulfate process) and, depending on market conditions, boric acid. The plant is located in an area of the Salar de Atacama where high sulfate and potassium concentrations are found in the brines. Brines arebrines to produce potassium sulfate. The brine is pumped to pre-concentration solar evaporation ponds, where waste sodium chloride salts are removed by precipitation.precipitated, harvested and put into piles. After further evaporation, the sulfate and potassium salts precipitate in different concentrations and are harvested and sent for treatment atprocessing to the potassium sulfate plant. Potassium sulfate is produced using flotation, concentration and reaction processes, after which it is crystallized, filtered, dried, classified and packaged for shipment.

 

Production capacity for the potassium sulfate plant is approximately 340,000 metric tons per year, of which approximately 95,000 metric tons correspond to potassium chloride productionobtained as a by product of the potassium sulfate process. This capacity is part of the total nominal plant capacity of 2.6 million metric tons per year. In our dual plant complex, we may switch, to some extent, between potassium chloride and potassium sulfate production. Part of the pond system in this area is also used to process potassium chloride brines extracted from the low sulfate concentration areas found in the salar.

 

The principal by-products of the production of potassium sulfate are: (i) non-commercial sodium chloride, which is deposited at sites near the production facility and (ii) remaining solutions, which are re-injected into the Salar de Atacama or returned to the evaporation ponds. The principal by-products of the boric acid production process are remaining solutions that are treated with sodium carbonate to neutralize acidity and then are reinjected into the Salar de Atacama.

 

Raw Materials

 

The main raw material that we require in the production of nitrate and iodine is caliche ore, which is obtained from our surface mines. The main raw material in the production of potassium chloride, lithium carbonate and potassium sulfate is the brine extracted from our operations at the Salar de Atacama.

 

Other important raw materials are sodium carbonate (used for lithium carbonate production and for the neutralization of iodine solutions), sulfur, sulfuric acid, kerosene, anti-caking and anti-dust agents, ammonium nitrate (used for the preparation of explosives in the mining operations), woven bags for packaging our final products, electricity acquired from electric utilities companies, and liquefied natural gas and fuel oil for heat generation. Our raw material costs (excluding caliche ore and salar brines and including energy) represented approximately 15%13% of our cost of sales in 2014.2016.

 

We have several electricity supply agreements signed with major producers in Chile which are expected to cover our electricity needs until 2030. We have been connected to the northern power grid in Chile, which currently supplies electricity to most cities and industrial facilities in northern Chile, since April 2000. We have several electricity supply agreements signed with major producers in Chile, which are within the contract terms. Our electricity needs are primarily covered by the Electrical Energy Supply Agreement that we entered into with AES Gener S.A. (formerly known as Gener S.A.) on December 31, 2012. Pursuant to the terms of the Electrical Energy Supply Agreement, we are required to purchase an amount of electricity that exceeds the amount that we estimate we will need for our operations. The excess amount is sold at marginal cost, which could result in a material loss for us.

For the supply of liquefied natural gas, in 2013 and 2014 we had a contract with Solgas. For 2015 and 2016, we executed a supply contractcontracts with Endesa,Enel Chile (formerly Endesa) as with Solgas, primarily to serve our operations at the Salar del Carmen and Coya Sur.

 

We obtain ammonium nitrate, sulfur, sulfuric acid, kerosene and soda ash from several large suppliers, mainly in Chile and the United States, under long-term contracts or general agreements, some of which contain provisions for annual revisions of prices, quantities and deliveries. Diesel fuel is obtained under contracts that provide fuel at international market prices.

 

We believe that all of our contracts and agreements with third-party suppliers with respect to our main raw materials contain standard and customary commercial terms and conditions.

47

 

Water Supply

 

We hold water rights for the supply of surface and subterranean water near our production facilities. The main sources of water for our nitrate and iodine facilities at Pedro de Valdivia, María Elena and Coya Sur are the Loa and San Salvador rivers, which run near our production facilities. Water for our Nueva Victoria and Salar de Atacama facilities is obtained from wells near the production facilities. In addition, we buy water from third parties for our production processes at the Salar del Carmen lithium carbonate plant,and lithium hydroxide plants, and we also purchase potable water from local utility companies. We have not experienced significant difficulties obtaining the necessary water to conduct our operations.

 

Government Regulations

 

Regulations in Chile Generally

 

We are subject to the full range of government regulations and supervision generally applicable to companies engaged in business in Chile, including labor laws, social security laws, public health laws, consumer protection laws, tax laws, environmental laws, securitiesfree competition laws, and anti-trustsecurities laws. These include regulations to ensure sanitary and safety conditions in manufacturing plants.

 

We conduct our mining operations pursuant to judicial exploration concessions and exploitation concessions granted pursuant to applicable Chilean law. Exploitation concessions essentially grant a perpetual right (with the exception of the Salar de Atacama rights, which have been leased to us until 2030) to conduct mining operations in the areas covered by such concessions, provided that annual concession fees are paid. Exploration concessions permit us to explore for mineral resources on the land covered thereby for a specified period of time, and to subsequently request a corresponding exploitation concession.

 

Under Law No. 16,319 that created the CCHEN,Chilean Nuclear Energy Commission (Comisión Chilena de Energía Nuclear or “CCHEN”), we have an obligation to the CCHEN regarding the exploitation and sale of lithium from the Salar de Atacama. Pursuant to such obligation, we are subject toAtacama, which prohibits the use of lithium for nuclear fusion. In addition, CCHEN has imposed annual quotas that limit the total tonnage of lithium authorized to be sold.

 

We also hold water use rights obtained fromgranted by the Chilean water regulatory authority for therespective administrative authorities and which enable us to have a supply of water from rivers or wells near our production facilities sufficient to meet our current operating requirements. See “Item 3.3.D. Risk Factors—Risks Relating to Chile.Chile—Changes in water rights laws and other regulations could affect our operating costs.” The Water Code isand related regulations are subject to changes,change, which could have a material adverse impact on our business, financial condition and results of operations. For example, Law No. 20,017, published in 2005, modified the Chilean laws relating to water rights and established that, under certain conditions, permanent water rights of up to two liters per second for each well built prior to June 30, 2004, may be constituted in the areas where we conduct our mining operations. In constituting these new water rights, the law does not consider the availability of water, or how the new rights may affect holders of existing rights. Therefore, the amount of water we can effectively extract based on our existing rights could be reduced if these additional rights are exercised. These and other potential future changes to Chilean laws relating to water rights could have a material adverse impact on our business, financial condition and results of operations.

We operate port facilities at Tocopilla, Chile for the shipment of products and the delivery of raw materials pursuant toin conformity with maritime concessions, which have been granted under applicable Chilean laws andby the respective administrative authority. These concessions are normally renewable on application, provided that such facilities are used as authorized and annual concession fees are paid.

 

In 2005, Law No. 20,026, known as the Chilean Congress approvedLaw to Establish a Specific Tax on Mining Activity” (Ley que Establece un Impuesto Específico a la Actividad Mineraor the Royalty Law, which“Royalty Law”), established a royalty tax to be applied to mining activities developed in Chile. In 2010, modifications were made to the law and taxes were increased.

In 2012, new modifications to the tax laws were enacted to set the corporate tax rate at 20% for companies like SQM.

 

48

On September 29, 2014, the Tax ReformLaw No. 20,780 was published (the “Tax Reform”), introducing significant changes to the Chilean taxation system and strengthening the powers of the SII to control and prevent tax avoidance. The Tax Reform contemplates, amongSubsequently, on February 8, 2016, Law No. 20,899 that simplifies the income tax system and modifies other matters, changeslegal tax provisions was published. As a result of these reforms, open stock corporations, like SQM, are subject to the corporate tax regime to create two tax regimes. Starting on January 1, 2017, Chilean companies will be able to opt between two tax regimes: (i) the partially integrated shareholder tax regime (sistema parcialmente integrado) or (ii) the attributed income shareholder taxation regime (sistema de renta atribuida). In both regimes, theThe corporate tax rate applicable to us increased gradually from 20% to 24% in 2016. It will be increasedincrease to 21% in 2014, 22.5% in 2015 and 24% by 2016. On or after January 1, 2017, and depending on the tax regime chosen by the company, tax rates may be increased to a maximum rate of 25% in 2017 for the attributed income shareholder taxation regime or to a rate of 25.5% in 2017 and subsequentlyincrease to a maximum rate of 27% in 2018 for the partially integrated shareholder tax regime.

As an open stock corporation, the default regime that applies to us is the partially integrated regime, unless at a future shareholders’ meeting our shareholders agree to opt for the attributed income shareholder taxation regime.2018.

 

The Tax Reform tax increase prompted a US$52.3 million increase in our deferred tax liabilities as of December 31, 2014.In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have beenwere applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity as of December 31, 2014 was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit for the year and income tax expense as presented in the Company’s Audited Consolidated Financial Statements compared with profit and income tax expense as presented in itsthe Company’s statutory consolidated financial statements filed with the SVS.

Given the difference in accounting treatments between IFRS and the instructions of the SVS, we will continue to analyze the effects of the Tax Reform on our financial statements and reporting obligations, and we cannot be sure of how our future financial statements will reflect these changes.

 

The Chilean government may again decide to levy additional taxes on mining companies or other corporations in Chile, and such taxes could have a material adverse impact on our business, financial condition and results of operations.

 

In 2006,We are also subject to the Chilean Congress amended the Labor Code and effective January 15, 2007, changes were made affecting companies that hire subcontractors to provide certain services. This new law, known as the Subcontracting Law, (Ley de Subcontratación), further amendswhich are overseen by the Labor Accidents Law No. 16,744 to provide that when Authority (Dirección del Trabajo), the National Geology and Mining Service (Servicio Nacional de Geología serious accident in the workplace occurs, y Minería company must halt work at the site where the accident took place until authorities from the Sernageomin, the Labor Board, or “Sernageomin”), and the National Health Service inspect the siteService. Recent changes to these laws and prescribe the measures such company must take to minimize the risk of similar accidents taking place in the future. Worktheir application may not be resumed until said company has taken the prescribed measures, and the period of time before work may be resumed may last for a number of hours, days, or longer. The effects of this law could have a material adverse effect on our business, financial condition and results of operations. See “Item 3.D. Risk Factors—Risks Relating to Our Business—We are exposed to labor strikes and labor liabilities that could impact our production levels and costs.”

On December 2, 2009,

In addition, we are subject to Law No. 20,393, went into effect, establishingwhich establishes criminal liability for legal entities, for the crimes of (a) asset laundering, (b) financing terrorism and (c) bribery. Such criminal liability applies to legalPotential sanctions for violations under this law could include (i) fines, (ii) loss of certain governmental benefits during a given period, (iii) a temporary or permanent bar against the corporation executing contracts with governmental entities, for the aforementioned crimes where such crimes are committed directly or indirectly in benefitand (iv) dissolution of such legal entity, by the legal entity’s owners, controllers, representatives or principal executives, to the extent to which the commission of the crime is a consequence of the legal entity’s failure to fulfill its management and supervisory obligations. The law establishes that the company has fulfilled such obligations when it has adopted and implemented a prevention model for such crimes.corporation.

 

On January 1, 2010, Law No. 20,382 went into effect, introducing modifications toFinally, we are governed by the Securities Law and Law No. 18,046 on Corporations (Ley de Sociedades Anónimasor the “Chilean Corporations Act”). The new law, which regulates corporate governance and, in general, seeks to improve such matters asgovernance. Specifically, the professionalization of senior management at corporations, the transparency of information, and the detection and resolution of possible conflicts of interest. The law establishes the requirement of at least oneChilean Corporations Act regulates, among other things, independent director for certain corporations, including SQM. Such director must be a member of the Directors’ Committee, a position which, in turn, grants the director further supervisory powers. The independent director may be proposed by any shareholder with an ownership interest of 1% or more in a company and must satisfy a series of independence requirements, with respect to the company and the company’s competition, providers, customers and majority shareholders. The new law also defines the regulations regarding the information that companies must providedisclosure obligations to the general public and to the SVS, as well as regulations relating to the use of inside information, the independence of external auditors, and procedures for the analysis of transactions with related parties.

In 2010, the Chilean Congress amended the Environmental Law to create the Ministry of Environment, the Environmental Evaluation Service See “Item 6.C. Board Practices” and the Superintendence for the Environment (Superintendencia del Medio Ambiente or “Superintendence for the Environment”). These changes introduced important amendments to environmental regulations by setting up new agencies and introducing new provisions and procedures applicable to projects whose operations bear an impact on the environment. The new Ministry designs and implements environmental policies relating to environmental conservation, sustainable growth and the protection of Chile’s renewable energy resources. In addition, the Ministry is responsible for enacting emission and quality standard regulations, as well as recovery and decontamination plans. The Environmental Evaluation Service plays an active role in the procedures of the Environmental Impact Evaluation System, pursuant to which projects are approved or rejected from an environmental standpoint. In procedures for obtaining an environmental license, any person, including legal entities and companies, will be allowed to file oppositions and comments. Summary procedures, such as Environmental Impact Statements, allow comments in support or opposition under certain circumstances. Technical reports from governmental agencies are considered to be final. The Superintendence for the Environment is an independent agency which coordinates with other governmental agencies in charge of supervision of suspended projects and projects requiring environmental approval. Likewise, it receives, investigates and rules on complaints concerning the infringement of environmental regulations and sanctions violators, delivers injunction orders and levies relevant fines. The Environmental Enforcement Superintendence had its powers suspended until the First Environmental Court was installed in Santiago on December 28, 2012.Item 7.B. Related Party Transactions.”

 

There are currently no material legal or administrative proceedings pending against us except as discussed in Note 19.1 to our Consolidated Financial Statements Item 8.A. Legal Proceedings and below under “Safety, Health and Environmental Regulations in Chile.” We believe we are in compliance in all material respects with all applicable statutory and administrative regulations with respect to our business.

Safety, Health and Environmental Regulations in Chile

 

Our operations in Chile are subject to both national and local regulations related to safety, health and environmental protection. In Chile, the main regulations on these matters that are applicable to SQMus are the Mine Health and Safety Act of 1989 (Reglamento de Seguridad Minera or the “Mine Health and Safety Act”), the Health Code (Código Sanitario), the Health and Basic Conditions Act of 1999 (Reglamento sobre Condiciones Sanitarias y Ambientales Básicas en los Lugares de Trabajoor the “Health and Basic Conditions Act”), the Subcontracting Law and the Environmental Law of 1994, amended in 2010 (Ley sobre Bases Generales del Medio Ambiente or the “Environmental Law”).

 

49

Health and safety at work are fundamental aspects in the management of mining operations, which is why SQM haswe have made constant efforts to maintain good health and safety conditions for the people working at itsour mining sites and facilities. In addition to the role played by us in this important matter, the Chilean government has a regulatory role, enacting and enforcing regulations in order to protect and ensure the health and safety of workers. The Chilean government, acting through the Ministry of Health and the Sernageomin, performs health and safety inspections at the mining sites and oversees mining projects, among other tasks, and it has exclusive powers to enforce standards related to environmental conditions and the health and safety of the people performing activities related to mining.

 

The Mine Health and Safety Act protects workers and nearby communities against health and safety hazards, and it provides for enforcement of the law where compliance has not been achieved. SQM’sOur Internal Mining Standards (Reglamentos Internos Mineros) establish our obligation to maintain a workplace where safety and health risks are managed appropriately. We must comply with the general provisions of the Health and Basic Conditions Act, our own internal standards and the provisions of the Mine Health and Safety Act. In the event of non-compliance, the Ministry of Health and particularly the Sernageomin are entitled to use their enforcement powers to ensure compliance with the law.

 

In November 2011, the Ministry of Mining enacted Law No. 20,551 that Regulates the Closure of Mining Sites and Facilities (Ley que Regula el Cierre de Faenas e Instalaciones Mineras). This new statute entered in force in November 2012 and required all mining sites to present or update their closure plans as of November 2014. SQM has fulfilled this requirement for all of its mining sites and facilities. The main requirements of the law are related to disclosures to the Sernageomin regarding decommissioning plans for each mining site and its facilities, along with the estimated cost to implement such plans. There is a requirement to provide a form of financial assurance to the Sernageomin to ensure compliance with the decommissioning plans. There are various types of financial assurance that satisfy the requirement. The mining site closure plans must beare approved by the Sernageomin and the corresponding financial assurances are subject to approval by the SVS. In both cases, SQM has received the requisite approvals and kept the respective guarantees up to date according to the useful life of each mining site.

 

The new and modified Chilean Environmental Law was subjected to several important modifications that entered into effect in January 2010, including the creation ofdefines the Ministry of the Environment the Environmental Evaluation Service and the Superintendence for the Environment. The Superintendence for the Environment began operations on December 28, 2012. The new and modified Environmental Law replaced the CONAMA with both the Ministry of the Environment, which is currentlyas the governmental agency responsible for coordinating and supervising environmental issuesissues. The Environmental Assessment Service is responsible for reviewing environmental assessments of new projects or significant modifications of existing ones, and the decision to grant or reject environmental permits rests with the Environmental Evaluation Service. UnderAssessment Commission. On the new Environmental Law, we will continue to be required to conduct environmental impact studies or statements of any future projects or activities (or their significant modifications) that may affectother hand, the environment. The Superintendence for the Environment is responsible for supervising environmental performance during the construction, operation and closure of the projects that have been evaluated for environmental purposes,permits, and it is also responsible for enforcing compliance with prevention and atmospheric decontamination plans. The Environmental Law also promotes citizen participation in project evaluation and implementation, providing more opportunities for observations or objections to be made during the environmental evaluation process. Annually, the Superintendence for the Environment audits a sample of approved projects to verify compliance with the environmental permits, and it may pursue fines or sanctions if applicable, which can be challenged in the Environmental Court.

On August 10, 1993, the Ministry of Health published in the Official Gazette a resolution establishing that atmospheric particulate levels at our production facilities in María Elena and Pedro de Valdivia exceeded air quality standards, affecting the nearby towns. The high particulate matter levels came principally from dust produced during the processing of caliche ore, particularly the crushing of the ore before leaching. Residents of the town of Pedro de Valdivia were relocated to the town of María Elena, practically removing Pedro de Valdivia from the scope of the determination of the Ministry of Health. In 1998, authorities approved a plan to reduce the atmospheric particulate levels later modified by Decree No. 37/2004 in March 2004, which called for an 80% reduction of the emissions of atmospheric particulate material. This was achieved by 2008 through the implementation of a project that modified the milling and screening systems used in the processing of the caliche ore at the María Elena facilities. Due to international market conditions, this project suspended its operation in March 2010, and today the milling and screening systems used in the processing of the caliche ore at the María Elena facilities have been suspended. Air quality in the area has improved significantly, and therefore compliance of air quality standards is expected to be achieved. When the compliance with the Chilean air quality standard has been achieved for three consecutive years (2012 to 2014), the resolution of 1993 of the Ministry of Health may be reviewed.

On March 16, 2007, the Ministry of Health published in the Official Gazette a resolution establishing that atmospheric particulate levels exceeded air quality standards in the coastal town of Tocopilla, where we have our port operations. The high particulate matter levels are caused mainly by two thermoelectric power plants that use coal and fuel oil and are located next to our port operations. Our contribution to particulate matter emissions is very small (less than 0.20% of the total). However, the environmental authority included SQM’s operations in the decontamination plan that it developed, and implementation of the plan began in October 2010. During 2008 and 2009, earlier than required, SQM implemented control measures for mitigating particulate matter emissions in its port operations according to the requirements of this plan. We do not expect any additional measures to be required of SQM following the implementation of the plan.

 

We continuously monitor the impact of our operations on the environment and on the health of our employees and other persons who may be affected by such operations. We have made modifications to our facilities in an effort to eliminate any adverse impacts. Also, over time, new environmental standards and regulations have been enacted, which have required minor adjustments or modifications of our operations for full compliance. We anticipate that additional laws and regulations will be enacted over time with respect to environmental matters. While we believe we will continue to be in compliance in all material respects with all applicable environmental regulations of which we are now aware, there can be no assurance that future legislative or regulatory developments will not impose new restrictions on our operations. We are committed to both complying with all applicable environmental regulations and to continuously improving our environmental performance through our Environmental Management System (“EMS”), voluntary evaluations, such as Ecovadis, and international certifications, such as the Responsible Conduct certification from the Chilean Industrial Chemicals Association, which applies to our operations at Nueva Victoria.Victoria, and the Protect&Sustain certification from the International Fertilizer Association, which applies to our operations at Coya Sur, the Salar de Atacama, Tocopilla, Antofagasta and Santiago.

50

 

We have submitted and will continue to submit several environmental impact assessment studies related to our projects to the governmental authorities. We require the authorization of these submissions in order to maintain and to increase our production capacity.

 

54

International Regulations

 

SQM employs itsWe employ our best efforts to ensure compliance with the complex regulatory environments in which it operates.we operate.

 

In October 2014,March 2016, the European Commission sent to the European Parliament a new regulatory proposal for fertilizers, which is expected to be approved by the end of 2017, following which there will be a transition period for its implementation. The new European regulation proposes to reduce the maximum content limit of perchlorates in inorganic fertilizer with macronutrients, such as the potassium nitrate sold by us, from 0.01% to 0.005%. The fertilizers that we sell contain less than 0.005% of perchlorate. However, we anticipate that in 2017, the Food Chain Security unit of the General Health and Consumer Affairs Council may revise the perchlorate limits in food that are currently in force and effect, following the European Food Safety AuthorityAuthority’s (“EFSA”) released a scientific opinion onevaluation of the risks to public health related todata from the presence of2016 monitoring program that analyzed perchlorate levels in food particularly fruits and vegetables.in drinkable water. The scientific opinion concluded, among other things, that the usenew limits of natural fertilizers and perchlorate contaminated irrigation water may lead to substantial concentrationsperchlorates in food particularly fruits and vegetables. The EFSA scientific opinion recommended that additional data gatheringis expected to be undertaken to improve risk assessment. The review of the provisional limits established by the European Commission in July 2013 was carried out in March 2015, and new, lower provisional limits were established for perchlorate presence in fruits and vegetables. The fertilizers sold by SQM contain less than 0.01%end of perchlorate, and agronomical perchlorate uptake studies performed on target crops have shown that the uptake rates are well within the above mentioned provisional limits. Therefore, we do not anticipate difficulties with compliance. The European Commission announced a program to monitor perchlorate content in food and drinking water that will last at least one year, and therefore, the limits are not expected to be reviewed or definitively established during the next 18 months.2017.

 

In September 2014,With respect to the regulation on explosives in Europe, we issued a procedure for all employees of SQM Europe NV (Procedure for the Reporting of Suspicious Transactions and Theft of Products covered by Regulation (EU) No. 98/2013 went into effect2013). We completed a new training program for employees in related European companies with respect to such regulation. This regulation considers nitrogen, phosphorus, and potassium (“NPK”) mixes produced in Europe as well as the nitrates in the product line and third party products covered by the regulation. The member states that participate in the European Community, relating toCommittee that reviews the marketing and use of explosives precursors. The regulation includesdid not reach a consensus on defining the obligation to report to authorities any suspicious transactions of different products that may be used illegally in the production of explosives, including potassium nitrate and sodium nitrate produced by SQM. The regulation covers products for agricultural use and for industrial use indistinctly and does not establish ranges of concentration to which the standard applies. Therefore, the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs of the European Commission developed Implementation Guidelines, which contemplate the definition of ranges of concentration for fertilizer products, within a public-private Committee set upproducts. We will continue to monitor the development of changes to the regulation through our participation in the Potassium Nitrate Association as part of the public–private committee created by the European CommissionCommittee. In 2017, the reviewing committee expects to prepare a report evaluating the regulation.

In September 2016, we fulfilled the United States Environmental Protection Agency’s (“US-EPA”) requirement under the Chemical Data Reporting (“CDR”) regulation and the Toxic Substances Control Act (US-TSCA) to disclose all chemical substances imported to the United States by SQM North America Corp. during the 2012-2015 period, including the amount in tons per year and its uses. We conducted a survey of all products imported to the United States of America from our headquarters and affiliates during this period and reported the information per chemical substance to the US-EPA. This disclosure will be made again in 2020 for this purpose. During 2015, we will improveproducts imported during the existing control procedures and carry out an awareness program2016-2019 period.

In January 2016, a new Korean regulation for SQM Europe employees,the management of chemical products known as well as carrying out internal audit programs in orderK-REACH came into effect. K-REACH contains requirements that are similar to appropriately handle inspectionsthose established by the competent authorities,European regulation, REACH. K-REACH defines obligations for both importers and users of our products with respect to the evaluation of security and the communication of risks to the supply chain. K-REACH also defines substances that should be registered in accordance with the regulation that will be implemented in July 2018. We intend to act through a focus on Belgium and Spain.sole representative in Korea for all products subject to the regulation.

 

SQM has complied withOn March 14, 2016, Normative Instruction No. 5 became effective in Brazil, which defines specification requirements, guarantees, tolerances, registration requirements, packaging requirements, and the implementation requirementslabeling of fertilizer products, among others. Normative Instruction No. 5 also defines changes to the information presented for the new Hazard Communication Standardregistration of the U.S. Occupational Safetyproducts and Health Administration (“OSHA”), for the classification and updatingrenewal of labels and safety data sheets before June 2015. In 2014 the employees of SQM North America were trained on this new standard.existing registries, when applicable.

51

 

Research and Development, Patents and Licenses

 

See “Item 5.C. Research and Development, Patents and Licenses.”

 

4.C.    Organizational Structure

 

All of our principal operating subsidiaries are essentially wholly-owned, except for Soquimich Comercial S.A., which is approximately 61% owned by us and whose shares are listed and traded on the Santiago Stock Exchange, and Ajay SQM Chile S.A., which is 51% owned by us. The following is a summary of our main subsidiaries as of December 31, 2014.2016. For a list of all our consolidated subsidiaries, see Note 2.5 to our Consolidated Financial Statements.

Principal subsidiaries Activity Country of
Incorporation
 SQM Beneficial
Ownership Interest
(Direct/Indirect)
SQM Nitrates S.A. Extracts and sells caliche ore to subsidiaries and affiliates of SQM Chile 100%100%
SQM Industrial S.A. Produces and markets SQM’s products directly and through other subsidiaries and affiliates of SQM Chile 100%100%
SQM Salar S.A. Exploits the Salar de Atacama to produce and market SQM’s products directly and through other subsidiaries and affiliates of SQM Chile 100%100%
SQM Potasios S.A. Produces and markets SQM’s products directly and through other subsidiaries and affiliates of SQM Chile 100%100%
Servicios Integrates de Transitos y Transferencias S.A. (SIT) Owns and operates a rail transport system and also owns and operates the Tocopilla port facilities Chile 100%100%
Soquimich Comercial S.A. Markets SQM’s specialty plant nutrition products domestically and imports fertilizers for resale in Chile Chile 61%61%
Ajay-SQM Chile S.A. Produces and markets SQM’s iodine and iodine derivatives Chile 51%51%
Sales and distribution subsidiaries in the United States, Belgium, Brazil, Ecuador, Peru, Argentina, Mexico, South Africa, Spain, China, Thailand and other locations. Market SQM’s products throughout the world Various  

 52 

 

4.D.    Property, Plant and Equipment

 

We carry out our operations through the use of mining rights, production facilities and transportation and storage facilities. Discussion of our mining rights is organized below according to the geographic location of our mining operations. Our caliche ore mining interests are located throughout the valley of the Tarapacá and Antofagasta regions of northern Chile (in a part of the country known as “el Norte Grande”). From caliche ore, we produce products based on nitrates and iodine, and caliche also contains concentrations of potassium. Our mining interests in the brine deposits of the Salar de Atacama are found within the Atacama Desert, in the eastern region of el Norte Grande. From these brines we produce products based on potassium, sulfate, lithium and boron.

The map below shows the location of our principal mining operations and the exploitation and exploration mining concessions that have been granted to us, as well as the mining properties that we lease from Corfo:

 

53

 

 

54

 

Mining Concessions

 

Mining Concessions for the Exploration and Exploitation of Caliche Ore Mining Resources

 

We hold our mining rights pursuant to mining concessions for exploration and exploitation of mining resources that have been granted pursuant to applicable law in Chile:

  

(1)“Mining Exploitation Concessions”: entitle us to use the land in order to exploit the mineral resources contained therein on a perpetual basis, subject to annual payments to the Chilean government.

 

(2)“Mining Exploration Concessions”: entitle us to use the land in order to explore for and verify the existence of mineral resources for a period of two years, at the expiration of which the concession may be extended one time only for two additional years, if the area covered by the concession is reduced by half. We may alternatively request an exploitation concession in respect of the area covered by the original exploration concession, which must be made within the timeframe established by the original exploration concession.

 

A Mining Exploration Concession is generally obtained for purposes of evaluating the mineral resources in a defined area. If the holder of the Mining Exploration Concession determines that the area does not contain commercially exploitable mineral resources, the Mining Exploration Concession is usually allowed to lapse. An application also can be made for a Mining Exploitation Concession without first having obtained a Mining Exploration Concession for the area involved.

 

As of December 31, 2014,2016, the surface area covered by Mining Exploitation Concessions that have been granted in relation to the caliche resources of SQM S.A.’s mining sites corresponds to approximately 554,447569,323 hectares. In addition, as of December 31, 2014,2016, the surface area covered by Mining Exploration Concessions in relation to the caliche resources of SQM S.A.’s mining sites corresponds to approximately 9,9006,800 hectares. We have not requested additional mining rights.

 

Mining Concessions for the Exploitation of Brines at the Salar de Atacama

 

As of December 31, 2014,2016, our subsidiary SQM Salar held exclusive and temporary rights to exploit the mineral resources in an area covering approximately 140,000 hectares of land in the Salar de Atacama in northern Chile, of which SQM Salar S.A. is only entitled to exploit the mineral resources of 81,920 hectares. These rights are owned by Corfo and leased to SQM Salar pursuant to the Lease Agreement between Corfo and SQM Salar.Agreement. Corfo cannot unilaterally modify the Lease Agreement, and the rights to exploit the resources cannot be transferred. The Lease Agreement establishes that SQM Salar is responsible for making quarterly lease payments to Corfo according to specified percentages of the value of production of minerals extracted from the Salar de Atacama brines, maintaining Corfo’s rights over the mining exploitation concessions and making annual payments to the Chilean government for such concession rights. The Lease Agreement expires on December 31, 2030.

 

Under the terms of the Salar de Atacama project agreement between Corfo and SQM Salar (the “Project Agreement”), Corfo has agreed that it will not permit any other person to explore, exploit or mine any mineral resources in the approximately 140,000 hectares area of the Salar de Atacama mentioned above. The Project Agreement expires on December 31, 2030.

 

SQM Salar holds an additional 254,026254,940 hectares of constituted Mining Exploitation Concessions in areas near the Salar de Atacama, which correspond to mining reserves that have not been exploited. SQM Salar also holds Mining Exploitation Concessions that are in the process of being granted covering 78,53072,178 hectares in areas near the Salar de Atacama.

55

In addition, as of December 31, 2014,2016, SQM Salar held constituted Mining Exploration Concessions covering approximately 102,30068,400 hectares and had applied for additional Mining Exploration Concessions coveringof approximately 46,8002,600 hectares. Exploration rights are valid for a period of two years, after which we can (i) request a Mining Exploitation Concession for the land, (ii) request an extension of the Mining Exploration Concession for an additional two years (the extension only applies to a reduced surface area equal to 50% of the initial area) or (iii) allow the concession to expire.

 

According to the terms of the Lease Agreement, with respect to lithium production, the CCHEN has established a total accumulated extraction limit set at 180,100 tons of lithium (958,672 tons of lithium carbonate equivalent) in the aggregate for all periods while the Lease Agreement is in force. More than halfway through the term of the Lease Agreement, we have extracted approximately half59% of the total accumulated extraction limit of lithium.

 

Corfo has initiated arbitration proceedings in connection with the Lease Agreement. SeeFor more information, see “Item 8.A.8.A.7 Legal Proceedings.”Proceedings”.

 

Concessions Generally

 

As of December 31, 2014,2016, approximately 93%96% of SQM’s mining interests were held pursuant to Mining Exploitation Concessions and 7%4% pursuant to Mining Exploration Concessions. Of the Mining Exploitation Concessions, approximately 90%93% already have been granted pursuant to applicable Chilean law, and approximately 10%7% are in the process of being granted. Of the Mining Exploration Concessions, approximately 66%96% already have been granted pursuant to applicable Chilean law, and approximately 34%4% are in the process of being granted.

 

In 2014,2016, we made payments of approximately US$8.27.2 million to the Chilean government for Mining Exploration and Exploitation Concessions, including the concessions we lease from Corfo. The US$8.2 millionThese payments do not include quarterlythe payments we made directly to Corfo pursuant to the Lease Agreement, which were based onaccording to the percentages of the sales price of products produced using brines from the Salar de Atacama.

 

The following table shows the constituted Mining Exploitation and Exploration Concessions held by SQM, S.A., including the mining properties we lease from Corfo, as of December 31, 2014:2016:

 

 Exploitation
Concessions
  Exploration
Concessions
  Total  Exploitation
Concessions
  Exploration
Concessions
  Total 
Region of Chile Total
Number
  Hectares  Total
Number
  Hectares  Total
Number
  Hectares  Total
Number
 Hectares Total
Number
 Hectares Total
Number
 Hectares 
Region I  2,233   446,280   33   8,400   2,266   454,680   2,820   538,454   58   24,600   2,878   563,054 
Region II  8,539   2,255,109   269   122,400   8,808   2,377,509   9,011   2,372,895   302   96,200   9,313   2,469,095 
Region III and others  261   61,393   123   29,500   384   90,893   406   97,768   31   10,300   437   108,068 
Total  11,033   2,762,782   425   160,300   11,458   2,923,082   12,237   3,009,117   391   131,100   12,628   3,140,217 

 

The majority of the Mining Exploitation Concessions held by SQM were requested primarily for non-metallic mining purposes. However, a small percentage of our Mining Concessions were requested for metallic mining purposes. The annual payment to the Chilean government for this group of concessions is higher.

 

Geological studies over mining properties that were requested primarily for non-metallic mining purposes may show that the concession area is of interest for metallic mining purposes, in which case we must inform the Sernageomin, indicating that the type of substance contained by such Mining Concessions has changed, for purposes of the annual payment for these rights.

56

Caliche: Facilities and Reserves

 

Caliche: Facilities

 

Currently,During 2016, caliche ore mining operations were focused in the first region of Chile, and our Nueva Victoria mine was exploited. In November 2015, the mining and nitrate operations at Pedro de Valdivia mines are being exploited.were suspended, and iodine production was reduced at the Pedro de Valdivia site, in order to take advantage of the highly efficient production facilities at Nueva Victoria. Operations at the Pampa Blanca site were temporarily suspended in 2010, and operations at the María Elena site were temporarily suspended in October 2013.

 

María Elena

The María Elena mine and facilities, named El Toco, are located 220 kilometers northeast of Antofagasta and are accessible by highway. Until February 2010, caliche was used at this facility to produce nitrates and iodine through vat leaching. Subsequently, these facilities were equipped to produce nitrates and iodine through the use of heap leaching and solar evaporation ponds. Heap leaching operations at this site were temporarily suspended in October 2013. During 2014 and 2015, we continued to produce solutions rich in iodine and nitrates by leaching the mine tailings. These solutions are treated at the iodide plant at María Elena, and subsequently the prilled iodine is produced at Pedro de Valdivia. The main production facilities at this site include the operations center located at El Toco and the iodide plant located at María Elena. The area mined until operations were suspended is located approximately 14 kilometers north of the María Elena production facilities. Electricity and fuel oil are the primary sources of power for this operation.

 

Nueva Victoria

The Nueva Victoria mine and facilities are located 180 kilometers north of María Elena and are accessible by highway. Since 2007, the Nueva Victoria mine includes the mining properties Soronal, Mapocho and Iris. At this site, we use caliche to produce salts rich in nitrates and iodine, through heap leaching and the use of solar evaporation ponds. The main production facilities at this site include the operation centers for the heap leaching process, the iodide and iodine plants at Nueva Victoria and Iris and the evaporation ponds at the Sur Viejo sector of the site. The areas currently being mined are located approximately 4 kilometers northeast of Nueva Victoria. Solar energy and electricity are the primary sources of power for this operation.

 

Pampa Blanca

The mining facilities at Pampa Blanca, which is located 100 kilometers northeast of Antofagasta, have been suspended since March 2010. At this site, we used caliche to produce nitrates and iodine through heap leaching and the use of solar evaporation ponds. The main production facilities at this site included the operation centers for the heap leaching system and the iodide plant. Electricity was the primary source of power for this operation.

 

Pedro de Valdivia

The Pedro de Valdivia mine and facilities that we operate in Pedro de Valdivia are located 170 kilometers northeast of Antofagasta and are accessible by highway. At this site, we useused caliche to produce nitrates and iodine through vat and heap leaching and solar evaporation ponds. The main production facilities at this site include the crushing, vat leaching, fines processing, nitrate crystallization plant, and iodide and iodine plants. The areas currently being mined are located approximately 32 kilometers southeast ofIn November 2015, the mining and nitrate operations at Pedro de Valdivia were suspended, and iodine production facilities.was reduced. Electricity, natural gas and fuel oil are the primary sources of power for this operation.

57

 

Caliche: Reserves

 

Our in-house staff of geologists and mining engineers prepares our estimates of caliche ore reserves. The Proven and Probable Reserve figures presented below are estimates, and may be subject to modifications due to natural factors that affect the distribution of mineral grades, which would, in turn, modify the recovery of nitrate and iodine. Therefore, no assurance can be given that the indicated levels of recovery of nitrates and iodine will be realized.

We estimate ore reserves based on evaluations, performed by engineers and geologists, of assay values derived from sampling of drill-holes and other openings. Drill-holes have been made at different space intervals in order to recognize mining resources. Normally, we start with 400x400 meters and then we reduce spacing to 200x200 meters, 100x100 meters and 50x50 meters. The geological occurrence of caliche ore is unique and different from other metallic and non-metallic minerals. Caliche ore is found in large horizontal layers at depths ranging from one to four meters and has an overburden between zero and two meters. This horizontal layering is a natural geological condition and allows the Company to estimate the continuity of the caliche bed based on surface geological reconnaissance and analysis of samples and trenches. Mineral resources can be calculated using the information from the drill-hole sampling.

 

A Mineral Resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth’s crust in such form or quantity and of such grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological, metallurgical and technological evidence.

 

A Measured Resource is the part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. The estimate is based on detailed exploration, sampling and testing information gathered through appropriate sampling techniques from locations such as outcrops, trenches, and exploratory drill holes.

 

An Indicated Mineral Resource is the part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. The estimate is based on detailed exploration, sampling and testing information gathered through appropriate sampling techniques from locations such as outcrops, trenches and exploratory drill holes.

 

According to our experience in caliche ore, the grid pattern drill-holes with spacing equal to or less than 100 meters produce data on the caliche resources that is sufficiently defined to consider them Measured Resources and then, adjusting for technical, economic and legal aspects, as Proven Reserves. These reserves are obtained using the Kriging Method and the application of operating parameters to obtain economically profitable reserves.

 

Similarly, the information obtained from detailed geologic work and samples taken from grid pattern drill-holes with spacing equal to or less than 200 meters can be used to determine Indicated Resources. By adjusting such Indicated Resources to account for technical, economic and legal factors, it is possible to calculate Probable Reserves. Probable Reserves are calculated by using a polygon-based methodology and have an uncertainty or margin of error greater than that of Proven Reserves. However, the degree of certainty of Probable Reserves is high enough to assume continuity between points of observation.

 

Proven Reserves are the economically mineable part of a Measured Resource. The calculation of the reserves includes the application of mining parameters including maximum overburden, minimum thickness of caliche ore, stripping ratio, cutoff grade and application of dilution factors to the grade values. Appropriate assessments, including pre-feasibility studies or feasibility studies, have been carried out and include consideration of metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

 

58

Probable Reserves are the economically mineable part of an Indicated Resource and in some cases a Measured Resource. The calculation of the reserves includes the application of mining parameters including maximum overburden, minimum thickness of caliche ore, stripping ratio, cutoff grade and application of dilution factors to the grade values. Appropriate assessments, including pre-feasibility studies, have been carried out or are in process and include consideration of metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

The estimates of Proven Reserves of caliche ore at each of our mines as of December 31, 20142016 are set forth below. The Company holds 100% of the concession rights for each of these mines.

 

Mine Proven Reserves (1)
(millions of metric tons)
  Nitrate Average Grade
(percentage by weight)
  Iodine Average Grade
(parts per million)
  Cutoff Grade Average for
Mine (3)
 Proven Reserves (1)
(millions of metric
tons)
 Nitrate Average
Grade
(percentage by
weight)
 Iodine Average
Grade
(parts per million)
 Cutoff Grade
Average for Mine
(2)
Pedro de Valdivia  186.3   7.1%  369  Nitrate  6.0 %  109.0   7.1%  377  Nitrate  6.0 %
María Elena  98.3   7.1%  434  Iodine 300 ppm  83.3   7.2%  436  Iodine 300 ppm
Pampa Blanca  54.7   5.7%  538  Iodine 300 ppm  54.7   5.7%  538  Iodine 300 ppm
Nueva Victoria(4)  348.1   5.7%  435  Iodine 300 ppm  377.0   6.4%  430  Iodine 300 ppm

 

In addition, the estimates of our Probable Reserves of caliche ore at each of our principal mines as of December 31, 2014,2016, are as follows:

 

Mine Probable Reserves (2)
(millions of metric tons)
  Nitrate Average Grade
(percentage by weight)
  Iodine Average Grade
(parts per million)
  Cutoff Grade (3)
Pedro de Valdivia(5)  264.6   7.8%  438  Nitrate  6.0 %
María Elena  133.8   7.3%  377  Iodine 300 ppm
Pampa Blanca  464.6   5.7%  540  Iodine 300 ppm
Nueva Victoria(6)  1,093.7   5.6%  420  Iodine 300 ppm

Notes on Reserves:

Mine Probable Reserves (3)
(millions of metric
tons)
  Nitrate Average
Grade
(percentage by
weight)
  Iodine Average
Grade
(parts per million)
  Cutoff Grade (2)
Pedro de Valdivia  334.7   7.3%  421  Nitrate  6.0 %
María Elena  148.8   7.2%  381  Iodine 300 ppm
Pampa Blanca  464.6   5.7%  540  Iodine 300 ppm
Nueva Victoria  1,020.7   5.3%  421  Iodine 300 ppm

 

(1)The Proven Reserves set forth in the table above are shown before losses related to exploitation and mineral treatment. Proven Reserves are affected by mining exploitation methods, which result in differences between the estimated reserves that are available for exploitation in the mining plan and the recoverable material that is finally transferred to the leaching vats or heaps. The average mining exploitation factor for each of our different mines ranges between 80% and 90%, whereas the average global metallurgical recoveries of processes for nitrate and iodine contained in the recovered material vary between 55%60% and 65%70%.

 

(2)The cutoff grades for the Proven and Probable Reserves vary according to the objectives of each mine. These amounts correspond to the averages of the different areas.

(3)Probable Reserves can be expressed as Proven Reserves using a conversion factor, only for purposes of obtaining a projection to be used for long-term planning purposes. On average, this conversion factor is higher than 60%, depending on geological conditions and caliche ore continuity, which vary from mine to mine.

(3)The cutoff grades for the Provenmine (Pedro de Valdivia 60%, María Elena 50%, Pampa Blanca 70% and Probable Reserves vary according to the objectives of each mine. These amounts correspond to the averages of the different sectors.

(4)The 3.3% increase in the Proven Reserves at Nueva Victoria is the result of the recategorization of resources within the western sector of the mine from Indicated Resources to Measured Resources.

(5)The increase of 145.9 million tons in the Probable Reserves at Pedro de Valdivia is the result of the recategorization of resources within the Algorta section of the mine to Indicated Resources.

(6)The increase in the Probable Reserves at Nueva Victoria is the result of the recategorization of resources within the Soronal (692.1 million tons) and Pampa Orcoma (326.1 million tons) sectors of the mine to Indicated Resources.60%).

 

The complete technical supporting documentation for the information set forth in the table above is contained in the report “Methodology, Procedure, and Classification of SQM’s Nitrate and Iodine Resources and Reserves for the Year 2014,2016, which was prepared for each mine by SQMthe geologist Vladimir Tejerina and other SQM engineering professionals employed by SQM and validated by Mrs. Marta AguileraMr. Sergio Alarcón and Mr. Orlando Rojas.

 

59

Mrs. Marta Aguilera

Mr. Sergio Alarcón is a geologist with more than 2030 years of experience in the field. SheHe is currently employed by SQM as Manager of Exploration and Mining Development. Mrs. Aguileraa Geology Supervisor. Mr. Alarcón is a Competent Person (Persona Competente), as that term is defined under Chilean Law No. 20,235, known as the Law that Regulates the Position of Competent Person Law. Sheand Creates the Qualifying Committee for Competencies in Mining Resources and Reserves (Ley que Regula la Figura de las Personas Competentes y Crea la Comisión Calificadora de Competencias de Recursos y Reservas Mineras or “Competent Person Law”). He is registered under No. 163164 in the Public Registry of Competent Persons in Mining Resources and Reserves in accordance with the Competent Person Law and related regulations. SheHe has worked as a geologist with both metallic and non-metallic deposits, with vast experience in the latter.

Mr. Orlando Rojas is a civil mining engineer and independent consultant. He is Partner and Chief Executive Officer of the company EMI-Ingenieros y Consultores S.A., whose offices are located at Renato Sánchez No. 3357, Las Condes, Santiago, Chile. He is a member of the Institute of Mining Engineers and is registered under No. 118 in the Public Registry of Competent Persons in Mining Resources and Reserves in accordance with the Competent Person Law and related regulations. He has worked as a mining engineer for 3539 years since graduating from university, including more than 3033 years working on estimates for reserves and resources.

 

Copies of the certificates of qualified competency issued by the Chilean Mining Commission are attached hereto as Exhibits 99.1 and 99.2.

 

The proven and probable reserves shown above are the result of the evaluation of approximately 19.2%21.34% of the total caliche-related mining property of our Company. However, we have explored more intensely the areas in which we believe there is a higher potential of finding high-grade caliche ore minerals. The remaining 80.8%78.66% of this area has not been explored or has had limited reconnaissance, which is not sufficient to determine the sources of potential and hypothetical resources. In 2016, we did not carry out basic reconnaissance of new mining properties. With respect to detailed explorations, in 2016, we carried out recategorizations of indicated resources in the NVWS (“Nueva Victoria West South”), and Franja West sectors, totaling 1,575.64 hectares, which is still in process. Our 2017 exploration program includes the exploration of Tente en el Air section, which totals 687 hectares. The reserves shown in these tables are calculated based on properties that are not involved in any legal disputes between SQM and other parties.

 

Caliche ore is the key raw material used in the production of iodine, specialty plant nutrients and industrial chemicals. The following gross margins for the business lines specified were calculated on the same basis as cut off grades used to estimate our reserves. We expect costs to remain relatively stable in the near future.

 

 2014 2013 2012  2016 2015 2014
 Gross
Margin
 Price Gross
Margin
 Price Gross
Margin
 Price  Gross
Margin
  Price Gross
Margin
  Price Gross
Margin
  Price
Iodine and Derivatives  42%  US$38/kg   56%  US$50/kg   63%  US$53/kg   17% US$23/kg  30% US$28/kg  42% US$38/kg
Specialty Plant Nutrition  21%  US$806/ton   22%  US$811/ton   32%  US$866/ton   23% US$742/ton  29% US$784/ton  21% US$806/ton
Industrial Chemicals  40%  US$812/ton   28%  US$877/ton   34%  US$877/ton   35% US$808/ton  27% US$770/ton  40% US$812/ton

 

We maintain an ongoing program of exploration and resource evaluation on the land surrounding the mines at Nueva Victoria, Pedro de Valdivia, María Elena, Pampa Blanca and other sites for which we have the appropriate concessions. In 2014, we continued a basic reconnaissance program on new mining properties including a geological mapping of the surface and spaced drill-hole campaign covering approximately 7,143 hectares. We did not carry out detailed explorations during 2014. For 2015 we have an exploration and recategorization program covering 1,609 hectares in Region I of Chile.

60

 

Brines from the Salar de Atacama: Facilities and Reserves

 

Salar de Atacama: Facilities

 

Salar de Atacama

Our facilities at the Salar de Atacama are located 208 kilometers to the east of the city of Antofagasta and 188 kilometers to the southeast of the city of María Elena. At this site we use brines extracted from the salar to produce potassium chloride, potassium sulfate, boric acid, magnesium chloride salts and lithium solutions, which are subsequently sent to our lithium carbonate plant at the Salar del Carmen for processing. The main production plants at this site include the potassium chloride flotation plants (MOP-H I and II), the potassium carnallite plants (PC I and extension), the potassium sulfate flotation plant (SOP-H), the boric acid plant (ABO), the potassium chloride drying plant (MOP-S)(Dual Plant or MOP-S), the potassium chloride compacting plant (MOP-G), the potassium sulfate drying plant (SOP-S) and the potassium sulfate compacting plant (SOP-G). Solar energy is the primary energy source used for the Salar de Atacama operations.

Salar de Atacama: Reserves

 

Our in-house staff of hydro-geologists and mining engineersgeologists prepares our estimates of the reserve base of potassium, sulfate, lithium and boron reservesdissolved in brines at the Salar de Atacama. We have exploitation concessions covering an area of approximately 81,920 hectares, in which we have carried out geological exploitation, brine sampling and geostatistical analysis. We estimate that our proven and probable reserves as of December 31, 2014,2016, based on economic restrictions, geological exploitation, brine sampling and geostatistical analysis up to a depth of 100110 meters of our total exploitation concessions, and additionally, up to a depth of 300 meters over approximately 47% of the same total area, are as follows:

 

  Proven Reserves (1)
(millions of metric tons)
  Probable Reserves (1)
(millions of metric tons)
  Total Reserves
(millions of metric tons)
 
Potassium (K+) (2)  54.62   39.00   90.62 
Sulfate (SO4-2) (3)  47.82   37.06   84.88 
Lithium (Li+) (4)  4.89   3.17   8.06 
Boron (B3+) (5)  1.76   1.26   3.02 

   Proven Reserves(1)  Probable Reserves(1)  Total Reserves 
   (millions of metric tons)  (millions of metric tons)  (millions of metric tons) 
 Potassium (K+)(2)   50.2   21.8   72.0 
 Sulfate (SO4-2)(3)   40.1   19.1   59.2 
 Lithium (Li+)(4)   3.7   2.3   6.0 
 Boron (B3+)(5)   0.9   0.3   1.2 

Notes on reserves:

(1)Metric tons of potassium, sulfate, lithium and boron considered in the proven and probable reserves are shown before losses from evaporation processes and metallurgical treatment. The recoveries of each ion depend on both brine composition and the process applied to produce the desired commercial products.

(2)Recoveries for potassium vary from 47% to 77%.

(3)Recoveries for sulfate vary from 27% to 45%.

(4)Recoveries for lithium vary from 28% to 40%.

(5)Recoveries for boron vary from 28% to 32%.

 

The information set forth in the table above was validated in March 2015February 2017 by Messrs. Álvaro Henríquez and Orlando Rojas using information that was prepared by SQM’s hydrogeologists, geologists SQM’sand engineers and external advisors.

 

Mr. Henríquez is a geologist with more than 10thirteen years of experience in the field of mining hydrogeology. He is currently employed by SQM as Superintendent of Geology, in the Salar Hydrogeology department. He is a Competent Person and is registered under No. 226 in the Public Registry of Competent Persons in Mining Resources and Reserves, in accordance with the Competent Person Law. As a hydrogeologist in Chile and abroad, he has evaluated multiple brine-based projects and has experience evaluating resources and reserves.

61

 

Mr. Orlando Rojas is a civil mining engineer and independent consultant. He is Partner and Chief Executive Officer of the company EMI-Ingenieros y Consultores S.A., whose offices are located at Renato Sánchez No. 3357, Las Condes, Santiago, Chile. He is a member of the Institute of Mining Engineers and is registered under No. 118 in the Public Registry of Competent Persons in Mining Resources and Reserves in accordance with the Competent Person Law and related regulations. He has worked as a mining engineer for 3538 years since graduating from university, including more than 3032 years working on estimates for reserves and resources.

Copies of the certificate of qualified competency issued by the Chilean Mining Commission for Mr. Rojas and Mr. Henríquez are attached hereto as Exhibit 99.2 and 99.3.

 

A cutoff grade of 1%1.0% K is used in the calculation, considering a low margin scenario using only MOP-S as and using diluted brine with higher levels of contaminants as the raw material and with recovery yields of approximately 47%, which is on the lower end of the range. In this scenario, considering current market conditions and market conditions from recent years, the production cost of MOP production is still competitive.

 

The cutoff grade for lithium extraction is set at 0.05% Li. The cost of the process is competitive in the market despite a small cost increase due to the expansions in the evaporation area (to reach the required Li concentration) and to the use of additives to maintain the quality of the brine that is used to feed the plant.

 

The proven and probable reserves are based on production experience, drilling, brine sampling and geo-statistic reservoir modeling in order to estimate brine volumes and their composition. We calculate the reserve base, which is the volume of brine effectively drainable or exploitable in each evaluation unit. We consider chemical parametersunit, by building a three-dimensional block model. The following variables are used to determinepopulate the process to be applied to the brines. model:

·Porosity: obtained from measurements of drainable porosity in core rocks, test pumping data, geophysical records and changes in the level of the brine. The volume of brine is estimated on the basis of the interpolation of the drainable porosity data.
·Grades:The brine chemistry is subjected to an exploratory data analysis and a variographic analysis, in order to determine the chemical populations in the Salar. Subsequently, the grades are interpolated using the Kriging method.

Based on the chemical characteristics, the volume of brine and drainable porosity, we determine the number of metric tons for each of the chemical ions being evaluated.

 

Reserves are defined as those geographical blocks which belong to properly identified hydrogeological units with proven historical brine yield production, and a quality and piezometric brine monitoring network to control brine evolution over time. Reserve classification is finally achieved by using the geostatistical estimation error and hydrogeological knowledge of the search volume,units that have been explored, as an indicator between proven and probable reserves. This criterion applies to all hydrogeological units shallower than 100 meters deep.

 

For deeper (below 100 meters)Probable reserves and unexploited units, blocks within the first search volume were estimated and consideredinferred resources are being explored in the evaluationorder to be able to reclassify them as probableproven reserves and indicated resources. Blocks within the second and third search volumes were classified as inferredor measured resources, until further exploration is performed.respectively. This exploration includes systematic packer testing, chemical brine sampling and long-term pilot production pumping tests.

 

This procedure isWe consider chemical parameters to determine the process to be applied to the brines. These parameters are used to estimate potential restrictions on production yields, and the economic feasibility of producing such commercial products as potassium chloride, potassium sulfate, lithium carbonate and boric acid is determined on the basis of the evaluation.

 

Complementing the reserves information, SQM has an environmental impact assessment (RCA 226/06) which defines a maximum brine extraction per year until the end of the Lease Agreement (in the year 2030). Considering the maximum brine production rates, and including reinjection factors, we have performed several hydrogeological numeric simulations to estimate changes in the volume and quality of the brine during the life of the project. This procedure allows us to estimate an amount of 26.5 million30.8 metric tons of potassium out of our environmentally approved reserves, which is considered to be a fraction of the proven and probable reserves previously defined.

62

 

Brines from the Salar de Atacama are the key raw material used in the production of potassium chloride and potassium sulfate, and lithium and its derivatives. The following gross margins for the business lines specified were calculated on the same basis as cut off grades used to estimate our reserves. We expect costs to remain relatively stable in the near future.

  2014 2013 2012
  Gross Margin  Price Gross
Margin
  Price Gross
Margin
  Price
Potassium Chloride and Potassium Sulfate  28% US$375/ton  27% US$423/ton  41% US$500/ton
Lithium and Derivatives  42% US$5.235/ton  49% US$5.444/ton  50% US$4.863/ton

  2016 2015 2014
  Gross
Margin
  Price Gross
Margin
  Price Gross
Margin
  Price
Potassium Chloride and Potassium Sulfate  11% US$263/ton  29% US$346/ton  28% US$375/ton
Lithium and Derivatives  66% US$10,362/ton  51% US$5,762/ton  42% US$5,235/ton

 

Other Production Facilities

 

Coya Sur

The Coya Sur site is located approximately 15 kilometers south of María Elena, and production activities undertaken there are associated with the production of potassium nitrate and finished products. The main production plants at this site include four potassium nitrate plants with a total capacity of 1,000,0001,100,000 metric tons per year. There are also five production lines for crystallized nitrates, with a total capacity of 1,200,000 metric tons per year, and a prilling plant with a capacity of 320,000 metric tons per year. The potassium nitrate produced at Coya Sur is an intermediate product that is used as a raw material for the production of finished products (crystallized nitrates and prilled nitrates). Therefore, the production capacities listed above are not independent of one another and cannot be added together to obtain an overall total capacity. Natural gas is the main source of energy for our Coya Sur operation.

Salar del Carmen

The Salar del Carmen site is located approximately 14 kilometers to the east of Antofagasta. The production plants at this facility include the lithium carbonate plant, with a production capacity of 48,000 metric tons per year, and the lithium hydroxide plant, with a production capacity of 6,000 metric tons per year. Electricity and natural gas are the main sources of energy for our Salar del Carmen operation.

 

63

The following table provides a summary of our production facilities as of December 31, 2014;2016:

 

Facility Type of Facility Approximate
Size 
(hectares) (1)
  Production Capacity 
(thousands of metric tons/year)
 Weighted
Average Age
(years) (2)
  

Gross 

Book

Value
(millions of
US$) (2)

 
Coya Sur(3)(4) Nitrates production  1,518  Potassium nitrate: 1,000
Crystallized nitrates: 1,200
Prilled nitrates: 320
  7.4   463.1 
María Elena(5)(6) Nitrates and iodine production  35,830  Nitrates: 250
Iodine: 1.6
  11.6   427.2 
Nueva Victoria(5)(7) Concentrated nitrate salts and iodine production  47,492  Iodine: 8.5  7.2   372.2 
Pampa Blanca(5)(8) Concentrated nitrate salts and iodide production  10,441  Nitrates: n/a
Iodine: n/a
  6.8   12.1 
Pedro de Valdivia(3) Nitrates and iodine production  253,880  Nitrates: 500
Iodine: 3.2
  11.2   203.2 
Salar de Atacama(3)(9) Potassium chloride, potassium sulfate, lithium chloride, and boric acid production  35,911  Potassium chloride: 2,600
Potassium sulfate: 240
Boric acid: 15
  10.6   1,444.1 
Salar del Carmen, Antofagasta(3) Lithium carbonate and lithium hydroxide production  126  Lithium carbonate: 48
Lithium hydroxide: 6
  11.2   170.5 
Tocopilla(10) Port facilities  22  -  11.1   155.2 
Facility Type of Facility Approximate
Size 
(hectares) (1)
  

Nominal Production
Capacity

(thousands of metric
tons/year)

 Weighted
Average
Age
(years) (2)
  Gross Book
Value
(millions of US$)
(2)
 
Coya Sur(3) (4) Nitrates production  1.518  Potassium nitrate: 1,100
Crystallized nitrates: 1,200
Prilled nitrates: 320
  9.0   533.0 
María Elena(5) (6) Nitrates and iodine production  35.830  Nitrates: n/a
Iodine: 1.6
Prilled nitrates: 300
  13.5   432.8 
Nueva Victoria(5) (7) Concentrated nitrate salts and iodine production  47.492  Iodine: 9.0  7.8   455.2 
Pampa Blanca(5) (7) (8) Concentrated nitrate salts and iodide production  10.441  Nitrates: n/a
Iodine: n/a
  7.8   7.2 
Pedro de Valdivia(3) (9) Nitrates and iodine production  253.880  Nitrates: n/a
Iodine: 3.2
  12.4   217.8 
Salar de Atacama(3) (10) Potassium chloride, potassium sulfate, lithium chloride, and boric acid production  35.911  Potassium chloride: 2,680
Potassium sulfate: 245
Boric acid: 15
  12.1   1.525.6 
Salar del Carmen, Antofagasta(3) Lithium carbonate and lithium hydroxide production  126  Lithium carbonate: 48
Lithium hydroxide: 6
  8.5   178.4 
Tocopilla(11) Port facilities  22  -  12.6   164.5 

 

(1)Approximate size considers both the production facilities and the mine for María Elena, Nueva Victoria, Pampa Blanca, Pedro de Valdivia and the Salar de Atacama. Mining areas are those authorized for exploitation by the environmental authority and/or Sernageomin.
(2)Weighted average age and gross book value correspond to production facilities, excluding the mine, for María Elena, Nueva Victoria, Pampa Blanca, Pedro de Valdivia and the Salar de Atacama.
(3)Includes production facilities and solar evaporation ponds.
(4)The potassium nitrate produced at Coya Sur is an intermediate product that is used as a raw material for the production of finished products (crystallized nitrates and prilled nitrates). Therefore, the production capacities listed above are not independent of one another and cannot be added together to obtain an overall total capacity.
(5)Includes production facilities, solar evaporation ponds and leaching heaps.
(6)Operations at the El Toco mine at María Elena were temporarily suspended in November 2013.
(7)Operations atThe nominal production capacity for iodine considers the Iris plant were temporarily suspended in October 2013 and restarted in August 2014.capacity of our plants. The effective capacity is 10,000 metric tons per year.
(8)Operations at Pampa Blanca were temporarily suspended in March 2010.
(9)In November 2015, the mining and nitrate operations at Pedro de Valdivia were suspended, and iodine production was reduced at the Pedro de Valdivia site, in order to take advantage of the highly efficient production facilities at Nueva Victoria.
(10)Potassium chloride and potassium sulfate are produced in a dual plant, and the production capacity for each of these products depends on the production mix. Therefore, the production capacities for these two products are not independent of one another and cannot be added together to obtain an overall total capacity.
(10)(11)The Tocopilla port facilities were originally constructed in 1961 and have been refurbished and expanded since that time.

Our railroadThe railway line that runs between our Coya Sur production facilities and our Tocopilla port facilities was originally constructeddamaged in 1890, butAugust 2015 as a result of storms in the rails, locomotives,north of Chile. The train is not currently operating and rolling stockas a consequence, we have been replaced the train with trucks to ship products from Coya Sur. Detailed engineering studies were performed to assess the damage of the railway. During the third quarter of 2016, the report was completed; it concluded that the cost and refurbished as needed. time needed to repair the railway at this time is not economical in the short and medium term. As a result of this determination, the Company wrote-off the assets related to the train. We do not believe it will materially impact future sales volumes or transportation costs.

We consider the condition of our principal plant and equipment to be good.good, with the exception of the railway line.

 

We own, directly or indirectly through subsidiaries all ofown, lease or hold concessions over the facilities at which we carry out our operations. Such facilities are free of any material liens, pledges or encumbrances, and we believe they are suitable and adequate for the business we conduct in them.

 

64

Extraction Yields

 

The following table shows certain operating data relating to each of our mines for 2014, 20132016, 2015 and 2012:2014:

 

(in thousands, unless otherwise stated) 2014  2013  2012 
Pedro de Valdivia            
Metric tons of ore mined  11,401   11,571   12,027 
Average grade nitrate (% by weight)  8.1   7.5   7.3 
Iodine (parts per million (ppm))  418   415   406 
Metric tons of crystallized nitrate produced  453   445   466 
Metric tons of iodine produced  3.2   3.2   3.2 
             
Maria Elena(1)            
Metric tons of ore mined  -   5,870   6,787 
Average grade nitrate (% by weight)  -   6.6   6.2 
Iodine (ppm)  -   484   454 
Metric tons of crystallized nitrate produced  -   -   - 
Metric tons of iodine produced  0.4   1.5   1.7 
             
Coya Sur(2)            
Metric tons of crystallized nitrate produced  519   429   487 
             
Pampa Blanca(1)            
Metric tons of ore mined        - 
Iodine (ppm)        - 
Metric tons of iodine produced        - 
             
Nueva Victoria(3)            
Metric tons of ore mined  19,792   23,515   23,937 
Iodine (ppm)  467   462   465 
Metric tons of iodine produced  6.0   6.1   6.0 
             
Salar de Atacama(4)            
Metric tons of lithium carbonate produced  30   33   41 
Metric tons of potassium chloride and potassium sulfate and potassium salts produced  1,993   1,922   1,979 

(in thousands, unless otherwise stated) 2016  2015  2014 
Pedro de Valdivia(1)            
Metric tons of ore mined     9,754   11,401 
Average grade nitrate (% by weight)     7.8   8.1 
Iodine (parts per million (ppm))     424   418 
Metric tons of crystallized nitrate produced     346   453 
Metric tons of iodine produced  0.6   2.8   3.2 
             
Maria Elena(2)            
Metric tons of ore mined         
Average grade nitrate (% by weight)         
Iodine (ppm)         
Metric tons of crystallized nitrate produced         
Metric tons of iodine produced  0.2   0.1   0.4 
             
Coya Sur(3)            
Metric tons of crystallized nitrate produced  573   611   519 
             
Pampa Blanca(2)            
Metric tons of ore mined         
Iodine (ppm)         
Metric tons of iodine produced         
             
Nueva Victoria(4)            
Metric tons of ore mined  29,902   23,969   19,792 
Iodine (ppm)  454   458   467 
Metric tons of iodine produced  7.7   7.5   6.0 
             
Salar de Atacama(5)            
Metric tons of lithium carbonate produced  44   33   30 
Metric tons of potassium chloride and potassium sulfate and potassium salts produced  2,045   1,988   1,993 

 

(1)In November 2015, mining and nitrate operations at Pedro de Valdivia were suspended, and iodine production was reduced at the Pedro de Valdivia site, in order to take advantage of the highly efficient production facilities at Nueva Victoria.
(2)Operations at the El Toco (María Elena) and Pampa Blanca mines were temporarily suspended in November 2013 and March 2010, respectively. During 2014 and 2015, María Elena obtained production from caliche ore exploited in prior years.
(2)(3)Includes production at Coya Sur from treatment of nitrates solutions from María Elena and fines from Pedro de Valdivia, nitratesnitrate salts from pile treatment at Nueva Victoria, and net production from NPT, or technical grade potassium nitrate, plants.
(3)(4)Operations at the Iris iodine plant at Nueva Victoria were temporarily suspended in October 2013 and restarted in August 2014.
(4)(5)Lithium carbonate is extracted at the Salar de Atacama and processed at our facilities at the Salar del Carmen. Potassium salts include synthetic sylvinite produced in the plant and other harvested potassium salts (natural sylvinite, carnalites and harvests from plant ponds) that are sent to Coya Sur for the production of crystallized nitrates.

 

65

Transportation and Storage Facilities

 

WeThe transportation of our products is carried out by trucks that are operated by dedicated third parties through long term contracts. Furthermore, we own and operate railway lines and equipment, as well as port and storage facilities for the transporttransportation and handlingmanagement of finished products and consumable materials.

 

Our main centercenters for the production and storage of raw materials isare the hub composed of the facilities inNueva Victoria, Coya Sur, Pedro de Valdivia and the Salar de Atacama.Atacama facilities. Other facilities include Nueva Victoria andchemical plants for the finished products of lithium carbonate and lithium hydroxide finishing plants at the Salar del Carmen site.plant. The Port of Tocopilla port terminal, (“Tocopilla Port Terminal”), which we own, has a surface area of approximately 22 hectares and is the mainprincipal facility for the storage and shipment of our products.bulk products and packaged potassium chloride (MOP), potassium sulphate (SOP) and nitrates.

 

Nitrate raw materials are produced and initially stored at our Pedro de Valdivia mine, and subsequently transported by trucks to the plants described in the next paragraph, for further processing. Nitrate raw material is also produced at Nueva Victoria, from where it is transported by trucks to Coya Sur for further processing.

NitrateThe nitrate finished products are produced at our facilities in Coya Sur facilities and then transported by our rail systemvia trucks to the Port of Tocopilla Port Terminal,terminal where they are stored and shipped, either baggedpackaged (polypropylene bags, polyethylene or polypropylene FIBC big bags) or in bulk. PotassiumThe potassium chloride is produced at our facilities in the Salar de Atacama facilities and transportedwe transport it by truck, either to the Port of Tocopilla Port Terminalterminal or the Coya Sur by truck owned by a third-party dedicated contractor. Productsfacility. The product transported to Coya Sur areis an intermediate product that is used as a raw material for the production of potassium nitrate. Potassium sulfateOn the other hand, the product transported to the Port of Tocopilla is a final product that will be shipped or transported to the client or affiliate. The raw material of nitrate for the production of potassium nitrate in Coya Sur is currently produced at Nueva Victoria and the remaining raw material is provided from historical stock stored in Coya Sur that was produced at the Pedro de Valdivia facility when it was operating. This raw material is obtained from the processing of caliche that is extracted from our mines. On the other hand, our potassium sulphate and boric acid products are both produced at our facilities in the Salar de Atacama facilities and are thenlater transported by trucks to the Port of Tocopilla Port Terminal.terminal.

 

Lithium solutions,The lithium chloride solution, which contains a high concentration of boron, produced at our facilities in the Salar de Atacama arefacilities, is transported to the lithium carbonate facility atcarbon plant in the Salar del Carmen site,area where the finished lithium carbonate is produced. Part of the lithium carbonate is fedprovided to the adjacent lithium hydroxide plant where the finished lithium hydroxide is produced. These two products are baggedpacked in packaging of distinct characteristics (polyethylene bags, multi-layer or polypropylene FIBC big bags), stored within the same facilities and stored on the premisessecured in roofed storerooms. Thereafter, they are consolidated into containers that are transported by trucks to a transit warehouse or directly to port terminals for their subsequent shipment. The port terminals used are currently suited to receive container ships and are subsequently transported by truck to the Tocopilla Port Terminal or to the container terminals, mainlysituated in Antofagasta, Mejillones and Mejillones, for shipment on charter vessels or container vessels.Iquique.

Iodine raw material, obtained from the same mines ascaliche used for the production of nitrates, is processed, packed in bags or drums,packaged and stored exclusively in the facilities of Pedro de Valdivia and Nueva Victoria facilities. The packaging used for iodine are drums and then shippedpolypropylene FIBC big bags with an internal polyethylene bag and oxygen barrier, which at the time of transportation are consolidated into containers and sent by truck to containerport terminals mainlysuited for their management, principally located in Antofagasta, Mejillones or Iquique, whereand Iquique. Thereafter, they are subsequently shippedsent to differentdistinct markets by container vesselship or by truck to Santiago where iodine derivatives are produced.produced in the Ajay-SQM Chile plants.

 

The facilities atPort of Tocopilla Port Terminalterminal facilities are located approximately 186 kilometers north of Antofagasta, and approximately 124 kilometers west of Pedro de Valdivia, 84 kilometers west of María Elena and Coya Sur and 372 kilometers to the west of the Salar de Atacama. Our subsidiary,affiliate, Servicios Integrales de Tránsitos y Transferencias S.A. (SIT), operates facilities for the shipment of products and the delivery of certain raw materials based on renewable concessions granted by Chilean regulatory authorities, provided that the facilities under maritime concessionsare used in accordance with the authorization granted pursuant to applicable Chilean laws.and we pay an annual concession fee. The port also complies with the ISPS (International Ship and Port Facility Security Code) regulation.Security) Code. The Port of Tocopilla Port Terminalterminal facilities include a railcar dumpertruck weighing machine that confirms product entry into the port and transfers the product to transferdistinct storage zones, a piezometer within the shipping system to carry out bulk product intoloaded onto ships and a crane with a 40 ton capacity for the conveyor belt system used to store and ship bulk product.loading of sealed product onto ships.

 

66

Storage

The storage facilities consist of a six silo system of 6 silos, with a total storage capacity of 55,000 metric tons, and an opena mixed storage area forof open storehouses with a total storage capacity of approximately 250,000 metric tons. Additionally,In addition, to meetfulfill future storage needs, we will continue to make investments in accordance with the investment plan outlined by management. ProductsThe products are also baggedput into bags at portthe Port of Tocopilla terminal facilities in Tocopilla, where the nominal bagging capacity is approximately 300,000 metric tons per year.

For transporting bulk product, the conveyor belt system extends over the coast line to deliver product directly inside bulk carrier hatches. Using this system, the loading capacity is 1,200 tons per hour. Bags are loaded to bulk vessels using bargesestablished by two bag packaging machines, one for sacks and polypropylene FIBC big bags and one for FFS polyethylene. The products that are loaded in the Tocopilla Port Terminal dock and unloaded by vessel cranes into the corresponding warehouses. Both bulk and bagged trucks are loadedpackaged in Tocopilla Port Terminalmay be subsequently shipped at the same port or may also be consolidated into trucks or containers for transferring product directlyits subsequent dispatch to customersclients by land or for transport on container vessels shippingsea through containers from other ports, mainlyprincipally located in Antofagasta, Mejillones and Iquique.

 

Bulk carrier loadingFor the transportation of bulk product, the transportation belt system extends across the coastline to deliver products directly to the hatches of bulk cargo ships. The nominal load capacity of this shipping system is 1,200 tons per hour. The transportation of packaged product is carried out utilizing the same bulk cargo ships using trailers without motors located in the dock and loaded by a crane with a 40 ton capacity from the Port of Tocopilla Port Terminal is mostly contractedterminal. Thereafter, they are towed and unloaded using ship cranes to the respective warehouses.

We normally contract bulk cargo ships to transfer the product from the Port of Tocopilla terminal to our hubs around the world or for shipping to customers, whichclients directly, who, in some casescertain instances, use their own contracted vessels for delivery. Trucking is provided by a mix of spot, contracted and customer-owned equipment.

 

Tocopilla processes related to the reception, handling, storage and shipment of bulk/packaged nitrates produced at Coya Sur are certified by the third partythird-party organization TÜV-Rheiland under the quality standard ISO 9001:2008.

Water Rights

 

We hold water rights for the supply of surface and subterranean water near our production facilities. The main sources of water for our nitrate and iodine facilities at Pedro de Valdivia, María Elena, and Coya Sur are the Loa and San Salvador rivers, which run near our production facilities. Water for our Nueva Victoria and Salar de Atacama facilities is obtained from wells near the production facilities. In addition, we buy water from third parties for our production processes at the Salar del Carmen lithium carbonate plant,and lithium hydroxide plants, and we also purchase potable water from local utility companies. We have not experienced significant difficulties obtaining the necessary water to conduct our operations.

 

69

Computer System

 

In addition to the above-listed facilities, we operate a computer and information system linking our principal subsidiaries to our operating facilities throughout Chile via a local area network. The computer and information system is used mainly for accounting, monitoring of supplies and inventories, billing, quality control and research activities. The system’s mainframe computer equipment is located at our offices in Santiago.

 

ITEM 4A.    UNRESOLVED STAFF COMMENTS

 

Not applicable.None.

67

 

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The information in this Item 5 should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report.

 

Since January 1, 2010, the Company’s Consolidated Financial Statements have been prepared in accordance with the International Financial Reporting Standards as published by the International Accounting Standards Board (IASB).

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, which would potentially result in materially different results under different assumptions and conditions.

 

We believe that our critical accounting policies applied in the preparation of our Audited Consolidated Financial Statements are limited to those described below. It should be noted that in many cases, IFRS specifically dictates the accounting treatment of a particular transaction, limiting management’s judgment in their application. There are also areas in which management’s judgment in selecting available alternatives would not produce materially different results.

 

Trade and Other Accounts Receivable

 

Trade and other accounts receivable relate to non-derivative financial assets with fixed payments that can be determined and are not quoted in any active market. These arise from sales operations involving products and/or services that we sell directly to our customers that are not within the following categories:

 

·those which we have the intention of selling immediately in the near future and which are held-for-sale;
·those designated at their initial recognition as available-for-sale;available-for-sale and
·those through which we do not intend to recover for reasons other than credit impairment and therefore must be classified as available-for-sale.

 

These assets are initially recognized at their fair value (which is equivalent to their face value, discounting implicit interest for installment sales) and subsequently at amortized cost according to the effective interest rate method less a provision for impairment loss. When the face value of the account receivable does not significantly differ from its fair value, it is recognized at face value. An allowance for impairment loss is established for trade accounts receivable when there is objective evidence that we will not be able to collect all the amounts owed to us according to the original terms of accounts receivable. The Company calculates the allowance for doubtful accounts corresponding to receivables that are not guaranteed or insured as a function of the delays that may occur in the collection of such accounts.

Implicit interest in installment sales is recognized as interest income when interest is accrued over the term of the sale.

68

 

Income tax

 

Corporate income tax for the year is determined as the aggregate of current taxes from all of the consolidated companies. Current taxes are calculated on the basis of the tax laws enacted or substantively enacted as of the date of our statements of financial position in the countries in which we and our subsidiaries operate and generate taxable income.

 

Deferred tax is recognized using the liability method on temporary differences arising between the tax basis for assets and liabilities and their carrying amounts in our Audited Consolidated Financial Statements. Deferred income taxes are calculated using the tax rates expected to be applicable when the assets are realized or the liabilities are settled.

 

In conformity with current Chilean tax regulations, the provision for corporate income tax and taxes on mining activity is recognized on an accrual basis, presenting the net balances of accumulated monthly tax provisional payments for the fiscal period and credits associated with it. The balances of these accounts are presented in current income taxes recoverable or current taxes payable, as applicable.

 

Tax on companies and variations in deferred tax assets or liabilities that are not the result of business combinations are recorded in income statement accounts or net shareholders’ equity accounts in ourconsolidated statements of financial position, depending on the origin of the gains or losses which have generated them.

 

At the year end, the carrying value of deferred tax assets has been reviewed and reduced for as long as possible for there to be no sufficient taxable income to allow the recovery of all or a portion of the deferred tax asset. Likewise, at the date of the statement of financial position, deferred tax assets not recognized are revalued and recognized as long as it has become possible that future taxable income will allow the recovery of the deferred tax asset.

 

With respect to deductible temporary differences associated with investments in subsidiaries, associated companies and interests in joint ventures, deferred tax assets are recognized solely provided that there is a possibility that the temporary differences will be reversed in the near future and that there will be taxable income with which they may be used.

 

The deferred income tax related to entries directly recognized in equity is recognized with an effect on equity and not with an effect on profit or loss.

 

Deferred tax assets and liabilities are offset if there is a legally receivable right of offsetting tax assets against tax liabilities and the deferred tax is related to the same tax entity and authority.

 

Inventories

 

We state inventory at the lower of cost and net realizable value. The method used to determine the cost of inventory is weighted average cost. The cost of finished products and products-in-progress includes direct costs of materials and, as applicable, labor costs, indirect costs incurred to transform raw materials into finished products and general expenses incurred in carrying inventory to their current location and conditions.

The net realizable value represents the estimate of the sales price less all finishing estimated costs and costs that will be incurred in sales and distribution processes. Commercial discounts, rebates obtained and other similar entries are deducted in the determination of the cost. We conduct an evaluation of the net realizable value of inventory at the end of each year, recording a provision with a charge to income when circumstances warrant. When the circumstances that previously gave rise to the reserve cease to exist, or when there is clear evidence of an increase in the net realizable value due to a change in economic circumstances or prices of main raw materials, the estimate made previously is modified. The valuation of obsolete, impaired or slow-moving products relates to their estimated net realizable value.

69

Provisions on our inventory have been made based on a technical study which covers the different variables affecting products in stock (density, humidity, among others).

 

Raw materials, supplies and materials are recorded at the lower of acquisition cost or market value. Acquisition cost is calculated according to the annual average price method.

Obligations related to staff severance indemnities and pension commitments

 

Our obligations with respect to our employees are established in collective bargaining agreements and individual employment contracts. In the case of certain employees in the United States, our obligations are established through a pension plan, which was terminated in 2002.

 

These obligations are valued using an actuarial calculation that considers factors such as mortality rate, employee turnover, interest rates, retirement dates, effects related to increases in employees’ salaries, as well as the effects on variations in services derived from variations in the inflation rate.

 

Actuarial losses and gains that may be generated by variations in previously defined obligations are directly recorded in profit or loss for the year.

 

Actuarial losses and gains originating from deviations deviations between the estimate and the actual behavior of actuarial hypotheses or in the reformulation of established actuarial hypotheses are recorded in equity.

 

The discount rate used for calculating obligations outside the United States was 6%4.5% and 4.9% for the periods ended as of December 31, 20142016 and 2013.2015, respectively.

 

Our United States subsidiary, SQM North America Corp. has established pension plans for its retired employees that are calculated by measuring the projected benefit obligation in accordance with International Accounting Standards (“IAS”) using a net salary progressive rate net of adjustments to inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 5.0%5.5% interest rate for 2014both 2015 and 2013.2016. The net balance of this obligation is presented in the “Provisions for employee benefits, non-current” line item called Provisions for Employee Benefits, Non-Current.item.

 

Mining development costs

 

Mine exploration costs and stripping costs to maintain production of mineral resources extracted from operating mines are considered variable production costs and are included in the cost of inventory produced during the period. Mine development costs at new mines, and major development costs at operating mines outside existing areas under extraction that are expected to benefit future production, are capitalized under “other long-term assets” and amortized using a units-of-production method over the associated proven and probable reserves. We determine our proven and probable reserves based on drilling, brine sampling and geostatistical reservoir modeling in order to estimate mineral volume and composition.

All other mine exploration costs, including expenses related to low grade mineral resources rendering reserves that are not economically exploitable, are charged to the statement of income in the period in which they are incurred.

 

Asset value impairment

 

We assess on an annual basis any impairment on the value of buildings, plant and equipment, intangible assets, goodwill and investments accounted for using the equity method of accounting in accordance with IAS 36 “Impairment of Assets.” Assets to which this method applies are:

 

70

·investments recognized using the equity method of accounting;
·property, plant and equipment;
·intangible assets;assets and
·goodwill.

 

Assets are reviewed for impairment as to the existence of any indication that the carrying value is lower than the recoverable amount. If such an indication exists, the asset recoverable amount is calculated in order to determine the extent of the impairment, if any. In the event that the asset does not generate any cash flows independent from other assets, we determine the recoverable amount of the cash generating unit to which this asset belongs according to the corresponding business segment (specialty plant nutrients, iodine and derivatives, lithium and derivatives, potassium, industrial chemicals and other products and services.)

 

We conduct impairment tests on intangible assets and goodwill with indefinite useful lives on an annual basis and every time there is indication of impairment. If the recoverable value of an asset is estimated at an amount lower than its carrying value, the latter decreases to its recoverable amount.

 

The results of the impairment tests the Company has performed on its primary intangible assets demonstrated that there was no need for the Company to make any accounting adjustments to such assets. These impairment tests were performed using conservative scenarios. For more information, see Note 13.1 to our Consolidated Financial Statements.

Financial derivatives and hedging transactions

 

Derivatives are recognized initially at fair value at the date in which the derivatives contract has been signed and subsequently they are valued at fair value at each period end. The method for recognizing the resulting loss or gain depends on whether the derivative has been designated as an accounting hedging instrument and if so, the type of hedging, which may be:

 

a.fair value hedge of assets and liabilities recognized (fair value hedges);, or
b.hedging of a single risk associated with an asset or liability recognized or a highly possible foreseen transaction (cash flow hedge).

 

At the beginning of the transaction, we document the relationship between hedging instruments and those entries hedged, as well as their objectives for risk management purposes and the strategy to conduct different hedging operations.

 

We also document our evaluation both at the beginning and the end of each period of whether derivatives used in hedging transactions are highly effective to offset changes in the fair value or in cash flows of hedged entries.

 

The fair value of derivative instruments used for hedging purposes is shown in Note 9.310.3 to our Consolidated Financial Statements.

 

Non-hedge instruments are classified as current assets or liabilities, and the change in their fair value is recognized directly in profit or loss.

a.Fair value hedge

a.       Fair value hedge

 

The change in the fair value of a derivative is recognized with a debit or credit to profit or loss, as applicable. The change in the fair value of the hedged entry attributable to hedged risk is recognized as part of the carrying value of the hedged entry and is also recognized with a debit or credit to profit or loss.

71

 

For fair value hedging related to items recorded at amortized cost, the adjustment of the fair value is amortized against income on the remaining years to its expiration. Any adjustment to the carrying value of a hedged financial instrument for which the effective rate is used is amortized with a debit or credit to profit or loss at its fair value attributable to the risk being covered.

 

If the hedged entry no longer meets the criteria for hedge accounting, the fair value not amortized is immediately recognized with a debit or credit to profit or loss.

 

b.Cash flow hedge

b.       Cash flow hedge

 

The effective portion of gains or losses from the hedging instrument is initially recognized as “other revenue” with a debit or credit to other comprehensive income whereas any ineffective portion is immediately recognized with a debit or credit to profit or loss, as applicable.

 

Amounts accumulated in equity are transferred to profit or loss when the hedged transaction affects income for the period, such as when the hedged interest income or expense is recognized when a forecasted sale occurs. When the hedged item is the cost of a non-financial asset or liability, amounts taken to equity are transferred to the initial carrying value of the non-financial asset or liability.

 

Should the expected firm transaction or commitment no longer be expected to occur, the amounts previously recognized as other comprehensive income are transferred to income. If a hedging instrument expires, is sold, finished, and exercised without any replacement, or if a rollover is performed or if its designation as hedging is revoked, the amounts previously recognized in equity are maintained in equity until the expected firm transaction or commitment occurs.

 

5.A.Operating Results

5.A.    Operating Results

 

Introduction

 

The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements. Certain calculations (including percentages) that appear herein have been rounded.

 

Our Consolidated Financial Statements are prepared in accordance with IFRS standards and prepared in U.S. dollars. The U.S. dollar is the primary currency in which we operate.

 

We operate as an independent corporation. Nonetheless we are a “controlled corporation,” as that term is defined under Chilean law. See “Item 6.E. Share Ownership.”

 

Overview of Our Results of Operations

 

We divide our operations into the following productbusiness lines:

·the production and sale of specialty plant nutrients;
·the production and sale of iodine and its derivatives;
·the production and sale of lithium and its derivatives;
·the production and sale of potassium, including potassium chloride and potassium sulfate;
·the production and sale of industrial chemicals, principally industrial nitrates and solar salts and
·the purchase and sale of other commodity fertilizers for use primarily in Chile.

We sell our products through three primary channels: our own sales offices, a network of distributors and, in the case of our fertilizer products, through Yara International ASA’s (formerly Norsk Hydro ASA) (“Yara”) distribution network in countries where its presence and commercial infrastructure are larger than ours. Similarly, in those markets where our presence is larger, both our specialty plant nutrients and Yara’s are marketed through our offices.

72

 

Factors Affecting Our Results of Operations

 

Our results of operations substantially depend on:

 

·trends in demand for and supply of our products, including global economic conditions, which impact prices and sales volumes;
·efficient operations of our facilities, particularly as some of them run at production capacity;
·our ability to accomplish our capital expenditures program in a timely manner;
·the levels of our inventories;
·trends in the exchange rate between the U.S. dollar and Chilean peso, as a significant portion of the cost of sales is in Chilean pesos, and trends in the exchange rate between the U.S. dollar and the euro, as a significant portion of our sales is denominated in euros;euros and
·energy, logistics, raw materials, labor and maintenance costs.

The following table shows our revenues (in millions of U.S. dollars) and the percentage accounted for by each of our product lines for each of the periods indicated:

  

2014

  

2013

  

2012

 
  US$  %  US$  %  US$  % 
Specialty plant nutrition  708.0   35%  687.5   31%  675.3   28%
Iodine and derivatives  335.4   17%  461.0   21%  578.1   24%
Lithium and derivatives  206.8   10%  196.5   9%  222.2   9%
Potassium  584.3   29%  606.3   28%  605.1   25%
Industrial chemicals  101.9   5%  154.0   7%  245.2   10%
Other products and services  77.7   4%  97.9   4%  103.2   4%
                         
Total  2,014.2   100   2,203.1   100   2,429.2   100 

The following table shows certain financial information of the Company under IFRS (in millions of U.S. dollars) for each of the periods indicated, as a percentage of revenues:

  

Year Ended December 31,

 
  

2014

  

2013

  

2012

 
(in millions of U.S. dollars) US$  %  US$  %  US$  % 
Revenues  2,014.2   100.0   2,203.1   100.0   2,429.2   100.0 
Cost of sales  (1,431.2)  71.1   (1,481.7)  67.3   (1,400.6)  57.7 
Gross profit  583.0   28.9   721.5   32.7   1,028.6   42.3 
Other income  24.1   1.2   96.7   4.4   12.7   0.5 
Administrative expenses  (96.5)  4.8   (105.2)  4.8   (106.4)  4.4 
Other expenses(1)  (64.3)  3.2   (49.4)  2.2   (34.6)  1.4 
Other gains (losses)  4.4   0.2   (11.4)  0.5   0.7    
Finance income  16.1   0.8   12.7   0.6   29.1   1.2 
Finance expenses  (63.4)  3.1   (58.6)  2.6   (54.1)  2.2 
Equity income of associates and joint ventures accounted for using the equity method  18.1   0.9   18.8   0.8   24.4   1.0 
Foreign currency exchange differences  (16.5)  0.8   (12.0)  0.5   (26.8)  1.1 
Income before income tax expense(1)  405.0   20.1   613.1   27.8   873.5   36.0 
Income tax expense(2)  (160.7)  8.0   (138.5)  6.3   (216.1)  8.9 
                         
Profit attributable to:                        
Controlling interests(1)(2)  236.9   11.8   467.1   21.2   649.2   26.7 
Non-controlling interests  7.4   0.4   7.5   0.3   8.2   0.3 
Profit for the year(1)(2)  244.3   12.1   474.6   21.5   657.4   27.1 

(1)The 2014 figure includes provisions of approximately US$7 million corresponding to payments made in 2015 to the Chilean Internal Revenue Service (Servicio de Impuestos Internosor “SII”) for expenses that may not have qualified as tax expenses under the Chilean tax code. Such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements filed with the SVS. Therefore, this amount was not reflected in these statutory consolidated financial statements. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks as a result of ongoing investigations by the Chilean Internal Revenue Service and the Chilean Public Prosecutor in relation to certain payments of invoices made by SQM between the tax years 2009 and 2014.”

(2)In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have been applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the Chilean SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit for the year and income tax expense as presented in the Company’s Audited Consolidated Financial Statements and as presented in its statutory consolidated financial statements filed with the SVS. Subsequent amendments will be recognized in profit or loss for the period in the Company’s statutory consolidated financial statements in accordance with IAS 12.

Results of Operations – 2014 compared to 2013

Revenues

Revenues decreased 8.6% to US$2,014.2 million in 2014 from US$2,203.1 million in 2013.

The main factors causing the decrease in revenues and the variation in the different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition revenues increased 3.0% to US$708.0 million in 2014 from US$687.5 million in 2013. Set forth below are sales volume data for the specified years by product category in this product line:

(in Th. MT) 2014  2013  % Change 
Potassium nitrate and sodium potassium nitrate  531.6   512.6   4%
Specialty blends  228.0   208.1   10%
Other specialty plant nutrients (*)  102.5   100.8   2%
Sodium nitrate  15.8   26.2   (40)%

* Includes trading of other specialty fertilizers.

Our sales volumes in the specialty plant nutrition business line increased 3.6% in 2014 compared to 2013. Revenues for our most important product in this business line, potassium nitrate, grew approximately 5%. In general, potassium nitrate prices are less volatile than other commodity fertilizers such as potassium chloride. Prices in the business line were largely flat in 2014 compared to 2013.

Iodine and Derivatives

Iodine and derivatives revenues decreased 27.2% to US$335.4 million in 2014 from US$461.0 million in 2013. Set forth below are sales volume data for the specified years:

(in Th. MT) 2014  2013  % Change 
Iodine and its derivatives  8.8   9.3   (5)%

SQM was impacted by the overall lower prices in 2014, and our prices dropped approximately 23% in 2014 compared to 2013. We expect average prices will continue to decline throughout 2015. We believe we are the lowest-cost producer in Chile and as a result are well positioned to face this challenging environment.

Our sales volumes in the iodine and derivatives business line decreased approximately 5% in 2014 compared to 2013. In 2015, we expect that our sales volumes will increase as we work to regain market share.

Lithium and Derivatives

Lithium and derivatives revenues increased 5.3% to US$206.8 million in 2014 from US$196.5 million in 2013. Set forth below are sales volume data for the specified years:

(in Th. MT) 2014  2013  % Change 
Lithium and derivatives  39.5   36.1   10%

Prices in the lithium carbonate market fell slightly during 2014, which was reflected in the approximately 4% decline in average prices for this business line in 2014 compared to 2013. We expect existing competition will add new supply in 2015, but demand growth should exceed this new supply. Therefore, we expect average prices to increase in 2015.

Our sales volumes in the lithium business line increased nearly 10% in 2014 compared to 2013. We achieved particularly strong sales volumes in the fourth quarter, in which we reported the strongest quarterly sales volumes of 2014. We expect our sales volumes in 2015 to remain relatively stable compared to 2014, totaling just below 40,000 metric tons.

Potassium

Potassium revenues decreased 3.6% to US$584.3 million in 2014 from US$606.3 million in 2013. Set forth below are sales volume data for the specified years:

(in Th. MT) 2014  2013  % Change 
Potassium chloride and potassium sulfate  1,556.2   1,434.9   8%

The increase of approximately 8% in our sales volumes in 2014 compared to 2013 was offset by lower average prices in 2014. Although prices recovered gradually during the second half of 2014, on average for the full year, our sales prices were approximately 11% lower in 2014 compared to 2013.

In 2014, we continued to take advantage of our developed distribution network and distributed potassium chloride to customers all over the world. Our biggest market continued to be Brazil, which accounted for approximately one-third of our potassium chloride sales for the year.

Industrial Chemicals

Industrial chemicals revenues decreased 33.8% to US$101.9 million in 2014 from US$154.0 million in 2013. Set forth below are sales volume data for the specified years by product category:

(in Th. MT) 2014  2013  % Change 
Industrial nitrates  124.7   173.5   (28)%
Boric acid  0.8   2.0   (62)%

Industrial chemical demand for traditional applications remained relatively stable compared to 2013. Solar salt sales volumes reached just over 22,000 metric tons in 2014, which was a significant decline compared to 2013.

SQM executed solar salt supply agreements for over 200,000 metric tons to be supplied to four new projects in Africa and Latin America between 2015 and 2017. The majority of these volumes are expected to be delivered in 2016 and 2017. We will continue to pursue new solar salt business in an effort to further increase sales volumes. Prospects in the solar salt market remain positive, and 2015 sales volumes in this business line are expected to be higher than 2014.

Other Products and Services

Revenues from other products and services, which relate primarily to sales of other commodity fertilizers and certain other products, decreased 20.6% to US$77.7 in 2014 from US$97.9 million in 2013.

Cost of Sales

Cost of sales decreased 3.4% to US$1,431.2 million in 2014, which represented 71% of revenues, from US$1,481.7 million in 2013, which represented 67% of revenues. This increase as a percentage of revenues was principally caused by lower prices in most of our products. Cost of sales includes, among other things, depreciation and amortization costs.

Gross Profit

Gross profit decreased 19.2% to US$583.0 million in 2014, which represented 28.9% of revenues, from US$721.5 million in 2013, which represented 32.7% of revenues. This decrease as a percentage of revenues was principally caused by lower average prices in 2014 compared to 2013 in our iodine, nitrates and lithium business lines.

Other Income

Other income descreased 75.1% to US$24.1 million in 2014, which represented 1.2% of revenues, from US$96.7 million in 2013, which represented 4.4% of revenues.

Administrative Expenses

Administrative expenses decreased 8.3% to US$96.5 million in 2014, which represented 4.8% of revenues, from US$105.2 million in 2013, which also represented 4.8% of revenues.

Other Expenses

Other expenses increased 30.2% to US$64.3 million in 2014, which represented 3.2% of revenues, from US$49.4 million in 2013, which represented 2.2% of revenues.

Other Gains (Losses)

Other gains (losses) increased to a gain of US$4.4 million in 2014, which represented 0.2% of revenues, from a loss of US$11.4 million in 2013, which represented 0.5% of revenues.

Finance Income

Finance income increased 26.8% to US$16.1 million in 2014, which represented 0.8% of revenues, from US$12.7 million in 2013, which represented 0.6% of revenues.

Finance Expenses

Finance expenses increased 8.2% to US$63.4 million in 2014, which represented 3.1% of revenues, from US$58.6 million in 2013, which represented 2.6% of revenues.

Equity Income of Associates and Joint Ventures Accounted for Using the Equity Method

Equity income of associates and joint ventures accounted for using the equity method decreased 3.7% to US$18.1 million in 2014, which represented 0.9% of revenues, from US$18.8 million in 2013, which represented 0.8% of revenues.

Foreign Currency Exchange Differences

Losses from foreign currency exchange differences increased 37.5% to US$16.5 million in 2014, which represented 0.8% of revenues, from US$12.0 million in 2013, which represented 0.5% of revenues. A significant portion of our costs is related to the Chilean peso as most of our operations occur in Chile. In addition, although most of our revenues are in U.S. dollars, we have revenues in other currencies, such as the euro and the South African rand, which depreciated during 2014. Because the U.S. dollar is our functional currency, we are subject to currency fluctuations. We aim to mitigate this impact through an active hedging program. During 2014, the Chilean peso depreciated 15.7% against the U.S. dollar.

Income Tax Expense

Income tax expense increased 16.0% to US$160.7 million in 2014 from US$138.5 million in 2013. The effective tax rate was 39.0% in 2014 compared to 22.6% in 2013. The increase was due to an increase of US$52.3 million in our deferred tax liabilities, as a result of the 2014 Chilean Tax Reform. See “Government Regulations–Regulations in Chile Generally.” Excluding this effect, income tax expense decreased 21.7%, to US$108.4 million in 2014, an effective rate of 26.3%. The difference between the statutory and effective tax rates was due primarily to royalty taxes on income.

Profit for the Year

Profit for the year decreased 48.5% to US$244.3 million in 2014 from US$474.6 million in 2013 primarily as a result of the foregoing factors and lower prices across multiple business lines compared to 2013.

Results of Operations – 2013 compared to 2012

Revenues

Revenues decreased 9.3% to US$2,203.1 million in 2013 from US$2,429.2 million in 2012. The main factors causing the increase in revenues and the variation in the different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition revenues increased 1.8% to US$687.5 million in 2013 from US$675.3 million in 2012. Set forth below are sales volume data for the specified years by product category in this product line:

(in Th. MT) 2013  2012  % Change 
Potassium nitrate and sodium potassium nitrate  512.6   469.3   9%
Specialty blends  208.1   197.5   5%
Other specialty plant nutrients (*)  100.8   89.0   13%
Sodium nitrate  26.2   24.4   7%

* Includes trading of other specialty fertilizers.

Our sales volumes in the specialty plant nutrition business line in 2013 increased 8.6% compared to sales volumes in 2012. In general, potassium nitrate prices are less volatile than other commodity fertilizers such as potassium chloride; we saw prices in the business line decrease 6% during 2013 when compared to 2012.

Iodine and Derivatives

Revenues for iodine and derivatives decreased 20.3% to US$461.0 million in 2013 from US$578.1 million in 2012. Set forth below are sales volume data for the specified years:

(in Th. MT) 2013  2012  % Change 
Iodine and derivatives  9.3   11.0   (15)%

Our sales volumes decreased approximately 15% in 2013 when compared to 2012. Average prices for 2013 were just under US$50/kg, almost 6% less than prices reported during 2012. These price decreases were in line with market conditions and our expectations.

Lithium and Derivatives

Revenues for lithium and its derivatives decreased 11.6% to US$196.5 in 2013 from US$222.2 million in 2012. Set forth below are sales volume data for the specified years:

(in Th. MT) 2012  2012  % Change 
Lithium and its derivatives  36.1   45.7   (21)%

Our sales volumes in the lithium segment decreased approximately 21% in 2013, when compared to 2012. This resulted from increased supply from various competitors. We believe our market share totaled 27% in 2013. Prices remained strong in the lithium market, and our average price in the lithium business line was almost 12% higher in 2013 than prices seen in 2012.

Potassium

Potassium revenues increased 0.2% to US$606.3 million in 2013 from US$606.3 million in 2012. Set forth below are sales volume data for the specified years:

(in Th. MT) 2013  2012  % Change 
Potassium chloride and potassium sulfate  1,434.9   1,209.5   19%

Our potassium chloride and potassium sulfate sales volumes increased over 18% in 2013 compared to 2012, which was in line with our expectations. As mentioned above, pricing for the second half of 2013 remained volatile, and we were not immune to impacts. Our average price for the potassium chloride and potassium sulfate business line in 2013 was approximately 16% lower than average prices reported during 2012.

We continued to take advantage of our developed distribution network, and distributed potassium chloride to customers all over the world. Our biggest market continued to be Brazil, which, in 2013, accounted for approximately one third of our potassium chloride sales.

Industrial Chemicals

Industrial chemicals revenues decreased 37.2% to US$154.0 million in 2013 from US$245.2 million in 2012. Set forth below are sales volume data for the specified years by product category:

(in Th. MT) 2013  2012  % Change 
Industrial nitrates  173.5   277.7   (38)%
Boric acid  2.0   1.8   (6)%

Average prices for industrial chemicals business line in 2013 remained virtually unchanged compared to 2012. As expected, volumes during 2013 decreased significantly compared to sales volumes reported during 2012. This is a direct result of a reduction in the sale of solar salts, products used for alternative energy sources. This decrease in sales volumes was particularly relevant during the second half of 2013 when sales volumes in solar salts were trivial.

Other Products and Services

Revenues from other products and services, primarily other commodity fertilizers and other products, decreased 5.1% to US$97.9 million in 2013 from US$103.2 million in 2012.

Cost of Sales

Cost of sales increased 5.0% to US$1,481.7 million in 2013, which represented 67% of revenues, from US$1,400.6 million in 2012, which represented 58% of revenues. This increase in the percentage of revenues was principally caused higher volumes and lower prices in most of our products. Cost of sales includes, among others, the costs of depreciation and amortization.

Gross Profit

Gross profit decreased 29.9% to US$721.5 million in 2013, which represented 32.7% of revenues, from US$1,028.6 million in 2012, which represented 42.3% of revenues. Gross margin was impacted by generally lower average prices in 2013 compared to 2012 in the fertilizer business lines.

Other Income

Other income increased 661.4% to US$96.7 million in 2013, which represented 4.4% of revenues, from US$12.7 million in 2012, which represented 0.5% of revenues.

Administrative Expenses

Administrative expenses decreased 1.1% to US$105.2 million in 2013, which represented 4.8% of revenues, from US$106.4 million in 2012, which represented 4.4% of revenue. The increase as a percentage of revenue was mostly caused by decreases in revenues and relatively stable expenses.

Other Expenses

Other expenses increased 42.6% to US$49.3 million in 2013, which represented 2.2% of revenues, from US$34.6 million in 2012, which represented 1.4% of revenues in 2012.

Other Gains (Losses)

Other gains (losses) decreased to a loss of US$11.3 million in 2013 from a gain of US$0.7 million in 2012.

Finance Income

Finance income decreased 43.6% to US$12.6 million in 2013, which represented 0.6% of revenues, from US$29.1 million in 2012, which represented 1.2% of revenues. Financial income decreased resulting from lower returns in financial investments such as money market and time deposits.

Finance Expenses

Finance expenses increased 8.3% to US$58.6 million in 2013, which represented 2.7% of revenues, from US$54.1 million in 2012, which represented 2.2% of revenues. The increase in finance expenses was due to a net increase in indebtedness during 2013.

Equity Income of Associates and Joint Ventures Accounted for Using the Equity Method

Equity income of associates and joint ventures accounted for using the equity method decreased 23.0% to US$18.8 million in 2013, which represented 0.8% of revenues, from US$24.4 million in 2012, which also represented 1.0% of revenues.

Foreign Currency Exchange Differences

Losses from foreign currency exchange differences decreased 44.9% to US$12.0 million in 2013, which represented 0.5% of revenues, from US$26.8 million in 2012, which represented 1.1% of revenues.A significant portion of our costs is related to the Chilean peso as most of our operations occur in Chile. Because the U.S. dollar is our functional currency, we are subject to currency fluctuations. We try to mitigate this impact through an active hedging program.During 2013, the Chilean peso depreciated by 9.3% against the U.S. dollar.

Income Tax Expense

Income taxes decreased to US$138.5 million in 2013 from US$216.1 million in 2012. The effective tax rate in 2013 was 22.5% compared with 24.7% in 2012. The difference between the statutory and effective tax rates is due primarily to royalty taxes on income.

Profit for the Year

Profit for the year decreased 27.8% to US$474.6 million in 2013 from US$657.4 million in 2012, as a result of the foregoing factors. Profit for the year was lower in 2013 resulting from lower prices across multiple business lines, and lower volumes in lithium, iodine and industrial chemicals when compared to 2012.

 

Impact of Foreign Exchange Rates

 

We transact a significant portion of our business in U.S. dollars, which is the currency of the primary economic environment in which we operate and is our financial currency for financial reporting purposes. A significant portion of our costs is related to the Chilean peso as most of our operations occur in Chile, and therefore an increase or decrease in the exchange rate between the Chilean peso and the U.S. dollar affects our costs of production. Additionally, as an international company operating in Chile and several other countries, we transact a portion of our business and have assets and liabilities in Chilean pesos and other non-U.S. dollar currencies, such as the Euro, the South African Rand and the Mexican peso. As a result, fluctuations in the exchange rate of such currencies to the U.S. dollar may affect our financial condition and results of operations. See Note 2322 to the Financial Statements included in this Annual Report.

 

We monitor and attempt to balance our non-dollar assets and liabilities position, including through foreign exchange contracts and other hedging instruments, to minimize our exposure to foreign exchange rate risk. As of December 31, 2014,2016, for hedging purposes we had open contracts to buy U.S. dollars and sell euros for approximately US$31.735.41 million (EUR 25.2(EUR33 million) and sell South African rand for approximately US$25.321.24 million (ZAR 289(ZAR299.5 million), as well as forward exchange contracts to sell U.S. dollars and buy Chilean pesos for US$89.563.5 million (Ch$54,30442,511 million). All of our UF and Chilean pesos bonds were hedged with cross-currency swaps to the U.S. dollar for approximately US$ 368357 million as of December 31, 2014.2016.

 

In addition, we had open forward exchange contracts to buy U.S. dollars and sell Chilean pesos for approximately US$27451.2 million (Ch$166,22934,263 million) and to sell U.S. dollars for approximately US$20.2 million (Ch$ 13,540 million) to hedge our time depositsshort-term loans in Chilean pesos.

73

The following table shows our revenues (in millions of US$) and the percentage accounted for by each of our product lines for each of the periods indicated:

  2016  2015  2014 
  US$  %  US$  %  US$  % 
Specialty plant nutrition  623.9   32%  652.3   38%  708.0   35%
Iodine and derivatives  231.1   12%  262.6   15%  335.4   17%
Lithium and derivatives  514.6   27%  223.0   13%  206.8   10%
Potassium  403.3   21%  430.6   25%  584.3   29%
Industrial chemicals  104.1   5%  97.6   6%  101.9   5%
Other products and services  62.2   3%  62.3   4%  77.7   4%
                         
Total  1,939.3   100   1,728.3   100   2,014.2   100 

The following table shows certain financial information of the Company under IFRS (in millions of US$) for each of the periods indicated, as a percentage of revenues:

  Year Ended December 31, 
  2016  2015  2014 
(in millions of US$) US$  %  US$  %  US$  % 
Revenues  1,939.3   100.0   1,728.3   100.0   2,014.2   100.0 
Cost of sales  (1,328.3)  68.5   (1,185.6)  68.6   (1,431.2)  71.1 
Gross profit  611.0   31.5   542.7   31.4   583.0   28.9 
Other income  14.8   0.8   15.3   0.9   24.1   1.2 
Administrative expenses  (88.4)  4.6   (86.8)  5.0   (96.5)  4.8 
Other expenses(1)(2)(3)  (89.7)  4.6   (106.4)  6.2   (64.3)  3.2 
Other gains (losses)  0.6   0.0   3.8   0.2   4.4   0.2 
Finance income  10.6   0.5   11.6   0.7   16.1   0.8 
Finance expenses  (57.5)  3.0   (69.9)  4.0   (63.4)  3.1 
Equity income of associates and joint ventures accounted for using the equity method  13.0   0.7   10.3   0.6   18.1   0.9 
Foreign currency exchange differences  0.4   0.0   (12.4)  0.7   (16.5)  0.8 
Income before income tax expense(1)(2)(3)  414.9   21.4   308.3   17.8   405.0   20.1 
Income tax expense(4)  (133.0)  6.9   (83.8)  4.8   (160.7)  8.0 
                         
Profit attributable to:                        
Controlling interests(1)  278.3   14.4   220.4   12.7   236.9   11.8 
Non-controlling interests  3.6   0.2   4.2   0.2   7.4   0.4 
Profit for the year(1)  281.9   14.5   224.5   13.0   244.3   12.1 

(1)Other expenses for 2014 includes provisions of approximately US$7 million corresponding to payments made in 2015 to the SII for expenses that may not have qualified as tax expenses under the Chilean tax code. However, since such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements filed with the SVS, such provisions were included in net income for the period ended December 31, 2015 for purposes of the Company’s statutory consolidated financial statements. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks in the U.S. and Chile as a result of ongoing investigations by the SII and the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 2015.”
(2)Other expenses for 2015 includes a charge of US$57.7 million for impairment and severance indemnities related to the restructuring of our Pedro de Valdivia operations.
(3)Other expenses for 2016 includes a charge of US$32.8 million for impairment related to the closure of our train between Coya Sur and Tocopilla. Other expenses for 2016 also includes charges of approximately US$30.5 million for impairment related to the Company's agreement with the DOJ and the administrative cease and desist order issued by the SEC in connection the inquiries arising out of the alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. For more information, see “Item 3D. Risk Factors—Risks Relating to our Business—We could be subject to numerous risks in Chile as a result of ongoing investigations by the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 2015” and “Item 8.A.7 Legal Proceedings.”

74

(4)In accordance with IAS 12, the effects generated by the change in the income tax rate approved by Law No. 20.780 on income and deferred taxes have been applied to the income statement. For purposes of the Company’s statutory consolidated financial statements filed with the SVS, in accordance with the instructions issued by the SVS in its circular 856 of October 17, 2014, the effects generated by the change in the income tax rate were accounted for as retained earnings. The amount charged to equity as of December 31, 2014 was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit and income tax expense in 2014 as presented in the Company’s Audited Consolidated Financial Statements compared with profit and income tax expense presented in the Company’s statutory consolidated financial statements filed with the SVS. The effects of subsequent changes in the income tax rate will be recognized in profit or loss for the period in the Company’s statutory consolidated financial statements in accordance with IAS 12.

Results of Operations – 2016 compared to 2015

Revenues

Revenues increased by 12.2% to US$1,939.3 million in 2016 from US$1,728.3 million in 2015.

The main factors that caused the increase in revenues and variations in different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition revenues decreased 4.4% to US$623.9 million in 2016 from US$652.3 million in 2015. Set forth below are sales volume data for the specified years by product category in this product line:

(in Th. MT) 2016  2015  % Change 
Potassium nitrate and sodium potassium nitrate  475.8   493.6   (4)%
Specialty blends  213.5   203.9   5%
Other specialty plant nutrients (*)  127.2   108.4   17%
Sodium nitrate  24.4   26.0   (6)%

* Includes trading of other specialty fertilizers.

We sell various products within the specialty plant nutrition business line, and most of our specialty fertilizers are sold as either field fertilizers or water soluble fertilizers. Our sales volumes in the field fertilizer market decreased in 2016 compared to 2015 due to decreased demand.

In addition, average prices in the specialty plant nutrition business line were US$742/MT in 2016, slightly lower than US$784/MT in 2015.

Iodine and Derivatives

Iodine and derivatives revenues decreased 12.0% to US$231.1 million in 2016 from US$262.6 million in 2015. Set forth below are sales volume data for the specified years:

(in Th. MT) 2016  2015  % Change 
Iodine and derivatives  10.2   9.3   9%

In the iodine market, global demand grew by 1% in 2016 as a result of nominal growth in the LED and LCD markets. Our sales volumes in this business line increased by approximately 9% compared to 2015, increasing our participation in the market.

75

However, average prices during 2016 continued to face downward pressure. Our average price for the year was US$23/kilogram, a decrease of over 19% compared to 2015.

Lithium and Derivatives

Lithium and derivatives revenues increased 130.8% to US$514.6 million in 2016 from US$223.0 million in 2015. Set forth below are sales volume data for the specified years:

(in Th. MT) 2016  2015  % Change 
Lithium and derivatives  49.7   38.7   28%

World demand in the lithium market continued to grow at robust levels in 2016, around 14%. This demand growth is led by uses related to batteries, specifically batteries related to electric vehicles. In 2016, batteries accounted for almost 53% of the total lithium market, including electric cars. Introduction of new lithium supply was delayed in 2016, and only a minimal amount of new production was offered for sale.

Average prices in this business line increased significantly in 2016, with average prices reaching nearly US$10,400/MT, 80% higher than average prices of approximately US$5,800/MT in 2015. Our sales volumes in 2016 increased more than 28% compared to sales volumes in 2015.

Potassium

Potassium revenues decreased 6.3% to US$403.3 million in 2016 from US$430.6 million in 2015. Set forth below are sales volume data for the specified years:

(in Th. MT) 2016  2015  % Change 
Potassium chloride and potassium sulfate  1,534.7   1,241.8   24%

The potassium chloride market experienced little change in global demand in 2016 compared to 2015.

However, market prices in 2016 were significantly lower than in 2015 due to slight demand growth and increased supply in the market. Our average price in this business line, including both potassium chloride and potassium sulfate, was US$263/MT in 2016, a decrease of 24.2% compared to the average price of US$347/MT in 2015.

This decline in our average price was partially offset by the increase in our sales volumes. Our sales volumes in this business line increased 24% in 2016 compared to 2015. This increase in sales volumes, in 2016, was attributable to lower sales volumes in 2015 due to production and shipping problems.

Industrial Chemicals

Industrial chemicals revenues increased 6.8% to US$104.1 million in 2016 from US$97.6 million in 2015. Set forth below are sales volume data for the specified years by product category:

(in Th. MT) 2016  2014  % Change 
Industrial chemicals  128.9   126.1   2%

Industrial chemicals demand for traditional applications decreased in 2016 compared to 2015, as did our sales volumes related to traditional uses due to increased sales of solar salts. Solar salt sales volumes in 2016 reached just over 57,000 metric tons, an increase of over 53% compared to 2015.

76

Other Products and Services

Revenues from sales of other commodity fertilizers and other income decreased 0.1% to US$62.2 million in 2016 from US$62.3 million in 2015, due to lower prices in the fertilizer market.

Cost of Sales

Our overall cost of sales increased 12.0% to US$1,328.3 million in 2016, which represented 69% of revenues, from US$1,185.6 million in 2015, which represented 69% of revenues. The main factors that caused the increase in cost of sales and variations in different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition cost of sales increased 3.7% to US$478.1 million in 2016 from US$461.0 million in 2015, as a result of a product mix change. The average cost of sales in the specialty plant nutrition business line was US$568/MT in 2016, slightly higher than US$554/MT in 2015.

Iodine and Derivatives

Iodine and derivatives cost of sales increased 3.7% to US$191.3 million in 2016 from US$184.6 million in 2015, as a result of increased sales volumes in 2016. The average cost of sales in the iodine and derivatives business line was US$19/kilogram in 2016, a decrease of almost 5% from US$20/kilogram in 2015. We believe we are the lowest cost producer of iodine. The vast majority of our production capacity comes from our most efficient plant in Nueva Victoria.

Lithium and Derivatives

Lithium and derivatives cost of sales increased 60.5% to US$175.6 million in 2016 from US$109.4 million in 2015, as result of increased sales volumes, higher lease payments to Corfo, and operating our production plant close to full capacity. The average cost of sales in the lithium and derivatives business line was US$3,536/MT in 2016, an increase of almost 25% from US$2,825/MT in 2015.

Potassium

Potassium cost of sales increased 18.4% to US$359.5 million in 2016 from US$303.6 million in 2015, as a result of increased sales volumes.] The average cost of sales in the potassium business line was US$234/MT in 2016, a decrease of almost 4% from US$245/MT in 2015.

Industrial Chemicals

Industrial chemicals cost of sales decreased 5.4% to US$67.4 million in 2016 from US$71.3 million in 2015, as a result of decreased sales of potassium nitrate for industrial use that has a higher average cost of sales. The average cost of sales in the industrial chemicals business line was US$523/MT in 2016, a decrease of almost 8% from US$565/MT in 2015. This decrease in cost was a result of a change in product mix.

Gross Profit

Gross profit increased 12.6% to US$611.0 million in 2016, which represented 31.5% of revenues, from US$542.7 million in 2015, which represented 31.4% of revenues. As discussed above, this increase is attributable to the increase in revenues as a result of higher sales volumes in all of our business lines, and significantly higher average prices in the lithium and derivatives business line, partially offset by the increase in cost of sales as a result of higher revenues, as costs as a percentage of sales did not change between 2016 and 2015.

77

Other Income

Other income decreased 3.7% to US$14.8 million in 2016, which represented 0.8% of revenues, from US$15.3 million in 2015, which represented 0.9% of revenues. As a percentage of revenues, other income remained very similar between 2016 and 2015.

Administrative Expenses

Administrative expenses increased 1.8% to US$88.4 million in 2016, which represented 4.6% of revenues, from US$86.8 million in 2015, which represented 5.0% of revenues. We were able to reduce our costs as a percentage of revenues through increased efficiencies.

Other Expenses

Other expenses decreased 15.7% to US$89.7 million in 2016, which represented 4.6% of revenues, from US$106.4 million in 2015, which represented 6.2% of revenues. This decrease was primarily attributable to a one-time charge of US$57.7 million in 2015, for impairment and severance indemnities related to the restructuring of our operations in Pedro de Valdivia.

Other Gains (Losses)

Other gains (losses) decreased to a gain of US$0.7 million in 2016, which represented 0.04% of revenues, from a gain of US$3.8 million in 2015, which represented 0.2% of revenues.

Finance Income

Finance income decreased 8.8% to US$10.5 million in 2016, which represented 0.5% of revenues, from US$11.6 million in 2015, which represented 0.7% of revenues, due to lower interest rates earned on our investments.

Finance Expenses

Finance expenses decreased 17.7% to US$57.5 million in 2016, which represented 3.0% of revenues, from US$69.9 million in 2015, which represented 4.0% of revenues, due to decreased levels of debt that we incurred at the end of 2016.

Equity Income of Associates and Joint Ventures Accounted for Using the Equity Method

Equity income of associates and joint ventures accounted for using the equity method increased 26.4% to US$13.0 million in 2016, which represented 0.7% of revenues, from US$10.3 million in 2015, which represented 0.6% of revenues.

Foreign Currency Exchange Differences

Losses from foreign currency exchange differences decreased 104% to US$0.5 million in 2016, which represented 0.02% of revenues, from US$12.4 million in 2015, which represented 0.7% of revenues. A significant portion of our costs is related to the Chilean peso as most of our operations occur in Chile. Because the U.S. dollar is our functional currency, we are subject to currency fluctuations. We aim to mitigate this impact through an active hedging program. During 2016, the Chilean peso appreciated 6.0% against the U.S. dollar.

78

Profit Before Taxes

Profit before taxes increased by US$79.7 million, or 25.9%, to US$414.9 million in 2016 from US$308.3 million in 2015. This increase was primarily attributable to increase in revenues by US$211 million and a decrease in financial expenses by US$12.4 million, partially offset by an increase in cost of sales by US$142.7 million, each for the reasons described above.

Income Tax Expense

Income tax expenses increased 58.7% to US$133.0 million in 2016, representing an effective tax rate of 32.0%, compared to US$83.8 million in 2015, representing an effective tax rate of 27.2%. The Chilean corporate tax rate was 22.5% during 2015 and increased to 24.0% during 2016. The difference between the statutory and effective tax rates was due primarily to royalty taxes on income.

Profit for the Year

Profit for the year increased 25.6% to US$281.9 million in 2016 from US$224.5 million in 2015 primarily as a result of increased volumes in all business lines, and significantly higher prices in the lithium business line in 2016 compared to 2015.

Results of Operations – 2015 compared to 2014

Revenues

Revenues decreased 14.2% to US$1,728.3 million in 2015 from US$2,014.2 million in 2014.

The main factors causing the decrease in revenues and the variation in the costs of sales for the different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition revenues decreased 7.9% to US$652.3 million in 2015 from US$708.0 million in 2014. Set forth below are sales volume data for the specified years by product category in this product line:

(in Th. MT) 2015  2014  % Change 
Potassium nitrate and sodium potassium nitrate  493.6   531.6   (7)%
Specialty blends  203.9   228.0   (11)%
Other specialty plant nutrients (*)  108.4   102.5   6%
Sodium nitrate  26.0   15.8   65%

* Includes trading of other specialty fertilizers.

We sell various products within the specialty plant nutrition business line, and most of our specialty fertilizers are sold as either field fertilizers or water soluble fertilizers. While sales volumes in field fertilizer market decreased in 2015 compared to 2014, our sales volumes in the water soluble fertilizer market increased approximately 5%.

Average prices in the specialty plant nutrition business line in 2015 were US$784/MT, slightly lower than US$807/MT in 2014.

79

Iodine and Derivatives

Iodine and derivatives revenues decreased 21.7% to US$262.6 million in 2015 from US$335.4 million in 2014. Set forth below are sales volume data for the specified years:

(in Th. MT) 2015  2014  % Change 
Iodine and derivatives  9.3   8.8   6%

In the iodine market, global demand grew more than 4% during 2015, and our sales volumes in this business line increased by approximately 6% compared to 2014. Demand growth was led by uses related to x-ray contrast media, LCD and the polymer industry.

Prices during 2015 continued to face downward pressure. Our average price for the year was US$28/kilogram, a decrease of over 26% compared to 2014.

Lithium and Derivatives

Lithium and derivatives revenues increased 7.8% to US$223.0 million in 2015 from US$206.8 million in 2014. Set forth below are sales volume data for the specified years:

(in Th. MT) 2015  2014  % Change 
Lithium and derivatives  38.7   39.5   (2)%

World demand in the lithium market continued to grow at robust levels in 2015, around 5%. This demand growth was led by uses related to batteries. In 2015, batteries accounted for almost 50% of the total lithium market, including electric cars. Introduction of new lithium supply was delayed in 2015, and only a minimal amount of new production was offered for sale.

Prices in this business line increased in 2015, with average prices reaching nearly US$5,800/MT, 10% higher than average prices of approximately US$5,200/MT in 2014. Our sales volumes in 2015 decreased more than 2.1% compared to sales volumes in 2014.

Potassium

Potassium revenues decreased 26.3% to US$430.6 million in 2015 from US$584.3 million in 2014. Set forth below are sales volume data for the specified years:

(in Th. MT) 2015  2014  % Change 
Potassium chloride and potassium sulfate  1,241.8   1,556.2   (20)%

The potassium chloride market faced weaker global demand in 2015 when compared to 2014.

The main issue in this market was the significant decrease in prices over the last few quarters. In 2015, our average price in this business line, including both potassium chloride and potassium sulfate, was US$346/MT, a decrease of 7.7% compared to the average price of US$376/MT in 2014.

Our sales volumes in this business line decreased 20% in 2015 compared to 2014. This was a result of shipping and production delays during the first half of 2015.

80

Industrial Chemicals

Industrial chemicals revenues decreased 4.2% to US$97.6 million in 2015 from US$101.9 million in 2014. Set forth below are sales volume data for the specified years by product category:

(in Th. MT) 2015  2014  % Change 
Industrial chemicals  126.1   125.5   1%

Industrial chemicals demand for traditional applications remained relatively stable in 2015 when compared to 2014. Solar salt sales volumes in 2015 reached just over 37,000 metric tons, an increase of over 65% compared to 2014.

Other Products and Services

Revenues from sales of other commodity fertilizers and other income decreased 19.9% to US$62.3 million in 2015 from US$77.7 million in 2014, due to lower prices in the fertilizer market. That was reflected in a 18.3% decrease of cost of sales to US$55.7 million in 2015 compared to US$68.2 million in 2014.

Cost of Sales

Our overall cost of sales decreased 17.2% to US$1,185.6 million in 2015, which represented 69% of revenues, from US$1,431.2 million in 2014, which represented 71% of revenues. Cost of sales decreased primarily as a result of lower production costs and the weaker Chilean peso. The main factors that caused the decrease in cost of sales and variations in different product lines are described below.

Specialty Plant Nutrition

Specialty plant nutrition average cost of sales decreased 18.3% to US$461.0 million in 2015 from US$564.2 million in 2014.

Iodine and Derivatives

Iodine and derivatives cost of sales decreased 6.1% to US$184.5 million in 2015 from US$196.5 million in 2014. We believe we are the lowest cost producer of iodine. Following the restructuring of our iodine production facilities in 2015, the vast majority of our production capacity came from our most efficient plant in Nueva Victoria.

Lithium and Derivatives

Lithium and derivatives average cost of sales decreased 7.6% to US$109.4 million in 2015 from US$118.4 million in 2014.

Potassium

Potassium average cost of sales decreased 28.3% to US$303.6 million in 2015 from US$423.5 million in 2014. This change was related to the significant decrease in sales volumes reported in 2015 compared to 2014.

81

Industrial Chemicals

Industrial chemicals cost of sales increased 17.9% to US$71.3 million in 2015 from US$60.5 million in 2014.

Gross Profit

Gross profit decreased 6.9% to US$542.7 million in 2015, which represented 31.4% of revenues, from US$583.0 million in 2014, which represented 28.9% of revenues. Cost of sales decreased primarily as a result of lower production costs and the weaker Chilean peso. Revenues decreased as a result of lower average prices in several of our business lines, and lower volumes in our fertilizer business lines. We were able to reduce costs more than revenues decreased.

Other Income

Other income decreased 36.5% to US$15.3 million in 2015, which represented 0.9% of revenues, from US$24.1 million in 2014, which represented 1.2% of revenues.

Administrative Expenses

Administrative expenses decreased 10.1% to US$86.8 million in 2015, which represented 5.0% of revenues, from US$96.5 million in 2014, which represented 4.8% of revenues.

Other Expenses

Other expenses increased 65.5% to US$106.4 million in 2015, which represented 6.2% of revenues, from US$64.3 million in 2014, which represented 3.2% of revenues. This increase was primarily related to a one-time charge of US$57.7 million in 2015, for depreciation and severance indemnities related to the restructuring of our operations in Pedro de Valdivia.

Other Gains (Losses)

Other gains (losses) decreased to a gain of US$3.8 million in 2015, which represented 0.2% of revenues, from a gain of US$4.4 million in 2014, which represented 0.2% of revenues.

Finance Income

Finance income decreased 28.0% to US$11.6 million in 2015, which represented 0.7% of revenues, from US$16.1 million in 2014, which represented 0.8% of revenues, due to lower interest rates earned on our investments.

Finance Expenses

Finance expenses increased 10.3% to US$69.9 million in 2015, which represented 4.0% of revenues, from US$63.4 million in 2014, which represented 3.1% of revenues, due to increased levels of debt that we incurred at the end of 2014.

Equity Income of Associates and Joint Ventures Accounted for Using the Equity Method

Equity income of associates and joint ventures accounted for using the equity method decreased 43.1% to US$10.3 million in 2015, which represented 0.6% of revenues, from US$18.1 million in 2014, which represented 0.9% of revenues.

82

Foreign Currency Exchange Differences

Losses from foreign currency exchange differences decreased 24.8% to US$12.4 million in 2015, which represented 0.7% of revenues, from US$16.5 million in 2014, which represented 0.8% of revenues. A significant portion of our costs is related to the Chilean peso as most of our operations occur in Chile. Because the U.S. dollar is our functional currency, we are subject to currency fluctuations. We aim to mitigate this impact through an active hedging program. During 2015, the Chilean peso depreciated 17.0% against the U.S. dollar.

Profit Before Taxes

Profit before taxes decreased by US$96.7 million, or 23.9%, to US$308.3 million in 2015 from US$405.0 million in 2014. This decrease was primarily attributable to decrease in revenues by US$285.9 million, an increase in other expenses by US$42.1 million and an increase in finance expenses of US$6.5 million, partially offset by a decrease in cost of sales by US$ 245.6 million, each for the reasons described above.

Income Tax Expense

Income tax expenses decreased 47.9% to US$83.8 million in 2015, representing an effective tax rate of 27.8%, compared to US$160.7 million in 2014, representing an effective tax rate of 39.7%. The higher effective tax rate in 2014 was primarily due to an increase of US$52.3 million in our deferred tax liabilities, as a result of the 2014 Chilean Tax Reform. The Chilean corporate tax rate was 21.0% during 2014 and increased to 22.5% during 2015. The difference between the statutory and effective tax rates was due primarily to royalty taxes on income.

Profit for the Year

Profit for the year decreased 8.1% to US$224.5 million in 2015 from US$244.3 million in 2014 primarily as a result of the foregoing factors and lower prices across multiple business lines compared to 2014.

 

5.B.    Liquidity and Capital Resources

 

As of December 31, 2014,2016, we had US$1,008.0798.8 million of cash and cash equivalents and time deposits. In addition, as of December 31, 2014,2016, we had US$546.0267 million of unused uncommitted working capital credit lines.

 

Shareholders’ equity decreased to US$2,292.52,307.3 million as of December 31, 20142016 from US$2,432.22,400.4 million as of December 31, 2013.2015. Our ratio of total liabilities to total equity (including non-controlling interest) on a consolidated basis increaseddecreased to 1.030.83 as of December 31, 20142016 from 0.960.93 as of December 31, 2013.2015.

 

We evaluate from time to time our cash requirements to fund capital expenditures, dividend payouts and increases in working capital, but we believe our working capital is sufficentsufficient for our present requirements. As debt requirements also depend on the level of accounts receivable and inventories, we cannot accurately determine the amount of debt we will require nor are our requirements typically seasonal.

The table below shows our cash flows for 2014, 20132016, 2015 and 2012:2014:

 

(in millions of U.S. dollars) 2014  2013  2012 
Net cash from (used in):            
(in millions of US$) 2016  2015 2014 
Net cash from operating activities  591.0   651.7   650.2   640.1   427.3   591.0 
Net cash used in financing activities  (388.0)  (2.3)  (197.7)  (816.4)  (180.3)  (388.0)
Net cash used in investing activities  (311.4)  (487.4)  (562.9)
Net cash from (used in) investing activities  155.9   (69.8)  (311.4)
Effects of exchange rate fluctuations on cash and cash equivalents  (13.7)  (9.8)  (10.3)  7.8   (4.5)  (13.7)
Net increase (decrease) in cash and cash equivalents  (122.1)  152.3   (120.6)  (12.6)  172.7   (122.1)

83

 

We operate a capital-intensive business that requires significant investments in revenue-generating assets. Our past growth strategies have included purchasing production facilities and equipment and the improvement and expansion of existing facilities. Funds for capital expenditures and working capital requirements have been obtained from net cash from operating activities, borrowing under credit facilities and issuing debt securities.

 

The Board of Directors approved a capital expenditures plan for 20152017 of approximately US$182170 million in connection with investments to be made in Chile. The 20152017 capital investment program is primarily focused on the maintenance of our production facilities. Our 20152017 capital investment program does not call for any external financing, however,financing. However, we reservealways have the rightoption to access capital markets in order to optimize our financial position. See “Item 4.A. History and Development of the Company–Company—Capital Expenditure Program.”

 

Our other major use of funds is for dividend distributions. We paid dividends of US$373.8398 million and US$273.6123 million during 20142016 and 2013,2015, respectively. Our 20142016 dividend policy, as approved bydisclosed at our shareholders,2016 annual general shareholders’ meeting, is to pay 50% of our profitnet income, as calculated in our financial statements filed with the SVS for each fiscal year, in dividends. Under Chilean law, the minimum dividend payout is 30% of profitnet income for each fiscal year. On March 22, 2016, the Company’s Board of Directors agreed to recommend that, subject to the approval of SQM’s shareholders at the next Annual General Shareholders’ Meeting on April 26, 2016, the Company distribute and pay a final dividend, totaling 50% of the Company’s 2015 net income. In addition, on March 22, 2016, the Board of Directors agreed to partially modify the current “dividend policy in effect to add a special dividend (dividendo eventual) of US$150 million. This dividend payment was presented for consideration at the Annual General Shareholders’ Meeting held on April 26, 2016 and was charged to SQM’s retained earnings.

On November 23, 2016, the Board of Directors, with a divided vote, agreed: (i) to pay and distribute on December 20, 2016 a provisional dividend of US$225 million, equivalent to US$0.85487 per share, to be charged against the 2016 net income, (ii) to change the Dividend Policy for the 2016 business year as discussed at the Annual General Shareholders’ Meeting held on April 26, 2016, (iii) that no further provisional dividend would be charged against the 2016 net income and (iv) that the remaining amount of net income for the 2016 business year, if any, would be withheld and used to finance the Company’s operations or one or more of the Company’s investment projects and to fund all or part of any possible future expenditures, without prejudice.

On April 11, 2017, the Board of Directors, agreed to recommend to the shareholders the payment of a definitive dividend representing 100% of the 2016 net income. This definitive dividend payment will be presented for consideration at the Annual General Shareholders’ Meeting held on April 28, 2017. Therefore, and subject to the approval at the Shareholders’ meeting, the Company shall pay a final dividend of US$1.05735 per share, the amount of US$0.85487 per share must be deducted from the final dividend, which was already paid as a provisional dividend on December 20, 2016. The balance, in the amount of US$0.20248 per share, shall be paid and distributed to Company’s shareholders, pending shareholders’ approval, on May 11, 2017.

84

 

Financing Activities

 

Our current ratio, defined as current assets divided by current liabilities, increased to 4.804.02 as of December 31, 20142016 from 3.403.84 as of December 31, 2013.2015. The following table shows key information about our outstanding long- and short-term debt as of December 31, 2014.2016.

 

Debt Instrument(1)(2) Interest
Rate
  Issue Date Maturity Date Amortization
Bilateral loan — US$20 million0.41%Aug. 28, 2014Feb. 25, 2015Bullet
Bilateral loan — US$20 million0.38%Nov. 17, 2014May. 22, 2015Bullet
Bilateral loan — US$20 million0.59%Jun. 19, 2014Jun. 10, 2015Bullet
Bilateral loan — US$20 million0.46%Aug. 26, 2014Aug. 21, 2015Bullet
Bilateral loan — US$20 million0.59%Oct. 14, 2014Sep. 2, 2015Bullet
Bilateral loan — US$50 million1.37%Oct. 19, 2012Oct. 19, 2015Bullet
6.125% Notes due 2016 — US$ 200 million6.13%Apr. 15, 2006Apr. 15, 2016Bullet
Bilateral loan — US$40 million2.34%Oct. 6, 2011Oct. 6, 2016Semiannual, beginning in 2014
Bilateral loan — US$40 million0.97%Oct. 12, 2011Oct. 12, 2016Semiannual, beginning in 2014
Bilateral loan — US$40 million1.94%Dec. 21, 2011Dec. 21, 2016Bullet
Series M Bond — UF 1.0 million2.90%Feb. 1, 2012Feb. 1, 2017Bullet
Bilateral loan — US$140 million2.33%Oct. 29, 2009Sep. 13, 2017Bullet
5.50% Notes due 2020 — US$250 million  5.50% Apr. 21, 2010 Apr. 21, 2020 Bullet
3.625% Notes due 2023 — US$300 million  3.63% Apr. 3,03, 2013 Apr. 3,03, 2023 Bullet
4.375% Notes due 2025 — US$250 million  4.38% Oct. 28, 2014 Jan. 28, 2025 Bullet
Series C Bond — UF 1.81.5 million  5.844.00% Dec. 1,01, 2005 Dec. 1,01, 2026 Semiannual, beginning in 2007
Series H Bond — UF 4 millionmillion.  4.034.90% Jan. 5,05, 2009 Jan. 5,05, 2030 Semiannual, beginning in 2019
Series O Bond — UF 1.5 million  3.563.80% Feb. 1,01, 2012 Feb. 1,01, 2033 Bullet

(1)UF- denominated bonds are fully hedged to U.S. dollars with cross-currency swaps.

(2)Some floating rate bilateral loans are currently hedged to fixed rate loans using interest rate swaps.

As of December 31, 2014,2016, we had total financial debt of US$1,7481,215 million compared to US$1,8151,616 million as of December 31, 2013. Taking into account2015. Considering the effects of financial derivatives, our total financial debt amounted to US$1,7861,273 million as of December 31, 20142016 and US$1,7921,692 million as of December 31, 2013.2015. Of the total debt as of December 31, 2014,2016, US$211.4179 million was short-term debt. All of our UF local bonds were hedged with cross-currency swaps to the U.S. dollar as of December 31, 2014.2016.

 

As of December 31, 2014,2016, all of our long-term debt, including the current portion, was denominated in U.S. dollars, and all our UF-denominated bonds were hedged with cross-currency swaps to the U.S. dollar.

 

The financial covenants related to our debt instruments include: (i) limitations on the ratio of total liabilities to equity (including non-controlling interest) on a consolidated basis, (ii) minimum net worth requirements, (iii) limitations on net financial debt to EBITDA, (iv) limitations on interest indebtedness of operating subsidiaries and (v) minimum production assets. We believe that the terms and conditions of our debt agreements are standard and customary and that we are in compliance in all material respects with such terms and conditions as of December 31, 2014.2016.

 

The following table shows the maturities of our long-term debt by year as of December 31, 20142016 (in millions of US dollars):

 

Maturity(1) Amount  Amount 
    
2015  196.1 
2016  286.1 
2017  186.7   145.7 
2018  6.1   5.9 
2019  13.5   13.1 
2020 and thereafter  

1,058.5

 
2020  270.2 
2021 and thereafter  780.4 
Total  

1,746.9

   1,215.3 

(1)Only the principal amount has been included. For the UF-denominated local bonds, the amounts presented reflect the real U.S. dollar obligation as of December 31, 2014, not including the effects of the cross currency swaps that hedge these bonds to the U.S. dollar and which had, as of December 31, 2014, a market value of US$37 million in favor of SQM.

(1) Only the principal amount has been included. For the UF-denominated local bonds, the amounts presented reflect the real U.S. dollar obligation as of December 31, 2016 not including the effects of the cross currency swaps that hedge these bonds to the U.S. dollar and which had, as of December 31, 2016, a market value of US$400 million against SQM.

85

 85

Environmental and Occupational Safety and Health Projects

 

We spent US$7.89.3 million on environmental, safety and health projects in 2014.2016. We have budgeted approximately US$7.99.7 million in 20152017 for environmental, safety and health projects. This amount forms part of the capital expenditure program discussed above.

 

5.C.    Research and Development, Patents and Licenses, etc.

 

One of the main objectives of our research and development team is to develop new processes and products in order to maximize the returns obtained from the resources that we exploit. Our research is performed by fourthree different units, whose research topics includecover all of the processes involved in the production of our products, including chemical process design, phase chemistry, chemical analysis methodologies and physical properties of finished products.

 

Our research and development policy emphasizes the following: (i) optimization ofoptimizing current processes in order to decrease costs and improve product quality through the implementation of new technology, and (ii) development ofdeveloping higher-margin products from current products through vertical integration or different product specifications.specifications, (iii) adding value to inventories and (iv) using renewable energy in our processes.

 

Our research and development activities have been instrumental in improving our production processes and developing new value-added products. As a result, of research and development activities, new methods of extraction, crystallization and finishing products have been developed. Technological advances in recent years have enabled us to improve process efficiency for the nitrate, potassium and lithium operations, improve the physical quality of our prilled products and reduce dust emissions and caking by applying specially designed additives to our products handled in bulk. Our research and development efforts have also resulted in new, value-added markets for our products. One example is the use of sodium nitrate and potassium nitrate as thermal storage in solar power plants.

 

We have patented several production processes for nitrate, iodine and lithium products. These patents have been filed mainly in the United States, Chile and in other countries when necessary. The patents used in our production processes include Chilean patent No. 47,080 for iodine (production of spherical granules of chemicals that sublime), Japanese patent No. 4,889,848 for nitrates (granular fertilizers) and patent NumbersNos. 41,838 from Chile, 5393-B and 5391-B from Bolivia, AR001918B1 and AR001916B1 from Argentina and 5,676,916 and 5,939,038 from the U.S. for lithium (removal of boron from brines).

 

For the years ended December 31, 2014, 20132016, 2015 and 2012,2014, we invested US$7.411.0 million, US$ 9.24.4 million and US$10.47.4 million, respectively, onin research and development activities.

 

5.D.    Trend Information

 

Our revenues decreased 8.6%increased 12.2% to US$2,014.21,939.3 million in 20142016 from US$2,203.11,728.3 million in 2013.2015. Gross margin decreased 19.2%profit increased 12.6% to US$583.0611.0 million in 2014,2016, which represented 28.9%31.5% of revenues, from US$721.5542.7 million in 2013,2015, which represented 32.7%31.4% of revenues. Profit attributable to controlling interests decreased 49.3%increased 26.3% to US$236.9278.3 million in 20142016 from US$467.1220.4 million in 2013.2015.

 

Our sales volumes in the specialty plant nutrition business line increased 3.6%1.1% in 20142016 compared to 2013,2015, while average prices were relatively flat.decreased by 5.4%. As a result, our revenues in this business line increased approximately 3.0%decreased by 4.4%. Potassium nitrate is theWe sell various products within this business line, and most important productof our specialty fertilizers are sold as either field fertilizers or water soluble fertilizers. Our recent strategy in this business line has been to focus primarily on the water soluble fertilizer market, which in general yields higher margins and accordinghas more growth potential. Average prices in this business line were slightly lower in 2016, and we expect average prices to our estimates, worldwide demand growth for this product grew over 10%be lower in 2014, led by demand in North America. We believe demand growth was also supported by the shortage in the potassium sulfate market during the year, as farms sought out alternative sources of chloride-free potassium. We expect demand for potassium nitrate to continue to grow around 5% in 2015. We believe we are prepared to meet the growing market demand in the future.2017.

86

Our sales volumes in the iodine business line decreased 5.4%increased 9.0% in 2014, and significant2016. However, the continued downward pressure on prices throughout the year led to a total decrease of just over 23%nearly 12% in averageour revenues for this business line. Average prices compared to 2013. Pricesdecreased more than 19% in 2016, but we have seen the prices stabilize in recent months and we are expected to decline further in 2015.cautiously optimistic that prices may not deteriorate more during 2017. However, we believe we areas the lowest cost producer in Chile, andwe believe that we are therefore well positioned to face the challenging pricing environment. We expect that our sales volumes will increase as we continue to work to regain some of our market share. According to our estimates, the worldwide iodine market grew approximately 3% during 2014.2016. We believe that market demand reached approximately 31,60033,500 metric tons, of which SQM had a market share of approximately 26%29%. Demand was led by growth in the x-ray contrast media and pharmaceutical industries. We expect worldwide demand to grow over 3%around 2% in 2015, in part related to lower prices.2017.

 

Our sales volumes in the lithium business line increased 9.4%by 28.3% in 20142016 compared to 2013,2015. The average price of lithium carbonate increased 76.1% in 2016, and we expectthe average price of lithium hydroxide increased 67.0%. This upward trend in pricing exceeded our expectations and together with higher sales volumes, to remain relatively stable in 2015.impacted our 2016 revenues. According to our estimates, worldwide demand for lithium grew over 9%approximately 14% in 2014,2016, driven primarily by growth of over 14% in the rechargeable battery market, and growth should continue in 2015. We expect other lithium producers to add some new supply in 2015, but we believe the demand growth will exceed the new supply, which should lead to an increase in average prices.market. We estimate that our market share for 20142016 was approximately 27%. However, we expect reduced growth in worldwide demand in 2017, around 10%, as we expect that other lithium producers will add new supplies during the second half of 2017. We expect our sales volumes for lithium, in 2017, to be similar to those observed in 2016. However, we expect our product mix to shift, leading to higher lithium hydroxide sales volumes in 2017.

 

Our sales volumes in the potassium business line increased 8.5%by 23.6% in 20142016 compared to 2013. Although2015, but average prices were 24.2% lower. These increased sales volumes in 2016 when compared to 2015, allowed us to return to the sales volumes we saw in 2014. We believe that we could see a decrease in potassium chloride production during 2017, and potassium chloride sales volumes could decrease in the future. The lower prices reflected the weaker global demand for potassium chloride in 2016. We expect average prices for the business line were 11.1% lower year over year, prices did increase during the second half of 2014. Demand for potassium chloride was very strong in 2014, reaching an estimated total of over 60 million metric tons. We do not expect to see further market growth during 2015, and we expect our sales volumes in the potassiumthis business line to be similarlower in 2015 to their 2014 level.2017 than in 2016, although we anticipate that 2017 global potash market may increase by an additional 2 million tons.

 

Our sales volumes in the industrial chemicals product line decreased 28.5%increased 2.3% in 20142016 compared to 2013, largely due to lower2015. Although sales of industrial nitrates for traditional applications decreased, sales volumes of solar salt sales volumes. However, wesalts increased. We remain confident in the long-term prospects in the solar thermal energy storage market. We have executed supply agreements of solar saltsmarket, and we expect annual sales volumes for over 200,000 metric tons2017, 2018 and 2019 to be supplied between 2015 and 2017. The majority of thesehigher than sales volumes are expected to be delivered during 2016 and 2017. Demand for traditional applications of industrial chemicals remained relatively stable in 2014 compared to 2013.2016.

 

5.E.    Off-Balance Sheet Arrangements

 

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, retained or contingent interests in transferred assets, derivative instruments or other contingent arrangements that would expose us to material continuing risks, contingent liabilities, or any other obligations arising out of a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us or that engages in leasing, hedging or research and development services with us.

 

5.F.    Tabular Disclosure of Contractual Obligations

 

The following table showstables show our material expected obligations and commitments as of December 31, 2014:2016:

              More 
     Less Than  1 - 3  3 - 5  Than 
  Total  1 year  years  Years  5 years 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Long- and short-term debt(1)  1,787,397   213,172   472,376   12,176   1,089,673 
Capital lease obligations  -   -   -   -   - 
Operating leases  45,365   2,835   5,671   5,671   31,188 
Purchase commitments(2)  15,966   15,966   -   -   - 
Staff severance indemnities  30,952   -   -   -   30,952 
Total contractual obligations and commitments  1,879,680   231,973   478,047   17,847   1,151,813 

 

     Less Than  1 - 3  3 - 5  More Than 
  Total  1 year  years  Years  5 years 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Financial liabilities(1)  1,550,290   196,840   261,806   217,740   873,910 
Operating leases  35,643   2,546   5,092   5,092   22,913 
Purchase commitments(2)  19,959   19,959   -   -   - 
Staff severance indemnities  22,532   -   -   -   22,532 
Total contractual obligations and commitments  78,134   22,505   5,092   5,092   45,445 

     Less Than  1 - 3  3 - 5  More Than 
  Total  1 year  years  Years  5 years 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Financial liabilities  1,550,290   196,840   261,806   217,740   873,910 
Operating leases  35,643   2,546   5,092   5,092   22,913 
Purchase commitments(2)  19,959   19,959   -   -   - 
Staff severance indemnities  22,532   -   -   -   22,532 
Total contractual obligations and commitments  1,628,424   219,345   266,898   222,832   919,355 

(1) Includes interest.Interest was calculated based on the contractual agreements and considering the effect of hedging financial instruments

 

(2) The purchase commitments held by the Company are recognized as a liability when the services and goods are received by the Company.

5.G.87Safe Harbor

5.G.    Safe Harbor

 

The information contained in Items 5.E and 5.F contains statements that may constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” in this Annual Report, for safe harbor provisions.

 

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

6.A.Directors and Senior Management

6.A.    Directors and Senior Management

 

We are managed by our executive officers under the direction of our Board of Directors, which, in accordance with our by-laws, consists of eight directors, seven of whom are elected by holders of Series A common shares and one of whom is elected by holders of Series B common shares. The entire Board of Directors is regularly elected every three years at our Ordinary Shareholders’ Meeting. Cumulative voting is allowed for the election of directors. The Board of Directors may appoint replacements to fill any vacancies that occur during periods between elections. If a vacancy occurs, the entire Board must be elected or re-elected at the next regularly scheduled Ordinary Shareholders’ Meeting. Our Chief Executive Officer is appointed by the Board of Directors and holds office at the discretion of the Board. The Chief Executive Officer appoints our executive officers. There are regularly scheduled meetings of the Board of Directors once a month. Extraordinary meetings may be called by the Chairman when requested by (i) the director elected by holders of the Series B common shares, (ii) any other director with the assent of the Chairman or (iii) an absolute majority of all directors. The Board has a Directors’ Committee and its regulations are discussed below.

 

The current Board of Directors was elected for a three-year term at the Annual Ordinary Shareholders’ Meeting that took place on April 24, 2015.26, 2016. On this date, the current Board Members were elected, and between January 1, 2016 and April 26, 2016 Juan Anotnio Guzmán, Wolf von Appen and Hernán Büchi served as Board Members. On March 22, 2017, Julio Rebolledo D. informed the Board of Directors that he had decided to resign from his position as director of SQM effective April 27, 2017. As a result of his resignation, the entire Board of Directors will be elected at the next Annual Ordinary Shareholders’ Meeting on April 28, 2017.

88

 

Our current directors are as follows:

 

Name Position and relevant experience Current position
held since
Juan Antonio Guzmán M.Eugenio Ponce L. 

Chairman of the Board and Director. Mr. Guzmán is an Industrial and Chemical EngineerPonce earned a mechanical engineering degree from Pontificiathe Universidad Católica de ChileValparaiso. In 1981, he joined SQM as Sales Manager. He became Commercial Manager in 1982, Commercial and hasOperations Manager in 1988 and Chief Executive Officer of SQM Nitratos S.A. in 1991. Between 2000 and 2016, he was Senior Commercial Vice President. He was also a Ph.D. frommember of the PolytechnicBoard of North London. He has professional experience in managing different organizations both inIANSA. Currently, Mr. Ponce is a member of the public sector as a former MinisterBoard of EducationSoquimich Comercial. In April 2016, he was elected to the Board of SQM, and in May 2016, he was nominated as Chairman of the private sector, where he has been appointed to several executive positions as CEO and board member (Gener, CGE, Sonda, Soquimich, Indisa,Chilean Canadian ChamberBoard. He is the brother of Commerce). In addition, he has been active in entrepreneurial activities including in the energy, mining, real estate and health sectors. He has been an SQM board member since 2013.Julio Ponce L.

 April 2015
NamePosition and relevant experienceCurrent position
held since2016
     
Edward J. Waitzer(1) 

Vice Chairman of the Board and Director. Mr. Waitzer was Chair of Stikeman Elliott LLP, a leading Canadian law firm, from 1999 to 2006 and remains a senior partner whose practice focuses on complex business transactions.  He also advises on a range of public policy and governance matters.  He is a professor and the Jarislowsky Dimma Mooney Chair in Corporate Governance and is director of the Hennick Centre for Business and Law at Osgoode Hall and the Schulich School of Business at York University.  Mr. Waitzer served from 1993 to 1996 as Chair of the Ontario Securities Commission and of the Technical Committee of the International Organization of Securities Commissions and as Vice-President of Thethe Toronto Stock Exchange until 1981. He iswas Chair of the Liquor Control Board of Ontario.Ontario from 2013 to 2016. He has written and spoken extensively on a variety of legal and public policy issues and serves or has served as director of a number of corporations, foundations, community organizations, editorial boards and advisory groups, including the Canadian Foundation for the Advancement of Investors Rights. He is currently the President of the Canada-Chile Business Council and spent 2003 to 2004 as an advisor to the SVS in Santiago, Chile.groups. He earned his LL.B. in 1976 and his LL.M. in 1981 from the Faculty of Law, University of Toronto. Mr. Waitzer was called to the Ontario Bar in 1978 and admitted to the New York Bar in 1985.

 April 2015
     
Joanne L. Boyes 

Director. MsMs. Boyes a Senior Director ofis Vice President, Treasury, Risk & Corporate Reporting Finance and Compliance,of PotashCorp. She has been with PotashCorp since 2004 and is responsible for PotashCorp’s enterprise risk management and corporate-wide insurance program, global external financial and integrated reporting, and complex accounting,accounting. Prior to this, she was responsible for treasury, activitiesinternal control compliance and aspects of internal controls compliance.audit. She is a regular management participant on PotashCorp’sPotashCorp´s Audit Committee.

 April 2015

 89 
Hernán Büchi B.Director. Mr. Büchi is a Civil Engineer with a degree from the Universidad de Chile. He served as Vice Chairman of SQM’s Board from January 2000 to April 2002. He is currently a member of the Board of Directors of Quinenco S.A. and S.A.C.I. Falabella, among others. He is also Chairman of the Board of Directors of the Universidad del Desarrollo.April 1993

Name

 Position and relevant experience Current position
held since
Gonzalo Guerrero Y.(1)Director. Mr. Guerrero earned a law degree from the Universidad de Chile and a Masters of Business Law from the Universidad Adolfo Ibáñez. He was General Counsel and substitute board member of Integramédica S.A for seven years and was Director of Inversiones Oro Blanco S.A and VNT S.A. (Vantrust Capital Asset Management) until April 2016. Currently, he is an executive board member of Guerrero and Associates, and a board member of Asfaltos Chilenos S.A., Sanasalud S.A. and Club Deportivo Palestino SADP.April 2016
     
Robert A. Kirkpatrick Director. Mr. Kirkpatrick ais Vice President, Deputy General Counsel and Assistant Corporate Secretary of PotashCorp,PotashCorp. He has been with PotashCorp since 1994 and is responsible for securities regulatory compliance and advising on corporate finance and development matters.  He is a regular management participant on PotashCorp’s Corporate Governance and Nominating Committee. April 2015
     
Hans Dieter Linneberg A.(2) 

Director. Mr. Linneberg isearned an Economisteconomics degree from the Universidad de Chile.  He also receivedChile and a Master of Arts and a Ph.D.(C) from the Université Catholique Louvain in Belgium. Currently, he is the Executive Director of the Corporate Governance and Capital Markets Department at the Business School of the Universidad de Chile where he is also a faculty member, lecturing on corporate governance and international finance.

 April 2015
     
Arnfinn F. Prugger 

Director. Mr.Dr. Prugger is Vice President, Technical Services for PCS Potash,of PotashCorp. He has been with the company for over 25 years and has a wide range of senior–level experience in mining and applied geophysics.

 April 2015
     
Wolf von Appen B.Julio Rebolledo D.(2) Director. Mr. Von AppenRebolledo is an entrepreneur. He is currently a member of CentroSQM’s Directors’ Committee, an adjunct faculty member at Pontificia Universidad Católica de Estudios Publicos.Chile and a Senior Consultant at FEN-Business Center at the Universidad de Chile. From 2000 to 2011, he was a finance lecturer at the Universidad de Chile and the University of Bath in the U.K., and a visiting researcher scholar at Chilean Central Bank. In 2008, he received the Presidente de la Republica grant for his doctoral studies at the University of Bath where he was awarded a research teaching associate position for his research in economic forecasting. May 2005April 2016

90

 

Our current executive officers are as follows:

 

Name Position and relevant experience Current position
held since

Patricio de Solminihac T.(3)

 

Chief Executive Officer. Mr. de Solminihac isearned an Industrial Engineer with aindustrial engineering degree from the Pontificia Universidad Católica de Chile and holds a Master inof Business Administration from the University of Chicago. HeIn 1988, he joined SQM in 1988 as Business Development Vice President. Currently, he is a member of the Board of Directors of Melon S.A.  

 

March 2015

Ricardo Ramos R.

Chief Financial Officer and Vice President of Corporate Services. Mr. Ramos earned an industrial engineering degree from the Pontificia Universidad Católica de Chile. In 1989, he joined SQM as Finance Advisor. In 1991, he took a position in the Sales Department where he was in charge of operations and sales coordination. In 1994, Mr. Ramos returned to the Finance Department as CFO. Mr. Ramos is also a member of the Board of Directors of Soquimich Comercial S.A. 

May 2016
Gonzalo Aguirre T.General Counsel. Mr. Aguirre studied law at the Universidad Católica de Chile and earned a Master of Laws (LL.M) degree from Georgetown University Law Center. He joined SQM in April 2016 and has served as Legal Vice President since September of the same year. Prior to joining SQM, he worked at SunEdison as Head of Legal for Latin America and at AES Gener, where he served as a counsel on corporate and project matters. Prior to his in-house practice, he worked for Carey, Paul Hastings LLP (as an international legal consultant) and Vial and Palma, where his practice focused on corporate and financial matters. He is admitted to practice in Chile and in Washington, D.C., as a special legal consultant.September 2016

91

NamePosition and relevant experienceCurrent position
held since
Pablo Altimiras C.Vice President of Development and Planning. Mr. Altimiras is earned an engineering degree and a Master of Business Administration from the Universidad Católica de Chile. In 2007, he joined SQM as Chief of Logistics Projects. In 2009, he was promoted to Regulatory Affairs Director. He was Business Development Vice Manager from 2010 to 2011 and Development and Planning Manager in 2012. In 2016, he became Vice President of Development and Planning. May 2016
Juan Carlos Barrera P. (3)

Vice President of Operations, Potassium and Lithium. Mr. Barrera earned an industrial engineering degree from the Pontificia Universidad Católica de Chile and a Master of Business Administration from Tulane University and Universidad de Chile.  From 1991 to 1994, he served in various roles at SQM, including as Advisor in the Business Development area. In 1995, he was Business Development Manager of SQM Nitratos S.A. Thereafter, he was Corporate Quality Manager in 1999, Corporate Supply Chain Vice President in 2000 and General Manager of Soquimich Comercial S.A. in 2006. 

January 2007
Jose Miguel Berguño C.(4)

Vice President of Human Resources and Performance. Mr. Berguño earned an engineering degree and Master of Business Administration from the Universidad Católica de Chile. In 1998, he joined SQM as Planning Engineer. In 2001, he served as Supply Chain Manager, and in 2006 he was Human Resources Manager. From 2010 to 2011, he was the National Director of Science under the Minister of Labor. In 2012, he was Human Resources Manager for Vitamina Work Life. In 2013, he resumed his role as Supply Chain Manager at SQM, and in 2016 took on the position of Vice President of Human Resources and Performance.  

May 2016
Frank Biot

Vice President of Sales, Potassium and Nitrate. Frank Biot earned a Master in Applied Economics from the University of Antwerp in Belgium and a Master of Business Administration from the Catholic University of Leuven. In 1984, he joined Nitrate Corporation of Chile Ltd. established in London. In 1991, he was promoted to President of SQM Europe at SQM’s regional headquarters for Europe, Africa, Asia and Oceania. In 2000, he assumed the position of Commercial Vice President Specialty Plant Nutrition.

May 2016

92

Name Position and relevant experience Current position
held since
Matías Astaburuaga S.General Counsel and Senior Vice President. Mr. Astaburuaga is a lawyer with a degree from the Pontificia Universidad Católica de Chile. He joined SQM in 1989. Prior to joining SQM, he was Regional Counsel of The Coca Cola Export Corporation, Andean Region and Regional Counsel of American Life Insurance Company, Latin America Region.February 1989
Ricardo Ramos R.Chief Financial Officer and Senior Vice President of Business Development. Mr. Ramos is an Industrial Engineer with a degree from the Pontificia Universidad Católica de Chile. He joined SQM in 1989. Mr. Ramos is also a member of the Board of Directors of Soquimich Comercial S.A.November 1994
Eugenio Ponce L.Senior Commercial Vice President. Mr. Ponce is a Mechanical Engineer with a degree from the Universidad Católica de Valparaíso. In 1981, he joined SQM as a Sales Manager. He became Commercial Manager in 1982, Commercial and Operations Manager in 1988 and Chief Executive Officer of SQM Nitratos S.A. in 1991. Currently he is a member of the Board of Directors of Soquimich Comercial S.A. and Vice Chairman of the Board of Directors of Pampa Calichera S.A.  March 1999
Carlos Díaz O.Senior Vice President of Operations, Nitrates-Iodine. Mr. Díaz is an Industrial Civil Engineer with an engineering degree and an MBA from the Pontificia Universidad Católica de Chile. In 1996, he joined SQM as Planning Engineer in the Sales Division where he was promoted to Planning Manager in 1998. In 2002, he assumed the position of Deputy Financial Manager of the Commercial Offices and after four years took up the position of Logistics Manager.October 2012
NamePosition and relevant experienceCurrent position
held since
Pauline De Vidts S. (5) Senior

Vice President of Human ResourcesPublic Affairs and Sustainability. Mrs. De Vidts isearned an Industrial Engineer with aindustrial engineering degree from the Pontificia Universidad Católica de Chile and holds a Ph.D. in Chemical Engineeringchemical engineering from Texas A&M University. SheIn 1996, she joined SQM in 1996 to work in process development for the Salar de Atacama Operations, becomingOperations. In 1998, she was Development Manager for these operations in 1998, and laterManager. In 2001, she was Corporate R&D and thereafter Environmental Issues Vice President in 2001.President. Since 2005, she has overseen safety, health, environmental and community issues, and in 2011, she also began overseeing corporate communications and public affairs for SQM. In 2016, she assumed the role of Vice President of Public Affairs and Sustainability. 

 August 2013May 2016
Carlos Díaz O.

Vice President of Operations, Nitrates and Iodine. Mr. Díaz earned an engineering degree and a Master of Business Administration from the Pontificia Universidad Católica de Chile. In 1996, he joined SQM as Planning Engineer in the Sales Division. He was promoted to Planning Manager in 1998. In 2002, he assumed the position of Deputy Financial Manager of the Commercial Offices. In 2006, he became our Logistics Manager. 

October 2012
     
Juan Carlos Barrera P.Gerardo Illanes G. (4)(6) Senior Vice President Operations, Potassiumof Finance. Mr. Illanes earned an engineering degree from the Universidad Católica de Chile and Lithium.a Master of Business Administration from Emory University's Goizueta Business School. In 2006, he joined SQM and has served in several positions within the finance area in Santiago, Chile and in subsidiaries around the world. Mr. BarreraIllanes is also a member of the Board of Soquimich Comercial. In May 2016, he became Vice President of FinanceMay 2016

93

NamePosition and relevant experienceCurrent position
held since

Daniel Jiménez Sch.

Vice President of Sales Iodine, Lithium and Industrial Chemicals. Mr. Jiménez earned an Industrial Engineer with aindustrial engineering degree from the Pontificia Universidad Católica de Chile and holds a Masters inMaster of Business Administration degree from Tulane University and a Masters in Business Administration degree from Universidad de Chile.  HeOld Dominion University. In 1991, he joined SQM in 1991 as an advisor in the Business Development area and has served in many positions since then. In 1995, he became Business Development Manager of SQM Nitratos S.A. In 1999, he became the Corporate Quality Manager, in 2000, Corporate Supply Chain Vice President and, in 2006, General Manager of Soquimich Comercial S.A.

January 2007
Daniel Jiménez Sch.Senior Vice President of Exploration. Mr. Jiménez is an Industrial Engineer with a degree from the Pontificia Universidad Católica de Chile and holds a Masters in Business Administration degree from Old Dominion University. He joined SQM in 1991, holding several positions inwithin the finance and sales areas at SQM’s headquarters and foreign subsidiaries in USAthe United States and Belgium countries he was based in for eight years.  In 2002, he became VP Sales and Marketing Iodine, Lithium and Industrial Chemicals. In 2007, he became Senior VP of Human Resources and Corporate Services. In 20132016, he became Senior VP of Exploration.Sales of Iodine, Lithium and Industrial Chemicals. Mr. Jiménez is also a member of the Board of Directors of Soquimich Comercial S.A.

 August 2013May 2016
Name Position and relevant experience Current position
held since
Macarena Briseño C.Raul Puerto M. Head

Internal Audit Manager. He earned a Master of Business Administration from the University of Chile and Tulane University and an industrial engineering degree from the Pontificia Universidad Javeriana de Colombia. Mr. Puerto has 18 years of experience in auditing, risk management, internal control, and compliance, having worked in several multinational companies in Chile and Latin America. 

January 2016
Andrés Yaksic B.Risk Management and Compliance. Ms. BriseñoCompliance Officer. Mr. Yaksic is earned an engineering degree and a Civil Engineer with a degreeMaster of Business Administration from the Pontificia Universidad Católica de Chile. SheIn 2008, he joined SQM in 1993 as a planning engineer, firstStrategic Marketing Engineer. He was promoted to Strategic Marketing Manager the following year. In 2012 and 2013, he was Development Manager for New Lithium Projects and in November 2013 worked as the sales department and then inFinance Manager for the finance department. She became VP of Reporting in 2001 and Controller in 2003.Commercial Offices.    August 2013October 2015

 

(1)As of April 24, 2015,December 31, 2016, Mr. WaitzerGuerrero beneficially owned 10,0001,353 of SQM’sSQM´s shares.
(2)AsOn March 22, 2017, Julio Rebolledo D. informed the Board of Directors that he has decided to resign from his position as director of SQM effective April 24, 2015, Mr. Linneberg beneficially owned 455 of SQM’s shares.27, 2017.
(3)On March 16, 2015, Mr. Patricio de Solminihac T. was named as Chief Executive Officer of SQM.
(4)As of April 24, 2015,December 31, 2016, Mr. Barrera beneficially owned 224 of SQM’s shares.

6.B.(4)CompensationAs of December 31, 2016, Mr. Berguño beneficially owned 380 of SQM’s shares.
(5)On April 11, 2017, as a result of a Company reorganization, Pauline de Vidts left her position as Vice President of Public Affairs and Sustainability at SQM.
(6)As of December 31, 2016, Mr. Illanes beneficially owned 800 of SQM’s shares.

 

6.B.     Compensation

At the Ordinary Shareholders’ Meeting held on April 26, 2016, shareholders did not vote to maintain the Ad-Hoc Committee created at the Ordinary Shareholders’ Meeting held on April 24, 2015. The compensation for the Audit and Financial Risk Committee, Corporate Governance Committee and the Safety, Health and Environmental Committee was approved during the Ordinary Shareholders’ Meeting held on April 26, 2016.

94

During 2014,2016, directors were paid a monthly fee, which was independent of attendance and the number of Board sessions. For the Chairman, the fee amounted to UF 300 per month. For the remaining seven directors, the fee amounted to UF 50 per month for the period between January and April, and UF 125 per month for the period between May and December.200. In addition, the directors received variable compensation (in Chilean pesos) based on a profit-sharing program approved by the shareholders. In 2014,2016, the Chairman received the equivalent of 0.35%0.135% of 20132015 profit and each of the remaining seven directors received the equivalent of 0.04%0.06% of 20132015 profit.

 

In addition, during 2014,2016, members of the Directors’ Committee were paid UF 17 per month for the period between January and April and UF 75 per month, for the period between May and December, regardless of the number of sessions held by the Directors’ Committee. In addition, the members of the Directors’ Committee received variable compensation (in Chilean pesos) based on a profit-sharing program approved by the shareholders. In 2014,2016, members of the Directors’ Committee each received an amount equal to 0.013%0.02% of 20132015 profit. This remuneration is also independent from what the Committee members obtain as members of our Board of Directors.

 

AtDuring 2016, the Ordinary Shareholders’ Meeting held onmembers of the Safety, Health and Environmental Committee received UF 50 per month, regardless of the number of sessions held. During 2016, the members of the ad-hoc Committee received UF 50 per month for the period between January and April, 25, 2014, shareholders approvedregardless of the creationnumber of a Health, Safety and Environment Committee. Memberssessions held. During 2016, the members of this committee were paidthe Corporate Governance Committee received UF 3050 per month, regardless of the number of sessions held.

 

During 2014,2016, the compensation paid to each of our directors who served on the Board during the year was as follows (amounts in Chilean pesos):

 

  SQM Board
Meeting(Ch$)
  SQM Directors’
Committee
(Ch$)
  SQM Health, Safety
and Environment
Committee (Ch$)
  SQMC Board
Meeting (Ch$)
  Total (Ch$) 
Julio Ponce Lerou  994,050,636         86,438,001   1,080,488,637 
Wayne R. Brownlee  131,599,461      5,075,089      136,674,550 
Hernán Büchi Buc  132,761,291   49,068,490         181,829,781 
Patricio Contesse Fica  129,245,311   43,973,524   5,075,089      134,320,100 
José María Eyzaguirre Baeza  131,599,454      5,075,089      136,674,543 
Juan Antonio Guzmán Molinari  131,599,460   48,673,467         180,272,927 
Alejandro Montero Purviance  131,602,164            131,602,164 
Wolf Von Appen Behrman  132,761,293   49,068,491         181,829,784 
Total  1,915,219,070   146,810,448   15,224,967   86,438,001   2,163,692,486 
  SQM Board
Meeting (CH$)
  SQM
Directors'
Committee
(CH$)
  SQM Health,
Safety and
Environment
Committee
(CH$)
  Corporate
Governance
Committee
(CH$)
  Ad-Hoc
Committee
(CH$)
  SQMC
Board
Meeting
(CH$)
  Total (CH$) 
Joanne L. Boyes  121,519,416   -   9,008,878   -   -   -   130,528,294 
Hernán Büchi B.  106,096,980   36,224,761   -   -   -   -   142,321,741 
Gonzalo Guerrero Y.  41,908,638   -   10,477,162   -   -   -   52,385,800 
Juan Antonio Gúzman M.  230,946,965   -   -   -   -   -   230,946,965 
Robert A. Kirkpatrick  121,519,416   -   -   9,008,878   7,709,225   -   138,237,519 
Hans Dieter Linneberg A.  153,131,436   53,862,684   -   16,911,885   -   -   223,906,005 
Luis Eugenio Ponce Lerou  62,862,957   -   -   -   -   9,378,257   72,241,214 
Arnfinn F. Prugger  121,519,416   -   9,008,878   -   -   -   130,528,294 
Julio Cesar Rebolledo D.  36,639,042   13,739,642   -   -   -   -   50,378,684 
Wolf Von Appen B.  116,342,480   -   7,714,644   -   7,714,644   -   131,771,768 
Edward J. Waitzer  152,959,848   53,801,338   -   16,868,988   7,709,225   -   231,339,399 
Total  1,265,446,594   157,628,425   36,209,562   42,789,751   23,133,094   9,378,257   1,534,585,683 

For the year ended December 31, 2014,2016, the aggregate compensation paid to our 108105 principal executives based in Chile was Ch$15,573 million (approximately US$25.7 million).13,683 million. We do not disclose to our shareholders or otherwise make available to the public information as to the compensation of our individual executive officers.

 

95

We maintain incentive programs for our employees based on individual performance, company performance and short- medium-short and long-term indicators. Additionally, in order toWe provide incentives to key executives with an annual and to retain such executives, we maintain a long-term cash bonus compensation plan for certain senior executives, which consists of a long-term bonus plan payable in the first quarter of 2021 or the date of the employee´s resignation, taking into account achievement of targets and individual contribution to the Company’s operating results. These incentives are based on the following variables: a) Short term (annual): the Company’s operating results and safety indices; and b) Long term: the Company’s after-tax return on equity. SQM also operates a compensation plan designed to retain its executives by providing bonuses linked to the Company’s share price and is payable between 2016 and 2018.price.

 

As of December 31, 2014, the provision providing a long-term bonus linked to our share price would have increased or decreased by approximately US$1.5 million per each movement of US$1 in the Series B common share price, when the share price is above US$50. The amount of actual cash bonuses payable under the long-term incentive program will vary depending on the market share price of the Series B common shares on the date as of which the bonuses are paid.

As of December 31, 2014,2016, we had a provision related to all of the incentive programs in an aggregate of US$18.420.2 million.

 

We do not maintain any pension or retirement programs for the members of the Board or our executive officers in Chile.

 

6.C.Board Practices

6.C.      Board Practices

 

Information regarding the period of time each of SQM’s current Directors has served in his office is provided in the discussion of each member of the Board above in Item 6.A. Directors and Senior Managers.

 

The date of expiration of the term of the current Board of Directors is April 2018.2019. The contracts of our executive officers are indefinite. The current Board of Directors was elected at the previous Annual Ordinary Shareholders’ Meeting held on April 26, 2016.

 

The members of the Board are remunerated in accordance with the information provided above in Item 6.B. Compensation. There are no contracts between SQM, or any of its subsidiaries, and the members of the Board providing for benefits upon termination of their term.

 

Directors’ Committee – Audit Committee

 

As required by Chilean Law, during 20142016, we had a Directors’ Committee (Comité de Directores) composed of three Directors, which performs many of the functions of an audit committee. This Directors’ Committee complies with the requirements of the NYSE corporate governance rules applicable to audit committees. Under the NYSE corporate governance rules, the audit committee of a U.S. company must perform the functions detailed in the NYSE Listed Company Manual Rules 303A.06 and 303A.07. Non-U.S. companies are required to comply with Rule 303A.06 but are not at any time required to comply with Rule 303A.07.

 

As ofSince April 24, 2015,26, 2016, our Directors’ Committee washas been comprised of three Directors Hernán Büchi B., Hans Dieter Linneberg A., Julio Rebolledo D., and Edward J. Waitzer, each of whom meets the NYSE independence and Chilean independence requirements for audit committee members. According to Chilean independence requirements, Mr. Linneberg

Between January 1, 2016 and Mr. Waitzer meet the requirements for independence.

During 2014,April 26, 2016, our Directors’ Committee was comprised of three Directors: Mr. Buchi,Waitzer, Mr. GuzmáHernán Büchi B., and Mr. Von Appen.Linneberg. Each of the three members met the NYSE independence requirements for audit committee members. According to Chilean independence requirements, Mr. GuzmánLinneberg and Mr. Waitzer met the requirements for independence. On March 22, 2016, Mr. Büchi informed the Board of Directors that he had decided to resign from his position as director of SQM effective April 25, 2016.

 

During 2014,2016, the Directors’ Committee of SQM (the “Committee”) analyzed (i) the Company’s Unaudited Financial Statements and Reports; (ii) the Company’s Audited Financial Statements and Reports; (iii) the Reports and proposals of external auditors, accounts inspectors and independent risk rating agencies for the Company; (iv) the proposal to SQM’s Board of Directors about the external auditors and independent rating agencies that the Board could recommend to the respective shareholders’ meeting for their subsequent appointment; (v) the tax and other services, other than audit services, provided by the Company’s external auditors and its subsidiaries in Chile and abroad; (vi) the remuneration and compensation plans for the Company’s main executives; (vii) the information related to the Company’s operations as referred to in Title XVI of the Corporations Act andAct; (viii) the report on internal control of the Company and (ix) other matters.the various matters referred to in the Chapter titled “Directors’ Committee” included in SQM’s Financial Statements at December 31, 2016.

96

 

Regarding the above, the Committee:

 

(a)Examined the information regarding the financial statements of SQM for the 20132016 business year and the Report issued thereon by the External Auditors of SQM. Similarly, it also examined the Company’s Interim Consolidated Financial Statements for the 20142016 business year.

 

(b)Examined: (i) duringExamined, at its Meeting number 88No. 111 on January 07, 2014,November 7, 2016, the subscriptionresolution of two “Maritime Transport Contracts” betweenfour broker agreements in Japan and other Asian countries with the “SQM Group” andJapanese company Kowa Co., Ltd. (“Kowa”). Kowa is a related party of the “Ultramar Group,” linked to Mr. Wolf von Appen B., Director of SQMCompany based on a Joint Operation Agreement with Sociedad de Inversiones Pampa Calichera S.A. The Company’s Directors’ Committee of the Company approved said subscriptions andsuch contracts. In its Meeting No. 729 on November 7, 2016, the Board of Directors of SQM S.A., subsequently, in its Board of Directors Meeting number 680 on January 21, 2014, was informed in a timely manner about said approvalsof such approval by the Directors’ Committee and, in turn, also confirmed that said Contractssuch contracts were agreed upon with theon terms, prices terms and other conditions similar to those prevailing in the respective markets at the pertinent time and consequently,approved, by the Directorsunanimous vote of directors present unanimously approved their subscription with the sole abstention from Director Mr. Von Appen, and declared that the latter does not constitute an Essential fact for the Company; (ii) the two “Maritime Transport Contracts” between the “SQM Group” and the “Ultramar Group,” linked to Mr. Wolf von Appen B., Director of SQM S.A. and which the Board of Directors of SQM S.A., during its Board of Directors Meeting number 690 on September 16, 2014, confirmed that said contracts were agreed upon with the prices, terms and other conditions similar to those prevailing in the respective markets at the pertinent time and, consequently,meeting, the Directors present unanimously approved their subscription with the sole abstentionexecution of Director Mr. Von Appen, and declared that the latter does not constitute an Essential Fact for the Company; (iii) during its Meeting number 94 on December 16, 2014, the three “Legal Services Provision Agreements” between the “SQM Group” and the Law Firm, “Estudio de Abogados Claro y Cía,” linked to Messieurs Wayne R. Brownlee and José María Eyzaguirre B., Directors of SQM. The Company’s Directors Committee approved said Agreements and the Board of Directors of SQM S.A., subsequently, in its Board of Directors Meeting number 694 on December 16, 2014, was informed in a timely manner about said approvals and, in turn, also confirmed that said Contracts were agreed upon with the prices, terms and other conditions similar to those prevailing in the respective markets at the pertinent time and, consequently, unanimously approved the latter, by the Directors present with the sole abstention of the Directors Messieurs Wayne R. Brownlee and José María Eyzaguirre B., and declared that the latter does not constitute an Essential Fact for the Company and (iv) during its Meeting number 94 on December 16, 2014, the subscription of a “Maritime Transport Contract” between the “SQM Group” and the “Ultramar Group,” linked to Mr. Wolf von Appen B., Director of SQM S.A. The Company’s Directors’ Committee approved said subscription and the Board of Directors of SQM S.A., subsequently, in its Board of Directors Meeting number 694 on December 16, 2014, was informed in a timely manner about said approval and, in turn, also confirmed that said Contract was agreed upon with the prices, terms and other conditions similar to those prevailing in the respective markets at the pertinent time and, consequently, the Directors present unanimously approved this subscription with the sole abstention of the Director Mr. Von Appen, and declared that the latter does not constitute an Essential Fact for the Company.such agreements.

(c)Proposed to the Company’s Board of Directors the names of the External Auditors and the Independent Risk Rating Agencies for SQM and the Company’s Board of Directors, in turn, suggested their appointment to the respective Annual Ordinary Shareholders Meeting of SQM. The Company’s Board of Directors approved said suggestions and the shareholders’ meetingShareholders’ Meeting also ratified them.

 

(d)Examined and approved the remuneration system and the compensation plans for the Company’s employees and mainsenior executives.

 

The Committee also (i) authorized the contracting by the Company of various consulting services with PwC, (ii) reviewed the expenses of the Company's CEO, and (iii) reviewed the reports from the Company’s internal audit and risk and compliance areas.

Finally, the Directors’ Committee issued the Annual Management Report referred to in Law No. 18,046.

 

On April 25, 2014,26, 2016, the Annual General ShareholdersShareholders’ Meeting of SQM approved an operational budget for the Directors Committee; the operational budget is equivalent to the annual remuneration of the members of the Directors Committee.

The activities carried out by the Committee, as well as the expenses incurred by it, are disclosed at the General Shareholders Meeting. During 2014,2016 the Directors Committee did not incur any consulting expenses.incurred expenses of approximately US$65,000 for advisory services.

 

Article 50 bis of the Chilean Corporations Act states that the Committee should consist of three Directors, of which at least one member should preferably be independent from the controller (i.e. any person or entity who “controls” the company for Chilean law purposes), if any, and that their functions be remunerated.

 

Comparative Summary of Differences in Corporate Governance Standards

 

The following table provides a comparative summary of differences in corporate governance practices followed by us under our home-country rules and those applicable to U.S. domestic issuers pursuant to Section 303A of the New York Stock Exchange (NYSE) Listed Company Manual.

 

97

Listed Companies that are foreign private issuers, such as SQM, are permitted to follow home country practices in lieu of the provisions of Section 303A, except such companies are required to comply with the requirements of Section 303A.06, 303A.11 and 303A.12(b) and (c).

 

Section NYSE Standards SQM practices pursuant to Chilean Stock Exchange
regulations
303A.01 Listed companies must have a majority of independent directors.

There is no legal obligation to have a majority of independent directors on the Boardbut, according to Chilean law, the Company’s directors cannot serve as executive officers.

     
303A.02 

No director qualifies as “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).

A director would not be considered independent if, at any time, within the last 18 months he or she:

(i) Maintained any relationship of a relevant nature and amount with the company, with other companies of the same group, with its controlling shareholder or with the principal officers of any of them or has been a director, manager, administrator or officer of any of them;

SectionNYSE StandardsSQM practices pursuant to Chilean Stock Exchange
regulations

In addition, a director is not independent if:

(i) The director is, or has been within the last three years, an employee of the listed company, or an immediate family member is, or has been within the last three years, an executive officer, of the listed company.

(ii) The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

(iii) (A) The director is a current partner or employee of a firm that is the listed company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the listed company’s audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the listed company’s audit within that time.

(iv) The director or an immediate family member is, or has been with the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee.

(v) The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

 

A director would not be considered independent if, at any time, within the last 18 months he or she:

(i) Maintained any relationship of a relevant nature and amount with the company, with other companies of the same group, with its controlling shareholder or with the principal officers of any of them or has been a director, manager, administrator or officer of any of them;

(ii) Maintained a family relationship with any of the members described in (i) above;

 

(iii) Has been a director, manager, administrator or principal officer of non-profit organizations that have received contributions from (i) above;

 

(iv) Has been a partner or a shareholder that has had or controlled, directly or indirectly, 10% or more of the capital stock or has been a director, manager, administrator or principal officer of an entity that has provided consulting or legal services for a relevant consideration or external audit services to the persons listed in (i) above;

 

(v) Has been a partner or a shareholder that has had or controlled, directly or indirectly, 10% or more of the capital stock or has been a director, manager, administrator or principal officer of the principal competitor, supplier or clients.

     
303A.03 

The non-management directors must meet at regularly scheduled executive sessions without management.

 

These meetings are not needed given that directors cannot serve as executive officers.

     
303A.04 

(a) Listed companies must have a nominating/corporate governance committee composed entirely of independent directors.

This committee is not required as such in the Chilean regulations.  However, pursuant to Chilean regulations SQM has a Directors’ Committee (see Board practices above).

98

SectionNYSE StandardsSQM practices pursuant to Chilean Stock Exchange
regulations
(b) The nominating/corporate governance committee must have a written charter that addresses:

(i) the committee’s purpose and responsibilities – which, at minimum, must be to: identify individuals qualified to become board members, consistent with criteria approved by the board, and to select, or to recommend that the board select, the director nominees for the next annual meeting of shareholders; develop and recommend to the board a set of corporate governance guidelines applicable to the corporation; and oversee the evaluation of the board and management; and


(ii) an annual performance evaluation of the committee.

 This committee is not required as such in the Chilean regulations.  However, pursuant to Chilean regulations SQM has a Directors’ Committee (see Board practices above).
     
303A.05 Listed companies must have a compensation committee composed entirely of independent directors, and must have a written charter This committee is not required as such in the Chilean regulations. Pursuant to Chilean regulations, SQM has a Directors’ Committee (see Board practices above) that is in charge of reviewing management’s compensation.
Section NYSE Standards SQM practices pursuant to Chilean Stock Exchange
regulations

303A.06

 

 Listed companies must have an audit committee.     This committee is not required as such in the Chilean regulations. Pursuant to Chilean regulations, SQM has a Directors’ Committee that performs the functions of an audit committee and that complies with the requirements of the NYSE corporate governance rules.
     
303A.07 The audit committee must have a minimum of three members. All audit committee members must satisfy requirements of independence, and the committee must have a written charter.Thecharter.The listed companies must have an internal audit functionto provide management with ongoing assistance of the Company’s risk management process and the system of internal controls Pursuant to Section 303A.00, SQM is not required to comply with requirements in 303A.07. Pursuant to Chilean Regulations SQM has a Director’s Committee (see Board practices above) that also performs the functions of an audit committee with certain requirements of independence.
     
303A.08 Shareholders must have the opportunity to vote on all equity-compensation plans and material revisions thereto. SQM does not have equity compensation plans. However, as mentioned in Item 6.B. Compensation, the Company does have a long-term cash bonus compensation plan. Directors and executives may only acquire SQM shares by individual purchases. The purchaser must give notice of such purchases to the Company and the Superintendence of Securities and Insurance.
     
303A.09 Listed companies must adopt and disclose corporate governance guidelines. 

Chilean law does not require that corporate governance guidelines be adopted.  Directors’ responsibilities and access to management and independent advisors are directly provided for by applicable law.  Directors’ compensation is approved at the annual meeting of shareholders, pursuant to applicable law.

     
303A.10 Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employeesand promptly disclose any waivers of the code for directors or executive officers. Not required in the Chilean regulations.  SQM has adopted and disclosed aCode of Business Conduct and Ethics, available at the Company’s website, www.sqm.com.
     
303A.11 Listed foreign private issuers must disclose any significant ways in which their corporate governance practices differ from those followed by domestic companies under NYSE listed standards. Pursuant to 303A.11, this table shows a comparative summary of differences in corporate governance practices followed by SQM under Chilean regulations and those applicable to U.S. domestic issuers pursuant to Section 303A.

 99

Section NYSE Standards SQM practices pursuant to Chilean Stock Exchange
regulations
303A.12 

Each listed company CEO must (a) certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governancelistinggovernancelisting standards; (b) promptly notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with any applicable provisions of Section 303A; and (c) must submit an executed Written Affirmation annually to the NYSE.  In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. The annual and interim Written Affirmations must be in the form specified by the NYSE.

 Not required in the Chilean regulations.  The CEO must only comply with Section 303A.12 (b) and (c).
Section NYSE Standards SQM practices pursuant to Chilean Stock Exchange
regulations
303A.13 

The NYSE may issue a public reprimand letter to any listed company that violates a NYSE listing standard.

 Not specified in the Chilean regulations.

 

6.D.Employees

6.D.      Employees

 

As of December 31, 2014,2016, we had 4,8004,751 permanent employees, 190216 of whom were employed outside of Chile. The average tenure of our permanent employees is approximately 7.46.2 years.

 

 As of December 31,  As of December 31, 
 2014  2013  2012  2016 2015 2014 
Employees in Chile  4,610   4,583   5,450   4,535   4,048   4,610 
Employees outside of Chile  190   209   193   216   202   190 
Total employees  4,800   4,792   5,643   4,751   4,250   4,800 

100

 

As of December 31, 2014, 68%2016, 65% of our permanent employees in Chile were represented by 2522 labor unions, which represent their members in collective negotiations with us. Compensation for unionized personnel is established in accordance with the relevant collective bargaining agreements. The terms of most such agreements currently in effect are three years, and expiration dates of such agreements vary from contractagreement to contract.agreement. Under these agreements, employees receive a salary according to a scale that depends upon job function seniority and productivity. Unionized employees also receive certain benefits provided by law and certain benefits provided under the applicable collective bargaining agreement, which vary depending upon the terms of the collective agreement, such as scholarships and additional health, death and disability benefits, among others.

 

In addition, we own all of the equity of Institución de Salud Previsional Norte Grande Limitada (“Isapre Norte Grande”), which is a health care organization that provides medical services primarily to our employees, and of Sociedad Prestadora de Servicios de Salud Cruz de Norte S.A. (“Prestadora”), which is a hospital in María Elena. We make contributions to Isapre Norte Grande and to Prestadora in accordance with Chilean laws and the provisions of our various collective bargaining agreements, but we are not otherwise responsible for their liabilities.

 

Non-unionized employees receive individually negotiated salaries, benefits provided for by law and certain additional benefits which we provide.

 

We provide housing and other facilities and services for employees and their families at the María Elena site.

 

We do not maintain any pension or retirement programs for our Chilean employees. Most workers in Chile are subject to a national pension law, adopted in 1980, which establishes a system of independent pension plans that are administered by the corresponding Pension Fund Administrator (“Sociedad Administradora de Fondos de Pensiones”). We have no liability for the performance of any of these pension plans or any pension payments to be made to our employees. We do, however, sponsor staff severance indemnities plans for our employees and employees of our Chilean subsidiaries whereby we commit to provide a lump sum payment to each employee at the end of his/her employment, whether due to death, termination, resignation or retirement.resignation.

Over 96%95% of our employees are employed in Chile, of which approximately 68%65% were represented by 2522 labor unions as of December 31, 2014.2016. As in previous years, during 2014,2016, we renegotiated collective labor contracts with individual unions one year before the expiration of such contracts. AsDuring 2017, we expect to renegotiate collective labor contracts with three unions. Collective labor contracts with 16 unions, representing 80% of December 31, 2014, we had concluded negotiations with 21 labor unions, which represent 91.9% of our total unionized workers, signing new agreementswill expire in 2019. Collective labor contracts with each for the next three years. In Januaryunions, representing 20% of 2015, we concluded negotiations with two additional unions, for a total of 99.7% of our unionized workers. In order to finalize the current collective bargaining cycle, we need to conduct negotiations with the remaining two unions.workers, will expire in 2020. We are exposed to labor strikes and illegal work stoppages that could impact our production levels. If a strike or illegal work stoppage occurs and continues for a sustained period of time, we could be faced with increased costs and even disruption in our product flow that could have a material adverse effect on our business, financial condition and results of operations.

 

6.E.

6.E.      Share Ownership

As of April 30, 2015, SQM had a “controlling group,” as such term is defined in Title XV of Chilean Law N°18,045. SQM has been informed that, as of April 30, 2015, Mr. Julio Ponce Lerou and related persons control 100% of Inversiones SQYA Ltda. (“SQYA”) and 100% of Inversiones SQ Ltda. These two companies control indirectly 29.94% of all shares of SQM (consisting of 71,805,464 Series A shares and 7,007,688 Series B shares), as follows: (i) Inversiones SQ Ltda. controls 0.0258% of Norte Grande S.A. (“Norte Grande”) and SQYA controls 67.53% of Norte Grande, which controls 76.51% of Sociedad de Inversiones Oro Blanco S.A., which controls 88.64% of Sociedad de Inversiones Pampa Calichera S.A. (“Pampa Calichera”), which controls 19.69% of SQM; (ii) Pampa Calichera controls 99.99% of Inversiones Global Mining (Chile) Limitada, which controls 3.34% of SQM and (iii) Norte Grande controls 76.34% of Nitratos de Chile S.A., which controls 98.89% of Potasios de Chile S.A., which controls 10.07% of Pampa Calichera and 6.91% of SQM. Thus, Pampa Calichera and its related companies, Inversiones Global Mining Chile Limitada and Potasios de Chile S.A. (collectively, “Pampa Group”), control 29.94% of SQM. In addition, the Pampa Group has also informed SQM that, as of April 30, 2015, it owns an additional 17,748 shares of SQM, currently held under custody at EuroAmerica Corredores de Bolsa S.A., and an additional 2,000 shares of SQM, currently held under custody at Negocios y Valores Corredores de Bolsa S.A., included in the 29.94%.

 

Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A., and the Esperanza Delaware Corporation (collectively, “Kowa Group”) are owners of 2.09% of all shares in SQM. On December 21, 2006, the Pampa Group and the Kowa Group entered into a Joint Operation Agreement which, together, allows them to control 32% of all shares in SQM. Therefore, the Pampa Group, together with Kowa Group, indirectly control 32% of all SQM shares, giving them the status of “controlling group” of the Company.

The following table shows the combined stakes that the Controller Group held in SQM as of:

% Beneficial ownership
April 30, 201532.03%
December 31, 201432.03%
December 31, 201332.00%
December 31, 201234.05%

Separately from any ownership interest held by the Controller Group, as of April 30, 2015, SQM has been informed that the Canadian company Potash Corporation of Saskatchewan Inc. (“PCS”) indirectly controls 100% of the shares of Inversiones El Boldo Limitada, 100% of the shares of Inversiones RAC Chile Limitada and 100% of the shares of Inversiones PCS Chile Limitada. Through these companies, PCS owns 32% of the total shares of SQM.  For additional information regarding share ownership of the Company, see “Item 7. Major Shareholders and Related Party Transactions.”

We do not grant stock options or other arrangements involving the capital of SQM to directors, managers or employees. With respect to the individuals identified in Item 6B. Compensation, for information on Mr. Ponce’s share holdings see “Item 7A. Major Shareholders.” Mr. Montero beneficially owns less than 1% of the Company’s shares as of December 31, 2014, the most recent date such information is available to the Company. For more information on the share holdingsshareholdings of current directors and executive officers, see “Item 6. Directors, Senior Management and Employees–Employees—Directors and Senior Management.”

101

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

7.A.Major Shareholders

7.A.      Major Shareholders

 

The following table shows certain information concerning beneficial ownership of the Series A and Series B common shares of SQM as of April 30, 201520, 2017 with respect to each shareholder known by us to beneficially own more than 5% of the outstanding Series A or Series B common shares. The following information is derived from our records and reports filed by certain of the persons named below with the SVS and the Santiago Stock Exchange.

 

Shareholder Number of series
A shares
beneficially
owned
  % series A
shares
  Number of
series B shares
beneficially
owned
  % series B
shares
  % total
shares
  Number of series
A shares
beneficially
owned
  % series A
shares
  Number of
series B shares
beneficially
owned
  % series B
shares
  % total
shares
 
The Bank of New York        61,851,832   51.38%  23.50%        56,451,520   46.90%  21.45%
Sociedad de Inversiones Pampa Calichera S.A. (1) (2)  44,827,778   31.39%  7,007,688   5.82%  19.69%  44,894,152   31.43%  7,007,688   5.82%  19.72%
Inversiones El Boldo Ltda.(3)  29,330,326   20.54%  17,963,546   14.92%  17.97%  29,330,326   20.54%  16,363,546   13.59%  17.36%
Inversiones RAC Chile Ltda.(3)  19,200,242   13.44%  2,202,773   1.83%  8.13%  19,200,242   13.44%  2,202,773   1.83%  8.13%
Potasios de Chile S.A.(2)  18,179,147   12.73%        6.91%  18,179,147   12.73%        6.91%
Inversiones PCS Chile Limitada.(3)  15,526,000   10.87%        5.90%  15,526,000   10.87%  1,600,000   1.33%  6.51%
Banco de Chile por Cuenta de Terceros No Residentes        8,714,235   7.24%  3.31%
Inversiones Global Mining Chile Ltda.(2)  8,798,539   6.16%        3.34%  8,798,539   6.16%        3.34%
Banco de Chile por Cuenta de Terceros No Residentes        7,625,343   6.33%  2.90%

 

(1)Pampa Calichera is a publicly held corporation whose shares are traded on the Santiago Stock Exchange. Originally, the shareholders of Pampa Calichera were employees of SQM. Pampa Calichera was formed to hold the capital stock of SQM contributed by such employees or later acquired in the open market.

 

(2)As of April 30, 2015,20, 2017, SQM had a “controlling group,” as such term is defined in Title XV of Chilean Law No. 18,045. SQM has been informed that, as of April 30, 2015,20, 2017, Mr. Julio Ponce Lerou, who is the brother of Eugenio Ponce L., and related persons control 100% of Inversiones SQYA Ltda. (“SQYA”) and 100% of Inversiones SQ Ltda. These two companies control indirectly 29.94%29.97% of all shares of SQM (consisting of 71,805,46471,871,838 Series A shares and 7,007,688 Series B shares), as follows: (i) Inversiones SQ Ltda. controls 0.0258% of Norte Grande S.A. (“Norte Grande”) and SQYA controls 67.53%67.59% of Norte Grande, which controls 76.51%76.82% of Sociedad de Inversiones Oro Blanco S.A., which controls 88.64% of Sociedad de Inversiones Pampa Calichera, S.A. (“Pampa Calichera”), which controls 19.69%19.72% of SQM; (ii) Pampa Calichera controls 99.99% of Inversiones Global Mining (Chile) Limitada, which controls 3.34% of SQM and (iii) Norte Grande controls 76.34% of Nitratos de Chile S.A., which controls 98.89% of Potasios de Chile S.A., which controls 10.07% of Pampa Calichera and 6.91% of SQM. Thus, Pampa Calichera and its related companies, Inversiones Global Mining Chile Limitada and Potasios de Chile S.A. (collectively,(together, the “Pampa Group”), control 29.94%29.97% of SQM. In addition, the Pampa Group has also informed SQM that, as of April 30, 2015, it owns an additional 17,748 shares of SQM, currently held under custody at EuroAmerica Corredores de Bolsa S.A., and an additional 2,000 shares of SQM, currently held under custody at Negocios y Valores Corredores de Bolsa S.A., included in the 29.94%.

 

As of April 20, 2017, Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A., and theLa Esperanza Delaware Corporation (collectively,(together, the “Kowa Group”) are owners of 2.09%2.11% of all shares in SQM. On December 21, 2006, the Pampa Group and the Kowa Group entered into a Joint Operation Agreement which together,currently allows them to control 32% of all shares in SQM. Therefore, the Pampa Group, together with Kowa Group, indirectly control 32% of all SQM shares, giving themhave the status of “controlling group” of the Company. The aforementioned Joint Operation Agreement refers to a filing made with the SVS that was filed by Sociedad de Inversiones Pampa Calichera S.A. on December 21, 2006.

The following table shows the combined stakes that the Controller Group held in SQM as of the dates specified:

% Beneficial ownership
April 20, 201732.08%
December 31, 201632.08%
December 31, 201532.08%
December 31, 201432.03%

102

Separately from any ownership interest held by the Controller Group, as of April 20, 2017, SQM has been informed that PCS indirectly controls 100% of the shares of Inversiones El Boldo Limitada, 100% of the shares of Inversiones RAC Chile Limitada and 100% of the shares of Inversiones PCS Chile Limitada. Through these companies, PCS owns 32.00% of the total shares of SQM.

 

(3)As of April 20, 2016, PCS owns 100% of Inversiones El Boldo Limitada, 100% of Inversiones RAC Chile Ltda., and 100% of Inversiones PCS Chile Limitada, and, accordingly, is the beneficial owner of 84,222,887, or 32.00%, of SQM’s total shares. The stake held by PCS as of December 31, 20132015 and 20122014 was, respectively, 32.00% and 32.00% of SQM’s total shares.

On December 21, 2006, Pampa Calichera and Kowa executed a joint performance agreement that allows them to become the “controller group” of the Company, as such term is defined under Chilean law. We have been informed that, as of April 30, 2015,15, 2017, Mr. Julio Ponce L. and related persons beneficially owned, through Pampa Calichera and certain other companies, 29.94%29.97% of the shares of the Company. As of April 30, 2015,20, 2017, Kowa Group owned, directly and indirectly, 2.09%2.11% of the shares of the Company. As of April 30, 2015,20, 2017, pursuant to the joint performance agreement, the “controller group” led by Mr. Julio Ponce L. beneficially owned 32.03%32.08% of the total shares of the Company.

On April 17, 2017, certain entities owned by the Pampa Group, the Kowa Group and PCS, which collectively own 61.92% of the total outstanding shares of SQM, entered into a letter agreement with respect to certain corporate governance matters of SQM (the “Corporate Governance Agreement”). The full text of the Corporate Governance Agreement is attached hereto as Exhibit 99.4 and incorporated herein by reference.

The Company believes that approximately 51.33% of its Series A shares and 20.19% of its Series B shares were beneficially held in Chile as of April 20, 2017. Approximately 1,231 record holders were in Chile as of April 20, 2017.

 

Series A and Series B common shares have the same economic rights (i.e., both series are entitled to share equally in any dividends declared on the outstanding stock) and voting rights at any shareholders meeting, whether ordinary or extraordinary, with the exception of the election of the Board, in which the Series A shareholders elect seven members and the Series B shareholders elect one member. Additionally, Series B common shares cannot exceed 50% of SQM’s issued and outstanding stock; shareholders of at least 5% of this Series may call an Ordinary or Extraordinary Shareholders’ Meeting; and the director elected by this Series may request an extraordinary Board meeting without the authorization of the Chairman of the Board. These conditions will remain in effect until 2043. Under our by-laws, the maximum individual voting power personally and/or in representation of other shareholders per Series is limited to 37.5% of the subscribed shares of each Series with voting rights and 32% of the total subscribed shares with voting rights. To calculate these percentages, shares that belong to the voting shareholder’s related persons must be added. In addition, the director elected by the Series B shareholders cannot vote in the election of the Chairman of the Board if a tie vote has occurred in the prior voting process. As of May 11, 2015,April 20, 2017, there are 142,819,552 Series A common shares and 120,376,972 Series B common shares outstanding.

 

7.B.Related Party Transactions

7.B.      Related Party Transactions

 

Title XVI of the Chilean Corporations Act regulates transactions with related parties for publicly held corporations and its related parties.

 

Articles 146 to 149 of the Chilean Corporations Act requires that our transactions with related parties (i) have as their purpose to contribute to SQM’s interests (ii) be on price, terms and conditions similar to those customarily prevailing in the market at the time of their approval and (iii) satisfy the requirements and procedures established by the Chilean Corporations Act. Violation of such articles may also result in administrative or criminal sanctions and civil liability may be sought by SQM, shareholders or interested third parties that suffer losses as a result of such violations.

 

103

In addition, article 89 of the Chilean Corporations Act requires that transactions between affiliates, subsidiaries or related parties of a closed-stock company, such as some of SQM’s main affiliates and subsidiaries, shall also be on terms similar to those customarily prevailing in the market. Directors and executive officers of companies that violate article 89 are liable for losses resulting from such violations.

With respect to SQM, operations with related parties include negotiations, proceedings, contracts or operations involving SQM and its controller, directors, managers and officers, and their spouses and relatives, and other companies and persons connected to the abovementioned parties or mentioned in the by-laws or by the Directors’ Committee. Such operations may only be carried out if (i) their objective is to contribute to SQM’s interests and if their price, terms and conditions conform to prevailing market prices, terms and conditions at the time of their approval and (ii) they satisfy the requirements and procedures established by the Chilean Corporations Act. Such requirements include, among others:

 

·that the operation be informed to the Directors’ Committee and to the Board of Directors prior to its execution;

·that the Board of Directors, excluding any Directors involved in the operation, approves the operation with an absolute majority of its members, or, if an absolute majority is not feasible, with a unanimous vote by the Directors not involved in the transaction, or, if neither of these options is available, that an Extraordinary Shareholders’ Meeting be held and that shareholders representing 2/3 of the outstanding shares with voting rights approve the operation. In the latter case, prior to the meeting, the shareholders must be provided with a report by an independent evaluator and with statements by the directors as to whether or not such operation is in SQM’s interest;

·that the grounds for the decision and for the exclusion be recorded in the respective minutes of the Board meetingmeeting; and

·that the agreement and the names of the directors who approved the same be reported at the next shareholders’ meeting. Infractions will not affect the validity of the operation but they will grant SQM or its shareholders the right to demand that the related party committing such infraction refund the amount equivalent to the benefits received by such party in the operation to SQM, and that such party indemnify for any corresponding damages.

 

However, the Board of Directors may authorize the following operations with related parties to be carried out without following such requirements and procedures, as long as such authorization is obtained in advance: (a) operations wherein the amount of the transaction is not significant or (b) operations that, according to the general policies on customary practices determined by the Board of Directors, are considered normal based on SQM’s business activities or (c) operations carried out between legal entities wherein SQM holds at least a 95% ownership interest in the counterpart.

 

We believe that we have complied with the applicable requirements of the referred articles in all transactions with related parties. Accounts receivable from and payable to related companies are stated in U.S. dollars and accrue no interest. Other than the above, transactions are made under terms and conditions that are similar to those offered to unrelated third parties. We further believe that we could obtain from third parties all raw materials now being provided by related parties that are not our affiliates. The provision of such raw materials by new suppliers could initially entail additional expenses.

 

In each case, terms and conditions vary depending on the transaction pursuant to which it was generated.

 

The Company regularly enters into business arrangements with related parties, principally its joint ventures and associates, which are described in Note 9 to the Consolidated Financial Statements.

 

7.C.104Interests of Experts and Counsel

7.C.      Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.  FINANCIAL INFORMATION

 

8.A.Consolidated Statements and Other Financial Information

8.A.     Consolidated Statements and Other Financial Information

 

8.A.1See “Item 18. Financial Statements.”

8.A.1See “Item 18. Financial Statements.”

 

8.A.2See “Item 18. Financial Statements.”

8.A.2See “Item 18. Financial Statements.”

 

8.A.3See “Item 18. Financial Statements—Reports of Independent Registered Public Accounting Firm.”

8.A.3See “Item 19. Exhibits—Index to Financial Statements—Reports of Independent Registered Public Accounting Firm.”

 

8.A.4Not applicable.

8.A.4Not applicable.

 

8.A.5Not applicable.

8.A.5Not applicable.

 

8.A.6Export Sales

8.A.6   Export Sales

We derive most of our revenues from sales outside of Chile. The distribution of sales presented below reflects the location of the Company’s subsidiaries making such sales and does not necessarily reflect the final destination of the products sold.

 

The following is the composition of the consolidated sales for the periods ending on December 31, 2014, 20132016, 2015 and 2012:2014:

 

Th. US$ 2014  2013  2012 
          
Foreign sales  1,786,953   1,960,767   2,159,739 
Total sales  2,014,214   2,203,140   2,429,160 
             
% of foreign sales  88.72%  89.00%  88.91%

8.A.7Legal Proceedings
Th. US$ 2016  2015  2014 
Foreign sales  1,776,845   1,539,740   1,786,953 
Total sales  1,939,323   1,728,332   2,014,214 
             
Foreign sales %  91.6%  89.1%  88.7%

 

8.A.7    Legal Proceedings

Chilean InvestigationsInvestigation

 

The SII has been conducting tax investigations related to the payment of invoices by companies, including SQM and its subsidiaries, SQM Salar S.A. and SQM Industrial S.A., for services that may not have been properly supported.supported or that may not have been necessary to generate corporate income. The Chilean Public Prosecutor has been(Ministerio Público) is conducting related inquiries to determine whether such payments may be linked with alleged violations by SQM, these subsidiaries and public officials of political contribution laws involving a varietyor anti-corruption laws. The SII and the Chilean Public Prosecutor are also conducting similar investigations related to the payment of invoices by other Chilean companies including SQM, and government officials.that may not have been properly supported or that may not have been necessary to generate corporate income.

 

On February 26, 2015, SQM’s Board of Directors resolved to establish thean ad-hoc Committee authorized to conduct an internal investigation relating to the issues referred to inthat were the above paragraphsubject of the SII and Public Prosecutor investigations and to retain such independent external advice as it deemed appropriate. The original members of the ad-hoc Committee were José María Eyzaguirre B., Juan Antonio Guzmán M. and Wolf von Appen B.

 

105

The ad-hoc Committee has engaged its own lawyers from Chile and the United StatesU.S. and forensic accountants from the United StatesU.S. to assist as it proceeds with its internal review. The U.S. lawyers retained by the ad-hoc Committee were principally charged with reviewing the relevant facts and analyzing those facts against the requirements of the FCPA. The factual findings of the ad-hoc Committee, however, were ultimately shared with Chilean as well as U.S. authorities.

 

On March 12, 2015, José María Eyzaguirre B. resigned from the ad-hoc Committee and his position was subsequently filled by Hernán Büchi B.

 

On March 16, 2015, the Board of Directors decided to terminate the employment contract of the Company’s formerthen- CEO, Patricio Contesse G. This followed his failure to cooperate with the ad-hoc Committee’s investigation.

 

On March 17, 2015, three members of the Board of Directors resigned, all of whom had been nominated by Potash Corp.,PCS, one of SQM’s two principal shareholder groups. Potash Corp.PCS issued a press release stating that the directors resigned because of their concern that they could not ensure that the Company was conducting an appropriate investigation and collaborating effectively with the Public Prosecutor.

 

On March 20, 2015, the Company identified to the SII approximately US$11 million in payments of invoices that may not have been properly supported by services rendered and thereforeor that may not qualify as tax expenses under the Chilean tax code. These payments originated from the office of the former CEO, Patricio Contesse G., during the six-year tax period from 2009 to 2014. As a result, the Company subsequently submitted amendments to its tax returns for the 2009 to 2014 tax years and thereafter paid taxes and interest relating to such amended returns totaling approximately US$7 million. On April 24, 2015, the Company announced that it had identified up to an additional US$2 million in payments by its subsidiary SQM Salar S.A. during the same six-year tax period that were also authorized by the former CEO and that may be deemed not properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code. Subsequently, SQM Salar S.A. filed amended tax returns and paid taxes and interest relating to such amended returns totaling approximately US$1.2 million. On August 14, 2015, the Company announced that it had identified to the SII approximately US$1.6 million in additional payments by SQM S.A. and its subsidiary SQM Industrial S.A. that may be deemed not properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code. SQM S.A. and SQM Industrial S.A. subsequently filed amended tax returns and, in early 2016, SQM Industrial S.A. paid taxes and interest relating to such amended returns totaling approximately US$0.3 million, and SQM S.A. paid taxes and interest relating to such amended returns totaling approximately US$1.3 million. The statute of limitations under Chilean law for tax claims is up to six years, during which period the former CEO had an annual discretionary budget covering the Company and its subsidiaries of approximately US$6 million.

On March 23, 2015, the SII, based on the Income Tax Law (Ley de Impuesto a La Renta)filed a criminal claim against the Company’s former CEO and the current CEO and CFO in their capacities as the Company’s tax representatives relating to part of the US$11 million in payments referred to above. This and subsequent related similar claims filed by the SII against these officers and third parties are subject tocurrently under review by the Public Prosecutor in order to determine whether to pursue charges against any of the parties in their personal capacities.

On March 30, 2015, the Company submitted amendments to its tax returns for the 2009 to 2014 tax years and has paid taxes and interest relating to such amended returns totaling approximately US$7 million. The aggregate amount was approximately evenly distributed over the six-year period, but as the amounts were inconsequential in each individual year, the Company recorded a provision for the aggregate amount in the “other expenses” line-item of the income statement for the year ended December 31, 2014.Prosecutor.

 

On March 31, 2015, the SVS filed an administrative claim against five current or former members of the Board of Directors, alleging that they did not release information in a timely manner relating to the payments that are subject to the tax claim referred to above. On September 30, 2015, the SVS proceeded to fine the three current and the two former members of the Board of Directors UF1,000 each (approximately US$36,000). They are currently appealing this decision to the Chilean courts.

 

On April 24, 2015, the Company announced that it had identified up to an additional US$2 million in payments by its subsidiaries during the same six-year tax period that were authorized by the former CEO and that also may have been insufficiently supported. On the same date, new members were elected to the Board of Directors at the Annual General Shareholders’ Meeting, including three new members that were nominated by Potash Corp.,PCS, and the ad-hoc Committee was subsequently reconstituted by Board of Directors members Robert A. Kirkpatrick, Wolf von Appen B. and Edward J. Waitzer.

 

106

On April 30, 2015, the Public Prosecutor, after reviewing the claims filed by the SII, informed the Company’s former CEO that it was formally investigating allegations that he approved the payment of the invoices that weremay not be properly supported by services rendered or that may not qualify as tax expenses under the Chilean tax code and in connection therewith made intentionally false or incomplete declarations or used fraudulent procedures designed to conceal or disguise the true amount of transactions or to circumvent taxes. If as a result of the formal investigation, the former CEOhe is charged and finally adjudicated responsible, the Company may also be subject to the payment of a fine by the Chilean Criminal Court totaling 50% to 300% of the taxtaxes paid. The Company estimates that no provision is needed at this stage. The announcement by the Public Prosecutor of its formal investigation does not constitute a finding of wrongdoing. Under the Chilean legal system, our former CEO has not entered a plea and is not required to enter a plea. It is possible that the Public Prosecutor will conclude its investigation without pursuing formal charges, but if the Public Prosecutor does pursue formal charges, our former CEO may vigorously assert defenses to such charges without entering any plea or otherwise making any statement. Criminal defendants in Chile have a right to remain silent at all times throughout the judicial process.

 

On May 11, 2015, the SII filed an additional criminal claim against the former CEO and the current CEO and CFO in their capacities as the Company’s tax representatives alleging violations of the Chilean Inheritance and Donations Law (Ley sobre Impuesto a Las Herencias, Asignaciones y Donaciones). The claim states that the Company paid two invoices in 2009 and 2010 totaling approximately US$175,000 that are alleged to have been improperly supported. The claim states that these payments should have been classified as donations, and appropriate taxes should have been paid. These payments were accounted for in the amended tax returns filed with the SII. Subsequently, the SII filed a number of additional claims against these officers and third parties alleging violations of Chilean tax law and the Chilean Inheritance and Donations Law. The most recent of these criminal claims was filed by the SII on March 30, 2015. This claim is subject to9, 2016. All of these claims are under review by the Public Prosecutor in order to determine whether to pursue charges against anyProsecutor.

On July 31, 2015, the deputy of the parties in their personal capacities.

Class action complaints have beenTarapacá region of Chile, Hugo Gutiérrez G., filed in the United Statesa lawsuit against the Company, ourbroadly alleging violations of the anti-corruption and money laundering provisions of Law No. 20,393 on Criminal Liability of Legal Entities. Potential sanctions under this law could include (i) fines, (ii) loss of certain governmental benefits during a given period, (iii) a temporary or permanent bar against the Company executing contracts with governmental entities, and (iv) dissolution of the Company. This claim is under review by the Public Prosecutor.

On September 29, 2015, the Company was notified of a labor lawsuit by its former CEO, Patricio Contesse, claiming payment from the Company related to the termination of his employment contract. The total amount claimed in the lawsuit is approximately Ch$4.0 billion (approximately US$5.7 million), including severance payments for years of service and other legal or contractual payments. The Company has not paid any indemnities to the former CEO, and current CEO and CFO, alleging violationsthe lawsuit is pending in the Chilean courts. The Company estimates that no provision is needed at this stage. On March 27, 2017, the Company reached an agreement with Mr. Contesse to terminate the labor lawsuit Mr. Contesse filed against the Company. The amount included in the agreement was provisioned for in the financial statements as of December 31, 2016.

During 2015, the ad-hoc Committee that was established in February 2015, conducted an investigation into whether the Company faced possible liability under the U.S. securities laws based on the failure to timely disclose matters relatedForeign Corrupt Practices Act. The ad-hoc Committee engaged its own separate counsel, Shearman & Sterling LLP, which presented a report to the subject matterBoard of Directors on December 15, 2015.

Following the presentation by the ad-hoc Committee of its findings to the Board of Directors, the Company voluntarily shared the findings of the various Chilean investigations. For more information, see “—Class Actions.”

Thead-hoc Committee investigation and the inquiries by the Chilean regulatorywith authorities have not been completed. We cannot predict the outcome or the duration of these investigations. We could be subject to civil, criminal or regulatory proceedings in Chile and we could be subject to civil, criminal or regulatory proceedings outside of Chile, including for violation of U.S. securities or anti-corruption laws. We have been in communications with our regulators in Chile and the United States. At this time, it is difficult to accurately assessU.S. (including the potential impactSEC and the DOJ).

On January 13, 2017, the Company and the DOJ reached agreement on the terms of these claims ora Deferred Prosecution Agreement (“DPA”) that would resolve the probability of success. However, the Company’s management,DOJ’s inquiry, based on its understandingalleged violations of the investigationbooks and records and internal controls provisions of the Foreign Corrupt Practices Act. Among other terms, the DPA calls for the Company to pay a monetary penalty of US$15,487,500, and engage a compliance monitor for a term of two (2) years. Upon successful completion of the three (3) year term of the DPA, all charges against the Company would be dismissed. On the same date, does not believe there will be anythe SEC agreed to resolve its inquiry through an administrative cease and desist order, arising out of the alleged violations of the same accounting provisions of the FCPA. Among other terms, the SEC order calls for the Company to pay an additional material impactmonetary penalty of US$15 million. These penalites were reflected in the 2016 financial statements.

107

In Chile, the authorities’ review of the questioned payments is ongoing. We are unable to predict the Company’sduration, scope, or results of this review, or how it may affect our business, financial condition, cash flows, or results of operations.operations and the prices of our securities. There can be no assurance that the authorities will agree with the conclusions of the ad-hoc Committee or that the authorities will not conclude that a violation of applicable law has occurred. There can be no assurance that authorities in Chile or the U.S. will not undertake a broader investigation or seek to commence additional litigation against the Company.

106

Responding to our regulators’ inquiries and any future civil, criminal or regulatory inquiries or proceedings diverts our management’s attention from day-to-day operations. Additionally, expenses that may arise from responding to such inquiries or proceedings, our review of responsive materials, any related litigation or other associated activities may continue to be significant. Current and former employees, officers and directors may seek indemnification, advancement or reimbursement of expenses from us, including attorneys’ fees, with respect to the current inquiry or future proceedings related to this matter. If, as a result of further investigations, it is determined that our financial statements were materially incorrect, we could be required to restate financial information for prior reporting periods. Chilean authorities could impose a range of sanctions, including the sanctions discussed above under Law No. 20,393.

Class Actions

 

We understand that three complaints haveSince October 2015, a consolidated class action lawsuit has been filedpending against the Company in federal district court in the United States, against us, our former and current CEOs and our CFO. The lawsuits allegealleging violations of the U.S. securities laws and purport to be brought on behalf of all purchasers during specified periods when SQM securities were traded on the New York Stock Exchange.

The complaints are based principally on allegations that the Company failed to timely disclose matters related toin connection with the subject matter of the various Chilean investigations described above.  The complaint alleges that certain statements made by the Company between June 30, 2010 and June 18, 2015, principally in the Company’s SEC filings and press releases, were materially false and/or misleading in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.  Specifically, the complaint challenges certain of the Company’s statements concerning its compliance with applicable laws and regulations; the effectiveness of its internal controls; its adoption of a code of ethics consistent with SEC requirements; its revenues and taxes owed; and its compliance with applicable accounting standards.  The complaint also alleges that it lacked adequate internal controls. Asthe Company made inadequate disclosures concerning the status of the Corfo litigation described below.  The lead plaintiff seeks to represent a putative class consisting of all persons who purchased SQM ADSs between June 30, 2010 and June 18, 2015, and seeks damages of an undetermined amount to recover the economic losses allegedly suffered by the class as a result of the lawsuits allege that certain of our financial statements and/or certain U.S. regulatory filings were inaccurate or misleading.challenged statements.

 

On March 30, 2016, the Company filed a motion to dismiss the complaint under the doctrine offorum non conveniens or, alternatively, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim under Section 10(b) of the Exchange Act.  Briefing on that motion to dismiss was completed on June 29, 2016.  On March 28, 2017, the district court issued an opinion and order denying in part and granting in part the motion to dismiss.  The lawsuits are indistrict court denied the initial stagesmotion to dismiss under the doctrine offorum non conveniens; denied the motion to dismiss for failure to state a claim with respect to the statements concerning legal compliance, internal controls, and financial reporting and accounting; and granted the motion to date no lead plaintiff has been appointed. We expect that afterdismiss for failure to state a claim with respect to the appointmentstatements concerning the Company’s code of a lead plaintiff, a consolidated amended complaint will be filed to replaceethics and the current complaints. At this time, it is difficult to accurately assessstatus of the potential impact of these claims or the probability of success, and we have not recorded any accounting provisions. The Company’s insurance carriers have been notified.Corfo litigation.

108

 

Corfo Litigation

 

Our subsidiary SQM Salar holds exclusive and temporary exploitation rights to mineral resources in 81,920 hectares in the Salar de Atacama pursuant to the Lease Agreement. The mining exploitation concessions related to such rights are owned by Corfo and leased to SQM Salar in exchange for quarterly lease payments to Corfo based on specified percentages associated to the value of the products resulting from the minerals extracted from such concessions. For the year ended December 31, 2014,2016, revenue related to products originating from the Salar de Atacama represented 39%47% of our consolidated revenues, which corresponded to revenues from our potassium product line and our lithium and derivatives product line for the period. All of our products originating from the Salar de Atacama are derived from our extraction operations under the Lease Agreement.

 

In May 2014, Corfo initiated an arbitration proceeding against SQM Salar alleging (i) SQM Salar had incorrectly applied the formulas to determine lease payments resulting in an underpayment to Corfo of at least US$8.9 million for 2009 through 2013 and (ii) SQM Salar had not complied with its obligation to protect the mining rights of Corfo by failing to placeconstruct or replace markers to delineate property lines. Based on the alleged breaches of the Lease Agreement, Corfo sought (i) at least US$8.9 million plus any other amount that may be due in respect of periods after 2013, (ii) early termination of the Lease Agreement, (iii) lease payments that would have been paid through 2030 as compensation for the early termination of the Lease Agreement and (iv) punitive damages (daño moral) equal to 30% of the contractual damages awarded. SQM Salar contested the claim, asserting that both parties have applied mutually agreed formulas for the calculation and payment of lease payments for more than 20 years without conflict, in accordance with the terms of the Lease Agreement and their mutual understanding of the agreements by the parties during the term of the Lease Agreement. SQM Salar also asserted that the alleged breaches would be technical breaches and that Corfo may terminate the Lease Agreement solely for a material breach. SQM Salar in consultation with external counsel believes that it is likely it will prevail in the arbitration proceeding. However, an adverse ruling awarding damages sought by Corfo or permitting early termination of the Lease Agreement would have a material adverse effect on our business, financial condition, cash flows, results of operations and share price. We cannot assure you that Corfo will not use this arbitration proceeding to seek to renegotiate the terms of the Lease Agreement in a manner that is not favorable to SQM Salar.

In August 2016, Corfo requested a second arbitration proceeding, demanding (i) the early termination of the Project Contract signed between Corfo, SQM Potasio S.A., SQM Salar, and the Company, (ii) the dissolution of SQM Salar and (iii) the early termination of the Lease Agreement for alleged breaches of the Project Contract. In addition, Corfo demanded SQM Salar return (i) the assets Corfo contributed to it under a condition subsequent, (ii) the OMA mining properties and the aquifers included in the Lease Agreement, (iii) the water rights granted to SQM Salar and (iv) the legal mining easements identified in the lawsuit. Finally, Corfo requested that the defendants pay damages as a result of the breaches alleged in the lawsuit. The parties are currently discussing potential resolutions.Company believes there is insufficient evidence to demonstrate that the Project Contract has been breached. However, there can be no assurance that the Company will prevail against Corfo or that other legal actions will not be taken by Corfo against the Company’s interests.

SQMNA Litigation

 

In October 2010, the City of Pomona, California, named Sociedad Química y Minera de Chile S.A. and SQM North America Corporation (“SQMNA”) and SQM as defendants in an action filed in the California Superior Court for Los Angeles County. In this matter the plaintiff seeks damages for alleged groundwater contamination from the use of defendant’s fertilizer products. The Court has set a trial date forPlaintiff subsequently s withdrew its lawsuit against SQM. On June 2015. SQM has been dismissed from this action.10, 2015, the jury rejected the lawsuit against SQMNA, and the plaintiff filed an appeal, the resolution of which is pending. SQMNA intends to vigorously defend this action.

109

In October 2010, the City of Lindsay, California, named Sociedad Química y Minera de Chile S.A. and SQMNA as defendants in an action filed in the California Superior Court for Tulare County. In this matter the plaintiff seeks damages for alleged groundwater contamination from the use of defendant’s fertilizer products. This case is pending in the trial court. SQMNA and SQM (if it is legally served) intend to vigorously defend this action.

The process has been suspended and we are awaiting results from the case in Pomona. SQMNA and SQM intend to vigorously defend this action.Other Matters

 

In addition, various lawsuits, claims and proceedings, other than those specifically disclosed above, have been or may be instituted or asserted against the Company, relating to the conduct of the company’s business, including those pertaining to mining, civil, tort, commercial, labor and regulatory matters, among others. Although the outcome of other litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, our management believes the disposition of such other pending matters will not have a material effect on the company’s business, financial condition, results of operations or cash flows.

 

8.A.8.Dividend Policy

8.A.8.  Dividend Policy

 

As required by Chilean law and regulations, our dividend policy is decided upon from time to time by our Board of Directors and is announced at the Annual Ordinary Shareholders’ Meeting, which is generally held in April of each year. Shareholder approval of the dividend policy is not required. However, each year the Board must submit the declaration of the final dividend or dividends in respect of the preceding year, consistent with the then-established dividend policy, to the Annual Ordinary Shareholders’ Meeting for approval. As required by the Chilean Companies Act, unless otherwise decided by unanimous vote of the holders of issued shares, we must distribute a cash dividend in an amount equal to at least 30% of our consolidated net income for that year (determined in accordance with SVS regulations), unless and to the extent the Company has a deficit in retained earnings.

 

At the Annual Shareholders’ Meeting held on April 26, 2016, shareholders agreed to pay and distribute a dividend equal to 50% of the distributable income for 2015 (to be determined in accordance with SVS regulations). The cash dividends for 2015 have been calculated and approved by shareholders based on the profit attributable to owners of the parent as presented in the Chilean statutory consolidated financial statements, of US$213.2 million. The amount of the final dividend approved by shareholders at the Annual Shareholders’ Meeting held on April 26, 2016 was US$0.40496 per share. This amount was partially paid on December 10, 2015, through an interim dividend of US$0.31915 per share. The remaining US$0.08581 was paid on May 6, 2016. Additionally, the shareholders approved the distribution and payment of a special dividend (“dividendo eventual”) of US$150 million, equivalent to US$0.56992 per share, to be charged to the Company’s retained earnings, and also paid on May 6, 2016.

The dividend policy for 20142016 established that SQM must distribute and pay in favor of its shareholders, as a final dividend, the amount in Chilean pesos equivalent to 50% of the distributable income for 2014.2016. For this purpose, distributable net income includes income for the year included in the income statement item “Profit (Loss) Attributable to Owners of the Parent” (determined in accordance with SVS regulations).

 

On November 23, 2016, with a divided vote, the Board of Directors agreed: (i) to pay and distribute on December 20, 2016 a provisional dividend of US$225 million, equivalent to US$0.85487 per share, to be charged against the 2016 net income, (ii) to change the Dividend Policy for the 2016 business year, as discussed at the Annual General Shareholders’ Meeting held on April 26, 2016, (iii) that no further provisional dividend would be charged against the 2016 net income and iv) that the remaining amount of net income for the 2016 business year, if any, would be withheld and used to finance of the Company’s operations or one or more of the Company’s investment projects and to fund all or part of any possible future expenditures, without prejudice.

110

On April 11, 2017, the Board of Directors, agreed to recommend to the shareholders the payment of a definitive dividend representing 100% of the 2016 net income. This definitive dividend payment will be presented for consideration at the Annual General Shareholders’ Meeting held on April 28, 2017. Therefore, and subject to the approval at the Shareholders’ meeting, the Company shall pay a final dividend of US$1.05735 per share, the amount of US$0.85487 per share must be deducted from the final dividend, which was already paid as a provisional dividend on December 20, 2016. The balance, in the amount of US$0.20248 per share, shall be paid and distributed to Company’s shareholders, pending shareholders’ approval, on May 11, 2017.

On March 3, 2015,1, 2016, the Company filed its Chilean statutory consolidated financial statements with the SVS, an English language copy of which was furnished by the Company on Form 6-K dated April 1, 2015. These7, 2016. For purposes of the Company’s Chilean statutory consolidated financial statements, were prepared in accordance with the SVS guidelines and instructions which are composed of IFRS as issued by the IASB and supplemental instructions from the SVS issued in its circular 856 of October 17, 2014, that require that the effects generated fromby the change in the income tax rate approved by Law 20.780 on deferredwere accounted for as retained earnings. The amount charged to equity as of December 31, 2014 was US$52.3 million, thereby giving rise to a difference of US$52.3 million in profit and income tax assetsexpense in 2014 as presented in the Company’s Audited Consolidated Financial Statements compared with profit and liabilitiesincome tax expense presented in the Company’s Chilean statutory consolidated financial statements filed with the SVS. The effects of subsequent changes in the income tax rate will be recognized in retained earnings instead of the income statement. The amount charged to retained earnings as a result was US$52.3 million.

 

In addition,There is also a difference between net income for the periods ended December 31, 2015 and December 31, 2014 in the Audited Consolidated Financial Statements and net income for such periods in the Chilean statutory consolidated financial statements do not include a provision of approximately US$7 million corresponding tofiled with the SVS. In March 2015, the Company made payments made in 2015 to the SII for expenses that may not have qualified as tax expenses under the Chilean tax code. SuchProvisions of approximately US$7 million corresponding to such payments were included in net income for the period ended December 31, 2014 in these financial statements. However, since such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements for the Chileanperiod ended December 31, 2014, with the SVS, such provisions were included in net income for the period ended December 31, 2015 for purposes of the Company’s statutory consolidated financial statements. For more information, see "Item“Item 3D. Risk Factors—Risks Relating to our Business—We couldBusiness. The amount of any dividends to be subject to numerous riskspaid will be calculated on the basis of net income as a resultdetermined for purposes of ongoing investigations by the Chilean Internal Revenue Service and the Chilean Public Prosecutor in relation to certain payments of invoices made by SQM between the tax years 2009 and 2014.”

TheseCompany’s statutory consolidated financial statements are considered by the U.S. Securities and Exchange Commission (the “Commission”) to be unaudited financial statements for Commission purposes and were prepared prior to the termination of the employment contract of SQM’s former CEO following his refusal to cooperate with the Company’s internal investigation. For information about the ongoing internal investigation into certain payments of services made by SQM, see “Item 3. Risk Factors–Risks Relating to our Business.”

At the Annual Shareholders’ Meeting held on April 24, 2015, shareholders agreed to pay and distribute a dividend equal to 50% of the distributable income for 2014 (to be determined in accordance with SVS regulations).

The cash dividends for 2014 have been calculated and approved by shareholders based on the profit attributable to owners of parent as presented in the Chilean statutory consolidated financial statements, of US$296.4 million.

The amount of the final dividend approved by shareholders at the Annual Shareholders’ Meeting held on April 24, 2015 was US$0.56304 per share. This amount was partially paid on December 12, 2014, through an interim dividend of US$0.41493 per share. The remaining US$0.14811 was paid on May 8, 2015.statements.

 

The dividend policy for 2015 that was2017 will be announced at the Annual Shareholders’ Meeting held on April 24, 2015 established that SQM must distribute and pay in favor of its shareholders, as a final dividend, the amount in Chilean pesos equivalent to 50% of the distributable income for 2015, including payment of an interim dividend during the fourth quarter of the year.

At an Extraordinary Shareholders’ Meeting held on July 7, 2014, shareholders agreed to pay and distribute an “eventual”dividend (dividendo eventual) in the amount of US$230 million. This dividend was paid in July 2014.28, 2017.

 

We generally declare dividends in U.S. dollars (but may declare dividends in Chilean pesos) and pay such dividends in Chilean pesos. When a dividend is declared in U.S. dollars, the exchange rate to be used to convert the dividend into Chilean pesos is decided by the shareholders at the meeting that approves the dividend, which has usually been the Observed Exchange Rate on the date the dividend is declared. In the case of interim dividends, the exchange rate to be used is the Observed Exchange Rate published five business days before the payment date.

 

Although the Board of Directors has no current plan to recommend a change in the dividend policy, theThe amount and timing for payment of dividends is subject to revision from time to time, depending upon our then current level of sales, costs, cash flow and capital requirements, as well as market conditions. Accordingly, there can be no assurance as to the amount or timing of declaration or payment of dividends in the future. Any change in dividend policy would ordinarily be effective for dividends declared in the year following adoption of the change, and a notice as to any such change of policy must be filed with Chilean regulatory authorities and would be publicly available information.

 

111

Dividends

 

Each Series A Share and Series B Share is entitled to share equally in any dividends declared on the outstanding capital stock of SQM.

 

The following table shows the U.S. dollar equivalent of dividends per share and per ADS paid in each of the years indicated, based on the Observed Exchange Rate for the date on which the dividend was declared.

 

DividendsDividends Per Share  Per ADS     Per Share Per ADS 
Declared for the
business year
 Paid in Ch$  US$   Paid in Ch$ US$ 
               
2009 (interim) 2009  191.32   0.37994 
2009 2010  126.69   0.24137 
2010 (interim) 2010  198.90   0.41794   2010   198.90   0.41794 
2010 2011  142.40   0.30798   2011   142.40   0.30798 
2011 (interim) 2011  376.99   0.73329   2011   376.99   0.73329 
2011 2012  147.66   0.30350   2012   147.66   0.30350 
2012(interim) 2012  456.93   0.94986   2012   456.93   0.94986 
2012 2013  134.56   0.28337   2013   134.56   0.28337 
2013 (interim) 2013  401.60   0.75609   2013   401.60   0.75609 
2013 2014  73.48   0.13129   2014   73.48   0.13129 
n/a (eventual) 2014  479.51   0.87387   2014   479.51   0.87387 
2014 (interim) 2014  253.80   0.41493   2014   253.80   0.41493 
2014 2015  91.55   0.14811   2015   91.55   0.14811 
2015 (interim)  2015   224.51   0.31915 
2015  2016   57.35   0.08581 
n/a (eventual)  2016   380.91   0.56992 
2016 (interim)  2016   555.15   0.85487 

Dividends payable to holders of ADSs will be paid net of conversion expenses of the Depositary and will be subject to Chilean withholding tax, currently imposed at the rate of 35% (subject to credits in certain cases).

 

As a general requirement, a shareholder who is not a resident of Chile must register as a foreign investor under one of the foreign investment regimes contemplated by Chilean law to have dividends, sale proceeds or other amounts with respect to its shares remitted outside Chile through the Formal Exchange Market. Under the Foreign Investment Contract, the Depositary, on behalf of ADR holders, will be granted access to the Formal Exchange Market to convert cash dividends from Chilean Pesos to U.S. dollars and to pay such U.S. dollars to ADS holders outside Chile net of taxes, and no separate registration of ADS holders is required.

 

8.B.Significant Changes

8.B.      Significant Changes

 

No significant change has occurred since the date of the financial statements set forth in Item 18.

112

 

ITEM 9. THE OFFER AND LISTING

 

9.A.Offer and Listing Details

9.A.     Offer and Listing Details

 

Price History

 

The table below shows, for the periods indicated, the reported high and low market prices for our shares on the Santiago Stock Exchange and the high and low market prices of the ADSs as reported by the NYSE, as the two main exchanges on which our shares are traded. On March 27, 2008, the Company voluntarily delisted its Series A ADSs from the New York Stock Exchange. The ratio of ordinary shares to Series B ADSs is 1:1.

 

(a)Last 5 years

(a)         Last 5 years

 

   Santiago Stock Exchange  NYSE 
   Per Share(1)  Per ADS 
   Series A  Series B  Series B(2) 
   High  Low  High  Low  High  Low 
   Ch$  Ch$  Ch$  Ch$  US$  US$ 
 2010   27,000   21,000   26,600   17,150   59.77   30.98 
 2011   31,400   25,000   31,280   23,000   67.75   43.00 
 2012   30,100   26,000   30,700   26,000   65.31   50.41 
 2013   27,350   15,500   27,900   11,956   59.06   22.50 
 2014   19,071   15,245   19,594   12,883   36.25   21.52 

110
  Santiago Stock Exchange  NYSE 
  Per Share(1)  Per ADS 
  Series A  Series B  

Series B(2)

 
  High  Low  High  Low  High  Low 
  Ch$  Ch$  Ch$  Ch$  US$  US$ 
2012  30,100   26,000   30,700   26,000   65.31   50.41 
2013  27,350   15,500   27,900   11,956   59.06   22.50 
2014  19,071   15,245   19,594   12,883   36.25   21.52 
2015  19,450   12,000   16,400   8,400   26.40   12.65 
2016  21,500   15,000   20,950   10,680   32.32   14.90 

 

(b)20132015 to 20152017 by quarter

 

  Santiago Stock Exchange  NYSE 
  Per Share(1)  Per ADS 
  Series A  Series B  Series B(2) 
  High  Low  High  Low  High  Low 
  Ch$  Ch$  Ch$  Ch$  US$  US$ 
                   
2013                        
First quarter  27,350   25,500   27,900   25,500   59.06   53.63 
Second quarter  25,500   20,600   26,200   19,600   55.60   38.89 
Third quarter  21,200   15,500   20,700   12,600   40.78   24.75 
Fourth quarter  21,500   17,404   15,450   11,956   30.78   22.50 
                         
2014                        
First quarter  19,071   17,650   19,594   13,100   36.25   24.24 
Second quarter  18,500   16,505   18,300   15,048   32.75   27.01 
Third quarter  16,700   15,279   16,807   15,344   30.45   25.64 
Fourth quarter  16,600   15,245   16,800   12,883   28.32   21.52 
                         
2015                        
First quarter  16,300   15,000   16,400   10,100   26.40   15.02 

  Santiago Stock Exchange  NYSE 
  Per Share(1)  Per ADS 
  Series A  Series B  

Series B(2)

 
  High  Low  High  Low  High  Low 
  Ch$  Ch$  Ch$  Ch$  US$  US$ 
                   
2015                        
First quarter  16,300   15,000   16,400   10,100   26.4   15.02 
Second quarter  16,500   15,899   13,704   10,055   22.74   15.51 
Third quarter  17,500   12,000   12,050   8,400   17.57   12.65 
Fourth quarter  19,450   14,510   14,288   10,100   20.06   14.55 
                         
2016                        
First quarter  18,250   15,000   14,500   10,680   21.28   14.9 
Second quarter  18,500   16,500   16,780   13,214   24.99   19.46 
Third quarter  18,500   18,399   18,995   15,751   28.26   24.18 
Fourth quarter  21,500   16,801   20,950   17,664   32.32   26.28 
                         
2017                        
First quarter  23,500   21,000   22.970   19,100   34.84   28.58 

113

 

(c)Last 6 months

 

  Santiago Stock Exchange  NYSE 
  Per Share(1)  Per ADS 
  Series A  Series B  Series B(2) 
  High  Low  High  Low  High  Low 
  Ch$  Ch$  Ch$  Ch$  US$  US$ 
November 2014  16,600   16,600   16,800   13,400   28.32   23.13 
December 2014  16,600   16,000   15,455   13,388   25.20   21.52 
January 2015  16,000   16,000   15,805   14,000   25.33   22.56 
February 2015  16,000   15,000   16,400   14,999   26.40   23.78 
March 2015  16,300   15,498   16,100   10,100   25.91   15.02 
April 2015  16,500   15,999   13,644   11,340   22.14   18.25 
  Santiago Stock Exchange  NYSE 
  Per Share(1)  Per ADS 
  Series A  Series B  

Series B(2)

 
  High  Low  High  Low  High  Low 
  Ch$  Ch$  Ch$  Ch$  US$  US$ 
October 2016  21,300   16,801   19,650   17,664   30.06   26.28 
November 2016  20,900   20,400   19,300   17,766   29.67   26.47 
December 2016  21,500   18,000   20,950   17,750   32.32   26.68 
January 2017  22,130   21,000   22,700   19,100   34.84   28.58 
February 2017  23,500   21,100   22,200   20,089   34.57   30.82 
March 2017  23,500   23,104   22,970   20,412   34.67   31.48 

 

(1)Pesos per share of Common Stock reflect nominal price at trade date.
(2)Series B shares began trading on the New York Stock Exchange on September 20, 1993.

(1)Pesos per share of Common Stock reflect nominal price at trade date.

(2)Series B shares began trading on the New York Stock Exchange on September 20, 1993.

 

As of April 30, 2015,20, 2017, there were 61,851,83256.451.520 Series B ADSs outstanding. As of April 30, 2015,20, 2017, such ADSs represented approximately 23.50%21.45% of the total number of issued and outstanding shares of our Company.

 

9.BPlan Of Distribution

9.BPlan Of Distribution

 

Not Applicable.

 

9.CMarkets

9.CMarkets

 

The Series A shares and the Series B shares are currently traded on the Santiago Stock Exchange, the Bolsa Electrónica de Chile Bolsa de Valores S.A., (the Electronic Stock Exchange) and the Bolsa de Corredores Bolsa de Valores S.A., (the Valparaíso Stock Exchange). As of December 31, 2014,April 20, 2017, the Series B shares were also traded on the New York Stock Exchange in the form of ADSs at a ratio of 1:1. The ADSs representing Series B shares have traded on the NYSE since September 20, 1993. The depositary bank for these ADSs is the Bank of New York Mellon.

9.DSelling Shareholders

9.D     Selling Shareholders

 

Not applicable.

 

9.EDilution

9.E      Dilution

 

Not applicable.

 

9.FExpenses Of The Issue

9.F      Expenses Of The Issue

 

Not applicable.

114

  

ITEM 10. ADDITIONAL INFORMATION

 

10.A.Share Capital

10.A.    Share Capital

 

Not applicable.

 

10.B.Memorandum and Articles of Association

10.B.    Memorandum and Articles of Association

 

SQMSociedad Química y Minera de Chile S.A.,headquartered at El Trovador No. 4285, 6th Floor, Santiago, Chile, is an open stock corporation organized under the laws of the Republic of Chile. The Company was constituted by public deed issued on June 17, 1968 by Mr. Sergio Rodríguez Garcés, Notary Public of Santiago. Its existence was approved by Decree No. 1,164 of June 22, 1968, of the Ministry of Finance, and it was registered on June 29, 1968, in the Business Registry of Santiago, on page 4,537 No. 1,992.

 

Corporate purposes

 

Our main purposes, which appear in article 4 of our By-laws, are to:(a) perform all kinds of chemical or mining activities and businesses and, among others, those related to researching, prospecting, extracting, producing, working, processing, purchasing, disposing of, and marketing properties, as applicable, of all metallic and non-metallic and fossil mining substances and elements of any type or nature, to be obtained from them or from one or more concessions or mining deposits, and in their natural or converted state, or transformed into different raw materials or manufactured or partially manufactured products, and of all rights and properties thereon;(b) manufacture, produce, work, purchase, transfer ownership, import, export, distribute, transport, and market in any way, all kinds of fertilizers, components, raw materials, chemical, mining, agricultural, and industrial products, and their by-products;(c) generate, produce, distribute, purchase, transfer ownership, and market, in any way, all kinds of electrical, thermal, geothermic or other type of power, and hydric resources or water rights in general;(d) request, manifest, claim, constitute, explore, work, lease, transfer ownership, and purchase, in any way, all kinds of mining concessions;(e) purchase, transfer ownership, and administer, in any way, any kind of telecommunications, railroads, ships, ports, and any means of transport, and represent and manage shipping companies, common carriers by water, airlines, and carries in general;(f)manufacture, produce, market, maintain, repair, assemble, construct, disassemble, purchase and transfer ownership, and in any way, any kind of electromechanical structure, and substructure in general, components, parts, spares, or parts of equipment, and machines, and execute, develop, advice, and market, any kind of electromechanical or smelting activities;(g) purchase, transfer ownership, lease, and market any kind of agro industrial and farm forestry activities, in any way(h) purchase, transfer ownership, lease, and market, in any way, any kind of urban or rural real estate;(i) render any kind of health services and manage hospitals, private clinics, or similar facilities;(j) construct, maintain, purchase, transfer ownership, and manage, in any way, any kind of roads, tunnels, bridges, water supply systems, and other required infrastructure works, without any limitation, regardless of whether they may be public or private, among others, to participate in bids and enter into any kind of contracts, and to be the legal owner of the applicable concessions; and(k) purchase, transfer ownership, and market, in any way, any kind of intangible properties such as stocks, bonds, debentures, financial assets, commercial papers, shares or rights in corporations, and any kind of bearer securities or instruments, and to administer such investments, acting always within the Investment and Financing Policies approved by the applicable General Shareholders Meeting. We may comply with the foregoing by acting ourselves or through or with other different legal entities or natural persons, within the country or abroad, with properties of our own or owned by third parties, and additionally, in the ways and territories, and with the aforementioned properties and purposes, we may also construct and operate industrial or agricultural facilities or installations; constitute, administer, purchase, transfer ownership, dissolve, liquidate, transform, modify, or form part of partnerships, institutions, foundations, corporations, or associations of any kind or nature; perform all actions, enter into all contracts, and incur in all obligations convenient or necessary for the foregoing; perform any business or activity related to our properties, assets, or patrimony, or with that of our affiliates, associated companies, or related companies; and render financial, commercial, technical, legal, auditing, administrative, advisory, and other pertinent services.

115

Directors

 

As stated in article 9 of the Company’s By-laws, the Company has 8eight Directors. One of the Directors must be “independent” as such term is defined in article 50 bis of Law No. 18,046. Moreover, the possession of shares is not a condition necessary to become a Director of the Company.

 

As stated in article 10 of the Company’s By-laws, the term of the Directors is of three years and they can be reelected indefinitely; thus, there is no age limit for their retirement.

 

The Company’s By-laws, in articles 16 and 16 bis, essentially establish that the transactions in which a Director has a material interest must comply with the provisions set forth in articles 136 and 146 to 149 of Law No. 18,046 and the applicable regulations of such Law.

 

The Board of Directors duties are remunerated, as stated in article 17 of the Company’s By-laws, and the amount of that compensation is fixed yearly by the Ordinary Shareholders’ Meeting. Therefore, Directors can neither determine nor modify their compensation.

 

Directors cannot authorize Company loans on their behalf.

 

The Board of Directors must provide shareholders and the public with sufficient, reliable and timely information pertaining to the Company’s legal, economic and financial situation, as required by the Law or the Chilean Superintendency of Securities and Insurance. The Board of Directors must adopt the appropriate measures in order to avoid the disclosure of such information to persons other than those persons who should possess such information as a result of their title, position or activity within the Company before such information is disclosed to shareholders and the public. The Board of Directors must treat business dealings and other information about the Company as confidential until such information is officially disclosed. No Director may take advantage of the knowledge about commercial opportunities that he has obtained through his position as Director.

 

Independent Directors and Directors Committee

 

According to Chilean Law, SQM must appoint at least one Independent Director and a Directors’ Committee, due to the fact that (a) the Company has a market capitalization greater than or equal to UF 1,500,000 and (b) at least 12.5% of the Company’s shares with voting rights are held by shareholders who, on an individual basis, control or possess less than 10% of such shares.

Persons who have not been involved in any of the circumstances described in the Law at any time during the preceding 18 months are considered independent. Candidates for the position of Independent Director must be proposed by shareholders representing 1% or more of the Company’s shares, at least 10 days prior to the date of the shareholders’ meeting that has been called in order to elect the Directors. No less than two days prior to the respective shareholders’ meeting, the candidate must provide the Chief Executive Officer with a sworn statement indicating that he: (a) accepts his candidacy for the position of Independent Director (b) does not meet any of the conditions that would prevent him from being the Independent Director (c) is not related to the Company, the other companies of the group to which the Company belongs, the controller of the Company, or any of the Company’s officers in such a way that would deprive a sensible person of a reasonable degree of autonomy, interfere with his ability to perform his duties objectively and effectively, generate a potential conflict of interest, or interfere with his independent judgment, and (d) assumes the commitment to remain independent as long as he holds the position of Director.

116

 

The Directors’ Committee shall have the following powers and duties: (a) to examine the reports of the external auditors, the balance sheet and other financial statements presented by the Company’s managers or liquidators to its shareholders and issue an opinion about the same prior to their submission for the approval of the shareholders (b) to propose to the Board of Directors the external auditors and risk rating agencies to be proposed to the shareholders at the respective shareholders’ meeting. In the event that an agreement cannot be reached, the Board of Directors shall formulate its own suggestion, and both options shall be submitted for shareholder consideration at such shareholders’ meeting (c) to examine the information relating to operations referred to in articles 146 to 149 of Law No. 18,046 and to prepare a report about such operations. A copy of such report shall be sent to the Board of Directors, and such report must be read at the Board Meeting called for the purpose of approving or rejecting the respective operation or operations (d) to examine the remuneration system and compensation plans for the Company’s management, officers and employees (e) to prepare an annual report on its activities, including its main recommendations to the shareholders (f) to inform the Board of Directors about whether or not it is advisable to hire the external audit firm to provide non-audit services where the audit firm is not prohibited from providing such services because the nature of the same could pose a threat to the audit firm’s independence, and (g) any other issues indicated in the Company’s by-laws or authorized by a shareholders’ meeting or the Board of Directors.

 

The Directors’ Committee shall be comprised of three members, with at least one independent member. In the event that more than three Directors have the right to form part of the Committee, these same Directors shall unanimously determine who shall make up the Committee. In the event that an agreement cannot be reached, the Directors who were elected with a greater percentage of votes by shareholders controlling or possessing less than 10% of the Company’s shares shall be given priority. If there is only one Independent Director, this Director shall name the other members of the Committee among the other Directors who are not independent. Such other members of the Committee shall have all of the rights associated with such position. The members of the Committee shall be compensated for their role. The amount of their remuneration shall be set annually at the General Shareholders’ Meeting, and it may not be less than the remuneration set for the Company Directors, plus an additional 1/3 of that amount. The General Shareholders’ Meeting shall determine a budget for the expenses of the Committee and its advisors. Such budget may not be less than the sum of the annual remunerations of the Committee members. The Committee may need to hire professional advisory services in order to carry out its duties in accordance with the abovementioned budget. The proposals made by the Committee to the Board of Directors that are not accepted by the latter must be reported to the shareholders’ meeting prior to the vote by shareholders on the corresponding matter or matters. In addition to the responsibilities that are associated with the position of Director, the members of the Committee are jointly and severally liable for any damages they cause in performing their duties as such to the shareholders and to the Company.

Shares

 

Dividends are annually distributed to the Series A and Series B shareholders of record on the fifth business day prior to the date for payment of the dividends. The By-laws do not specify a time limit after which dividend entitlement elapses but Chilean regulations establish that after 5five years, unclaimed dividends are to be donated to the Fire Department.fire department.

 

Article 5 of the Company’s By-laws establishes that Series B shares may in no case exceed fifty percent50% of the issued, outstanding and paid shares of SQM Series B. SQM Series B shares have a restricted right to vote as they can only elect one Director of the Company, regardless of their capital stock’s share. Series B shares have the right to call for an Ordinary or Extraordinary Shareholders’ Meeting when the shareholders of at least 5% of the Series B issued shares request so and for an Extraordinary Board of Directors Meeting without the Chairman’s authorization when it is requested by the Director elected by the shareholders of the Series B shares. Series A shares have the option to exclude the Director elected by Series B shareholders from the voting process in which the Chairman of the Board is to be elected, if there is a tie in the first voting process. However, articles 31 and 31 bis of the Company’s By-laws establish that in General Shareholders’ Meetings each shareholder will have a right to one vote for each share he owns or represents and (a) that no shareholder will have the right to vote for himself or on behalf of other shareholders of the same Series A or Series B shares representing more than 37.5% of the total outstanding shares with right to vote of each Series and (b) that no shareholder will have the right to vote for himself or on behalf of other shareholders representing more than 32% of the total outstanding shares with a right to vote. In calculating a single shareholder’s ownership of Series A or B shares, the shareholder’s stock and those pertaining to third parties related to them are to be added.

117

 

Article 5 bis of the Company’s By-laws establishes that no person may directly or by means of related third persons concentrate more than 32% of the Company’s total shares with right to vote.

 

Each Series A share and Series B share is entitled to share equally in the Company’s profits, i.e., they have the same rights on any dividends declared on the outstanding shares of SQM.

 

The Company By-laws do not contain any provision relating to (a) redemption provisions (b) sinking funds or (c) liability to capital calls by the Company.

 

As established in article 103 of Law No. 18,046, a company subject to the supervision of the Superintendency of Securities and Insurance (SVS) may be liquidated in the following cases:

 

(a) Expiration of the duration term, if any, as established in its By-laws;

(b) All the shares end up in the possession of one individual for more than ten continuous days;

(c) By agreement of an Extraordinary Shareholders Meeting;

(d) By abolition, pursuant to applicable laws, of the decree that authorized its existence;

(e) Any other reason contemplated in its By-laws.

 

Article 40 of the Company’s By-laws states that in the event of liquidation, the shareholders’ meeting will appoint a three-member receiver committee that will have the authority to carry out the liquidation process. Any surplus will be distributed equally among the shareholders.

 

The only way to change the rights of the holders of the SQM shares is by modifying its By-laws, which can only be carried out by an Extraordinary Shareholders’ Meeting, as established in article 28 of the Company By-laws.

 

115

Shareholders’ Meetings

 

Article 29 of the Company’s By-laws states that the call to a shareholders’ meeting, either Ordinary or Extraordinary, will be by means of a highlighted public notice that will be published at least three times, and on different days, in the newspaper of the legal address determined by the shareholders’ meeting, and in the way and under the conditions indicated by the regulations. Additionally, a notice will be sent by mail to each shareholder at least fifteen days prior to the date of the Meeting, which shall include a reference of the matters to be addressed at the meeting. However, those meetings with the full attendance of the shares with right to vote may be legally held, even if the foregoing formal notice requirements are not met. Notice of any shareholders’ meeting shall be delivered to the SVS at least fifteen days in advance of such meeting.

 

Any holder of Series A and/or Series B shares registered in the Company’s shareholder registry on the fifth business day prior to the date of the meeting will have a right to participate at that meeting

118

 

Article 67 of Law No. 18,046 provides that decisions made at Extraordinary Shareholders’ Meeting on the following matters require the approval of 2/3 of the outstanding shares with voting rights: (1) transformation or division of the Company and its merger with another company; (2) modification of the Company’s term of duration, if any; (3) early dissolution of the Company; (4) change of the corporate domicile; (5) capital decrease; (6) approval of contributions and estimation of non-cash assets; (7) modification of powers reserved for Shareholders Meetings or limitations on powers of the Board of Directors; (8) reduction in the number of members of the Board of Directors; (9) disposal of 50% or more of the Company’s assets; formulation or modification of any business plan exceeding the above percentage; disposal of 50% or more of an asset belonging to a subsidiary that represents at least 20% of the Company’s assets and disposal of shares of the referred subsidiary such that the parent company would lose its position as controller of the same; (10) method in which profits are distributed; (11) granting of real or personal guarantees as sureties for third-party obligations that exceed 50% of the Company assets, except for subsidiaries, in which case approval of the Board of Directors shall suffice; (12) acquisition of own shares as set forth in articles 27A and 27B of the said law; (13) other matters indicated in the By-laws; (14) amendment of the Company By-laws as a result of errors in the constitution process and amendments in the By-laws involving one or more of the matters stated in the preceding numbers; (15) forced sale of shares carried out by the controller who would acquire more than 95% of the Company’s shares in a tender offer, and (16) approval or ratification of proceedings or contracts with related parties in accordance with the provisions of articles 44 and 147 of Law No. 18,046.

 

Amendments to the By-laws that are intended to create, modify, defer or suspend preferential rights shall be approved by 2/3 of the shares of the affected Series.

 

The transformation of the Company, the merger of the same, the disposal of assets referred to in number (9) above, the constitution of guarantees set forth in number (11) above, the constitution of preferences or the increase, postponement or decrease of the existing preferences, the reparation of formal nullities incurred in the By-laws and the possession of more than 95% of the Company’s shares and other matters contemplated in the Law or in the By-laws, confer “withdrawal rights.”

 

Foreign Shareholders

 

There exists no restriction on ownership or share concentration, or limiting the exercise of the related right to vote, by local or foreign shareholders other than those discussed under Item 10.B. Memorandum and Articles of Association.

 

Change in Control

 

The Company By-laws provide that no shareholder may hold more than 32% of the Company’s shares, unless the By-laws are modified at an Extraordinary Shareholders’ Meeting. Moreover, on December 12, 2000, the Chilean Government published the Ley de Oferta Pública de Acciones (“Public Share Offering Law”) or (OPA law) that seeks to protect the interests of minority shareholders of open stock corporations in transactions involving a change in control, by requiring that the potential new controller purchase the shares owned by the remaining shareholders either in total or pro rata. The law applies to those transactions in which the controlling party would receive a material premium price compared with the price that would be received by the minority shareholders.

There are three conditions that would make it mandatory to operate under the OPA law:

 

1)When an investor wants to take control of a company’s stock.
2)When a controlling shareholder holds two-thirds of the company’s stock. If such shareholder buys one more share, it will be mandatory to offer to acquire the rest of the outstanding stock within 30 days of surpassing that threshold.
3)When an investor wants to take control of a corporation, which, in turn, controls an open stock corporation that represents 75% or more of the consolidated assets of the former corporation.

 

Parties interested in taking control of a company must (i) notify the company of such intention in writing, and notify its controllers, the companies controlled by it, the SVS and the markets where its stocks are traded and (ii) publish a highlighted public notice in two newspapers of national circulation at least 10 business days prior to the date of materialization of the OPA.

 

119

Disclosure of Share Ownership

 

The Company’s By-laws do not provide for a minimum threshold at which share ownership must be disclosed.

 

10.C.

10.C.    Material Contracts

The following summarizes the terms and conditions of the main contracts to which SQM or any subsidiary is a party:

 

·On February 12, 1999, SQM S.A. entered into an Electrical Energy Supply contract with Electroandina S.A. This contract allowed for two three-year renewal options, at the option of SQM.

The two options were exercised. As a result, the contract extends through March 16, 2016. Early termination of the contract is subject to payment of non-amortized investments.

·On March 21, 1997, SQM Salar S.A. entered into an Electricity Supply agreement with Norgener S.A. The term of this contract extends through March 20, 2017, and early termination is subject to penalties.

·On March 30, 2012, SQM S.A. entered into an Electrical Energy Supply agreement with Norgener S.A.  The term of this contract extends through December 31, 2030.  Early termination of the contract is subject to an agreement between both parties, or in case of Force-Majeure extended for more than 12 months.

In addition, the Company, during the normal course of business, has entered into different contracts, some of which have been described herein, related to its production, commercial and legal operations. We believe all of these contracts are standard for this type of industry, and none of them is expected to have a material effect on the Company’s results of operations.operations, with the exception of the Electrical Energy Supply agreement with Gener S.A. described in “Item 4.B. Business Overview—Raw Materials.”

 

10.D.Exchange Controls

10.D.    Exchange Controls

The Central Bank of Chile is responsible for, among other things, monetary policies and exchange controls in Chile. Appropriate registration of a foreign investment in Chile permits the investor access to the Formal Exchange Market. Foreign investments can be registered with the Foreign Investment Committee under Decree Law No. 600 of 1974 or can be registered with the Central Bank of Chile under the Central Bank Act, Law No 18,840 of October 1989. The Central Bank Act is an organic constitutional law requiring a “special majority” vote of the Chilean Congress to be modified. Effective January 1, 2016, Decree Law No. 600 was repealed by Article 9 of the 2014 Tax Reform. Therefore, foreign investments made on or after January 1, 2016 cannot be registered with the Foreign Investment Committee. According to the Tax Reform, a new law, replacing Decree Law No. 600, must be enacted prior to December 31, 2015. IfGiven that such new law haswas not been enacted by December 31, 2015, the repeal of Decree Law No. 600 will be postponed until such new law has been enacted.

Our 1993, 1995 and 1998 capital increases were carried out under and subject to the then current legal regulations, whose summary is hereafter included:

 

A‘Convención Capítulo XXVI del Título I del Compendio de Normas de Cambios Internacionales’ or Compendium of Foreign Exchange Regulations of the Central Bank of Chile, “Foreign Investment Contract” was entered into and among the Central Bank of Chile, our Company and the Depositary, pursuant to Article 47 of the Central Bank Act and to Chapter XXVI of the Compendium of Foreign Exchange Regulations of the Central Bank of Chile, “Chapter XXVI,” which addresses the issuance of ADSs by a Chilean company. Absent the Foreign Investment Contract, under applicable Chilean exchange controls, investors would not be granted access to the Formal Exchange Market for the purposes of converting from Chilean pesos to U.S. dollars and repatriating from Chile amounts received in respect to deposited Series B shares, or Series B shares withdrawn from deposit on surrender of ADSs (including amounts received as cash dividends and proceeds from the sale in Chile of the underlying Series B shares and any rights arising therefrom). The following is a summary of the material provisions contained in the Foreign Investment Contract. This summary does not purport to be complete and is qualified in its entirety by reference to Chapter XXVI and the Foreign Investment Contract.

 

Under Chapter XXVI and the Foreign Investment Contract, the Central Bank of Chile has agreed to grant to the Depositary, on behalf of ADS holders, and to any investor not residing or not domiciled in Chile who withdraws Series B shares upon delivery of ADSs (such Series B shares being referred to herein as “Withdrawn Shares”) access to the Formal Exchange Market to convert Chilean pesos to U.S. dollars (and remit such U.S. dollars outside of Chile) in respect of the Withdrawn Shares, including amounts received as (a) cash dividends, (b) proceeds from the sale in Chile of Withdrawn Shares, or from shares distributed because of the liquidation, merger or consolidation of the Company, subject to receipt by the Central Bank of Chile of a certificate from the holder of such shares (or from an institution authorized by the Central Bank of Chile) that such holder’s residence and domicile are outside Chile and a certificate from a Chilean stock exchange (or from a brokerage or securities firm established in Chile) that such shares were sold on a Chilean Exchange, (c) proceeds from the sale in Chile of preemptive rights to subscribe for additional Series A and Series B shares, (d) proceeds from the liquidation, merger or consolidation of the Company and (e) other distributions, including without limitation those resulting from any recapitalization, as a result of holding Withdrawn Shares. Transferees of Withdrawn Shares will not be entitled to any of the foregoing rights under Chapter XXVI unless the Withdrawn Shares are redeposited with the Depositary. Investors receiving Withdrawn Shares in exchange for ADSs will have the right to redeposit such shares in exchange for ADSs, provided that the conditions to redeposit described hereunder are satisfied.

 

120

Chapter XXVI provided that access to the Formal Exchange Market in connection with dividend payments will be conditioned upon certification by the Company to the Central Bank of Chile that a dividend payment has been made and any applicable tax has been withheld. Chapter XXVI also provided that access to the Formal Exchange Market in connection with the sale of Withdrawn Shares or distributions thereon will be conditioned upon receipt by the Central Bank of Chile of certification by the Depositary that such shares have been withdrawn in exchange for ADSs and receipt of a waiver of the benefit of the Foreign Investment Contract with respect thereto until such Withdrawn Shares are redeposited.

Chapter XXVI and the Foreign Investment Contract provide that a person who brings certain types of foreign currency into Chile, including U.S. dollars, to purchase Series B shares with the benefit of the Foreign Investment Contract must convert it into Chilean pesos on the same date and has 5 banking business days within which to invest in Series B shares in order to receive the benefits of the Foreign Investment Contract. If such person decides within such period not to acquire Series B shares, he can access the Formal Exchange Market to reacquire foreign currency, provided that the applicable request is presented to the Central Bank within 7 banking business days of the initial conversion into Chilean pesos. Series B shares acquired as described above may be deposited for ADSs and receive the benefits of the Foreign Investment Contract, subject to receipt by the Central Bank of Chile of a certificate from the Depositary that such deposit has been effected and that the related ADSs have been issued and receipt by the Custodian of a declaration from the person making such deposit waiving the benefits of the Foreign Investment Contract with respect to the deposited Series B shares.

 

Access to the Formal Exchange Market under any of the circumstances described above is not automatic. Pursuant to Chapter XXVI, such access requires approval of the Central Bank of Chile based on a request presented through a banking institution established in Chile. The Foreign Investment Contract will provide that if the Central Bank of Chile has not acted on such request within seven banking days, the request will be deemed approved.

 

Under current Chilean law, foreign investments abiding by the Foreign Investment Contract cannot be changed unilaterally by the Central Bank of Chile. No assurance can be given, however, that additional Chilean restrictions applicable to the holders of ADSs, the disposition of underlying Series B shares or the repatriation of the proceeds from such disposition could not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.

 

As of April 19, 2001, Chapter XXVI of Title I of theCompendio de Normas de Cambios Internacionales of the Central Bank of Chile was eliminated and new investments in ADSs by non-residents of Chile, are now governed by Chapter XIV of theCompendio de Normas de Cambios Internacionales of the Central Bank of Chile. This was made with the purpose of simplifying and facilitating the flow of capital to and from Chile. According to the new regulations, such investments must be carried out through Chile’s Formal Exchange Market and only reported to the Central Bank of Chile. Foreign investments may still be registered with the Foreign Investment Committee under Decree Law 600 of 1974, as amended, and obtain the benefits of the contract executed under Decree Law 600. Effective January 1, 2016, Decree Law No. 600 was repealed by Article 9 of the 2014 Tax Reform. Therefore, foreign investments made on or after January 1, 2016 cannot be registered with the Foreign Investment Committee. According to the Tax Reform, a new law, replacing Decree Law No. 600, must be enacted prior to December 31, 2015. If such new law has not been enacted by December 31, 2015. Given that such new law was not enacted by December 31, 2015, the repeal of Decree Law No. 600 will be postponed until such new law has been enacted.

121

 

The Central Bank is also responsible for controlling incurrence of loan obligations to be paid from Chile and by a Chilean borrower to banks and certain other financial institutions outside Chile. Chapter XIV establishes what type of loans, investments, capital increases and foreign currency transactions are subject to the current Chapter XIV framework. Foreign currency transactions related to foreign loans must be performed through the Formal Exchange Market, and such transactions and the subsequent modifications of original loans must be properly informed to the Central Bank. Transactions prior to April 19, 2001, will continue to be regulated by the previous legal framework, except in cases where an express request has been presented to the Central Bank resigning previous rights to be regulated by the provisions of Chapter XIV. This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of Chapter XIV.

 

As of December 31, 2014,2016, we had bonds issued in the international markets under Rule 144A/Regulation S of US$200250 million, US$250 million and US$300 million. Additionally, we had outstanding bilateral loans through wholly owned subsidiaries in the amount of US$24040 million, which were fully guaranteed by us. Also we had US$60 million in bilateral loans through SQM S.A.

Any purchases of U.S. dollars in connection with payments on these loans will occur with the Formal Exchange Market. There can be no assurance, however, that restrictions applicable to payments in respect to the loans could not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.

 

10.E.Taxation

10.E.    Taxation

 

Chilean Tax Considerations

 

The following describes the material Chilean income tax consequences of an investment in SQM ADSs by an individual who is not domiciled or resident in Chile or any legal entity that is not organized under the laws of Chile and does not have a permanent establishment located in Chile, a (“foreign holder”). This discussion is based upon Chilean income tax laws presently in force, including Ruling No. 324 (1990) of the Chilean Internal Revenue Service and other applicable regulations and rulings. The discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.

 

Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign holders, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities issue rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations and interpretations, but Chilean tax authorities may change said rulings, regulations and interpretations prospectively.

 

122

Cash Dividends and Other Distributions

 

System in Effect Through 2016

 

The following taxation of cash dividends and property distributions applies through 2016.

 

Cash dividends paid by the Company with respect to the shares, including shares represented by ADSs held by a U.S. holder will be subject to a 35% Chilean withholding tax, which is withheld and paid by the Company, the “Withholding Tax.” If the Company has paid corporate income tax, the “First Category Tax,” on the income from which the dividend is paid, a credit for the full amount of the First Category Tax effectively reduces the rate of Withholding Tax. When a credit is available, the Withholding Tax is computed by applying the 35% rate to the pre-tax amount needed to fund the dividend and then subtracting from the tentative withholding tax so determined the amount of First Category Tax actually paid on the pre-tax income. Under Chilean income tax law, dividends are assumed to have been paid out of our oldest retained tax profits for purposes of determining the rate at which the First Category Tax was paid.

 

The effective Withholding Tax rate, after giving effect to the credit for First Category Tax, generally is:

 

(Withholding Tax rate) - (First Category Tax effective rate)
1 - (First Category Tax effective rate)

 

The effective rate of Withholding Tax to be imposed on dividends paid by the Company will vary depending upon the amount of the First Category Tax paid by the Company on the earnings to which the dividends are attributed. The withholding tax rates of the three dividends distributed by the Company during 20142016 are as follows:

 

MonthWithholding Tax Rate
May 20142016 (Eventual)  21.6867718.75000%
July 2014May 2016 (Final)  19.2057920.37340%
December 20142016  19.1910618.74328%

 

Dividend distributions made in property (such as distribution of cash equivalents) would be subject to the same Chilean tax rules as cash dividends. Stock dividends are not subject to Chilean taxation.

 

New System in Effect Starting in 2017

 

On September 29, 2014, the Tax Reform was published, introducing significant changes to the Chilean taxation system and strengthening the powers of the SII to control and prevent tax avoidance. The Tax Reform contemplates, amongSubsequently, on February 8, 2016, Law No. 20,899 that simplifies the income tax system and modifies other matters, changeslegal tax provisions was published. As a result of these reforms, open stock corporations like SQM are subject to the corporate tax regime to create two tax regimes. Starting on January 1, 2017, Chilean companies will be able to opt between two tax regimes: (i) the partially integrated shareholder tax regime (sistema parcialmente integrado) or (ii) the attributed income shareholder taxation regime (sistema de renta atribuida). In both regimes, theThe corporate tax rate will beapplicable to us increased to 21%24% in 2014, 22.5% in 2015 and 24% by 2016. On or after January 1, 2017, and depending on the tax regime chosen by the company, tax rates may be increasedIt will increase to a maximum rate of 25% in 2017 for the attributed income shareholder taxation regime or to a rate of 25.5% in 2017 and subsequentlyincrease to a maximum rate of 27% in 2018 for the partially integrated shareholder tax regime.2018.

 

As an open stock corporation, the default regime that applies to us is the partially integrated regime, unless at a future shareholders’ meeting our shareholders agree to opt for the attributed income shareholder taxation regime. Under the partially integrated shareholder taxation regime, shareholders bear the tax on dividends when paid,upon payment, but they will only be permitted to credit against such shareholder taxes only a portion of the Chilean corporate tax paid by us on our earnings, unless the shareholder is resident in a country with a tax treaty in force with Chile or signed with Chile prior to January 1, 2017, whether or not in whichforce. In that case, 100% of the Chilean corporate tax paid by us may be credited against suchthe final taxes at the shareholder taxes. level.

As a result, foreign shareholders, resident in a non-treaty jurisdiction (such as the United States) will be subject to a higher effective tax rate than residents of treaty jurisdictions. Under the attributed income shareholder taxation regime, shareholders bear the ChileanThere is a temporary rule in effect from January 1, 2017 through December 31, 2019 that treaty jurisdictions for this purpose will include jurisdictions with tax on our accrued earnings (whethertreaties signed with Chile prior to January 1, 2017, whether or not dividends have been distributed), but may creditsuch treaties are in force. This is currently the full amountstatus of the Chilean corporate tax we pay on such earnings against such shareholder taxes.treaty signed between Chile and United States.

123

 

Capital Gains

 

Gains from the sale or other disposition by a foreign holder of ADSs outside Chile will not be subject to Chilean taxation. The deposit and withdrawal of the shares in exchange for ADRs will not be subject to any Chilean taxes.

 

The tax basis of the shares received in exchange for ADSs (repatriation) will be the acquisition value of the shares. The Series B shares exchanged for ADSs are valued at the highest price at which they trade on the Chilean Stock Exchange on the date of the exchange or on either of the two business days preceding the exchange. Consequently, the conversion of ADSs into the shares and the immediate sale of such shares at a price equal to or less than the highest price for Series B shares on the Chilean Stock Exchange on such dates will not generate a gain subject to Chilean taxation.

Gain recognized on a sale or exchange of shares (as distinguished from sales or exchanges of ADSs representing such shares) will be subject to both the First Category Tax and the Withholding Tax if either (i) the foreign holder has held the shares for less than one year since exchanging the ADSs for the shares, (ii) the foreign holder acquired and disposed of the shares in the ordinary course of its business or as a regular trader of shares, or (iii) the foreign holder and the purchaser of the shares are related parties within the meaning of Chilean tax law. The amount of the First Category Tax may be credited against the amount of the Withholding Tax. In all other cases, gain on the disposition of the shares will be subject only to a capital gains tax, which is assessed at the same rate as the First Category Tax. Gain recognized in the transfer of common shares that have significant trading volumes in the stock exchange, however, is not subject to capital gains tax in Chile, provided that the common shares are transferred in a local stock exchange authorized by the SVS, within the process of a public tender of common shares governed by the Chilean Securities Market Act. Law No. 20,448 states that common shares must also have been acquired after April 19, 2001, either on a local stock exchange authorized by the SVS, within the referred process of public tender of a common shares governed by the Chilean Securities Market Act, in an initial public offering of common shares resulting from the formation of a corporation or a capital increase of the same, in an exchange of convertible securities subject to public offer, or in the redemption of mutual funds shares. According to Ruling No. 224 (2008) of the Chilean Internal Revenue Service, common shares received by exchange of ADRs are also considered as “acquired on a stock exchange” if the respective ADRs have been acquired on a foreign stock exchange authorized by the SVS (i.e. London Stock Exchange, New York Stock Exchange and Bolsa de Valores de Madrid). Common shares are considered to have a high presence in the stock exchange when they: (a) are registered in the Securities Registry, (b) are registered in a Chilean Stock Exchange, (c) have an adjusted presence equal to or above 25%.

 

As of June 19, 2001, capital gains obtained in the sale of common shares that are publicly traded in a stock exchange are also exempt from capital gains tax in Chile when the sale is made by “foreign institutional investors” such as mutual funds and pension funds, provided that the sale is made in a local stock exchange authorized by the SVS, or in accordance with the provisions of the securities market law (Law 18,045). To qualify as foreign institutional investors, the referred entities must be formed outside of Chile, not have a domicile in Chile, and they must be an “investment fund” in according with the Chilean tax law.

 

Starting January 1, 2017, capital gains obtained in the sales of shares owned by foreign holders are subject to First Category Tax and Withholding Tax, and the First Category Tax serves as a credit in Chile to reduce the Withholding Tax. The exercise of preemptive rights relating to shares will not be subject to Chilean taxation. Any gain on the sale or assignment of preemptive rights relating to shares will be subject to both the First Category Tax and the Withholding Tax (the former being creditable against the latter).

124

 

Other Chilean Taxes

 

No Chilean inheritance, gift or succession taxes apply to the transfer or disposition of the ADSs by a foreign holder, but such taxes generally will apply to the transfer at death or by gift of the shares by a foreign holder. No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or shares.

 

Withholding Tax Certificates

 

Upon request, the Company will provide to foreign holders appropriate documentation evidencing the payment of Chilean withholding taxes.

 

United States Tax Considerations

 

The following discussion summarizes the principal U.S. federal income tax consequences to beneficial owners arising from ownership and disposition of the Series A shares and the Series B shares, together the “shares” and the ADSs. The discussion which follows is based on the United States Internal Revenue Code of 1986, as amended, the “Code,” the Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect and available on the date hereof, and is subject to any changes in these or other laws occurring after such date. In addition, the summary assumes that the depositary’s activities are clearly and appropriately defined so as to ensure that the tax treatment of ADSs will be identical to the tax treatment of the underlying shares.

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of shares or ADSs that is, for U.S. federal income tax purposes, (a) an individual who is a United States citizen or resident, (b) a corporation or partnership created or organized under the laws of the United States or any political subdivision thereof, (c) an estate, the income of which is subject to U.S. federal income tax regardless of the source, or (d) a trust (i) that validly elects to be treated as a U.S. person for U.S. federal income tax purposes or (ii)(A) if a court within the U.S. is able to exercise primary supervision over the administration of the trust and (B) one or more U.S. persons have the authority to control all substantial decisions of the trust.

 

The term “Non-U.S. Holder” means, for purposes of this discussion, a beneficial owner of shares or ADSs that is not a U.S. Holder.

 

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds shares or ADSs, the tax treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to its consequences.

 

The discussion that follows is not intended as tax advice to any particular investor and is limited to investors who will hold the shares or ADSs as “capital assets” within the meaning of Section 1221 of the Code and whose functional currency is the United States dollar. The summary does not address the tax treatment of U.S. Holders and Non-U.S. Holders that may be subject to special U.S. federal income tax rules, such as insurance companies, tax-exempt organizations, financial institutions, persons who are subject to the alternative minimum tax, or persons who are broker-dealers in securities, who hold the shares or ADSs as a hedge against currency risks, as a position in a “straddle” for tax purposes, or as part of a conversion or other integrated transaction, or who own (directly, indirectly or by attribution) 10% or more of the total combined voting power of all classes of the Company’s capital stock entitled to vote or 10% or more of the value of the outstanding capital stock of the Company.

 

As of this date, there is currently no applicable income tax treaty in effect between the United States and Chile. However, in 2010, the United States and Chile signed an income tax treaty that will enter into force once the treaty is ratified by both countries. There can be no assurance that the treaty will be ratified by either country. The following summary assumes that there is no applicable income tax treaty in effect between the United States and Chile.

 

125

The discussion below does not address the effect of any United States state, local, estate or gift tax law or foreign tax law on a U.S. Holder or Non-U.S. Holder of the shares or ADSs. U.S. HOLDERS AND NON-U.S. HOLDERS OF SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR CONSEQUENCES UNDER ANY SUCH LAW OF OWNING OR DISPOSING THE SHARES OR ADSs.

 

For purposes of applying U.S. federal income tax law, any beneficial owner of an ADS generally will be treated as the owner of the underlying shares represented thereby.

 

TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, INVESTORS ARE ADVISED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS FORM 20-F IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY INVESTORS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH INVESTORS UNDER THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED; (B) SUCH DISCUSSION IS INCLUDED BY THE COMPANY IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

Cash Dividends and Other Distributions

 

The U.S. Treasury Department has expressed concern that depositaries for ADSs, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean taxes and sourcing rules described below could be affected by future actions that may be taken by the U.S. Treasury Department.

The following discussion is based on the current regime for taxation of cash dividends and distributions applicable in Chile until 2016. For 2017 and later, we are subject to the U.S. federal incomepartially integrated shareholder tax treatment will depend onregime, which ofis very similar to the two shareholder taxation regimes we elect to adopt.regime in effect until December 31, 2016. See “Item 10. Taxation–10.E. Taxation—Chilean Tax Considerations–Considerations—Cash Dividends and Other Distributions—New System in Effect Starting in 2017” above.

 

The following discussion of cash dividends and other distributions is subject to the discussion below under “Passive Foreign Investment Company Considerations.” The gross amount of a distribution with respect to shares or ADSs generally will be treated as a taxable dividend to the extent of the Company’s current and accumulated earnings and profits, computed in accordance with U.S. federal income tax principles. A dividend distribution will be so included in gross income when received by (or otherwise made available to) (i) the U.S. Holder in the case of the shares or (ii) the depositary in the case of the ADSs, and in either case will be characterized as ordinary income for U.S. federal income tax purposes. Distributions in excess of the Company’s current and accumulated earnings and profits will be applied against and will reduce the U.S. Holder’s tax basis in the shares or ADRs and, to the extent distributions exceed such tax basis, the excess will be treated as gain from a sale or exchange of such shares or ADSs. U.S. Holders that are corporations will not be allowed a deduction for dividends received in respect of distributions on the shares or the ADSs. For example, if the gross amount of a distribution with respect to the shares or ADSs exceeds the Company’s current and accumulated earnings and profits by US$10.00, such excess will generally not be subject to a U.S. tax to the extent the U.S. Holder’s tax basis in the shares or ADSs equals or exceeds US$10.00. The Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles. Accordingly, U.S. Holders should assume that any cash distribution made by us will be treated as a dividend for U.S. federal income tax purposes.

 

If a dividend distribution is paid in Chilean pesos, the amount includable in income will generally be the U.S. dollar value, on the date of receipt by the U.S. Holder in the case of the shares or by the depositary in the case of the ADSs, of the peso amount distributed, regardless of whether the payment is actually converted into U.S. dollars. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. Any gain or loss resulting from currency exchange rate fluctuations during the period from the date the dividend is includable in the income of the U.S. Holder to the date the pesos are converted into U.S. dollars will be treated as ordinary income or loss.

 

A dividend distribution will be treated as foreign source income and will generally be classified as “passive category income” or in the case of certain U.S. Holders “general category income” for U.S. foreign tax credit purposes. If Chilean withholding taxes are imposed on a dividend, U.S. Holders will be treated as having actually received the amount of such taxes (net of any credit for the First Category Tax) and as having paid such amount to the Chilean taxing authorities. As a result, the amount of dividend income included in gross income by a U.S. Holder will be greater than the amount of cash actually received by the U.S. Holder with respect to such dividend income. A U.S. Holder may be able, subject to certain generally applicable limitations, to claim a foreign tax credit or a deduction for Chilean withholding taxes (net of any credit for the First Category Tax) imposed on dividend payments. The rules relating to the determination of the U.S. foreign tax credit are complex and the calculation of U.S. foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of deductions, involve the application of rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders should, therefore, consult their own tax advisors regarding the application of the U.S. foreign tax credit rules to dividend income on the shares or ADSs.

 

126

Subject to the discussion below under “Information Reporting and Backup Withholding,” if you are a Non-U.S. Holder, you generally will not be subject to U.S. federal income or withholding tax on dividends received by you on your shares or ADSs, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business.

 

124

The U.S. Treasury Department has expressed concern that depositaries for ADSs, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean taxes and sourcing rules described below could be affected by future actions that may be taken by the U.S. Treasury Department.

 

Capital Gains

 

A U.S. Holder will generally recognize gain or loss on the sale, redemption or other disposition of the shares or ADRs in an amount equal to the difference between the amount realized on the sale or exchange and the U.S. Holder’s adjusted basis in such shares or ADSs. Thus, if the U.S. Holder sells the shares for US$40.00 and such U.S. Holder’s tax basis in such shares is US$30.00, such U.S. Holder will generally recognize a gain of US$10.00 for U.S. federal income tax purposes. Subject to the discussion below under “Passive Foreign Investment Company Considerations,” gain or loss upon the sale of the shares or ADSs will be capital gain or loss if the shares or ADSs are capital assets in the hands of the U.S. Holder. Capital gains on the sale of capital assets held for one year or less are subject to U.S. federal income tax at ordinary income tax rates. Net capital gains derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. Gain or loss realized by a U.S. Holder on the sale or exchange of shares or ADSs will be U.S. source income. In addition, certain limitations exist on the deductibility of capital losses by both corporate and individual taxpayers. Any tax imposed by Chile directly on the gain from such a sale would generally be eligible for the U.S. foreign tax credit; however, because the gain would generally be U.S. source, a U.S. Holder might not be able to use the credit otherwise available. U.S. Holders should consult their own tax advisors regarding the foreign tax credit implications of the sale, redemption or other disposition of a share or ADS.

 

Subject to the discussion below under “Information Reporting and Backup Withholding,” a Non-U.S. Holder of ADSs or shares will not be subject to United States income or withholding tax on gain from the sale or other disposition of ADSs or shares unless, in general (i) such gain is effectively connected with the conduct of a trade or business within the United States or (ii) the Non-U.S. Holder is an individual who is present in the United States for at least 183 days during the taxable year of the disposition and certain other conditions are met.

 

Passive Foreign Investment Company Considerations

 

A Non-U.S. corporation will be classified as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average value of its gross assets is attributable to assets that produce “passive income” or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from the sale of stock (including gains from the sale of stock of certain subsidiaries), partnership interests, securities or commodities.

 

Based on certain estimates of our gross income and gross assets and the nature of our business, the Company believes that it was not classified as a PFIC in 2014.2016. The Company’s status in future years will depend on its assets and activities in those years. If the Company were a PFIC for 20142016 or for any prior or future taxable year during which a U.S. Holder held shares or ADSs, such U.S. Holder of shares or ADSs generally would be subject to additional filing requirements, imputed interest charges and other disadvantageous tax treatment (including the denial of taxation at the lower rates applicable to long-term capital gains with respect to any gain from the sale or exchange of shares or ADSs).

127

 

Information Reporting and Backup Withholding

 

Payments of dividends on the shares or ADSs and the proceeds of sale or other disposition of the shares or ADSs within the United States by holders may be subject to U.S. information reporting and backup withholding. A U.S. Holder generally will be subject to U.S. information reporting and backup withholding (currently at a rate of 28%) unless the recipient of such payment supplies an accurate taxpayer identification number, as well as certain other information, or otherwise establishes an exemption, in the manner prescribed by United States law and applicable regulations. U.S. information reporting and backup withholding of U.S. federal income tax at the same rate may also apply to Non-U.S. Holders that are not “exempt recipients” and that fail to provide certain information as may be required by United States law and applicable regulations. Any amount withheld under U.S. backup withholding is not an additional tax and is generally allowable as a credit against the U.S. Holder’s federal income tax liability upon furnishing the required information to the IRS.

In addition, certain U.S. Holders, electing nonresident aliens and residents of a U.S. possession may be required to report information with respect to their investment in shares or, it is assumed, ADSs to the Internal Revenue Service. Investors who fail to report required information could become subject to substantial penalties and/or an extended statute of limitations.

 

HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES TO THEIR PARTICULAR CIRCUMSTANCES.

 

10.F.Dividends and Paying Agents

10.F.    Dividends and Paying Agents

Not applicable.

 

10.G.Statement by Experts

10.G.    Statement by Experts

Not applicable.

 

10.H.

10.H.    Documents on Display

Documents referred to in this Form 20-F are available to the public at:

 

We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the SEC proxy rules (other than general anti-fraud rules) or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a website that contains electronically filed information, which can be accessed athttp://www.sec.gov/edgar/searchedgar/companysearch.htmlwww.sec.gov, CIK: 909037..

 

10.I.Subsidiary Information

10.I.     Subsidiary Information

See “Item 4.C. Organizational Structure.”

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As explained elsewhere in this Annual Report, we transact our businesses in more than 110 countries, thereby rendering our market risk dependent upon the fluctuations of foreign currencies and local and international interest rates. These fluctuations may generate losses in the value of financial instruments taken in the normal course of business.

 

We, from time to time and depending upon then current market conditions, review and re-establish our financial policies to protect our operations. Management is authorized by our Board of Directors to engage in certain derivative contracts such as forwards and swaps to specifically hedge the fluctuations in interest rates and in currencies other than the U.S. dollar.

 

128

Derivative instruments used by us are generally transaction-specific so that a specific debt instrument or contract determines the amount, maturity and other terms of the hedge. We do not use derivative instruments for speculative purposes.

 

Interest Rate Risk. As of December 31, 2014,2016, we had approximately 14%2% of our financial debt effectively priced at LIBOR, and therefore significant increases in the rate could impact our financial condition.

 

Interest rate fluctuations, due to the uncertain future behavior of markets, may have a material impact on our financial results.

We have short and long term debt valued at LIBOR plus a spread. We are partially exposed to fluctuations of this rate, as we hold hedging derivative instruments to hedge a portion of our liabilities subject to LIBOR rate fluctuations.

 

As of December 31, 2014, approximately 66% of our current financial obligations were subject to LIBOR rate fluctuation and therefore, significant increases in the rate may impact our financial position.

In addition, as of December 31, 2014,2016, our total financial debt is primarily long-term, with 11%12% of maturities less than 12 months, which decreases the exposure to changes in the interest rates.

 

Exchange Rate Risk. Although the U.S. dollar is the primary currency in which we transact our businesses, our operations throughout the world expose us to exchange rate variations for non-U.S. dollar currencies. Therefore, fluctuations in the exchange rate of such local currencies may affect our financial condition and results of operations. To lessen these effects, we maintain derivative contracts to protect the net difference between our principal assets and liabilities for currencies other than the U.S. dollar. These contracts are renewed periodically depending on the amount covered in each currency. Aside from this, we do not hedge potential future income and expenses in currencies other than the U.S. dollar with the exception of the Euro and Chilean peso. We estimate annual sales in Euros and expenses in Chilean pesos, and depending on the circumstances we secure the exchange difference with derivative contracts.

 

The following is a summary of the aggregate net monetary assets and liabilities that are denominated in non-U.S. dollar currencies as of December 31, 2014, 20132016, 2015 and 2012.2014. Figures do not include our financial hedging positions for year-end:

 

 2014  2013  2012  2016  2015  2014 
 Th US$ Th US$ Th US$  Th US$ Th US$ Th US$ 
Chilean pesos  15,787   (524,530)  (473,976)  (240,563)  (78,824)  15,787 
Brazilian real  (377)  (1,211)  (1,421)  183   101   (377)
Euro  37,433   32,776   45,809   15,621   42,674   37,433 
Japanese yen  1,497   1,183   954   1,892   1,456   1,497 
Mexican pesos  1,111   137   652   1,166   2,283   1,111 
South African rand  25,444   29,404   25,565   25,542   22,822   25,444 
Dirhams  19,838   24,594   17,044   21,297   23,369   19,838 
Other currencies  27,356   22,924   19,443   24,367   21,507   27,356 
Total, net  128,089   (414,723)  (365,930)  (150,495)  35,388   128,089 

 

Also, we had open forward exchange contracts to buy U.S. dollars and sell Chilean pesos to hedge our time deposits in Chilean pesos for approximately US$27451.2 million (Ch$166,22934,263 million).

129

 

The information contained in Item 11. Quantitative and Qualitative Disclosures About Market Risk, contains statements that may constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” in this Annual Report, for safe harbor provisions.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

ITEM 12.A. DEBT SECURITIES

 

Not applicable.

127

 

ITEM 12.B. WARRANTS AND RIGHTS

 

Not applicable.

 

ITEM 12.C. OTHER SECURITIES

 

Not applicable.

 

ITEM 12.D. AMERICAN DEPOSITARY RECEIPTS

 

Depositary Fees and Charges

 

The Company’s American Depositary Shares (“ADS”) program is administered by The Bank of New York Mellon (101 Barclay St., 22 Fl. W., New York, NY 10286), as Depositary. Under the terms of the Deposit Agreement, an ADS holder may have to pay the following service fees to the Depositary:

 

Service Fees Fees
Execution and delivery of ADSs and the surrender of ADRs $0.05 per share

 

Depositary Payments Fiscal Year 20142016

 

The Depositary has agreed to reimburse certain expenses related to the Company’s ADS program and incurred by the Company in connection with the program. In 2014,2016, the Depositary reimbursed expenses related to investor relations for a total amount of US$263,575.53.131,890.90.

130

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

Not applicableNone.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable.None.

 

ITEM 15. CONTROLS AND PROCEDURES

 

(a)Disclosure Control and Procedures

 

SQM management, with the participation of the Company’s current Chief Executive Officer and Chief Financial Officer and other members of the Company’s executive management, evaluated the effectiveness of our disclosure controls and procedures, pursuant to Rule 13(a)-15(e)13a-15(e) promulgated under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report. Based upon that evaluation, our current Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective in providing reasonable assurance that material information is made known to management and that financial and non-financial information is properly recorded, processed, summarized and reported due to the material weakness identified in the control environment discussed below in “—Management’s Annual Report on Internal Control Over Financial Reporting.”as of December 31, 2016.

 

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. However, through the same design and evaluation period of the disclosure controls and procedures, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, recognized that there are inherent limitations to the effectiveness of any control system regardless of how well designed and operated. In such a way they can provide only reasonable assurance of achieving the desired control objectives, and no evaluation can provide absolute assurance that all control issues or instances of fraud, if any, within the Company have been detected.

 

(b) Management’s Annual Report on Internal Control Over Financial Reporting

(b)Management’s Annual Report on Internal Control Over Financial Reporting

 

SQM management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.

 

Because of its inherent limitations, internal control over financial reporting may not necessarily prevent or detect some misstatements. It can only provide reasonable assurance regarding financial statement preparation and presentation. Also, projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with the polices or procedures may deteriorate over time.

 

Management assessed the effectiveness of its internal control over financial reporting as of December 31, 2014.2016. The assessment was based on criteria established in the framework “Internal Controls — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, SQM management has concluded that as of December 31, 2014,2016, the Company’s internal control over financial reporting was not effective as a result of a material weakness described below.effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

131

 

In SQM management’s assessment, the Company did not maintain effective controls over payments directed by the office of the former Chief Executive Officer. This deficiency resulted in adjustments to the consolidated financial statements for the year ended December 31, 2014. Additionally, this deficiency could result in misstatements that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.

(c) Remediation Plans

We reviewed the results of management's assessment, including the identification of the material weakness described above, with the Audit Committee of our Board of Directors.

In an effort to remediate the identified material weakness and enhance our internal controls, management has initiated, or is planning to initiate, the following series of measures:

 

·(c)A reviewAttestation Report of the processes, procedures and controls over payments from the budget of the office of the Chief Executive Officer; to ensure greater oversight and transparency;Registered Public Accounting Firm

 

·Modifications of the processes, procedures and controls over payments from the budget of the office of the Chief Executive Officer to ensure greater oversight and transparency;

·Investment in improved education and training relating to the control environment generally and the modified processes described above once implemented

(d) Attestation Report
For the report of the Registered Public Accounting Firm

PriceWaterhouseCoopersPricewaterhouseCoopers Consultores Auditores y Compañia Limitada (“PWC”), theSpA, independent registered public accounting firm, that has audited our Consolidated Financial Statements, has also issued an attestation reportdated April 26, 2017, on the Company’seffectiveness of our internal control over financial reporting as of December 31, 2014. This attestation report appears on pages F-1 and2016, see page F-2 under Item 18of our Audited Consolidated Financial Statements.

 

(d)Changes in Internal Control Over Financial Reporting

(e) Changes in Internal Control over Financial Reporting

There werehas been no changeschange in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during 2014the period covered by this Annual Report that havehas materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 16. [Reserved]

 

ITEM 16A.      AUDIT COMMITTEE FINANCIAL EXPERT

 

The Board of Directors has determined that the Company does not have an audit committee financial expert within the meaning of the regulations adopted under the Sarbanes-Oxley Act of 2002.

 

Pursuant to Chilean regulations, the Company has a Directors’ Committee whose main duties are similar to those of an audit committee. Each of the members of the Directors’ Committee is a member of the audit committee. See “Item 6.C. Board Practices.”

Our Board believes that the members of the Directors’ Committee have the necessary expertise and experience to perform the functions of the Directors’ Committee pursuant to Chilean regulations.

 

ITEM 16B.      CODE OF ETHICS

 

We have adopted a Code of Business Conduct that applies to the Chief Executive Officer, the Chief Financial Officer, the Internal Auditor as well as all our officers and employees. Our Code adheres to the definition set forth in Item 16B. of Form 20-F under the Exchange Act.

 

No waivers have been granted therefrom to the officers mentioned above.

 

The full text of the code is available on our website at http://www.sqm.com in the Investor Relations section under “Corporate Governance.”

 

Amendments to, or waivers from one or more provisions of the code will be disclosed on our website.

 

ITEM 16C.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The table shows the amount of fees billed for each of the last two fiscal yearsto SQM by our independent auditors, PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada (“PwC”)PwC for the 20142016 and 20132015 fiscal year,years, in relation to audit services, audit-related services,and tax and other services provided to us (in thousands of U.S. dollars).US$) (excluding amounts related to the pre-approved non-audit services referred to below):

 

 2014 2013  2016  2015 
Audit fees  1,327   1,458   1,488   1,929 
Audit-related fees  -   - 
Tax fees  146   445   176   10 
Other fees  223   78 
Total fees  1,696   1,981   1,664   1,939 

132

 

Audit and tax fees in the above table are the aggregate fees billedapproved by the Directors’ Committee for PwC in 20142016 and 2013,2015, in connection with the audit of our annual Consolidated Financial Statements, as well as the review of other statutory filings.

Audit-relatedfilings excluding the non-audit related fees described in the below paragraph.


In addition to the amount disclosed above, tablein 2016, non-audit related fees approved by the SQM Directors’ Committee for PwC were US$1.1 million. Non-audit related fees are fees billed by PwC in 2014 and 2013 for assurance and related services that are reasonably related to the performanceservices such as transfer pricing and others.

All of the audit or review of our financial statements and are not reported under “Audit Fees.”

Total fees disclosed in the table above table are fees billedwere pre-approved by PwC of US$1.70 million in 2014the Directors’ Committee pre-approval policies and US$1.98 million in 2013.procedures.

  

Directors’ Committee Pre-Approval Policies and ProceduresProcedures.

Chilean law states that public companies are subject to “pre-approval” requirements under which all audit and non-audit services provided by the independent auditor must be pre-approved by the Directors’ Committee. Our Directors’ Committee approves all audits, audit-related, tax and other services provided by our auditors.

 

Any services provided by our auditors that are not specifically included within the scope of the audit must be pre-approved by the Directors’ Committee prior to any engagement.

ITEM 16D.       EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

ITEM 16E.       PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

Not applicable.None.

 

ITEM 16F.       CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Not applicable.None.

 

ITEM 16G.      CORPORATE GOVERNANCE

 

For a summary of the significant differences between our corporate governance practices and the NYSE corporate governance standards, see “Item 6.C. Board Practices.”

 

ITEM 16H.      MINE SAFETY AND DISCLOSURE

 

Not applicable.

 

133

PART III

 

ITEM 17.    FINANCIAL STATEMENTS

 

See “Item 18. Financial Statements.”

 

ITEM 18.   FINANCIAL STATEMENTS

 

For a list of all financial statements filed as part of this Form 20-F Annual Report, see “Item 19. Exhibits.”

 

ITEM 19.   EXHIBITS

 

(a) Index to Financial Statements

 

Reports of Independent Registered Public Accounting FirmsF-1
Consolidated Financial Statements: 
Audited Consolidated Statements of Financial Position as of December 31, 20142016 and 20132015F-3
Audited Consolidated Statements of Income for each of the three years in the period ended December 31, 20142016F-5
Audited Consolidated Statement of Comprehensive Income for the three years in the period ended December 31, 20142016F-7
Audited Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 20142016F-8
Audited Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31, 20142016F-10
Notes to the Audited Consolidated Financial StatementsF-13
Supplementary Schedules* 

 

*All other schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

 

134

(b) Exhibits

 

Exhibit
No.
 Exhibit
1.1 By-laws (Estatutos) of the Company**
8.1 Significant subsidiaries of the Company
12.1 Section 302 Chief Executive Officer Certification
12.2 Section 302 Chief Financial Officer Certification
13.1 Section 906 Chief Executive Officer Certification
13.2 Section 906 Chief Financial Officer Certification
23.1 

Consent of Marta AguileraSergio Alarcón

23.2 Consent of Orlando Rojas
23.3 Consent of Álvaro Henríquez
99.1 Certificate of qualified competency issued by Chilean Mining Commission
99.2 Certificate of qualified competency issued by Chilean Mining Commission
99.3 Certificate of qualified competency issued by Chilean Mining Commission

 

**Incorporated by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 2010 filed with the Securities and Exchange Commission on June 30, 2011.

135

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

 

(CHEMICAL AND MINING COMPANY OF CHILE INC.)

 

/s/ Ricardo Ramos
Ricardo Ramos R.

Chief Financial Officer and

Business Development Senior Vice President
Date: April 26, 2017

/s/ Ricardo Ramos

136

 

Ricardo Ramos R.

Chief Financial Officer and

Business Development Senior Vice President

 Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

Date: May 18, 2015

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIES

 

Index to Consolidated Financial Statements

 

Contents

Contents
Report of Independent Registered Public Accounting FirmF-1
  
Consolidated Financial StatementsF-3
  
Audited Consolidated Statements of Financial Position as of December 31, 20142016 and 20132015F-3F-3
Audited Consolidated Statements of Income for each of the three years in the period ended December 31, 20142016F-5F-5
Audited Consolidated Statement of Other Comprehensive Income for each of the three years in the period ended December 31, 20142016F-7F-7
Audited Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 20142016F-8F-8
Audited Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31, 20142016F-10F-10
Notes to the Audited Consolidated Financial StatementsF-13F-13

 

Ch$-Chilean pesos
ThCh$-Thousands of Chilean pesos
US$-United States dollars
ThUS$-Thousands of United States dollars
UF-The UF is an inflation-indexed, Chilean peso-denominated monetary unit. The UF rate is set daily in advance, based on the change in the Consumer Price Index of the previous month

137

Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders

Sociedad Química y Minera de Chile S.A.

 

In our opinion, the accompanying consolidated statementsstatement of financial position and the related consolidated statements of income, other comprehensive income, changes in equity and cash flows present fairly, in all material respects, the financial position of Sociedad Química y Minera de Chile S.A. and its subsidiaries at December 31, 20142016 and 2013,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20142016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company did not maintain,maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting relating to ineffective controls over payments directed by the office of the former Chief Executive Officer. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control over Financial Reporting appearing under item 15 of the 2014 Annual Report on Form 20F. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2014 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15(b) of this Annual Report on Form 20F. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Report of Independent Registered Public Accounting Firm

Sociedad Química y Minera de Chile S.A.

2

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

F-1

Report of Independent Registered Public Accounting Firm

Sociedad Química y Minera de Chile S.A.

2

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

/s/ PricewaterhouseCoopers

Santiago, Chile

May 18, 2015April 26, 2017

Sociedad Química y Minera de Chile S.A. and SubsidiariesF-2

 

 

Consolidated Classified Statements of Financial Position

 

 Note As of December
31, 2016
 As of December
31, 2015
 
   ThUS$ ThUS$ 
Assets Note As of
December
31, 2014
 As of
December
31, 2013
        
   ThUS$ ThUS$ 
              
Current assets                    
Cash and cash equivalents 7.1  354,566   476,622  7.1  514,669   527,259 
Other current financial assets 10.1  670,602   460,173  10.1  289,189   636,325 
Other current non-financial assets 25  43,736   44,230  25  30,273   62,006 
Trade and other receivables, current 10.2  340,830   330,992  10.2  368,761   302,225 
Trade receivables due from related parties, current 9.5  134,506   128,026  9.5  82,259   99,907 
Current inventories 8  919,603   955,530  8  993,072   1,003,846 
Current tax assets 28.1  47,975   59,476  27.1  54,787   65,277 
Current assets other tan assets classified as held-for-sale or disposal    2,333,010   2,696,845 
Non-current assets or asset groups for disposal classified as held-for-sale    2,056   - 
Total current assets    2,511,818   2,455,049     2,335,066   2,696,845 
                    
Non-current assets                    
Other non-current financial assets 10.1  427   95  10.1  14,099   486 
Other non-current non-financial assets 25  32,171   36,505  23  24,690   33,526 
Trade receivables, non-current 10.2  2,044   1,282  10.2  1,840   1,050 
Investments in associates 11.1  49,723   51,075 
Investments in joint ventures 12.3  26,055   25,943 
Investments classified using the equity method of accounting 11.1-12.3  133,140   79,302 
Intangible assets other than goodwill 13.1  114,735   104,363  13.1  109,439   110,428 
Goodwill 13.1  38,388   38,388  13.1  37,972   38,388 
Property, plant and equipment 14.1  1,887,954   2,054,377  14.1  1,532,710   1,683,576 
Tax assets, non-current    29,024   - 
Deferred tax assets 28.4  340   531  27.4  664   161 
Total non-current assets    2,151,837   2,312,559    1,883,578   1,946,917 
Total assets    4,663,655   4,767,608    4,218,644   4,643,762 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-3
 F-3

 

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

Consolidated Classified Statements of Financial Position, (continued)

 

 Note As of December
31, 2016
 As of December
31, 2015
 
   ThUS$ ThUS$ 
Liabilities and Equity Note As of December
31, 2014
 As of
December
31, 2013
        
   ThUS$ ThUS$        
        
Liabilities        
Current liabilities                
Other current financial liabilities 10.4  213,172   401,426  10.4  179,144   402,030 
Trade and other payables, current 10.5  145,160   150,960  10.5  200,496   136,840 
Trade payables due to related parties, current 9.6  231   -  9.6  7   435 
Other current provisions 18.1  27,747   17,953  18.1  41,912   28,141 
Current tax liabilities 28.2  36,171   31,707  27.2  75,872   52,070 
Provisions for employee benefits, current 15.1  18,384   25,236  15.1  20,998   13,445 
Other current non-financial liabilities 18.3  90,010   95,353 
Other current liabilities 18.3  61,920   69,966 
Total current liabilities    530,875   722,635    580,349   702,927 
                
Non-current liabilities                
Other non-current financial liabilities 10.4  1,574,225   1,417,390  10.4  1,093,438   1,290,203 
Other non-current provisions 18.1  8,890   8,633  18.1  8,934   8,890 
Deferred tax liabilities 28.4  223,349   154,295  27.4  206,119   219,391 
Provisions for employee benefits, non-current 15.1  33,801   32,414  15.1  22,532   21,995 
Total non-current liabilities   1,840,265   1,612,732    1,331,023   1,540,479 
Total liabilities   2,371,140   2,335,367    1,911,372   2,243,406 
                
Equity 17         17        
Share capital  477,386   477,386   477,386   477,386 
Retained earnings  1,768,424   1,909,725   1,781,576   1,882,196 
Other reserves  (13,162)  (10,491)  (12,888)  (19,797)
Equity attributable to owners of the Parent  2,232,648   2,376,620    2,246,074   2,339,785 
Non-controlling interests  59,867   55,621   61,198   60,571 
Total equity   2,292,515   2,432,241    2,307,272   2,400,356 
Total liabilities and equity   4,663,655   4,767,608    4,218,644   4,643,762 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-4
 F-4

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Income by Function

 

   January to December 
    January to December  Note 2016 2015 2014 
 Note 2014 2013 2012    ThUS$ ThUS$ ThUS$ 
   ThUS$ ThUS$ ThUS$          
Revenue  20   2,014,214   2,203,140   2,429,160  20  1,939,322   1,728,332   2,014,214 
Cost of sales  27.2   (1,431,242)  (1,481,690)  (1,400,567) 26.1  (1,328,285)  (1,185,583)  (1,431,242)
Gross profit      582,972   721,450   1,028,593     611,037   542,749   582,972 
                              
Other income  27.3   24,055   96,716   12,702  26.2  14,781   15,343   24,055 
Administrative expenses  27.4   (96,532)  (105,189)  (106,442) 26.3  (88,436)  (86,830)  (96,532)
Other expenses by function  27.5   (64,295)  (49,397)  (34,628) 26.4  (89,731)  (106,415)  (64,295)
Other gains (losses)  27.6   4,424   (11,391)  683  26.5  679   3,760   4,424 
Profit (loss) from operating activities      450,624   652,189   900,908 
Profit from operating activities    448,330   368,607   450,624 
Finance income      16,142   12,696   29,068     10,550   11,570   16,142 
Finance costs  22   (63,373)  (58,608)  (54,095) 22-26.8  (57,498)  (69,853)  (63,373)
Share of profit of associates and joint ventures accounted for using the equity method      18,116   18,786   24,357  11-12  13,047   10,326   18,116 
Foreign exchange losses net  23   (16,545)  (11,954)  (26,787)
Profit (loss) before taxes      404,964   613,109   873,451 
Income tax expense  28.4   (160,686)  (138,539)  (216,082)
                
Profit (loss)      244,278   474,570   657,369 
Foreign currency translation differences 23  460   (12,364)  (16,545)
Profit before taxes    414,889   308,286   404,964 
Income tax expense, continuing operations 27.4  (132,965)  (83,766)  (160,686)
                              
Profit for the year      244,278   474,570   657,369     281,924   224,520   244,278 
Profit attributable to                              
Owners of the Parent      236,889   467,113   649,167     278,290   220,356   236,889 
Non-controlling interests      7,389   7,457   8,202     3,634   4,164   7,389 
Profit for the year      244,278   474,570   657,369     281,924   224,520   244,278 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-5
 F-5

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Income by Function, (continued)

 

  January to December    January to December 
 Note 2014 2013 2012  Note 2016 2015 2014 
   US$ US$ US$    US$ US$ US$ 
                  
Earnings per share                           
Common shares                           
Basic earnings per share (US$ per share) 21  0.90   1.77   2.47  21 1.0573   0.84   0.90 
                           
Diluted common shares                           
Diluted earnings per share (US$ per share) 21  0.90   1.77   2.47  21 1.0573   0.84   0.90 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-6
 F-6

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries
 

 

Consolidated Statements of Other Comprehensive Income

 

  January to December 
          
  2014  2013  2012 
Consolidated Statements of comprehensive income ThUS$  ThUS$  ThUS$ 
          
Profit for the year  244,278   474,570   657,369 
             
Components of other comprehensive income:            
Items that will not to be reclassified to profit or loss            
Actuarial gains/losses from defined benefit plans  (672)  1,012   711 
             
Items that may be subsequently reclassified to profit or loss            
Gain (loss) from foreign currency translation differences  (4,016)  (3,559)  982 
Cash flow hedges  2,196   15,779   (7,872)
             
Other comprehensive income before taxes  (2,492)  13,231   (6,179)
Income taxes associated with cash flow hedges in other comprehensive income  (311)  (3,023)  1,580 
             
Other comprehensive income  (2,803)  10,209   (4,599)
             
Total comprehensive income  241,475   484,779   652,770 
             
Comprehensive income attributable to            
Owners of the Parent  234,218   477,394   644,507 
Non-controlling interests  7,257   7,385   8,263 
Total comprehensive income  241,475   484,779   652,770 
  January to December 
  2016  2015  2014 
 ThUS$  ThUS$  ThUS$ 
Statement of comprehensive income         
          
Profit (loss) for the year  281,924   224,520   244,278 
Other comprehensive income            
Other comprehensive income that will not be reclassified to profit for the year, before taxes            
Other comprehensive income, before taxes, gains (losses) from remeasurements of defined benefit plans  (3,397)  (221)  (672)
Total other comprehensive income that will not be reclassified to profit for the year, before taxes  (3,397)  (221)  (672)
             
Other comprehensive income that will be reclassified  to profit for the year, before taxes            
             
Foreign currency exchange gains I(losses) before taxes  (2,252)  (6,499)  (4,016)
Gains (losses) from cash flow hedges  2,233   87   2,196 
Gains (losses) in financial assets measured at fair value through other comprehensive income  4,813   -   - 
Total other comprehensive income to be reclassified to income for the year  4,794   (6,412)  (1,820)
             
Total Other items of other comprehensive income before taxes  1,397   (6,633)  (2,492)
             
Income taxes related to items of other comprehensive income that will not be reclassified to profit for the year            
Income taxes related to remeasurements of defined benefit plans in other comprehensive income  921   (309)  - 
Accumulated income taxes related to items of other comprehensive income that will not be reclassified to profit for the year  921   (309)  - 
             
Income taxes related to items of other comprehensive income that will be reclassified to profit for the year            
Income taxes related to cash flow hedges in other comprehensive income  (470)  95   (311)
Income tax relating to financial assets measured at fair value through changes in other comprehensive income  (1,300)  -   - 
Accumulated income taxes related to items of other comprehensive income that will be reclassified to profit for the year  (1,770)  95   (311)
             
Total other comprehensive income  548   (6,847)  (2,803)
             
Total comprehensive income  282,472   217,673   241,475 
             
Comprehensive income attributable to            
Owners of the Parent  278,831   213,721   234,218 
Non-controlling interests  3,641   3,952   7,257 
Total comprehensive income  282,472   217,673   241,475 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-7
 F-7

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Cash Flows

  

Consolidated statements of cash flows   January to December 
          Note 12/31/2016 12/31/2015 12/31/2014 
 

Note

 

 2014
ThUS$
 2013
ThUS$
 2012
ThUS$
    ThUS$ ThUS$ ThUS$ 
Cash flows from (used in) operating activities            
Consolidated Statements of cash flows         
                       

Types of receipts from operating activities

            
Cash flows from operating activities                
                            
Cash receipts from sales of goods and rendering of services    1,944,072   2,392,696   2,387,979      1,874,202   1,713,549   1,944,072 
            

Types of payments

            
            
Cash receipts from premiums and benefits, annuities and other benefits from insurance recoveries      5,071   -   - 
Cash payments to suppliers for the provision of goods and services    (1,179,413)  (1,496,053)  (1,447,970)      (803,418)  (1,082,704)  (1,179,413)
Cash payments to and on behalf of employees    (42,218)  (48,033)  (44,429)      (253,163)  (44,916)  (42,218)
Other payments related to operating activities    (9,770)  (24,774)  (8,396)      (32,185)  (70,991)  (9,770)
Dividends received    11,817   16,423   15,126       4,345   7,515   11,817 
Interest paid    (83,592)  (87,018)  (59,509)      (55,217)  (44,225)  (83,592)
Interest received    16,142   12,696   24,368       10,550   11,570   16,142 
Reimbursed (paid) income taxes    (76,810)  (119,107)  (250,201)
Income taxes paid      (113,991)  (72,579)  (76,810)
Other incomes (outflows) of cash    10,816   4,883   33,238       (2,532)  10,098   10,816 
                              
Net cash generated from (used in) operating activities    591,044   651,713   650,206       633,662   427,317   591,044 
                              
Cash flows from (used in) investing activities                              
Cash receipts from the loss of control of subsidiaries and other businesses    5,000   -   961 
Other cash payments made to acquire interest in joint ventures    -   (69)  (197)
Income from non-attendance capital increase    4,223   -   - 
Cash flows from the loss of control of subsidiaries or other businesses      -   -   5,000 
Payments made to acquire interest in joint ventures      (45,000)  (59)  - 
Income from capital increase in subsidiaries      -       4,223 
Proceeds from the sale of property, plant and equipment    156   216   2,050       4,347   388   156 
Acquisition of property, plant and equipment      (131,251)  (111,315)  (112,143)
Proceeds from sales of intangible assets    15,431   86,157   -       3,435   4,586   15,431 
Acquisition of intangible assets    -   -   - 
Acquisition of property, plant and equipment    (112,143)  (386,495)  (449,984)
Purchases of intangible assets      (2,090)  -   - 
Cash advances and loans granted to third parties    (2,470)  528   (623)      (163)  -   (2,470)
Other incomes (outflows) of cash (*)    (221,561)  (187,722)  (115,092)
Proceeds from the repayment of advances and loans granted to third parties     -  420   -
Other inflows (outflows) of cash (*)      333,108   36,175   (221,561)
                              
Net cash generated from (used in) investing activities    (311,364)  (487,385)  (562,885)      162,386   (69,805)  (311,364)

 

(*) Includes other cash receipts (payments), investments and redemptions of time deposits and other financial instruments, which do not qualify as cash and cash equivalents in accordance with IAS 7.7 as they record a maturity date from their date of origin greater than 90 days.

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-8
 F-8

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Cash Flows, (continued)

 

    January to December 
            
  Note
 
 2014
ThUS$
  2013
ThUS$
  2012
ThUS$
 
Cash flows from (used in) financing activities              
               
Proceeds from long-term borrowings    250,000   300,000   366,502 
Proceeds from short-term borrowings    180,000   160,000   - 
Total proceeds from borrowings    430,000   460,000   366,502 
Repayment of borrowings    (230,000)  (176,485)  (220,000)
Dividends paid    (379,044)  (279,668)  (334,762)
Other cash receipts (payments) (*)    (208,991)  (6,132)  (9,437)
               
Net cash generated from (used in) financing activities    (388,035)  (2,285)  (197,697)
               
Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate    (108,355)  162,043   (110,376)
               
Effects of exchange rate fluctuations on cash held    (13,701)  (9,774)  (10,263)
Net (decrease) increase in cash and cash equivalents    (122,056)  152,269   (120,639 
               
Cash and cash equivalents at beginning of period    476,622   324,353   444,992 
Cash and cash equivalents at end of period    354,566   476,622   324,353 

(*) It corresponds to the transfer by flow of bonds and cost by bond issuance.

  Note  

12/31/2016

  

12/31/2015

  

12/31/2014

 
     ThUS$  ThUS$  ThUS$ 
Cash flows used in financing activities                
                 
Proceeds from long-term borrowings     -   -   250.000 
Proceeds from short-term borrowings      100,000   137,000   180.000 
Repayment of borrowings      (517,000)  (190,000)  (438,991)
Dividends paid      (399,410)  (127,343)  (379.044)
                 
Net cash generated used in financing activities      (816,410)  (180,343)  (388.035)
                 
Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate      (20,362)  177,169   (108.355)
                 
Effects of exchange rate fluctuations on cash held      7,772   (4,476)  (13.701)
Net (decrease) increase in cash and cash equivalents      (12,590)  172,693   (122.056)
                 
Cash and cash equivalents at beginning of period      527,259   354,566   476.622 
Cash and cash equivalents at end of period      514,669   527,259   354.566 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-9
 F-9

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Changes in Equity

 

 Share
capital
  Other reserves  Total
Other
reserves
  Retained
earnings
  Equity
attributable
to owners of
the Parent
  Non-controlling
interests
  Total 
2014    Foreign
currency
translation
difference
reserves
 Cash flow
hedge
reserves
 Actuarial
gains (losses)
from defined
benefit plans
 Other
miscellaneous
reserves
            
2016 Share
capital
 Foreign
currency
translation
difference
reserves
 Cash
flow
hedge
reserves
 Reserve for
gains (losses)
from financial
assets
measured at
fair value
through other
comprehensive 
income
 Actuarial
gains
(losses)
from
defined
benefit
plans
 Other
miscellaneous
reserves
 Other
reserves
 Retained
earnings
 Equity
attributable
to owners of
the Parent
 Non-
controlling
interests
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                            
Equity at beginning of the year  477,386   (3,817)  (3,766)  (1,231)  (1,677)  (10,491)  1,909,725   2,376,620   55,621   2,432,241   477,386   (14,035)  (1,699)      (2,386)  (1,677)  (19,797)  1,882,196   2,339,785   60,571   2,400,356 
Profit for the year)  -   -   -   -   -   -   236,889   236,889   7,389   244,278 
Profit for the year  -   -   -       -   -   -   278,290   278,290   3,634   281,924 
Other comprehensive income  -   (3,884)  1,885   (672)  -   (2,671)  -   (2,671)  (132)  (2,803)  -   (2,287)  1,763   3,513   (2,448)  -   541   -   541   7   548 
Comprehensive income  -   (3,884)  1,885   (672)  -   (2,671)  236,889   234,218   7,257   241,475   -   (2,287)  1,763   3,513   (2,448)  -   541   278,290   278,831   3,641   282,472 
Dividends  -   -   -   -   -   -   (378,190)  (378,190)  (5,280)  (383,470)  -   -   -   -   -   -   -   (375,000)  (375,000)  (3,014)  (378,014)
Increase (decrease) due to changes in interests in subsidiaries  -   -   -   -   -   -   -   -   2,269   2,269 
Increase (decrease) due to transfers and other changes      (3,141)  -   -   -   9,509   6,368   (3,910)  2,458   -   2,458 
Increase (decrease) in equity  -   (3,884)  1,885   (672)  -   (2,671)  (141,301)  (143,972)  4,246   (139,726)  -   (5,428)  1,763   3,513   (2,448)  9,509   6,909   (100,620)  (93,711)  627   (93,084)
                                                                                    
Equity as of December 31, 2014  477,386   (7,701)  (1,881)  (1,903)  (1,677)  (13,162)  1,768,724   2,232,648   59,867   2,292,515 
Equity as of December 31, 2016  477,386   (19,463)  64   3,513   (4,834)  7,832   (12,888)  1,781,576   2,246,074   61,198   2,307,272 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-10
 F-10

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Changes in Equity

 

 Share
capital
  Other reserves  Total
Other
reserves
  Retained
earnings
  Equity
attributable
to owners of
the Parent
  Non-controlling
interests
  Total 
2013    Foreign
currency
translation
difference
reserves
 Cash flow
hedge
reserves
 Actuarial
gains (losses)
from defined
benefit plans
 Other
miscellaneous
reserves
            
                       
2015 Share
capital
 Foreign
currency
translation
difference
reserves
 Cash flow
hedge
reserves
 Actuarial
gains (losses)
from defined
benefit plans
 Other
miscellaneous
reserves
 Other
reserves
 Retained
earnings
 Equity
attributable
to owners of
the Parent
 Non-controlling
interests
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Equity at beginning of the year  477,386   (330)  (16,522)  (2,243)  (1,677)  (20,772)  1,676,169   2,132,783   54,663   2,187,446   477,386   (7,701)  (1,881)  (1,903)  (1,677)  (13,162)  1,768,424   2,232,648   59,867   2,292,515 
Profit for the year)  -   -   -   -   -   -   467,113   467,113   7,457   474,570 
Profit for the year  -   -   -   -   -   -   220,356   220,356   4,164   224,520 
Other comprehensive income  -   (3,487)  12,756   1,012   -   10,281   -   10,281   (72)  10,209   -   (6,334)  182   (483)  -   (6,635)  -   (6,635)  (212)  (6,847)
Comprehensive income  -   (3,487)  12,756   1,012   -   10,281   467,113   477,394   7,385   484,779   -   (6,334)  182   (483)  -   (6,635)  220,356   213,721   3,952   217,673 
Dividends  -   -   -   -   -   -   (233,557)  (233,557)  (6,427)  (239,984)  -   -   -   -   -   -   (106,584)  (106,584)  (3,248)  (109,832)
Increase (decrease) in equity  -   (3,487)  12,756   1,012   -   10,281   233,556   243,837   958   244,795   -   (6,334)  182   (483)  -   (6,635)  113,772   107,137   704   107,841 
                                                                                
Equity as of December 31, 2013  477,386   (3,817)  (3,766)  (1,231)  (1,677)  (10,491)  1,909,725   2,376,620   55,621   2,432,241 
Equity as of December 31, 2015  477,386   (14,035)  (1,699)  (2,386)  (1,677)  (19,797)  1,882,196   2,339,785   60,571   2,400,356 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-11
 F-11

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

 

 

Consolidated Statements of Changes in Equity

 

 Share
capital
  Other reserves  Total
Other
reserves
  Retained
earnings
  Equity
attributable
to owners of
the Parent
  Non-controlling
interests
  Total 
2012    Foreign
currency
translation
difference
reserves
 Cash flow
hedge
reserves
 Actuarial
gains (losses)
from defined
benefit plans
 Other
miscellaneous
reserves
            
                     
2014 Share
capital
 Foreign
currency
translation
difference
reserves
 Cash flow
hedge
reserves
 Actuarial
gains (losses)
from defined
benefit plans
 Other
miscellaneous
reserves
 Other
reserves
 Retained
earnings
 Equity
attributable
to owners of
the Parent
 Non-controlling
interests
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Equity at beginning of the year  477,386   (1,251)  (10,230)  (2,954)  (1,677)  (16,112)  1,351,560   1,812,834   51,546   1,864,380   477,386   (3,817)  (3,766)  (1,231)  (1,677)  (10,491)  1,909,725   2,376,620   55,621   2,432,241 
Profit for the year)  -   -   -   -   -   -   649,167   649,167   8,202   657,369 
Profit for the year  -   -   -   -   -   -   236,889   236,889   7,389   244,278 
Other comprehensive income  -   921   (6,292)  711   -   (4,660)  -   (4,660)  61   (4,599)  -   (3,884)  1,885   (672)  -   (2,671)  -   (2,671)  (132)  (2,803)
Comprehensive income  -   921   (6,292)  711   -   (4,660)  649,167   644,507   8,263   652,770   -   (3,884)  1,885   (672)  -   (2,671)  236,889   234,218   7,257   241,475 
Dividends  -   -   -   -   -   -   (324,558)  (324,558)  (5,146)  (329,704)  -   -   -   -   -   -   (378,190)  (378,190)  (5,280)  (383,470)
Increase (decrease) due to changes in interests in subsidiaries
  -   -   -   -   -   -   -   -   2,269   2,269 
Increase (decrease) in equity  -   921   (6,292)  711   -   (4,660)  324,609   319,949   3,117   323,066   -   (3,884)  1,885   (672)  -   (2,671)  (141,301)  (143,972)  4,246   (139,726)
                                                                                
Equity as of December 31, 2013  477,386   (330)  (16,522)  (2,243)  (1,677)  (20,772)  1,676,169   2,132,783   54,663   2,187,446 
Equity as of December 31, 2014  477,386   (7,701)  (1,881)  (1,903)  (1,677)  (13,162)  1,768,424   2,232,648   59,867   2,292,515 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-12

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 1Identification and activities of the Company and Subsidiaries

Note 1      Identification and activities of the Company and Subsidiaries

 

1.1Historical background

 

Sociedad Química y Minera de Chile S.A. "SQM" is an open stock corporation organized under the laws of the Republic of Chile, Tax Identification No. 93.007.000-9.No.93.007.000-9.

 

The Company was incorporated through a public deed dated June 17, 1968 by the notary public of Santiago Mr.MR. Sergio Rodríguez Garcés. Its existence was approved by Decree No. 1,164 of June 22, 1968 of the Ministry of Finance, and it was registered on June 29, 1968 in the Registry of Commerce of Santiago, on page 4,537 No. 1,992. SQM's headquarters are located at El Trovador 4285, Fl. 6, Las Condes, Santiago, Chile. The Company's telephone number is +56 2 2425-2000.24252000.

 

The Company is registered with the Securities Registry of the Chilean Superintendence of Securities and Insurance (Superintendencia de Valores y Segurosor “SVS”)(SVS) under No. 0184 dated March 18. 1983 and is subject to the inspection of the SVS.

 

1.2Main domicile where the Company performs its production activities

 

The Company’s main domiciles are: Calle Dos Sur plot No. 5 - Antofagasta; Arturo Prat 1060 - Tocopilla; Administración Building w/n - Maria Elena; Administración Building w/n Pedro de Valdivia - María Elena, Anibal Pinto 3228 - Antofagasta, Kilometer 1378 Ruta 5 Norte Highway - Antofagasta, Coya Sur Plant w/n - Maria Elena, kilometer 1760 Ruta 5 Norte Highway - Pozo Almonte, Salar de Atacama (Atacama Saltpeter deposit) potassium chloride plant s/n - San Pedro de Atacama, potassium sulfate plant at Salar de Atacama s/n – San Pedro de Atacama, mining works at Salar de Ascotán Region II of Chile, Minsal Mining Camp s/n CL Plant CL, Potassium– San Pedro de Atacama.Atacama, formerly the Iris Saltpeter office S/N, Commune of Pozo Almonte, Iquique.

 

1.3Codes of main activities

 

The codes of the main activities as established by the Chilean Superintendence of Securities and Insurance are as follows:

 

-1700 (Mining)

 

-2200 (Chemical products)

 

-1300 (Investment)

 

1.4Description of the nature of operations and main activities

 

Our products are mainly derived from mineral deposits found in northern Chile. We mine and process caliche ore and brine deposits. The caliche ore deposit in northern Chile contains the only known nitrate and iodine deposits in the world and is the world’s largest commercially exploited source of natural nitrates.deposits. The brine deposits of the Salar de Atacama, a salt-encrusted depression within the Atacama Desert in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate and boron.sulfate.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-13

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 1Identification and Activities of the Company and Subsidiaries (continued)

Note 1      Identification and Activities of the Company and Subsidiaries (continued)

 

1.4Description of the nature of operations and main activities, continued

 

From our caliche ore deposits located in the north of Chile, we produce a wide range of nitrate-based products used for specialty plant nutrients and industrial applications, as well as iodine and iodine derivatives.At the Salar de Atacama, we extract brines rich in potassium, lithium sulfate and boronsulfate in order to produce potassium chloride, potassium sulfate, lithium solutions, boric acid and bischofite (magnesium chloride). We produce lithium carbonate and lithium hydroxide at our plant near the city of Antofagasta, Chile, from the solutions brought from the Salar de Atacama. We market all of these products through an established worldwide distribution network.

 

We sell our products in over 100 countries worldwide through our global distribution network and generate our revenue mainly from abroad.

 

Our products are divided into six categories: specialty plant nutrition, iodine and its derivatives, lithium and its derivatives, industrial chemicals, potassium and other products and services, described as follows:

 

Specialty plant nutrition: SQM produces and sells four types of specialty plant nutrition in this line of business: potassium nitrate, sodium nitrate, sodium potassium nitrate, and specialty blends. This business is characterized by being closely related to its customers, for which it hashaving specialized staff who provide expert advisory in best practices for fertilization, according to each type of crop, soil and climate. Within this type of business, potassium derivative products and especiallyspecialty potassium nitrate have had a leading role given the contribution they make to develop crops, thereby ensuring longer post-harvest crop duration,insuring an improvement in post-crop life in addition to improving fruit quality, flavor and fruit color. PotassiumThe potassium nitrate, which is sold in multiple formats and as a part of other specialty blends, is complemented by sodium nitrate, potassium sodium nitrate, and more than 200 other fertilizer blends.

 

Iodine: The Company is a major producer of iodine at worldwide level. Iodine is widely used in the pharmaceutical industry, technology and nutrition. Additionally, iodine is used as X ray contrast media and polarizing film for LCD displays.

 

Lithium: theThe Company’s lithium is mainly used for manufacturing rechargeable batteries for cell phones, cameras and notebooks. Through the manufacturing of lithium-based products, SQM provides significant materials to face great challenges such as the efficient use of energy and raw materials. Lithium is not onlymainly used for rechargeable batteries for small electrical appliances such as mobile phones, tablets and in new technologies for vehicles propelled by electricity, butlaptops. It is also used in industrial applications to lower melting temperaturesuch as the manufacturing of glass, ceramics and to help saving costslubricating greases. Other uses include the pharmaceutical and energy.chemical industries.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-14

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 1Identification and Activities of the Company and Subsidiaries (continued)

Note 1      Identification and Activities of the Company and Subsidiaries (continued)

 

1.4Description of the nature of operations and main activities, continued

 

Industrial Chemicals: Industrial chemicals are products used as supplies for a number of production processes. SQM has operatedparticipates in this market for more than 30 yearsline of business producing sodium nitrate, potassium nitrate boric acid and potassium chloride. Industrial nitrates have increased their importance over the last few years due to their use as storage means for thermal energy at solar energy plants, which are widelyused inwidely used by such countries such as Spain and the United States which seek to decreasein their search for decreasing CO2emissions.

 

Potassium: PotassiumThe potassium is one of the three macronutrients that a plant needs to develop. Although potassiumprimary essential macro-nutrient, and even though it does not form part of athe plant’s structure, it is essential tohas a significant role in the development of its basic functions, validating the quality of a crop, increasing post-crop life, improving the crop’scrop flavor, vitamin contentits amount of vitamins and its physical appearance. Within this business line, SQM sellshas also potassium chloridechlorate and potassium sulfate, both extracted from the salt layer located under the Salar de Atacama.Atacama (the Atacama Saltpeter Deposit).

 

Other products and services: This business line includes revenue from commodities, services, interests, royalties and dividends.

 

1.5Other background

 

Staff

 

As of December 31, 20142016 and December 31, 2013, staff2015, personnel was detailed as follows:

 

   12/31/2014  12/31/2013 
       
Permanent staff  4,800   4,792 
  12/31/2016  12/31/2015 
Employees SQM S.A.  Other
subsidiaries
  Total  SQM S.A.  Other
subsidiaries
  Total 
Executives  31   72   103   26   71   97 
Professionals  119   919   1,038   116   838   954 
Technicians and operators  262   3,076   3,338   256   2,741   2,997 
Foreign employees  8   264   272   -   202   202 
Overall total  420   4,331   4,751   398   3,852   4,250 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-15

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 1Identification and Activities of the Company and subsidiaries (continued)

Note 1      Identification and Activities of the Company and subsidiaries (continued)

 

1.5Other background, continued

 

Main shareholders

 

The table below establishes certain informationInformation about the beneficial propertyshareholders that own more than 5% of SQM’s outstanding Series A andor Series B shares of SQM as of December 31, 20142016 and December 31, 2013. In respect2015, according to each shareholder which has interest of more than 5% of outstanding Series A or B shares. The information below is taken from our records and reports controlled inprovided by the Central Securities Depository and reported toDepositary (Depósito Central de Valores or “DCV”), is set forth in the SVS and the Chilean Stock Exchange, whose main shareholders are as follows:

table below:

 

Shareholder as of December 31, 2014 No. of Series A shares
owned
 % of Series A
shares
 No. of Series B shares
owned
 % of Series B
shares
 % of total
shares
 
Shareholder as of December 31, 2016 No. of Series A with
ownership
 % of Series A
shares
 No. of Series B with
ownership
 % of Series B
shares
 % of total
shares
 
The Bank of New York Mellon, ADRs  -   -   61,894,725   51.42%  23,52%  -   -   59,373,011   49.32%  22.56%
Sociedad de Inversiones Pampa Calichera S.A.(*)  44,803,531   31.37%  7,007,688   5.82%  19,69%  44,894,152   31.43%  7,007,688   5.82%  19.72%
Inversiones El Boldo Limitada  29,330,326   20.54%  17,963,546   14.92%  17,97%  29,330,326   20.54%  16,363,546   13.59%  17.36%
Inversiones RAC Chile Limitada  19,200,242   13.44%  2,202,773   1.83%  8,13%  19,200,242   13.44%  2,202,773   1.83%  8.13%
Potasios de Chile S.A.(*)  18,179,147   12.73%  -   -   6,91%  18,179,147   12.73%  -   -   6.91%
Inversiones PCS Chile Limitada  15,526,000   10.87%  -   -   5,90%  15,526,000   10.87%  1,600,000   1.33   6.51%
Banco de Chile on behalf of non-resident third parties  -   -   8,962,355   7.45%  3.41%
Inversiones Global Mining (Chile) Limitada (*)  8,798,539   6.16%  -   -   3,34%  8,798,539   6.16%  -   -   3.34%
Banco de Chile on behalf of non-resident third parties  -   -   5,795,818   4.81%  2,20%
Banco Itau on behalf of investors  20,950   0.01%  5,412,076   4.50%  2,06%
Banco Itaú on behalf of investors  20,950   0.01%  6,502,217   5.40%  2.48%
Inversiones La Esperanza Limitada  3,711,598   2.60%  -   -   1,41%  3,711,598   2.60%  46,500   0.04%  1.43%
                    
(*) Total Pampa Group 29.94%          
                    
Shareholder as of December 31, 2013 No. of Series A shares
owned
 % of Series A
shares
 No. of Series B shares
owned
 % of Series B
shares
 % of total
shares
 
The Bank of New York Mellon, ADRs  -   -   56,302,367   46.77%  21.39%
Sociedad de Inversiones Pampa Calichera S.A.(*)  44,758,830   31.34%  6,971,799   5.79%  19.65%
Inversiones El Boldo Limitada  29,225,196   20.46%  18,028,676   14.98%  17.95%
Inversiones RAC Chile Limitada  19,200,242   13.44%  2,202,773   1.83%  8.13%
Potasios de Chile S.A.(*)  18,179,147   12.73%  -   -   6.91%
BTG Pactual Chile S.A. C de B  15,593,709   10.92%  797,393   0.66%  6.23%
Inversiones Global Mining (Chile) Limitada (*)  8,798,539   6.16%  -   -   3.34%
Banco Itau on behalf of investors  20,950   0.01%  5,428,234   4.51%  2.07%
Banco de Chile on behalf of non-resident third parties  -   -   5,234,823   4.35%  1.99%
Inversiones La Esperanza Limitada  3,693,977   2.59%  -   -   1.40%

 

(*) Total Pampa Group 29.90%29.97%

Shareholder as of December 31, 2015 No. of Series A with
ownership
  % of Series A
shares
  No. of Series B with
ownership
  % of Series B
shares
  % of total
shares
 
The Bank of New York Mellon, ADRs  -   -   59,079,533   49,08%  22,45%
Sociedad de Inversiones Pampa Calichera S.A.(*)  44,880,793   31.43%  7,007,688   5.82%  19.72%
Inversiones El Boldo Limitada  29,330,326   20.54%  17,963,546   14.92%  17.97%
Inversiones RAC Chile Limitada  19,200,242   13.44%  2,202,773   1.83%  8.13%
Potasios de Chile S.A.(*)  18,179,147   12.73%  -   -   6.91%
Inversiones PCS Chile Limitada  15,526,000   10.87%  -   -   5.90%
Banco de Chile on behalf of non-resident third parties  -   -   9,055,272   7,52%  3.44%
Inversiones Global Mining (Chile) Limitada (*)  8,798,539   6.16%  -   -   3.34%
Banco Itaú on behalf of investors  20,950   0.01%  5,679,753   4.72%  2.17%
Inversiones La Esperanza Limitada  3,711,598   2.60%  46,500   0.04   1.43%

(*) Total Pampa Group 29.97%

 

On December 31, 20142016 the total number of shareholders was 1,285.1,187.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-16

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 2Basis of presentation for the consolidated financial statements

Note 2      Basis of presentation for the consolidated financial statements

 

2.1Accounting period

 

These consolidated financial statements cover the following periods:

 

-Consolidated Statements of Financial Position as of December 31, 20142016 and 2013.2015.
-Consolidated Statements of Changes in Equity for the three years ended December 31, 2014 and 2013.2016.
-Consolidated Statements of Comprehensive Income for the three years ended December 31, 2014 and 2013.2016.
-Consolidated Statements of Cash Flows for the three years ended December 31, 2014 and 2013.2016.

 

2.2Financial statements

 

The consolidated financial statements of Sociedad Química y Minera de Chile S.A. and its Subsidiaries have beenwere prepared in accordance with International Financial Reporting Standards (hereinafter “IFRS”) and represent the full, explicit and unreserved applicationadoption of the aforementioned international standardsInternational Financial Reporting Standards as issued by the International Accounting Standards Board (IASB)(hereinafter the “IASB”).

 

These consolidated financial statements fairly reflect fairly the Company’s equity and financial position, and the comprehensive results of its operations, changes in the statement of recognized revenueequity and expenses and cash flows which have occurredoccurring during the periodsyears then ended.

 

IFRS establish certain alternatives for their application. Those applied by the Company and its subsidiaries are included in detaildetailed in this Note.

 

The accounting policies used in the preparation of these consolidated annual and interim accounts comply with each IFRS in force at their date of presentation. Certain reclassifications have been made for comparative purposes.

 

The consolidated financial statements of SQM S.A. are for the year ended December 31, 2014, and have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

As explained in note 28.4, on September 29, 2014 Law No. 20,780 was issued, which introduces modifications to the income tax system in Chile and other tax matters. On October 17, 2014 the SVS issued Circular No. 856, which established that the effects of the change in the income tax rates on deferred tax assets and liabilities must be recognized directly within “Retained earnings” instead of the income statement as required by IAS 12.

In order to comply with IAS 12, these financial statements are different to those presented to the SVS as the aforementioned effect has been recognized within the income statement.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-17

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2Basis of presentation for the consolidated financial statements (continued)

Note 2      Basis of presentation for the consolidated financial (continued)

 

2.2Financial statements, continued

 

In addition to the adjustment related to IAS 12,There is a difference in net income for the period ended December 31, 2014 includes provisions of approximately US$7 million corresponding to2015 in these financial statements and the Company’s statutory consolidated financial statements filed with the SVS. In March 2015, the Company made payments made in 2015 to the Chilean Internal Revenue Service (Servicio de Impuestos Internosor “SII”) for expenses that may not have qualified as tax expenses under the Chilean tax code. See Note 31.2. Such30. Provisions of approximately US$7 million corresponding to such payments were included in net income for the period ended December 31, 2014 in these financial statements. However, since such payments were made after March 3, 2015, the date on which the Company filed its statutory consolidated financial statements filedfor the period ended December 31, 2015, with the SVS. Therefore, this provision was not reflectedSVS, such provisions were included in thesenet income for the period ended December 31, 2015 for purposes of the Company’s statutory consolidated financial statements.

As of December 31, 2016, there are no differences in the financial statements reported to the SVS.

 

A reconciliation of such differences is presented as follows:follows.

 

As of December 31, 2015         
Equity Consolidated
Financial
Statements for
SVS
  Consolidated
Financial
Statements for
SEC
  Diferencia 
  ThUS$  ThUS$  ThUS$ 
Parent’s ownership  2,339,785   2,339,785   - 
Share capital  477.386   477.386   - 
Other reserves  (19,797)  (19,797)  - 
             
Retained earnings  1,882,196   1,882,196   - 
Retained earning for the last period  1,669,028   1,661,840   7,188 
Net Income (loss) for the period  213,168   220,356   (7,188)
Total Retained earnings  1,882,196   1,882,196   - 
             
Non-controlling  60,571   60,571   - 
Retained earnings            
Retained earning for the last period  59,867   59,867   - 
Net Income (loss) for the period  4,164   4,164   - 
Other comprehensive income  (212)  (212)  - 
Dividends  (3,248)  (3,248)  - 
Total Retained earnings  60,571   60,571   - 
             
Total Equity  2,400,356   2,400,356   - 

As of December 31, 2014         
Equity Consolidated
Financial
Statements for
SVS
  Consolidated
Financial
Statements for
SEC
  Difference 
  Th US$  Th US$  Th US$ 
Parent´s ownership  2,239,836   2,232,648   (7,188)
Share capital  477,386   477,386   - 
Other reserves  (13,162)  (13,162)  - 
             
Retained earnings  1,775,612   1,768,424   (7,188)
Retained earning for the last period  1,479,231   1,531,535   52,304 
Net Income (loss) for the period  296,381   236,889   (59,492)
Total retained earnings  1,775,612   1,768,424   (7,188)
             
Non- controlling  59,867   59,867   - 
Retained earnings          - 
Retained earning for the last period  55,621   55,621   - 
Net Income (loss) for the period  7,389   7,389   - 
Other comprehensive income  (132)  (132)  - 
Dividends  (5,280)  (5,280)  - 
Increase (decrease) due to changes in interests in subsidiaries  2,269   2,269   - 
Total retained earnings  59,867   59,867   -
             
Total Equity  2,299,703   2,292,515   (7,188)
F-18
 Notes to the Consolidated Financial Statements as of December 31, 2016

 

Note 2      Basis of presentation for the consolidated financial statements (continued)

2.2Financial statements, continued

Dividends paid and the mandatory minimummínimum dividend provision were determined in accordance with the standards set by the SVS.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-18F-19

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 2      Basis of presentation for the consolidated financial statements (continued)

 

Note 2Basis of presentation for the consolidated financial statements (continued)

2.3Basis of measurement

 

The consolidated financial statements have been prepared on the historical cost basis except for the following material items:following:

 

-Inventories are recorded at the lower of cost and net realizable value.

-Other current and non-current asset and financial liabilities at amortized cost.

-Financial derivatives at fair value; and

-Staff severance indemnities and pension commitments at actuarial value.value

-Certain financial investments classified as available for sale measured at fair value with a counterparty in other comprehensive income.

-Other current and non-current asset and financial liabilities at amortized cost.

 

2.4Accounting pronouncements

 

New accounting pronouncements

 

a)        The following standards, interpretations and amendments are mandatory for the first time for annual periods beginning on January 1, 2014:2016:

 

StandardsAmendments and interpretationsimprovements Mandatory for annual
periods beginning on
Amendment toIFRIC 21 “Levies”-IFRS 11 “Joint Arrangements” – on the acquisition of interest in a joint operation – Issued in May 2013. Indicates2014. This amendment includes guidance related to the method for accounting for an acquisition of an interest in a joint operation in which the activity constitutes a business, specifying the proper treatment for a liability to pay a levy if such levy falls within the scope of IAS 37. It proposes that the liability be recognized when the obligation triggering event occurs and payment cannot be avoided. The obligation triggering event will be established in the related legislation and may occur at a given date or gradually over time. Early adoption is permitted.acquisitions. 01/01/20142016
   
AmendmentsMandatory for
annual periods
beginning on
Amendment toIAS 32 “Financial Instruments: Presentation”- On the offsetting of financial assets16 “Property, Plant and financial liabilities.Equipment”andIAS 38 “Intangible Assets” on depreciation and amortization – Issued in December 2011. It clarifiesMay 2014. The amendments clarify that a depreciation method that is based on revenue that is generated by an activity that includes the requirements foruse of an asset is not appropriate because revenue generated by such an activity in general reflects other factors other than the offsettinguse of financial assets and financial liabilitiesthe economic benefits embedded in the Statementasset or item of financial position.  Early adoptionproperty, plant and equipment.  Accordingly, a rebuttable presumption exists that a revenue-based depreciation or amortization method is permitted.inappropriate. 01/01/20142016
   
Amendment to IAS 27 “Separate Financial Statements”, IFRS 10 “Consolidated Financial Statements” and IFRS 12 “Disclosure on the equity method – Issued in August 2014. This amendment allows entities to use the equity method of Interests in Other Entities”-Issued in October 2012. The amendments include the definition of an investment entity and provide an exceptionaccounting for the consolidationrecognition of certaininvestments in subsidiaries, of entities meeting the definition for an “investment entity”. The amendments also introduce new disclosure requirements relative to investment entitiesjoint ventures and associates in IFRS 12 and IAS 27.their separate financial statements. 01/01/20142016
   
Amendment toIFRS 10 “Consolidated Financial Statements”andIAS 36 “Impairment of assets”-28 “Investments in Associates and Joint Ventures”. Issued in May 2013. It amends the disclosure of the recoverable amount of non-financial assets aligning them toSeptember 2014. This amendment addresses an inconsistency between the requirements of IFRS 13. Early adoption10 and IAS 28 for the treatment of a sale or contribution of assets between an investor and its associate or joint venture. The main consequence of this amendment is permitted.the recognition of a full gain or loss when the transaction involves a business (whether or not in a subsidiary) and a partial gain or loss when the transaction involves assets that are not a business, even if such assets are in a subsidiary. 

01/01/2014

2016

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-19F-20

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2Basis of presentation of the consolidated financial statements (continued)

Note 2      Basis of presentation for the consolidated financial statements (continued)

 

2.4Accounting pronouncements,Pronouncements, continued

 

Amendments and improvements Mandatory for annual
annual periods
beginning on
Amendment to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures.” Issued in December 2014. The amendment clarifies the application of the exception from consolidation for investment entities and their subsidiaries. The amendment to IFRS 10 clarifies on the exception on consolidation available for entities in group structures that include investment entities. The amendment to IAS 28 allows an entity that is not an investment entity, but has an interest in an associated or joint venture that is an investment entity, an option of accounting policy in the application of the equity method. The entity may opt for maintaining measurement at fair value applied by the associate or joint venture that is an investment entity or, consolidating at investment entity level (associate or joint venture).01/01/2016
   
Amendment to IAS 39 “Financial1 “Presentation of Financial Statements.” Issued in December 2014. This amendment clarifies the application guidance of IAS 1 on materiality and aggregation, presentation of subtotals, structure of the financial statements and disclosure of accounting policies. The amendments are part of the IASB’s Initiative on Disclosures.01/01/2016

Improvements to International Financial Reporting Standards (2014) issued in September 2014Mandatory for annual
periods beginning on
IFRS 5, "Non-current Assets Held for Sale and Discounted Operations.” This amendment clarifies that when an asset (or disposal group) is reclassified from being “held for sale” to “held for distribution” or vice versa, this is not an amendment of a plan of sale or a plan of distribution and should not be accounted for as such. This means that the asset (or disposal group) is not to be reinstated in the financial statements as if it had never been classified as “held for sale” or “held for distribution,” simply because disposal conditions have changed. The amendment also rectifies an omission in the standard explaining that guidance on changes in a sale plan has to be applied to an asset (or disposal group) that is no longer held for distribution, but is not reclassified as “held for sale.”01/01/2016
IFRS 7 "Financial Instruments: Recognition and Measurement” – on the novation of derivatives and hedge accounting – Published in June 2013.Disclosures" It establishes certaintwo amendments to IFRS 7: (1) Service contracts: if a Company transfers a financial asset to a third party under conditions that must be met for the novation of derivatives to allow the continuanceassigner to dispose of hedge accounting;the asset, IFRS 7 requires the disclosure of any type of continued involvement that the entity may still have on transferred assets. IFRS 7 provides guidance on what is understood as continued involvement within this context. The amendment is prospective with the option of applying it retrospectively. This also affects IFRS 1 to provide the same option to the first-time adopters of IFRS 1; (2) Interim Financial Statements: The amendment clarifies that the additional disclosure required by amendments to IFRS 7 “Offsetting Financial Assets and Financial Liabilities” is not specifically required for all interim periods, unless required by IAS 34. The amendment is retrospective.01/01/2016

F-21
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 2      Basis of presentation for the consolidated financial statements (continued)

2.4Accounting Pronouncements, continued

Improvements to International Financial Reporting Standards (2014) issued in September 2014Mandatory for annual
periods beginning on

IAS 19, "Employee Benefits"– This amendment clarifies that in order to avoid novations thatdetermine the discount rate for post-employment benefit obligations, the important aspect is the currency in which liabilities are denominated, not the resultcountry where they generate. The evaluation of laws and regulations affectingwhether a deep market exists for high-quality corporate bonds is based on corporate bonds in such currency, not in corporate bonds of a particular country. Likewise, where there is no deep market for high-quality corporate bonuses in such currency, government bonds in the financial statements. Early adoptionrelated currency have to be used. Such amendment is permitted.retrospective but limited at the beginning of the first period presented.

 

01/01/2014

2016
IAS 34, "Interim Financial Reporting"– This amendment clarifies the meaning of disclosure of information ‘elsewhere in the interim financial report’ and amends IAS 34 to require the inclusion of a cross-reference from the interim financial statements to the location of the information. This amendment is retrospective.01/01/2016

 

The adoption of the standards, amendments and interpretations describedindicated above havehas no significant impact on the Company’s consolidated financial statements.

 

b) New amendments,Standards, interpretations and amendments issued, not effective for 2014,the financial statements beginning on January 1, 2016, which the Company has not adopted early are as follows:

 

Standards and interpretationsInterpretations Mandatory for annual
periods beginning on
IFRS 9 “Financial Instruments”- Published– Issued in July 2014. The IASB has issued the full version of IFRS 9, which supersedes the application guidance in IAS 39. This final version includes requirements on the classification and measurement of financial assets and financial liabilities and an expected credit losses model that replaces the incurred loss impairment model used today. The final hedging accounting part of IFRS 9 was issued in November 2013. Early adoption is permitted. 

01/01/2018

   
IFRS 15 “Revenue from Contracts with Customers”-Published– Issued in May 2014. This standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. For such purposes, the basic principle is that an entity will recognize revenue representing the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for such goods or services. The application of this standard will replace IAS 11 Construction Contracts and IAS 18 Revenue, as well as IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue-Barter Transactions Involving Advertising Services. Early application is permitted. 

01/01/2017

2018

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-20F-22

 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4Accounting pronouncements, continued

Amendments and improvementsMandatory for
annual periods
beginning on
Amendment of IAS 19 “Employee Benefits” on defined benefit plans – Issued in November 2013. This amendment applies to employee or third party contributions in defined benefit plans. Amendments are intended to simplify the accounting for contributions that are independent of the number of years of service of employees; e.g., contributions by employees that are calculated in accordance with a fixed percentage of the employee’s salary.01/07/2014
Amendment to IFRS 11 “Joint Arrangements” – on the acquisition of interest in a joint operation – Issued in May 2014. This amendment includes guidance relates to the method for accounting for an acquisition of an interest in a joint operation in which the activity constitutes a business, specifying the proper treatment for such acquisitions.01/01/2016
Amendment to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” on depreciation and amortization – Issued in May 2014. The amendments clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate because revenue generated by such an activity in general reflects other factors other than the use of the economic benefits embedded in the asset.  Likewise, the amendments clarify that a revenue-based amortization method is inappropriate to measure the use of the economic benefits embedded in the intangible asset.01/01/2016
Amendments to IAS 16 “Property, Plant and Equipment” and IAS 41 “Agriculture” on bearer plants – Issued in June 2014. These amendments modify the financial information for “bearer plants”, such as vineyards, rubber wood tree and oil palm. The amendments define the concept of “bearer plant” and establish that they should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing.  Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. Early adoption is permitted.01/01/2016
Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures”- Issued in September 2014. This amendment addresses an inconsistency between the requirements of IFRS 10 and IAS 28 for the treatment of a sale or contribution of assets between an investor and its associate or joint venture. The main consequence of this amendment is the recognition of a full gain or loss when the transaction involves a business (whether or not in a subsidiary) and a partial gain or loss when the transaction involves assets that are not a business, even if such assets are in a subsidiary01/01/2016

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-21

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 2 Basis of presentation of the consolidated financial statements (continued)

2.4Accounting pronouncements, continued

Amendments and improvementsMandatory for
annual periods
beginning on
Amendment to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Issued in December 2014. The amendment clarifies the application of the exception from consolidation for investment entities and its subsidiaries. The amendment to IFRS 10 clarifies on the exception on consolidation available for entities in group structures that include investment entities. The amendment to IAS 28 allows an entity that is not an investment entity, but has an interest in an associated or joint venture that is an investment entity, an option of accounting policy in the application of the equity method. The entity may opt for maintaining measurement at fair value applied by the associate or joint venture that is an investment entity or, consolidating at investment entity level (associate or joint venture). Early adoption is permitted.

01/01/2016

Amendment to IAS 1 “Presentation of Financial Statements”- Issued in December 2014. This amendment clarifies the application guidance of IAS 1 on materiality and aggregation, presentation of subtotals, structure of the financial statements and disclosure of accounting policies. The amendments are part of the IASB’s Initiative on Disclosures. Early adoption is permitted.

01/01/2016

Improvements to Information Financial Reporting Standards (2012)

Issued in December 2013

Mandatory for
annual periods
beginning on
IFRS 2 “Share-based Payment” – It clarifies the definition of “vesting conditions and “market conditions” and defines separately “performance conditions” and “service conditions.” Such an amendment should be applied prospectively on share-based payment transactions whose grant date is July 1, 2014 or after.  Early adoption is permitted.07/01/2014
IFRS 3, "Business Combinations" – The standard is modified to clarify that the obligation to pay a contingent consideration that meets the definition of a financial instrument is classified as a financial liability or equity, on the basis of the definitions in IAS 32, "Financial Instruments: Presentation." The standard was additionally amended to clarify that all non-equity contingent consideration, both financial and non-financial, is measured at its fair value at each reporting date recognizing changes in fair value in profit or loss. Consequently, there are also changes to IFRS 9, IAS 37 and IAS 39. The amendment is applicable prospectively for business combinations the acquisition date of which is July 1, 2014 or after. Early adoption is permitted provided that amendments to IFRS 9 and IAS 37 also issued as part of the 2012 improvements plan are also applied.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-22

Notes to the Consolidated Financial Statements as of December 31, 2014

 

Note 2      Basis of presentation for the consolidated financial statements (continued)

 

2.4Accounting pronouncements,Pronouncements, continued

 

Improvements to International Financial Reporting Standards (2012)
Issued(2014) issued in December 2013.September 2014
 Mandatory for annual
periods beginning on
IFRS 16 “Leases” – issued in January 2016 establishes the principle for the recognition, measurement, presentation and disclosure of leases. IFRS 16 supersedes the current IAS 17 and introduces a single model for accounting recognition for lessees and requires a lessee to recognize the assets and liabilities of all lease contracts over a term of more than 12 months, unless the underlying asset has a low value. The objective is ensuring that lessees and lessors provide relevant information that fairly represents transactions conducted. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, early adoption is permitted for entities applying IFRS 15 or prior to the date of initial application of IFRS 16. 

IFRS 8 “Operating Segments” – The standard is amended to include the requirement to disclose the judgments made by management in the aggregation of operating segments. The standard was additionally modified to require a reconciliation of assets of the segments to assets of an entity, when assets are reported by segment. Early adoption is permitted.

IFRS 13 "Fair Value Measurement” – IASB has modified the basis for conclusions of IFRS 13 to clarify that it did not intend to eliminate the ability to measure short-term receivables and payables at nominal amounts if the effect of not adjusting is not significant.

IAS 16 "Property, Plant and Equipment" and IAS 38, "Intangible Assets" – Both standards are amended to clarify the treatment of the gross carrying amount and accumulated depreciation when an entity uses the revaluation model. Early adoption is permitted.

IAS 24 "Related party Disclosures" – The standard is modified to include, as related party, an entity that provides key management personnel services to the reporting entity of the Parent of the reporting entity (“the managing entity”). Early adoption is permitted.

07/01/201401/2019
   

Improvements to International Financial Reporting Standards (2013)

IFRIC 22 “Foreign Currency Transactions and Advance Consideration.”  Issued in December 2013

2016. This Interpretation is applied to a foreign currency transaction (o a portion thereof) when an entity recognizes a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income (or related part thereof). The interpretation provides guidance for when an entity mas a single payment/receipt, as well as for situations where multiple payments/receipts are made. It is intended to reduce the diversity in the practice.
01/01/2018

 

Amendments and improvements Mandatory for annual
annual periods
beginning on
Amendment to IAS 7“Statement of Cash Flows.”– Issued in February 2016. This amendment introduces additional disclosures allowing users of financial statements to assess changes in obligations from financing activities.01/01/2017
   

Amendment to IAS 12“Income Taxes.”  - Issued in February 2016. This amendment clarifies how to account for deferred tax assets related to debt securities measured at fair value.

01/01/2017
Amendment to IFRS 1 “First-time Adoption15 “Revenue from Contracts with Customers” issued in April 2016. This amendment provides clarification for the guidance for the identification of International Financial Reporting Standards” –performance obligations in contracts with customers, the accounting for intellectual property license and the assessment of principal versus agent (gross presentation vs. net presentation of revenue). It clarifies that when aincludes new version of a standard is not yet mandatory but is available for early adoption, a first-time adopter of IFRS may opt to apply the older or new version of the standard, provided that the same standard is applied to all periods presented.

IFRS 3 “Business Combinations” – The standard is modified to clarify that IFRS 3 is not applicableand amended illustrative examples, as well as practical examples related to the accounting recognitiontransition to the new revenue standard.

01/01/2018
Amendment to IFRS 12 “Disclosure of the formation of a new joint arrangement under IFRS 11.Interest in Other Entities.” Issued in December 2016.  This amendment also clarifies that only the scope exemption is applied to the financial statements of the joint arrangement.

IFRS 13 “Fair Value Measurement” – It clarifies that the portfolio exception in IFRS 13, that allows an entity to measure the fair value of a group of financial assets and financial liabilities as at their net amount, applies to all contracts (including non-financial contracts) within the scope of this standard. These amendments must be applied retrospectively to annual periods beginning on or after January 1, 2017.

01/01/2017
Amendment to IAS 39 or IFRS 9. An entity must apply28 “Investments in Associates and Joint Ventures” related to the amendments prospectively from the startmeasurement of the first annual periodassociate or joint venture at fair value. Issued in which IFRS 13 is applied.

December 2016.
 07/01/201401/2018

 

SQM S.A.

As of December 31, 2016, the company is in the process of evaluating the impact of adopting the IFRS 9, IFRS 15 and IFRS 16. These standards will not be early adopted. For the rest of the standards mentioned in the table above, the Company does not expect a material impact on the consolidated financial statements upon initial application.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-23

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2      Basis of presentation for the consolidated financial statements (continued)

 

2.4Accounting pronouncements, continued

Improvements to International Financial Reporting Standards (2014)

Issued in September 2014

Mandatory for annual
periods beginning on
IFRS 7 "Financial Instruments: Disclosures-"This includes two amendments of IFRS 7. (1) Service contracts: If an entity transfers a financial asset to a third party in conditions that allow the transferor to derecognize the asset, IFRS 7 requires the disclosure of any type of continuing involvement that the entity may still have in the transferred assets. IFRS 7 provides guidance on what is understood as continuing involvement within this context. The amendment is prospective and can be applied retrospectively. This also affects IFRS 1 to provide the same option to the first-time adopters of IFRS. (2) Interim financial statements. The amendment clarifies that the additional disclosure required by amendments of IFRS 7 "Offsetting of financial assets and financial liabilities” is not specifically required for all interim periods unless required by IAS 34. Such amendment is retrospective.01/01/2016
IAS 19 "Employee Benefits" – This amendment clarifies that in order to determine the discount rate for post-employment benefit obligations, the important aspect is the currency in which liabilities are denominated, not the country where they generate. The evaluation of whether a deep market exists for high-quality corporate bonds is based on corporate bonds in such currency, not in corporate bonds of a particular country. Likewise, where there is no deep market for high-quality corporate bonuses in such currency, government bonds in the related currency have to be used, Such amendment is retrospective but limited at the beginning of the first period presented.

The Company's management believes that the adoption of standards, amendments and interpretations described above are under evaluation and it is expected that they will not have a significant impact on the Consolidated Financial Statements of the Company.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-24

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 2Basis of presentation for the consolidated financial statements (continued)

2.5Basis of consolidation

 

(a)Subsidiaries

 

Subsidiaries includeRelate to all the entities overon which Sociedad Química y Minera de Chile S.A. has control defined as when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those variable returns through its power over the entity. Subsidiaries apply the same accounting policies of their Parent.

 

To account for acquisitions,the acquisition, the Company uses the acquisition method. Under this method the acquisition cost is the fair value of assets delivered, equity securities issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingencies assumed in a business combination are measured initially at fair value at the acquisition date. For each business combination, the Company will measure non-controlling interest of the acquireacquiree either at fair value or as proportional share of net identifiable assets of the acquiree.

 

Companies included in consolidation:

 

   Ownership interest 
  Country of   12/31/2014 12/31/2013        Ownership interest 
TAX ID No. Foreign subsidiaries origin Functional currency Direct  Indirect  Total  Total  Foreign subsidiaries Country of
origin
 Functional currency      12/31/2016 12/31/2015 
       Direct  Indirect  Total  Total 
Foreign Nitratos Naturais Do Chile Ltda. Brazil US$  0.0000   100.0000   100.0000   100.0000  Nitratos Naturais Do Chile Ltda. Brazil US$  0.0000   100.0000   100.0000   100.0000 
Foreign Nitrate Corporation Of Chile Ltd. United Kingdom US$  0.0000   100.0000   100.0000   100.0000  Nitrate Corporation Of Chile Ltd. United Kingdom US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM North America Corp. USA US$  40.0000   60.0000   100.0000   100.0000  SQM North America Corp. USA US$  40.0000   60.0000   100.0000   100.0000 
Foreign SQM Europe N.V. Belgium US$  0.5800   99.4200   100.0000   100.0000  SQM Europe N.V. Belgium US$  0.5800   99.4200   100.0000   100.0000 
Foreign Soquimich S.R.L. Argentina Argentina US$  0.0000   100.0000   100.0000   100.0000  Soquimich S.R.L. Argentina Argentina US$  0.0000   100.0000   100.0000   100.0000 
Foreign Soquimich European Holding B.V. Netherlands US$  0.0000   100.0000   100.0000   100.0000  Soquimich European Holding B.V. Netherlands US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Corporation N.V. Dutch Antilles US$  0.0002   99.9998   100.0000   100.0000  SQM Corporation N.V. Netherlands US$  0.0002   99.9998   100.0000   100.0000 
Foreign SQI Corporation N.V. Dutch Antilles US$  0.0159   99.9841   100.0000   100.0000  SQI Corporation N.V. Netherlands US$  0.0159   99.9841   100.0000   100.0000 
Foreign SQM Comercial De México S.A. de C.V. Mexico US$  0.0013   99.9987   100.0000   100.0000  SQM Comercial De México S.A. de C.V. Mexico US$  0.0100   99.9900   100.0000   100.0000 
Foreign North American Trading Company USA US$  0.0000   100.0000   100.0000   100.0000  North American Trading Company USA US$  0.0000   100.0000   100.0000   100.0000 
Foreign Administración Y Servicios Santiago S.A. de C.V. Mexico US$  0.0000   100.0000   100.0000   100.0000  Administración y Servicios Santiago S.A. de C.V. Mexico US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Peru S.A. Peru US$  0.9800   99.0200   100.0000   100.0000  SQM Peru S.A. Peru US$  0.9800   99.0200   100.0000   100.0000 
Foreign SQM Ecuador S.A. Ecuador US$  0.0040   99.9960   100.0000   100.0000  SQM Ecuador S.A. Ecuador US$  0.0040   99.9960   100.0000   100.0000 
Foreign SQM Nitratos Mexico S.A. de C.V. Mexico US$  0.0000   100.0000   100.0000   100.0000  SQM Nitratos Mexico S.A. de C.V. Mexico US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQMC Holding Corporation L.L.P. USA. US$  0.1000   99.9000   100.0000   100.0000  SQMC Holding Corporation L.L.P. USA. US$  0.1000   99.9000   100.0000   100.0000 
Foreign SQM Investment Corporation N.V. Dutch Antilles US$  1.0000   99.0000   100.0000   100.0000  SQM Investment Corporation N.V. Netherlands US$  1.0000   99.0000   100.0000   100.0000 
Foreign SQM Brasil Limitada Brazil US$  1.0900   98.9100   100.0000   100.0000  SQM Brasil Limitada Brazil US$  1.0900   98.9100   100.0000   100.0000 
Foreign SQM France S.A. France US$  0.0000   100.0000   100.0000   100.0000  SQM France S.A. France US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Japan Co. Ltd. Japan US$  1.0000   99.0000   100.0000   100.0000  SQM Japan Co. Ltd. Japan US$  0.5376   99.4624   100.0000   100.0000 
Foreign Royal Seed Trading Corporation A.V.V. Aruba US$  1.6700   98.3300   100.0000   100.0000  Royal Seed Trading Corporation A.V.V. Aruba US$  1.6700   98.3300   100.0000   100.0000 
Foreign SQM Oceania Pty Limited Australia US$  0.0000   100.0000   100.0000   100.0000  SQM Oceania Pty Limited Australia US$  0.0000   100.0000   100.0000   100.0000 
Foreign Rs Agro-Chemical Trading Corporation A.V.V. Aruba US$  98.3333   1.6667   100.0000   100.0000 
Foreign SQM Indonesia S.A. Indonesia US$  0.0000   80.0000   80.0000   80.0000 
Foreign SQM Virginia L.L.C. USA US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Italia SRL Italy US$  0.0000   100.0000   100.0000   100.0000 
Foreign Comercial Caimán Internacional S.A. Panama US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Africa Pty. South Africa US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Lithium Specialties LLC USA US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Iberian S.A. Spain US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Agro India Pvt.Ltd. India US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Beijing Commercial Co. Ltd. China US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Thailand Limited Thailand US$  0.0000   99.996   99.996   99.996 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-25F-24

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2      Basis of presentation for the consolidated financial statements (continued)

 

2.5Basis of consolidation, continued

 

        Ownership interest 
    Country Functional 12/31/2014  12/31/2013 
TAX ID No. Domestic subsidiaries of origin currency Direct  Indirect  Total  Total 
                   
96.801.610-5 Comercial Hydro  S.A. Chile US$  0.0000   60.6383   60.6383   60.6383 
96.651.060-9 SQM Potasio S.A. Chile US$  99.9999   0.0000   99.9999   99.9999 
96.592.190-7 SQM Nitratos S.A. Chile US$  99.9999   0.0001   100.0000   100.0000 
96.592.180-K Ajay SQM Chile S.A. Chile US$  51.0000   0.0000   51.0000   51.0000 
86.630.200-6 SQMC Internacional  Ltda. Chile Ch$  0.0000   60.6381   60.6381   60.6381 
79.947.100-0 SQM Industrial S.A. Chile US$  99.0470   0.9530   100.0000   100.0000 
79.906.120-1 Isapre Norte Grande Ltda. Chile Ch$  1.0000   99.0000   100.0000   100.0000 
79.876.080-7 Almacenes y Depósitos Ltda. Chile Ch$  1.0000   99.0000   100.0000   100.0000 
79.770.780-5 Servicios Integrales de Tránsitos y Transferencias S.A. Chile US$  0.0003   99.9997   100.0000   100.0000 
79.768.170-9 Soquimich Comercial S.A. Chile US$  0.0000   60.6383   60.6383   60.6383 
79.626.800-K SQM Salar S.A. Chile US$  18.1800   81.8200   100.0000   100.0000 
78.053.910-0 Proinsa Ltda. Chile Ch$  0.0000   60.5800   60.5800   60.5800 
76.534.490-5 Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A. Chile Ch$  0.0000   100.0000   100.0000   100.0000 
76.425.380-9 Exploraciones Mineras S.A. Chile US$  0.2691   99.7309   100.0000   100.0000 
76.064.419-6 Comercial Agrorama Ltda. Chile Ch$  0.0000   42.4468   42.4468   42.4468 
76.145.229-0 Agrorama S.A. Chile Ch$  0.0000   60.6377   60.6377   60.6377 
76.359.919-1 Orcoma Estudios SPA Chile US$  51.0000   -   51.0000   100.0000 
76.360.575-2 Orcoma SPA Chile US$  100.0000   -   100.0000   100.0000 
        Ownership interest 
TAX ID No. Foreign subsidiaries Country of
origin
 Functional currency       12/31/2016  12/31/2015 
        Direct  Indirect  Total  Total 
Foreign Rs Agro-Chemical Trading Corporation A.V.V. Aruba US$  98.3333   1.6667   100.0000   100.0000 
Foreign SQM Indonesia S.A. Indonesia US$  0.0000   80.0000   80.0000   80.0000 
Foreign SQM Virginia L.L.C. USA US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Italia SRL Italy US$  0.0000   100.0000   100.0000   100.0000 
Foreign Comercial Caimán Internacional S.A. Panama US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Africa Pty. South Africa US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Lithium Specialties LLC USA US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Iberian S.A. Spain US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Agro India Pvt. Ltd. India US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Beijing Commercial Co. Ltd. China US$  0.0000   100.0000   100.0000   100.0000 
Foreign SQM Thailand Limited Thailand US$  0.0000   99.996   99.996   99.996 
Foreign SQM Vitas Spain Spain Euro  0.0000   100.0000   100.0000   - 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-26

Notes to the Consolidated Financial Statements as of December 31, 2014
        Ownership interest 
TAX ID No. Domestic subsidiaries Country of
origin
 Functional currency       12/31/2016  12/31/2015 
        Direct  Indirect  Total  Total 
96.801.610-5 Comercial Hydro S.A. Chile US$  0.0000   60.6383   60.6383   60.6383 
96.651.060-9 SQM Potasio S.A. Chile US$  99.9999   0.0000   99.9999   99.9999 
96.592.190-7 SQM Nitratos S.A. Chile US$  99.9999   0.0001   100.0000   100.0000 
96.592.180-K Ajay SQM Chile S.A. Chile US$  51.0000   0.0000   51.0000   51.0000 
86.630.200-6 SQMC Internacional  Ltda. Chile Ch$  0.0000   60.6381   60.6381   60.6381 
79.947.100-0 SQM Industrial S.A. Chile US$  99.0470   0.9530   100.0000   100.0000 
79.906.120-1 Isapre Norte Grande Ltda. Chile Ch$  1.0000   99.0000   100.0000   100.0000 
79.876.080-7 Almacenes y Depósitos Ltda. Chile Ch$  1.0000   99.0000   100.0000   100.0000 
79.770.780-5 Servicios Integrales de Tránsitos y Transferencias S.A. Chile US$  0.0003   99.9997   100.0000   100.0000 
79.768.170-9 Soquimich Comercial S.A. Chile US$  0.0000   60.6383   60.6383   60.6383 
79.626.800-K SQM Salar S.A. Chile US$  18.1800   81.8200   100.0000   100.0000 
78.053.910-0 Proinsa Ltda. Chile Ch$  0.0000   60.5800   60.5800   60.5800 
76.534.490-5 Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A. Chile Ch$  0.0000   100.0000   100.0000   100.0000 
76.425.380-9 Exploraciones Mineras S.A. Chile US$  0.2691   99.7309   100.0000   100.0000 
76.064.419-6 Comercial Agrorama Ltda. (a) Chile Ch$  0.0000   42.4468   42.4468   42.4468 
76.145.229-0 Agrorama S.A. Chile Ch$  0.0000   60.6377   60.6377   60.6377 
76.359.919-1 Orcoma Estudios SPA Chile US$  51.0000   -   51.0000   51.0000 
76.360.575-2 Orcoma SPA Chile US$  100.0000   -   100.0000   100.0000 

 

Note 2(a)BasisThe Company consolidated Comercial Agrorama Ltda. as it has the control of presentation for the consolidated financial statements (continued)

2.5Basis of consolidation, continuedthis company’s relevant activities.

 

Subsidiaries are consolidated using the line-by-line method, adding the items that represent assets, liabilities, revenues, and expenses of similar content, and eliminating those related to intragroup transactions.

 

F-25
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 2      Basis of presentation for the consolidated financial statements (continued)

2.5Basis of consolidation, continued

Profit or loss of subsidiaries acquired or disposed of during the year are included in profit or loss accounts consolidated from the date control is transferred to the Group, or up to the effective datecontroldate control is lost, as applicable.

 

Non-controlling interest represents the equity of a subsidiary not directly or indirectly attributable to the Parent.

2.6Significant accounting judgments, estimates and assumptions

Management of Sociedad Química y Minera de Chile S.A. and its subsidiaries is responsible for the information contained in these consolidated financial statements, which expressly indicate that all the principles and criteria included in IFRSs, as issued by the International Accounting Standards Board (IASB), have been applied in full.

In preparing the consolidated financial statements of Sociedad Química y Minera de Chile S.A. and its subsidiaries, Management has made judgments and estimates to quantify certain assets, liabilities, revenues, expenses and commitments included therein. Basically, these estimates refer to:

-The useful lives of property, plant and equipment, and intangible assets and their residual value;

-Impairment losses of certain assets, including trade receivables;

-Assumptions used in calculating the actuarial amount of pension-related and severance indemnity payment benefit commitments;

-Provisions for commitments assumed with third parties and contingent liabilities;

-Provisions on the basis of technical studies that cover the different variables affecting products in stock (density and moist, among others), and allowance for slow-moving spare-parts in stock;

-Future cost for closure of mining sites;

-The determination of the fair value of certain financial assets and derivative instruments;

-The determination and assignment of fair values in business combinations.

Despite the fact that these estimates have been made on the basis of the best information available on the date of preparation of these consolidated financial statements, certain events may occur in the future and oblige their amendment (upwards or downwards) over the next few years, which would be made prospectively, recognizing the effects of the change in estimates in the related future consolidated financial statements.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-27

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies

Note 3      Significant accounting policies

 

3.1Classification of balances as current and non-current

 

In the attached consolidated statement of financial position, balances are classified in consideration of their remaining recovery (maturity) dates; i.e., those maturing on a date equal to or lower than twelve months are classified as current and those with maturity dates exceeding the aforementioned period are classified as non-current.

 

The exception to the foregoing relates to deferred taxes, which are classified as non-current, regardless of the maturity they have.

 

3.2Functional and presentation currency

 

The Company’s consolidated financial statements are presented in United States dollars (“U.S. dollars” or “US$”), which is the Company’s functional and presentation currency and is the currency of the main economic environment in which it operates.

 

Consequently, the term foreign currency is defined as any currency other than the U.S. dollar.

 

The consolidated financial statements are presented in thousands of United States dollars without decimals.

 

3.3Foreign currency translation

 

(a)DomesticGroup entities:

Assets and liabilities denominated in Chilean pesos and other currencies other than the functional currency (U.S. dollar) as of December 31, 2014 and December 31, 2013 have been translated to U.S. dollars at the exchange rates prevailing at those dates. The corresponding Chilean pesos were converted at Ch$606.75 per US$1.00 as of December 31, 2014, and Ch$524.61 per US$1.00 as of December 31, 2013.

The values of the UF (a Chilean peso-denominated, inflation-indexed monetary unit) used to convert the UF-denominated assets and liabilities as of December 31, 2014 amounted to Ch$24,627.1 (US$40.59), and as of December 31, 2013 amounted to Ch$23,309.56 (US$44.43).

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-28

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.3Foreign currency translation, continued

(b)Foreign entities:

The conversion of the financial statements of foreign companies with functional currency other than U.S. dollars is performed as follows:

-Assets and liabilities using the exchange rate prevailing on the closing date of the consolidated financial statements.

-Statement of income account items using the average exchange rate for the year.

-Equity accounts are stated at the historical exchange rate prevailing at the acquisition date.

Foreign currency translation differences which arise from the conversion of financial statements are recorded in the account “Foreign currency translation differences," within equity.

The exchange rates used to translate the monetary assets and liabilities expressed in foreign currency at the closing date of each period in respect to the U.S. dollar are detailed as follows:

  12/31/2014  12/31/2013 
  US$  US$ 
       
Brazilian real  2.65   2.34 
New Peruvian sol  2.97   2.75 
Argentine peso  8.45   6.48 
Japanese yen  120.55   105.39 
Euro  0.82   0.73 
Mexican peso  14.74   13.07 
Australian dollar  0.82   1.12 
Pound Sterling  0.64   0.61 
South African rand  11.55   10.56 
Ecuadorian dollar  1.00   1.00 
Chilean peso  606.75   524.61 
UF  40.59   44.43 

(c)Transactions and balances

Non-monetary transactions in currencies other than the functional currency (U.S. dollar) foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. All differences are recorded in the statement of income except for all monetary items that provide effective hedge for a net investment in a foreign operation. These items are recognized in other comprehensive income on the disposal of the investment; at the time they are recognized in the statement of income. Charges and credits attributable to foreign currency translation differences on those hedge monetary items are also recognized in other comprehensive income.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-29

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.3Foreign currency translation, continued

Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are retranslated to the functional currency at the historical exchange rate of the transaction. Non-monetary items that are measured based on fair value in a foreign currency are translated using the exchange rate at the date on which the fair value is determined.

(d)Group entities

 

The revenue, expenses, assets and liabilities of all entities that have a functional currency other than the presentation currency are converted to the presentation currency as follows:

 

-Assets and liabilities are converted at the closing exchange rate prevailing on the reporting date.

 

-Revenues and expenses of each profit or loss account are converted at monthly average exchange rates.

 

-All resulting foreign currency translation gains and losses are recognized as a separate component in translation reserves.

 

In consolidation, foreign currency differences arising from the translation of a net investment in foreign entities are recorded in equity (other reserves). At the date of disposal, such foreign currency translation differences are recognized in the statement of income as part of the gain or loss from the sale.

 

F-26
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.3Foreign currency translation, continued

The main exchange rates used to translate monetary assets and liabilities, expressed in foreign currency at the end of each period in respect to U.S. dollars, are as follows:

  12/31/2016  12/31/2015 
  US$  US$ 
       
Brazilian real  3.25   3.90 
New Peruvian sol  3.35   3.41 
Argentine peso  15.84   12.90 
Japanese yen  116.83   120.61 
Euro  0.95   0.92 
Mexican peso  20.63   17.34 
Australian dollar  0.72   0.73 
Pound Sterling  0.81   0.67 
South African rand  13.70   15.61 
Ecuadorian dollar  1.00   1.00 
Chilean peso  669.47   710.16 
UF  39.36   36.09 

(b)Transactions and balances

Non-monetary transactions in currencies other than the functional currency (U.S. dollar) foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. All differences are recorded in the statement of income except for all monetary item that provide effective hedge for a net investment in a foreign operation. These items are recognized in other comprehensive income on the disposal of the investment; at the time they are recognized in the statement of income. Charges and credits attributable to foreign currency translation differences on those hedge monetary item are also recognized in other comprehensive income.

Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are retranslated to the functional currency at the historical exchange rate of the transaction. Non-monetary items that are measured based on fair value in a foreign currency are translated using the exchange rate at the date on which the fair value is determined.

F-27
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.4Subsidiaries

 

SQM S.A. establishes, as basis, the control exercised in subsidiaries, to determine their share in the consolidated financial statements. Control consists of the Company’s ability to exercise power in the subsidiary, exposure, or right, to variable performance from its share in the investee and the ability to use its power on the investee to have an influence on the amount of the investor’s performance.

 

The Company prepares the consolidated financial statements using consistent accounting policies for the entire Group, the consolidation of a subsidiary commences when the Company has control over the subsidiary and stops when control ceases.

 

3.5Consolidated statement of cash flows

 

Cash equivalents consist ofcorrespond to highly-liquid short-term investments that are easily convertible in known amounts of cash. They are subject to insignificant risk of changes in their value and with original maturities ofmature in less than three months or less.from the date of acquisition of the instrument.

 

For purposes of the statement of cash flows, cash and cash equivalents comprise cash and cash equivalents as defined above.

 

The statement of cash flows includes movements in cash ocurringperformed during the year, determined using the direct method.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-30

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3 Significant accounting policies (continued)

3.6Financial assets

 

Management determines the classification of its financial assets at the time of initial recognition, (onon the basis of the business model)model for the management of financial assets and the characteristics of contractual cash flows from the financial assets. In accordance with IAS 39, financial assets are measured initially at fair value plus transaction costs that may have been incurred and are directly attributable to the acquisition of the financial asset. Subsequently, financial assets are measured at amortized cost or fair value.

 

The Company assesses, at each reporting date, whether there is objective evidence that an asset or group of assets is impaired. An asset or group of financial assets is impaired if and only if there is evidence of impairment as a result of one or more events occurring after the initial recognition of the asset or group of assets. For the recognition of impairment, the loss event has to have an impact on the estimate of future cash flows from the asset or groups of financial assets.

 

F-28
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.7Financial liabilities

 

Management determines the classification of its financial liabilities at the time of initial recognition. As established in IAS 39, financial liabilities at the time of initial recognition are measured at fair value, less transaction costs that may have been incurred and are directly attributable to the issue of the financial liability. Subsequently, these are measured at amortized cost using the effective interest method. For financial liabilities that have been initially recognized at fair value through profit or loss, these will be measured subsequently at fair value.

 

3.8Financial instruments at fair value through profit or loss

 

Management will irrevocably determine, at the time of initial recognition, the designation of a financial instrument at fair value through profit or loss. By doing so, this eliminates and/or significantly reduces measurement or recognition inconsistency that would otherwise havenhave arisen from the measurement of assets or liabilities or from the recognition of gains and losses from them on different bases.

 

3.9Financial instrument offsetting

 

The Company offsets an asset and liability if and only if it presently has a legally enforceable right of setting off the amounts recognized and has the intent of settling for the net amount of realizing the asset and settling the liability simultaneously.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-31

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3 Significant accounting policies (continued)

3.10Reclassification of financial instruments

 

At the time when the Company changes its business model for managing financial assets, it will reclassify the financial assets affected by the new business model.

 

For financial liabilities these could not be reclassified.

 

3.11Derivative and hedging financial instruments

 

Derivatives are recognized initially at fair value as of the date on which the derivatives contract is signed and, subsequently, are assessed at fair value. The method for recognizing the resulting gain or loss depends on whether the derivative has been designated as an accounting hedge instrument and, if so, it depends on the type of hedging, which may be as follows:

 

(a)Fair value hedge of assets and liabilities recognized (fair value hedges);

(b)Hedging of a single risk associated with an asset or liability recognized or a highly probable forecast transaction (cash flow hedge).

 

At the beginning of the transaction, the Company documents the relationship existing between hedging instruments and those items hedged, as well as their objectives for risk management purposes and the strategy to conduct different hedging operations.

F-29
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.11Derivative and hedging financial instruments, continued

 

The Company also documents its evaluation both at the beginning and at the end of each period if derivatives used in hedging transactions are highly effective to offset changes in the fair value or in cash flows of hedged items.

 

The fair value of derivative instruments used for hedging purposes is shown in Note 10.3 (hedging assets and liabilities). Changes in the cash flow hedge reserve are classified as a non-current asset or liability if the remaining expiration period of the hedged item is higher than 12 months, and as a current asset or liability if the remaining expiration period of the entry is lower than 12 months.

 

InvestingDerivatives that are not designated or do not qualify as hedging derivatives are classified as a current assetassets or liability,liabilities, and the changechanges in theirthe fair value isare directly recognized directly inthrough profit or loss.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-32

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.11Derivative and hedging financial instruments, continued

 

(a)Fair value hedge

 

The changeChanges in the fair value of a derivative is recognized with a debit or credit toderivatives that are designated and qualify as fair value hedges are recorded in profit or loss, as applicable. The changetogether with any changes in the fair value of the hedged entryasset or liability that are attributable to the hedged riskrisk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognized as part ofrecognised in profit or loss within finance costs, together with changes in the carryingfair value of the hedged entry andfixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is also recognized with a debit or credit to profit or loss.

For fair value hedges related to items recorded at amortized cost, the adjustment of the fair value is amortized againstrecognised in profit or loss duringwithin other income or other expenses. If the period, through maturity. Anyhedge no longer meets the criteria for hedge accounting, the adjustment to the carrying valueamount of a hedged financial instrument,item for which the effective rateinterest method is used is amortized with a debit or creditamortised to profit or loss at its fair value, attributableover the period to the risk being covered.

If the hedged entry is derecognized, the fair value not amortized is immediately recognized withmaturity using a debit or credit to profit or loss.recalculated effective interest rate.

 

(b)Cash flow hedges

 

The effective portion of gains or losses from the hedge instrument is initially recognized with a debit or credit to other comprehensive income, whereas any ineffective portion is immediately recognized with a debit or credit to profit or loss, as applicable.

 

Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, as when the hedged interest income or expense is recognized when a projected sale occurs. When the hedged entry is the cost of a non-financial asset or liability, amounts taken to other reserves are transferred to the initial carrying value of the non-financial asset or liability.

 

Should the expected firm transaction or commitment no longer be expected to occur, the amounts previously recognized in equity are transferred to profit or loss. If a hedge instrument expires, is sold, finished, or exercised without any replacement, or if a rollover is performed or if its designation as hedging is revoked, the amounts previously recognized in other reserves are maintained in equity until the expected firm transaction or commitment occurs.

 

F-30
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.12Available for sale financial assets

Available for sale financial assets are non-derivative financial assets, which have been designated as available for sale and are not classified in any of the previous categories of financial instruments. Available for sale financial instruments are initially recognized at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, they are recognized at fair value and changes other than impairment losses are recognized in other comprehensive income and presented in equity in the fair value reserve. If an investment is derecognized, the accumulated gain or loss is reclassified to profit or loss.

3.13Derecognition of financial instruments

 

In accordance with IAS 39, 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 the risks and rewards of ownership of the financial asset are transferred; and the control of the financial assets has not been retained.

 

The Company derecognizes a financial liability when its contractual obligations or a part of these are discharged, payingpaid to the creditor or its legally extinguished entity the primary responsibility for the liability.extinguished.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-33

Notes to the Consolidated Financial Statements as of December 31, 2014

 

Note 3Significant accounting policies (continued)

3.133.14Derivative financial instruments not considered as hedge

 

The Company maintains derivative financial instruments to hedge its exposure to foreign currencies. Derivative financial instruments are recognized initially at fair value; attributable transactiontransact ion costs are recognized when incurred. Subsequent to initial recognition, changes in fair value of such derivatives are recognized in profit or loss as part of gains and losses.

 

The Company permanently assesses the existence of embedded derivatives, both in its contracts and financial instruments. As of December 31, 20142016 and 2013,December 31, 2015, there are no embedded derivatives.

 

3.143.15Fair value initial measurements

 

From the initial recognition, the Company measures its assets and liabilities at fair value plus or minus transaction costs incurred that are directly attributable to the acquisition of a financial asset or issuance of a financial liability.

 

F-31
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.153.16Leases

 

(a)Lease - Finance lease

 

Leases are classified as finance leases when the Company holds substantially all the risks and rewards derived from the ownership of the asset. Finance leases are capitalized at the beginning of the lease, at the lower of the fair value of the leased asset or the present value of minimum lease payments.

 

Each lease payment is distributed between the liability and the interest expenses to obtain ongoing interest on the pending balance of debt. The respective lease obligations, net of interest expense, are included in other non-current liabilities. The interest element of finance cost is debited in the consolidated statement of income during the lease period so that a regular ongoing interest rate is obtained on the remaining balance of the liability for each year.

 

(b)Lease – Operating lease

 

Leases in which the lesserlessor maintains a significant part of the risks and rewards derived from the ownership are classified as operating leases. Operating lease payments (net of any incentive received from the lesser)lessor) are debited to the statement of income or capitalized (as applicable) on a straight-line basis over the lease period.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-34

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.163.17Deferred acquisition costs from insurance contracts

 

Acquisition costs from insurance contracts are classified as prepayments and correspond to insurance contracts in force, recognized using the straight-line method and on an accrual basis, and are recognized under other non-financial assets.

 

These are expensed considering the proportional period of time they cover, regardless of the related payment dates.

3.173.18Trade and other receivables

 

Trade and other receivables relate to non-derivative financial assets with fixed and determinable payments and are not quoted in any active market. These arise from sales operations involving the products and/or services, of which the Company commercializes directly to its customers.

 

These assets are initially recognized at their fair value and subsequently at amortized cost according to the effective interest rate method, less a provision for impairment loss. An allowance for impairment loss is established for trade receivables when there is objective evidence that the Company will not be able to collect all the amounts which are owed to it, according to the original terms of receivables.

 

Implicit interest in installment sales is recognized as interest income when interest is accrued over the term of the operation.

 

F-32
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.183.19Inventory measurement

 

The Company states inventories forat the lower of cost and net realizable value. The cost price of finished products and products in progress includes the direct cost of materials and, when applicable, labor costs, indirect costs incurred to transform raw materials into finished products, and general expenses incurred in carrying inventories to their current location and conditions. The method used to determine the cost of inventories is weighted average cost.

 

Commercial discounts, rebates obtained, and other similar entries are deducted in the determination of the acquisition price.

 

The net realizable value represents the estimate of the sales price, less all finishing estimated costs and costs which will be incurred in commercialization, sales, and distribution processes.

 

The Company conducts an evaluation of the net realizable value of inventories at the end of each year, recording an estimate with a charge to income when these are overstated. When a situation arises whereby the circumstances, which previously caused the rebate to cease to exist, or when there is clear evidence of an increase in the net realizable value due to a change in the economic circumstances or prices of main raw materials, the estimate made previously is modified.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-35

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.18Inventory measurement, continued

The valuation of obsolete, impaired or slow-moving products relates to their net estimated, net realizable value.

 

Provisions on the Company's inventories have been made based on a technical study which covers the different variables which affect products in stock (density and humidity, among others).

 

Raw materials, supplies and materials are recorded at the lower of acquisition cost or market value. Acquisition cost is calculated according to the average price method.

 

F-33
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.193.20Investments in associates and joint ventures

 

Interests in companies on which joint control is exercised (joint venture) or where an entity has significant influence (associates) are recognized using the equity method of accounting. Significant influence is presumed to exist when interest greater than 20% is held in the capital of an investee.

 

Under this method, the investment is recognized in the statement of financial position at cost plus changes, subsequent to the acquisition, and considering the proportional share in the equity of the associate. For such purposes, the interest percentage in the ownership of the associate is used. The associated goodwill acquired is included in the carrying amount of the investee and is not amortized. The debit or credit to profit or loss reflects the proportional share in the profit or loss of the associate.

 

Unrealized gains for transactions with affiliates or associates are eliminated considering the interest percentage the Company has on such entities. Unrealized losses are also eliminated, except if the transaction provides evidence of impairment loss of the transferred asset.

 

Changes in the equity of associates are recognized considering the proportional amounts with a charge or credit to “Other reserves” and classified considering their origin.

 

Reporting dates of the associate, the Company and related policies are similar for equivalent transactions and events under similar circumstances.

 

In the event that the significant influence is lost or the investment is sold or is held as available for sale, the equity method is discontinued, suspending the recognition of proportional share of profit or loss.

 

If the resulting amount according to the equity method is negative, the share of profit or loss is reflected at zero value in the consolidated financial statements, unless a commitment exists by the Company to reinstate the Company’s equity position, in which case the related provision for risks and expenses is recorded.

 

Dividends received by these companies are recorded by reducing the equity value, and the proportional share of profit or loss recognized in conformity with the share of equity are included in the consolidated profit or loss accounts in the caption “Equity share of profit (loss) of associates and joint ventures that are accounted for using the equity method of accounting”.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-36

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.203.21Transactions with non-controlling interests

 

Non-controlling interests are recorded in the consolidated statement of financial position within equity separate from equity attributable to the owners of the Parent.

 

3.213.22Related party transactions

 

Transactions between the Company and its subsidiaries are part of the Company’s normal operations within its scope of business activities. Conditions for such transactions are those normally effective for those types of operations with regard to terms and market prices. Also, these transactions have been eliminated in consolidation. Expiration conditions for each case vary by virtue ofaccording to the originating transaction.

 

F-34
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.223.23Property, plant and equipment

 

Tangible property, plant and equipment assets are stated at acquisition cost, net of the related accumulated depreciation, amortization and impairment losses that they might have experienced.

 

In addition to the price paid for the acquisition of tangible property, plant and equipment, the Company has considered the following concepts as part of the acquisition cost, as applicable:

 

1.        Accrued interest expenses during the construction period which are directly attributable to the acquisition, construction or production of qualifying assets, which are those that require a substantial period prior to being ready for use. The interest rate used is that related to the project’s specific financing or, should this not exist, the average financing rate of the investor company.

 

2.         The future costs that the Company will have to experience, related to the closure of its facilities at the end of their useful life, are included at the present value of disbursements expected to be required to settle the obligation.

 

Construction-in-progress is transferred to property, plant and equipment in operation once the assets are available for use and the related depreciation and amortization begins on that date.

 

Extension, modernization or improvement costs that represent an increase in productivity, ability or efficiency or an extension of the useful lives of property, plant and equipment are capitalized as a higher cost of the related assets. All the remaining maintenance, preservation and repair expenses are charged to expense as incurred.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-37

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.22Property, plant and equipment, continued

The replacement of full assets, which increase the asset’s useful life or its economic capacity, are recorded as a higher value of property, plant and equipment with the related derecognition of replaced or renewed elements.

 

Based on the impairment analysis conducted by the Company’s management, it has been considered that the carrying value of assets does not exceed therecoverableamount.

Gains or losses which are generated from the sale or disposal of property, plant and equipment are recognized as income (or loss) in the period, and calculated as the difference between the asset’s sales proceedsvalue and its net carrying value.

 

Costs incurredderived from daily maintenance of property, plant and equipment are expensed in the period incurred.Depreciation of property, plant and equipmentrecognized when incurred.

F-35
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.24Depreciation of property, plant and equipment

 

Property, plant and equipment are depreciated through the straight-line distribution of cost over the estimated technical useful life of the asset which is the period in which the Company expects to use the asset. When components of one item of property, plant and equipment have different useful lives, they are recorded as separate assets. Useful lives are reviewed on an annual basis.

 

In the case of mobile equipment depreciation is performed depending on the hours of operation

The useful lives used for the depreciation and amortization of assets included in property, plant and equipment in years are presented below.

 

Types of property, plant and equipment Minimum
life or rate
 Maximum
life or rate
     
Buildings 3 60
Plant and equipment 3 35
Information technology equipment 3 10
Fixtures and fittings 3 35
Motor vehicles 5 10
Other property, plant and equipment 2 30

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-38

Notes to the Consolidated Financial Statements as of December 31, 2014

Types of property, plant and equipment Minimum life
or rate
  Maximum
life or rate
 
Buildings  3   40 
Machinery  2   25 
Transport equipment  3   30 
Furniture and fixtures  2   18 
Office equipment  2   20 
Production plants  1   25 
Mining assets  3   20 
Other property, plant and equipment  1   30 

 

Note 3Significant accounting policies (continued)

3.233.25Goodwill

 

Goodwill acquired represents the excess in acquisition cost on the fair value of the Company's ownership of the net identifiable assets of the subsidiary on the acquisition date. Goodwill acquired related to the acquisition of subsidiaries is included in goodwill, which is subject to impairment tests. The Company has not identified any indicator of impairment. Nonetheless, this valuation is carried out on yearly basis every time consolidated financial statements are issued,tests annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is stated at cost less accumulated impairment losses. Gains and losses related to the sale of an entity include the carrying value of goodwill related to the entity sold.

 

This intangible asset is assigned to cash-generating units with the purpose of testing impairment losses. It is allocated based on cash-generating units expected to obtain benefits from the business combination from which the aforementioned goodwill acquired arose.

 

F-36
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.243.26Intangible assets other than goodwill

 

Intangible assets mainly relate to water rights, trademarks, and rights of way related tofor electric lines development expenses and computer software licenses.license and development expenses.

 

(a)Water rights

 

Water rights acquired by the Company relate to water from natural sources and are recorded at acquisition cost. Given that these assets represent legal rights granted in perpetuity to the Company, they are not amortized, but are subject to annual impairment tests.

 

(b)Right of way for electric lines

 

As required for the operation of industrial plants, the Company has paid rights of way in order to install wires for the different electric lines in third party land. These rights are presented under intangible assets. Amounts paid are capitalized at the date of the agreement and charged to the statement of income, according to the life of the right of way.

 

(c)Computer software

 

Licenses for IT programs acquired are capitalized based on costs that have been incurred to acquire them and prepare them to use the specific program. These costs are amortized over their estimated useful lives.

 

Expenses related to the development or maintenance of IT programs are recognized as an expense as and when incurred. Costs directly related to the production of unique and identifiable IT programs controlled by the Group, and which will probably generate economic benefits that are higher than costs during more than a year, are recognized as intangible assets. Direct costs include expenses incurred forof employees whothat develop IT programsinformation technology software and an adequate percentage of general expenses.expenses in accordance with corporate charges received.

 

The costs of development for IT programs recognized as assets are amortized over their estimated useful lives.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-39

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.24Intangible assets other than goodwill, continued

 

(d)Mining property and concession rights

 

The Company holds mining property and concession rights from the Chilean Government. Property rights are usually obtained with no initial cost (other than the payment of mining patents and minor recording expenses) and upon obtaining rights on these concessions, these are retained by the Company while annual patents are paid. Such patents, which are paid annually, are recorded as prepaid assets and amortized over the following twelve months. Amounts attributable to mining concessions acquired from third parties that are not from the Chilean Government are recorded at acquisition cost within intangible assets.

 

No impairment of intangible assets exists as of December 31, 20142016 and December 31, 2013.2015.

F-37
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

 

3.253.27Research and development expenses

 

Research and development expenses are charged to profit or loss in the period in which the disbursementexpenditure was made.incurred.

 

3.263.28Prospecting expenses

 

The Company has mining property and concession rights from the Chilean Government and acquired from third parties other than the Chilean Government, destined to the exploitation of caliche ore and saltpeter deposits and also the exploration of this type of deposits.

 

Upon obtaining these rights, the Company initially records disbursements directly associated with the exploration and evaluation of deposits (associated with small deposits with trading feasibility) as asset at cost. Such disbursements include the following concepts:

 

-Disbursements for geological reconnaissance evaluation

 

-Disbursements for drilling

 

-Disbursements for drilling work and sampling

 

-Disbursements for activities related to technical assessment and trading feasibility of drilling work

 

-And any disbursement directly related to specific projects where its objective is finding mining resources.

 

Subsequently, the Company distinguishes exploration and evaluation projects according to the economic feasibility of the mineral extracted in the area or exploration, among those where it is probable that finally will deliver future economic benefits will be generated(profitableto the Company (profitable projects) and those projects for which it is not probable that economic benefit will flow to the Company in the future (i.e., when the mine site has low ore grade and its exploitation is not economically profitable).

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-40

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.26Prospecting expenses, continued

 

If technical studies determine that the ore grade is not economically suitable for exploitation, the asset is directly expensed. Otherwise, it is held in the caption “other non-current assets”, reclassifying the portion related to the area to be exploited in the year in the caption inventories and such amount is amortized as production cost on the basis of estimated tons to be extracted.

 

The technical reasons for this classification correspond to the fact that this is an identifiable non-monetary asset that is owned to be used in ourthe production of our processes as thea main raw material.Formaterial.

For this reason and because our disbursements correspond to proven reserves with a trading feasibility and used as main raw material in our production processes, these are presented as inventories that will be exploited within the commercial year and the remainder as development costsexpenses for small deposits and prospecting expenses in the caption “other non-current assets”.

 

F-38
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.273.29Impairment of non-financial assets

 

Assets subject to depreciation and amortization are subject to impairment testing, provided that an event or change in the circumstances indicates that the amounts in the accounting records may not be recoverable. An impairment loss is recognized for the excess of the book value of the asset over its recoverable amount.

 

The recoverable amount of an asset is the higher between the fair value of an asset or cash generating unit (“CGU”) less costs of disposal. For purpose of assessing impairment, assets are grouped atsales and its value in use, and is determined for an individual asset unless the lowest levels for which they are largely independentasset does not generate any cash inflows (“CGU”).that are clearly independent from other assets or groups of assets.

 

When the carrying value of an asset exceeds its recoverable amount, the asset is considered an impaired asset and is reduced to its net recoverable amount.

 

In evaluating value in use, estimated future cash flows are discounted using a discount rate before taxes which reflects current market evaluation on the time value of money and specific asset risks.

 

An appropriate valuation model is used toTo determine the fair value less costs of disposal. These calculations are confirmed byto sell, an appropriate valuation multiples, quoted share prices for subsidiaries quoted publicly or other observable fair value indicators.model is used.

 

Impairment losses from continuing operations are recognized with a debit to profit or loss in the categories of expenses associated with the impaired asset function.

As of December 31, 2014,function, except for properties reevaluated previously where the Companyrevaluation was unaware of any indication of impairment with respecttaken to its assets.equity.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-41

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.27Impairment of non-financial assets, continued

 

For assets other than acquired goodwill, an annual evaluation i of previously recognized impairments is conducted to determineof whether the conditions which caused the previous impairmentsthere are impairment loss indicators recognized previously that might have been reversedalready decreased or ceased to exist. The recoverable amount is estimated if such indicators exist. An impairment loss previously recognized is reversed only if there have been changes in estimates used to determine the asset’s recoverable amount from the last time in which an impairment loss was recognized. If this is the case, the carrying value of the asset is increased to its recoverable amount. This increased amount cannot exceed the carrying value that would have been determined net of depreciation if an asset impairment loss hadwould have not been recognized in prior years. This reversal is recognized with a credit to profit or loss.

 

3.283.30MinimunMinimum dividend

 

As required by the Shareholders’ Corporations Act, unless decided otherwise by the unanimous vote by the shareholders of subscribed and paid shares, a public company must distribute dividends as agreed by the shareholders at the General Shareholders’ Meeting held each year with a minimum of 30% of its profit, for the year ended December 31, 2014, except when the Company records unabsorbed losses from prior years.

However, the Company defines as policy the distribution of 50% of its profit for the year, ended December 31, 2014.unless decided otherwise by the unanimous vote by the shareholders at the General Shareholders´ meeting held each year.

F-39
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

 

3.293.31Earnings per share

 

The net basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary owners of the parent by the weighted average number of ordinary shares outstanding during the year.

 

The Company has not conducted any type of operation of potential dilutive effect that assumesimplies the disclosure of diluted earnings per share other than the basic earnings per share.

 

3.303.32Trade and other payables

 

Trade and other payables are measured at fair value plus all costs associated with the transaction. Subsequently, these are carried at amortized cost using the effective interest rate method.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-42

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.313.33Interest-bearing borrowings

 

At initial recognition, interest-bearing borrowings are measured at fair value.value net of transaction costs incurred. Subsequently, they are measured at amortized cost using the effective interest rate method. Amortized cost is calculated considering any premium or discount from the acquisition and includes costs of transactions which are an integral part of the effective interest rate.

 

These are recorded as non-current when their expiration period exceeds twelve months and as current when the term is lower than such term. Interest expense is calculated in the year in which they are accrued following a financial criterion.

 

3.323.34Other provisions

 

Provisions are recognized when:

 

-The Company has a present obligation or constructive obligation as the result of a past event.

 

-It is more likely than not that certain resources must be used, including benefits, to settle the obligation.

 

-A reliable estimate can be made of the amount of the obligation.

 

In the event that the provision or a portion of it is reimbursed, the reimbursement is recognized as a separate asset solely if there is certainty of income.

 

In the consolidated statement of income, the expense for any provision is presented net of any reimbursement.

 

Should the effect of the time value of money be significant, provisions are discounted using a discount rate before tax that reflects the liability’s specific risks. When a discount rate is used, the increase in the provision over time is recognized as a finance cost.

 

F-40
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.34Other provisions, continued

The Company’s policy is maintaining provisions to cover risks and expenses based on a better estimate to deal with possible or certain and quantifiable responsibilities from current litigation, compensations or obligations, pending expenses for which the amount has not yet been determined, collaterals and other similar guarantees for which the Company is responsible. These are recorded at the time the responsibility or the obligation that determines the compensation or payment is generated.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-43

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

3.333.35Obligations related to employee termination benefits and pension commitments

 

Obligations with the Company’s employees are in accordance with that established in the collective bargaining agreements in force, formalized through collective employment agreements and individual employment contracts, except for the United States that is regulated in accordance with employment plans in force up to 2002. (See more details in Note 15.4)

 

These obligations are valued using actuarial calculations, according to the projected unit credit method which considers such assumptions as the mortality rate, employee turnover, interest rates, retirement dates, effects related to increases in employees’ salaries, as well as the effects on variations in services derived from variations in the inflation rate. This, considering criteria in force contained in the revised IAS 19.

 

Actuarial gains and losses that may be generated by variations in defined, pre-established obligations are directly recorded in “otherother comprehensive income, Actuarial gains/losses from defined benefit plans.income.

 

Actuarial losses and gains have their origin in departures between the estimate and the actual behavior of actuarial assumptions or in the reformulation of established actuarial assumptions.

 

The discount rate used by the Company for calculating the obligation was 5.5%4.52% and 4.89% for the periods ended December 31, 20142016 and December 31, 2013.2015, respectively.

 

The Company’s subsidiary SQM North America has established pension plans for its retired employees that are calculated by measuring the projected obligation using a net salary progressive rate net of adjustments for inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 6.5%4.5% interest rate for 20142016 and 2013.5.5% for 2015. The net balance of this obligation is presented under the non-current provisions for employee benefits.benefits (refer to Note 15.4)

 

3.343.36Compensation plans

 

Compensation plans implemented through benefits in share-based payments settled in cash, which have been provided, are recognized in the financial statements at their fair value, and classified in provision for employee benefits ('non-current') in accordance with International Financial Reporting Standards No. 2 "Share-based Payments.” Changes in the fair value of options granted are recognized with a charge to compensation expensespayroll on a straight-line basis during the period between the date on which these options are granted and the vestingpayment date (see Note 16).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-44F-41

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 3      Significant accounting policies (continued)

 

Note 3Significant accounting policies (continued)

3.353.37Revenue recognition

 

Revenue includes the fair value of considerationconsiderations received or receivable for the sale of goods and services during performance of the Company's activities. Revenue is presented net of value added tax, estimated returns, rebates and discounts and after the elimination of sales among subsidiaries.

 

Revenue is recognized when its amount can be reliably measured.stated reliably. It is probablepossible that the future economic benefitsrewards will flow to the entity and the specific conditions for each type of activity related revenue are complied with, as follows:

 

(a)Sale of goods

 

The sale of goods is recognized when the Company has delivered products to the customer, and there is no obligation pending compliance that could affect the acceptance of products by the customer. The delivery does not occur until products have been shipped to the customer or confirmed as received by customers. When the related risks of obsolescence and loss have been transferred to the customer and the customer has accepted products in accordance with the conditions established in the sale, when the acceptance period has ended, or when there is objective evidence that those criteria required for acceptance have been met.

 

Sales are recognized in consideration of the price set in the sales agreement, net of volume discounts and estimated returns at the date of the sale. Volume discounts are evaluated in consideration of annual foreseen purchases and in accordance with the criteria defined in agreements.

 

(b)Sale of services

 

Revenue associated with the rendering of services is recognized considering the degree of completion of the service as of the date of presentation of the consolidated classified statement of financial position, provided that the result from the transaction can be estimated reliably.

 

(c)Interest income

 

Interest income is recognized when interest is accrued in consideration of the principal pending payment using the effective interest rate method.

 

(d)Income from dividends

 

Income from dividends is recognized when the right to receive the payment is established.

 

3.363.38Finance income and finance costs

 

Finance income is mainly composed of interest income in financial instruments such as term deposits and mutual fund deposits. Interest income is recognized in profit or loss at amortized cost, using the effective interest rate method.

 

Finance costs are mainly composed of interest on bank borrowing expenses, interest on bonds issued and interest capitalized for borrowing costs for the acquisition, construction or production or qualifying assets.

 

Borrowing costs and bonds issued are recognized in profit or loss using the effective interest rate method.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-45F-42

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 3      Significant accounting policies (continued)

 

Note 3Significant accounting policies (continued)

3.363.38Finance income and finance costs, continued

 

For finance costs accrued during the construction period that are directly attributable to the acquisition, construction or production of qualifying assets, the effective interest rate related to the project’s specific financing is used. If none exist, the average financing rate of the subsidiary that makes the investment is utilized.

Borrowing and financing costs that are directly attributable to the acquisition, construction or production of an asset are capitalized as part of that asset’s cost.

 

   3.373.39Income tax and deferred taxes

 

Corporate income tax for the year is determined as the sum of current taxes from the different consolidated companies.

 

Current taxes are based on the application of the various types of taxes attributable to taxable income for the year.

 

Differences between the book value of assets and liabilities and their tax basis generate the balance of deferred tax assets or liabilities, which are calculated using the tax rates expected to be applicable when the assets and liabilities are realized.

 

In conformity with current Chilean tax regulations, the provision for corporate income tax and taxes on mining activity is recognized on an accrual basis, presenting the net balances of accumulated monthly tax provisional payments for the fiscal period and associated credits. The balances of these accounts are presented in current income taxes recoverable or current taxes payable, as applicable.

 

Tax on companies and variations in deferred tax assets or liabilities that are not the result of business combinations are recorded in statement of income accounts or equity accounts in the consolidated statement of financial position, considering the origin of the gains or losses which have generated them.

 

At each reporting period, the carrying amount of deferred tax assets has been reviewed and reduced to the extent there will not be sufficient taxable income to allow the recovery of all or a portion of the deferred tax assets. Likewise, as of the date of the consolidated financial statements, deferred tax assets that are not recognized were evaluated and not recognized as it was more likely than not that future taxable income will allow for recovery of the deferred tax asset.

 

With respect to deductible temporary differences associated with investments in subsidiaries, associated companies and interest in joint ventures, deferred tax assets are recognized solely provided that it is more likely than not that the temporary differences will be reversed in the near future and that there will be taxable income with which they may be used.

 

The deferred income tax related to entries directly recognized in equity is recognized with an effect on equity and not with an effect on profit or loss.

 

F-43
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.39Income tax and deferred taxes, continued

Deferred tax assets and liabilities are offset if there is a legally receivable right of offsetting tax assets against tax liabilities and the deferred tax is related to the same tax entity and authority.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-46

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 3Significant accounting policies (continued)

   3.383.40Segment reporting

 

IFRS 8 requires that companies adopt a “management approach” to disclose information on the operations generated by its operating segments. In general, this is the information that management uses internally for the evaluation of segment performance and making the decision on how to allocate resources for this purpose.

 

An operating segment is a group of assets and operations responsible for providing products or services subject to risks and performance different from those of other business segments. A geographical segment is responsible for providing products or services in a given economic environment subject to risks and performance different from those of other segments that operate in other economic environments.

 

For assets and liabilities, the allocation to each segment is not possible given that these are associated with more than one segment, except for depreciation, amortization and impairment of assets, which are directly allocated to the applicable segments, in accordance with the criteria established in the costing process for product inventories.

 

The following operating segments have been identified by the Company:

 

-Specialty plant nutrients

 

-Industrial chemicals

 

-Iodine and derivatives

 

-Lithium and derivatives

 

-Potassium

 

-Other products and services

 

F-44
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 3      Significant accounting policies (continued)

3.393.41Environment

 

In general, the Company follows the criteria of considering amounts used in environmental protection and improvement as environmental expenses. However, the cost of facilities, machinery and equipment used for the same purpose are considered property, plant and equipment, as the case may be.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

3.42Significant accounting judgments, estimates and assumptions

Management of Sociedad Química y Minera de Chile S.A. and its subsidiaries is responsible for the information contained in these consolidated financial statements, which expressly indicate that all the principles and criteria included in IFRSs, as issued by the International Accounting Standards Board (IASB), have been applied in full.

In preparing the consolidated financial statements of Sociedad Química y Minera de Chile S.A. and its subsidiaries, Management has made judgments and estimates to quantify certain assets, liabilities, revenues, expenses and commitments included therein. Basically, these estimates refer to:

-The useful lives of property, plant and equipment, and intangible assets and their residual value -Estimated useful lives are determined based on current facts and past experience, and take into consideration the anticipated physical life of the asset, the potential for technological obsolescence, and regulations. See notes 3.24, 13 and 14.

-Impairment losses of certain assets - Assets, including property, plant and equipment, exploration assets, goodwill and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their recoverable amounts. If an impairment assessment is required, the assessment of fair value often requires estimates and assumptions such as discount rates, exchange rates, commodity prices, future capital requirements and future operating performance. Changes in such estimates could impact recoverable values of these assets. Estimates are reviewed regularly by management. See notes 13 and 14

-Assumptions used in calculating the actuarial amount of pension-related and severance indemnity payment benefit commitments- See Note 15;

-Contingencies – The amount recognized as provision, including legal, contractual, constructive and other exposures or obligations, is the best estimate of the consideration required to settle the related liability, including any related interest charges, taking into account the risks and uncertainties surrounding the obligation. In addition, contingencies will only be resolved when one or more future events occur or fail to occur. Therefore, assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. The Company assesses its liabilities and contingencies based upon the best information available, relevant tax laws and other appropriate requirements. See note 18 and 19

-Provisions on the basis of technical studies that cover the different variables affecting products in stock (density and moist, among others), and related allowance - Inventory valuation requires judgment to determine obsolescence and estimates of provisions for obsolescence to ensure that the carrying value of inventory is not in excess of net realizable value. See note 8.

Despite the fact that these estimates have been made on the basis of the best information available on the date of preparation of these consolidated financial statements, certain events may occur in the future and oblige their amendment (upwards or downwards) over the next few years, which would be made prospectively, recognizing the effects of the change in estimates in the related future consolidated financial statements.

F-47F-45

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 4Financial risk management

Note 4      Financial risk management

 

4.1Financial risk management policy

 

The Company’s financial risk management policy is focused on safeguarding the stability and sustainability of Sociedad Química y Minera de Chile S.A. and its subsidiaries with regard to all such relevant financial uncertainty components.

 

The Company’s operations are subject to certain financial risk factors that may affect its financial position or results. The most significant risk exposures are market risk, liquidity risk, currency risk, doubtful accounts risk, and interest rate risk, among others.

 

Potentially, additional known or unknown risks may exist, of which we currently deem not to be significant, which could also affect the Company’s business operations, its business, financial position, or profit or loss.

 

The financial risk management structure includes identifying, determining, analyzing, quantifying, measuring and controlling these events. Management and, in particular, Finance Management, is responsible for constantly assessing the financial risk. The Company uses derivatives to hedge a significant portion of those risks.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-48

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 4Financial risk management, continued

4.2Risk factors

 

4.2.1Market risk

 

Market risk refers to the uncertainty associated with fluctuations in market variables affecting the Company’s assets and liabilities, including:

 

a)Country risk: The economic situation of the countries where the Company operates may affect its financial position. For example, sales conducted in emerging markets expose SQM to risks related to economic conditions and trends in those countries. In addition, inventories may also be affected by the economic scenario in such countries and/or the global economy, among other probable economic impacts.

b)Price risk: The Company’s product prices are affected by the fluctuations in international prices of fertilizers and chemicals, as well as changes in productive capacities or market demand, all of which might affect the Company’s business, financial position and results of operations.

 

c)b)Commodity price risk: The Company is exposed to changes in commodity prices and energy which may have an impact on its production costs that may cause unstable results.

 

As of to-date, the SQM Group incurs an annual expenditure of approximately US$14095 million associated with fuel, gas, energy and equivalents including approximatelyfrom which US$5460 million related to direct electrical supply consumption. A change of 10% in the prices of energy required for the Company’s operations may involve costs of approximately US$149.5 million in short-term movements.

 

As stated in the Company’s annual report, theThe markets in which the Company operates are unpredictable, exposed to significant fluctuations in supply and demand, and price high volatility. Additionally, the supply of certain fertilizers or chemicals, including certain products which the Company trades, vary mainly depending on the production of top producers and their respectiverelated business strategies. Accordingly, the Company cannot forecast with certainty changes in demand, responses from competitors or fluctuations in the final price of its products. These factors can lead to significant impacts on the Company’s product sales volumes, financial position and share price.

 

d)c)Quality standards:In the markets in which we operate, customers might impose quality standards on our products and/or governments could enact more stringent standards for the distribution and/or use of our products. Consequently, we might not be able to sell our products if we are not able to meet those new standards. In addition, our production costs might increase to meet such new standards. Not being able to sell our products in one or more markets or to key customers might significantly affect our business, financial position or the results of our operations.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-49F-46

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 4Financial risk management, continued

Note 4      Financial risk management (continued)

 

4.2.2Doubtful accountsCredit risk

 

A contraction of the global economy and the potentially adverse effects in the financial position of our customers may extend the receivables recovery period for SQM, increasing its exposure to doubtful account risk. While measures have been taken to minimize such risk, the global economic situation may result in losses that might have a material adverse effect on the Company’s business, financial position or results of operations.

 

To mitigate these risks, SQM actively controls debt collection and has established certain safeguards which include loan insurance, letters of credit, and prepayments for a portion of receivables.

Financial investments correspond to time deposits with maturities exceeding 90 days and less than 360 days from the investment date, so they are not exposed to significant market risks.

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

Financial InstitutionFinancial AssetRating Institution12/31/2016
Moody´sS&PFitchThUS$
Banco BBVA ChileFixed term depositA3BBB+AA3,501
Banco Crédito e InversionesFixed term depositA1A-25,804
Banco de ChileFixed term depositAa3A+AAA5,904
Banco Santander - SantiagoFixed term depositA3A--32,905
BBVA Banco FrancésFixed term deposit--B199
Citibank New YorkFixed term depositA1A+A+1,742
CorpbancaFixed term depositA3BB+-7,150
JP Morgan US dollar Liquidity Fund InstitutionalFixed term depositAaa--158,950
Legg Mason - Western Asset Institutional Cash Reservesinvestment liquidity funds-AAAAAA178,446
Nedbankinvestment liquidity funds-BBB-AA2,752
Scotiabank Sud Americano--AAA15,716
Total433,069

Financial InstitutionFinancial AssetRating Institution12/31/2016
Moody´sS&PFitchThUS$
Banco Crédito e Inversiones90 days to 1 yearA1A-40,627
Banco Itau Chile90 days to 1 yearA3BB+-44,722
Banco Santander - Santiago90 days to 1 yearA3A--54,364
Banco Security90 days to 1 year-BBB-AA-15,007
Corpbanca90 days to 1 yearA3BB+-19,247
Morgan Stanley90 days to 1 yearA3BBB-A3,150
Scotiabank Sud Americano90 days to 1 year--AAA107,043
Total284,160

F-47
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 4      Financial risk management (continued)

 

4.2.3Currency risk

 

As a result of its influence on price level determination as well as its relationship with cost of sales, and since a significant portion of the Company’s business transactions are performed in that foreign currency, the functional currency of SQM is the United States dollar. However, the global business activities of the Company expose it to the foreign exchange fluctuations of several currencies with respect to the value of the U.S. dollar. Accordingly, SQM has entered into hedge contracts to mitigate the exposure generated by its main mismatches (assets, net of liabilities) in currencies other than the U.S. dollar against the foreign exchange fluctuation. These contracts are periodically updated depending on the mismatch amount to be hedged in such currencies. Occasionally, and subject to the Board of Directors’ approval, in the short-term the Company insures cash flows from certain specific items in currencies other than the U.S. dollar.

 

A significant portion of the Company’s costs, particularly payroll, is denominated in Chilean pesos. Accordingly, an increase or decrease in the exchange rate against the U.S. dollar would affect the Company’s profit for the period. Approximately US$ 470317 million of the Company’s costs are denominated in Chilean pesos. A significant portion of the effect of such obligations on the statement of financial position is hedged by derivative instrument transactions on the balance mismatch in such currency.

 

As of December 31, 2013,2016, the Company recorded derivative instruments classified as currency and interest rate hedges associated with all the bonds payable, denominated both in Chilean pesos and UF, with a fair value of US$23.640.5 million in favor ofagainst SQM. As of December 31, 2014,2015, this amounts to US$3775 million in against SQM.

 

As of December 31, 2014,2016, the Chilean peso to U.S. dollar exchange rate was Ch$606.75669.47 per US$1.00 (Ch$ 524.61710.16 per US$1.00 as of December 31, 2013)2015).

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-50

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 4Financial risk management, continued

 

4.2.4Interest rate risk

 

Interest rate fluctuations, primarily due to the uncertain future behavior of markets, may have a material impact on the financial results of the Company.

 

The Company has current and non-current debts valued at LIBOR, plus a spread. The Company is partially exposed to fluctuations in such rate, as SQM currently holds hedging derivative instruments to hedge a portion of its liabilities subject to the LIBOR rate fluctuations.

 

As of December 31, 2014,2016, approximately 14%2% of the Company’s financial liabilities are measured at LIBOR. Accordingly, any significant increase in this rate may have an impact on the Company’s financial position. A 100 basic point variation in this rate may trigger variations in financial expenses of close to US$ 0.60.03 million. However, this effect is significantly counterbalanced by the returns of the Company’s investments that are also strongly related to LIBOR.

 

In addition, as of December 31, 2014,2016, the Company's financial liabilities are mainly concentrated in the long-term and approximately 9%12% have maturities of less than 12 months, decreasing in the process the exposure to changes in interest rates.

F-48
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 4      Financial risk management (continued)

 

4.2.5Liquidity risk

 

Liquidity risk relates to the funds needed to comply with payment obligations. The Company’s objective is to maintain financial flexibility through a comfortable balance between fund requirements and cash flows from regular business operations, bank borrowings, bonds, short term investments, and marketable securities, among others.

 

The Company has an important capital expense program which is subject to change over time.

 

On the other hand, world financial markets go through periods of contraction and expansion that are unforeseeable in the long-term and may affect SQM’s access to financial resources. Such factors may have a material adverse impact on the Company’s business, financial position and results of operations.

 

SQM constantly monitors the matching of its obligations with its investments, taking due care of maturities of both, from a conservative perspective, as part of this financial risk management strategy. As of December 31, 2014,2016, the Company had unused, available revolving credit facilities with banks, for a total of approximately US$546267 million.

 

The position in other cash and cash equivalents generated by the Company are invested in highly liquid mutual funds with an AAA risk rating.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-49
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 4      Financial risk management (continued)

 

Note 44.2.5FinancialLiquidity risk, management, continued

 

  Maturity of undiscounted cash flows 
As of December 31, 2016 Book Value  Less than 1
year
  Between 1
and 5 years
  More than 5
years
  Total 
(in millions of US$)               
Other non-derivate financial liabilities                    
Bank loans  101,27   102.08   -   -   102.08 
Unsecured obligations  1,130.22   94.76   479.54   873.91   1,448.21 
Subtotal  1,231.49   196.84   479.54   873.91   1,550.29 
Other derivate financial liabilities                    
Hedging liabilities  42.62   17.20   40.33   (23.58)  33.95 
Derivate financial instruments  (2.175)  (2.18)  -   -   (2.18)
Subtotal  40.45   15.03   40.33   (23.58)  31.77 
Total  1,271.93   211.87   519.87   850.33   1,582.07 

  Maturity of undiscounted cash flows 
As of December 31, 2015 Book Value  Less than 1
year
  Between 1 and
5 years
  More than 5
years
  Total 
(in millions of US$)               
Other non-derivate financial liabilities                    
Bank loans  318.34   182.16   144.36   -   326.52 
Unsecured obligations  1,311.65   260.90   510.46   901.92   1,673.28 
Subtotal  1,629.99   443.06   654.82   901.92   1,999.80 
Other derivate financial liabilities                    
Hedging liabilities  74.81   2.46   75.31   0.05   77.82 
Derivate financial instruments  (18.08)  (18.08)  -   -   (18.08)
Subtotal  56.73   (15.62)  75.31   0.05   59.74 
Total  1,686.72   427.44   730.13   901.97   2,059.54 

4.3Risk measurement

 

The Company has methods to measure the effectiveness and efficiency of financial risk hedging strategies, both prospectively and retrospectively. These methods are consistent with the risk management profile of the Group.

 

Note 5F-50Changes in accounting estimates and policies (consistent presentation)
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 5      Changes in accounting estimates and policies (consistent presentation)

 

5.1Changes in accounting estimates

 

There areThe Company had no significant changes in the determination of accounting estimates as ofat the closing date of the consolidated financial statements.

 

5.2Changes in accounting policies

 

As of December 31, 2014,2016, the Company’s consolidated financial statements present no significant changes in accounting policies or estimates compared to the prior period. (for further details refer to Note 2.6).

 

The consolidated statements of financial position as of December 31, 20142016 and December 31, 2013,2015 and the statements of the comprehensive income, changes in equity and cash flows for the periods ended December 31, 20142016, 2015 and 2013,2014 have been prepared in accordance with the International Financial Reporting Standards (IFRS) except for that indicated in Note 2.2. and the. The accounting principles and criteria have been applied consistently.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-51
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 6Background of companies included in consolidation

Note 6      Background of companies included in consolidation

 

6.1Parent’s stand-alone assets and liabilities

 

  12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
       
Assets  4,305,107   4,269,749 
Liabilities  (2,072,459)  (1,893,129)
Equity  2,232,648   2,376,620 

  12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
       
Assets  3,824,137   4,012,556 
Liabilities  (1,578,063)  (1,672,771)
Equity  2,246,074   2,339,785 

 

6.2Parent entity

 

As provided in the Company’s by-laws, no shareholder can concentrate more than 32% of the Company’s voting right shares and therefore there is no controlling entity.

 

6.3Joint arrangements of controlling interest

 

Sociedad de Inversiones Pampa Calichera S.A., Potasios de Chile S.A., and Inversiones Global Mining (Chile) Limitada, collectively the Pampa Group, are the owners of a number of shares that are equivalent to 29.94%29.97% as of December 31, 20142016 of the current total amount of shares issued, subscribed and fully-paid of the Company. In addition, Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A. and La Esperanza Delaware Corporation, collectively the Kowa Group, are the owners of a number of shares equivalent to 2.10%2.12% of the total amount of issued, subscribed and fully-paid shares of SQM S.A..S.A.

 

The Pampa Group and the Kowa Group have informed SQM S.A., the Chilean SVS and the relevant stock exchanges in Chile and abroad that they are not and have never been related parties between them. In addition, this is regardless of the fact that both Groups on December 21, 2006 have entered into a Joint Action Agreement (JAA) related to those shares. Consequently, the Pampa Group, by itself, does not concentrate more than 32% of the voting right capital of SQM S.A., and the Kowa Group does not concentrate by itself more than 32% of the voting right capital of SQM S.A..S.A.

 

Likewise, the Joint Action Agreement has not transformed the Pampa and Kowa Groups into related parties between them. The Joint Action Agreement has only transformed the current controller of SQM S.A., composed of the Pampa Group, and the Kowa Group into related parties of SQM S.A..S.A.

 

Detail of effective concentration

 

Tax ID No. Name Ownership
interest %
 
96.511.530-7 Sociedad de Inversiones Pampa Calichera S.A.  19.6919.72
76.165.311-5Potasios de Chile S.A.6.91 
96.863.960-9 Inversiones Global Mining (Chile) Limitada  3.34 
76.165.311-5Potasios de Chile S.A.6.91
Total Pampa Group    29.9429.97 
       
79.798.650-k Inversiones la Esperanza (Chile) Ltda.  1.411.43 
59.046.730-8 Kowa Co Ltd.  0.30 
96.518.570-4 Kochi S.A.  0.30 
59.023.690-k La Esperanza Delaware Corporation  0.09 
Total Kowa Group    2.102.12 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-53F-52

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.4General information on consolidated subsidiaries

 

As of December 31, 20142016 and December 31, 2013,2015, the general information of the companies on which the Company exercises control and significant influence is as follows:

 

     Country of Functional Ownership interest  Country of Functional Ownership interest 
Subsidiary Tax ID Address incorporation currency Direct Indirect Total  Tax ID Address incorporation currency Direct Indirect Total 
                  
SQM Nitratos S.A. 96.592.190-7 El Trovador 4285 Las Condes Chile US$  99.9999   0.0001   100.0000  96.592.190-7 El Trovador 4285 Las Condes Chile US$  99.9999   0.0001   100.0000 
Proinsa Ltda. 78.053.910-0 El Trovador 4285 Las Condes Chile Ch$  -   60.5800   60.5800  78.053.910-0 El Trovador 4285 Las Condes Chile Ch$  -   60.5800   60.5800 
SQMC Internacional Ltda. 86.630.200-6 El Trovador 4285 Las Condes Chile Ch$  -   60.6381   60.6381  86.630.200-6 El Trovador 4285 Las Condes Chile Ch$  -   60.6381   60.6381 
SQM Potasio S.A. 96.651.060-9 El Trovador 4285 Las Condes Chile US$  99.9999   -   99.9999  96.651.060-9 El Trovador 4285 Las Condes Chile US$  99.9999   -   99.9999 
Serv. Integrales de Tránsito y Transf. S.A. 79.770.780-5 Arturo Prat 1060, Tocopilla Chile US$  0.0003   99.9997   100.0000  79.770.780-5 Arturo Prat 1060, Tocopilla Chile US$  0.0003   99.9997   100.0000 
Isapre Norte Grande Ltda. 79.906.120-1 Anibal Pinto 3228, Antofagasta Chile Ch$  1.0000   99.0000   100.0000  79.906.120-1 Anibal Pinto 3228, Antofagasta Chile Ch$  1.0000   99.0000   100.0000 
Ajay SQM Chile S.A. 96.592.180-K Av. Pdte. Eduardo Frei 4900, Santiago Chile US$  51.0000   -   51.0000  96.592.180-K Av. Pdte. Eduardo Frei 4900, Santiago Chile US$  51.0000   -   51.0000 
Almacenes y Depósitos Ltda. 79.876.080-7 El Trovador 4285 Las Condes Chile Ch$  1.0000   99.0000   100.0000  79.876.080-7 El Trovador 4285 Las Condes Chile Ch$  1.0000   99.0000   100.0000 
SQM Salar S.A. 79.626.800-K El Trovador 4285 Las Condes Chile US$  18.1800   81.8200   100.0000  79.626.800-K El Trovador 4285 Las Condes Chile US$  18.1800   81.8200   100.0000 
SQM Industrial S.A. 79.947.100-0 El Trovador 4285 Las Condes Chile US$  99.0470   0.9530   100.0000  79.947.100-0 El Trovador 4285 Las Condes Chile US$  99.0470   0.9530   100.0000 
Exploraciones Mineras S.A. 76.425.380-9 Los Militares 4290 Las Condes Chile US$  0.2691   99.7309   100.0000  76.425.380-9 El Trovador 4285 Las Condes Chile US$  0.2691   99.7309   100.0000 
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A. 76.534.490-5 Anibal Pinto 3228, Antofagasta Chile Ch$  -   100.0000   100.0000  76.534.490-5 Anibal Pinto 3228, Antofagasta Chile Ch$  -   100.0000   100.0000 
Soquimich Comercial S.A. 79.768.170-9 El Trovador 4285 Las Condes Chile US$  -   60.6383   60.6383  79.768.170-9 El Trovador 4285 Las Condes Chile US$  -   60.6383   60.6383 
Comercial Agrorama Ltda. 76.064.419-6 El Trovador 4285 Las Condes Chile Ch$  -   42.4468   42.4468 
Comercial Agrorama Ltda. (*) 76.064.419-6 El Trovador 4285 Las Condes Chile Ch$  -   42.4468   42.4468 
Comercial Hydro S.A. 96.801.610-5 El Trovador 4285 Las Condes Chile Ch$  -   60.6383   60.6383  96.801.610-5 El Trovador 4285 Las Condes Chile Ch$  -   60.6383   60.6383 
Agrorama S.A. 76.145.229-0 El Trovador 4285 Las Condes Chile Ch$  -   60.6377   60.6377  76.145.229-0 El Trovador 4285 Las Condes Chile Ch$  -   60.6377   60.6377 
Orcoma Estudios SPA 76.359.919-1 Apoquindo 3721 Of.131 Las Condes Chile US$  51.0000   -   51.0000  76.359.919-1 Apoquindo 3721 Of.131 Las Condes Chile US$  51.0000   -   51.0000 
Orcoma SPA 76.360.575-2 Apoquindo 3721 Of.131 Las Condes Chile US$  100.0000   -   100.0000  76.360.575-2 Apoquindo 3721 Of.131 Las Condes Chile US$  100.0000   -   100.0000 
SQM North America Corp. Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  40.0000   60.0000   100.0000  Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  40.0000   60.0000   100.0000 
RS Agro Chemical Trading Corporation A.V.V. Foreign Caya Ernesto O. Petronia 17, Orangestad Aruba US$  98.3333   1.6667   100.0000  Foreign Caya Ernesto O. Petronia 17, Orangestad Aruba US$  98.3333   1.6667   100.0000 
Nitratos Naturais do Chile Ltda. Foreign Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo Brazil US$  -   100.0000   100.0000  Foreign Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo Brazil US$  -   100.0000   100.0000 
Nitrate Corporation of Chile Ltd. Foreign 1 More London Place London SE1 2AF United Kingdom US$  -   100.0000   100.0000  Foreign 1 More London Place London SE1 2AF United Kingdom US$  -   100.0000   100.0000 
SQM Corporation N.V. Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Dutch Antilles US$  0.0002   99.9998   100.0000  Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Netherlands US$  0.0002   99.9998   100.0000 
SQM Peru S.A. Foreign Avenida Camino Real N° 348 of. 702, San Isidro, Lima Peru US$  0.9800   99.0200   100.0000  Foreign Avenida Camino Real N° 348 of. 702, San Isidro, Lima Peru US$  0.9800   99.0200   100.0000 
SQM Ecuador S.A. Foreign Av. José Orrantia y Av. Juan Tanca Marengo Edificio Executive Center Piso 2 Oficina 211 Ecuador US$  0.0040   99.9960   100.0000  Foreign Av. José Orrantia y Av. Juan Tanca Marengo Edificio Executive Center Piso 2 Oficina 211 Ecuador US$  0.0040   99.9960   100.0000 
SQM Brasil Ltda. Foreign Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo Brazil US$  1.0900   98.9100   100.0000  Foreign Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo Brazil US$  1.0900   98.9100   100.0000 

 

(*) SQM controls Soquimich Comercial, which in turn controls Comercial Agrorama Ltda. SQM has control of the administration of Comercial Agrorama Ltda.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-53
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.4General information on consolidated subsidiaries, continued

 

     Country of Functional Ownership interest  Country of Functional Ownership interest 
Subsidiary Tax ID Address incorporation currency Direct Indirect Total  Tax ID Address incorporation currency Direct Indirect Total 
                      
SQI Corporation N.V. Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Dutch Antilles US$  0.0159   99.9841   100.0000  Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Netherlands US$  0.0159   99.9841   100.0000 
SQMC Holding Corporation L.L.P. Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta United States US$  0.1000   99.9000   100.0000  Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta United States US$  0.1000   99.9000   100.0000 
SQM Japan Co. Ltd. Foreign From 1st Bldg 207, 5-3-10 Minami- Aoyama, Minato-ku, Tokyo Japan US$  1.0000   99.0000   100.0000  Foreign From 1st Bldg 207, 5-3-10 Minami- Aoyama, Minato-ku, Tokyo Japan US$  0.5376   99.4624   100.0000 
SQM Europe N.V. Foreign Houtdok-Noordkaai 25a B-2030 Amberes Bélgica Belgium US$  0.5800   99.4200   100.0000  Foreign Houtdok-Noordkaai 25a B-2030 Antwerp, Belgium Belgium US$  0.5800   99.4200   100.0000 
SQM Italia SRL Foreign Via A. Meucci, 5 500 15 Grassina Firenze Italy US$  -   100.0000   100.0000  Foreign Via A. Meucci, 5 500 15 Grassina Firenze Italy US$  -   100.0000   100.0000 
SQM Indonesia S.A. Foreign Perumahan Bumi Dirgantara Permai, Jl Suryadarma Blok Aw No 15 Rt 01/09 17436 Jatisari Pondok Gede Indonesia US$  -   80.0000   80.0000  Foreign Perumahan Bumi Dirgantara Permai, Jl Suryadarma Blok Aw No 15 Rt 01/09 17436 Jatisari Pondok Gede Indonesia US$  -   80.0000   80.0000 
North American Trading Company Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000  Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000 
SQM Virginia LLC Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000  Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000 
SQM Comercial de México S.A. de C.V. Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  0.0010   99.9900   100.0000  Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  0.0010   99.9900   100.0000 
SQM Investment Corporation N.V. Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Dutch Antilles US$  1.0000   99.0000   100.0000  Foreign Pietermaai 123, P.O. Box 897, Willemstad, Curacao Netherlands US$  1.0000   99.0000   100.0000 
Royal Seed Trading Corporation A.V.V. Foreign Caya Ernesto O. Petronia 17, Orangestad Aruba US$  1.6700   98.3300   100.0000  Foreign Caya Ernesto O. Petronia 17, Orangestad Aruba US$  1.6700   98.3300   100.0000 
SQM Lithium Specialties LLP Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000  Foreign 2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA United States US$  -   100.0000   100.0000 
Soquimich SRL Argentina Foreign Espejo 65 Oficina 6 – 5500 Mendoza Argentina US$  -   100.0000   100.0000  Foreign Espejo 65 Oficina 6 – 5500 Mendoza Argentina US$  -   100.0000   100.0000 
Comercial Caimán Internacional S.A. Foreign Edificio Plaza Bancomer  Calle 50 Panama US$  -   100.0000   100.0000  Foreign Edificio Plaza Bancomer  Calle 50 Panama US$  -   100.0000   100.0000 
SQM France S.A. Foreign ZAC des Pommiers  27930   FAUVILLE France US$  -   100.0000   100.0000  Foreign ZAC des Pommiers  27930   FAUVILLE France US$  -   100.0000   100.0000 
Administración y Servicios Santiago S.A. de C.V. Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  -   100.0000   100.0000  Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  -   100.0000   100.0000 
SQM Nitratos México S.A. de C.V. Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  -   100.0000   100.0000  Foreign Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México Mexico US$  -   100.0000   100.0000 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-54
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.4General information on consolidated subsidiaries, continued

 

      Country of Functional Ownership interest 
Subsidiary Tax ID Address incorporation currency Direct  Indirect  Total 
                     
Soquimich European Holding B.V. Foreign Loacalellikade 1 Parnassustoren 1076 AZ Amsterdan Netherlands US$  -   100.0000   100.0000 
SQM Iberian S.A Foreign Provenza 251 Principal 1a CP 08008, Barcelona Spain US$  -   100.0000   100.0000 
SQM Africa Pty Ltd. Foreign Tramore House, 3 Wterford Office Park, Waterford Drive, 2191 Fourways, Johannesburg South Africa US$  -   100.0000   100.0000 
SQM Oceania Pty Ltd. Foreign Level 9, 50 Park Street, Sydney NSW 2000, Sydney Australia US$  -   100.0000   100.0000 
SQM  Agro India Pvt. Ltd. Foreign C 30 Chiragh Enclave New Dehli, 110048 India US$  -   100.0000   100.0000 
SQM Beijing Commercial Co. Ltd. Foreign Room 1001C, CBD International Mansion N 16 Yong An Dong Li, Jian Wai Ave Beijing 100022, P.R. China US$  -   100.0000   100.0000 
SQM Thailand Limited Foreign Unit 2962, Level 29, N° 388, Exchange Tower Sukhumvit Road, Klongtoey Bangkok Thailand US$  -   99.996   99.996 

      Country of Functional Ownership interest 
Subsidiary Tax ID Address incorporation currency Direct  Indirect  Total 
                  
Soquimich European Holding B.V. Foreign Loacalellikade 1 Parnassustoren 1076 AZ Amsterdam Netherlands US$  -   100.0000   100.0000 
SQM Iberian S.A Foreign Provenza 251 Principal 1a CP 08008, Barcelona Spain US$  -   100.0000   100.0000 
SQM Africa Pty Ltd. Foreign Tramore House, 3 Wterford Office Park, Waterford Drive, 2191 Fourways, Johannesburg South Africa US$  -   100.0000   100.0000 
SQM Oceania Pty Ltd. Foreign Level 9, 50 Park Street, Sydney NSW 2000, Sydney Australia US$  -   100.0000   100.0000 
SQM  Agro India Pvt. Ltd. Foreign C 30 Chiragh Enclave New Delhi, 110048 India US$  -   100.0000   100.0000 
SQM Beijing Commercial Co. Ltd. Foreign Room 1001C, CBD International Mansion N 16 Yong An Dong Li, Jian Wai Ave Beijing 100022, P.R. China US$  -   100.0000   100.0000 
SQM Thailand Limited Foreign Unit 2962, Level 29, N° 388, Exchange Tower Sukhumvit Road, Klongtoey Bangkok Thailand US$  -   99.996   99.996 
SQM Vitas Spain Foreign C/Manuel Echeverria Manzana 2 Muelle de la Cab (Puerto Real) Spain Euro  -   100.0000   100.0000 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-56F-55

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.5Information attributable to non-controlling interests

 

Subsidiary % of interests in
the ownership
held by non-
controlling
interests.
 Profit (loss) attributable to
non-controlling interests
 Equity, non-controlling
interests
 Dividends paid to non-
controlling interests
  % of interests in
the ownership held
by non-controlling
interests.
 Profit (loss) attributable to non-
controlling interests
 Equity, non-controlling
interests
 Dividends paid to non-
controlling interests
 
    12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013     12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 
    ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$     ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Proinsa Ltda.  0,1%  -   -   -   -   -   -   0.1%  -   -   -   -   -   - 
SQM Potasio S.A.  0,0000001%  -   -   -   -   -   -   0.0000001%  -   -   -   -   -   - 
Ajay SQM Chile S.A.  49%  (2,595)  (3,389)  8,502   8,806   (2,899)  4,400   49%  1,360   1,551   8,303   8,107   1,163   1,946 
SQM Indonesia S.A.  20%  -   -   1   16   -   -   20%  -   -   1   1   -   - 
Soquimich Comercial S.A.  39,3616784%  (4,763)  (4,051)  48,757   46,448   (2,381)  2,026   39.3616784%  2,378   2,605   50,416   49,897   1,851   1,303 
Comercial Agrorama Ltda.  30%  (30)  (18)  337   351   -   -   30%  (106)  3   201   292   -   - 
Agrorama S.A.  0,001%  -   -   -   -   -   -   0.001%  -   -   -   -   -   - 
Orcoma Estudios SPA  49%  (1)  -   2,270   -   -   -   49%  2   5   2,277   2,274   -   - 
SQM (Thailand) Limited.  0.004%  -   -   -   -   -   -   0.004%  -   -   -   -   -   - 
Total      (7,389)  (7,458)  59,867   55,621   (5,280)  6,426       3,634   4,164   61,198   60,571   3,014   3,249 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-57F-56

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.6Information on consolidated subsidiaries

 

12/31/2014
12/31/201612/31/2016
 Assets Liabilities       Comprehensive
  Assets Liabilities Revenue Profit (loss) Comprehensive 
Subsidiary Current Non-current Current Non-current   Revenue  Profit (loss)  income (loss)  Current Non-current Current Non-current      income (loss) 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                           
SQM Nitratos S.A.  638,071   109,356   679,642   21,285   123,390   (7,109)  (7,109)  656,221   54,180   644,610   5,990   96,235   12,178   12,164 
Proinsa Ltda.  174   1   -   -   -   1   1   56   1   -   -   -   (4)  (4)
SQMC Internacional Ltda.  229   -   -   -   -   (1)  (1)  204   -   -   -   -   (3)  (3)
SQM Potasio S.A.  167,134   934,783   3,703   20,847   2,379   165,852   166,198   176,976   722,965   37,167   26,933   5,902   253,322   252,435 
Serv. Integrales de Tránsito y Transf. S.A.  430,047   82,657   459,844   11,093   48,747   4,550   4,550   75,296   36,407   107,567   224   30,315   (18,192)  (18,362)
Isapre Norte Grande Ltda.  698   767   702   198   4,577   41   -   664   746   714   131   3,053   23   23 
Ajay SQM Chile S.A.  18,198   1,126   1,135   839   57,305   5,296   5,296   17,240   1,069   975   388   28,035   2,776   2,776 
Almacenes y Depósitos Ltda.  311   46   1   -   -   (20)  (30)  278   45   1   -   -   (10)  105 
SQM Salar S.A.  563,756   938,389   353,808   181,732   771,133   133,982   133,829   785,127   828,606   751,857   195,369   975,326   316,182   316,024 
SQM Industrial S.A.  1,183,420   803,100   987,048   92,923   719,384   66,432   62,259   1,212,960   658,277   882,593   97,714   600,075   17,262   21,790 
Exploraciones Mineras S.A.  478   31,713   5,160   -   -   (219)  (219)  510   31,598   6,027   -   -   (286)  (284)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.  507   506   430   537   2,547   (63)  (65)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S,A.  337   632   614   291   2,265   85   - 
Soquimich Comercial S.A.  132,805   22,271   30,261   943   199,367   12,100   11,902   153,068   14,663   38,533   1,115   134,501   6,041   6,020 
Comercial Agrorama Ltda.  12,048   1,815   12,632   106   14,724   102   103   10,759   1,589   11,644   35   15,185   (356)  (341)
Comercial Hydro S.A.  8,663   105   148   101   61   281   281   5,242   56   115   15   47   350   350 
Agrorama S.A.  13,577   487   13,990   18   13,404   (103)  (103)  12,348   842   14,078   37   16,462   (582)  (584)
Orcoma SpA  3   2,356   4   -   -   (3)  (3)  -   2,360   14   -   -   (1)  (1)
Orcoma Estudio SpA  4,630   1,375   1,372   -   -   2   2   671   4,135   159   -   -   4   4 
SQM North America Corp.  177,628   16,494   161,988   1,781   322,671   (1,622)  (2,294)  175,834   15,621   204,201   485   228,229   (27,821)  (29,082)
RS Agro Chemical Trading Corporation A.V.V.  5,201   -   -   -   -   (3)  (3)  5,179   -   8   -   -   (23)  (23)
Nitratos Naturais do Chile Ltda.  4   233   4,452   -   -   223   223   6   251   3,456   -   -   (175)  (175)
Nitrate Corporation of Chile Ltd.  5,076   -   -   -   -   -   -   5,076   -   -   -   -   -   - 
SQM Corporation N.V.  669   116,031   3,722   -   -   25,082   21,908   668   116,267   3,568   -   -   2,479   5,819 
SQM Peru S.A.  520   1   1,172   -   -   (40)  (40)  249   1   1,170   -   8   (165)  (165)
SQM Ecuador S.A.  11,101   69   10,720   56   16,737   194   194   18,870   121   17,538   41   24,161   471   471 
SQM Brasil Ltda.  724   1   636   -   453   220   220   200   1   714   2,266   296   (173)  (173)
SQI Corporation N.V.  -   23   89   -   -   5   4   -   23   55   -   -   (17)  (17)
SQMC Holding Corporation L.L.P.  17,552   15,481   1,024   -   -   3,944   3,944   23,135   13,936   1,000   -   -   1,977   1,977 
SQM Japan Co. Ltd.  2,472   243   621   449   3,493   163   163   2,868   276   6,708   561   3,013   (7,615)  (7,615)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-58F-57

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.6Information on consolidated subsidiaries, continued

 

12/31/2014
12/31/201612/31/2016
 Assets Liabilities       Comprehensive  Assets Liabilities Revenue Profit (loss) Comprehensive 
Subsidiary Current Non-current Current Non-current Revenue Profit (loss) income (loss)  Current Non-current Current Non-current      income (loss) 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                              
SQM Europe N.V.  313,336   1,265   264,760   -   552,444   12,966   12,966   365,805   2,510   317,147   -   723,192   6,118   8,075 
SQM Italia SRL  1,247   -   16   -   -   -   -   1,086   -   14   -   -   -   - 
SQM Indonesia S.A.  4   -   1   -   -   -   -   3   -   1   -   -   -   - 
North American Trading Company  159   145   39   -   -   -   -   158   145   39   -   -   -   - 
SQM Virginia LLC  14,821   14,367   14,821   -   -   (7)  (7)  14,811   14,357   14,811   -   -   (3)  (3)
SQM Comercial de México S.A. de C.V.  81,196   1,302   53,428   -   178,243   916   916   73,791   2,200   49,048   -   186,769   (1,757)  (1,757)
SQM Investment Corporation N.V.  73,432   265   39,164   856   20   8,552   8,552   53,037   117   6,191   863   -   (5,441)  (5,441)
Royal Seed Trading Corporation A.V.V.  165,908   162   103,387   80,000   -   (4,941)  (4,384)  28,662   -   49,788   -   -   (914)  (719)
SQM Lithium Specialties LLP  15,774   3   1,264   -   -   (7)  (7)  15,763   3   1,264   -   -   (3)  (3)
Soquimich SRL Argentina  396   -   217   -   -   (17)  (17)  209   -   177   -   -   (12)  (12)
Comercial Caimán Internacional S.A.  266   -   1,122   -   -   (5)  (5)  259   -   1,122   -   -   (2)  (2)
SQM France S.A.  345   6   114   -   -   -   -   345   6   114   -   -   -   - 
Administración y Servicios Santiago S.A. de C.V.  177   -   689   111   3,562   145   145   148   24   504   55   2,687   268   268 
SQM Nitratos México S.A. de C.V.  38   4   29   4   262   6   6   41   1   24   6   266   (2)  (2)
Soquimich European Holding B.V.  77,712   117,371   89,566   -   -   26,368   23,180   55,198   115,761   65,005   3,142   -   1,025   5,581 
SQM Iberian S.A.  54,332   72   49,004   -   132,270   5,781   5,782   81,119   1,709   73,198   -   146,677   3,501   9,464 
SQM Africa Pty Ltd.  66,427   752   57,796   -   92,462   952   952   89,627   1,399   84,292   -   92,122   (7,627)  (7,627)
SQM Oceanía Pty Ltd.  3,257   -   1,149   -   3,550   (1,016)  (1,016)  2,387   -   570   -   2,383   (99)  (99)
SQM Agro India Pvt. Ltd.  4   -   1   -   -   (1)  (1)  1   -   1   -   -   (3)  (3)
SQM Beijing Commercial Co. Ltd.  5,491   31   3,217   -   7,764   143   143   2,285   30   171   -   5,106   (34)  (34)
SQM Thailand Limited  15,424   35   12,679   -   11,042   228   228   10,228   5   7,288   -   5,579   319   319 
SQM Vitas Spain S.A.  2,287   686   1,583   -   13,673   157   253 
Total  4,285,442   3,215,209   3,426,767   413,879   3,281,991   459,350   448,643   4,137,292   2,643,621   3,407,438   335,661   3,341,562   553,218   571,387 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-59F-58

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.6Information on consolidated subsidiaries, continued

 

12/31/2013
  Assets  Liabilities        Comprehensive
 
Subsidiary Current  Non-current  Current  Non-current   Revenue   Profit (loss)   income (loss) 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                             
SQM Nitratos S.A.  490.084   124.966   525.924   15.545   184.487   18.434   18.434 
Proinsa Ltda.  200   1   -   -   -   (2)  (2)
SQMC Internacional Ltda.  266   -   -   -   -   (1)  (1)
SQM Potasio S.A.  109.408   1.049.628   3.411   15.749   2.052   184.948   185.458 
Serv. Integrales de Tránsito y Transf. S.A.  348.685   86.935   389.980   8.423   50.135   6.149   6.149 
Isapre Norte Grande Ltda.  916   829   924   192   4.192   28   334 
Ajay SQM Chile S.A.  22.720   1.232   5.226   755   67.413   6.916   6.916 
Almacenes y Depósitos Ltda.  362   50   1   -   -   (11)  (40)
SQM Salar S.A.  678.215   1.000.954   453.864   216.110   792.109   206.745   206.679 
SQM Industrial S.A.  1.110.303   820.831   872.216   79.021   925.167   64.602   61.547 
Exploraciones Mineras S.A.  477   31.537   4.765   -   -   (312)  (312)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.  762   243   322   556   2.276   31   46 
Soquimich Comercial S.A.  143.515   22.582   47.121   973   214.350   10.291   10.162 
Comercial Agrorama Ltda.  15.450   2.148   16.314   114   16.009   61   62 
Comercial Hydro S.A.  8.302   134   124   72   109   370   370 
Agrorama S.A.  15.722   568   16.074   36   16.122   37   37 
Orcoma SpA  2   2.356   -   -   -   -   - 
Orcoma Estudio SpA  2   -   -   -   -   -   - 
SQM North America Corp.  214.359   17.058   197.077   1.781   365.691   (4.763)  (3.751)
RS Agro Chemical Trading Corporation A.V.V.  5.204   -   -   -   -   (9)  (9)
Nitratos Naturais do Chile Ltda.  3   254   4.695   -   -   278   278 
Nitrate Corporation of Chile Ltd.  5.076   -   -   -   -   -   - 
SQM Corporation N.V.  669   93.936   3.725   -   -   10.441   7.377 
SQM Peru S.A.  578   1   1.190   -   1   (191)  (191)
SQM Ecuador S.A.  10.644   81   10.533   42   25.475   (1.224)  (1.224)
SQM Brasil Ltda.  680   40   851   -   802   88   88 
SQI Corporation N.V.  -   19   62   -   -   (1)  (2)
SQMC Holding Corporation L.L.P.  11.978   16.394   1.000   -   -   5.267   5.267 
SQM Japan Co. Ltd.  1.948   263   234   494   2.468   (283)  (283)

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

12/31/2015
  Assets  Liabilities  Revenue  Profit (loss)  Comprehensive 
Subsidiary Current  Non-current  Current  Non-current        income (loss) 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
SQM Nitratos S.A.  521,948   69,159   531,903   7,913   146,731   (715)  (739)
Proinsa Ltda.  149   -   -   -   -   -   - 
SQMC Internacional Ltda.  195   -   -   -   -   (1)  (1)
SQM Potasio S.A.  90,230   843,842   7,748   23,438   10,785   184,315   184,533 
Serv. Integrales de Tránsito y Transf. S.A.  46,646   63,973   81,703   6,642   44,045   (12,450)  (12,316)
Isapre Norte Grande Ltda.  791   540   664   143   3,883   -   6 
Ajay SQM Chile S.A.  17,044   942   879   563   38,414   3,165   3,165 
Almacenes y Depósitos Ltda.  264   41   -   -   -   (12)  (77)
SQM Salar S.A.  625,239   885,904   474,225   201,581   762,058   193,367   193,300 
SQM Industrial S.A.  1,030,937   702,192   741,820   83,751   685,634   19,144   11,224 
Exploraciones Mineras S.A.  482   31,443   5,560   -   -   (666)  (666)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S,A.  296   550   423   364   2,299   (130)  12 
Soquimich Comercial S.A.  138,413   22,447   33,058   1,037   162,582   6,618   6,301 
Comercial Agrorama Ltda.  10,231   1,554   10,796   16   13,806   11   12 
Comercial Hydro S.A.  9,014   87   122   -   50   460   460 
Agrorama S.A.  12,848   595   13,759   16   15,131   (380)  (380)
Orcoma SpA  -   2,356   9   -   -   (8)  (8)
Orcoma Estudio SpA  2,059   2,931   347   -   -   9   9 
SQM North America Corp.  200,156   16,348   201,343   -   255,455   (12,774)  (12,774)
RS Agro Chemical Trading Corporation A.V.V.  5,194   -   -   -   -   (7)  (7)
Nitratos Naturais do Chile Ltda.  2   229   3,255   -   -   618   618 
Nitrate Corporation of Chile Ltd.  5,076   -   -   -   -   -   - 
SQM Corporation N.V.  668   115,720   3,539   -   -   4,882   303 
SQM Peru S.A.  421   1   1,176   -   22   (104)  (104)
SQM Ecuador S.A.  19,660   147   18,883   35   16,778   447   447 
SQM Brasil Ltda.  121   1   585   2,142   375   (2,694)  (2,694)
SQI Corporation N.V.  -   23   38   -   -   53   52 
SQMC Holding Corporation L.L.P.  21,296   13,873   1,000   -   -   2,044   2,044 
SQM Japan Co. Ltd.  2,327   211   239   495   2,861   159   159 

 

F-60F-59

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.6Information on consolidated subsidiaries, continued

 

12/31/2013
12/31/201512/31/2015
 Assets Liabilities       Comprehensive  Assets Liabilities Revenue Profit (loss) Comprehensive 
Subsidiary Current Non-current Current Non-current Revenue Profit (loss) income (loss)  Current Non-current Current Non-current      income (loss) 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                           
SQM Europe N.V.  316,396   383   280,092   -   677,497   1,608   1,608   315,642   2,111   273,123   -   530,912   (5,536)  (5,536)
SQM Italia SRL  1,421   -   18   -   -   -   -   1,124   -   14   -   -   -   - 
SQM Indonesia S.A.  4   -   (76)  -   -   -   -   3   -   1   -   -   -   - 
North American Trading Company  160   145   39   -   -   (1)  (1)  158   145   39   -   -   (1)  (1)
SQM Virginia LLC  14,828   14,374   14,828   -   -   (1)  (1)  14,814   14,360   14,814   -   -   (7)  (7)
SQM Comercial de México S.A. de C.V.  88,252   1,427   61,534   -   178,180   4,724   4,724   87,686   1,710   61,589   -   183,374   (3,399)  (3,399)
SQM Investment Corporation N.V.  62,496   282   36,805   851   50   1,097   1,097   81,328   130   29,054   861   -   17,865   17,865 
Royal Seed Trading Corporation A.V.V.  240,231   442   83,606   170,000   -   (2,537)  (1,904)  72,828   -   93,235   -   -   (3,490)  (3,089)
SQM Lithium Specialties LLP  15,781   3   1,264   -   -   (1)  (1)  15,766   3   1,264   -   -   (7)  (7)
Soquimich SRL Argentina  414   -   218   -   -   (49)  (49)  243   -   199   -   -   (135)  (135)
Comercial Caimán Internacional S.A.  271   -   1,122   -   -   (38)  (38)  261   -   1,122   -   -   (5)  (5)
SQM France S.A.  345   6   114   -   -   -   -   345   6   114   -   -   -   - 
Administración y Servicios Santiago S.A. de C.V.  153   -   795   127   3,243   (7)  (7)  167   -   635   227   3,094   (90)  (90)
SQM Nitratos México S.A. de C.V.  26   4   23   4   186   (7)  (7)  40   4   25   6   291   4   4 
Soquimich European Holding B.V.  79,966   96,670   93,496   987   -   8,849   5,785   71,166   112,488   79,906   -   -   3,245   (1,881)
SQM Iberian S.A.  101,299   70   101,757   -   166,087   66   66   55,444   65   50,169   -   137,869   11   11 
SQM Africa Pty Ltd.  55,635   729   47,932   -   109,968   1,611   1,611   94,508   1,372   81,552   -   88,247   4,945   4,945 
SQM Oceanía Pty Ltd.  4,251   -   811   -   3,542   51   51 
SQM Agro India Pvt. Ltd.  7   -   2   -   -   (2)  (2)
SQM Oceania Pty Ltd.  2,357   -   440   -   2,378   (192)  (192)
SQM Agro India Pvt, Ltd.  3   -   -   -   -   (1)  (1)
SQM Beijing Commercial Co. Ltd.  2,415   80   301   -   9,915   (1,164)  (1,164)  2,827   43   608   -   5,373   (58)  (58)
SQM Thailand Limited  7,052   36   4,510   -   4,379   (787)  (787)  9,765   27   6,991   -   11,539   125   125 
Total  4,187,933   3,387,691   3,284,824   511,832   3,821,905   521,301   514,370   3,588,182   2,907,573   2,827,968   329,230   3,123,986   398,625   381,428 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-61F-60

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 6Background of companies included in consolidation (continued)

 

6.7Detail of transactions between consolidated companies

 

Transactions conducted in 2014On November 21, 2014, shareholders at the Extraordinary Shareholders’ Meeting of the subsidiary Orcoma Estudios SPA approved a capital increase from US$1,500, divided in 150,000 single series shares, wholly subscribed and paid, to US$4,631,507, divided in 196,229 single series shares with no par value. SQM S.A. did not subscribe to the capital increase, and as a result its ownership interest in this subsidiary decreased to 51%. SQM S.A. recognized a gain of ThUS$2,359 for not subscribing to the capital increase.

a)Transactions conducted in 2016

 

At the General Shareholders’ Meeting ofOn May 12, 2016, the subsidiary SQM EcuadorIberian S.A., the shareholders agreed to absorb the accumulated losses acquired 100% of the company ofinterest in SQM Vitas Spain for ThUS$ 455.1,710.

 

Transactions conducted in 2013

b)Transactions conducted in 2015

 

On December 31, 2013,August 5, 2015, the subsidiary Orcoma Estudios SPA was incorporated where Sociedad Quimica y Minera de Chile S.A.SQM Brasil Ltda. made a capital contribution of US$ 1,500.

On December 31, 2013, theThUS$572 in its subsidiary Orcoma SPA was incorporated where Sociedad Quimica y Minera deNitratos Naturais do Chile S.A. madeLtda. As a capital contributionresult of ThUS$ 2,358.

On March 25, 2013,such transaction, SQM Brasil Ltda. increased its interest from 0.001% to 70.82% in such company. SQM Industrial S.A. increased by ThUS$ 1,500was not involved in such capital increase, decreasing its interest from 99.99% to 29.18%. This generated no effects on the capitalconsolidated profit or loss of its subsidiary SQM Beijing Commercial Co. Ltd.S.A.

 

During the first half of 2013 Iodine Minera was absorbed into Soquimich European Holdings.

During the first half of 2013 Soquimich European Holdings B.V. purchased shares of SQM Thailand Limited, acquiring 99.996% of this company.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-62F-61

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 7Cash and cash equivalents

 

7.1Types of cash and cash equivalents

 

As of December 31, 20142016 and December 31, 2013,2015, cash and cash equivalents are detailed as follows:

 

a) Cash 12/31/2014 12/31/20131  12/31/2016 12/31/20151 
 ThUS$ ThUS$ 
         ThUS$ ThUS$ 
Cash on hand  88   119   53   87 
Cash in banks  29,404   29,671   80,287   31,977 
Other demand deposits  -   3,625   1,260   9,042 
Total cash  29,492   33,415   81,600   41,106 

 

b) Cash equivalents 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$ 
         ThUS$ ThUS$ 
Short-term deposits, classified as cash equivalents  29,492   158,208   95,673   84,662 
Short-term investments, classified as cash equivalents  295,582   284,999   337,396   401,491 
Total cash equivalents  325,074   443,207   433,069   486,153 
                
Total cash and cash equivalents  354,566   476,622   514,669   527,259 

 

7.2Short-term investments, classified as cash equivalents

 

As of December 31, 20142016 and December 31, 2013,2015, short-term investments, classified as cash and cash equivalents relate to mutual funds (investment liquidity funds) for investments in:

 

Institution 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Legg Mason - Western Asset Institutional Cash Reserves  100,988   95,941 
BlackRock - Institutional US Dollar Liquidity Fund  97,351   94,726 
JP Morgan US dollar Liquidity Fund Institutional  97,243   94,332 
Total  295,582   284,999 

Institution 12/31/2016
ThUS$
  12/31/2015
ThUS$
 
Legg Mason - Western Asset Institutional Cash Reserves  178,446   204,082 
JP Morgan US dollar Liquidity Fund Institutional  158,950   197,409 
Total  337,396   401,491 

 

Short-term investments are highly liquid fund manager accounts that are basically invested in short-term fixed rate notes in the U.S. market.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-62
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 7Cash and cash equivalents (continued)

 

7.3Information on cash and cash equivalents by currency

 

As of December 31, 20142016 and December 31, 2013,2015, information on cash and cash equivalents by currency is detailed as follows:

 

Original currency 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Chilean Peso (*)  6,355   25,391 
US Dollar  328,392   430,263 
Euro  10,449   9,230 
Mexican Peso  736   429 
South African Rand  4,046   7,229 
Japanese Yen  1,701   1,435 
Peruvian Sol  1   2 
Brazilian Real  29   73 
Chinese Yuan  769   384 
Indonesian Rupiah  4   4 
Indian Rupee  12   7 
Thai Baht  2,055   2,161 
Argentine Peso  12   - 
Pound Sterling  5   14 
Total  354,566   476,622 

  12/31/2016  12/31/2015 
Original currency ThUS$  ThUS$ 
Chilean Peso (*)  6,044   2,656 
US Dollar  490,978   512,809 
Euro  11,386   4,245 
Mexican Peso  309   1,439 
South African Rand  3,250   4,123 
Japanese Yen  2,149   1,690 
Peruvian Sol  3   1 
Brazilian Real  59   8 
Chinese Yuan  400   272 
Indian Rupee  8   14 
Thai Baht  8   1 
Argentine Peso  4   1 
Pound Sterling  71   - 
Total  514,669   527,259 

 

(*) The Company maintains financial derivative policies which allow dollarizing these term depositstominimize the risk of the variation in Chilean pesos.pesos exchange rate

 

7.4Amount of significant restricted (unavailable) cash balances

 

Cash on hand and in current bank accounts are available resources, and their carrying value is equal to their fair value.

 

As of December 31, 2014, the amount ThUS$ 3,250 can be found in “other current financial assets”. This corresponds to the collateral securities associated to the fair value of the Cross Currency Swap (Margin Call). At2016 and December 31, 2013, the Company has no significant2015, restricted cash balances with any type of restriction.are presented in Note 10.9.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-63
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 7Cash and cash equivalents (continued)

 

7.5Short-term deposits, classified as cash equivalents

 

The detail at the end of each period is as follows:

 

2014
Receiver of the deposit
 Type of deposit Original Currency Interest rate Placement date Expiration date Principal
ThUS$
 Interest accrued
to-date
ThUS$
 31/12/2014
ThUS$
 
Banco Estado Fixed term Ch$  0.24  12/30/2014 01/08/2015  4,121   -   4,121 
2016
Receiver of the deposit
 Type of deposit Original Currency Interest rate Placement date Expiration date Principal
ThUS$
 Interest accrued
to-date
ThUS$
 12/31/2016
ThUS$
 
Banco Santander Fixed term US$  1.28  12/29/2016 1/31/2017  9,900   1   9,901 
Banco Crédito e Inversiones Fixed term Ch$  0.23  12/30/2014 01/08/2015  824   -   824  Fixed term US$  0.90  12/30/2016 1/9/2017  15,000   1   15,001 
Banco Santander Fixed term US$  0.90  12/30/2016 1/10/2017  10,000   -   10,000 
Scotiabank Sud Americano Fixed term US$  0.93  10/11/2016 1/30/2017  13,000   27   13,027 
Banco de Chile Fixed term US$  0.75  10/11/2016 1/30/2017  2,000   3   2,003 
Corpbanca Fixed term US$  1.21  12/1/2016 1/3/2017  3,500   4   3,504 
Banco Santander - Santiago Fixed term US$  0.76  12/7/2016 1/6/2017  3,900   2   3,902 
Banco Crédito e Inversiones Fixed term US$  0.90  12/12/2016 1/12/2017  5,000   2   5,002 
Corpbanca Fixed term US$  1.30  12/12/2016 1/12/2017  1,700   1   1,701 
Banco Crédito e Inversiones Fixed term US$  0.88  12/14/2016 1/17/2017  2,000   1   2,001 
Banco Santander - Santiago Fixed term US$  1.28  12/20/2016 2/21/2017  800   -   800 
Banco Santander - Santiago Fixed term US$  1.28  12/20/2016 2/21/2017  5,000   2   5,002 
Banco BBVA Chile Fixed term US$  0.45  10/29/2014 01/06/2015  20,000   16   20,016  Fixed term US$  0.75  12/22/2016 1/23/2017  3,500   1   3,501 
Banco de Chile Fixed term US$  1.25  12/28/2016 2/9/2017  3,900   1   3,901 
Banco Santander - Santiago Fixed term US$  1.31  12/28/2016 2/9/2017  3,300   -   3,300 
Banco Crédito e Inversiones Fixed term US$  1.00  12/29/2016 1/30/2017  3,800   -   3,800 
Corpbanca Fixed term Ch$  0.31  12/16/2016 1/2/2017  1,942   3   1,945 
Scotiabank Sud Americano Fixed term Ch$  0.32  12/29/2016 1/9/2017  597   1   598 
Scotiabank Sud Americano Fixed term Ch$  0.33  12/30/2016 1/9/2017  2,091   -   2,091 
Citibank New York Overnight US$  0.01  12/31/2016 1/1/2017  1,742   -   1,742 
BBVA Banco Francés Fixed term US$  18.5  12/29/2014 01/28/2015  362   -   362  Fixed term US$  0.21  24/102016 1/31/2017  199   -   199 
ABN Amro Bank Fixed term Euro  -  12/31/2014 01/31/2015  4,169   -   4,169 
Nedbank On demand US$  -  12/1/2016 1/31/2017  2,752   -   2,752 
Total          29,476   16   29,492               95,623   50   95,673 

 

2013

Receiver of the deposit

 Type of deposit Original Currency Interest rate  Placement date Expiration date 

Principal

ThUS$

  

Interest accrued
to-date
ThUS$

  31/12/2013
ThUS$
 
Banco BBVA Chile Fixed term US$  0.50  12/20/2013 01/09/2014  10,000   2   10,002 
Banco BBVA Chile Fixed term US$  0.50  12/20/2013 01/09/2014 ��10,000   2   10,002 
Banco BBVA Chile Fixed term US$  0.50  12/20/2013 01/09/2014  10,000   2   10,002 
Banco Crédito e Inversiones Fixed term US$  0.40  12/16/2013 01/16/2014  20,000   3   20,003 
Banco Crédito e Inversiones Fixed term US$  0.48  12/16/2013 02/06/2014  20,000   4   20,004 
Banco Crédito e Inversiones Fixed term US$  0.50  10/17/2013 01/03/2014  10,093   10   10,103 
Banco Crédito e Inversiones Fixed term US$  0.58  12/16/2013 03/11/2014  20,000   5   20,005 
Banco Crédito e Inversiones Fixed term Ch$  0.37  12/30/2013 01/13/2014  4,384   -   4,384 
Banco Crédito e Inversiones Fixed term Ch$  0.38  12/27/2013 01/09/2014  4,193   2   4,195 
Banco Santander - Santiago Fixed term US$  0.48  12/09/2013 01/23/2014  20,314   6   20,320 
Banco Santander - Santiago Fixed term US$  0.52  12/04/2013 01/03/2014  10,104   4   10,108 
Banco Santander - Santiago Fixed term Ch$  0.43  10/21/2013 01/03/2014  14,352   148   14,500 
IDBI Bank Fixed term Indian rupee  -  12/31/2013 6/30/2014  2   -   2 
Citibank New York Overnight US$  0.01  12/31/2013 01/02/2014  444   -   444 
Citibank New York Overnight US$  0.01  12/31/2013 01/02/2014  640   -   640 
Citibank New York Overnight US$  0.01  12/31/2013 01/02/2014  1,301   -   1,301 
ABN Amro Bank Fixed term Euro  -  12/31/2013 01/31/2014  2,193   -   2,193 
                         
Total              158,020   188   158,208 

2015
Receiver of the deposit
 Type of deposit Original Currency Interest rate  Placement date Expiration date Principal
ThUS$
  Interest accrued
to-date
ThUS$
  12/31/2015
ThUS$
 
Banco Crédito e Inversiones Fixed term US$  0.50  12/23/2015 1/27/2016  50,000   6   50,006 
Corpbanca Fixed term US$  0.65  12/22/2015 1/21/2016  25,000   4   25,004 
Banco Crédito e Inversiones Fixed term Ch$  0.32  12/30/2015 1/14/2016  1,338   -   1,338 
Banco Santander Santiago Fixed term Ch$  0.31  12/30/2015 1/14/2016  704   -   704 
Banco Crédito e Inversiones Fixed term US$  0.30  12/11/2015 1/11/2016  1,000   -   1,000 
Citibank New York Overnight US$  0.01  12/31/2015 1/2/2016  225   -   225 
Citibank New York Overnight US$  0.01  12/31/2015 1/2/2016  614   -   614 
BBVA Banco Francés Fixed term US$  19.00  12/2/2015 1/4/2016  236   -   236 
ABN Amro Bank On demand Euro  -  12/31/2015 1/2/2016  1,240   -   1,240 
Nedbank On demand US$  -  12/31/2015 1/2/2016  4,295   -   4,295 
Total              84,652   10   84,662 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-65F-64

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 8Inventories

 

The composition of inventory at each period-end is as follows:

 

Type of inventory 12/31/2014
ThUS$
  12/31/2013
ThUS$
 
       
Raw materials  9,540   8,552 
Supplies for production  30,398   42,366 
Products-in-progress  453,816   400,824 
Finished product  425,849   503,788 
Total  919,603   955,530 
Type of inventory 12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
          
Raw material reserves  7,536   4,844   9,540 
Supplies for production reserves  23,610   29,353   30,398 
Products-in-progress reserves  482,261   478,627   453,816 
Finished product reserves  479,665   491,022   425,849 
Total  993,072   1,003,846   919,603 

As of December 31, 2016, the Company had inventories of caliche ore available for processing for ThUS$43,400 (ThUS$32,203 as of December 31, 2015 and ThUS$38,265 as of December 31, 2014).

The sum registered as cost of sale related to inventory in the statement of income amounts to ThUS$1,116,057 as of December 31, 2016, ThUS$1,070,387 as of December 31, 2015 and ThUS1,259,983 as of December 31, 2014.

 

Inventory provisionsreserves recognized as of December 31, 20142016 amount to ThUS$82,966,81,295, and ThUS$80,369 as of December 31, 2015 and ThUS$97,248 as of December 31, 2013.2014. Inventory provisionsreserves have been made based on a technical study that covers the different variables affecting products in stock (density and humidity, among others). Additionally, provisionsreserves are recognized if goods are sold cheaper than the related cost, and for differences that arise from inventory counts.

 

As of December 31, 2014, the sum registered as cost of sale related to inventory in the statement of income amounts to ThUS$1,259,983 and to ThUS$1,314,276 as of December 31, 2013.

The breakdown of inventory provisionsreserves is detailed as follows:

 

Type of inventory 12/31/2014
ThUS$
  12/31/2013
ThUS$
 
       
Raw material provisions  93   93 
Supplies for production provisions  500   500 
Products-in-progress provisions  55,994   65,768 
Finished product provisions  26,379   30,887 
Total  82,966   97,248 
Type of inventory 12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
          
Raw material reserves  93   93   93 
Supplies for production reserves  920   920   500 
Products-in-progress reserves  52,843   53,187   55,994 
Finished product reserves  27,439   26,169   26,379 
             
Total  81,295   80,369   82,966 

 

The Company has not delivered inventory as collateral for the periods indicated above.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-66F-65

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 8Inventories (continued)

 

As of December 31, 2016 and 2015, movements in provisions are detailed as follows

Reconciliation 12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Opening balance  80,369   82,966   97,248 
Changes            
Additional provisions  33,118   18,461   33,748 
Increase (decrease) in existing provisions  (32,192)  (21,058)  (48,030)
Total changes  926   (2,597)  (14,282)
Final Balance  81,295   80,369   (82,966)

Note 9Related party disclosures

 

9.1Related party disclosures

 

Balances pending at period-end are not guaranteed, accrue no interest and are settled in cash. No guarantees have been delivered or received for trade and other receivables due from related parties or trade and other payables due to related parties. For the period ended December 31, 2014,2016, the Company has not recorded any impairment in accounts receivable related to amounts owed by related parties. This evaluation is conducted every year through an examination of the financial position of the related party in the market in which it operates.

 

9.2Relationships between the parent and the entity

 

According to the Company’s by-laws, no shareholder can own more than 32% of the Company’s voting right shares.

 

Sociedad de Inversiones Pampa Calichera S.A., Potasios de Chile S.A., and Inversiones Global Mining (Chile) Ltda., collectively the Pampa Group, are the owners of a number of shares that are equivalent to 29.94%29.97% as of December 31, 20142016 of the current total amount of shares issued, subscribed and fully-paid of the Company. In addition, Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A. and La Esperanza Delaware Corporation, collectively the Kowa Group, are the owners of a number of shares equivalent to 2.10%2.12% of the total amount of shares of SQM S.A. issued, subscribed and fully-paid.

 

The Pampa Group and the Kowa Group have informed SQM S.A., the Chilean SVS and the relevant stock exchanges in Chile and abroad that they are not and have never been related parties between them. In addition, this is regardless of the fact that both Groups on December 21, 2006 have entered into a Joint Action Agreement (JAA) related to those shares. Consequently, the Pampa Group, by itself, does not concentrate more than 32% of the voting right capital of SQM S.A., and the Kowa Group does not concentrate by itself more than 32% of the voting right capital of SQM S.A.

 

Likewise, the Joint Action Agreement has not transformed the Pampa and Kowa Groups into related parties between them. The Joint Action Agreement has only transformed the current controller of SQM S.A., composed of the Pampa Group, and the Kowa Group into related parties of SQM S.A.

 

F-66
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 9Related party disclosures (continued)

9.3Relationships between the parent and the entity, continued

Detail of effective concentration

 

Tax ID No. Name Ownership
interest %
 
96.511.530-7 Sociedad de Inversiones Pampa Calichera S.A.  19.6919.72
76.165.311-5Potasios de Chile S.A.6.91 
96.863.960-9 Inversiones Global Mining (Chile) Ltda.  3.34 
76.165.311-5Potasios de Chile S.A.6.91
Total Pampa Group    29.9429.97 
       
79.798.650-k Inversiones la Esperanza (Chile) Ltda.  1.411.43 
59.046.730-8 Kowa Co Ltd.  0.30 
96.518.570-4 Kochi S.A.  0.30 
59.023.690-k La Esperanza Delaware Corporation  0.09 
Total Kowa Group    2.102.12 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-67

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 9Related party disclosures (continued)

 

9.3Detailed identification of the link between the Parent and subsidiary

 

As of December 31, 20142016 and December 31, 2013,2015, the detail of entities that are related parties of the SQM S.A. Group is as follows:

 

Tax ID No. Name Country of origin Functional currency Nature
Foreign Nitratos Naturais Do Chile Ltda. Brazil US$ Subsidiary
Foreign Nitrate Corporation Of Chile Ltd. United Kingdom US$ Subsidiary
Foreign SQM North America Corp. United States US$ Subsidiary
Foreign SQM Europe N.V. Belgium US$ Subsidiary
Foreign Soquimich S.R.L. Argentina Argentina US$ Subsidiary
Foreign Soquimich European Holding B.V. The Netherlands US$ Subsidiary
Foreign SQM Corporation N.V. Dutch AntillesThe Netherlands US$ Subsidiary
Foreign SQI Corporation N.V. Dutch AntillesThe Netherlands US$ Subsidiary
Foreign SQM Comercial De México S.A. de C.V. Mexico US$ Subsidiary
Foreign North American Trading Company United States US$ Subsidiary
Foreign Administración y Servicios Santiago S.A. de C.V. Mexico US$ Subsidiary
Foreign SQM Peru S.A. Peru US$ Subsidiary
Foreign SQM Ecuador S.A. Ecuador US$ Subsidiary
Foreign SQM Nitratos Mexico S.A. de C.V. Mexico US$ Subsidiary
Foreign SQMC Holding Corporation L.L.P. United States US$ Subsidiary
Foreign SQM Investment Corporation N.V. Dutch AntillesThe Netherlands US$ Subsidiary
Foreign SQM Brasil Limitada Brazil US$ Subsidiary
Foreign SQM France S.A. France US$ Subsidiary
Foreign SQM Japan Co.  Ltd. Japan US$ Subsidiary
Foreign Royal Seed Trading Corporation A.V.V. Aruba US$ Subsidiary
Foreign SQM Oceania Pty Limited Australia US$ Subsidiary
Foreign Rs Agro-Chemical Trading Corporation A.V.V. Aruba US$ Subsidiary
Foreign SQM Indonesia S.A. Indonesia US$ Subsidiary
Foreign SQM Virginia L.L.C. United States US$ Subsidiary
Foreign SQM Italia SRL Italy US$ Subsidiary
Foreign Comercial Caiman Internacional S.A. Panamá US$ Subsidiary
Foreign SQM Africa Pty. Ltd. South Africa US$ Subsidiary
Foreign SQM Lithium Specialties LLC United States US$ Subsidiary
Foreign SQM Iberian S.A. Spain US$ Subsidiary
Foreign SQM Agro India Pvt. Ltd. India US$ Subsidiary
Foreign SQM Beijing Commercial Co. Ltd. China US$ Subsidiary
Foreign SQM Thailand Limited Thailand US$ Subsidiary

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-68

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 9Related party disclosures (continued)

9.3Detailed identification of the link between the Parent and subsidiary, continued

As of December 31, 2014 and December 31, 2013, the detail of entities that are a related parties of the SQM S.A: Group is as follows:

Tax ID No.Foreign NameSQM Vitas Spain Country of
origin
Spain
 Functional currencyUS$ NatureSubsidiary
96.801.610-5 Comercial Hydro  S.A. Chile Chilean peso Subsidiary
96.651.060-9 SQM Potasio S.A. Chile US$ Subsidiary
96.592.190-7 SQM Nitratos S.A. Chile US$ Subsidiary
96.592.180-K Ajay SQM Chile S.A. Chile US$ Subsidiary

F-68
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 9Related party disclosures (continued)

9.4Detailed identification of the link between the Parent and subsidiary, continued

As of December 31, 2016 and December 31, 2015, the detail of entities that are a related parties of the SQM S.A: Group is as follows:

Tax ID No.NameCountry of originFunctional currencyNature
86.630.200-6 SQMC Internacional Ltda. Chile Chilean peso Subsidiary
79.947.100-0 SQM Industrial S.A. Chile US$ Subsidiary
79.906.120-1 Isapre Norte Grande Ltda. Chile Chilean peso Subsidiary
79.876.080-7 Almacenes y Depósitos Ltda. Chile Chilean peso Subsidiary
79.770.780-5 Servicios Integrales de Tránsitos y Transferencias S.A. Chile US$ Subsidiary
79.768.170-9 Soquimich Comercial S.A. Chile US$ Subsidiary
79.626.800-K SQM Salar S.A. Chile US$ Subsidiary
78.053.910-0 Proinsa Ltda. Chile Chilean peso Subsidiary
76.534.490-5 Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A. Chile Chilean peso Subsidiary
76.425.380-9 Exploraciones Mineras S.A. Chile US$ Subsidiary
76.064.419-6 Comercial Agrorama Ltda. Chile Chilean peso Subsidiary
76.145.229-0 Agrorama S.A. Chile Chilean peso Subsidiary
76.359.919-1 Orcoma Estudios SPA Chile US$ Subsidiary
76.360.575-2 Orcoma SPA Chile US$ Subsidiary
77.557.430-5 Sales de Magnesio Ltda. Chile Chilean peso Associate
Foreign Abu Dhabi Fertilizer Industries WWL United Arab Emirates Arab Emirates dirham Associate
Foreign Doktor Tarsa Tarim Sanayi AS Turkey Turkish lira Associate
Foreign Ajay North America United States US$ Associate
Foreign Ajay Europe SARL France Euro Associate
Foreign SQM Eastmed Turkey Turkey Euro Associate
Foreign Charlee SQM Thailand Co. Ltd. Thailand Thai baht Associate
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. China US$ Joint venture
Foreign Coromandel SQM India India Indian rupee Joint venture
Foreign SQM Vitas Fzco. Arab Emirates Arab Emirates dirham Joint venture
Foreign SQM Star Qingdao Corp Nutrition Co., Ltd. China US$ Joint venture
Foreign SQM Vitas SpainSpainEuroJoint control or significant influence
ForeignSQM Vitas Holland B.V. Dutch Antilles Euro Joint venture
Foreign SQM Vitas Plantacote B.V.Dutch AntillesEuroJoint control or significant influence
ForeignKowa Company Ltd. Japan US$ Joint control

Shareholder

96.511.530-7 Sociedad de Inversiones Pampa Calichera Chile US$ Joint controlSignificant shareholder
96.529.340-k Norte Grande S.A. Chile Chilean peso Other related partiesParent Company of significant share holder
79.049.778-9 Callegari Agricola S.A. Chile Chilean peso Other related parties
Foreign Coromandel Internacional India Indian rupee Other related parties
Foreign Vitas Roullier SAS France Euro Other related parties
Foreign SQM Vitas BrasilBrazil Agroindustria Brazil US$ Joint control or significant influenceventure
Foreign SQM Vitas Peru S.A.C. Peru US$ Joint control or significant influenceventure
ForeignSQM Vitas Plantacote B.VDutch AntillesEuroJoint venture
ForeignMinera Exar S.A.ArgentinaUS$Joint venture
Foreign SQM Vitas Southern Africa Pty. South Africa US$ Joint control or significant influenceventure

 

(1)During December 2016, SQM Salar S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

sold the interest it had in Sales de Magnesio Ltda. to Rockwood Litio Ltda. This transaction generated a gain of ThUS$7,636.

F-69
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 9Related party disclosures (continued)

 

9.4Detail of related parties and related party transactions

 

Transactions between the Parent and its subsidiaries, associates, joint ventures and other related parties are part of the Company's common transactions. Their conditions are those customary for this type of transactions in respect of terms and market prices. In addition, these have been eliminated in consolidation and are not detailed in this note.

 

Maturity terms for each case vary by virtue ofaccording to the transaction giving rise to them.

 

As of December 31, 20142016 and December 31, 2013,2015, there are no allowances for doubtful accounts related to balances pending of transactions with related parties as there is no impairment in them.

 

As of December 31, 2014, 20132016 and 2012,December 31, 2015, the detail of significant transactions with related parties is as follows:

 

Tax ID No. Company Nature Country of
origin
 Transaction 12/31/2014
ThUS$
  12/31/2013
ThUS$
  12/31/2012
ThUS$
 
Foreign Doktor Tarsa Tarim Sanayi As Associate Turkey Sale of products  26,806   13,844   9,587 
Foreign Doktor Tarsa Tarim Sanayi As Associate Turkey Other Transactions  -   740   - 
Foreign Ajay Europe S.A.R.L. Associate France Sale of products  28,566   35,884   37,232 
Foreign Ajay Europe S.A.R.L. Associate France Dividends  2,728   5,093   3,564 
Foreign Ajay North America LLC. Associate United States Sale of products  23,533   40,605   42,081 
Foreign Ajay North America LLC. Associate United States Dividends  7,139   10,437   10,175 
Foreign Ajay North America LLC. Associate United States Sale of services  90   -   - 
Foreign Abu Dhabi Fertilizer Industries WWL Associate United Arab Emirates Sale of products  8,535   7,908   6,285 
Foreign Charlee SQM Thailand Co. Ltd. Associate Thailand Sale of products  6,852   5,669   10,203 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Sale of products  1,112   1,186   1,472 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Dividends  1,245   892   1,052 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Sale of services  35   -   - 
96.529.340-k Norte Grande S.A. Other related parties Chile Sale of services  -   140   - 
79.049.778-9 Callegari Agrícola S.A. Other related parties Chile Other Transactions  47   -   - 
Foreign Kowa Company Ltd. Other related parties Japan Sale of products  76,714   77,176   123,581 

Tax ID No. Company Nature Country of origin Transaction 12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
Foreign Doktor Tarsa Tarim Sanayi As Associate Turkey Sale of products  11,619   17,842   26,806 
Foreign Ajay Europe S,A.R.L. Associate France Sale of products  17,977   23,545   28,566 
Foreign Ajay Europe S.A.R.L. Associate France Dividends  1,338   1,748   2,728 
Foreign Ajay North America LLC. Associate United States Sale of products  12,865   15,618   23,533 
Foreign Ajay North America LLC. Associate United States Dividends  2,605   5,185   7,139 
Foreign Ajay North America LLC. Associate United States Sale of services  -   -   90 
Foreign Abu Dhabi Fertilizer Industries WWL Associate United Arab Emirates Sale of products  8,312   7,902   8,535 
Foreign Charlee SQM Thailand Co. Ltd. Associate Thailand Sale of products  3,798   5,557   6,852 
Foreign Charlee SQM Thailand Co. Ltd. Associate Thailand Dividends  -   296   - 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Sale of products  -   1,187   1,112 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Dividends  -   286   1,245 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Sale of services  -   34   35 
79.049.778-9 Callegari Agrícola S.A. Other related parties Chile Other transactions  -   -   47 
Foreign Kowa Company Ltd. Holding Company Japan Sale of products  91,678   62,543   76,714 
Foreign Kowa Company Ltd. Shareholder Japan Services received      (933)  (1,546)
Foreign SQM Vitas Brasil Agroindustria Joint venture Brazil Sale of products  17,686   32,019   51,841 
Foreign SQM Vitas Peru S.A.C. Joint control or significant influence Peru Sale of products  22,090   34,586   30,978 
Foreign SQM Vitas Southern Africa Pty. Joint control or significant influence South Africa Sale of products  -   2,187   13,975 
Foreign SQM Vitas Fzco. Joint venture United Arab Emirates Sale of products  965   1,060   1,681 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China Sale of products  9,950   22,624   53,763 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China Sale of services  257   -   - 
Foreign Coromandel SQM India Joint venture India Sale of products  4,630   4,012   4,930 
Foreign SQM Vitas Spain Joint venture Spain Sale of products  5,528   8,587   7,700 
Foreign SQM Vitas Plantacote B.V. Joint venture Netherlands Sale of products  49   27   4 
Foreign SQM Star Qingdao Corp Nutrition Co., Ltd. Joint venture China Sale of products  166   -   - 
Foreign SQM Vitas Holland B.V. Joint venture Netherlands Sale of products  634   -   - 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-70

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 9Related party disclosures (continued)

Trade receivable and payable between the Parent and its subsidiaries, associates, joint ventures and other related parties are part of the Company's common transactions. Their conditions are those customary for this type of transactions in respect of terms and market prices. In addition, these have been eliminated in consolidation and are not detailed in this note.

9.5Trade receivables due from related parties, current:

Tax ID N° Company Nature Country of origin Currency 12/31/2016  12/31/2015 
          ThUS$  ThUS$ 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Ch$  -   377 
Foreign Charlee SQM Thailand Co. Ltd. Associate Thailand US$  1.315   2.338 
Foreign Ajay Europe S.A.R.L. Associate France Euro  3.801   3.031 
Foreign Ajay North America LLC. Associate United States US$  3.095   2.538 
Foreign Abu Dhabi Fertilizer Industries WWL Associate United Arab Emirates Arab Emirates dirham  764   772 
Foreign Doktor Tarsa Tarim Sanayi AS Associate Turkey YTL  -   9.314 
Foreign Kowa Company Ltd. Shareholders Japan US$  34.377   23.465 
96.511.530-7 Soc.de Inversiones Pampa Calichera Jointly controlled entity Chile US$  6   6 
Foreign SQM Vitas Brasil Agroindustria Joint venture Brazil US$  9.580   19.156 
Foreign SQM Vitas Peru S.A.C. Joint venture Peru US$  13.318   16.026 
Foreign Coromandel SQM India Joint venture India Indian rupee  1.177   750 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China US$  14.547   21.464 
79.049.778-9 Callegari Agrícola S.A. Other related parties Chile Ch$  41   52 
Foreign SQM Vitas Fzco. Joint venture United Arab Emirates Arab Emirates dirham  97   - 
Foreign SQM Vitas Spain Joint venture Spain Euro  -   566 
Foreign SQM Vitas Plantacote B.V. Joint venture Netherlands Euro  91   - 
Foreign SQM Star Qingdao Corp Nutrition Co., Ltd. Joint venture China US$  48   52 
Foreign Plantacote N.V. Associate Belgium Euro  2   - 
Total          82.259   99.907 

9.6Trade payables due to related parties, current:

Tax ID
 No.
 Company. Nature 

Country of origin

 Currency 12/31/2016
ThUS$
  12/31/2015
ThUS$
 
Foreign Doktor Tarsa Tarim Sanayi AS Associate Turkey YTL  7   - 
Foreign SQM Vitas Fzco. Joint venture Arab Emirates Arab Emirates dirham  -   251 
Foreign SQM Vitas Plantacote B.V. Joint venture Netherlands Euro  -   184 
Total as of to-date          7   435 

F-71
 Notes to the Consolidated Financial Statements as of December 31, 2016

 

Note 9Related party disclosures (continued)

 

9.4Detail of related parties and related party transactions, continued

Tax ID No. Company Nature Country of
origin
 Transaction 12/31/2014
ThUS$
  12/31/2013
ThUS$
  12/31/2012
ThUS$
 
Foreign Kowa Company Ltd. Other related parties Japan Services received  1,546   702   - 
Foreign SQM Vitas Brasil Agroindustria Joint control or significant influence Brazil Sale of products  51,841   52,901   40,518 
Foreign SQM Vitas Peru S.A.C. Joint control or significant influence Peru Sale of products  30,978   21,255   26,123 
Foreign SQM Vitas Southern Africa Pty. Joint control or significant influence South Africa Sale of products  13,975   17,908   10,930 
Foreign SQM Vitas Fzco. Joint venture United Arab Emirates Sale of products  1,681   289   120 
Foreign SQM Vitas Fzco. Joint venture United Arab Emirates Sale of services  -   98   - 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China Sale of products  53,763   56,254   - 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China Sale of services  -   282   62 
Foreign Coromandel SQM India Joint venture India Sale of products  4,930   5,242   2,300 
Foreign SQM Star Qingdao Corp Nutrition Co., Ltd. Joint venture China Sale of services  -   148   - 
Foreign SQM Vitas Spain Joint venture Spain Sale of products  7,700   1,624   - 
Foreign SQM Vitas Plantacote B.V. Joint venture Netherlands Sale of products  4   -   - 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-71

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 9Related party disclosures (continued)

9.5Trade receivables due from related parties, current:

          12/31/2014  12/31/2013 
Tax ID N° Company Nature Country of origin Currency ThUS$  ThUS$ 
77.557.430-5 Sales de Magnesio Ltda. Associate Chile Ch$  340   147 
Foreign Charlee SQM Thailand Co. Ltd. Associate Thailand US$  2.559   331 
Foreign Doktor Tarsa Tarim Sanayi AS Associate Turkey US$  -   11 
Foreign Ajay Europe S.A.R.L. Associate France Euro  3.674   4,974 
Foreign Ajay North America LLC. Associate United States US$  2.793   4,166 
Foreign Abu Dhabi Fertilizer Industries WWL Associate United Arab Emirates Arab Emirates dirham  3.596   2,958 
Foreign Kowa Company Ltd. Jointly controlled entity Japan US$  19.445   22,960 
96.511.530-7 Soc.de Inversiones Pampa Calichera Jointly controlled entity Chile US$  7   8 
Foreign SQM Vitas Brasil Agroindustria Joint venture Brazil US$  29.425   18,205 
Foreign SQM Vitas Peru S.A.C. Joint venture Peru US$  20.716   17,840 
Foreign SQM Vitas Southern Africa PTY Joint venture South Africa US$  3.772   4,553 
Foreign Coromandel SQM India Joint venture India Indian rupee  2.534   2,271 
Foreign Sichuan SQM Migao Chemical Fertilizers Co Ltda. Joint venture China US$  43.900   47,910 
79.049.778-9 Callegari Agrícola S.A. Other related parties Chile Ch$  87   363 
Foreign SQM Vitas Fzco. Joint venture United Arab Emirates Arab Emirates dirham  523   436 
Foreign SQM Vitas Spain Joint venture Spain Euro  1.099   760 
Foreign SQM Vitas Plantacote B.V. Joint venture Holland Euro  -   133 
Foreign SQM Star Qingdao Corp Nutrition Co., Ltd. Joint venture China US$  36     
Foreign SQM Vitas Holland Joint venture Holland Euro  -   - 
Total          134,506   128,016 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-72

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 9Related party disclosures (continued)

9.6Trade payables due to related parties, current:

Tax ID
No.
Company.NatureCountry of
origin
Currency12/31/2014
ThUS$
12/31/2013
ThUS$
ForeignDoktor Tarsa Tarim Sanayi ASAssociateTurkeyTurkish lira71-
ForeignSQM Vitas Plantacote B.V.Joint ventureHollandEuro160-
Total as of to-date231-

9.7Board of Directors and Senior Management

 

1)Board of directors

 

The CompanySQM S.A. is managed by a Board of Directors which is composed of eight8 regular directors, 2 of which are independent directors, who are elected for a three-year period. The present Board of Directors was elected by the shareholders at the Ordinary Shareholders' Meeting of April 25, 2013.26, 2016.

 

As of December 31, 2014,2016, the Company has an Audit Committee made up of three members of the Board of Directors. This Committee performs those duties provided in Article 50 bis of Law No. 18,046 on Shareholders Company, the Shareholders’ Corporations Act.following Committees:

-Directors’ Committee: composed of Hans Dieter Linneberg A. and Edward J. Waitzer, Julio Rebolledo D. Such Committee performs the duties contained in Article 50 bis of Law No. 18.046, the Chilean “Securities Act”.
-Audit Committee: composed of Hans Dieter Linneberg A. and Edward J. Waitzer, Julio Rebolledo D.
-Health, Safety and Environmental Matters Committee: composed of Mrs. Joanne L. Boyes, Gonzalo Guerrero Y. and Arnfinn F. Prugger.
-Corporate Governance Committee: composed of Edward J. Waitzer, Robert A. Kirkpatrick, and Hans Dieter Linneberg A.

 

During the periods covered by these financial statements, there are no pending balances receivable and payable between the Company, its directors or members of Senior Management other than those related to remuneration, fee allowances and profit-sharing. In addition, there were no transactions conducted between the Company, its directors or members of Senior Management.

 

1.1 Shearman & Sterling and Ad-Hoc Committee

At its Extraordinary Meeting of February 26, 2015, the Board of Directors formed an Ad-Hoc Committee, which is currently composed of the Directors Robert A. Kirkpatrick, Wolf von Appen B. and the Chairman Edward J. Waitzer. The Board of Directors delegated in the Committee the authority required to perform its duties and empowered it so that at its discretion engages all legal and accounting advisory required and other independent external advisory services as it deems appropriate and that upon performing its duties reports to the Board of Directors on its conclusions and possible recommendations for courses of action. The Committee engaged the legal Advisory of the law firms Shearman & Sterling and Vial / Serrano, and the forensic services provided by FTI.

F-72
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 9Related party disclosures (continued)

9.7Board of Directors and Senior Management, continued

2)Directors’ Compensation

2.1.1Board of Directors

 

Directors’ compensation is detailed as follows:

 

a)AThe payment of a monthly fixed, gross and monthly amount of UF 300three hundred Unidades de Fomento (inflation-adjusted units) in favor of the Chairman of the Company’s Board of Directors of SQM S.A. and UF 125of two hundred Unidades de Fomento in favor of each of the remaining seven remaining board membersdirectors of SQM S.A. regardless of their attendance at Board meetings or the number of meetings attendedMeetings held or not held during the respective month.related month and for the periods between May 1, 2016 and April 30, 2017.

b)A payment in domestic currency in favor of the Chairman of the Company’s Board of Directors consisting of a variable and gross amount equivalent to 0.35%0.135% of profit for the period effectively earned by the Company during fiscal year 2014.2016.

c)A payment in domestic currency in favor of each Company’s directors excluding the Chairman of the Board, consisting of a variable and gross amount equivalent to 0.05%0.06% of profit for the period effectively earned by the Company during fiscal years 2014.2016.

d)The fixed and variable amounts indicated above will not be subject to any chargechallenge between them and those expressed as a percentagein percentages will be paid immediately after the shareholders at the respective Annualrelated General Shareholders’ Meeting of SQM S.A. approves the Company approveBalance Sheet, Financial Statements, Annual Report, the statementAccount Inspectors’ Report and Independent Auditor’s Report of financial position (balance sheet), the financial statements, the annual report, the report by the account inspectors and the report of external auditorsSQM S.A. for the fiscal years endingcommercial year ended December 31, 2014.2016.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago,

e)The amounts expressed in UF will be paid in accordance with the value determined by the Chilean Superintendence of Banks and Financial Institutions (SBIF), the Central Bank of Chile

Tel: (562) 425 2000

www.sqm.com

(Banco Central de Chile) or another relevant institution replacing them during the last day of the calendar year applicable. The amounts reflected in or referred to in U.S. dollars will be converted to Chilean pesos and paid in Chilean pesos in accordance with the exchange rate with which the dividend declared for the commercial year 2016 is paid.

f)Therefore, the remunerations and profit sharing paid to members of the Board of Directors and Audit Committee during 2016 amount to ThUS$2,292 (ThUS$2,769 as of December 31, 2015).

3)Audit Committee

The remuneration of Directors Committee is composed of:

a)The payment of a fixed, gross and monthly amount of three seventy-five Unidades de Fomento (inflation-adjusted units) in favor the three Directors that are members of the Director’s Committee regardless of the number of Meetings held or not held during the related month and for the periods between May 1, 2016 and April 30, 2017.

b)A payment in domestic currency in favor of each of the three Directors consisting of a variable and gross amount equivalent to 0.02% of profit for the period effectively earned by the Company during fiscal year 2016 resulting after deducting the relevant amount for the concept of the amortization of gain from bargain purchase and regardless of the number of Meetings held or not held by the Directors’ Committee during such year.

F-73

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 9Related party disclosures (continued)

 

9.7Board of Directors and Senior Management, continued

 

e)c)Therefore,The fixed and variable amounts indicated above will not be subject to any challenge between them and those expressed in percentages will be paid after the remunerationsrelated General Shareholders’ Meeting of SQM S.A. approves the Balance Sheet, Financial Statements, Annual Report, the Account Inspectors’ Report and profit sharing paid to membersIndependent Auditor’s Report of SQM S.A. for the Board of Directors and Audit Committee during 2014 amount to ThUS$3,424 (ThUS$ 4,827 as ofcommercial year ended December 31, 2013).2016.

 

3)d)Audit Committee

The remuneration of Directors Committee is composed of:

a)A paymentThe amounts expressed in UF will be paid in accordance with the value determined by the Chilean Superintendence of a monthly, fixedBanks and gross amountFinancial Institutions (SBIF), the Central Bank of UF 17 in favor of eachChile (Banco Central de Chile) or another relevant institution replacing them during the last day of the three Directors who are a part ofcalendar year applicable. The amounts reflected in or referred to in U.S. dollars will be converted to Chilean pesos and paid in Chilean pesos in accordance with the Company’s Audit Committee, regardless ofexchange rate with which the number of meetings conducted during the respective month.

b)A payment in domestic currency and in favor of each of the three Directors of a variable and gross amount equivalent to 0.013% of the Company’s profitdividend declared for the period effectively earned by the Company during fiscal years 2014 and 2013.commercial year 2016 is paid.

 

4)Corporate Governance Committee, Health, Safety and Environmental Matters Committee and other Company’s Committees

Remuneration of such committees is composed of the payment of a fixed, gross, monthly amount of UF 50 for each director comprising such committees, regardless of the number of meetings held or not held during the related month or year.

5)No guarantees have been constituted in favor of the directors.

5)6)Senior management compensation:

 

As of December 31, 2014, the global compensation paid to the 108 main executives amounts to ThUS$25,666 (ThUS$32,888 as of December 31, 2013). This includes monthly fixed salary and variable performance bonuses.

The Company has a bonuses intermediate and bi-intermediate plan for compliance target and level of individual contribution to the Company’s profit or loss. These benefits are structured in a minimum and maximum of gross remunerations which are paid once a year or every two years.

a)As of December 31, 2016, the global compensation paid to the 105 main executives amounts to ThUS$20,439 and the global compensation paid to the 103 main executives as of December 31, 2015 amounted to ThUS$19,355. This includes monthly fixed salary and variable performance bonuses.

 

6)b)The Company provides its executives with an annual and a long-term bonus plan payble in the first quarter of 2021 or the date of the employee´s resignation, taking into account achievement of targets and individual contribution to the Company’s operating results.

7)Additionally, the Company has retention bonuses for the Company’s executives. The amount of these bonuses is linked to the price of the Company’s share and is payable in cash between 2012 and 20162021 (see Note 16).

7)8)No guarantees have been constituted in favor of the Company’s management.

8)9)The Company’s Managers and Directors do not receive or have not received any benefit during the period ended December 31, 20142016 and the year ended December 31, 20132015 or compensation for the concept of pensions, life insurance, paid time off, profit sharing, incentives, or benefits due to disability other than those mentioned in the preceding points.

F-74
 Notes to the Consolidated Financial Statements as of December 31, 2016

9)Note 9Related party disclosures (continued)

9.7Board of Directors and Senior Management, continued

10)In accordance with IAS 24, we should report that the Company's Director Mr. Wolf Von Appen B. is also a member of the Ultramar Group. As of December 31, 2014,2015, the amount of transactions with this Group is approximately ThUS$7,854 (ThUS$12,287 (ThUS$16,850 as of December 31, 2013). In addition, Director José María Eyzaguirre is also a partner of Claro y Compañía. As of December 31, 2014, the amount of transactions with this Group is approximately ThUS$242 (ThUS$85 as of December 31, 2013)2014).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

9.8Key management personnel compensation

  12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
         
Key management personnel compensation (1)  20,439   19,355 

(1)Corresponds to a number of executives (see Note 9.7 6) b).

 

F-74F-75

 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 9Related party disclosures (continued)

9.8Key management personnel compensation

  12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
       
Salaries  18,778   20,440 
Long-Term Bonus  3,917   - 
Annual Bonus  2,971   3.710 
Key management personnel compensation  25,666   24,150 

Management does not receive an end-of-strike Bonus, nor has it received post-employment benefits. Regarding the share-based benefits:

a.There is one in which 10 executives were involved and is triggered if the stock of SQM B exceeds US$ 50,00, a situation that occurred in 2014.
b.The other shared benefit- in which 26 executives were involved at December 31, 2014- will be determined in December 2015, if payment were to be appropriate.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-75
2016

 

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 10Financial instruments

 

Financial assetsinstruments in conformityaccordance with IAS 39 are detailed as follows:

 

10.1Types of other financial assets

 

Description of other financial assets 12/31/2014 12/31/2013  12/31/2016
ThUS$
 12/31/2015
ThUS$
 
 ThUS$ ThUS$ 
          
Other current financial assets (1)  653,442   431,883   284,160   617,267 
Derivatives (2)  17,160   3,283   4,095   19,058 
Hedging assets, current  -   25,007 
Hedging assets  934   - 
Total other current financial assets  670,602   460,173   289,189   636,325 
                
Other non-current financial assets  427   95 
Hedging assets, non-current  -   - 
Other non-current financial assets (3)  14,099   486 
Total other non-current financial assets  427   95   14,099   486 

 

(1)Relates to term deposits with maturities exceeding 90 days and less than 360 days from the investment date.

(2)Relate to forwards and options that were not classified as hedging instruments (see detail in Note 10.3).

 

(3)The detail of other financial assets, non-current is as follows:

  12/31/2016
ThUS$
  12/31/2015
ThUS$
 
       
Non-current investments not accounted for using the equity method of accounting, classified as available for sale  6,899   444 
Hedging assets  7,156   - 
Other financial assets, non-current  44   42 
Total other financial assets, non-current  14,099   486 

Detail of other current financial assets

 

Institution 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Banco Santander  141,914   131,534 
BBVA  91,718   80,206 
Banco de Crédito e Inversiones  140,216   79,530 
Banco de Chile  60,153   42,095 
Corpbanca  91,372   61,244 
Banco Itaú  100,136   30,207 
Banco Security  24,683   7,067 
Morgan Stanley  3,250   - 
Total  653,442   431,883 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Institution 12/31/2016
ThUS$
  12/31/2015
ThUS$
 
Banco Santander  54,364   175,433 
Banco de Crédito e Inversiones  40,627   97,739 
Banco de Chile  -   20,049 
Corpbanca  19,247   122,951 
Banco Itaú  44,722   80,830 
Banco Security  15,007   24,861 
Morgan Stanley  3,150   8,200 
Scotiabank Sud Americano  107,043   78,180 
HSBC Bank Chile  -   9,024 
Total  284,160   617,267 

 

F-76

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10Financial instruments, (continued)

 

10.2Trade and other receivables current and non-current

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 Current Non-current Total Current Non-current Total  Current Non-current Total Current Non-current Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Trade receivables  322,231   -   322,231   314,151   -   314,151   344,839   -   344,839   279,590   -   279,590 
Prepayments  11,378   -   11,378   12,127   -   12,127   6,621   -   6,621   9,155   -   9,155 
Other receivables  7,221   2,044   9,265   4,714   1,282   5,996   17,301   1,840   19,141   13,480   1,050   14,530 
Total trade and other receivables  340,830   2,044   342,874   330,992   1,282   332,274   368,761   1,840   370,601   302,225   1,050   303,275 

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 Assets before
allowances
 Allowance for
doubtful trade
receivables
 Assets for
trade
receivables,
net
 Assets before
allowances
 Allowance for
doubtful trade
receivables
 Assets for
trade
receivables, net
  Assets before
allowances
 Allowance for
doubtful trade
receivables
 Assets for trade
receivables, net
 Assets before
allowances
 Allowance for
doubtful trade
receivables
 Assets for trade
receivables, net
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Receivables related to credit operations, current  337,296   (15,065)  322,231   330,052   (15,901)  314,151   361,656   (16,817)  344,839   294,525   (14,935)  279,590 
Trade receivables, current  337,296   (15,065)  322,231   330,052   (15,901)  314,151   361,656   (16,817)  344,839   294,525   (14,935)  279,590 
Prepayments, current  14,178   (2,800)  11,378   14,927   (2,800)  12,127   9,421   (2,800)  6,621   11,955   (2,800)  9,155 
Other receivables, current  9,184   (1,963)  7,221   6,663   (1,949)  4,714   19,300   (1,999)  17,301   15,476   (1,996)  13,480 
Current trade and other receivables  360,658   (19,828)  340,830   351,642   (20,650)  330,992   390,377   (21,616)  368,761   321,956   (19,731)  302,225 
Other receivables, non-current  2,044   -   2,044   1,282   -   1,282   1,840   -   1,840   1,050   -   1,050 
Non-current receivables  2,044   -   2,044   1,282   -   1,282   1,840   -   1,840   1,050   -   1,050 
Total trade and other receivables  362,702   (19,828)  342,874   352,924   (20,650)  332,274   392,217   (21,616)  370,601   323,006   (19,731)  303,275 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-77

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10Financial instruments (continued)

Note 10   Financial instruments, (continued)

 

10.2    Trade and other receivables, continued

 

Portfolio stratification, continued

 

The Company’s policy is to require guarantees (such as letters of credit, guarantee clauses and others) and/or maintainmaintaining insurance policies for certain accounts as deemed necessary by management.

 

Unsecuritized portfolio

 

As of December 31, 20142016 and December 31, 2013,2015, the detail of the unsecuritized portfolio is as follows:

 

12/31/2014
12/31/201612/31/2016
 Not overdue 1 - 30 days 31 - 60 days 61 - 90
days
 91 - 120
days
 121 - 150
days
 151 - 180
days
 181 - 210
days
 211 - 250
days
 Over 250
days
 Total  Not
overdue
 1 - 30
days
 31 - 60
days
 61 - 90
days
 91 - 120
days
 121 - 150
days
 151 - 180
days
 181 - 210
days
 211 - 250
days
 Over 250
days
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Number of customers, portfolio under no renegotiated terms  2,997   574   533   90   305   297   15   269   283   1,779   7,142   1,943   2,502   1,666   1,324   1,473   372   290   227   221   1,903   11,921 
Portfolio under no renegotiated terms  243,255   51,738   21,425   5,883   718   1,062   127   520   162   6,659   331,549   298,872   18,511   5,097   2,951   3,441   1,010   643   522   309   25,849   357,205 
Number of customers under renegotiated terms portfolio  49   7   2   2   1   1   1   2   1   81   147   22   333   155   30   17   9   3   19   5   218   811 
Portfolio under renegotiated terms, gross  1,027   55   20   1,052   412   958   22   6   15   2,180   5,747   947   602   83   62   118   5   8   33   33   2,560   4,451 
Total gross portfolio  244,282   51,793   21,445   6,935   1,130   2,020   149   526   177   8,839   337,296   299,819   19,113   5,180   3,013   3,559   1,015   651   555   342   28,409   361,656 

 

12/31/2013
12/31/201512/31/2015
 Not overdue 1 - 30 days 31 - 60 days 61 - 90
days
 91 - 120
days
 121 - 150
days
 151 - 180
days
 181 - 210
days
 211 - 250
days
 Over 250
days
 Total  Not
overdue
 1 - 30
days
 31 – 60
 days
 61 – 90
 days
 91 - 120
days
 121 - 150
days
 151 - 180
days
 181 - 210
days
 211 - 250
days
 Over 250
days
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Number of customers, portfolio under no renegotiated terms  3,175   1,055   515   395   332   304   303   294   312   1,817   8,502   3,653   698   388   2,617   565   241   253   667   311   1,836   11,229 
Portfolio under no renegotiated terms  269,970   29,722   4,144   432   572   210   1,138   118   8,955   8,371   323,632   249,892   13,268   1,484   9,572   2,720   19   264   6,159   1,067   6,340   290,785 
Number of customers under renegotiated terms portfolio  42   8   2   2   3   1   5   6   12   113   194   17   1   551   38   8   1   3   7   6   235   867 
Portfolio under renegotiated terms, gross  2,964   79   15   69   42   13   87   85   447   2,619   6,420   540   10   625   13   170   15   259   35   293   1,780   3,740 
Total gross portfolio  272,934   29,801   4,159   501   614   223   1,225   203   9,402   10,990   330,052   250,432   13,278   2,109   9,585   2,890   34   523   6,194   1,360   8,120   294,525 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-78

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10Financial instruments (continued)

Note 10     Financial instruments, (continued)

 

10.2Trade and other receivables, continued

10.2    Trade and other receivables, continued

 

The detail of allowances is as follows:

 

Provision and write-offs 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Allowance for portfolio under no renegotiated terms  16,585   16,711   18,673   19,428   18,980   16,585 
Allowance for portfolio with renegotiated terms  3,717   4,459   1,518   2,193   2,356   3,717 
Write-offs for the period  (474)  (520)  (1,398)  (5)  (1,605)  (474)
Total  19,828   20,650   18,793   21,616   19,731   19,828 

 

a)Credit risk concentration

As of December 31, 2016 and 2015, movements in provisions are detailed as follows

Reconciliation 12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Opening balance  19,731   19,828   20,650 
Additional provisions  10,632   2,836   1,097 
Increase (decrease) in existing provisions  (8,747)  (2,933)  (1,919)
Final Balance  21,616   19,731   (19,828)

Credit risk concentration

 

Credit risk concentration with respect to trade receivables is reduced due to the great number of entities included in the Company’s client database and their distribution throughout the world.

 

F-79
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 10     Financial instruments, (continued)

10.3Hedging assets and liabilities

 

The balance represents derivative instruments measured at fair value which have been classified as hedges from exchange and interest rate risks related to the total obligations associated with bonds of the Company in Chilean pesos and UF (and the exchange risk in Chilean pesos of the Company’s investment plans). As of December 31, 2014,2016, the face valuenotional amount of cash flows in Cross Currency Swap contracts agreed upon in US dollars amounted to ThUS$368,017 as of December 31, 2013 such contracts amounted to ThUS$555,303320,155 and as of December 31, 20122015 such contracts amounted to ThUS$515,156.331,853 and as of December 31, 2014 such contracts amounted to ThUS$343,519.

 

Hedging liabilities Derivative
instruments
(CCS)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                     
December 31, 2014  37,034   (43,236)  1,638   (311)  1,327 
Hedging assets with
underlying debt
 Derivative
instruments
(Fwds)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
December 31, 2016  830   789   41   (9)  32 

 

Hedging assets Derivative
instruments (CCS)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                     
December 31, 2013  23,602   (45,312)  (3,307)  661   (2,646)
December 31, 2012  100,647   49,453   (18,419)  3,684   (14,735)
Hedging liabilities
 with underlying
 debt
 Derivative
instruments
(CCS)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
December 31, 2016  43,235   28,108   (29)  5   (24)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-79F-80

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10Financial instruments (continued)

Note 10    Financial instruments (continued)

 

10.3Hedging assets and liabilities, continued

10.3    Hedging assets and liabilities, continued

 

Hedging liabilities Derivative
instruments (IRS)
  Effect on profit or
loss for the period
derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
hedging reserve
in equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                     
December 31, 2014  736   (1,050)  596   -   596 
December 31, 2013  1,339   (93)  (1,153)  -   (1,153)
December 31, 2012  1,879   27   (1,786)  -   (1,786)
Hedging liabilities
with underlying
investments
 Derivative
 instruments
(CCS)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
 hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
December 31, 2016  218   (294)  76   (19)  57 

Hedging liabilities Derivative
instruments
(CCS)
  Effect on profit or
loss for the period
Derivative
instruments
  Hedging reserve
in gross equity
  Deferred tax
 hedging
reserve in
equity
  Hedging
reserve in
equity
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                
December 31, 2015  74,786   (29,245)  86   96   182 
December 31, 2014  37,034   (43,236)  1,638   (311)  1,327 

 

The balances in the “effect on profit or loss” column consider the interim effects of the contracts in force as of December 31, 2014, 20132016 and 2012.December 31, 2015.

 

Derivative contract maturities are detailed as follows:

 

Series Contract
amount

ThUS$
  Currency Maturity date
ThUS$
C  73,05951,315  UF 12/01/2026
H  162,353191,638  UF 01/05/2018
M  40,58846,463  UF 02/01/2017
O  60,88268,339  UF 02/01/2017

 

The Company uses cross currency swap derivative instruments to hedge the possible financial risk associated with the volatility of the exchange rate associated with Chilean pesos and UF. The objective is to hedge the exchange rate financial risks associated with bonds payable. Hedges are documented and tested to measure their effectiveness.

 

Based on a comparison of critical terms, hedging is highly effective, given that the hedged amount is consistent with obligations maintained for bonds denominated in Chilean pesos and UF. Likewise, hedging contracts are denominated in the same currencies and have the same expiration dates of bond principal and interest payments.

 

Hedge Accounting

 

The Company classifies derivative instruments as hedging that may include derivative or embedded derivatives either as fair value hedge derivative instruments, cash flow hedge derivative instruments, or hedge derivative instruments for net investment in a business abroad.

 

a) Fair value hedge

 

Changes in fair values of derivative instruments classified as fair value hedge derivative instruments are accounted for in gains and losses immediately along with any change in the fair value of the hedged item that is attributable to the risk being hedged.

 

F-81
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 10    Financial instruments (continued)

10.3    Hedging assets and liabilities, continued

The Company documents the relationship between hedge instruments and the hedged item along with the objectives of its risk management and strategy to carry out different hedging transactions. In addition, upon commencement of the period hedged and then on a quarterly basis the Company documents whether hedge instruments have been efficient and met the objective of hedging market fluctuations for the purpose of which we use the effectiveness test. A hedge instrument is deemed effective if the effectiveness test result is between 80% to 120%and 125%.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-80

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 10 Financial instruments (continued)

10.3Hedging assets and liabilities, continued

 

The hedge instruments are classified as effective or not effective on the basis of the effectiveness test results. As of to date, hedges are classified as effective on the basis of the effectiveness tests. This note includes the detail of fair values of derivatives classified as hedging instruments.

 

b) Cash flow hedges

 

Cash flow hedges cover exposure to the cash flow variations attributable to a risk associated with a specific transaction that is very likely to be executed, that may have material effects on the results of the Company.

 

10.4Financial liabilities

10.4    Financial liabilities

 

Other current and non-current financial liabilities

 

As of December 31, 20142016 and December 31, 2013,2015, the detail is as follows:

 

  12/31/2014  12/31/2013 
  Current  Non-current  Total  Current  Non-current  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Bank borrowings  191,116   219,838   410,954   171,347   309,489   480,836 
Obligations with the public  19,453   1,317,429   1,336,882   227,652   1,106,496   1,334,148 
Derivatives  1,791   -   1,791   1,088   -   1,088 
Hedging liabilities  812   36,958   37,770   1,339   1,405   2,744 
Total  213,172   1,574,225   1,787,397   401,426   1,417,390   1,818,816 

  12/31/2016  12/31/2015 
  Current  Non-current  Total  Current  Non-current  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Bank borrowings  101,270   -   101,270   178,183   140,000   318,183 
Obligations with the public (bonds)  58,973   1,059,706   1,118,679   221,092   1,077,172   1,298,264 
Derivatives  1,920   -   1,920   981   -   981 
Hedging liabilities  16,981   33,732   50,713   1,774   73,031   74,805 
Total  179,144   1,093,438   1,272,582   402,030   1,290,203   1,692,233 

 

Current and non-current bank borrowings

 

As of December 31, 20142016 and December 31, 2013,2015, the detail is as follows:

 

  12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Long-term borrowings  219,838   309,489 
Short-term borrowings  100,057   100,135 
Current portion of long-term borrowings  91,059   71,212 
Short-term loans and current portion of long-term borrowings  191,116   171,347 
Total borrowings assumed  410,954   480,836 
  12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
Long-term bank borrowings  -   140,000 
Short-term bank borrowings  101,270   97,079 
Current portion of long-term bank borrowings  -   81,104 
Short-term borrowings and current portion of long-term borrowings  101,270   178,183 
Total bank borrowings  101,270   318,183 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-81F-82

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4    Financial liabilities, continued

 

a)Bank loans, current:

a)         Bankborrowings, current:

 

As of December 31, 20142016 and December 31, 2013,2015, the detail of this caption is as follows:

 

Debtor Creditor Currency or
adjustment
   Effective  Nominal 
Tax ID No Subsidiary Country Tax ID No. Financial institution Country Index Repayment Rate  Rate 
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.59%  0.59%
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.46%  0.46%
93.007.000-9 SQM.S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  0.59%  0.59%
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States US$ Upon maturity  3.56%  2.33%
79.626.800-K SQM Salar S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.38%  0.38%
79.947.100-0 SQM Industrial S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  0.41%  0.41%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Scotiabank & Trust (Cayman) Ltd. Cayman Islands US$ Upon maturity  2.27%  1.37%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Bank of America United States US$ Upon maturity  2.70%  2.33%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Export Development Canada Canada US$ Upon maturity  2.45%  1.29%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York) United States US$ Upon maturity  2.12%  0.97%

Debtor Creditor Currency or
adjustment
  Effective
  Nominal
 
Tax ID No Company Country Tax ID No. Financial institution Country index Repayment rate  rate 
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  1.00%  1.00%
93.007.000-9 SQM.S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  4.3%  4.3%
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.74%  0.85%
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.74%  0.84%
79.626.800-K SQM Salar S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  1.34%  0.84%
79.947.100-0 SQM Industrial S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  1.20%  1.20%

 

 12/31/2014 12/31/2014    12/31/2016 12/31/2016 
Debtor Creditor Nominal amounts Current amounts  Creditor Nominal amounts Current amounts 
Subsidiary Financial institution 

Up to 90
days

ThUS$

 

90 days to

1 year

ThUS$

 

Total

ThUS$

 

Up to 90

days

ThUS$

 

90 days to

1 year

ThUS$

 

Subtotal

ThUS$

 

Borrowing

costs

ThUS$

 Total ThUS$ 
Company Financial institution Up to 90
days
ThUS$
 90 days to
1 year
ThUS$
 Total
ThUS$
 Up to 90
days
ThUS$
 90 days to
 1 year
ThUS$
 Subtotal
ThUS$
 Borrowing
costs ThUS$
 Total ThUS$ 
SQM.S.A. Scotiabank Sud Americano  -   20,000   20,000   5   20,000   20,005   -   20,005  Scotiabank Sud Americano  -   20,000   20,000   30   20,000   20,030   -   20,030 
SQM.S.A. Scotiabank Sud Americano  -   20,000   20,000   9   20,000   20,009   -   20,009  Banco Estado  -   20,412   20,412   -   20,919   20,919   -   20,919 
SQM.S.A. Banco Estado  -   20,000   20,000   -   20,026   20,026   -   20,026  Scotiabank Sud Americano  -   17,000   17,000   -   17,057   17,057   -   17,057 
SQM S.A. Banco Estado NY Branch  -   -   -   988   -   988   -   988 
SQM.S.A. Scotiabank Sud Americano  -   3,000   3,000   -   3,010   3,010   -   3,010 
SQM Salar S.A. Scotiabank Sud Americano  -   20,000   20,000   9   20,000   20,009   -   20,009  Scotiabank Sud Americano  -   20,000   20,000   -   20,042   20,042   -   20,042 
SQM Industrial S.A. Banco Estado  20,000   -   20,000   20,008   -   20,008   -   20,008  Banco Estado  20,000   -   20,000   20,212   -   20,212   -   20,212 
Royal Seed Trading Corporation A.V.V. Scotiabank & Trust (Cayman) Ltd.  -   50,000   50,000   -   50,137   50,137   (85)  50,052 
Royal Seed Trading Corporation A.V.V. Bank of America  -   -   -   -   117   117   (66)  51 
Royal Seed Trading Corporation A.V.V. Export Development Canada  -   20,000   20,000   -   20,013   20,013   (60)  19,953 
Royal Seed Trading Corporation A.V.V. The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York)  -   20,000   20,000   -   20,084   20,084   (69)  20,015 
Total  20,000   170,000   190,000   21,019   170,377   191,396   (280)  191,116     20,000   80,412   100,412   20,242   81,028   101,270   -   101,270 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-82F-83

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10     Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4     Financial liabilities, continued

 

DebtorDebtor Creditor 

Currency or

adjustment

   Effective Nominal Debtor Creditor Currency or
adjustment
  Effective
 Nominal
 
Tax ID No Subsidiary Country Tax ID No. Financial institution Country index Repayment rate rate  Company Country Tax ID No. Financial institution Country index Repayment rate  rate 
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile USD Upon maturity  0.65%  0.65% SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.57%  0.57%
93.007.000-9 SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile USD Upon maturity  0.47%  0.47% SQM.S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  0.70%  0.70%
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States USD Upon maturity  3.10%  2.39% SQM.S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.58%  0.58%
79.626.800-K SQM Salar S.A. Chile 97.030.000-7 Banco Estado Chile USD Upon maturity  0.61%  0.61%
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States US$ Upon maturity  1.94%  2.54%
79.626.800-K SQM Salar S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile USD Upon maturity  0.59%  0.59% SQM Salar S.A. Chile 97.018.000-1 Scotiabank Sud Americano Chile US$ Upon maturity  0.57%  0.57%
79.947.100-0 SQM Industrial S.A. Chile 97.030.000-7 Banco Estado Chile USD Upon maturity  0.75%  0.75% SQM Industrial S.A. Chile 97.030.000-7 Banco Estado Chile US$ Upon maturity  0.44%  0.44%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Bank of America United States USD Upon maturity  1.75%  1.27% Royal Seed Trading Corporation A.V.V. Aruba Foreign Bank of America United States US$ Upon maturity  1.43%  1.30%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Export Development Canada Canada USD Upon maturity  1.69%  1.30% Royal Seed Trading Corporation A.V.V. Aruba Foreign The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York) United States US$ Upon maturity  1.18%  1.05%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Scotiabank & Trust (Cayman) Ltd. Cayman Islands USD Upon maturity  1.35%  1.24% Royal Seed Trading Corporation A.V.V. Aruba Foreign Export Development Canada Canada US$ Upon maturity  1.75%  1.39%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Scotiabank & Trust (Cayman) Ltd. Cayman Islands USD Upon maturity  1.73%  1.41%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York) United States USD Upon maturity  1.37%  1.01%

 

   12/31//2013 12/31/2013    12/31/2015 12/31/2015 
Debtor Creditor Nominal amounts Current amounts  Creditor Nominal amounts Current amounts 
Filial Financial institution 

Up to 90

days

ThUS$

 

90 days to

1 year

ThUS$

 

Total

ThUS$

 

Up to 90

days

ThUS$

 

90 days to

1 year

ThUS$

 

Subtotal

ThUS$

 

Borrowing

costs ThUS$

 Total ThUS$ 
Company Financial institution Up to 90
 days
ThUS$
 90 days to
1 year
ThUS$
 Total
ThUS$
 Up to 90
 days
ThUS$
 90 days to
 1 year
ThUS$
 Subtotal
ThUS$
 Borrowing
costs
 ThUS$
 Total ThUS$ 
SQM.S.A. Scotiabank Sud Americano  -   20,000   20,000   13   20,000   20,013   -   20,013 
SQM.S.A. Scotiabank Sud Americano  -   20,000   20,000   3   20,000   20,003   -   20,003  Banco Estado  -   20,000   20,000   9   20,000   20,009   -   20,009 
SQM.S.A. Scotiabank Sud Americano  -   20,000   20,000   7   20,000   20,007   -   20,007  Scotiabank Sud Americano  -   17,000   17,000   8   17,000   17,008   -   17,008 
SQM S.A. Banco Estado NY Branch  -   -   -   1,012   -   1,012   (26)  986  Banco Estado NY Branch  -   -   -   1,067   -   1,067   -   1,067 
SQM Salar S.A. Banco Estado  20,000   -   20,000   20,033   -   20,033   -   20,033 
SQM Salar S.A. Scotiabank Sud Americano  -   20,000   20,000   11   20,000   20,011   -   20,011  Scotiabank Sud Americano  -   20,000   20,000   16   20,000   20,016   -   20,016 
SQM Industrial S.A. Banco Estado  -   20,000   20,000   -   20,081   20,081   -   20,081  Banco Estado  20,000   -   20,000   20,032   -   20,032   -   20,032 
Royal Seed Trading Corporation A.V.V. Bank of America  -   -   -   -   120   120   (65)  55  Bank of America  -   40,000   40,000   -   40,137   40,137   (49)  40,088 
Royal Seed Trading Corporation A.V.V. Export Development Canada  -   10,000   10,000   -   10,014   10,014   (60)  9,954  The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York)  -   20,000   20,000   -   20,052   20,052   (54)  19,998 
Royal Seed Trading Corporation A.V.V. Scotiabank & Trust (Cayman) Ltd.  -   50,000   50,000   189   50,000   50,189   (43)  50,146  Export Development Canada  -   20,000   20,000   -   20,010   20,010   (58)  19,952 
Royal Seed Trading Corporation A.V.V. Scotiabank & Trust (Cayman) Ltd.  -   -   -   -   139   139   (106)  33 
Royal Seed Trading Corporation A.V.V. The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York)  -   10,000   10,000   -   10,108   10,108   (70)  10,038 
Total  20,000   150,000   170,000   21,255   150,462   171,717   (370)  171,347     20,000   157,000   177,000   21,145   157,199   178,344   (161)  178,183 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-83F-84

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10     Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4     Financial liabilities, continued

 

b)Unsecured obligations, current:

b) Unsecured obligations, current:

 

As of December 31, 20142016 and December 31, 2013,2015, the detail of current unsecured interest-bearing obligations is composed of promissory notes and bonds, as follows:

 

Bonds

 

DebtorDebtor 

Number of

registration or ID

 of the instrument

 Series Maturity
date
 

Currency or

adjustment

index

 Periodicity Effective rate  Nominal
rate
 Debtor Number of
registration or ID of
 the instrument
 Series Maturity
 date
 Currency or
adjustment
 index
 Periodicity Effective rate Nominal rate 
Tax ID No. Subsidiary País        

Payment of

interest

 Repayment      Company País       Payment of
interest
 Repayment     
93.007.000-9 SQM S.A. Chile - ThUS$200,000 04/15/2015 US$ Semiannual Upon maturity  6.25%  6.13% SQM S.A. Chile  -  ThUS$250,000 10/21/2016 US$ Semiannual Upon maturity  1.97%  5.50%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 04/21/2015 US$ Semiannual Upon maturity  5.67%  5.50% SQM S.A. Chile  -  ThUS$250,000 1/28/2017 US$ Semiannual Upon maturity  3.61%  4.38%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 01/28/2015 US$ Semiannual Upon maturity  4.46%  5.50% SQM S.A. Chile  -  ThUS$300,000 10/3/2016 US$ Semiannual Upon maturity  2.48%  3.63%
93.007.000-9 SQM S.A. Chile - ThUS$300,000 04/03/2015 US$ Semiannual Upon maturity  3.86%  4.38% SQM S.A. Chile  446  C 12/1/2016 UF Semiannual Semiannual  1.34%  4.00%
93.007.000-9 SQM S.A. Chile 446 C 06/01/2015 UF Semiannual Semiannual  6.34%  4.00% SQM S.A. Chile  564  H 1/5/2017 UF Semiannual Semiannual  2.47%  4.90%
93.007.000-9 SQM S.A. Chile 564 H 01/05/2015 UF Semiannual Semiannual  4.23%  4.90% SQM S.A. Chile  700  M 2/1/2017 UF Semiannual Upon maturity  0.69%  3.30%
93.007.000-9 SQM S.A. Chile 700 M 02/01/2015 UF Semiannual Upon maturity  3.20%  3.30% SQM S.A. Chile  699  O 2/1/2017 UF Semiannual Upon maturity  3.00%  3.80%
93.007.000-9 SQM S.A. Chile 699 O 02/01/2015 UF Semiannual Upon maturity  3.74%  3.80%

 

    12/31/2014  12/31/2014 
    Nominal maturities  Current maturities 
Subsidiary Country Series 

Up to 90

days

  

91 days to 1

year

  Total  

Up to 90

days

  

91 days to 1
year

  Subtotal  

Bond

issuance

costs

  Total 
      ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S.A. Chile ThUS$200,000  -   -   -   -   2.586   2.586   (293)  2.293 
SQM S.A. Chile ThUS$250,000  -   -   -   -   2.674   2.674   (384)  2.290 
SQM S.A. Chile ThUS$250,000  -   -   -   1.914   -   1.914   (433)  1.481 
SQM S.A. Chile ThUS$300,000  -   -   -   -   2.658   2.658   (614)  2.044 
SQM S.A. Chile C  -   6.088   6.088   -   6.329   6.329   -   6.329 
SQM S.A. Chile H  -   -   -   3.843   -   3.843   (139)  3.704 
SQM S.A. Chile M  -   -   -   554   -   554   (130)  424 
SQM S.A. Chile O  -   -   -   955   -   955   (67)  888 
Total      -   6.088   6.088   7.266   14.247   21.513   (2.060)  19.453 

    12/31/2016  12/31/2016 
    Nominal maturities  Current maturities 
Company Country Series Up to 90 days  91 days to 1
 year
  Total  Up to 90 days  91 days to 1
 year
  Subtotal  Bond
issuance
costs
  Total 
      ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S,A, Chile ThUS$250,000  -       -   -   2,674   2,674   (386)  2,288 
SQM S,A, Chile ThUS$250,000  -       -   4,649   -   4,649   (433)  4,216 
SQM S,A, Chile ThUS$300,000  -   -   -   -   2,658   2,658   (615)  2,043 
SQM S,A, Chile C      5,903   5,903   -   6,098   6,098   -   6,098 
SQM S,A, Chile H  -   -   -   3,726   -   3,726   (139)  3,587 
SQM S,A, Chile M  39,356   -   39,356   39,893   -   39,893   (11)  39,882 
SQM S,A, Chile O  -   -   -   926   -   926   (67)  859 
Total      39,356   5,903   45,259   49,194   11,430   60,624   (1,651)  58,973 

Effective rates of bonds in Chilean pesos and UF are expressed and calculated in U.S. dollars based on the flows agreed in Cross Currency Swap Agreements.

F-85
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 10    Financial instruments (continued)

10.4    Financial liabilities, continued

Debtor Number of
 registration or ID
of  the instrument
  Series Maturity
 date
 Currency or
adjustment
 index
 Periodicity Effective rate  Nominal rate 
Tax ID No. Company País          Payment of
 interest
 Repayment      
93.007.000-9 SQM S.A. Chile  -  ThUS$200,000 4/15/2016 US$ Semiannual Upon maturity  9.19%  6.13%
93.007.000-9 SQM S.A. Chile  -  ThUS$250,000 4/21/2016 US$ Semiannual Upon maturity  5.89%  5.50%
93.007.000-9 SQM S.A. Chile  -  ThUS$250,000 1/28/2016 US$ Semiannual Upon maturity  4.61%  4.38%
93.007.000-9 SQM S.A. Chile  -  ThUS$300,000 4/3/2016 US$ Semiannual Upon maturity  3.93%  3.63%
93.007.000-9 SQM S.A. Chile  446  C 6/1/2016 UF Semiannual Semiannual  6.52%  4.00%
93.007.000-9 SQM S.A. Chile  564  H 1/5/2016 UF Semiannual Semiannual  5.20%  4.90%
93.007.000-9 SQM S.A. Chile  700  M 2/1/2016 UF Semiannual Upon maturity  4.32%  3.30%
93.007.000-9 SQM S.A. Chile  699  O 2/1/2016 UF Semiannual Upon maturity  3.97%  3.80%

    12/31/2015  12/31/2015 
    Nominal maturities  Current maturities 
Company Country Series Up to 90 days  91 days to 1
 year
  Total  Up to 90 days  91 days to 1
year
  Subtotal  Bond
 issuance
 costs
  Total 
      ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S,A, Chile ThUS$200,000  -   200,000   200,000   -   202,586   202,586   (73)  202,513 
SQM S,A, Chile ThUS$250,000  -   -   -   -   2,674   2,674   (386)  2,288 
SQM S,A, Chile ThUS$250,000  -   -   -   4,648   -   4,648   (433)  4,215 
SQM S,A, Chile ThUS$300,000  -   -   -   -   2,658   2,658   (614)  2,044 
SQM S,A, Chile C  -   5,413   5,413   -   5,610   5,610   -   5,610 
SQM S,A, Chile H  -   -   -   3,417   -   3,417   (139)  3,278 
SQM S,A, Chile M  -   -   -   492   -   492   (130)  362 
SQM S,A, Chile O  -   -   -   849   -   849   (67)  782 
Total      -   205,413   205,413   9,406   213,528   222,934   (1,842)  221,092 

 

Effective rates of bonds in Chilean pesos and UF are expressed and calculated in U.S. dollars based on the flows agreed in Cross Currency Swap Agreements.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-84F-86

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4    Financial liabilities, continued

 

c)         Types of interest-bearing borrowings, non-current

Debtor 

Number of

registration or ID

of the instrument

 Series Maturity date 

Currency or

adjustment

index

 Periodicity Effective rate  

Nominal

rate

 
Tax ID No. Subsidiary Country         

Payment of

interest

 Repayment      
93.007.000-9 SQM S.A. Chile - ThUS$200,000 04/15/2014 US$ Semiannual Upon maturity  6.32%  6.13%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 04/21/2014 US$ Semiannual Upon maturity  5.70%  5.50%
93.007.000-9 SQM S.A. Chile - ThUS$300,000 04/03/2014 US$ Semiannual Upon maturity  3.87%  3.63%
93.007.000-9 SQM S.A. Chile 446 C 06/01/2014 UF Semiannual Semiannual  4.44%  4.00%
93.007.000-9 SQM S.A. Chile 563 G 01/05/2014 Ch$ Semiannual Upon maturity  7.50%  7.00%
93.007.000-9 SQM S.A. Chile 564 H 01/05/2014 UF Semiannual Semiannual  5.10%  4.90%
93.007.000-9 SQM S.A. Chile 563 I 04/01/2014 UF Semiannual Upon maturity  3.35%  3.00%
93.007.000-9 SQM S.A. Chile 563 J 04/01/2014 Ch$ Semiannual Upon maturity  6.23%  5.50%
93.007.000-9 SQM S.A. Chile 700 M 02/01/2014 UF Semiannual Upon maturity  3.62%  3.30%
93.007.000-9 SQM S.A. Chile 699 O 02/01/2014 UF Semiannual Upon maturity  3.95%  3.80%

    12/31/2013  12/31/2013 
    Nominal maturities  Current maturities 
Subsidiary Country Series 

Up to 90

days

  

91 days to 1

year

  Total  

Up to 90

days

  

91 days to 1

year

  Subtotal  

Bond

issuance

costs

  Total 
      ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S.A. Chile ThUS$200,000  -   -   -   -   2,586   2,586   (293)  2,293 
SQM S.A. Chile ThUS$250,000  -   -   -   -   2,674   2,674   (384)  2,290 
SQM S.A. Chile ThUS$300,000  -   -   -   -   2,658   2,658   (614)  2,044 
SQM S.A. Chile C  -   6,665   6,665   -   6,951   6,951   (210)  6,741 
SQM S.A. Chile G  40,030   -   40,030   41,377   -   41,377   -   41,377 
SQM S.A. Chile H  -   -   -   4,207   -   4,207   (139)  4,068 
SQM S.A. Chile I  66,648   -   66,648   -   67,144   67,144   (87)  67,057 
SQM S.A. Chile J  99,121   -   99,121   -   100,466   100,466   (139)  100,327 
SQM S.A. Chile M  -   -   -   606   -   606   (130)  476 
SQM S.A. Chile O  -   -   -   1,045   -   1,045   (66)  979 
Total      205,799   6,665   212,464   47,235   182,479   229,714   (2,062)  227,652 

 

Effective ratesNon-current interest-bearing borrowings as of bonds in Chilean pesosDecember 31, 2016 and UFDecember 31, 2015 are expressed and calculated in U.S. dollars based on the flows agreed in Cross Currency Swap Agreements.detailed as follows:

 

SQM S.A.
Debtor Creditor Currency or
adjustment
 index
 Repayment Effective
 rate
  Nominal
 rate
 
Tax ID No. Company Country Tax ID No. Financial institution Country          
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States US$ Upon maturity  1.94%  2.54%

    Nominal non-current maturities  Non-current maturities 
    12/31/2015  12/31/2015 
Company Financial institution Over 1
years
to 2
  Over 2
 years
to 3
  Over 3
years
to 4
  Total  Over 1
years
to 2
  Over 2
 years
to 3
  Over 3
years
to 4
  Subtotal  Borrowings
costs
  Total 
    ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S.A. Banco Estado NY Branch  140,000   -   -   140,000   140,000   -   -   140,000   -   140,000 
Total    140,000   -   -   140,000   140,000   -   -   140,000   -   140,000 

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-85F-87

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4     Financial liabilities, continued

c)Types of interest-bearing borrowings, non-current

 

d)          Non-current unsecured interest-bearing borrowings as of December 31, 2014 and December 31, 2013 are detailed as follows:bonds

Debtor Creditor 

Currency or

adjustment

   Effective  Nominal 
Tax ID No. Subsidiary Country Tax ID No. Financial institution Country index Repayment rate  rate 
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States US$ Upon maturity  3.56%  2.33%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Scotiabank & Trust (Caimán) Ltd. Cayman Islands US$ Upon maturity  2.27%  1.37%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Bank of America United States US$ Upon maturity  2.70%  1.23%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Export Development Canada Canada US$ Upon maturity  2.12%  1.27%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign The Bank of Tokyo-Mitsubishi UFJ, Ltd (New York) United States US$ Upon maturity  2.45%  0.97%

    Nominal non-current maturities  Non-current maturities 
    31/12/2014  31/12/2014 
Subsidiary Financial institution 

Over 1

years

to 2

  

Over 2

years

to 3

  

Over 3

years

to 4

  Total  

Over 1

years

to 2

  

Over 2

years

to 3

  

Over 3

years

to 4

  Subtotal  

Borrowings

costs

  Total 
    ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S.A. Banco Estado NY Branch  -   140,000   -   140,000   -   140,000   -   140,000   -   140,000 
Royal Seed Trading Corporation A.V.V. Bank of America  -   40,000   -   40,000   -   40,000   -   40,000   (49)  39,951 
Royal Seed Trading Corporation A.V.V. Export Development Canada  -   20,000   -   20,000   -   20,000   -   20,000   (59)  19,941 
Royal Seed Trading Corporation A.V.V. The Bank of Tokyo-Mitsubishi UFJ, Ltd (New York)  -   20,000   -   20,000   -   20,000   -   20,000   (54)  19,946 
Total    -   220,000   -   220,000   -   220,000   -   220,000   (162)  219,838 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-86

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 10 Financial instruments (continued)

10.4Financial liabilities, continued

Debtor Creditor 

Currency or

adjustment

  Effective  Nominal 
Tax ID No. Subsidiary Country Tax ID  No. Financial institution Country index Repayment rate  rate 
93.007.000-9 SQM S.A. Chile Foreign Banco Estado NY Branch United States USD Upon maturity  3.10%  2.39%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Scotiabank & Trust (Caimán) Ltd. Islas Caimán USD Upon maturity  1.35%  1.41%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Bank of America United States USD Upon maturity  1.75%  1.27%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign Export Development Canada Canada USD Upon maturity  1.69%  1.30%
Foreign Royal Seed Trading Corporation A.V.V. Aruba Foreign The Bank of Tokyo-Mitsubishi UFJ, Ltd (New York) United States USD Upon maturity  1.37%  1.01%

    Nominal non-current maturities  Non-current maturities 
    12/31/2013  12/31/2013 
Subsidiary Financial institution 

Over 1

years

to 2

  

Over 2

years

to 3

  

Over 3

years

to 4

  Total  

Over 1

years

to 2

  

Over 2

years

to 3

  

Over 3

years

to 4

  Subtotal  

Borrowings

costs

  Total 
    ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
SQM S.A. Banco Estado NY Branch  -   -   140,000   140,000   -   -   140,000   140,000   (70)  139,930 
Royal Seed Trading Corporation A.V.V. Scotiabank & Trust (Caimán) Ltd.  50,000   -   -   50,000   50,000   -   -   50,000   (85)  49,915 
Royal Seed Trading Corporation A.V.V. Bank of America  -   40,000   -   40,000   -   40,000   -   40,000   (114)  39,886 
Royal Seed Trading Corporation A.V.V. Export Development Canada  -   40,000   -   40,000   -   -   40,000   40,000   (119)  39,881 
Royal Seed Trading Corporation A.V.V. The Bank of Tokyo-Mitsubishi UFJ, Ltd (New York)  -   40,000   -   40,000   -   40,000   -   40,000   (123)  39,877 
Total    50,000   120,000   140,000   310,000   50,000   80,000   180,000   310,000   (511)  309,489 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-87

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 10 Financial instruments (continued)

10.4Financial liabilities, continued

d)Non-current unsecured interest-bearing bonds

 

The breakdown of non-current unsecured interest-bearing bonds as of December 31, 20142016 and December 31, 20132015 is detailed as follows:

 

             Periodicity                  Periodicity     
Tax ID No. Subsidiary Country 

Number of

registration or ID

of the instrument

 Series Maturity date 

Currency or

adjustment index

 

Payment of

interest

 Repayment Effective rate 

Nominal

rate

  Company Country Number of
registration or ID
 of the instrument
 Series Maturity
 date
 Currency or
adjustment index
 Payment of
interest
 Repayment Effective
rate
 Nominal
rate
 
93.007.000-9 SQM S.A. Chile - ThUS$200,000 04/15/2016 US$ Semiannual Upon maturity  6.25%  6.13% SQM S.A. Chile  -  ThUS$250,000 04/21/2020 US$ Semiannual Upon maturity  5.94%  5.50%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 04/21/2020 US$ Semiannual Upon maturity  5.67%  5.50% SQM S.A. Chile  -  ThUS$250,000 01/28/2025 US$ Semiannual Upon maturity  4.62%  4.38%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 01/28/2025 US$ Semiannual Upon maturity  4.46%  4.38% SQM S.A. Chile  -  ThUS$300,000 04/03/2023 US$ Semiannual Upon maturity  3.95%  3.63%
93.007.000-9 SQM S.A. Chile - ThUS$300,000 04/03/2023 US$ Semiannual Upon maturity  3.86%  3.63% SQM S.A. Chile  446  C 12/01/2026 UF Semiannual Semiannual  5.57%  4.00%
93.007.000-9 SQM S.A. Chile 446 C 12/01/2026 UF Semiannual Semiannual  6.34%  4.00% SQM S.A. Chile  564  H 01/05/2030 UF Semiannual Semiannual  5.22%  4.90%
93.007.000-9 SQM S.A. Chile 564 H 01/05/2030 UF Semiannual Semiannual  4.23%  4.90% SQM S.A. Chile  699  O 02/01/2033 UF Semiannual Upon maturity  3.97%  3.80%
93.007.000-9 SQM S.A. Chile 700 M 02/01/2017 UF Semiannual Upon maturity  3.20%  3.30%
93.007.000-9 SQM S.A. Chile 699 O 02/01/2033 UF Semiannual Upon maturity  3.74%  3.80%

 

Nominal non-current maturities

12/31/2014

 

Non-current maturities

12/31/2014

 
Series 

Over 1

year to 2

  

Over 2

years to 3

  

Over 3

Years to 4

  

Over 4

Years to 5

  

Over 5

years

  Total  

Over 1

year to 2

  

Over 2

years to 3

  

Over 3

Years to 4

  

Over 4

Years to 5

  

Over 5

years

  Subtotal  

Bond

issuance

costs

  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
ThUS$200,000  200,000   -   -   -   -   200,000   200,000   -   -   -   -   200,000   (73)  199,927 
ThUS$250,000  -   -   -   -   250,000   250,000   -   -   -   -   250,000   250,000   (1,655)  248,345 
ThUS$250,000  -   -   -   -   250,000   250,000   -   -   -   -   250,000   250,000   (3,935)  246,065 
ThUS$300,000  -   -   -   -   300,000   300,000   -   -   -   -   300,000   300,000   (4,456)  295,544 
C  6,088   6,088   6,088   6,088   42,619   66,971   6,088   6,088   6,088   6,088   42,619   66,971   -   66,971 
H  -   -   -   -   162,354   162,354   -   -   -   -   162,354   162,354   (1,949)  160,405 
M  -   40,588   -   -   -   40,588   -   40,588   -   -   -   40,588   (153)  40,435 
O  -   -   -   -   60,883   60,883   -   -   -   -   60,883   60,883   (1,146)  59,737 
Total  206,088   46,676   6,088   6,088   1,065,856   1,330,796   206,088   46,676   6,088   6,088   1,065,856   1,330,796   (13,367)  1,317,429 
Nominal non-current maturities
12/31/2016
 Non-current maturities
12/31/2016
 
Series Over 1
year to 2
  Over 2
years to 3
  Over 3
 Years to 4
  Over 4
 Years to 5
  Over 5
 years
  Total  Over 1
 year to 2
  Over 2
 years to 3
  Over 3
 Years to 4
  Over 4
 Years to 5
  Over 5
years
  Subtotal  Bond
issuance
costs
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
ThUS$250  -   250,000   -   -   -   250,000   -   250,000   -   -   -   250,000   (904)  249,096 
ThUS$250  -   -   -   -   250,000   250,000   -   -   -   -   250,000   250,000   (3,069)  246,931 
ThUS$300  -   -   -   -   300,000   300,000   -   -   -   -   300,000   300,000   (3,230)  296,770 
C  5,903   5,903   5,903   5,903   29,519   53,131   5,903   5,903   5,903   5,903   29,519   53,131   -   53,131 
H  -   -   -   -   157,426   157,426   -   -   -   -   157,426   157,426   (1,671)  155,755 
O  -   -   -   -   59,035   59,035   -   -   -   -   59,035   59,035   (1,012)  58,023 
Total  5,903   255,903   5,903   5,903   795,980   1,069,592   5,903   255,903   5,903   5,903   795,980   1,069,592   (9,886)  1,059,706 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-88

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4   Financial liabilities, continued

 

d)UnsecuredNon-current unsecured interest-bearing liabilities, non-current,bonds, continued

 

As of December 31, 20142016 and December 31, 2013,2015, the breakdown of unsecured interest-bearing liabilities, non-current is as follows:

 

         Periodicity                  Periodicity     
Tax ID No. Subsidiary Country 

Number of

registration or ID

of the instrument

 Series Maturity date 

Currency or

adjustment index

 

Payment of

interest

 Repayment Effective
rate
 

Nominal

rate

  Company Country Number of
registration or ID
of the instrument
 Series Maturity
 date
 Currency or
adjustment index
 Payment of
 interest
 Repayment Effective
rate
 Nominal
rate
 
93.007.000-9 SQM S.A. Chile - ThUS$200,000 04/15/2016 US$ Semiannual Upon maturity  6.32%  6.13% SQM S.A. Chile  -  ThUS$200,000 04/15/2016 US$ Semiannual Upon maturity  9.19%  6.13%
93.007.000-9 SQM S.A. Chile - ThUS$250,000 04/21/2020 US$ Semiannual Upon maturity  5.70%  5.50% SQM S.A. Chile  -  ThUS$250,000 04/21/2020 US$ Semiannual Upon maturity  5.89%  5.50%
93.007.000-9 SQM S.A. Chile - ThUS$300,000 04/03/2023 US$ Semiannual Upon maturity  3.87%  3.63% SQM S.A. Chile  -  ThUS$250,000 01/28/2025 US$ Semiannual Upon maturity  4.61%  4.38%
93.007.000-9 SQM S.A. Chile 446 C 12/01/2026 UF Semiannual Semiannual  4.44%  4.00% SQM S.A. Chile  -  ThUS$300,000 04/03/2023 US$ Semiannual Upon maturity  3.93%  3.63%
93.007.000-9 SQM S.A. Chile 564 H 01/05/2030 UF Semiannual Semiannual  5.10%  4.90% SQM S.A. Chile  446  C 12/01/2026 UF Semiannual Semiannual  6.53%  4.00%
93.007.000-9 SQM S.A. Chile 700 M 02/01/2017 UF Semiannual Upon maturity  3.62%  3.30% SQM S.A. Chile  564  H 01/05/2030 UF Semiannual Semiannual  5.20%  4.90%
93.007.000-9 SQM S.A. Chile 699 O 02/01/2033 UF Semiannual Upon maturity  3.95%  3.80% SQM S.A. Chile  700  M 02/01/2017 UF Semiannual Upon maturity  4.32%  3.30%
93.007.000-9 SQM S.A. Chile  699  O 02/01/2033 UF Semiannual Upon maturity  3.97%  3.80%

 

Nominal non-current maturities

12/31/2013

 

Non-current maturities

12/31/2013

 

Nominal non-current maturities

12/31/2015

Nominal non-current maturities

12/31/2015

 

Non-current maturities

12/31/2015

 
Series 

Over 1

year to 2

 

Over 2

years to 3

 

Over 3

Years to 4

 

Over 4

Years to 5

 

Over 5

years

 Total 

Over 1

year to 2

 

Over 2

years to 3

 

Over 3

Years to 4

 

Over 4

Years to 5

 

Over 5

years 

 Subtotal 

Bond

issuance

costs

 Total  Over 1
 year to 2
 Over 2
years to 3
 Over 3
Years to 4
 Over 4
Years to 5
 Over 5
years
 Total Over 1
 year to 2
 Over 2
years to 3
 Over 3
Years to 4
 Over 4
 Years to 5
 Over 5
 years
 Subtotal Bond
 issuance
 costs
 Total 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
ThUS$200,000  -   200,000   -   -   -   200,000   -   200,000   -   -   -   200,000   (366)  199,634 
ThUS$250,000  -   -   -   -   250,000   250,000   -   -   -   -   250,000   250,000   (2,039)  247,961 
ThUS$300,000  -   -   -   -   300,000   300,000   -   -   -   -   300,000   300,000   (5,068)  294,932 
ThUS$250  -   -   250,000   -   -   250,000   -   -   250,000   -   -   250,000   (1,290)  248,710 
ThUS$250  -   -   -   -   250,000   250,000   -   -   -   -   250,000   250,000   (3,502)  246,498 
ThUS$300  -   -   -   -   300,000   300,000   -   -   -   -   300,000   300,000   (3,843)  296,157 
C  6,665   6,665   6,665   6,665   53,318   79,978   6,665   6,665   6,665   6,665   53,318   79,978   (1,228)  78,750   5,413   5,413   5,413   5,413   32,482   54,134   5,413   5,413   5,413   5,413   32,482   54,134   -   54,134 
H  -   -   -   -   177,729   177,729   -   -   -   -   177,729   177,729   (2,088)  175,641   -   -   -   -   144,357   144,357   -   -   -   -   144,357   144,357   (1,810)  142,547 
M  -   -   44,432   -   -   44,432   -   -   44,432   -   -   44,432   (288)  44,144   36,089   -   -   -   -   36,089   36,089   -   -   -   -   36,089   (17)  36,072 
O  -   -   -   -   66,648   66,648   -   -   -   -   66,648   66,648   (1,214)  65,434   -   -   -   -   54,134   54,134   -   -   -   -   54,134   54,134   (1,080)  53,054 
Total  6,665   206,665   51,097   6,665   847,695   1,118,787   6,665   206,665   51,097   6,665   847,695   1,118,787   (12,291)  1,106,496   41,502   5,413   255,413   5,413   780,973   1,088,714   41,502   5,413   255,413   5,413   780,973   1,088,714   (11,542)  1,077,172 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-89

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10     Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4  Financial liabilities, continued

 

e)Additional information

 

Bonds

 

AsOn the 30 of September 2016 and the 31st of December 31, 2014 and December 31, 2013,2015, short term bonds of ThUS$19,45358,973 and ThUS$227,652221,092 respectively were classified as short-term, consisting of the current portion due plus accrued interest to date, excludingdebt is presented net of bond issueissuance costs. The non-current portion consisted of ThUS$1,317,429 as1,059,706 on the 31 of December 31, 20142016 and ThUS$1,106,496 as of1,077,172 on the 31st December 31, 2013,2015, corresponding to the issuance of series C bonds, Single series bonds (ThUS$200), series H bonds second issue single series bonds (ThUS$250), series M bonds, series O bonds, third issue single series bonds (ThUS$300) and fourth issue single series bonds (ThUS$250) excluding debt issue costs.

 

As of December 31, 20142016 and December 31, 2013,2015, the details of each issuance are as follows:

 

Series “C” bonds

 

On January 24, 2006, the Company placed Series C bonds for UF 3,000,000 (ThUS$101,918) at an annual rate of 4.00%.

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012,December 31,2014, the Company has made the following payments with a charge to the Series C bonds:

 

Payments made 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Principal payment  6,301   6.858   6,858   5,729   5,729   6,301 
Interest payment  3,184   4,004   4,004   3,275   3,570   3,184 

 

Single series first issue ThUS$200,000

 

On April 5, 2006, the Company placed Single Series bonds for ThUS$200,000 at an annual rate of 6.125% under "Rule 144 and regulation S of the U.S. Securities Act of 1933."

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012,December 31,2014, the Company has made the following payments with a charge to the Single Seriesseries bonds:

 

Payments made 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

 

12/31/2012

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 12/31/2014
ThUS$
 
Payments of principal owed  200,000   -   - 
Payments of interest  12,250   12,250   12,250   6,125   12,250   12,250 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-90

 Notes to the Consolidated Financial Statements as of December 31, 20142016

  

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4      Financial liabilities, continued

 

Series “G” and “H” bonds

 

On January 13, 2009, the Company placed two bond series in the domestic market. Series H for UF 4,000,000 (ThUS$139,216) at an annual interest rate of 4.9% at a term of 21 years with payment of principal beginning in 2019 and Series G for ThCh$21,000,000 (ThUS$34,146), which was placed at a term of 5 years with a single payment at the maturity of the term and an annual interest rate of 7%.

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012,December 31,2014, the Company has made the following payments with a charge to the Series G and H bonds:

 

Payments made 

12/31/2014

ThUS$

  

12/31/2013

ThUS$

  

12/31/2012

ThUS$

 
Payment of principal of Series G bonds  39,713   -   - 
Payments of interest, Series G bonds  1,366   2,845   2,845 
Payments of interest, Series H bonds  8,496   8,565   8,565 


Series “J” and “I” bonds

Payments made 12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
Payments of interest, Series H bonds  7,289   7,696   8,496 
Payment of principal of Series G bonds  -   -   39,713 
Payments of interest, Series G bonds  -   -   1,366 

 

On May 8, 2009, the Company placed two bond series in the domestic market. Series J for ThCh$52,000,000 (ThUS$92,456) which was placed at a term of 5 years with single payment at the expiration date of the term and annual interest rate of 5.5% and Series I for UF 1,500,000 (ThUS$56,051) which was placed at a term of 5 years with single payment at the maturity of the term and annual interest rate of 3.00%.

As of December 31, 2014, 2013 and 2012, the Company has made the following payments with a charge to the Series J and I bonds:

Payments made 

12/31/2014

ThUS$

  

12/31/2013

ThUS$

  

12/31/2012

ThUS$

 
Payments of principal Series J bonds  94,454   -   - 
Payment of interest, Series J bonds  2,563   5,879   5,879 
Payments of principal Series I bonds  64,083   -   - 
Payment of interest, Series I bonds  1,206   2,100   2,100 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-91

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4     Financial liabilities, continued

 

Single series bonds, second issue ThUS$250,000

 

On April 21, 2010, the Company informed the Chilean Superintendence of Securities and Insurance of its placement in international markets of an unsecured bond of ThUS$250,000 with a maturity of 10 years beginning on the aforementioned date with an annual interest rate of 5.5% and destined to refinance long-term liabilities.

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012,December 31,2014, the detail of payments charged to the line of single series bonds, second issue is as follows:

 

Payments made 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

 

12/31/2012

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 12/31/2014
ThUS$
 
Interest payment  13,750   13,750   13,750   13,750   13,750   13,750 

 

Series “M” and “O” bonds

 

On April 4, 2012, the Company placed two bond series in the domestic market. Series M for UF 1,000,000 (ThUS$46,601) was placed at a term of 5 years with a single payment at the maturity of the term and an annual interest rate of 3.3%, and Series O for UF 1,500,000 (ThUS$69,901) was placed at a term of 21 years with a single payment at the maturity of the term and an annual interest rate of 3.80%

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012December 31,2014 the Company has made the following payments with a charge to the Series M and O bonds:

 

Payments made 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

 

12/31/2012

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 12/31/2014 
Payment of interest, Series M bonds  1,380   765   765   1,242   1,248   1,380 
Payment of interest, Series O bonds  2,381   1,320   1,320   2,142   2,153   2,381 
            

 

Single series bonds, third issue ThUS$300,000

 

On April 3, 2013 in the United States, the Company issued a non-guaranteed bond with a value of US$300 million. The bond is for a 10 year term with an annual coupon rate of 3.625% and an annual yield of 3.716%. This rate equates to a difference of 180 basis points to comparable US Treasury bonds. The funds raised will be used to refinance long term liabilities and finance general corporate objectives.

 

As of December 31, 2014, 20132016, December 31, 2015 and 2012,December 31,2014, the following payments have been made with a debit to the line of single-series bonds, third issue:

 

Payments made 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

 

12/31/2012

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 12/31/2014
ThUS$
 
Payment of interest  10,875   5,438   -   10,875   10,875   10,875 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-92

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10    Financial instruments (continued)

 

10.4Financial liabilities, continued

10.4     Financial liabilities, continued

 

Single series bonds, fourth issuance ThUS$ 250250,000

 

On October 23, 2014, the Company informed the Chilean Superintendence of Securities and Insurance that Sociedad Química y Minera de Chile S.A. agreed to issue and place unsecured bonds of ThUS$250,000 in international markets. This, essentially, maturing in 2025 with a cover annual interest rate of 4.375% equivalent to a spread of 215 basis points on comparable US Treasury bonds, which were offered to the investors at a price of 99.410% with respect to capital. The aforementioned agreement was agreed on October 23, 2014 and the issuance and placement of such bonds was performed in conformity with the provisions of Rule 144A of the US Securities Act of 1933 and these bonds will not be publicly offered in Chile.

 

As of December 31, 2014, no2016, December 31, 2015 and December 31,2014, the following payments have been made.

 

Payments made 12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
Payment of interest  10,938   8,203   - 

10.5Trade and other payables

 

 12/31/2014 12/31/2013 
 Current Non-
current
 Total Current Non-
current
 Total  12/31/2016 12/31/2015 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  Current Non-
current
 Total Current Non-
current
 Total 
              ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Accounts payable  144,998   -   144,998   150,322   -   150,322   200,215   -   200,215   136,668   -   136,668 
Retained (or accrued)  162   -   162   638   -   638 
Other accounts payable  281   -   281   172   -   172 
Total  145,160   -   145,160   150,960   -   150,960   200,496   -   200,496   136,840   -   136,840 

 

Purchase commitments held by the Company are recognized as liabilities when the goods and services are received by the Company. As of December 31, 2014,2016, the Company has purchase orders amounting to ThUS$15,96619,959 (ThUS$29,39515,888 as of December 31, 2013)2015).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-93

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10    Financial instruments (continued)

 

10.6Financial liabilities at fair value through profit or loss

 

This balance relates to derivative instruments measured at their fair value, which has generated balances against the Company. The detail of this type of instrument is as follows:

 

Financial liabilities at fair value
through profit or loss
 

12/31/2014

 

Effect on profit

or loss as of

12/31/2014

 

12/31/2013

 

Effect on profit

or loss as of

12/31/2013

 

12/31/2012

 

Effect on profit

or loss as of

12/31/2012

  12/31/2016
ThUS$
 Effect on
profit or loss
as of
12/31/2016
 12/31/2015
ThUS$
 Effect on
 profit or loss
 as of
12/31/2015
 12/31/2014
ThUS$
 Effect on
profit or
loss as of
12/31/2014
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$     ThUS$     ThUS$     ThUS$ 
Current                                                
Derivative instruments (forward)  457   -   423   5,100   5,612   (4,559)
Derivative instruments (Forward)  -   -   -   -   457     
Derivative instruments (options)  1,410   -   665   1,827   2,492   (1,456)  -   -   215   1,304   1,410     
Derivative instruments (IRS)  736   1,637   1,339   251   2,231   (240)  -   (229)  283   (242)  736   1,637 
  2,603   1,637   2,427   7,178   10,335   (6,255)  -   (229)  498   1,062   2,603   1,637 

 

Balances in the column effect on profit or loss consider the effects of agreements which were in force as of December 31, 2014,2016, including derivates,derivatives, received during the year.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-94

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10      Financial instruments (continued)

 

10.7Financial asset and liability categories

 

a)Financial Assets

a) Financial Assets

 

 12/31/2014 12/31/2013    12/31/2016 12/31/2015 
 Current Non-current Total Current Non-current Total  Financial Current Non-current Total Current Non-current Total 
Description of financial assets 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

  instruments Amount
 Amount
 Amount
 Amount
 Amount
 Amount
 
                ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Cash and cash equivalent    514,669   -   514,669   527,259   -   527,259 
Trade receivables due from related parties    82,259   -   82,259   99,907   -   99,907 
                          
Financial assets measured at amortized cost  653,442   -   653,442   431,883   -   431,883  Term deposits  284,160   44   284,204   617,267   42   617,309 
Investments held-to-maturity measured at amortized cost  -   427   427   -   95   95 
Loans and receivables measured at amortized cost  340,830   2,044   342,874   330,992   1,282   332,274  Trade and other receivables
  368,761   1,840   370,601   302,225   1,050   303,275 
Total financial assets measured at amortized cost  994,272   2,471   996,743   762,875   1,377   764,252     1,249,849   1,884   1,251,733   1,546,658   1,092   1,547,750 
                                                  
                          
Financial assets at fair value through profit or loss  17,160   -   17,160   3,283   -   3,283  Derivative instruments  5,029   7,156   12,185   19,058   -   19,058 
Financial assets at fair value through other comprehensive income  -   -   -   25,007   -   25,007 
Financial assets classified as available for sale at fair value through equity Other investments  -   6,899   6,899   -   444   444 
Total financial assets at fair value  17,160   -   17,160   28,290   -   28,290     5,029   14,055   19,084   19,058   444   19,502 
Total financial assets  1,011,432   2,471   1,013,903   791,165   1,377   792,542     1,254,878   15,939   1,270,797   1,565,716   1,536   1,567,252 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-95

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10      Financial instruments (continued)

 

10.7Financial asset and liability categories (continued)

 

b)Financial liabilities

b)        Financial liabilities

 

 12/31/2014 12/31/2013    12/31/2016 12/31/2015 
 Current Non-current Total Current Non-current Total  Financial Current Non-current Total Current Non-current Total 
Description of financial liabilities 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

 

Amount

ThUS$

  instruments Amount
 Amount
 Amount
 Amount
 Amount
 Amount
 
              ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Trade payables due to related parties    7   -   7   435   -   435 
Financial liabilities at fair value through profit or loss  2,603   36,958   39,561   2,427   1,405   3,832  Derivative instruments  18,901   33,732   52,633   2,755   73,031   75,786 
Financial liabilities at fair value through profit or loss  2,603   36,958   39,561   2,427   1,405   3,832     18,908   33,732   52,640   3,190   73,031   76,221 
                                                  
                                                  
Financial liabilities measured at amortized cost  355,729   1,537,267   1,892,996   549,959   1,415,985   1,965,944  Bank borrowings  101,270,   -   101,270   178,183   140,000   318,183 
Financial liabilities measured at amortized cost Obligations with the public  58,973   1,059,706   1,118,679   221,092   1,077,172   1,298,264 
Financial liabilities measured at amortized cost Trade and other payables  200,496   -   200,496   136,840   -   136,840 
Total financial liabilities measured at amortized cost  355,729   1,537,267   1,892,996   549,959   1,415,985   1,965,944     360,739   1,059,706   1,420,445   536,115   1,217,172   1,753,287 
Total financial liabilities  358,332   1,574,225   1,932,557   552,386   1,417,390   1,969,776     379,647   1,093,438   1,473,085   539,305   1,290,203   1,829,508 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-96

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10      Financial instruments (continued)

 

10.8Fair value measurement of assets and liabilities

 

Financial assets and liabilities measured at fair value consist of Options and Forwards hedging the mismatch in the balance sheet and cash flows, Cross Currency Swaps (CCS) to hedge bonds issued in local currency ($/UF), and Interest Rate Swaps (IRS) to hedge LIBOR rate debt issued.

 

The value of the Company’s assets and liabilities recognized by CCS contracts is calculated as the difference between the present value of discounted cash flows of the asset (pesos/UF) and liability (US$) parts of the derivative. In the case of the IRS, the asset value recognized is calculated as the difference between the discounted cash flows of the asset (variable rate) and liability (fixed rate) parts of the derivative. Forwards: Are calculated as the difference between the strike price of the contract and the spot price plus the forwards points at the date of the contract. Options: The value recognized is calculated using the Black-Scholes method.

 

In the case of CCS, the entry data used for the valuation models are UF, peso, and basis swap rates. In the case of fair value calculations for IRS, the FRA (Forward Rate Agreement) rate and ICVS 23 Curve (Bloomberg: cash/deposits rates, futures, swaps). In the case of forwards, the forwards curve for the currency in question is used. Finally, with options, the spot price, risk-free rate and volatility of exchange rate are used, all in accordance with the currencies used in each valuation. The financial information used as entry data for the Company’s valuation models is obtained from Bloomberg, the well-known financial software company. Conversely, the fair value provided by the counterparties of derivatives contracts is used only as a control and not for valuation.

 

The effects on profit or loss of movements in these amounts may be recognized in the caption Finance costs, foreign currency translation gain (loss) or cash flow hedges in the statement of comprehensive income, depending on each particular case.

 

The fair value measurement of debt is only performed to determine the actualpresent market value of guaranteedsecured and non-guaranteedunsecured long-term obligations; bonds denominated in local currency ($(Ch$/UF) and foreign currency (US$), credits denominated in foreign currency (US$)., which is classified under Level 2 in the fair value hierarchy established by IFRS.

 

The value of the Company’s reported liabilities is calculated as the present value of discounted cash flows at market rates at the time of valuation, taking into account the maturity date and exchange rate. The entry data used for the model includes the UF and peso rates, which are obtained using Bloomberg, the well-known financial software company and the ‘Asociación de Bancos e Instituciones Financieras’ (ABIF) (Association of Banks and Financial Institutions’).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-97

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10      Financial instruments (continued)

 

10.8Fair value measurement of assets and liabilities, continued

Fair value hierarchy

The fair value hierarchy is detailed as follows:

a) Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.

b)Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

c)Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The valuation technique used for determining fair value of our hedging instruments is that indicated in Level 2

  Fair value  Measurement methodology 
  12/31/2016  Level 1  Level 2  Level 3 
  ThUS$  ThUS$  ThUS$  ThUS$ 
Financial assets                
Investment                
Shares  6,879   6,879   -   - 
Non-hedging derivatives                
Forwards  924   -   924   - 
Options  426   -   426   - 
Swaps  2,745   -   2,745   - 
Hedging derivatives                
Swaps  8,090   -   8,090   - 
Other  64   -   64   - 
Financial liabilities                
Non-hedging derivatives                
Forwards  1,557   -   1,557   - 
Options  363   -   363   - 
Hedging derivatives                
Swaps  50,713   -   50,713   - 

F-98
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 10      Financial instruments (continued)

10.8Fair value measurement of assets and liabilities, continued

  Fair value  Measurement methodology 
  12/31/2015  Level 1  Level 2  Level 3 
  ThUS$  ThUS$  ThUS$  ThUS$ 
Financial assets                
Investment                
Investment in companies  424   424   -   - 
Non-hedging derivatives                
Forwards  18,709   -   18,710   - 
Options  349   -   349   - 
Other  62   -   63   - 
Financial liabilities                
Non-hedging derivatives                
Forwards  574   -   574   - 
Options  407   -   407   - 
Hedging derivatives                
Swaps  74,805   -   74,805   - 

10.9Financial assets pledged as guarantee

 

On November 4, 2004, Isapre Norte Grande maintains a guarantee equivalent to the total amount owed to its members and healthcare providers, which is managed and maintained by Banco de Chile.

 

As of December 31, 20142016 and December 31, 2013,2015, assets pledged as guarantees are as follows:

 

Restricted cash 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 
Isapre Norte Grande Ltda.  682   708   685   496 
Total  682   708   685   496 

F-99
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 10 Financial instruments (continued)

 

10.10Estimated fair value of financial instruments and financial derivatives

 

As required by IFRS 7, the following information is presented for the disclosure of the estimated fair value of financial assets and liabilities.

 

Although inputs represent Management's best estimate, they are subjective and involve significant estimates related to the current economic and market conditions, as well as risk features.

 

Methodologies and assumptions used depend on the risk terms and characteristics of instruments and include the following as a summary:

 

-Cash equivalent approximates fair value due to the short-term maturities of these instruments.

 

-OtherThe fair value of trade receivables, current is considered to be equal to the carrying amount due to the maturity of such accounts at short-term.

-The fair value of other current financial liabilities areis considered at fair valueto be equal to their carrying values.values due to the maturity of such accounts at short-term.

 

-For interest-bearing liabilities with original maturity of more than a year, fair values are calculated at discounting contractual cash flows at their original current market with similar terms.

 

-The fair value of debt is considered in Level 2.

-For forward and swap contracts, fair value is determined using quoted market prices of financial instruments with similar characteristics.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-98F-100

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 10 Financial instruments (continued)

 

10.10Estimated fair value of financial instruments and financial derivatives, continued

 

The detail of the Company’s instruments at carrying value and estimated fair value is as follows:

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 Carrying value Fair  value Carrying value Fair value  Carrying
value
 Fair
value
 Carrying
value
 Fair
value
 
 ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ 
Cash and cash equivalents  354,566   354,566   476,622   476,622   514,669   514,669   527,259   527,259 
Current trade and other receivables  340,830   340,830   330,992   330,992   368,761   368,761   302,225   302,225 
Receivables due from related parties, current  82,259   82,259   99,907   99,907 
Other financial assets, current:                                
- Time deposits  653,442   653,442   431,883   431,883   284,160   284,160   617,267   617,267 
- Derivative instruments  17,160   17,160   3,283   3,283   4,095   4,095   19,058   19,058 
- Current hedging assets  -   -   25,007   25,007 
- Hedging assets  934   934   -   - 
Total other current financial assets  670,602   670,602   460,173   460,173   289,189   289,189   636,325   636,325 
Non-Current Trade Receivables  2,044   2,044   1,282   1,282   1,840   1,840   1,050   1,050 
Other non-current financial assets:  427   427   95   95   14,099   14,099   486   486 
Other non-current financial assets:  427   427   95   95   14,099   14,099   486   486 
Other financial liabilities, current:                                
- Bank loans  191,116   191,116   171,347   171,347   101,270   101,270   178,183   178,183 
- Derivative instruments  1,791   1,791   1,088   1,088   1,920   1,920   981   981 
- Hedging liabilities  812   812   1,339   1,339   16,981   16,981   1,774   1,774 
- Unsecured obligations  19,453   19,453   227,652   227,652   58,973   58,973   221,092   221,092 
Other financial liabilities, current  213,172   213,172   401,426   401,426   179,144   179,144   402,030   402,030 
Current and non-current accounts payable  145,160   145,160   150,960   150,960   200,496   200,496   136,840   136,840 
Payables due to related parties, non-current  7   7   435   435 
Other non-current financial liabilities:                                
- Bank loans  219,838   180,756   309,489   324,246   -   -   140,000   160,265 
- Unsecured obligations  1,317,429   1,584,237   1,106,496   1,077,049   1,059,706   1,195,512   1,077,172   1,221,002 
- Non-current hedging liabilities  36,958   36,958   1,405   1,405   33,732   33,732   73,031   73,031 
Other non-current financial liabilities:  1,574,225   1,801,951   1,417,390   1,402,700   1,093,438   1,229,244   1,290,203   1,454,298 

Fair value hierarchy

 

Fair

All of the resulting fair value hierarchiesestimates are as follows:included in level 1 and 2.

 

a)Level 1: When only quoted (unadjusted) prices have been used in active markets.

b)Level 2: When in a phase in the valuation process variable other than prices quoted in Level 1 have been used which are directly observable in markets.

c)Level 3: When in a phase in the valuation process variable which are not based in observable market data have been used.

The valuation techniques used to determine the fair value10.11 Nature and scope of our hedgingrisks arising from financing instruments bank loans, and unsecurable obligations are level 2 fair value instruments, based on discounted cash flows using market based rates as of year-end.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-99

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 10 Financial instruments (continued)

10.11Nature and scope of risks arising from financing instruments

 

As indicated in paragraphs 33 to 42 of IFRS 7 the disclosure of information associated with the nature and scope of risks arising from financial instruments is presented in Note 4 - Financial Risk Management.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-100F-101

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 11 Equity-accounted investees

 

11.1Investments in associates recognized according to the equity method of accounting

 

As of December 31, 20142016 and December 31, 2013,2015, in accordance with criteria established in Note 3.19, investment in associates recognized according to the equity method of accounting and joint ventures are as follows:

 

Associates Equity-accounted investees 

Share on profit (loss) of

associates and joint ventures

accounted for using the equity

method

   

Share on other comprehensive

income of associates and joint

ventures accounted for using the

equity method, net of tax

 

Share on total other

comprehensive income of

associates and joint

ventures accounted for

using the equity method

    Equity-accounted investees Share on profit (loss) of associates and joint
ventures accounted for using the equity
method
 Share on other comprehensive
income of associates and joint
ventures accounted for using the
equity method, net of tax
  

Share on total other comprehensive income of

associates and joint ventures accounted for
using the equity method

 
 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Sales de Magnesio Ltda.  1,159   1,649   942   1,005   1,088   -   -   942   1.005   1,088   -   1,535   -   819   942   -   -   -   819   942 
Abu Dhabi Fertilizer Industries WWL  10,269   11,453   1,783   1,596   1,628   -   -   1,783   1.596   1,628   13,343   11,766   1,482   1,455   1,783   -   455   1,482   1,910   1,783 
Doktor Tarsa Tarim Sanayi AS  14,869   15,193   4,138   2,192   4,134   -   -   4,138   2.192   4,134   16,712   15,032   4,026   2,505   4,138   590   -   4,616   2,505   4,138 
Ajay North America  13,530   13,125   6,188   7,919   10,927   -   -   6,188   7.919   10,927   13,457   12,913   2,794   3,600   6,188   -   -   2,794   3,600   6,188 
Ajay Europe SARL  8,004   7,924   2,570   3,825   6,295   (30)  -   2,540   3.825   6,295   7,373   7,202   1,132   1,732   2,570   (7)  (21)  1,126   1,711   2,540 
SQM Eastmed Turkey  88   142   (21)  132   -   -   -   (21)  132   -   -   70   (100)  (4)  (21)  -   -   (100)  (4)  (21)
Charlee SQM Thailand Co. Ltd.  1,804   1,589   158   237   32   -   -   158   237   32 
Charlee SQM Thailand Co. Ltd,  1,763   1,318   244   122   158   -   89   244   210   158 
Kore Potash Ltd.  20,000   -   -   -   -   -   -   -   -   - 
Total  49,723   51,075   15,758   16,906   24,104   (30)  -   15,728   16.906   24,104   72,648   49,836   9,578   10,229   15,758   583   523   10,162   10,751   15,728 

 

Associate Description of the nature of the   Country of 

Share of

ownership in

  Dividends received 
  relationship Domicile incorporation associates  12/31/2014  12/31/2013 
           ThUS$  ThUS$ 
                
Sales de Magnesio Ltda. Commercialization of magnesium salts. El Trovador 4285, Las Condes Chile  50%  1,245   892 
Abu Dhabi Fertilizer Industries WWL Distribution and commercialization of specialty plant nutrients in the Middle East. PO Box 71871, Abu Dhabi United Arab Emirates  37%  -   - 
Doktor Tarsa Tarim Sanayi AS Distribution and commercialization of specialty plant nutrients in Turkey. Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya Turkey  50%  -   - 
Ajay North America Production and commercialization of iodine derivatives. 1400 Industry RD Power Springs GA 30129 United States  49%  7,139   10,437 
Ajay Europe SARL Production and commercialization of iodine derivatives. Z.I. du Grand Verger BP 227 53602 Evron Cedex France  50%  2,728   5,093 
SQM Eastmed Turkey Production and commercialization of specialty products. Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya Turkey  50%  -   - 
Charlee SQM Thailand Co. Ltd. Distribution and commercialization of specialty plant nutrients. 31 Soi 138 (Meesuk) LLapdrawrd, Bangkapi, 10240 Bangkok Thailand  40%  -   - 

Associate Description of the nature of the relationship Domicile Country of
 incorporation
 Share of ownership
 in associates
  Dividends received 
           12/31/2016  12/31/2015 
           ThUS$  ThUS$ 
                
Sales de Magnesio Ltda. (1) Commercialization of magnesium salts. El Trovador 4285, Las Condes Chile  50%  409   286 
Abu Dhabi Fertilizer Industries WWL Distribution and commercialization of specialty plant nutrients in the Middle East. PO Box 71871, Abu Dhabi United Arab Emirates  37%  -   - 
Doktor Tarsa Tarim Sanayi AS Distribution and commercialization of specialty plant nutrients in Turkey. Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya Turkey  50%  -   - 
Ajay North America Production and distribution of iodine derivatives. 1400 Industry RD Power Springs GA 30129 United States  49%  2.605   5.185 
Ajay Europe SARL Production and commercialization of iodine derivatives. Z.I. du Grand Verger BP 227 53602 Evron Cedex France  50%  1.338   1.748 
SQM Eastmed Turkey Production and commercialization of specialty products. Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya Turkey  50%  -   - 
Charlee SQM Thailand Co. Ltd. Distribution and commercialization of specialty plant nutrients. 31 Soi 138 (Meesuk) LLapdrawrd, Bangkapi, 10240 Bangkok Thailand  40%  -   296 
Kore Potash Ltd. Prospecting, exploration and mining development L 3 88 William St Perth, was 6000 Australia  18,02%  -   - 

 

(1)During December 2016, SQM Salar S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

sold the interest it had in Sales de Magnesio Ltda. to Rockwood Litio Ltda. This transaction generated a gain of ThUS$7,636. See Note 26.5 of our consolidated financial statements.

F-101F-102

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 11 Equity-accounted investees (continued)

 

11.2Assets, liabilities, revenue and expenses of associates

 

12/31/2014
12/31/201612/31/2016
         Revenue 

Gain (loss)

from

continuing

operations

 

Other

comprehensive

income

 

Comprehensive

income

         Gain (loss)
from
 Other   
 Assets Liabilities          Assets Liabilities    continuing Comprehensive Comprehensive 
 Current Non-current Current Non-current          Current Non-current Current Non-current  Revenue operations income income 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                  
Sales de Magnesio Ltda.  3,957   481   2,099   22   12,750   1,883   -   1,883   -   -   -   -   -   -   -   - 
Abu Dhabi Fertilizer Industries WWL  31,010   2,795   6,048   -   53,186   4,819   -   4,819   37,801   2,104   3,843   -   41,442   4,005   -   4,005 
Doktor Tarsa Tarim Sanayi AS  75,497   10,099   39,515   16,344   83,397   8,275   -   8,275   68,449   5,984   39,729   1,281   83,905   8,052   1,180   9,232 
Ajay North America  20,912   10,269   3,568   -   60,101   12,628   -   12,628   18,844   11,633   3,015   -   35,715   5,702   -   5,702 
Ajay Europe SARL  21,929   2,103   8,023   -   51,687   5,142   (59)  5,083   20,675   1,361   7,290   -   33,319   2,265   (13)  2,252 
SQM Eastmed Turkey  10   228   62   -   -   (42)  -   (42)  727   2,265   719   2,362   833   (200)  -   (200)
Charlee SQM Thailand Co. Ltd.  8,279   669   4,435   -   12,968   394   -   394   6,264   591   2,448   -   12,065   609   -   609 
Total  161,594   26,644   63,750   16,366   274,089   33,099   (59)  33,040   152,760   23,938   57,044   3,643   207,279   20,433   1,167   21,600 

 

12/31/2013
12/31/201512/31/2015
         Revenue 

Gain (loss)

from

continuing

operations

 

Other

comprehensive

income

 

Comprehensive

income

            Gain (loss)
from
 Other  
 Assets Liabilities          Assets Liabilities   continuing comprehensive Comprehensive 
 Current Non-current Current Non-current          Current Non-current Current Non-current  Revenue operations income income 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                  
Sales de Magnesio Ltda.  4,519   309   1,512   18   14,370   2,009   -   2,009   4,141   825   1,881   16   11,982   1,638   -   1,638 
Abu Dhabi Fertilizer Industries WWL  26,645   2,321   6,059   -   44,689   3,192   -   3,192   33,770   2,529   4,499   -   46,609   3,932   1,230   5,162 
Doktor Tarsa Tarim Sanayi AS  67,603   6,563   37,696   6,082   73,905   4,385   -   4,385   103,099   7,555   80,588   -   64,374   5,009   -   5,009 
Ajay North America  23,728   9,289   6,230   -   72,297   16,161   -   16,161   18,651   10,619   2,917   -   43,453   7,347   -   7,347 
Ajay Europe SARL  22,247   2,370   8,770   -   67,361   7,649   -   7,649   18,979   1,661   6,239   -   40,484   3,464   (42)  3,422 
SQM Eastmed Turkey  149   305   169   -   139   265   -   265   976   380   27   1,189   -   (8)  -   (8)
Charlee SQM Thailand Co. Ltd.  6,104   572   2,706   -   19,179   593   -   593   7,418   566   4,687   -   12,524   304   222   526 
Total  150,995   21,729   63,142   6,100   291,940   34,254   -   34,254   187,034   24,135   100,838   1,205   219,426   21,686   1,410   23,096 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-102F-103

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 11 Equity-accounted investees (continued)

 

11.2Assets, liabilities, revenue and expenses of associates, continued

 

12/31/2012
12/31/201412/31/2014
         Revenue 

Gain (loss)

from

continuing

operations

 

Other

comprehensive

income

 

Comprehensive

income

            Gain (loss) from  Other  
 Assets Liabilities          Assets Liabilities    continuing comprehensive Comprehensive 
 Current Non-current Current Non-current          Current Non-current Current Non-current  Revenue operations income income 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                  
Sales de Magnesio Ltda.  4,662   364   1,713   -   14,259   2,177   -   2,177   3,957   481   2,099   22   12,750   1,883   -   1,883 
Abu Dhabi Fertilizer Industries WWL  21,885   2,187   4,291   -   42,899   3,255   -   3,255   31,010   2,795   6,048   -   53,186   4,819   -   4,819 
Doktor Tarsa Tarim Sanayi AS  67,345   7,982   36,332   8,304   77,839   8,267   -   8,267   75,497   10,099   39,515   16,344   83,397   8,275   -   8,275 
Ajay North America  28,914   8,719   6,292   -   83,340   22,300   -   22,300   20,912   10,269   3,568   -   60,101   12,628   -   12,628 
Ajay Europe SARL  27,587   2,091   12,688   -   84,203   12,591   -   12,591   21,929   2,103   8,023   -   51,687   5,142   (59)  5,083 
SQM Eastmed Turkey  16   412   258   -   -   -   -   -   10   228   62   -   -   (42)  -   (42)
Charlee SQM Thailand Co. Ltd.  12,898   462   13,048   -   13,536   81   -   81   8,279   669   4,435   -   12,968   394   -   394 
Total  163,307   22,217   74,622   8,304   316,076   48,671   -   48,671   161,594   26,644   63,750   16,366   274,089   33,099   (59)  33,040 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-103F-104

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 11 Investment in Associates (continued)

 

11.3Other information

 

The Company has no participation in unrecognized losses in investments in associates.

 

The Company presents no investments unaccounted for according to the equity method of accounting.

 

The equity method was applied to the Statement of Financial Position as of December 31, 20142016 and December 31, 2013.2015.

 

The basis of preparation of the financial information of associates correspondswas adjusted to the amounts included in the financial statements in conformityconfirm with the entity’s IFRS.accounting policies of the Company.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

11.4Disclosures on interest in associates

a) Transactions conducted in 2016:

During December 2016, SQM Salar S.A. sold the interest it had in Sales de Magnesio Ltda. to Rockwood Litio Ltda. generating a gain of ThUS$7,636.

During November 2016, SQM S.A. made a capital contribution of ThUS$20,000, in exchange for 18.02% of the interest of Kore Potash Limited. This contribution was paid to Elemental Minerals Limited.

F-104F-105

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures

 

12.1Policy for the accounting of equity accounted investment in joint ventures

 

The method for the recognition of joint ventures is that in which participation is initially recorded at cost, and subsequently adjusted, considering changes after the acquisition in the portion of the entity’s net assets of the entity which correspond to the investor. Profit or loss for the period of the investor will collect the portion which belongs to it in the results of the controlled entity as a whole.

 

12.2Disclosures of interest in joint ventures

 

a)Operations conducted in 2014

a) Operations conducted in 2016

On March 28, 2016, Sociedad Química y Minera de Chile S.A. entered into an agreement to enter a joint venture with Lithium Americas Corp to develop the Cauchari-Olaroz lithium project in Argentina.

SQM S.A. made a capital contribution of ThUS$25,000 in exchange for 50% of the ownership of Minera Exar S.A.

 

During the second quarter of 2014, SQM Industrial S.A. received a reimbursement of capital amounting to ThUS$2,011 fromMay 2016, SQM Vitas Fzco.,Holland B.V. sold its interest in SQM Vitas Spain, to SQM Iberian S.A. resulting in a decrease capital, and maintaining the interestlatter obtaining 100% in this Company.transaction generating a loss of ThUS$104.

 

b)Operations conducted in 2013

b) Operations conducted in 2015

 

AsDuring June 2015, SQM Vitas Fzco. sold the ownership it had in SQM Vitas Southern Africa Pty., generating a loss of December 31, there are no changes in the breakdown of interests in joint ventures.ThUS$450.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-105F-106

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures (continued)

 

12.3Investment in joint ventures accounted for under the equity method of accounting

 

Joint venture Country ofShare of interestDividends received
Joint ventureDescription of the nature of the relationship Domicile Country of
incorporation
 Share of
 interest in
ownership
  12/31/201412/31/2013Dividends received 
           ThUS$12/31/2016  12/31/2015
ThUS$ThUS$ 
Sichuan SQM Migao Chemical Fertilizers Co. Ltda. Production and distribution of soluble fertilizers. Huangjing Road, Dawan Town, Qingbaijiang District, Chengdu Municipality, Sichuan Province China  50%  -   - 
Coromandel SQM India Production and distribution of potassium nitrate. 1-2-10, Sardar Patel Road, Secunderabad – 500003 Andhra Pradesh India  50%  -   - 
SQM Vitas Fzco. Production and commercialization of specialty plant and animal nutrition and industrial hygiene. Jebel ALI Free Zone P.O. Box 18222, Dubai United Arab Emirates  50%  -   - 
SQM Star Qingdao Corp Nutrition. Co. Ltd. Production and distribution of nutrient plant solutions with specialties NPK soluble Longquan Town, Jimo City, Qingdao Municipality, Shangdong Province China  50%  -   - 
SQM Vitas Brazil Agroindustria Production and commercialization of specialty plant and animal nutrition and industrial hygiene. Via Cndeias, Km. 01 Sem Numero, Lote 4, Bairro Cia Norte, Candeias, Bahia. Brazil  49.99%  -   - 
SQM Vitas Southern Africa Pty.Production and commercialization of specialty plant and animal nutrition and industrial hygiene33 Waterford Office Park Waterford Drive Fourways, 2055 South AfricaSouth Africa50%--
SQM Vitas Peru S.A.C. Production and commercialization of specialty plant and animal nutrition and industrial hygiene Av. Juan de Arona 187, Torre B, Oficina 301-II, San Isidro, Lima Peru  50%  -   - 
SQM Vitas Southern Africa Pty.Production and commercialization of specialty plant and animal nutrition and industrial hygiene33 Waterford Office Park Waterford Drive Fourways, 2055 South AfricaSouth Africa50%--
SQM Vitas Spain Production and commercialization of specialty plant nutrition C/Manuel Echeverria Manzana 2 Muelle de la Cab ( Puerto Real )(Puerto Real) Spain  50%  -   - 
SQM Vitas Holland B.V Without information Herikerbergweg 238, 1101 CM Amsterdam Zuidoost HollandNetherlands  50%  -   - 
SQM Vitas Plantacote B.V. Production and commercialization of controlled-released fertilizers Herikerbergweg 238, 1101 CM Amsterdam Zuidoost HollandNetherlands50%--
Minera Exar S.A.Exploration and exploitation of minerals, processing and trading of such mineralsDr. Sabín 1082 Ciudad de Nieva – San Salvador de Jujuy- Jujuy- República ArgentinaArgentina  50%  -   - 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-106F-107

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures (continued)

 

12.3Investment in joint ventures accounted for under the equity method of accounting, continued:

 

Joint Venture Equity-accounted investees 

Share on profit (loss) of associates and

joint ventures accounted for using the

equity method

  Equity-accounted investees Share on profit (loss) of associates and joint
 ventures accounted for using the equity method
 
 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          
Sichuan SQM Migao Chemical Fertilizers Co. Ltd.  12,819   11,504   10,428   (414)  255   287   12,150   13,257   12,819   1,372   (845)  (414)
Coromandel SQM India  754   801   683   128   90   184   1,499   962   754   435   88   128 
SQM Vitas Fzco.  9,189   12,762   7,153   2,049   1,807   (266)
SQM Vitas Fzco,  17,956   11,604   9,189   3,458   369   2,049 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  1,969   1,475   1,079   494   396   48   2,618   2,462   1,969   163   495   494 
SQM Vitas Holland  1,324   (599)  -   101   -   -   1,269   1,181   1,324   171   (10)  101 
Minera Exar S.A.  25,000   -   -   -       - 
Total  26,055   25,943   19,343   2,358   2,548   253   60,492   29,466   26,055   5,599   97   2,358 

 

Joint Venture 

Share on other comprehensive income of

associates and joint ventures accounted for

using the equity method, net of tax

 

Share on total other comprehensive

income of associates and joint ventures

accounted for using the equity method

  Share on other comprehensive income of
associates and joint ventures accounted for
using the equity method, net of tax
 Share on total other comprehensive
 income of associates and joint ventures
accounted for using the equity method
 
 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          
Sichuan SQM Migao Chemical Fertilizers Co. Ltd.  (1)  13   -   (415)  267   287   -   (12)  (1)  (1,372)  (857)  (415)
Coromandel SQM India  -   -   (87)  128   89   98   -   -   -   435   88   128 
SQM Vitas Fzco.  (457)  (339)  (159)  1,592   1,467   (425)
SQM Vitas Fzco,  449   9,686   (457)  3,907   10,055   1,592 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  -   -   -   494   395   48   -   -   -   163   495   494 
SQM Vitas Holland  -   -   -   101   (667)  -   -   -   -   171   (11)  101 
Minera Exar S.A.  -       -   -       - 
Total  (458)  (326)  (246)  1,900   1,551   8   449   9,674   (458)  3,304   9,770   1,900 

 

The following companies are investments in joint ventures of

(1)SQM Vitas Fzco.

(2)SQM Vitas Holland

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-107F-108

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures (continued)

 

12.3Investment in joint ventures accounted for under the equity method of accounting, continued:

 

Joint Venture Equity-accounted investees  Share on profit (loss) of associates and
 joint ventures accounted for using the
 equity method
 
  12/31/2016  12/31/2015  12/31/2014  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                   
SQM Vitas Brazil Agroindustria(1)  9,343   3,722   5,760   4,570   (72)  1,045 
SQM Vitas Peru S.A.C (1)  5,964   5,061   4,993   815   786   948 
SQM Vitas Southern Africa (1)  -   -   180           (907)
SQM Vitas Spain (2)  -   1,182   1,023   -   (251)  291 
SQM Vitas Plantacote B.V. (2)  588   3,598   1,135   187   215   1 
Total  15,895   13,563   13,001   5,572   678   1,378 

 

Joint Venture Equity-accounted investees 

Share on profit (loss) of associates and

joint ventures accounted for using the

equity method

  Share on other comprehensive income of
associates and joint ventures accounted for
 using the equity method, net of tax
 Share on total other comprehensive
income of associates and joint ventures
accounted for using the equity method
 
 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015     12/31/2016 12/31/2015    
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$     ThUS$ ThUS$    
                          
SQM Vitas Brazil (1)  5,670   4,747   2,799   1,045   2,538   (621)
SQM Vitas Peru (1)  4,993   4,314   2,525   948   (224)  (28)
SQM Vitas Brazil Agroindustria(1)  2,845   -   -   5,130   (36)  522 
SQM Vitas Peru S.A.C (1)  -   -   -   408   393   474 
SQM Vitas Southern Africa (1)  180   1,096   506   (907)  55   (238)  -   -   -           (453)
SQM Vitas Spain (2)  1,023   -   248   291   -       -   -   -   -   109   145 
SQM Vitas Plantacote B.V. (2)  1,135   -   -   1   -       -   -   -   (80)  (125)  - 
Total  13,001   10,157   6,078   1,378   2,369   (887)  2,,845   -   -   5,458   341   688 

 

Joint Venture 

Share on other comprehensive income of

associates and joint ventures accounted for

using the equity method, net of tax

  

Share on total other comprehensive

income of associates and joint ventures

accounted for using the equity method

 
  12/31/2014  12/31/2013  12/31/2012  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
  -  -             
SQM Vitas Brazil (1)  -   -   (306)  522   1,152   (927)
SQM Vitas Peru (1)  -   -   (26)  474   93   (54)
SQM Vitas Southern Africa (1)  -   -   14   (453)  102   (224)
SQM Vitas Spain (2)  -   -   -   145   (177)  - 
SQM Vitas Plantacote B.V. (2)  -   -   -   -   (385)  - 
Total  -   -   (318)  688   785   (1,205)

The following companies are subsidiaries of

 

(1)SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Vitas Fzco.

(2)SQM Vitas Holland

F-108F-109

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures (continued)

 

12.4Assets, liabilities, revenue and expenses from joint ventures:

 

  12/31/2014 
  Assets  Liabilities     

Gain (loss)

from

continuing

  

Other

comprehensive

  Comprehensive 
Joint Venture Current  Non-current  Current  Non-current  Revenue  operations  income  income 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                         
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  61,381   8,734   44,478   -   95,292   (829)  (2)  (831)
Coromandel SQM India  4,820   1,043   4,294   63   6,723   256   -   256 
SQM Vitas Fzco.  6,366   13,611   1,600   -   25,485   4,098   (913)  3,185 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  4,363   229   634   20   9,496   988   -   988 
SQM Vitas Brazil  39,006   8,644   41,980   -   83,022   1,046   -   1,046 
SQM Vitas Peru  25,346   3,146   23,463   35   39,321   949   -   949 
SQM Vitas Southern Africa  3,703   720   4,243   -   17,117   (907)  -   (907)
SQM Vitas Spain  2,066   808   1,851   -   10,969   252   -   252 
SQM Vitas Holland  512   2,158   19   -   -   204   -   204 
SQM Vitas Plantacote B.V.  1,529   6   401   -   4,010   1   -   1 
Total  149,092   39,099   122,963   118   291,435   6,058   (915)  5,143 

  12/31/2016 
  Assets  Liabilities             
Joint Venture Current  Non-current  Current  Non-current  Revenue  Gain (loss) from
 continuing
operations
  Other
 comprehensive
income
  Comprehensive
income
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                         
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  43,639   7,399   26,738   -   16,051   (2,744)  -   (2,744)
Coromandel SQM India  4,485   847   2,334   -   8,034   870   -   870 
SQM Vitas Fzco,  20,896   16,395   1,380   -   16,210   6,916   897   7,813 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  5,733   203   697   -   7,553   325   -   325 
SQM Vitas Brazil Agroindustria  21,511   8,917   21,085   -   63,055   4,570   5,690   10,260 
SQM Vitas Peru S.A.C  23,598   8,931   20,333   6,231   36,926   815   -   815 
SQM Vitas Holland B.V  1,961   588   11   -   -   342   -   342 
SQM Vitas Plantacote B.V.  619   -   31   -   -   (159)  -   (159)
Total  122,442   43,280   72,609   6,231   147,829   10,935   6,587   17,522 

 

 12/31/2013  12/31/2015 
 Assets Liabilities   

Gain (loss)

from

continuing

 

Other

comprehensive

 Comprehensive  Assets Liabilities          
Joint Venture Current Non-current Current Non-current Revenue operations income income  Current Non-current Current Non-current Revenue Gain (loss) from
continuing
operations
 Other
 comprehensive
income
 Comprehensive
income
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                  
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  68,241   9,414   54,650   -   41,744   509   26   535   56,053   8,023   37,563   -   65,929   (1,689)  (24)  (1,713)
Coromandel SQM India  4,545   1,158   4,037   63   7,842   179   -   179   3,738   924   2,668   70   5,816   176   -   176 
SQM Vitas Fzco.  12,790   13,772   1,039   -   18,779   3,614   (679)  2,935   14,096   10,575   1,464   -   17,893   738   19,371   20,109 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  3,570   228   838   10   7,649   791   -   791   5,100   202   377   -   10,539   990   -   990 
SQM Vitas Brazil  31,243   7,158   25,615   8,039   87,927   2,305   -   2,305 
SQM Vitas Peru  21,481   1,722   18,890   -   35,267   185   -   185 
SQM Vitas Southern Africa  5,164   829   4,896   -   21,234   204   -   204 
SQM Vitas Brazil Agroindustria  32,449   6,638   35,365   -   67,870   (72)  -   (72)
SQM Vitas Peru S.A.C  24,432   6,562   25,933   -   45,739   786   -   786 
SQM Vitas Spain  1,318   949   2,492   -   1,854   (355)  -   (355)  1,662   729   1,208   -   11,875   218   -   218 
SQM Vitas Holland  95   -   316   977   -   (1,335)  -   (1,335)
SQM Vitas Holland B.V  428   1,955   18   -   -   (21)  -   (21)
SQM Vitas Plantacote B.V.  1,323   6,548   8,623   -   2,157   (770)  -   (770)  802   -   30   -   -   (250)  -   (250)
Total  149,770   41,778   121,396   9,089   224,453   5,327   (653)  4,674   138,760   35,608   104,626   70   225,661   876   19,347   20,223 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-109F-110

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12 Joint Ventures (continued)

 

12.4Assets, liabilities, revenue and expenses from joint ventures, continued:

 

  12/31/2012 
  Assets  Liabilities     

Gain (loss)

from

continuing

  

Other

comprehensive

  Comprehensive 
Joint Venture Current  Non-current  Current  Non-current  Revenue  operations  income  income 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                         
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  21,843   9,984   6,899   4,072   29,980   573   -   573 
Coromandel SQM India  4,388   1,397   4,419   -   5,633   369   (174)  195 
SQM Vitas Fzco.  4.568   10,522   785   -   19,643   (532)  (318)  (850)
SQM Star Qingdao Corp. Nutrition Co. Ltd.  1,986   304   132   -   5,028   95   -   95 
SQM Vitas Brazil  36,874   6,865   32,331   8,609   53,955   (621)  (306)  (927)
SQM Vitas Peru  23,308   1,512   20,149   2,145   32,376   (28)  (26)  (54)
SQM Vitas Southern Africa  2,730   101   2,325   -   12,850   (238)  14   (224)
Total  95,697   30,6858   67,040   14,826   159,465   (382)  (810)  (1,192)

  12/31/2014 
  Assets  Liabilities             
Joint Venture Current  Non-current  Current  Non-current  Revenue  Gain (loss) from
 continuing
operations
  Other
comprehensive
income
  Comprehensive
income
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                         
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  61,381   8,734   44,478   -   95,292   (829)  (2)  (831)
Coromandel SQM India  4,820   1,043   4,294   63   6,723   256   -   214 
SQM Vitas Fzco.  6,366   13,611   1,600   -   25,485   4,098   (913)  3,185 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  4,363   229   634   20   9,496   988   -   988 
SQM Vitas Brazil Agroindustria  39,006   8,644   41,980   -   83,022   1,046   -   1,046 
SQM Vitas Peru S.A.C  25,346   3,146   23,463   35   39,321   949   -   949 
SQM Vitas Southern Africa  3,703   720   4,243       17,117   (907)      (907)
SQM Vitas Spain  2,066   808   1,851   -   10,969   252   -   252 
SQM Vitas Holland B.V.  512   2,158   19   -   -   204   -   350 
SQM Vitas Plantacote B.V.  1,529   6   401   -   4,010   1   -   1 
Total  149,092   39,099   122,963   118   291,435   6.058   (915)  5,247 

 

12.5Other Joint Venture disclosures:

 

 Cash and cash equivalents Other current financial liabilities Other non-current financial liabilities  Cash and cash equivalents Other current financial liabilities Other non-current financial liabilities 
 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013  12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  234   8,049   -   7,660   -   -   4,097   737   -   13,955   -   - 
Coromandel SQM India  69   197   158   880   -   -   15   63   478   1,027   -   - 
SQM Vitas Fzco.  12,043   10,605   -   -   -   - 
SQM Vitas Fzco,  11,514   7,574   -   -   -   - 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  2,487   1,988   -   -   -   -   3,756   3,870   -   -   -   - 
SQM Vitas Brazil  1,312   854   8,488   -   -   8,600 
SQM Vitas Peru  605   1,166   -   -   -   - 
SQM Vitas Southern Africa  448   351   -   -   -   - 
SQM Vitas Brazil Agroindustria  2,168   827   8,718   11,215   -   - 
SQM Vitas Peru S.A.C.  958   160   3,834   -   1,781   - 
SQM Vitas Spain  34   310   -   -   -   -   -   272   -   -   -   - 
SQM Vitas Holland  149   26   -   -   -   - 
SQM Vitas Holland B.V.  1,961   428   -   -   -   - 
SQM Vitas Plantacote B.V.  458   109   -   5,567   -   -   615   802   -   -   -   - 
Total  17,839   23,655   8,646   14,107   -   8,600   25,084   14,733   13,030   26,197   1,781   - 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-110F-111

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 12Joint Ventures (continued)

Note 12 Joint Ventures (continued)

 

12.5Other Joint Venture disclosures, continued:

 

 Depreciation and amortization expense Interest expense Income tax expense, continuing operations  Depreciation and amortization expense Interest expense Income tax expense, continuing operations 
 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2012 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                      
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.  (680)  (549)  (702)  (831)  (813)  -   212   (12)  (97)  (691)  (687)  (680)  (433)  (241)  (831)  200   233   212 
Coromandel SQM India  (70)  (2)  (91)  (47)  (87)  (75)  (122)  (92)  (56)  -   (69)  (70)  (49)  (73)  (47)  (44)  (89)  (122)
SQM Vitas Fzco.  (1,032)  (1,001)  (982)  (38)  (16)  (15)  -   -   -   (717)  (1,067)  (1,032)  (16)  (10)  (38)  -   -   - 
SQM Star Qingdao Corp. Nutrition Co. Ltd.  (60)  (71)  (74)  (1)  -   -   (331)  (242)  (27)  (64)  (66)  (60)  (1)  (2)  (1)  (195)  (378)  (331)
SQM Vitas Brazil  (405)  (328)  (247)  (1,310)  (931)  (463)  220   -   - 
SQM Vitas Peru  (136)  (82)  (32)  (15)  (445)  (102)  (243)  91   - 
SQM Vitas Brazil Agroindustria  (438)  (29)  (405)  (2,127)  (1,651)  (1,310)  (337)  (49)  220 
SQM Vitas Peru S.A.C.  (82)  (29)  (136)  (323)  -   (15)  (362)  (370)  (243)
SQM Vitas Southern Africa  (82)  (67)  (29)  (44)  (104)  (37)  (156)  -   -           (82)          (44)          (156)
SQM Vitas Spain  (113)  -   -   (17)  (14)  -   -   -   -   -   (116)  (113)  -   (4)  (17)  -   (73)  - 
SQM Vitas Holland  -   -   -   (6)  (2)  -   -   -   - 
SQM Vitas Holland B.V  -   -   -   -   (2)  (6)  -   -   - 
SQM Vitas Plantacote B.V.  (2)  -   -   (181)  (176)  -   -   -   -   -   -   (2)  (1)  (3)  (181)  -   -   - 
Total  (2,580)  (2,100)  (2,157)  (2,490)  (2,588)  (692)  (420)  (255)  (180)  (1,992)  (2,063)  (2,580)  (2,950)  (1,986)  (2,490)  (738)  (726)  (420)

 

The basis of preparation of the financial information of joint ventures corresponds to the amounts included in the financial statements in conformity with the entity’s IFRS.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-112

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 13Intangible assets and goodwill

Note 13 Intangible assets and goodwill

 

13.1Balances

 

  12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Intangible assets other than goodwill  114,735   104,363 
Goodwill  38,388   38,388 
Total  153,123   142,751 

  12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
Intangible assets other than goodwill  109,439   110,428 
Goodwill  37,972   38,388 
Total  147,411   148,816 

The recoverable amount of the cash-generating unit has been determined based on a calculation of the value in use which used cash flow projections for a 5-year period, plus perpetuity.

The present value of the future cash flows generated by these assets has been estimated given a variance in sales volumes, market prices and costs, discounted at weighted average cost of capital (WACC) of 8.04%.

 

13.2Disclosures on intangible assets and goodwill

 

Intangible assets relate to goodwill, water rights, trademarks, industrial patents, rights of way, software, and mining claims which correspond to exploitation rights acquired from third-parties.

 

Balances and movements in the main classes of intangible assets as of December 31, 20142016 and December 31, 20132015 are detailed as follows:

 

   12/31/2014    12/31/2016 
Intangible assets and goodwill Useful
life
 

Gross amount

ThUS$

 

Accumulated

Amortization

ThUS$

 

Net Value

ThUS$

  Useful life Gross amount
ThUS$
 Accumulated
Amortization
ThUS$
 Net Value
ThUS$
 
                   
Trademarks Finite  3,821   (3,821)  - 
Software Finite  23,062   (9,996)  13,066  Finite  23,280   (16,234)  7,046 
Intellectual property rights, patents and other industrial property rights, service and exploitation rights Finite  1,524   (939)  585 
Intellectual property rights, patents and other industrial property rights, service and exploitation rights Indefinite  97,386   -   97,386 
Intellectual property rights, patents and other industrial property rights, service Finite  1,483   (1,023)  460 
Intellectual property rights, patents and other industrial property rights, service Indefinite  98,596   -   98,596 
Other intangible assets Indefinite  3,698   -   3,698  Indefinite  3,337   -   3,337 
Intangible assets other than goodwill    129,491   (14,756)  114,735     126,696   (17,257)  109,439 
Goodwill Indefinite  38,388   -   38,388  Indefinite  37,972   -   37,972 
Total intangible assets and goodwill    167,879   (14,756)  153,123     164,668   (17,257)  147,411 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-113
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note  13Intangible assets and goodwill (continued)

Note 13 Intangible assets and goodwill (continued)

 

13.2Disclosures on intangible assets and goodwill, continued

 

   12/31/2013    12/31/2015 
Intangible assets and goodwill Useful
life
 

Gross amount

ThUS$

 

Accumulated

Amortization

ThUS$

 

Net Value

ThUS$

  Useful life Gross amount
ThUS$
 Accumulated
Amortization
ThUS$
 Net Value
ThUS$
 
                   
Trademarks Finite  3,821   (3,821)  - 
Software Finite  5,342   (3,146)  2,196  Finite  23,251   (13,438)  9,813 
Intellectual property rights, patents and other industrial property rights, service and exploitation rights Finite  1,576   (882)  694 
Intellectual property rights, patents and other industrial property rights, service and exploitation rights Indefinite  97,392   -   97,392 
Intellectual property rights, patents and other industrial property rights, service Finite  1,448   (984)  464 
Intellectual property rights, patents and other industrial property rights, service Indefinite  96,500   -   96,500 
Other intangible assets Indefinite  4,081   -   4,081  Indefinite  3,651   -   3,651 
Intangible assets other than goodwill    112,212   (7,849)  104,363     124,850   (14,422)  110,428 
Goodwill Indefinite  38,388   -   38,388  Indefinite  38,388   -   38,388 
Total intangible assets and goodwill    150,600   (7,849)  142,751     163,238   (14,422)  148,816 

 

a)Estimated useful lives or amortization rates used for finite identifiable intangible assets

a) Estimated useful lives or amortization rates used for finite identifiable intangible assets

 

Finite useful life measures the lifetime or the number of productive units or other similar variables which constitute its useful life.

 

The estimated useful life for software is 3 and 6 years, for other finite useful life assets the period in which they are amortized relates to periods defined by contracts or rights which generate them.

 

Intellectual property rights, patents and other industrial property rights, service and exploitation rights, mainly relate to water rights and are obtained as indefinite.

 

b)Method used to express the amortization of identifiable intangible assets (life or rate)

b) Method used to express the amortization of identifiable intangible assets (life or rate)

 

The method used to express the amortization is useful life, and estimated tons to be extracted in the case of mining claims.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-114

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 13Intangible assets and goodwill (continued)

Note 13    Intangible assets and goodwill (continued)

 

13.2Disclosures on intangible assets and goodwill, continued

 

c)Minimum and maximum amortization lives or rates of intangible assets:

 

Estimated useful lives or amortization rateMinimum life or
rate
Maximum life or
 rate
   
Intellectual property rights, patents and other industrial property rights, service and exploitation rightsIndefiniteIndefinite
Intangible assets other than goodwillIndefiniteIndefinite
Intellectual property rights, patents and other industrial property rights, service and exploitation rights1 year16 years
Trademarks1 year5 years
Software  2 years36 years

 

d)Information to be disclosed on assets generated internally

 

The Company has no intangible assets generated internally.

 

e)Other information to disclose on intangible assets

 

SQM has property rights and mining concessions of the Chilean Government, intended for the exploration and exploitation of saltpeter and brine. Such rights, have had no initial cost over registration costs, which are insignificant.

 

Also, SQM has acquired from third-parties other than the Chilean Government, mining concessions, which have been recognized at acquisition cost, which are amortized as the corresponding area is exploited based on the tons estimated to be extracted.

 

Expenses prior to obtaining the mining concessions are recognized in profit or loss for the year as incurred.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-114F-115

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 13Intangible assets and goodwill (continued)

Note 13    Intangible assets and goodwill (continued)

 

13.2Disclosures on intangible assets and goodwill, continued

 

f)Movements in identifiable intangible assets as of December 31, 2014:2016:

 

Movements in identifiable intangible assets, net Trademarks Software Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Other
intangible
assets
 Goodwill Identifiable
intangible
assets
 
Movements in identifiable intangible assets, gross Software Intellectual property
rights, patents and other
industrial property rights,
service, rights of way
 Intellectual property rights,
patents and other industrial
property rights, service,
rights of way
 Other
intangible
assets
 Goodwill Identifiable
 intangible
 assets
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Opening balance  -   2,196   694   97,392   4,081   38,388   142,751   23,251   1,448   96,500   3,651   38,388   163,238 
Additions  -   14,462   -   -   -   -   14,462   160   25   2,100   -   -   2,285 
Amortization  -   (3,547)  (58)  -   -   -   (3,605)
Other increases (decreases)  -   (45)  (51)  (6)  (383)  -   (485)  (131)  10   (4)  (314)  (416)  (855)
                                                    
Final balance  -   13,066   585   97,386   3,698   38,388   153,123   23,280   1,483   98,596   3,337   37,972   164,668 

Movements in identifiable intangible assets,
accumulated amortization
 Software  Intellectual property
 rights, patents and other
industrial property rights,
service, rights of way
  Intellectual property rights,
patents and other industrial
property rights, service,
rights of way
  Other
 intangible
assets
  Goodwill  Identifiable
intangible
 assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  (13,438)  (984)  -   -   -   (14,422)
Additions  -   -   -   -   -   - 
Amortization  (2,796)  (38)  -   -   -   (2,834)
Other increases (decreases)  -   (1)  -   -   -   (1)
                         
Final balance  (16,234)  (1,023)  -   -   -   (17,257)

F-116
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 13 Intangible assets and goodwill (continued)

13.2Disclosures on intangible assets and goodwill, continued

f)Movements in identifiable intangible assets as of December 31, 2016, continued

Movements in identifiable intangible assets, net Software  Intellectual property rights,
patents and other industrial
property rights, service, rights
of way
  Intellectual property rights,
patents and other industrial
property rights, service rights
of way
  Other
 intangible
assets
  Goodwill  Identifiable
intangible assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  9,813   464   96,500   3,651   38,388   148,816 
Additions  160   25   2,100   -   -   2,285 
Amortization  (2,796)  (38)  -   -   -   (2,834)
Other increases (decreases)  (131)  9   (4)  (314)  (416)  (856)
                         
Final balance  7,046   460   98,596   3,337   37,972   147,411 

 

g)Movements in identifiable intangible assets as of December 31, 2013:2015:

 

Movements in identifiable intangible assets, net Trademarks Software Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Other
intangible
assets
 Goodwill Identifiable
intangible
assets
 
Movements in identifiable intangible assets, gross Software Intellectual property rights,
 patents and other industrial
property rights, service, rights
of way
 Intellectual property rights,
patents and other industrial
property rights, service, rights
of way
 Other
 intangible
assets
 Goodwill Identifiable
 intangible assets
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Opening balance  -   2,196   694   97,392   4,081   38,388   142,751   23,062   1,524   97,386   3,698   38,388   164,058 
Additions  -   764   -   -   -   -   764   189   15   -   -   -   204 
Amortization  -   (1,019)  (61)  -   -   -   (1,080)
Other increases (decreases)  -   41   (32)  (6)  -   -   3   -   (91)  (886)  (47)  -   (1,024)
                                                    
Final balance  -   1,982   601   97,386   4,081   38,388   142,438   23,251   1,448   96,500   3,651   38,388   163,238 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-117

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 13 Intangible assets and goodwill (continued)

13.2Disclosures on intangible assets and goodwill, continued

 

Note 13g)IntangibleMovements in identifiable intangible assets and goodwill (continued)as of December 31, 2015:

Movements in identifiable intangible assets,
accumulated amortization
 Software  Intellectual property
 rights, patents and other
industrial property rights,
service, rights of way
  Intellectual property rights,
patents and other industrial
property rights, service,
rights of way
  Other
 intangible
assets
  Goodwill  Identifiable
intangible
assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  (9,996)  (939)  -   -   -   (10,935)
Additions  -   -   -   -   -   - 
Amortization  (3,432)  (45)  -   -   -   (3,477)
Other increases (decreases)  (10)  -   -   -   -   (10)
                         
Final balance  (13,438)  (984)  -   -   -   (14,422)

Movements in identifiable intangible assets, net Software  Intellectual property
 rights, patents and other
industrial property rights,
service rights of way
  Intellectual property rights,
 patents and other industrial
property rights, service
 rights of way
  Other
intangible
assets
  Goodwill  Identifiable
intangible
 assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  13,066   585   97,386   3,698   38,388   153,123 
Additions  189   15   -   -   -   204 
Amortization  (3,432)  (45)  -   -   -   (3,477)
Other increases (decreases)  (10)  (91)  (886)  (47)  -   (1,034)
                         
Final balance  9,813   464   96,500   3,651   38,388   148,816 

F-118
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 13 Intangible assets and goodwill (continued)

 

13.2Disclosures on intangible assets and goodwill, continued

 

h)Movements in identifiable intangible assets as of December 31, 2012:2014:

 

Movements in identifiable intangible assets, net Trademarks Software Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Intellectual property rights,
patents and other industrial
property rights, service and
exploitation right, rights of
way
 Other
intangible
assets
 Goodwill Identifiable
intangible
assets
 
Movements in identifiable intangible assets, gross Software Intellectual property
rights, patents and other
industrial property rights,
service, rights of way
 Intellectual property rights,
patents and other industrial
property rights, service,
 rights of way
 Other
 intangible
assets
 Goodwill Identifiable
intangible
assets
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Opening balance  -   1,938   440   77,282   396   38,605   118,661   5,342   1,576   97,392   4,081   38,388   146,779 
Additions  -   501   -   19,080   964   -   20,545   14,462   -   -   -   -   14,462 
Amortization  -   (789)  (62)  -   -   -   (851)
Other increases (decreases)  -   -   -   4   -   (217)  (213)  3,258   (52)  (6)  (383)  -   2,817 
                                                    
Final balance  -   1,650   378   96,366   1,360   38,388   138,142   23,062   1,524   97,386   3,698   38,388   164,058 

 

Movements in identifiable intangible assets,
accumulated amortization
 Software  Intellectual property
rights, patents and other
industrial property rights,
service, rights of way
  Intellectual property rights,
patents and other industrial
property rights, service,
rights of way
  Other
 intangible
assets
  Goodwill  Identifiable
intangible
 assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  (3,146)  (882)  -   -   -   (4,028)
Additions  -   -   -   -   -   - 
Amortization  (3,547)  (58)  -   -   -   (3,605)
Other increases (decreases)  (3,303)  1   -   -   -   (3,302)
                         
Final balance  (9,996)  (939)  -   -   -   (10,935)

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-119
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 13 Intangible assets and goodwill (continued)

13.2Disclosures on intangible assets and goodwill, continued

 

h)Movements in identifiable intangible assets as of December 31, 2014:

Movements in identifiable intangible assets, net Software  Intellectual property
 rights, patents and other
industrial property rights,
service rights of way
  Intellectual property rights,
patents and other industrial
property rights, service
 rights of way
  Other
intangible
assets
  Goodwill  Identifiable
intangible
assets
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Opening balance  2,196   694   97,392   4,081   38,388   142,751 
Additions  14,462   -   -   -   -   14,462 
Amortization  (3,547)  (58)  -   -   -   (3,605)
Other increases (decreases)  (45)  (51)  (6)  (383)  -   (485)
                         
Final balance  13,066   585   97,386   3,698   38,388   153,123 

F-120
 Notes to the Consolidated Financial Statements as of December 31, 2016
Note 14Property, plant and equipment

Note 14 Property, plant and equipment

 

As of December 31, 20142016 and December 31, 2013,2015, the detail of property, plant and equipment is as follows:

 

14.1Types of property, plant and equipment

 

Description of types of property, plant and equipment 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

  12/31/2016
ThUS$
 12/31/2015
ThUS$
 
Property, plant and equipment, net             
Land  34,622   33,812   32,701   34,589 
Buildings  233,175   190,529   120,691   128,375 
Machinery  361,882   465,327   312,878   393,461 
Transport equipment  81,673   105,979   2,153   14,766 
Furniture and fixtures  9,016   9,534   5,429   8,516 
Office equipment  6,365   6,062   5,768   6,168 
Production plants  113,630   80,027 
Mining assets  29,726   41,392 
Constructions in progress  237,321   415,740   170,710   151,831 
Other property, plant and equipment (1)  923,900   827,394   739,024   824,451 
Total  1,887,954   2,054,377   1,532,710   1,683,576 
Property, plant and equipment, gross                
Land  34,622   33,812   32,701   34,589 
Buildings  411,633   364,695   272,791   264,645 
Machinery  1,168,018   1,179,860   1,223,174   1,211,927 
Transport equipment  261,394   263,268   74,628   79,979 
Furniture and fixtures  32,082   27,575   38,264   37,492 
Office equipment  35,512   39,142   37,665   38,285 
Production plants  227,494   171,769 
Mining assets  230,567   228,240 
Constructions in progress  237,321   415,740   170,710   151,831 
Other property, plant and equipment  1,731,599   1,506,708   1,832,847   1,804,515 
Total  3,912,181   3,830,800   4,140,841   4,023,272 
                
Accumulated depreciation and value impairment of property, plant and equipment, total                
Accumulated depreciation and value impairment of buildings  178,458   174,166 
Accumulated depreciation and value impairment of machinery  806,136   714,533 
Accumulated depreciation and value impairment of transport equipment  179,721   157,289 
Accumulated depreciation and value impairment of furniture and fixtures  23,066   18,041 
Accumulated depreciation and value impairment of office equipment  29,147   33,080 
Accumulated depreciation and value impairment of other property, plant and equipment  807,699   679,314 
Accumulated depreciation and impairment of buildings  152,100   136,270 
Accumulated depreciation and impairment of machinery  910,296   818,466 
Accumulated depreciation and impairment of transport equipment  72,475   65,213 
Accumulated depreciation and impairment of furniture and fixtures  32,835   28,976 
Accumulated depreciation and impairment of office equipment  31,897   32,117 
Accumulated depreciation and impairment of production plants  113,864   91,742 
Accumulated depreciation and impairment of mining assets  200,841   186,848 
Accumulated depreciation and impairment of other property, plant and equipment  1,093,823   980,064 
Total  2,024,227   1,776,423   2,608,131   2,339,696 

 

(1) The detail of other property, plant and equipment is as follows:

  12/31/2016
ThUS$
  31/12/2015
ThUS$
 
Other property, plant and equipment, net      
Conveyor belt system in plant  33,046   39,666 
Tank (TK)  18,993   26,046 
Geomembrane/liner      155,409 
Electric facilities  45,408   56,600 
Lights  1,110   2,252 
Other constructions  126,969   109,478 
Piping      17,174 
Pool  284,025   160,869 
Well (water)  42,584   44,432 
Pipes/HDPE lines  127,805   131,431 
Railroad track  2,274   11,001 
Other property, plant and equipment  56,810   70,093 
Total  739,024   824,451 

(1)F-121The detail of other property, plant and equipment is as follows:

  

31/12/2014

ThUS$

  

31/12/2013

ThUS$

 
Other property, plant and equipment, net        
Conveyor belt  53,648   53,783 
Tank (TK)  36,236   25,781 
Geomembrane/liner  158,839   169,255 
Electric facilities  61,795   21,889 
Lights  3,648   28,748 
Other constructions  122,287   62,390 
Piping  27,637   22,499 
Pool  168,469   181,844 
Well (water)  49,818   39,963 
Pipes/HD lines  148,590   101,886 
Railroad track  25,314   21,628 
Other property, plant and equipment  65,619   97,728 
Total  923,900   827,394 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 14 Property, plant and equipment (continued)

 

Note 14Property, plant and equipment (continued)

14.2Reconciliation of changes in property, plant and equipment by type:

 

Reconciliation entries of changes in
property, plant and equipment by type as of
December 31, 2014, gross
 Land Buildings Machinery Transport
equipment
 Furniture
and fixtures
 Office
equipment
 Constructions
in progress
 Other
property,
plant and
equipment
 Property,
plant and
equipment
 
Reconciliation entries of changes in
property, plant and equipment by type as
of December 31, 2016, gross
 Land Buildings Machinery Transport
 equipment
 Furniture and
fixtures
 Office
equipment
 Production
plants
 Mining assets Constructions in
progress
 Other property,
plant and
equipment
 Property,
 plant and
equipment
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Opening balance  33.812   364.695   1.179.860   263.268   27.575   39.142   415.740   1.506.708   3.830.800   34,589   264,645   1,211,927   79,979   37,492   38,285   171,769   228,240   151,831   1,804,515   4,023,272 
Changes                                                                                
Additions  -   72   370   -   71   1.514   134.663   287   136.977   -   -   1,192   50   14   763   -   -   145,606   1,473   149,098 
Divestitures  -   -   (93)  (85)  (86)  (58)  (2.235)  (1)  (2.558)  -   -   (1,166)  (5,540)  (28)  (1)          (3,370)  (753)  (10,858)
Increase(decrease) in foreign currency exchange  (87)  (6)  (56)  (33)  -   (65)  4   (193)  (436)  28   1   18   8   -   52   -   -   -   65   172 
Reclassification  812   46.872   (12.083)  (1.742)  4.522   (4.983)  (256.528)  223.130   -   -   8,145   11,203   277   786   548   55,725   2,327   (101,105)  27,950   5,856 
Other increases (decreases) (*)  85   -   20   (14)  -   (38)  (54.323)  1.668   (52.602)  (25)  -   -   (146)  -   (1,982)  -   -   (22,252)  (209)  (24,614)
Decreases for classification as held-for-sale (1)  (1,891)  -   -   -   -   -   -   -   -   (194)  (2,085)
Total changes  810   46.938   (11.842)  (1.874)  4.507   (3.630)  (178.419)  224.891   81.381   (1,888)  8,146   11,247   (5,351)  772   (620)  55,725   2,327   18,879   28,332   117,569 
Final balance  34.622   411.633   1.168.018   261.394   32.082   35.512   237.321   1.731.599   3.912.181   32,701   272,791   1,223,174   74,628   38,264   37,665   227,494   230,567   170,710   1,832,847   4,140,841 

Reconciliation entries of changes in
 property, plant and equipment by type as
 of December 31, 2016, Accumulated
depreciation
 Land  Buildings  Machinery  Transport
equipment
  Furniture and
fixtures
  Office
 equipment
  Production
plants
  Mining assets  Constructions in
progress
  Other property,
plant and
equipment
  Property,
plant and
equipment
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                                  
Opening balance  -   (136,270)  (818,466)  (65,213)  (28,976)  (32,117)  (91,742)  (186,848)      (980,064)  (2,339,696)
Changes                                            
Divestitures  -   -   759   5,540   28   -   -   -   -   -   6,327 
Depreciation expense  -   (14,379)  (81,090)  (2,682)  (3,426)  (1,893)  (22,125)  (13,993)  -   (100,069)  (239,657)
Impairment      (180)  (5,612)  (14,209)  (269)  -   -   -   -   (11,312)  (31,582)
Increase(decrease) in foreign currency exchange  -   (13)  -   (14)  -   (28)  -   -   -   (13)  (68)
Reclassification  -   (1,258)  (5,889)  3,974   (192)  (36)  -   -   -   (2,455)  (5,856)
Other increases (decreases) (*)  -   -   2   129   -   2,177   3   -   -   61   2,372 
Decreases for classification as held-for-sale (1)  -   -   -   -   -   -   -   -   -   29   29 
Total changes  -   (15,830)  (91,830)  (7,262)  (3,859)  220   (22,122)  (13,993)  -   (113,759)  (268,435)
Final balance  -   (152,100)  (910,296)  (72,475)  (32,835)  (31,897)  (113,864)  (200,841)  -   (1,093,823)  (2,608,131)

 

Reconciliation entries of changes in property,
plant and equipment by type as of December
 31, 2014, Accumulated depreciation
 Land  Buildings  Machinery  Transport
equipment
  Furniture
and fixtures
  Office
equipment
  Constructions
in progress
  Other
property,
plant and
equipment
  Property,
plant and
equipment
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                            
Opening balance  -   (174.166)  (714.533)  (157.289)  (18.041)  (33.080)  -   (679.314)  (1.776.423)
Changes                                    
Additions  -   -   -   -   -   -   -   -   - 
Divestitures  -   -   11   54   16   125   -   -   206 
Depreciation expense  -   (19.669)  (88.242)  (29.417)  (2.772)  (2.811)  -   (108.380)  (251.291)
Increase(decrease) in foreign currency exchange  -   1   40   17   -   25   -   21   104 
Reclassification  -   15.375   (3.414)  6.899   (2.269)  6.561   -   (23.152)  - 
Other increases (decreases) (*)  -   1   2   15   -   33   -   3.126   3.177 
Total changes  -   (4.292)  (91.603)  (22.432)  (5.025)  3.933   -   (128.385)  (247.804)
Final balance  -   (178.458)  (806.136)  (179.721)  (23.066)  (29.147)  -   (807.699)  (2.024.227)

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-118F-122

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 14Property, plant and equipment (continued)

Note 14 Property, plant and equipment (continued)

 

14.2Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in property,
plant and equipment by type as of December
31, 2014, net
 Land Buildings Machinery Transport
equipment
 Furniture
and fixtures
 Office
equipment
 Constructions
in progress
 Other
property,
plant and
equipment
 Property,
plant and
equipment
 
Reconciliation entries of changes in
property, plant and equipment by type as
of December 31, 2016, net
 Land Buildings Machinery Transport
 equipment
 Furniture and
fixtures
 Office
 equipment
 Production
plants
 Mining assets Constructions in
progress
 Other property,
plant and
equipment
 Property,
 plant and
equipment
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Opening balance  33.812   190.529   465.327   105.979   9.534   6.062   415.740   827.394   2.054.377   34,589   128,375   393,461   14,766   8,516   6,168   80,027   41,392   151,831   824,451   1,683,576 
Changes                                                                                
Additions  -   72   370   -   71   1.514   134.663   287   136.977   -   -   1,192   50   14   763   -   -   145,606   1,473   149,098 
Divestitures  -   -   (82)  (31)  (70)  67   (2.235)  (1)  (2.352)  -   -   (407)  -   -   (1)  -   -   (3,370)  (753)  (4,531)
Depreciation expense  -   (19.669)  (88.242)  (29.417)  (2.772)  (2.811)  -   (108.380)  (251.291)  -   (14,379)  (81,090)  (2,682)  (3,426)  (1,893)  (22,125)  (13,993)  -   (100,069)  (239,657)
Impairment (**)      (180)  (5,612)  (14,209)  (269)  -   -   -   -   (11,312)  (31,582)
Increase(decrease) in foreign currency exchange  (87)  (5)  (17)  (16)  -   (40)  4   (172)  (333)  28   (12)  18   (6)  -   24   -   -   -   52   104 
Reclassification  812   62.248   (15.496)  5.158   2.253   1.577   (256.528)  199.976   -   -   6,887   5,314   4,251   594   512   55,725   2,327   (101,105)  25,495   - 
Other increases (decreases) (*)  85   -   22   -   -   (4)  (54.323)  4.796   (49.424)  (25)  -   2   (17)  -   195   3   -   (22,252)  (148)  (22,242)
Decreases for classification as held-for-sale (***)  (1,891)  -   -   -   -   -   -   -   -   (165)  (2,056)
Total changes  810   42.646   (103.445)  (24.306)  (518)  303   (178.419)  96.506   (166.423)  (1,888)  (7,684)  (80,583)  (12,613)  (3,087)  (400)  33,603   (11,666)  18,879   (85,427)  (150,866)
Final balance  34.622   233.175   361.882   81.673   9.016   6.365   237.321   923.900   1.887.954   32,701   120,691   312,878   2,153   5,429   5,768   113,630   29,726   170,710   739,024   1,532,710 

 

(*) The net balance of other increases (decreases) corresponds to: 1) investment plan expensesWork in progress which are expensed to profit or loss (forming part of cost of sales and other expenses per function, as appropriate), 2) the variation representing the purchase and use of materials and spare parts and 3) projects corresponding mainlywhich correspond to exploration expendituresprospecting and stain development.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

(**) See Note 14.4

(***) The Company classifies as non-current assets held-for-sale the property, plant and equipment (assets that are going to be sold), the ones that as of the closing of the financial statements had entered into a sale process and is expected to finalized in the 12 months following the closing of the said financial statements. These assets are valued at the book value or at sale value minus the costs associated with the sale, whichever is lower. The depreciation of these assets is stopped at the moment that they are considered held-for-sale assets.

F-119F-123

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 14Property, plant and equipment (continued)

Note 14 Property, plant and equipment (continued)

 

14.2Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in
property, plant and equipment by type as of
December 31 2013, gross
 Land Buildings Machinery Transport
equipment
 Furniture
and fixtures
 Office
equipment
 Constructions
in progress
 Other
property,
plant and
equipment
 Property,
plant and
equipment
 
Reconciliation entries of changes in
property, plant and equipment by type as
of December 31, 2015, gross
 Land Buildings Machinery Transport
equipment
 Furniture and
fixtures
 Office
 equipment
 Production
plants
 Mining assets Constructions in
progress
 Other property,
plant and
 equipment
 Property,
 plant and
equipment
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Opening balance  33.320   329.397   1.065.641   224.462   22.665   36.215   423.184   1.336.991   3.471.875   34,622   240,356   1,145,426   78,402   32,082   35,512   171,277   225,917   237,321   1,711,266   3,912,181 
Changes                                                                                
Additions  778   47   2.100   3   60   835   416.471   3.327   423.621   49   933   1,109   32   28   1,338   -   -   145,376   4,122   152,987 
Divestitures  -   (38)�� (521)  (35)  -   (2)  (5.045)  (24)  (5.665)  -   -   (13)  (5)  -   (1)  -   -   (9,193)  (369)  (9,581)
Impairment  -   -   -   -   -   -   -   -   (3,195)  -   (3,195)
Increase(decrease) in foreign currency exchange  (36)  (8)  (39)  (24)  -   (43)  -   (98)  (248)  (82)  -   (53)  (23)  -   (104)  -   -   (1)  (180)  (443)
Reclassification  -   35.700   115.281   38.847   4.874   2.154   (366.516)  169.660   -   -   23,355   68,187   3,742   5,382   1,585   491   2,324   (178,445)  88,703   15,324 
Other increases (decreases) (*)  (250)  (403)  (2.602)  15   (24)  (17)  (52.354)  (3.148)  (58.783)      1   (2,729)  (2,169)      (45)  1   (1)  (40,032)  973   (44,001)
Total changes  492   35.298   114.219   38.806   4.910   2.927   (7.444)  169.717   358.925   (33)  24,289   66,501   1,577   5,410   2,773   492   2,323   (85,490)  93,249   111,091 
Final balance  33.812   364.695   1.179.860   263.268   27.575   39.142   415.740   1.506.708   3.830.800   34,589   264,645   1,211,927   79,979   37,492   38,285   171,769   228,240   151,831   1,804,515   4,023,272 

 

Reconciliation entries of changes in property,
plant and equipment by type as of December
31, 2013, Accumulated depreciation
 Land Buildings Machinery Transport
equipment
 Furniture
and fixtures
 Office
equipment
 Constructions
in progress
 Other
property,
plant and
equipment
 Property, plant
and equipment
 
Reconciliation entries of changes in
property, plant and equipment by type as
of December 31, 2015, Accumulated
depreciation
 Land Buildings Machinery Transport
equipment
 Furniture and
fixtures
 Office
 equipment
 Production
plants
 Mining assets Constructions in
progress
 Other property,
plant and
equipment
 Property,
 plant and
equipment
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Opening balance  -   (159.666)  (627.310)  (135.508)  (15.929)  (30.966)  -   (589.947)  (1.559.326)  -   (115,954)  (791,878)  (64,227)  (23,066)  (29,147)  (62,504)  (142,585)  -   (794,866)  (2,024,227)
Changes                                                                                
Additions  -   -   -   -   -   10   -   -   10 
Divestitures  -   24   472   -   -   2   -   -   498   -   -   -   -   -   -   -   -   -   -   - 
Depreciation expense  -   (14.520)  (77,904)  (21.787)  (2.112)  (2.055)  -   (88.358)  (206,736)  -   (13,198)  (88,899)  (15,327)  (3,093)  (3,041)  (7,121)  (1,682)  -   (99,084)  (231,445)
Impairment  -   -   (10,085)  -   -   -   -   -   (10,085)  -   (747)  (5,107)  (248)  (1,157)  (10)  (473)  (13,554)      (15,527)  (36,823)
Increase(decrease) in foreign currency exchange  -   (4)  27   9   -   7   -   12   51   -   1   -   16   -   66   -   -   -   30   113 
Reclassification  -   -   -   (2)  -   2   -   -   -   -   (5,348)  70,419   24,887   (433)  2   (21,644)  (29,027)  -   (54,180)  (15,324)
Other increases (decreases) (*)  -   -   267   (1)  -   (80)  -   (1.021)  (835)  -   (1,024)  (3,001)  (10,314)  (1,227)  13           -   (16,437)  (31,990)
Total changes  -   (14.500)  (87.223)  (21.781)  (2.112)  (2.114)  -   (89.367)  (217.097)  -   (20,316)  (26,588)  (986)  (5,910)  (2,970)  (29,238)  (44,263)  -   (185,198)  (315,469)
Final balance  -   (174.166)  (714.533)  (157.289)  (18.041)  (33.080)  -   (679.314)  (1.776.423)  -   (136,270)  (818,466)  (65,213)  (28,976)  (32,117)  (91,742)  (186,848)  -   (980,064)  (2,339,696)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-124
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 14Property, plant and equipment (continued)

Note 14 Property, plant and equipment (continued)

 

14.3Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in property,
plant and equipment by type as of December
31, 2013, net
 Land Buildings Machinery Transport
equipment
 Furniture
and fixtures
 Office
equipment
 Constructions
in progress
 Other
property,
plant and
equipment
 Property,
plant and
equipment
 
Reconciliation entries of changes in
property, plant and equipment by type as
of December 31, 2015, net
 Land Buildings Machinery Transport
equipment
 Furniture and
fixtures
 Office
 equipment
 Production
plants
 Mining assets Constructions in
progress
 Other property,
plant and
equipment
 Property,
 plant and
equipment
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                                          
Opening balance  33.320   169.731   438.331   88.954   6.736   5.249   423.184   747.044   1.912.549   34,622   124,402   353,548   14,175   9,016   6,365   108,773   83,332   237,321   916,400   1,887,954 
Changes                                                                                
Additions  778   47   2.100   3   60   845   416.471   3.327   423.631   49   933   1,109   32   28   1,338   -   -   145,376   4,122   152,987 
Divestitures  -   (14)  (49)  (35)  -   -   (5.045)  (24)  (5.167)  -   -   (13)  (5)  -   (1)  -   -   (9,193)  (369)  (9,581)
Depreciation expense  -   (14.520)  (87.989)  (21.787)  (2.112)  (2.055)  -   (88.358)  (216.821)  -   (13,198)  (88,899)  (15,327)  (3,093)  (3,041)  (7,121)  (1,682)  -   (99,084)  (231,445)
Imperment      (747)  (5,107)  (248)  (1,157)  (10)  (473)  (13,554)  (3,195)  (15,527)  (40,018)
Increase(decrease) in foreign currency exchange  (36)  (12)  (12)  (15)  -   (36)  -   (86)  (197)  (82)  1   (53)  (7)  -   (38)  -   -   (1)  (150)  (330)
Reclassification  -   35.700   115.281   38.845   4.874   2.156   (366.516)  169.660   -   -   18,007   138,606   28,629   4,949   1,587   (21,153)  (26,703)  (178,445)  34,523   - 
Other increases (decreases) (*)  (250)  (403)  (2.335)  14   (24)  (97)  (52.354)  (4.169)  (59.618)  -   (1,023)  (5,730)  (12,483)  (1,227)  (32)  1   (1)  (40,032)  (15,464)  (75,991)
Total changes  492   20.798   26.996   17.025   2.798   813   (7.444)  80.350   141.828   (33)  3,973   39,913   591   (500)  (197)  (28,746)  (41,940)  (85,490)  (91,949)  (204,378)
Final balance  33.812   190.529   465.327   105.979   9.534   6.062   415.740   827.394   2.054.377   34,589   128,375   393,461   14,766   8,516   6,168   80,027   41,392   151,831   824,451   1,683,576 

 

(*) The net balance of other increases (decreases) corresponds to: 1) investment plan expensesWork in progress which are expensed to profit or loss (forming part of cost of sales and other expenses per function, as appropriate), 2) the variation representing the purchase and use of materials and spare parts and 3) projects corresponding mainly to exploration expenditures and stain development.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-121F-125

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 14 Property, plant and equipment (continued)

 

Note 14Property, plant and equipment (continued)

14.3Detail of property, plant and equipment pledged as guarantee

 

There are no restrictions in title or guarantees for the compliance with obligations which affect property, plant and equipment.

 

14.4Impairment of assets

As stated in Note 3.28, the recoverable amount of property, plant and equipment is measured whenever there is an indication that the asset may be impaired. As of December 31, 2016 and December 31, 2015, impairment adjustments were generated because of the closure of the railway stations for the transportation of products, see Note 34 and the closure of the Pedro de Valdivia mine site indicated in Note 32, respectively.

Railway for transportation of products from the Coya Sur location and the Port of Tocopilla

As a result of the rain storms that affected the Tocopilla Zone at the beginning of August 2015, SQM S.A. confirmed the existence of damages in several zones in the railway between the sites Coya Sur and Tocopilla. Accordingly, starting from such date the Company has used the transport of trucks replacing the transport through the railway. SQM has performed several internal and external studies with the purpose of determining the costs and terms necessary to repair the damages in the railway.

The analysis of the internal and external reports performed during 2015 and 2016 concluded that the costs associated with repairing the damages caused by the rain storms would imply long-terms and high costs, and accordingly, it is not convenient at short and medium-term to repair the railway. Such decision does not affect the production process or imply additional employee reductions.

Consequently, SQM has adjusted the value of the assets associated with the railway (fixed equipment, facilities and rolling equipment), which has translated into a charge of approximately US$32 million which are reflected in the line other expenses by function in the consolidated statement of income for the period. Such amount approximately represents 0.8% of SQM’s total assets and 11% of SQM’s net income reported at the end of December 2016.

14.5Additional information

 

Interest capitalized in construction-in-progress:

 

The amount capitalized for this concept amounted to ThUS$7,7325,406 as of December 31, 20142016 and ThUS$ 17,2324,466 as of December 31, 2013.2015.

 

Financing costs are not capitalized for periods which exceed the normal term of acquisition, construction or installation of the asset, such as the case of delays, interruptions or temporary suspension of the project due to technical, financial or other issues, which prevent that the asset is maintained in good conditions for its use.

 

F-126
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 14 Property, plant and equipment (continued)

14.5Impairment of assetsAdditional information

 

As stated in Note 3.28, the recoverable amount of property, plant and equipment is measured whenever there is an indication that the asset may be impaired. As of December 31, 2013, certainAvailable for sale assets have suffered impairment for an amount of ThUS$10,085, when taken directly against the asset balance. As of December 31, 2014, no impairment adjustments were generated.

 

Non-current assets held for sale and the components of groups held for sale classified as held for sale are recorded in the Consolidated Statement of Financial Position in a single line under the following concept: “Non-current assets or asset groups for disposal classified as held for sale.”

The main classes of assets of non-current assets held for sale are shown below.

Available for sale assets12/31/201612/31/2015
ThUS$ThUS$
Land1,891-
Facilities and fixtures165-
Total2,056-
Note 15Employee benefits

Note 15 Employee benefits

 

15.1Provisions for employee benefits

 

Classes of employee benefits and expenses 12/31/2014 12/31/2013 
Classes of benefits and expenses by employee 12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
Current                
Profit sharing and bonuses  18.384   25.236   20,998   13,445 
Total  18.384   25.236   20,998   13,445 
                
Non-current                
Profit sharing and bonuses  2.849   277   -   - 
Severance indemnity payments  30.952   32.137   22,532   21,995 
Total  33.801   32.414   22,532   21,995 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-122F-127

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 15   Employee benefits (continued)

 

Note 15Employee benefits (continued)

15.2Policies on defined benefit plan

 

This policy is applied to all benefits received for services provided by the Company's employees.

 

Short-term benefits for active employees are represented by salaries, social welfare benefits, paid time-off, sickness leaves and other leaves, profit sharing and incentives and non-monetary benefits; e.g., healthcare service, housing, subsidized or free goods or services. These will be paid in a term which does not exceed twelve months.

 

The Company only provides compensation and benefits to active employees, with the exemption of SQM North America which applies the definitions under 15.4 below.

 

SQM maintains incentive programs for its employees based on the personal performance, the Company’s performance and other short-term, mid-term and long-term indicators.

 

For each incentive bonus delivered to the Company’s employees, there will be a disbursement in the first quarter of the following year and this will be calculated based on profit for the period at the end of each period applying a factor obtained subsequent to the employee appraisal process.

 

Employee benefits include retention bonuses for the Company’s executives, which are linked to the Company’s share price and it is paid in cash. The short-term portion is presented as provision for current employee benefits and the long-term portion as non-current.

 

The bonus provided to the Company’s directors is calculated based on Profit for the period at each year-end and will consider the application of a percentage factor.

 

The benefit related to vacations (short-term benefits to employees, current), which is provided in the Labor Code which indicates that employees with more than a year of service will be entitled to annual holidays for a period not lower than fifteen paid business days. The Company provides the benefit of two additional vacation days.days (classified in Note 18.3).

 

Staff severance indemnities are agreed and payable based on the last salary for each year of service for the Company or with certain maximum limits in respect to the number of years to be considered or in respect to monetary terms. In general, this benefit is payable when the employee or worker ceases to provide his/her services to the Company and the right for its collection can be acquired because of different causes, as indicated in the respective agreements; e.g., retirement, dismissal, voluntary retirement, incapacity or disability, death, etc..etc.

 

Law No. 19,728 published on May 14, 2001 which became effective on October 1, 2002 required “Compulsory Unemployment Insurance” in favor of all depending employees regulated by the Chilean Labor Code. Article 5 of this law provided the financing of this insurance through monthly contribution payments by both the employee and the employer.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-123F-128

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 15   Employee benefits (continued)

 

Note 15Employee benefits (continued)

15.3Other long-term benefits

 

The other long-term benefits relate to staff severance indemnities and are recorded at their actuarial value.

 

Staff severance indemnities at actuarial value 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
Staff severance indemnities, Chile  30.336   31.470   21,384   20,883 
Other obligations in companies elsewhere  616   667   1,148   1,112 
Total other non-current liabilities  30.952   32.137   22,532   21,995 

 

Staff severance indemnities have been calculated under the actuarial assessment method of the Company’s obligations with respect to staff severance indemnities, which relate to defined benefit plans which consist of days of remuneration per year served at the time of retirement under conditions agreed in the respective agreements established between the Company and its employees.

 

Under this benefit plan, the Company retains the obligation for the payment of staff severance indemnities related to retirements, without establishing a separate fund with specific assets, which is referred to as not funded. The discount interest rate of expected flows to be used was 5.5%4.5522%.

 

Benefit payment conditions

 

The staff severance indemnity benefit relates to remuneration days for year worked for the Company with no limit of salary or years of services for the Company, when employees cease to work for the Company due to turnover or death. In this case, the maximum age for men is 65 years and 60 years old for women, which are the usual ages for retirement due to achieving the senior citizen age according to the Chilean pensions system provided in Decree Law 3.5003,500 of 1980.1,980.

 

Methodology

 

The determination of the obligation for benefits under IAS 19 Projected Benefit Obligation (PBO) is described as follows:

 

To determine the Company's total liability, we used a mathematical simulation model which was programmed using a computer and which processed the situation of each employee on an individual basis.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-124F-129

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 15Employee benefits (continued)

Note 15   Employee benefits (continued)

 

15.3Other long-term benefits, continued

 

This model considered months as discrete time; i.e., the Company determined the age of each person and his/her salary on a monthly basis according to the growth rate. Thus, information on each person was simulated from the beginning of the life of his/her employment contract or when he/she started earning benefits up to the month in which it reaches the normal retirement age, generating in each period the possible retirement according to the Company’s turnover rate and the mortality rate according to the age reached. When he/she reaches the retirement age, the employee finishes his/her service for the Company and receives indemnity related to retirement due to old age.

 

The methodology followed to determine the accrual for all the employees adhered to agreements has considered turnover rates and the mortality rate RV-2010RV-2009 established by the Chilean Superintendence of Securities and Insurance to calculate pension-related life insurance reserves in Chile according to the Accumulated Benefit Valuation or Accrued Cost of Benefit Method. This methodology is established in IAS 19 on Retirement Benefit Costs.

 

15.4Post-employment benefit obligations

 

Our subsidiary SQM North America, has established with its employees, a pension plan until 2002 called “SQM North America Retirement Income Plan”, whereby obligation is calculated measuring the expected future forecasted staff severance indemnity obligation using a net salary gradual rate of restatements for inflation, mortality and turnover assumptions discounting the resulting amounts at present value using the interest rate defined by the authorities.

 

Since 2003, SQM North America offers to its employee benefits related to pension plans based on the 401-K system, which do not generate obligations for the Company.

 

The table below shows the plan financing status and the amounts recognized in the consolidated Statement of Financial Position.

Reconciliation 12/31/2016  12/31/2015  12/31/2014 
Changes in the benefit obligation ThUS$  ThUS$  ThUS$ 
Benefit obligation at the beginning of the year  7,949   7,324   6,922 
Service cost  2   3   2 
Interest cost  387   380   403 
Actuarial loss  200   600   361 
Benefits paid  (353)  (358)  (364)
Benefit obligation at the end of the year  8,185   7,949   7,324 

 

Reconciliation table 12/31/2014  12/31/2013  12/31/2012 
Variation in the benefit obligation ThUS$  ThUS$  ThUS$ 
Benefit obligation at January 1  6,922   6,482   6,620 
Service cost  2   2   1 
Interest cost  403   412   406 
Actuarial gain (loss)  361   386   (236)
Benefits paid  (364)  (360)  (309)
Benefit obligation at December 31  7,324   6,922   6,482 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-125F-130

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 15Employee benefits (continued)

Note 15   Employee benefits (continued)

 

15.4Post-employment benefit obligations, continued

 

  12/31/2014  12/31/2013  12/31/2012 
Variation in plan assets: ThUS$  ThUS$  ThUS$ 
Fair value of plan assets as of January 1  7,909   6,073   5,206 
Employer contributions  173   453   436 
Actual return (loss) on plan assets  249   1,743   740 
Benefits paid  (364)  (360)  (309)
Fair value of plan assets as of December 31  7,967   7,909   6,073 
Financing status  643   987   (409)
Items not yet recognized as net periodical pension and healthcare cost elements:            
Net actuarial loss at the beginning of the period  (1,231)  (2,243)  (2,954)
Amortization during the period  30   109   131 
Net profit or loss expected to occur during the period  (702)  903   580 
Adjustment to recognize a minimum pension and healthcare obligation  (1,903)  (1,231)  (2,243)
  12/31/2016  12/31/2015  12/31/2014 
Changes in the plan assets: ThUS$  ThUS$  ThUS$ 
Fair value of plan assets at the beginning of the year  7,464   7,967   7,909 
Employer´s contributions  -   -   173 
Actual return (loss) in plan assets  293   (145)  249 
Benefits paid  (353)  (358)  (364)
Fair value of plan assets at the end of the year  7,404   7,464   7,967 
Financing status  (782)  (485)  643 
Items not yet recognized as net periodic pension cost components:            
Net actuarial loss at the beginning of the year  (3,165)  (1,903)  (1,231)
Amortization during the year  184   68   30 
Net estimated gain or loss occurred during the year  (451)  (1,330)  (702)
Adjustment to recognize the minimum pension obligation  (3,432)  (3,165)  (1,903)

 

As

The net periodic pension expense was composed of the following components for the years ended December 31, 2014, 20132016, 2015 and 2014, the net periodical pension and healthcare expense comprised the following elements.2014:

  

Reconciliation 12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Cost of benefits from services obtained during the period  2   2   2 
Interest cost on benefit obligation  403   412   406 
Actual return on plan assets  249   1,743   739 
Amortization for prior period losses  30   109   131 
Net loss during the period  340   (1,290)  (344)
Net periodic provisional expense  (155)  69   142 
Reconciliation 12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Service cost or benefits received during the year  2   3   2 
Interest cost in benefit obligation  387   380   403 
Actual return in plan assets  293   (145)  249 
Amortization of prior year losses  184   68   30 
Net gain during the year  610   728   340 
Net periodic pension expense  29   (133)  (155)

 

15.5Staff severance indemnities

 

As of December 31, 2014, 20132016. 2015 and 2014, severance indemnities calculated at the actuarial value are as follows:

  

2014

ThUS$

  

2013

ThUS$

  

2012

ThUS$

 
Opening balance  (32,137)  (34,431)  (28,188)
Current cost of service  (1,294)  (107)  (8,087)
Interest cost  (2,020)  (2,248)  (1,037)
Actuarial gain/loss  (665)  (127)  40 
Exchange rate difference  4,450   2,946   (2,237)
Benefits paid during the year  714   1,830   (5,078)
Balance  (30,952)  (32,137)  (34,431)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

  

12/31/2016

ThUS$

  

12/31/2015

ThUS$

  

12/31/2014

ThUS$

 
Opening balance  (21,995)  (30,952)  (32,137)
Current cost of service (*)  (1,333)  (898)  (1,294)
Interest cost  (1,407)  (1,588)  (2,020)
Actuarial gain/loss  (2,253)  1,242   (665)
Exchange rate difference  (1,215)  3,582   4,450 
Benefits paid during the year  5,671   6,619   714 
Balance  (22,532)  (21,995)  (30,952)

(*) Current cost for the year ended December 31, 2015 includes the reversal of a provision in the amount of ThUS$3,575 (see note 26.5).

F-126F-131

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 15   Employee benefits (continued)

 

Note 15Employee benefits (continued)

15.5Staff severance indemnities, continued

 

a)Actuarial assumptions

a)       Actuarial assumptions

 

The liability recorded for staff severance indemnity is valued at the actuarial value method, using the following actuarial assumptions:

 

 12/31/2016 12/31/2015 12/31/2014   
 12/31/2014 12/31/2013 12/31/2012         
Mortality rate  RV - 2009   RV - 2009   RV - 2009     RV - 2014   RV - 2009   RV – 2009   
Actual annual interest rate  5.5%  6%  6%    4.522%  4.89%  5.5%  
Voluntary retirement rotation rate:                            
Men  1.71%  0.9%  0.9% annual  7.16%  7.16%  1.71% annual
Women  1.96%  1.53%  1.53% annual  7.16%  7.16%  1.96% annual
Salary increase  3.0%  3.0%  3.0% annual  3.60%  3.60%  3.00% annual
Retirement age:                            
Men  65   65   65  years  65   65   65  years
Women  60   60   60  years  60   60   60  years

 

b)Sensitivity analysis of assumptions

 

As of December 31, 2014,2016 and December 31, 2015, on the actuarial calculation, the Company has conducting the sensitivity analysis of the main assumptions, is as follows:determining the following:

 

Sensitivity analysis 

Effect + 100 basis points

ThUS$

 

Effect - 100 basis points

ThUS$

 
Sensitivity analysis 12/31/2016 Effect + 100 basis points Effect - 100 basis points 
 ThUS$  ThUS$ 
Discount rate  (1,960)  (2,181)  (1,576)  1,773 
Employee turnover rate  (112)  (130)  (207)  231 

Sensitivity analysis 12/31/2015 Effect + 100 basis points  Effect - 100 basis points 
  ThUS$  ThUS$ 
Discount rate  (1,437)  1,607 
Employee turnover rate  (250)  148 

 

Sensitivity relates to an increase/decrease of 100 basis points.

 

F-132
 Notes to the Consolidated Financial Statements as of December 31, 2016
Note 16Executive compensation plan

 

TheNote 16   Executive compensation plan

Through the present date, the Company has established twoa compensation plans to motivateplan with the purpose of encouraging the Company’s executives and encourage them to stay in the Company, by granting payments based on the change in price of SQM’s shares.

 

1)

1) Shares

Liquidated in cash, executives are able to exercise their rights until 2016.

 

Characteristics of the plan

 

This compensation plan iswas related with the company performance through the price of the Series B SQM share (Santiago Stock Exchange).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 16Executive compensation plan (continued)

Participants in this plan

 

This compensation plan includes 10eight executives of the Company, who are entitled to this benefit, provided they stay with the Company during the dates these options are exercised.executed. The dates for exercising the options will bewere the first 7seven calendar days of the month of May offollowing the fiscal year in which the options are exercised.end.

 

Compensation

 

The compensation for each executive iswas the differential between the average prices of the share during April of each year compared to the base price established by Company’s management. The base price fixed by the Company for this compensation plan amounts to US$50 per share. The Company reserves the right to exchange that benefit byfor shares or share options. The resulting amount would have been paid in cash directly to the executives.

 

The movement of the optionsrelated liability is recorded in effect for the period, the average prices for the fiscal year of the optionsprofit sharing and the average contractual life of the optionsbonuses in effect as of December 31, 2014 and December 31, 2013 are the following:note 15.1.

 

Movement for the period 2014  2013 
Movement for the period (number of shares) 2016  2015 
In effect as of January 1  1.536.000   2.200.500   -   1.536,000 
Former executives  -   (365,000)
Granted during the fiscal year  -   45.000   -   - 
Redundant workers  -   (187.500)
Exercised during the fiscal year        
Changes in benefit plan  -   (522.000)
In circulation  1.536.000   1.536.000   -   1,171,000 
Average contractual life  16 months   25 months   -   4 months 
Executives  10   10   -   8 

F-133
 Notes to the Consolidated Financial Statements as of December 31, 2016

 

The amounts accrued by theNote 16   Executive compensation plan, as of December 31, 2014 and December 31, 2013, amount to:continued

 

Effect on profit or loss 

12/31/2014

ThUS$

  

12/31/2013

ThUS$

 
Effect on profit or loss  (553)  8.200 

2)Average Share Price Spread

2) Average Share Price Spread

 

Plan characteristics

 

This compensation plan is also related to the Company’s performance through the SQM Series B share price (Santiago Stock Exchange).

 

Plan participants

 

This compensation plan includes 3024 of the Company’s executives, who obtain this benefit, provided they remain in the Company at the payment dates. The paymentsPayment dates, if any,applicable, will be the first week of January 2016, 2017 and 2018.in 2021.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-128

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 16Executive compensation plan (continued)

 

Compensation

 

The compensation for each executive is the differential between the average share price during each of the months of December 2015, December 2016 and December 2017, respectively, in its equivalent in US dollars and the reference prices. The latter represents the value betweenprices, of US$23.4823.43 and the average weighted price of the trading of SQM Series B shares in the Santiago Stock Exchange during December 2014. The differential cannot exceed US$15.00 and will be multiplied by 5,000. If the amount calculated is negative or zero, no bondbonus will be paid during that period, but in such case, the bond of benefit payable in the following period to the employee will be equal to the product of multiplying the difference by 10,000. If the value was negative or zero in December 2015 and also in December 2016, for calculating the bond of December 2017, the differential will be multiplied by 15,000. The resulting amount would have been paid in cash directly to the executives.

 

The movement of the options in effect for the period, the average prices for the fiscal year of the options and the average contractual life of the options in effect as of December 31, 20142016 and December 31, 20132015 are the following:

 

Movement for the period 2014  2013 
Movement for the period (number of shares) 2016  2015 
In effect as of January 1  450.000   450.000   405,000   390,000 
Redundant workers  60.000   - 
Former executives  (45,000)  (45,000)
Granted during the fiscal year  -   60,000 
In circulation  390.000   450.000   360,000   405,000 
Average weighted contractual life  36 months   48 months   12 months   24 months 
Executives  26   30   24   27 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-129F-134

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 17Disclosures on equity

Note 17   Disclosures on equity

 

The detail and movements in the funds of equity accounts are shown in the consolidated statement of changes in equity.

 

17.1Capital management

 

The main object of capital management relative to the administration of the Company’s financial debt and equity is to ensure the regular conduct of operations and business continuity in the long term, with the constant intention of maintaining an adequate level of liquidity and in compliance with the financial safeguards established in the debt contracts in force. Within this framework, decisions are made in order to maximize the value of SQM.

 

Capital management must comply with, among others, the limits contemplated in the Financing Policy approved by Board of Directors, which establish a maximum consolidated indebtedness level of 1.5 times the debt/equity. This limit can be exceeded only if the Company’s management has a written and previously granted authorization issued at the Extraordinary Shareholders’ Meeting.

 

In addition, capital management must comply with the external capital requirements imposed (or covenants) in its financial obligations, which regulate the indebtedness level by 1.2 times, in its more strictstricter level.

 

In conjunction with the level of indebtedness, it is also important for the Company to maintain a comfortable profile of maturities for its financial obligations, in order to oversee the relation between its short-term financial obligations and the long-term maturities, and the relation they have with the Company’s asset distribution. Consequently, the Company has maintained a liquidity level of 3 times during the last periods.

 

The Company’s management controls capital management based on the following ratios:

 

CAPITAL
MANAGEMENT
 12/31/2014 12/31/2013  Description (1) Calculation (1) 12/31/2016 12/31/2015 Description (1) Calculation (1)
 
Net Financial Debt ThUS$ 762.229    882.020 Financial Debt – Financial Resources Other current Financial Liabilities + Other Non-Current Financial Liabilities – Cash and Cash Equivalents – Other Current Financial Assets – Hedging Assets, non-current  468,725   528,649  Financial Debt – Financial Resources Other current Financial Liabilities + Other Non-Current Financial Liabilities – Cash and Cash Equivalents – Other Current Financial Assets – Hedging Assets, non-current
  
Liquidity 4.73    3.40 Current Asset divided by Current Liability Total Current Assets / Total Current Liabilities  4.02   3.84  Current Asset divided by Current Liability Total Current Assets / Total Current Liabilities
  
Net Debt / Capitalization 0.25    0.27 Net Financial Debt divided by Total Equity Net financial debt / ( Net financial debt + Total Equity)  0.17   0.18  Net Financial Debt divided by Total Equity Net financial debt / (Net financial debt + Total Equity)
  
ROE 10.7% 19.5% Income divided by Total Equity Total Income / Equity (UH 12 months)  12.22%  9.1% Income divided by Total Equity Total Income / Equity (UH 12 months)
  
ROA 13.7% 16.4% EBITDA – Depreciation divided by Net Total Assets of financial resources less  related parties investments (Gross Income – Administrative Expenses)/ (Total Assets – Cash and Cash Equivalents – Other Current Financial Assets – Other Non-Current Financial Assets – Equity-accounted Investees) (UH 12 months)  16.0%  13.4% EBITDA – Depreciation divided by Net Total Assets of financial resources less  related parties investments (Gross Income – Administrative Expenses)/ (Total Assets – Cash and Cash Equivalents – Other Current Financial Assets – Other Non-Current Financial Assets – Equity-accounted Investees) (UH 12 months)
Indebtedness 1.03    0.96 Total Liability on Equity Total Liabilities / Total Equity  0.83   0.93  Total Liability on Equity Total Liabilities / Total Equity
              
  (1) Assumes the absolute value of the accounting records         (1) Assumes the absolute value of the accounting records

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-130F-135

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 17Disclosures on equity (continued)

Note 17   Disclosures on equity (continued)

 

17.1Capital management, continued

 

The Company’s capital requirements change depending on variables such as workingwork capital requirements, of new investment financing and dividends, among others. The Company manages its capital structure and makes adjustments on the basis of the prevailingpredominant economic conditions so as to mitigate the risks associated with adverse market conditions and take advantage of the opportunities there may be to improve the liquidity position.

 

There have been no changes in the capital management objectives or policy within the years reported in this document. No breaches of external requirements of capital imposed (or covenants) have been recorded.

 

17.2Disclosures on preferred share capital

 

Issued share capital is divided into 263,196,524 fully paid and subscribed shares with no par value composed of 142,819,552 Series "A" shares and 120,376,972 Series “B” shares, where both series are preferred shares.

 

The preferential voting rights for each series are detailed as follows:

 

Series “A”:

 

If the election of the Company’s President results in a tie vote, the Company's directors may vote once again, without the vote of the director elected by the Series B shareholders.

 

Series “B”:

 

1)A general or extraordinary shareholders' meeting may be called at the request of shareholders representing 5% of the Company's Series B shares.

 

2)An extraordinary meeting of the Board of Directors may be called with or without the agreement of the Company's President, at the request of the director elected by Series B shareholders.

 

As of December 31, 20142016 and December 31, 2013,2015, the Group does not maintain shares in the parent either directly or through its companies in which it has investments.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-136

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 17Disclosures on equity (continued)

Note 17   Disclosures on equity (continued)

 

17.2Disclosures on preferred share capital, continued

 

Detail of types of capital in preference shares:

 

Type of capital in preferred shares 12/31/2014 12/31/2013    
Description of type of capital in preferred shares Series A Series B Series A Series B 
Description of type of capital in preferred 12/31/2016 12/31/2015 
shares Series A Series B Series A Series B 
Number of authorized shares  142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972 
Number of fully subscribed and paid shares  142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972 
Number of subscribed, partially paid shares  -   -   -   -   -   -   -   - 
Par value of shares in ThUS$  0.9435   2.8464   0.9435   2.8464 

Par value of shares in US$

  0.9435   2.8464   0.9435   2.8464 
Increase (decrease) in the number of current shares  -   -   -   -   -   -   -   - 
Number of current shares  142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972 
Number of shares owned by the entity or its subsidiaries or associates  -   -   -   -   -   -   -   - 
Number of shares whose issuance is reserved due to the existence of options or agreements to dispose shares  -   -   -   -   -   -   -   - 
Capital amount in shares ThUS$  134,750   342,636   134,750   342,636   134,750   342,636   134,750   342,636 
Amount of premium issuance ThUS$  -   -   -   -   -   -   -   - 
Amount of reserves ThUS$  -   -   -   -   -   -   -   - 
Total number of subscribed shares, total  142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972   142,819,552   120,376,972 

 

As of December 31, 20142016 and December 31, 2013,2015, the Company has not placed any new issuances of shares on the market.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-132F-137

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 17   Disclosures on equity (continued)

 

Note 17Disclosures on equity (continued)

17.3Disclosures on reserves in equity

 

As of December 31, 2014, 20132016 and 2014,December 31, 2015, this caption comprises the following:

  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Reserve for currency exchange conversion  (19,463)  (14,035)  (7,701)
Reserve for cash flow hedges  64   (1,699)  (1,881)
Reserve for gains and losses from financial assets measured at fair value through other comprehensive income  3,513       - 
Reserve for actuarial gains or losses in defined benefit plans  (4,834)  (2,386)  (1,903)
Other reserves  7,832   (1,677)  (1,677)
Total other reserves  (12,888)  (19,797)  (13,162)

F-138
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 17   Disclosures on equity (continued)

17.3Disclosures on reserves in equity, continued

The movements of other Reserves and Changes in equity are detailedownership interest were as follows:

 

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Foreign currency translation differences reserves  (7,701)  (3,817)  (330)
Cash flow hedge reserves  (1,881)  (3,766)  (165,522)
Actuarial gains (losses) from defined benefit plans  (1,903)  (1,231)  (2,243)
Other miscellaneous reserves  (1,677)  (1,677)  (1,677)
Total other reserves  (13,162)  (10,491)  (20,772)

Reserve Foreign currency exchange gains (losses) before taxes  Gains (losses) from cash flow hedges  

Actuarial gains (loss) 

  Gains (losses) in financial assets measured at fair value through other comprehensive income  Other Miscellaneous  Total reserves 
movement Before taxes  Before taxes  Income taxes  Before taxes  Deferred taxes  Before taxes  Deferred taxes  Before taxes  Reserves  Deferred taxes  Total reserves 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Initial balance current period January 1, 2014  (3,817)  (4,427)  661   (1,231)  -   -   -   (1,677)  (11,152)  661   (10,491)
                                             
Increase (decrease) in reserves  (4,016)  20,795   -   (672)  -   -   -   -   16,107   -   16,107 
Deferred taxes  -   -   (311)  -   -   -   -   -   -   (311)  (311)
Reclassification profit or loss of reserves  -   (18,599)  -   -   -   -   -   -   (18,599)  -   (18,599)
                                             
Closing balance of current year, December 31, 2014  (7,833)  (2,231)  350   (1,903)      -   -   (1,677)  (13,644)  350   (13,294)
                                             
Increase (decrease) in reserves  (6,499)  854   -   (221)      -   -   -   (5,866)  -   (5,866)
Deferred taxes  -   -   95   -   (309)  -   -   -   -   (214)  (214)
Reclassification profit or loss of reserves  -   (767)  -   47   -   -   -   -   (720)  -   (720)
                                             
Closing balance of current year, December 31, 2015  (14,332)  (2,144)  445   (2,077)  (309)  -   -   (1,677)  (20,230)  136   (20,094)
                                             
Increase (decrease) in reserves  (2,252)  3,626   -   (3,397)      4,813   -   9,509   12,299   -   12,299 
Deferred taxes  -   -   (470)  -   921   -   (1,300)  -   -   (849)  (849)
Reclassification profit or loss of reserves  -   (1,393)  -   28       -   -   -   (1,365)  -   (1,365)
                                             
Closing balance of current year, December 31, 2016  (16,584)  89   (25)  (5,446)  612   4,813   (1,300)  7,832   (9,296)  (713)  (10,009)

F-139
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 17   Disclosures on equity (continued)

17.3Disclosures on reserves in equity, continued

 

Reserves for currency exchange conversion

 

This balance reflects retained earnings for changes in the exchange rate when converting financial statements of subsidiaries whose functional currency is that offrom each company’s origin country of origin and the presentation currency is the US dollar.

 

Reserve for cash flow hedges

 

The Company maintains, as hedge instruments, financial derivatives related to obligations with the public issued in Unidades de FomentoUF and Chilean pesos. Changes from the fair value of derivatives designated and classified as hedges are recognized under this classification.

 

Reserve for gains and losses from financial assets measured at fair value through other comprehensive income

This caption includes investments in shares where the Company has no significant influence and; accordingly, have been measured at fair value through equity. In the event that such equity instruments are fully or partially disposed of, the proportional accumulated effect of accumulated fair value will be transferred to profit or loss.

Reserve for actuarial gains or losses in defined benefit plans

 

OurFor the domestic subsidiaries the effects of changes in assumptions are considered, mainly changes in the discount rate.

The subsidiary SQM North America has established pension plans for its retired employees that are calculated by measuring the projected obligation of IAS using a net salary progressive rate net of adjustments to inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 6.5%5.5% interest rate for 20142016 and 2013.2015.

 

Other reserves

Corresponds to the acquisition of the subsidiary SQM Iberian S.A., which was already under ownership of the Company at the acquisition date (IAS 27 R).

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-140
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 17   Disclosures on equity (continued)

 

Note 1717.3Disclosures on reserves in equity, (continued)continued

Other reserves

Corresponds to reserves from prior years through 2015 in reserves for currency translation differences, and reserves of prior years through 2015 in Retained earnings (losses) in the subsidiary SQM Ibeian S.A

Corresponds to the legal reserves reported in the individual financial statements of the subsidiaries that are mentioned below and that have been recognized in the equity of SQM, through the application of the equity method.

Subsidiary - AssociateThUS$
SQM Iberian S,A,5,963
SQM Europe NV1,958
Soquimich European holding B.V.828
Abu Dhabi Fertilizer Industries WWL455
Doktor Tarsa Tarim Sanayi AS305
Total9,509
2. Corresponds to the acquisition of the subsidiary SQM Iberian S.A., which was already under ownership of the Company at the acquisition date (IAS 27 R).(1,677)
Total Other reserves7,832

 

17.4Dividend policies

 

As required by Article 79 of the Chilean Companies Act, unless otherwise decided by unanimous vote of the holders of issued and subscribed shares, we must distribute a cash dividend in an amount equal to at least 30% of our consolidated Profit for the period for year ended as of December 31, unless and except to the extent it has a deficit in retained earnings (losses not absorbed in prior years).

 

The Company’s dividend policy for 20142016 is as follows:

 

-Distribution and payment in favor of each shareholder of a final dividend which will be equivalent to 50% of Profit for the period obtained in 2014.2016.

 

-Distribution and payment, if possible during 2014,2016, of a provisional dividend which will be recorded against the aforementioned final dividend. This provisional dividend will be paid probably during the last quarter of 20142016 and its amount could not exceed 50% of the retained earnings for distribution obtained during 2014,2016, which are reflected in the Company’s financial statements as of December 31, 2014.2016.

 

-The distribution and payment by the Company of the remaining balance of the final dividend related to Profit for the period for the 20142016 commercial year in up to two installments, which will have to be effectively paid and distributed prior to June 30, 2014.2017.

 

-An amount equivalent to the remaining 50% of the Company’s Profit for the period for 20142016 will be retained and destined to the financing of operations of one or more of the Company’s investment projects with no prejudice of the possible future capitalization of the entirety or a portion of this.

 

-The Board of Directors does not consider the payment of any additional and interim dividends.

 

-The Board of Directors does not consider the payment of any interim dividends

-The Board of Directors considers as necessary to indicate that the aforementioned dividends policy corresponds to the intention or expectation of the Board regarding this matter. Consequently, the enforcement of such dividends policy is necessarily conditioned to net incomes finally obtained, to the results indicating the Company’s regular forecasts or the existence of certain conditions that could affect them. Notwithstanding the above and to the extent that such policy dividend policy undergoesdoes not suffer a significant change, SQM S.A. will informtimely communicate its shareholders in a timely manner.on this matter.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-141
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 17 - Disclosures on equity (continued)

 

Note 17 -Disclosures on equity (continued)

17.5ProvisionalInterim and provisional dividends – fiscal year 2016

 

AtOn March 22, 2016, the Extraordinary Board of Directors’ Meeting of November 18, 2014,Company communicated that the directors unanimously agreed to pay and distribute a provisional dividend as contained in SQM’s “Dividend Policy for the Commercial Year 2014.”

It was agreed that beginning on December 12, 2014, SQM would pay and distribute a provisional dividend of US$0.41493 per share, which is equivalent to a total amount of approximately ThUS$102,208 or 50% of net profit for distribution in the commercial year 2014, accumulated as of September 30, 2014. This dividend is charged to profit for such the commercial year, in favor of the shareholders registered with SQM’s Shareholder’s Register on the fifth business day prior to December 12, 2014. It is paid in its equivalent amount in Chilean pesos per the “Observed U.S. dollar” exchange rate or “U.S. dollar” exchange rate, as published in the Official Gazette on December 5, 2014.

On July 7, 2014, at the Extraordinary Shareholders’ Meeting, the shareholders agreed to partially modify the current “2014 Dividends PolicyDirectors of Sociedad Química y Minera de Chile S.A.”. This was informed (SQM), at the General Annual Ordinary Shareholders Meeting held onunanimously agreed the following:

Partially amend the “Dividend Policy for Commercial Year 2015 of SQM S.A.” which was reported to the Ordinary Shareholders’ Meeting of April 25, 201424, 2015 with the main purpose of incorporatingincluding in such “Policy” the payment of an “eventual”interim dividend (dividendo eventual) of ThCh$230,000US$150,000,000, equivalent to US$0.873870.56992 per share. Thisshare, which will be distributed during the course of 2014paid with a charge to retained earnings and, if applicable, it will be paid in its equivalent amount in Chilean pesos per “Observed U.S. dollar” exchange rate or “U.S. dollar” exchange rate, as published in the Official Gazette on such date.

At the Extraordinary Board of Directors’ Meeting held on June 6, 2014, the following was agreed by simple majority:

1.To partially amend the current “2014 Dividends Policy of Sociedad Química y Minera de Chile S.A.”, informed at the General Annual Ordinary Shareholders Meeting held on April 25, 2014, with the main purpose of incorporating in such “Policy” the payment of a possible dividend of ThCh$230,000 equivalent to US$0.87387 per share that will be distributed during 2014 and charged to the caption retained earnings.

2.To call for an Extraordinary Shareholders’ Meeting on Monday July 7, 2014 at 10:00, to communicate and resolve the payment of the aforementioned dividend.

On April 25, 2014 at the 39th General Shareholders' meeting, the payment of a final dividend of US$0.88738 per share was agreed in relation to the net profit for 2013. US$0.75609 per share was already paid as an interim dividend, and it was agreed that this amount should be subtracted from the final dividend detailed above. In line with this, the balance, amounting to US$0.13129 per share it is to be paid and distributed among shareholders of the Company who are registered with their respective shareholders’ registry as of the fifth business day prior to the day in which this dividend is to be paid. Such amount, if applicable, is to be paid in its equivalent amount in Chilean pesos per the value of the “Observed U.S. dollar” or “U.S. dollar” that appears published in the Official Gazette on April 25, 2014.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 17Disclosures on equity (continued)

17.5Provisional dividends, continued

 

On November 19, 2013,23, 2016, the Board of Directors of Sociedad Química y Minera de Chile S.A, agreed to pay and distribute to the Company’s shareholders, starting from December 12, 2013,approved paying a provisional dividend of US$0.75609225 million, equivalent to US$0.85487 per share equivalent, approximately,with a charge to ThUS$199,000 or 49.9% of the net distributable profit for the commercial year 2013, accumulated2016. Such amount would be paid at December 31 of such year. The latter is also charged against income of said commercial year, in favor of the Shareholders who appeared registered in SQM’s Shareholders Registry by the 5th working day prior to December 12, and in its equivalent in Chilean pesos according tousing the value of the “Observed US Dollar” or “US Dollar” that appearsObserved U.S. dollar exchange rate published in the Official Gazette on December 6, 2013.13, 2016.

This payment of dividend would be made in favor of the shareholders personally or through their duly authorized representatives from 9:00 am on December 20, 2016. The shareholders of record with the Shareholder’ Registry 5 business days prior to December 20, 2016.

Change in the Dividend Policy in 2016:

On November 23, 2016, the Board of Directors agreed: i) to pay and distribute on December 20, 2016, a provisional dividend of US$225 million, equivalent to US$0.85487 per share, to be charged against the 2016 net income, ii) to change the Dividend Policy for the 2016 business year, as discussed at the Annual General Shareholders’ meeting held on April 26, 2016, iii) that no further provisional dividend would be charged against the 2016 net income and iv) that the remaining amount of the net income for the 2016 business year, if any, would be withheld and used to finance of the Company’s operations of one or more of the Company’s investment projects and to fund all or part of any possible future expenditures, without prejudice.

 

On April 25th, 2013, at11, 2017, the 38th Ordinary Shareholders’ Meeting,Board of Directors, agreed to recommend to the shareholders the payment of a definitive dividend representing 100% of the 2016 net income. This definitive dividend payment will be presented for consideration at the Annual General Shareholders’ Meeting held on April 28, 2017. Therefore, and subject to the approval at the Shareholders’ meeting, the Company shall pay a final dividend of US$1.233231.05735 per share, was approved, based on the net profit earned during the commercial year 2012.amount of US$0.949860.85487 per share thatmust be deducted from the final dividend, which was already paid as a provisional dividend should be discounted fromon December 20, 2016. The balance, in the abovementioned dividend, and the balance, amounting toamount of US$0.283370.20248 per share, willshall be paid and distributed in favor of the Shareholders who appeared registered in SQM’s Shareholders Registry by the 5th working day prior the day in which the dividend will be paid. The last amount, if corresponds, will be paid in its equivalent in Chilean pesos according to the value of the “Observed US Dollar” or “US Dollar” that appears published in the Official GazetteCompany’s shareholders, pending shareholders’ approval, on April 25, 2013.May 11, 2017.

 

Dividends presented deducted from equity are:

  12/31/2014
ThUS$
  12/31/2013
ThUS$
  12/31/2012
ThUS$
 
Dividends attributable to owners of the parent  114,487   203,401   253,438 
Possible provisional dividend  230,000   -   - 
Dividends payable  38,983   36,583   76,267 
Total  383,470   239,984   329,705 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-136F-142

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 17 - Disclosures on equity (continued)

17.6Interim and provisional dividends – fiscal year 2015

 

On November 17, 2015, the Board of Directors of Sociedad Química y Minera de Chile S.A. agreed that the Company pay and distribute a provisional dividend referred to in the “Dividend Policy for Commercial year 2015 of SQM S.A.” as agreed at the Annual General Ordinary Shareholders’ Meeting of April 24, 2015.

Accordingly, the Company paid and distributed starting from December 10, 2015 a provisional dividend per share of US$0.31915, which was equivalent to approximately US$84,000,000 and, this, to 49.82889% of net profit for distribution from the commercial year 2015, which was accumulated as of December 31 of such year. Such dividend will be charged to profit from the commercial year to the Shareholders recorded in the Shareholders’ Record of SQM on the fifth business day prior to December 10 indicated above and at its amount equivalent in Chilean pesos, the domestic currency at its "Observed U.S. Dollar” or “U.S. dollar” exchange rate published in the Official Gazette on December 3, 2015.

On April 24, 2015, at the Fortieth General Ordinary Shareholders’ Meeting, the shareholders agreed the payment of a dividend declared of US$0.56304 per share for the net profit obtained during the 2014 commercial year. From this dividend declared the amount of US$0.41493 per share was discounted, which was paid for the concept of the provisional dividend and the remaining balance, then amounting to US$0.14811 per share, was paid and distributed in favor of the Shareholders of SQM recorded with the related Shareholders’ Record on the fifth business day prior to the date in which the dividend was paid. Such amount was paid at its equivalent amount in Chilean pesos the domestic currency per the “Observed U.S. dollar” or “U.S. dollar” exchange rate, which was published on April 24, 2015.

Dividends presented deducted from equity are:

  12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
Dividends attributable to owners of the parent  3,014   3,248   114,487 
Provisional dividend  225,000   106,584   38,983 
Interim dividend  150,000   -   230,000 
Total  378,014   109,832   383,470 

F-143
 Notes to the Consolidated Financial Statements as of December 31, 2016
Note 18Provisions and other non-financial liabilities

Note 18   Provisions and other non-financial liabilities

 

18.1Types of provisions

 

  12/31/2014  12/31/2013 
  Current  Non-
current
  Total  Current  Non-
current
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                   
Provision for legal complaints (*)  17,067   3,000   20,067   8,567   3,000   11,567 
Restructuring  -   -   -   -   -   - 
Provision for dismantling, restoration and rehabilitation cost(**)  -   5,890   5,890   -   5,633   5,633 
Other provisions  10,680   -   10,680   9,386   -   9,386 
Total  27,747   8,890   36,637   17,953   8,633   26,586 
  12/31/2016  12/31/2015 
  Current  Non-current  Total  Current  Non-current  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                   
Provision for legal complaints (*)  20,867   3,000   23,867   18,067   3,000   21,067 
Provision for dismantling, restoration and rehabilitation cost (**)  -   5,890   5,890   -   5,890   5,890 
Other provisions (***)  21,045   44   21,089   10,074   -   10,074 
Total  41,912   8,934   50,846   28,141   8,890   37,031 

 

(*) Provisions for legal complaints relate to legal expenses for lawsuits whose resolution are pending, and correspond to funds estimated necessary to make the disbursement of expenses incurred for this purpose. This provision relates mainly to the litigation of its subsidiariessubsidiary located in Chile, Brazil and the United States (see note 19.1) and other litigations.

(**) This provision is calculated considering the instructions of the regulatory body (Servicio Nacional de Geología y Minería de Chile, Sernageomin)

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-137

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 18Provisions and other non-financial liabilities (continued)

18.2Description of other provisions

Current provisions, other short-term provisions 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Provision for tax loss in fiscal litigation  1,235   1,401 
Royalties, agreement with CORFO (the Chilean Economic Development Agency)  6,178   4,782 
Fine to Brazil  2,500   2,500 
Miscellaneous provisions  767   703 
Total  10,680   9,386 
Other long-term provisions        
Mine closure  5,890   5,633 
Total  5,890   5,633 

18.3Other non-financial liabilities, current

Description of other liabilities 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
Tax withholdings  7,305   12,334 
VAT payable  2,267   2,531 
Guarantees received  746   1,000 
Accrual for dividend  41,364   36,583 
Monthly tax provisional payments  8,549   6,601 
Deferred income  8,218   13,475 
Withholdings from employees and salaries payable  3,764   4,087 
Accrued vacations  17,369   18,652 
Other current liabilities  428   90 
Total  90,010   95,353 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-138

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 18Provisions and other non-financial liabilities (continued)

18.4Changes in provisions

  12/31/2014 
Description of items that gave rise to variations Guarantee  Restructuring  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation
cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   11,567   -   5,633   9,386   26,586 
Changes in provisions:                            
Additional provisions  -   -   8,500   -   257   2,583   11,340 
Provision used  -   -   -   -   -   (1,107)  (1,107)
Increase(decrease) in foreign currency exchange  -   -   -   -   -   (182)  (182)
Total provisions, final balance  -   -   20,067   -   5,890   10,680   36,637 

  12/31/2013 
Description of items that gave rise to variations Guarantee  Restructuring  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation
cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   8,567   -   4,357   12,922   25,846 
Changes in provisions:                            
Additional provisions  -   -   3,000   -   1,276   12,608   16,884 
Provision used  -   -   -   -   -   (15,943)  (15,943)
Increase (decrease) in foreign currency exchange  -   -   -   -   -   (201)  (201)
Total provisions, final balance  -   -   11,567   -   5,633   9,386   26,586 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-139

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 18Provisions and other non-financial liabilities (continued)

18.4Changes in provisions, continued

  12/31/2012 
Description of items that gave rise to variations Guarantee  Restructuring  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation
cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   7,521   -   3,724   14,237   25,532 
Changes in provisions:                            
Additional provisions  -   -   1,000   -   633   8,863   10,496 
Provision used  -   -   (4)  -   -   (10,061)  (10,065)
Increase (decrease) in foreign currency exchange  -   -   -   -   -   (117)  (117)
Total provisions, final balance  -   -   8,567   -   4,357   12,922   25,846 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-140

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 18Provisions and other non-financial liabilities (continued)

18.5Detail of main types of provisions

.Legal expenses: This provision depends on the pending resolution of a legal lawsuit, to pay the expenses associated to and incurred during such lawsuit (incurred mainly in Brazil, Chile and the United States).

Tax accrual in tax litigation: This accrual relates to lawsuits pending resolution related to taxes in Brazil for two of our subsidiaries, SQM Brazil and NNC.

CORFO (Economic Development Agency) Royalties agreement: Relates to the commercialization of mining properties that SQM Salar S.A. pays the Economic Development Agency for on a quarterly basis. The amount of the lease payable is calculated based on sales of products extracted from the SalarAtacama Saltpeter deposit.

(**) Such provision is calculated considering the instructions issued by the regulating agency (Servicio Nacional de Atacama.Geología y Minería de Chile, Sernageomin (The Chilean National Geology and Mining Service).

(***) Provisions for executive bonus compensation and others.

 

The settlement of the aforementioned amounts is performed on a quarterly basis.

 

To date, the Company and its subsidiaries have no significant uncertainties about the timing and amount of one class of provision.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-141F-144

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 18   Provisions and other non-financial liabilities (continued)

18.2Description of other provisions

 

Current provisions, other short-term provisions 12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
Provision for tax loss in fiscal litigation  750   610 
Royalties, agreement with CORFO (the Chilean Economic Development Agency)  11,452   6,310 
Provision for additional tax related to foreign loans  450   524 
Miscellaneous provisions  8,393   6,001 
Total  21,045   13,445 
Other long-term provisions        
Mine closure  5,890   5,890 
Miscellaneous  44   - 
Total  5,934   5,890 

18.3Other liabilities current

Description of other liabilities 12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
Tax withholdings  14,340   5,946 
VAT payable  3,949   6,677 
Guarantees received  2,638   748 
Accrual for dividend  1,189   23,887 
Monthly tax provisional payments  9,545   5,985 
Deferred income  6,507   9,764 
Withholdings from employees and salaries payable  5,552   3,459 
Accrued vacations  15,841   13,171 
Other current liabilities  2,359   329 
Total  61,920   69,966 

F-145
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 18   Provisions and other non-financial liabilities (continued)

18.4Changes in provisions

  12/31/2016 
Description of items that gave rise to variations Guarantee  Restructuring  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   21,067   -   5,890   13,445   40,402 
Changes in provisions:                            
Additional provisions  -   -   2.800   -   -   12.764   15.564 
Provision used  -   -   -   -   -   (5.715)  (5.715)
Increase(decrease) in foreign currency exchange  -   -   -   -   -   128   128 
others  -   -   -   -   -   467   467 
Total provisions, final balance  -   -   23.867   -   5.890   21.089   50.846 

  12/31/2015 
Description of items that gave rise to variations Guarantee  Restructuring (*)  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   22,567   -   5,890   8,180   36,637 
Changes in provisions:                            
Additional provisions  -   16,327   8,500   -   -   14,733   39,560 
Provision used  -   (16,327)  (10,000)  -   -   (9,111)  (35,438)
Increase(decrease) in foreign currency exchange  -   -   -   -   -   (357)  (357)
Total provisions, final balance  -   -   21,067   -   5,890   13,445   40,402 

(*) Provisions relating to restructuring in 2015 are related to the closure of the Pedro de Valdivia site. See Note 32.

F-146
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 18   Provisions and other non-financial liabilities (continued)

18.4Changes in provisions, continued

  12/31/2014 
Description of items that gave rise to variations Guarantee  Restructuring  Legal
complaints
  Onerous
contracts
  Provision for
dismantling,
restoration and
rehabilitation cost
  Other
provisions
  Total 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
                      
Total provisions, initial balance  -   -   11,567   -   5,633   9,386   26,586 
Changes in provisions:                            
Additional provisions  -   -   11,000   -   257   83   11,340 
Provision used  -   -   -   -   -   (1,107)  (1,107)
Increase(decrease) in foreign currency exchange  -   -   -   -   -   (182)  (182)
Total provisions, final balance  -   -   22,567   -   5,890   8,180   36,637 

F-147
 Notes to the Consolidated Financial Statements as of December 31, 2016
Note 19Contingencies and restrictions

Note 19   Contingencies and restrictions

 

According to note 18.1 the Company has only registered a provision for the lawsuits in which the probability to losethat judgments are unfavorable for the Company is “moremore likely than not”.not. The Company is party to lawsuits and other relevant legal actions that are detailed as follows:

 

19.1Lawsuits and other relevant events

 

1.Plaintiff:JB Comércio de Fertilizantes and Defensivos Agrícolas Ltda. (JB)
Defendant:Nitratos Naturais do Chile Ltda. (NNC)
Date:December 1995
Court:MM 1ª, Vara Civel de Comarca de Barueri, Brazil.
Reason:Compensation claim filed by JB against NNC for having appointed a distributor in a territory of Brazil for which JB had an exclusive contract.
Status:Lower court ruling against Nitratos Naturais do Chile Ltda. and recourse of appeal pending resolution.
Nominal value:ThUS$1,800
2.Plaintiff:Nancy Erika Urra Muñozoz.
Defendants:Fresia Flores Zamorano, Duratec-Vinilit S.A. and SQM S.A. and their insurersinsurers.
Date:December 20082008.
Court:1st Civil Court of SantiagoSantiago.  
Reason:Labor AccidentAccident.
Status:EvidenceAppeal filed by the plaintiff.
Nominal value:ThUS$550550.
   
3.2.   Plaintiff:City of Pomona, California USAUSA.
DefendantDefendants:SQM North America CorporationCorporation.
Date:December 20102010.
Court:United States District Court Central District of CaliforniaCalifornia.
Reason:Payment of expenses and other amount related to the treatment of groundwater to allow for consumption by removing the existing perchlorate in such groundwater and that supposedly come from Chilean fertilizer.
Status:The Ninth Court of Appeals revocatedJury rejected the resolution oflawsuit. The plaintiff files an appeal, and the District Judge that had invoked the Daubert Doctrine to prevent the declaration in the legal process of a supposed expert from the plaintiff. SQMNAcourt has resorted to writ of certiorari with the US Supreme Courtscheduled for this to unify the application of the Daubert Doctrine by the Courts of Appeals. This process has been suspended awaiting the resolution of such Supreme Court.hearings on May 2017.
Nominal value:ThUS$20,000

Not determined.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-142

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 19Contingencies and restrictions (continued)

18.5 Lawsuits and other relevant events, continued

4.3.   Plaintiff:City of Lindsay, California USAUSA.
DefendantDefendants:SQM North America Corporation
The lawsuit also was filed against Sociedad Química y
Minera de Chile S.A. this lawsuit has not yet been notified to the Company
Date:December 20102010.
Court:United States District Court Eastern District of CaliforniaCalifornia.   
Reason:Payment of expenses and other amount related too the treatment of groundwater to allow for consumption by removing the existing perchlorate in such groundwater and that supposedly come from Chilean fertilizer.
Status:Claim. Processing suspendedThe Jury rejected the lawsuit. The plaintiff files an appeal, and the court has scheduled for hearings on May 2017.
Nominal value:

Not possible to determinedetermined.

 F-148 
5. PlaintiffNotes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

:19.1María Angélica Alday FuentesLawsuits and other relevant events, continued

Defendant:Vladimir Roco Alvarez, Compass Catering S.A. and SQM S.A.
Date:August 2012
Court:1st Civil Court in Antofagasta
Reason:Compensation for moral damages for attempt to sexual abuse.
Status:Replay to claim.
Nominal value:ThUS$200
6.4.   Plaintiff:H&V Van Mele N.V.
DefendantDefendants:SQM Europe N.V. and its insurance companiescompanies.
Date:July 20132013.
Court:Commercial CourtCourt.
Reason:Alleged indirect responsibility for the absence of adequate specification for the SOP–WS by the Belgian distributordistributor.
Status:EvidenceEvidence.
Nominal value:ThUS$430
7.Plaintiff:E-CL S.A
Defendant:Sociedad Química y Minera de Chile S.A.
Date:September 2013
Court:Arbitration
Reason:Early termination of the Power Supply Contract entered into on February 12, 1999 (which matures in March 2016), on the basis of the alleged incompliance of a prior sentence between both parties that was resolved in favor of SQM S.A..
Status:Evidentiary stage
Nominal value:ThUS$5,100430.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-143

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 19Contingencies and restrictions (continued)

19.1 Lawsuits and other relevant events, continued

8 .5.   Plaintiff:Carlos Aravena Carrizo et al.
DefendantDefendants:SQM Nitratos S.A. and its insurersinsurers.
Date:May 20142014.
Court:18th Civil Court of Santiago   Commercial Court.
Reason:Compensation claim for alleged civil liability under tort as a result of aan explosion that occurred on September 6, 2010 near Baquedano, causing the death of 6 workers. Out of court settlements were agreed and executedwith the families of five of such workers.
Status:ClaimEvidence.
Nominal value:ThUS$8.200500.
   
9.6.   Plaintiff:Corporación de Fomento de la Producción (CORFO).
DefendantDefendants:SQM Salar S.A. and Sociedad Química y Minera de Chile S.A.
Date:May 20142014.
Court:Arbitral courtArbitration court.
Reason:Early termination of lease agreementLease Agreement entered into on November 12, 1993 maturing on December, 2030 -i- because offor (i) alleged noncompliance of thefailure in full payment of quarterly income relatedrental payments linked to certain products between 2009-2013during the period 2009–2013 and -ii- and(ii) alleged lackabsence of demarcation of certain mining properties owned by CORFO forCorfo which such agency never demarcated with respect to which never requested a demarcation was never required in such agreement,Agreement and in addition,also seeking compensation for damages.damages among other matters.
Status:SettlementEvidence.
Nominal value:ThUS$9,000
10Plaintiff:Evt Consulting SpA
Defendant:SQM Nitratos S.A.
Date:October 2014
Court:23th Civil Court of Santiago   
Reason:Claim requesting compensation for damages for purchase and sale of metallic structures contract termination.
Status:Rejoinder
Nominal value:ThUS$8359,000.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-144F-149

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 19Contingencies and restrictions (continued)

Note 19   Contingencies and restrictions (continued)

 

19.1Lawsuits and other relevant events, continued

7.   Plaintiff:CORFO
Defendants:SQM Salar S.A, SQM Potasio S.A. and SQM S.A.
Date:August 2016.
Court:Arbitration Court- Arbitrator Mr. Héctor Humeres.
Reason:

Project early termination entered on November

12, 1993 and other related contracts among other matters involving compensation for damages.

Status:Deliberation stage finished. Through resolution of January 24, 2017, the Court ordered accumulating this case with the case reported in No. 6 above.
Nominal value:Not determined.

8.   Plaintiff:SQM Salar S.A and SQM S.A.
Defendants:CORFO
Date:September 28, 2016.
Court:Arbitration Court- Arbitrator Mr. Héctor Humeres.
Reason:Declaratory action to seek determination whether rent payments made by SQM Salar S.A. under the Lease Agreement entered into on November 12, 1993, have been in accordance with the agreement entered into by the parties and the rent formula applied has been useful for CORFO.
Status:Deliberation stage finished. Through resolution of January 24, 2017, the Court ordered accumulating this case with the case reported in No. 6 above.
Nominal value:Not yet defined.

9.   Plaintiff:Evt Consulting SpA.
Defendants:SQM Nitratos S.A.
Date:October 2014.
Court:23th Civil Court of Santiago.
Reason:Lawsuit seeking compensation for damages related to the termination of the purchase and sale agreement for metallic structures.
Status:Judgment of December 15, 2016 final judgment, absolving SQM Nitratos S.A. of the payment of compensation. An appeal and appeal in cassation was filed by the plaintiff and an appeal was filed by SQM Nitratos S.A.
Nominal value:ThUS$835

F-150
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.1Lawsuits and other relevant events, continued

10. Plaintiff:Hugo Gutiérrez Gálvez
Defendants:Sociedad Química y Minera de Chile S.A. et al and Senators Jaime Orpis B. and Fulvio Rossi C.
Date:July 2015.
Court:8th Supervisory Court in Preliminary Proceedings of Santiago, Chile
Reason:Alleged extortion–bribery and money laundering under Law No. 20.393 on the Legal Responsibility of Juridical Persons and other standards.
Status:Initial filing.
Nominal value:None.

11. Plaintiff:Patricio Contesse G.
Defendants:SQM S.A.
Date:September 2015
Court:First Labor Court of Santiago.
Reason:Seeking the payment of severance indemnities and other employment termination benefits.
Status:On March 27, 2017, the Company reached an agreement with Mr. Contesse to terminate the labor lawsuit Mr. Contesse filed against the Company.
Nominal value:ThUS$5,665.

12. Plaintiff:

SQMS and SQM S.A.

Defendants:RSA Seguros Chile S.A.
Date:In August 2016.
Court:Arbitration Court – Arbitrator Mr. Gonzalo Fernández.
Reason:Complaint for forced compliance and collection of indemnification for insurance claim of February 7 and 8, 2013.
Status:Deliberation stage finished
Nominal value:US$20,657,860.

F-151
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.1Lawsuits and other relevant events, continued

13. Plaintiff:Tyne and Wear Pension Fund as represented by the Council of the Borough of South Tyneside acting as Lead Plaintiff – Class Action – Class Period.
Defendants:Sociedad Química y Minera de Chile S.A.
Date:January 2016.
Court:United States District Court – Southern District of New York.
Reason:Class Actions – Class Period. SQM would have not reported properly to the US Securities and Exchange Commission on certain expenses made during certain years which could be associated with alleged contributions to politicians. Such expenses would not have the related supporting documentation for being substantiated as necessary to generate income and this would have generated the intervention by several Chilean Government authorities – the Chilean Superintendence of Securities and Insurance (SVS), the Chilean Internal Revenue Service and Public Ministry – and the decrease of the value of the shares –ADS’s of SQM owned by the plaintiffs.
Status:On March 28, 2017, the district court issued an opinion and order denying in part and granting in part the motion to dismiss.
14. Plaintiff:Thorco Shipping A/S
Defendants:Sociedad Química y Minera de Chile S.A.
Date:January 2015.
Court:Arbitration court – London Maritime Arbitrators' Association.
Reason:Lawsuit seeking compensation for damages alleging a freight agreement breach.
Status:On January 31, 2017, the Company was ordered to pay US$247,845. The Company has filed an appeal against such judgment.
Nominal value:ThUS$325

F-152
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.1Lawsuits and other relevant events, continued

15. Plaintiff:Ernesto Saldaña González et al.
Defendants:SQM Salar S.A., SQM Industrial S.A. and their insurance companies.
Date:May 2016.
Court:13th Civil Court of Santiago.
Reason:Lawsuit seeking compensation for damages for alleged civil liability under tort law arising from the accident occurred on July 21, 2014 to Mr. Marco Antonio Saldaña González while he was repairing a truck of a contractor in the María Elena location which resulted in his death when a portion of the truck’s structure fell down on him.
Status:Evidentiary stage.
Nominal value:ThUS$515.

16. Plaintiff:María Yolanda Achiardi Tapia et al.
Defendants:SQM Salar S.A. and its insurance companies and other 5 defendants
Date:February 2015.
Court:1st Civil Court of Antofagasta.
Reason:Lawsuit seeking compensation for damages for the alleged civil liability in tort law arising from a traffic accident occurred in April 20, 2011 in the city of Antofagasta, caused by a bus subcontracted by a Contractor, resulting in the death of three people travelling in a light vehicle which was collided by the bus.
Status:The lawsuit has not been served to one of the defendants.
Nominal value:ThUS$1,265.

17. Plaintiff:SQM
Defendants:AES Gener S.A. y Empresa Eléctrica Cochrane S.A.
Date:April 2017
Court:Arbitration Panel
Reason:Lawsuit seeking the declaration from the arbitration panel with respect to the non-compliance by defendants of the requirements under the power purchase agreement to charge SQM the costs of the so called green tax under Law. 20.780.
Status:SQM has asked for the constitution of the arbitral panel. Claim has to be filed during May 2017.
Nominal value:Undetermined.

F-153
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.1Lawsuits and other relevant events, continued

18. Plaintiff:

AES Gener S.A. and Empresa Eléctrica Cochrane S.A.

Defendants:SQM
Date:April 2017
Court:Arbitration Panel
Reason:Lawsuit to solve differences in the amount to be charged by plaintiffs to SQM in connection a change of law provision contained in the power purchase agreement, with respect to the so called green tax under Law. 20.780.
Status:Plaintiffs has asked for the constitution of the arbitral panel.
Nominal value:Undetermined.
19. Plaintiff:Union No. 2 SQM Nueva Victoria
Defendants:SQM Nitratos S.A.
Date:November 2016
Court:Iquique Labor Court
Reason:The Union claims SQM miscalculated the formula of the incentive bonus to be paid under the current collective agreement between SQM and the Union.
Status:Discussion period
Nominal value:ThUS$385.

 

The Company and its subsidiaries have been involved and will probably continue to be involved either as plaintiffs or defendants in certain judicial proceedings that have been and will be heard by the ArbitralArbitration or Ordinary Courts of Justice that will make the final decision. Those proceedings that are regulated by the appropriate legal regulations are intended to exercise or oppose certain actions or exceptions related to certain mining claims either granted or to be granted and that do not or will not affect in an essential manner the development of the Company and its subsidiaries.

 

Soquimich Comercial S.A. has been involved and will probably continue being involved either as plaintiff or defendant in certain judicial proceedings through which it intends to collect and receive the amounts owed, the total nominal value of which is approximately ThUS$700.1,200.

 

The Company has made efforts and continues making efforts to obtain payment of certain amounts that are still owed it on occasion of their activities. Such amounts will continue to be required using judicial or non-judicial means by the plaintiffs, and the actions and exercise related to these are currently in full force and effect.

 

The Company and its subsidiaries have not received no legal notice of any claimson lawsuits other than those mentioned in paragraph I above. The claims detailedindicated above, seek to annul certain mining claims that were purchased by SQM S.A. and Subsidiaries, the proportional purchase value of which, with respect to the portion affected by the superimposition, exceeds the nominal and approximate amount of ThUS$150. The claims seek payment of certain amounts allegedly owed by the Company due to its own activities, which exceed the approximate, nominal and individual amount of ThUS$150.200.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-145F-154

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 19   Contingencies and restrictions (continued)

 

Note 19Contingencies and restrictions (continued)

19.2Restrictions to management or financial limits

 

Credit contracts subscribed by the SQM Group with domestic and foreign banks and the issuance of bonuses in the local and international market require that the Company comply with the following level of consolidated financial indicators, calculated for a moving period which considers the last twelve months:

 

-To maintain a minimum equity of ThUS$1,000,000.

-To maintain a Net Financial Debt toand EBITDA ratio not higher than 3 times.

-To maintain a totalTotal Indebtedness Ratio not higher than 1.2 times. The totaltimes Total Indebtedness Ratio islevel defined as the total liabilitiesTotal Liabilities ratio divided by total equity.Total Equity.

-To maintain a ratio between the financial debt of the operating subsidiaries SQM Industrial S.A. and SQM Salar S.A., or their respective legal successors,successor financial debt and the total Issuer’s total consolidated current assets not higher than 0.3 times.

 

As of December 31, 2014,2016, the aforementioned financial indicators are as follows:

 

Indicator 12/31/2014  12/31/2013  12/31/2016  12/31/2015 
Equity ThUS$  2,292,515   2,432,241   2,307,272   2,400,356 
Net Financial Debt/EBITDA  1.03   1.06 
Net Financial Debt/ EBITDA  0.58   0.73 
Indebtedness  1.03   0.96   0.83   0.93 
SQM Industrial and SQM Salar debt/Current assets  0.02   0.02 
SQM Industrial and SQM Salar debt / Current assets  0.02   0.01 

 

Issuance contracts for bondsbonuses issued abroad does not require that the Company merge or dispose at any title the asset as a whole or as a substantial part of it, unless the following copulative conditions are met: (i) the legal successor company is an entity subject to Chilean or American laws, and assumes under a complimentary contract the Company’s obligations, (ii) the Issuer does not fail to comply immediately after the merge or disposal, and (iii) the Issuer delivers a legal opinion stating the merge or disposal and the complimentary contract meet the requirements described in the original contract.

 

In addition, SQM S.A. is committed to disclose financial information on quarterly basis.

 

The Company and its subsidiaries have complied and are fully complying with all aforementioned limitations, restrictions and obligations.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-146F-155

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 19   Contingencies and restrictions (continued)

 

Note 19Contingencies and restrictions (continued)

19.3CommitmentsArbitration proceedings with CORFO

 

The subsidiary SQM Salar S.A. (SQMS) has signed a rental contract with the Economic Development Agency (CORFO), which establishes that the subsidiary will pay rent to CORFO for the concept of commercialization of certain mining properties owned by CORFO and for the products resulting from the commercialization. The annual rent stated in the aforementioned contract is calculated on the basis of sales of each type of product. The contract is in force until 2030, and rent began being paid in 1996 reflecting an expense amount of ThUS$ 21,07041,962 as of December 31, 20142016 (ThUS$ 22,88523,155 as of December 31, 2013)2015).

 

On 15 November 2013, Corporación de Fomento de la Producción (CORFO) sent a letter to SQM Salar S.A. (SQMS)SQMS stating its intention to a) collect the amount of Ch$2,530,298,919 (ThUS$4,823) that in CORFO’s opinion, SQMS would owe to it for the calculation and payment of rental payments according to the “Lease Agreement of OMA Mining Claims located in the Salar de Atacama”Atacama Salt Flat” entered into between CORFO and SQMS on November 12, 1993 (the AGREEMENT) and b) require the constitution of an instance of arbitragearbitration stated in the AGREEMENT with the purpose that the arbitrator appointed by the “Arbitration Center of the Santiago Chamber of Commerce” determines if other alleged lease payment obligations may exist that SQMS could owe to CORFO under the AGREEMENT.

During May 2014, CORFO filed a lawsuit against SQMS requesting the early termination of the agreement and other requests explained in Note 19.1. Such lawsuit is currently being processed.

SQMS differs completely form CORFO’s claims. In fact, the AGREEMENT has been in force for more than 20 years and during all this time, SQMS has paid to CORFO more than 80 quarterly payments in their entirety and on a timely basis that CORFO has received satisfactorily. Each

In our legal advisors’ opinion, there are no legal grounds to early terminate the lease agreement as –i- noncompliance on which the lawsuit is based do not exist and, if any, -ii- these are not gross or essential or hinder the purpose of the parties,agreement –iii- the company has never had the intention of deceiving and has always been fully transparent in providing the information delivered. On the contrary, the conflict solely corresponds to a discussion on the right formula to calculate the rent amount.

The total amount finally requested by CORFO was at least US$8,940,829 – plus interests and costs – and the arbitration proceeding is close to the end of the evidentiary stage. CORFO and SQMS have requested the formation of an appropriate arbitration and such processes have not yet began.

CORFO’s total claimed amount is of at least US$8,940,829 - plus interest and expenses. The SQM Salar S.A. v. CORFO, and CORFO v. SQM Salar S.A. lawsuits have been compiled into a single proceeding which is soon to reach the evidence stage. CORFO and SQM waived all appeal proceduresrecourses against the arbitrator’s sentence.judgment provided by the arbitrator. However, it is not possible to rule outdiscard the filing of a newcomplaint appeal against a complaint proceeding or extraordinaryan appeal arbitration ruling due toin cassation alleging incompetence or ultra petita invokingand indicating the jurisprudence of the courts of justice, indicatingconsidering that both appealsrecourses cannot be waived.

 

On August 17, 2016, CORFO noticed a new arbitration claim filed against SQM Potasio S.A., SQM S.A. and SQMS, by virtue of which it required the early termination of the Project Contract entered on November 12, 1993 and other related contracts among other matters.

F-156
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.3Arbitration proceedings with CORFO, continued

In addition, on September 28, 2016, SQM and SQMS. have file a request for a third arbitration with CORFO. Through this last arbitration, SQM. and SQMS expect to obtain a declaratory action determining that in the payment of the rent payments made under the lease agreement for the agreement’s term, there has been no damage for CORFO. Such arbitration is at the deliberation stage.

During 2014, revenuesthe period ended December 31, 2016, income related to products from the Salar de Atacama saltpeter deposit represented 39.3%a 47.42% of total consolidated revenuescomprehensive income of the Company for the same period. This corresponds to revenues fromincome considered in the Potassium and Lithium product business lines.

 

Additionally, during the same period, SQM Salar, a SQM subsidiary which operates plants located in the Atacama saltpeter deposit,SQMS sold potassium salts (sylvinite) and moistwet potassium chloride amounting tofor a total of ThUS$88,87296,037 to SQM Industrial S.A., a subsidiary of SQM subsidiary, to usebe used as supplies in the production of potassium nitrate.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

19.4Environmental contingencies

On June 6, 2016, The Chilean Superintendence of the Environment filed charges against SQM with respect to the Pampa Hermosa project for possible noncompliance with RCA 890/2010.

This relates to charges associated with certain variables in the Follow-up Plan and the implementation of a mitigation action contemplated in the related Environmental Impact Study. SQM has submitted a compliance program detailing the actions and commitments that the Company will perform to overcome the objections filed by the environmental authority. The Chilean Superintendence of the Environment is currently reviewing such compliance program.

Through Exempt Resolution No. 1/Journal F-041-2016 of November 28, 2016 as amended through Exempt Resolution No. 4/Journal F-041-2016 of December 23, 2016, the Chilean Superintendence of the Environment presented charges against SQMS for the extraction of brine over the authorized amount, gradual impact on the vitality status of carob trees, delivery of incomplete information, amendment of variables, among others. SQMS has submitted a compliance program detailing the actions and commitments that the Company will perform to try to overcome the objections presented by the environmental authority. The Chilean Superintendence of the Environment is currently reviewing such compliance program.

Should the Chilean Superintendence of the Environment reject any of the aforementioned compliance programs, the Company is exposed to fines and other sanctions established in the Chilean environmental legislation.

F-147F-157

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 19   Contingencies and restrictions (continued)

 

Note 1919.5Contingencies and restrictions (continued)Tax contingency

During 2015, SQM and its subsidiaries SQM Salar and SQM Industrial have submitted to the Chilean IRS four tax amendments (two by SQM, one by SQM Salar and one by SQM Industrial).

The first two (one filed by SQM and another filed by SQM Salar), subsequent to being approved by the Chilean IRS generated payments of taxes, interests and other charges for ThUS$8,100, which was recorded in a provision in the results for the first quarter of 2015.

Additionally, during August 2015, the Company provided to the Chilean IRS for review and approval, the documentation required to amend the annual income tax returns of SQM and SQM Industrial. SQM believes that as a result of these amendments the Company will have to pay approximately US$1.4 million for the concept of taxes, interests and other charges, such amount was recorded in a provision in the results for the second quarter of 2015.

Finally, during 2016, the last 12 invoices were amended with approximate payment of US$50 thousand.

Accordingly, SQM and its subsidiaries understand the internal analysis they have been performing has ended, the purpose of which was the identification of the expenses incurred by them during the commercial years 2008 to 2014 and which could be a matter of tax amendment.

Because of the aforementioned amendments, SQM, SQM Salar and SQM Industrial might be affected by additional penalty established in article 97 No. 4, of the Tax Code. The Company has currently not estimated making any provisions related to this possible additional penalty.

On August 28, 2015, the Chilean IRS sent to SQM a request for payment of taxes of US$8.7 million plus interests and fines related to the tax difference resulting from the application of articles 64 Bis and 64 Ter of the Chilean Income Tax Law. On September 9, 2015, SQM filed a Request for Voluntary Administrative Reconsideration with the Chilean IRS, which was not accepted. As a result, the Company paid the amounts as requested totaling US$14.6 million, and reserved its right to file a tax claim against the request for payment by the Chilean IRS with the Courts of Justice.

Based on the opinion of the tax lawyers, management believes grounds exist to believe this case will be resolved in favor of the Company and, as such, no provisions have been made with respect to this case.

On August 26, 2016, SQM Salar filed with the Third Tax and Customs Court of the Metropolitan Region of Chile a tax claim against tax assessments Nos. 169, 170, 171 and 172, seeking to extend the application of the Specific Tax on Mining Activities to the exploitation of lithium. The amount involved is approximately ThUS$17,809. The tax claim is at the deliberation stage.

On December 7, 2016, the Chilean Internal Revenue Service (Servicio de Impuestos Internos (SII)) through notice No.1587-16 communicated to SQMS the outcome of its inspections of Income Taxes for the tax years 2015 and 2016, through Resolution No.156 / 2016 and tax assessment No. 207, respectively. As a result, the Company paid the amounts as requested totaling US$13.2 million, and reserved its right to file a tax claim against the request for payment by the Chilean IRS with the Courts of Justice.

On March 24, 2017, SQM Salar filed with the Third Tax and Customs Court of the Metropolitan Region of Chile a tax claim against the mentioned Resolution No.156 / 2016.

F-158
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

 

19.419.6Restricted or pledged cash

 

The subsidiary Isapre Norte Grande Ltda., in compliance with that established by the Chilean Superintendence of Healthcare which regulates the running of pension-related health institutions, maintains a guarantee in financial instruments delivered in deposits, custody and administration to Banco de Chile.

 

This guarantee, according to the regulations issued by the Chilean Superintendence of Healthcare is equivalent to the total sum owed to its members and medical providers Banco de Chile reports the present value of the guarantee to the Chilean Superintendence of Healthcare and Isapre Norte Grande Ltda. on a daily basis. As of December 31, 2014,2016, the guarantee amounts to ThUS$682.685.

 

SQM S.A. maintains funds with Morgan Stanley for margin call,the concept of Marging Call, which provide collateral for the exposure by the bank with respect toBank’s exposition towards the Company.

 

Such collateral hedges the fair value of the Cross Currency Swap that SQM SAS.A. has entered into to hedge a portion of the Series H Bond.

 

Through the present date, SQM S.A. has delivered ThUS$ 3,2503,810 to Morgan Stanley, which will be released when oneany of the following conditions occurs:occur:

 

1.The market value of the Cross Currency Swap is lower than the sum of that delivered ThUS$ 3,2503,810 and the collateral threshold ThUS$5,000.
2.The Cross Currency Swap associated with the H Series H Bond expires on January 5, 2018.

 

SQM S.A. maintains funds with BCI for the concept of margin call, which provide collateral for the Bank’s exposition towards the Company.

Such collateral hedges the fair value of the Cross Currency Swap that SQM S.A. has to hedge the Series H Bond.

Through the present date, SQM S.A. has delivered ThUS$0 to BCI, which will be released when any of the following conditions occur:

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

1.The market value of the Cross Currency Swap of the last business day of the month is lower than the sum of that delivered ThUS$0 and the collateral threshold ThUS$10,000.
2.The Cross Currency Swap associated with the H Series Bond expires on January 5, 2018.

F-148F-159

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 19   Contingencies and restrictions (continued)

 

Note 19Contingencies and restrictions (continued)

19.519.7Securities obtained from third parties

 

The main security received (exceeding ThUS$100) from third parties to guarantee Soquimich Comercial S.A.’s compliance with obligations in contracts of commercial mandates for the distribution and sale of fertilizers amounted to ThUS$9,1766,984 and ThUS$14,1786,445 on December 31, 20142016 and December 31, 20132015 respectively; which is detailed as follows:

 

Grantor Relationship 12/31/2016 12/31/2015 
   12/31/2014 12/31/2013    ThUS$ ThUS$ 
Grantor Relationship ThUS$ ThUS$ 
       
Tattersall Agroinsumos S.A. Unrelated third party  2,000   2,000 
Contador Frutos S.A. Unrelated third party  1,574   1,443 
Agrícola Lobert Ltda. Unrelated third party  837   1,271  Unrelated third party  1,141   760 
Agroc Patricio Bornand L. Eirl Unrelated third party  363   392 
Agrocomercial Bornand Ltda. Unrelated third party  -   344 
Agroindustrial Orzonaga Ltda. Unrelated third party  -   133 
Bernardo Guzman Schmidt Unrelated third party  129   139 
Bioleche Comercial Ltda. Unrelated third party  -   3,431 
Comercial Agrosal Ltda. Unrelated third party  108   116 
Contador Frutos S.A. Unrelated third party  1,623   1,447 
Llanos Y Wannes Soc. Com. Ltda Unrelated third party  1,633   953 
Dante Hauri Gomez Unrelated third party  109   126 
Gilberto Rivas Y Cia. Ltda. Unrelated third party  129   136 
Hortofruticola La Serena Unrelated third party  301   323 
Jose Antonio Gonzalez Unrelated third party  -   118 
Covepa SPA Unrelated third party  747   780 
Johannes Epple Davanzo Unrelated third party  691   935  Unrelated third party  333   451 
Juan Luis Gaete Chesta Unrelated third party  266   425  Unrelated third party  241   227 
Arena Fertilizantes y Semillas Unrelated third party  224   211 
Vicente Oyarce Castro Unrelated third party  220   202 
Soc. Agrocom. Julio Polanco Unrelated third party  149   141 
Bernardo Guzmán Schmidt Unrelated third party  125   115 
Gilberto Rivas Y Cia. Ltda. Unrelated third party  125   115 
Agroc Patricio Bornand L.Eirl Unreleated third party  -   322 
Hortofruticola La Serena Unreleated third party  -   267 
Lemp Martin Julian Unrelated third party  115   124  Unreleated third party  -   103 
Neyib Farran Y Cia. Ltda. Unrelated third party  124   133 
Patricio Meneses Saglieto Unrelated third party  -   953 
Sebastian Urrutia Araya Unrelated third party  117   116 
Soc.Agr. Huifquenco Cia Ltda. Unrelated third party  108   117 
Soc. Agrocom. Julio Polanco Unrelated third party  296   132 
Tattersall Agroinsumos S.A. Unrelated third party  2,000   1,789 
Vicente Oyarce Castro Unrelated third party  227   525 
Comercial Agrosal Ltda. Unrelated third party  105   - 
Total    9,176   14,178     6,984   7,137 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-149F-160

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 19   Contingencies and restrictions (continued)

 

Note 1919.8Contingencies and restrictions (continued)Indirect guarantees

19.6 Indirect guarantees

 

Guarantees in which there is no pending balance indirectly reflect that the respective guarantees are in force and approved by the Company'sCompany’s Board of Directors and have not been used by the respective subsidiary.

 

The bonds which disclose a balance as of December 31, 2016 and December 31, 2015 are detailed below:

 DebtorBalances as of the closing
date of the financial
statements
Creditor of the guaranteeNameRelationshipType of
guarantee

12/31/2016

ThUS$

  Balances as of the
closing date of the
financial statements
Type of

12/31/2014

12/31/2013
Creditor of the guaranteeNameRelationshipguarantee2015

ThUS$

ThUS$

 
Australian and New Zealand Bank SQM North America Corp Subsidiary Bond -  - 
Australian and New Zealand Bank SQM Europe N.V. Subsidiary Bond -  - 
Generale Bank SQM North America Corp Subsidiary Bond -  - 
Generale Bank SQM Europe N.V. Subsidiary Bond -  - 
Kredietbank SQM North America Corp Subsidiary Bond -  - 
Kredietbank SQM Europe N.V. Subsidiary Bond -  - 
Banks and financial institutions SQM Investment Corp. N.V. Subsidiary Bond -  - 
Banks and financial institutions SQM Europe N.V. Subsidiary Bond -  - 
Banks and financial institutions SQM North America Corp Subsidiary Bond -  - 
Banks and financial institutions Nitratos Naturais do Chile Ltda. Subsidiary Bond -  - 
Banks and financial institutions SQM México S.A. de C.V. Subsidiary Bond -  - 
Banks and financial institutions SQM Brasil Ltda. Subsidiary Bond -  - 
“BNP” SQM Investment Corp. N.V. Subsidiary Bond -  - 
Sociedad Nacional de Mineria A.G. SQM Potasio S.A. Subsidiary Bond --
Scotiabank & Trust (Cayman) Ltd.Royal Seed Trading A.V.V.SubsidiaryBond--
Scotiabank & Trust (Cayman) Ltd.Royal Seed Trading A.V.V.SubsidiaryBond--
Bank of AmericaRoyal Seed Trading A.V.V.SubsidiaryBond -   40,137
Export Development CanadaRoyal Seed Trading A.V.V.SubsidiaryBond-20,010
The Bank of Tokyo-Mitsubishi UFJ Ltd.Royal Seed Trading A.V.V.SubsidiaryBond-20,052 
JP Morgan Chase Bank SQM Industrial S.A. Subsidiary Bond  -   - 
The Bank of Nova ScotiaSQM Investment Corp. N.V.SubsidiaryBond--

F-161
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 19   Contingencies and restrictions (continued)

19.8Indirect guarantees, continued

DebtorPending balances as of the
closing date of the financial
statements
Creditor of the guaranteeNameRelationshipType of
guarantee

12/31/2016

ThUS$

12/31/2015

ThUS$

Credit Suisse International SQM Investment Corp. N.V. Subsidiary Bond  -   - 
Morgan Stanley Capital Services SQM Investment Corp. N.V. Subsidiary Bond  -   - 
The Bank of Tokyo-Mitsubishi UFJ Ltd. SQM Investment Corp. N.V. Subsidiary Bond  -   - 
HSBC SQM Investment Corp. N.V. Subsidiary Bond  -   - 
Deutsche Bank AG SQM Investment Corp. N.V. Subsidiary Bond  -   - 

Credit Suisse International SQM Investment Corp. N.V.F-162 SubsidiaryBond--

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-150

 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 19Contingencies and restrictions (continued)

19.6Indirect guarantees, continued

The bonds which disclose a balance as of December 31, 2014 and December 31, 2013 are detailed below:

  Debtor   Pending balances as of
the closing date of the
financial statements
 
Creditor of the guarantee Name Relationship Type of
guarantee
 12/31/2014
ThUS$
  12/31/2013
ThUS$
 
Scotiabank & Trust (Cayman) Ltd. Royal Seed Trading A.V.V. Subsidiary Bond  -   50,189 
Scotiabank & Trust (Cayman) Ltd. Royal Seed Trading A.V.V. Subsidiary Bond  50,137   50,139 
Bank of America Royal Seed Trading A.V.V. Subsidiary Bond  40,117   40,120 
Export Development Canada Royal Seed Trading A.V.V. Subsidiary Bond  40,012   50,014 
The Bank of Tokyo-Mitsubishi UFJ Ltd. Royal Seed Trading A.V.V. Subsidiary Bond  40,084   50,108 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-151
2016

 

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 20   Revenue

Note 20Revenue

 

As of December 31, 20142016, 2015 and 2013,2014, revenue is detailed as follows:

 

Types of revenue 12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Sales of goods  2,006,452   2,191,650   2,420,357 
Provision of services  7,762   11,490   8,803 
Total  2,014,214   2,203,140   2,429,160 

  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Products  1,933,828   1,721,064   2,006,452 
Services  5,494   7,268   7,762 
Total  1,939,322   1,728,332   2,014,214 
Note 21Earnings per share

Note 21   Earnings per share

 

Basic earnings per share are calculated by dividing net income attributable to the Company’s shareholders by the weighted average of the number of shares in circulation during that period.

 

As expressed, earnings per share are detailed as follows:

 

Basic earnings per share 12/31/2014
ThUS$
 12/31/2013
ThUS$
 12/31/2012
ThUS$
  

12/31/2016

ThUS$

 

12/31/2015

ThUS$

 

12/31/2014

ThUS$

 
              
Earnings (losses) attributable to owners of the parent  236,889   467,113   649,167   278,290   220,356   236,889 

 

  12/31/2014
Units
  12/31/2013
Units
  12/31/2012
Units
 
Number of common shares in circulation  263,196,524   263,196,524   263,196,524 
  

12/31/2016

Units

  

12/31/2015

Units

  

12/31/2014

Units

 
          
Number of common shares in circulation  263,196,524   263,196,524   263,196,524 

 

  12/31/2014  12/31/2013  12/31/2012 
          
Basic earnings per share (US$ per share)  0.90   1.77   2.47 
  12/31/2016  

12/31/2015

  12/31/2014 
          
Basic earnings per share (US$ per share)  1.0573   0.84   0.90 

 

The Company hasdoes not madehave any operations with a potential dilutive effect that assumes diluted earnings per share are different from the basic earnings per share.shares.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-152F-163

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 22Borrowing costs

Note 22   Borrowing costs

 

The cost of interest is recognized as expenses in the year in which it is incurred, except for interest that is directly related to the acquisition and construction of tangible property, plant and equipment assets and that complies with the requirements of IAS 23. As of December 31, 2014,2016, total interest expenses incurred amount to ThUS$63,37357,459 (ThUS$58,60869,853 as of December 31, 2013) and ThUS$ 54,095 as of December 31, 2012.2015).

22.1Costs of capitalized interest, property, plant and equipment

 

The Company capitalizes all interest costs directly related to the construction or to the acquisition of property, plant and equipment, which require a substantial time to be suitable for use.

22.1Costs of capitalized interest, property, plant and equipment

 

The cost of capitalized interest is determined by applying the average or weighted average of all financing costs incurred by the Company to the monthly end balances of works-in-progress meeting the requirements of IAS 23.

 

The rates and costs for capitalized interest of property, plant and equipment are detailed as follows:

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
          
Capitalization rate of costs for capitalized interest, property, plant and equipment  7%  7%  4%  5%
                
Amount of costs for interest capitalized in ThUS$  7,732   17,232   5,406   4,666 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-153F-164

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 23Effect of fluctuations on foreign currency exchange rates

Note 23   Effect of fluctuations on foreign currency exchange rates

 

a)Foreign currency exchange differences recognized in profit or loss except for financial instruments measured at fair value through profit or loss:and other comprehensive income:

 

  12/31/2014
ThUS$
  12/31/2013
ThUS$
  12/31/2012
ThUS$
 
          
Conversion foreign exchange gains (losses) recognized in the result of the year.  (16,545)  (11,954)  (26,787)
Conversion foreign exchange reserves attributable to the owners of the controlling entity  (3,884)  (3,487)  921 
             
Conversion foreign exchange reserves attributable to the non-controlling entity  (132)  (72)  61 
  

12/31/2016

ThUS$

  

12/31/2015

ThUS$

  

12/31/2014

ThUS$

 
          
Conversion foreign exchange gains (losses) recognized in profit or loss.  460   (12,364)  (16,545)
             
Conversion foreign exchange as other comprehensive income attributable to the owners of the controlling entity  (5,428)  (6,334)  (3,884)
             
Conversion foreign exchange as other comprehensive income attributable to the non-controlling entity  35   (165)  (132)

 

b)Reserves for foreign currency exchange differences:differences (balance):

 

As of December 31, 2014,2016, and December 31, 2013,2015, foreign currency exchange differences are detailed as follows:

 

Detail 12/31/2014
ThUS$
 12/31/2013
ThUS$
 12/31/2012
ThUS$
  

12/31/2016

ThUS$

 

12/31/2015

ThUS$

 

12/31/2014

ThUS$

 
              
Changes in equity generated by conversion of equity value:                        
Comercial Hydro S.A.  1,004   1,004   1,004   1,004   1,004   1,004 
SQMC Internacional Ltda.  -   22   39   (13)  (20)  - 
Proinsa Ltda.  -   16   29   (10)  (15)  - 
Comercial Agrorama Ltda.  (31)  36   87   (69)  (100)  (31)
Isapre Norte Grande Ltda.  (91)  15   59   (124)  (155)  (91)
Almacenes y Depósitos Ltda.  42   69   99   47   (31)  42 
Sales de Magnesio Ltda.  2   103   209   (29)  (161)  2 
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.  (8)  9   20   (6)  (9)  (8)
Agrorama S.A.  (30)  (16)  (6)  (49)  (35)  (30)
Doktor Tarsa  (5,076)  (3,647)  (1,074)  (12,264)  (8,305)  (5,076)
SQM Vitas Fzco.  (1,084)  (657)  (318)
SQM Vitas Fzco  (1,801)  (2,245)  (1,084)
Ajay Europe  (809)  146   (275)  (1,935)  (1,731)  (809)
SQM Eastmed Turkey  (69)  (42)  (42)  (95)  (81)  (69)
Charlee SQM (Thailand) Co. Ltd.  (176)  (129)  (32)  (460)  (476)  (176)
Coromandel SQM India  (253)  (231)  (118)  (282)  (301)  (253)
SQM Italia SRL  (128)  89   28   (287)  (250)  (128)
SQM Oceanía Pty Ltd.  (634)  (619)  (39)
SQM Oceania Pty Ltd.  (634)  (634)  (634)
SQM Indonesia S.A.  (123)  15   -   (124)  (123)  (123)
Abu Dhabi Fertillizers Industries WWL.  20   -   - 
Abu Dhabi Fertilizers Industries WWL.  (434)  21   20 
SQM Vitas Holland  (189)  -   -   (280)  (320)  (189)
SQM Thailand Limited  (68)  -   -   (68)  (68)  (68)
SQM Europe N.V.  (1,550)  -   - 
Total  (7,701)  (3,817)  (330)  (19,463)  (14,035)  (7,701)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-154F-165

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 23Effect of fluctuations on foreign currency exchange rates (continued)

Note 23   Effect of fluctuations on foreign currency exchange rates (continued)

 

c)Functional and presentation currency

 

The functional currency in these companies corresponds to the currency of the country of origin of each entity, and its presentation currency is the U.S. dollar.

 

d)Reasons to use one presentation currency and a different functional currency

 

-The total revenues of these subsidiaries are associated with the local currency.

-The commercialization cost structure of these companies is affected by the local currency.

-The equities of these companies are expressed in local currency (Chilean peso).

Note 24Environment

24.1Disclosures of disbursements related to the environment

The Company is continuously concerned with protecting the environment both in its production processes and with respect to products manufactured. This commitment is supported by the principles indicated in the Company’s Sustainable Development Policy. The Company is currently operating under an Environmental Management System (EMS) that has allowed it to strengthen its environmental performance through the effective application of the Company’s Sustainable Development Policy.

Operations that use caliche as a raw material are carried out in desert areas with climatic conditions that are favorable for drying solids and evaporating liquids using solar energy. Operations involving the open-pit extraction of minerals, due to their low waste-to-mineral ratio, generate remaining deposits that slightly alter the environment. A portion of the ore extracted is crushed, a process in which particle emissions occur. Currently this operation is conducted only at the Pedro de Valdivia worksite and no ore crushing process is conducted in the María Elena sector.

Many of the Company’s products are shipped in bulk at the Port of Tocopilla. In 2007, the city of Tocopilla was declared a zone saturated with MP10 Particles mainly due to the emissions from the electric power plants that operate in that city. In October 2010, the Decontamination Plan for Tocopilla was put in place. Accordingly, the Company has committed to taking several measures to mitigate the effects derived from bulk product movements in the port. These measures have been successfully implemented since 2007.

The Company carries out environmental follow-up and monitoring plans based on specialized scientific studies. Within this context, the Company entered into a contract with the National Forestry Corporation (CONAF) aimed at researching the activities of flamingo groups that live in the Salar de Atacama lagoons. Such research includes a population count of the birds, as well as breeding research. Environmental monitoring activities carried out by the Company at the Salar de Atacama and other systems in which it operates are supported by a number of studies that have integrated diverse scientific efforts from prestigious research centers, including Dictuc from the Pontificia Universidad Católica in Santiago and the School of Agricultural Science of the Universidad de Chile.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-155

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.1Disclosures of disbursements related to the environment, continued

Furthermore, within the framework of the environmental studies which the Company is conducting, the Company performs significant activities in relation to the recording of Pre-Columbian and historical cultural heritage, as well as the protection of heritage sites, in accordance with current Chilean laws. These activities have been especially performed in the areas surrounding Maria Elena and the Nueva Victoria plants. This effort is being accompanied by cultural initiatives within the community and the organization of exhibits in local and regional museums.

As emphasized in its Sustainable Development Policy, the Company strives to maintain positive relationships with the communities surrounding the locations in which it carries out its operations, as well as to participate in communities’ development by supporting joint projects and activities which help to improve the quality of life for residents. For this purpose, the Company has focused its efforts on activities involving the rescue of historical heritage, education and culture, as well as development.

In order to do so, it acts both individually and in conjunction with private and public entities.

24.2Detail of information on disbursements related to the environment

The accumulated disbursements in which the Company incurred as of December 31, 2014 for the concept of investments in production processes, verification and control of compliance with ordinances and laws relative to industrial processes and facilities, including prior year disbursements related to these projects amounted to ThUS$13,267 and are detailed as follows:

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-156

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Accumulated expenses as of 12/31/2014

Identification of the
Parent or subsidiary
Name of the project with which expenditure is
associated
Concept for which the expenditure was made
or will be made
Asset / ExpenseDescription of the
asset or expense
Item
Amount of
expenditure
Actual or
estimated date on
which
expenditure was
or will be made
MiscellaneousEnvironmental-operational areaNot classifiedExpenseNot classified1,70912/31/2014
SQM Industrial S.A.IQWZ - Normalization TK NV liquid fuelsSustainability: Environment and Risk PreventionAssetNot classified3112/01/2015
SQM Industrial S.A.MP5W - Normalization TK´s FuelsSustainability: Environment and Risk PreventionAssetNot classified2,51212/31/2015
SQM Industrial S.A.MQBM - Archaeological Digging Deployment Maria Elena - TocoSustainability: Environment and Risk PreventionExpenseNot classified2612/31/2014
SQM Industrial S.A.MQK2 – Elimination of PCBs ISustainability: Environment and Risk PreventionExpenseNot classified1712/31/2014
SQM Industrial S.A.PPZU - Standardize and Certify Plant Fuel TanksEnvironmental processingAssetNot classified2,70812/01/2015
SQM Industrial S.A.PQLV – Pedro de Valdivia mine site DIAEnvironmental processingAssetNot classified27112/01/2014
SQM Industrial S.A.TQA2 - Drainage Improvement Villa PratSustainability: Environment and Risk PreventionExpenseNot classified2212/31/2014
SQM Industrial S.A.PQXM – Elaboration DIA Operation with batteries in PVEnvironmental processingAssetNot classified11612/01/2014
SQM Industrial S.A.04-I0002 - Nueva Iris  TASSustainabilityAssetNot classified4712/31/2015
SQM S.A.IPFT - Cultural Heritage Region ISustainabilityExpenseNot classified17412/31/2014
SQM S.A.IQ1M - PSA Re-injection of water to Puquios LlamaraSustainability: Environment and Risk PreventionAssetNot classified2,44312/31/2014
SQM S.A.IQ3S- Hazardous Materials Management StandardizationSustainabilityAsset-ExpenseNot classified38512/31/2014
SQM S.A.IQOW- Deposit authorization for Humberstone heritageSustainability: Environment and Risk PreventionExpenseNot classified212/31/2014
SQM S.A.IQWS - Mine Area equity measures Stage IISustainability: Environment and Risk PreventionExpenseNot classified10210/31/2014
SQM S.A.IQX6 – Environmental management plan of Tamarugos Pampa del Tamarugal 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified51804/01/2015
SQM S.A.IQXB – Environmental management plan of Tamarugos Salar de Llamara 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified34404/01/2015
SQM S.A.I0042 – Mine are equity measures Stage IIISustainability: Environment and Risk PreventionExpenseNot classified14903/31/2015
SQM S.A.01-I0046 – Cultural heritage Pampa Hermosa 2014 – 2015SustainabilityExpenseNot classified1503/31/2016

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-157

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Accumulated expenses as of 12/31/2014, continued

Identification of the
Parent or subsidiary
Name of the project with which expenditure is
associated
Concept for which the expenditure was made
or will be made
Asset / ExpenseDescription of the
asset or expense
Item
Amount of
expenditure
Actual or
estimated date on
which
expenditure was
or will be made
SQM Salar S.A.LQDM – Certification of tanksSustainability: Replacement of equipmentAssetNot classified25612/31/2014
SQM Salar S.A.LQI6 - EIA Operating maintenance at Salar de AtacamaEnvironmental processingAssetNot classified67712/31/2015
SQM Salar S.A.LQXW – White waterEnvironmental processingAssetNot classified5512/31/2015
SQM Nitratos S.A.IQMH - Normalization Mine NV area operationSustainability: Environment and Risk PreventionAssetNot classified24612/31/2014
SIT S.A.TQQ5 - Environmental curtains Field No. 8Sustainability: Environment and Risk PreventionExpenseNot classified22106/30/2015
SIT S.A.03-T0013 – Improvement of sewerage system, Villa Prat 2014Sustainability: Environment and Risk PreventionExpenseNot classified11512/31/2014
SIT S.A.03-T0008 – Mobile belt protections 2, 5 and 7Sustainability: Environment and Risk PreventionExpenseNot classified10612/31/2014
Total13,267

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-158

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Future expenses as of 12/31/2014

Identification of the
Parent or subsidiary
Name of the project with which expenditure is
associated
Concept for which the expenditure was made
or will be made
Asset /
Expense
Description of
the asset or
expense Item
Amount of
expenditure
Actual or
estimated date on
which expenditure
was or will be
made
SQM Industrial S.A.IQWZ - Normalization TK NV liquid fuelsSustainability: Environment and Risk PreventionAssetNot classified40212/01/2015
SQM Industrial S.A.MP5W - Normalization TK´s FuelsSustainability: Environment and Risk PreventionAssetNot classified10112/31/2015
SQM Industrial S.A.MQBM - Archaeological Digging Deployment Maria Elena – TocoSustainability: Environment and Risk PreventionExpenseNot classified1212/31/2014
SQM Industrial S.A.MQK2 – Elimination of PCBs ISustainability: Environment and Risk PreventionExpenseNot classified3312/31/2014
SQM Industrial S.A.PPZU - Standardize and Certify Plant Fuel TanksEnvironmental processingAssetNot classified59612/01/2015
SQM Industrial S.A.PQXM - Elaboration DIA Operation with batteries in PVEnvironmental processingAssetNot classified18412/01/2014
SQM Industrial S.A.J0006 – NPT III boiler gas scrubbing systemSustainability: Environment and Risk PreventionAssetNot classified25003/31/2015
SQM Industrial S.A.I0002 – Nueva Iris TASSustainability and EnvironmentAssetNot classified1312/31/2015
SQM Industrial S.A.M0006 – Significant maintenance of ME town streets and ME garbage dumpsSustainabilityAssetNot classified9812/31/2015
SQM Industrial S.A.04-I0023 – Acquisition of leak detection equipmentSustainability: Environment and Risk PreventionAssetNot classified3503/31/2015
SQM S.A.IQWS - Mine Area equity measures Stage IISustainability: Environment and Risk PreventionExpenseNot classified410/31/2014
SQM S.A.IQX6 – Environmental management plan of Tamarugos Pampa del Tamarugal 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified20904/01/2015
SQM S.A.IQXB – Environmental management plan of Tamarugos Salar de Llamara 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified4104/01/2015
SQM S.A.I0032- Hazardous Materials StandardizationSustainabilityAssetNot classified10012/31/2015
SQM S.A.I0042 - Mine Area equity measures Stage IIISustainability: Environment and Risk PreventionExpenseNot classified13103/31/2015
SQM S.A.01-I0046 - Cultural heritage Pampa Hermosa 2014 – 2015SustainabilityExpenseNot classified503/31/2016
SQM S.A.01-IQWP - 01-J0011 - DIA Expansion of NV Mine ZoneEnvironmental processingExpenseNot classified2204/02/2016
SQM Salar S.A.LQI6 - EIA Operating maintenance at Salar de AtacamaEnvironmental processingAssetNot classified4812/31/2015
SIT S.A.TQQ5 - Environmental curtains Field No. 8Sustainability: Environment and Risk PreventionExpenseNot classified906/30/2015
Total2,293

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-159

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Accumulated expenses as of 12/31/2013

Identification of
the Parent or
subsidiary
Name of the project with which expenditure is associatedConcept for which the
expenditure was made or will
be made
Asset / ExpenseDescription of the
asset or expense
Item
Amount of
expenditure
Actual or estimated
date on which
expenditure was or
will be made
MiscellaneousEnvironmental-operational areaNot classifiedExpenseNot classified1,75312/31/2013
SQM Industrial S.A.CQLX – Hazardous waste yard  S Carmen and LagartoSustainabilityAsset/ExpenseNot classified9812/31/2012
SQM Industrial S.A.FP55 - FPXA-EIA Pampa Blanca ExpansionEnvironmental ProcessingAssetNot classified1,49312/30/2012
SQM Industrial S.A.IQWZ - Normalization TK NV liquid fuelsSustainability: Environment and Risk preventionAssetNot classified2404/01/2014
SQM Industrial S.A.JQ8K – DIA Line 4 Floor Drying, Coya SurEnvironmental ProcessingAssetNot classified3209/01/2012
SQM Industrial S.A.JQB6 - DIA Plant NPT4, Coya SurEnvironmental ProcessingAssetNot classified8404/30/2012
SQM Industrial S.A.JQH9 – Purchase of Bertrams BoilerSustainability: Environment and Risk preventionAssetDevelopment61208/01/2013
SQM Industrial S.A.MNYS - Measures of Technological Change Cultural Heritage Dissemination Maria ElenaEnvironmental ProcessingExpenseNot classified3712/31/2012
SQM Industrial S.A.MP5W - Normalization TK´s FuelsSustainability: Environment and Risk preventionAssetNot classified2,11406/30/2008
SQM Industrial S.A.MPQU - Construction of Hazardous Chemical Supplies warehouseSustainability: Environment and Risk preventionAssetDevelopment44912/15/2010
SQM Industrial S.A.MQA8- Normalization gas system, external cafeterias (Stage 1: projects)Sustainability: Environment and Risk preventionAsset/ExpenseNot classified13912/31/2012
SQM Industrial S.A.MQBM-Archaeological Digging Deployment Maria Elena - TocoSustainability: Environment and Risk preventionExpenseNot classified1412/31/2012
SQM Industrial S.A.MQHF -Sustaining of batteries MESustainability: Environment and Risk preventionAsset-ExpenseNot classified31008/01/2013
SQM Industrial S.A.MQK2-Elimination of PCBs ISustainability: Environment and Risk preventionExpenseNot classified1703/31/2014
SQM Industrial S.A.PPC1-Remove switches park PCB sub 3 and 1/12 Pedro de ValdiviaSustainability: Environment and Risk preventionExpenseNot classified14705/31/2009
SQM Industrial S.A.PPZU - Standardize and certify Plant Fuel TanksEnvironmental ProcessingAssetNot classified2,64407/01/2011
SQM Industrial S.A.PQLV-DIA Pedro de Valdivia MineEnvironmental ProcessingAssetNot classified27106/01/2013
SQM Industrial S.A.SQ7X - Reach 2011-2013Sustainability: Environment and Risk preventionExpenseNot classified34101/31/2014
SQM Industrial S.A.TQA2 - Drainage Improvement Villa PratSustainability: Environment and Risk preventionExpenseNot classified1712/31/2012
SQM Industrial S.A.PQXM – Elaboration DIA Operation with batteries in PVEnvironmental ProcessingAssetNot classified8912/01/2014
SQM S.A.IP83-DIA Expansion TLN-15Environmental ProcessingAssetNot classified2312/31/2009
SQM S.A.IPFT-Cultural Heritage Region ISustainabilityExpenseNot classified17412/31/2012

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-160

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Accumulated expenses as of 12/31/2013 (continued)

Identification of the
Parent or subsidiary
Name of the project with which expenditure is
associated

Concept for which the expenditure was made or

will be made

Asset /
Expense
Description of
the asset or
expense item
Amount of
expenditure
Actual or
estimated date on
which expenditure
was or will be
made
SQM S.A.IPXE – Environmental monitoring plan Salar de LlamaraCost reductionExpenseNot classified1,01312/31/2012
SQM S.A.IPXF-Environmental monitoring plan Pampa del TamarugalSustainability: Environment and Risk PreventionExpenseNot classified95112/31/2012
SQM S.A.IQ1M-PSA Re-injection of water to Puquíos LlamaraSustainability: Environment and Risk PreventionAssetNot classified2,32003/31/2013
SQM S.A.IQ3S-Hazardous Materials Management StandardizationSustainabilityAsset-ExpenseNot classified37812/30/2012
SQM S.A.IQ54-Cultural heritage Pampa HermosaMinor projects (between ThUS$50 and ThUS$299)AssetNot classified50612/31/2012
SQM S.A.IQOW-Deposit authorization for Humberstone heritageSustainability: Environment and Risk PreventionExpenseNot classified112/31/2012
SQM S.A.IQPJ-Mine Area equity measures Stage ISustainabilityExpenseNot classified11003/31/2013
SQM S.A.IQWS - Mine Area equity measures Stage IISustainability: Environment and Risk PreventionExpenseNot classified7904/30/2014
SQM S.A.IQX6 – Environmental management plan of Tamarugos Pampa del Tamarugal 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified19304/01/2015
SQM S.A.IQXB - Environmental management plan of Tamarugos Llamara Salt Flat 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified14104/01/2015
SQM S.A.MQLQ- Gas scrubbing systemNot ClassifiedAssetDevelopment46801/01/2013
SQM Salar S.ALQG8 – Waste room  Toconao CampsiteSustainability: Natural ResourcesExpenseNot classified1512/31/2012
SQM Salar S.A.LQDM – Certification of tanksSustainability: Replacement of equipmentAssetNot classified25603/31/2014
SQM Salar S.A.LQI6-EIA Operating maintenance at Salar de AtacamaEnvironmental ProcessingAssetNot classified46612/31/2013
SQM Salar S.A.LQNI-DIA KCI Floor Drying and compacting expansionEnvironmental ProcessingAssetNot classified5903/30/2014
SIT S.A.TPYX - Enabling the dust collector of the crib and court seal 3 TocopillaSustainability: Environment and Risk PreventionAsset - ExpenseDevelopment1,70812/31/2011
SIT S.A.TQAV - Paving paths IVSustainabilityAssetDevelopment312/01/2011

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Accumulated expenses as of 12/31/2013, continued

Identification of
the Parent or
subsidiary
Name of the project with which expenditure is associatedConcept for which the
expenditure was made or will
be made
Asset /
Expense
Description of
the asset or
expense item
Amount of
expenditure
Actual or estimated
date on which
expenditure was or will
be made
SIT S.A.TQQ5 – Environmental curtains field No.8Sustainability: Environment and Risk PreventionExpenseNot classified22104/27/2013
SQM Nitratos S.A.IQMH – Normalization Mine NV area operationSustainability: Environment and Risk PreventionAssetNot classified22212/31/2012
SQM Nitratos S.A.PQI9 – Mine waste water treatment plantSustainability: Environment and Risk PreventionAssetNot classified5108/01/2013
Total20,043

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.2Detail of information on disbursements related to the environment, continued

Future expenses as of 12/31/2013

Identification of
the Parent or
subsidiary
Name of the project with which expenditure is associatedConcept for which the
expenditure was made or will
be made
Asset /
Expense
Description of the
asset or expense
item
Amount of
expenditure
Actual or estimated
date on which
expenditure was or
will be made
SQM Industrial S.A.FP55 - FPXA - EIA Pampa Blanca ExpansionEnvironmental processingAssetNot classified112/30/2012
SQM Industrial S.A.IQWZ - Normalization TK NV liquid fuelsSustainability: Environment and Risk PreventionAssetNot classified80004/01/2014
SQM Industrial S.A.MP5W - Normalization TK´s FuelsSustainability: Environment and Risk PreventionAssetNot classified79506/30/2008
SQM Industrial S.A.MQBM-Archaeological Digging Deployment Maria Elena - TocoSustainability: Environment and Risk PreventionExpenseNot classified6312/31/2012
SQM Industrial S.A.MQK2-Elimination of PCBs ISustainability: Environment and Risk PreventionExpenseNot classified3303/31/2014
SQM Industrial S.A.PPZU - Standardize and Certify Plant Fuel TanksEnvironmental processingAssetNot classified53307/02/2011
SQM Industrial S.A.PQLV-DIA Pedro de Valdivia MineEnvironmental processingAssetNot classified10306/02/2013
SQM S.A.IP83-DIA Expansion TLN-15Environmental processingAssetNot classified012/31/2009
SQM S.A.IPFT-Cultural Heritage Region ISustainabilityExpenseNot classified112/31/2012
SQM S.A.IQ1M-PSA Re-injection of water to Puquíos LlamaraSustainability: Environment and Risk PreventionAssetNot classified30003/31/2013
SQM S.A.IQ3S-Hazardous Materials Management StandardizationSustainabilityAsset-ExpenseNot classified1212/30/2012
SQM S.A.IQOW-Deposit authorization for Humberstone heritageSustainability: Environment and Risk PreventionExpenseNot classified1012/31/2012
SQM S.A.IQWS - Mine Area equity measures Stage IISustainability: Environment and Risk PreventionExpenseNot classified2904/30/2014
SQM S.A.IQX6 – Environmental management plan of Tamarugos Pampa del Tamarugal 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified59504/01/2015
SQM S.A.IQXB - Environmental management plan of Tamarugos Salar de Llamara 2013-2014Sustainability: Environment and Risk PreventionAssetNot classified26604/01/2015
SQM Salar S.A.LQDM – Certification of tanksSustainability: Replacement of equipmentAssetNot classified9403/31/2014
SQM Salar S.A.LQI6-EIA Operating Maintenance at Salar de AtacamaEnvironmental processingAssetNot classified5912/31/2013
SIT S.A.TQQ5- Environmental curtains Field No. 8Sustainability: Environment and Risk PreventionExpenseNot classified9004/27/2013
SQM Industrial S.A.PQXM – Elaboration DIA Operation with batteries in PVEnvironmental processingAssetNot classified21212/01/2014
Total3,996

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.3Description of each project, indicating whether these are in process or have been finished

SQM Industrial S.A.

IQWZ:Performing an analysis of the tank facilities (civil works, mechanical work, piping, electrical work and instruments) by a company specialized in liquid fuels and that is a Certifying Entity. After that, performance of the detail engineering and then implementation of the modifications required to normalize the TKs facilities and leave them in conditions to be declared and filed with the SEC. The budget of ThUS$123 only covers expenses related to the analysis and detail engineering. The project is in process.

I0002:The project involves a new waste water treatment plant, for the supervisor role area in the Iris campsite. The project is pending.

J0006:This project is intended to design a rapidly-implemented gas scrubbing system that complies with the standard on the emission of gases involved. This project is in process.

MP5W: Normalization of the fuel storage and distribution system in SQM installations. This project is in process.

MQBM:Implementing archeological measures in María Elena – Toco site, such as the archeological registry, analysis of lithic materials, and generation of reports. This project is in process.

MQK2:The project involves the decontamination of equipment and items contaminated with PCBs and/or final disposal in accordance with applicable regulations. This project is in process.

M0006:The project involves the enhancement of the bischofite layer in main streets of the town ME. This project is in process.

PPZU:The necessary actions to normalize and certify fuel tanks in the plants in Maria Elena, Coya Sur and Pedro de Valdivia were performed. This project is in process.

PQLV:Preparation and filing of EID Pedro de Valdivia. This project is in process.

PQXM:Elaborate a project to enter into the Environmental Impact Assessment System (SEIA), with the intention of obtaining the environmental approval for the operation of Batteries in Pedro de Valdivia. This project is in process.

TQA2:This project aims to improve the sewerage system of Villa Prat. The project is in the closure stage.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.3Description of each project, indicating whether these are in process or have been finished, continued

I0023:This project is aimed at acquiring leak detection equipment to ensure that evaporation ponds are not damaged and no solution is lost, avoiding the pollution of the environment. This project is in process.

SQM S.A.

IPFT:The project considers the implementation of measures committed in projects in the area of the Nueva Victoria mine, update of operations in Nueva Victoria, evaporation ducts and pits in Iris. The project is at the closure stage.

IQ1M:Implementing environmental commitments included in the EIS of project “Pampa Hermosa” to safeguard the puquíos zone that is in the Salar de Llamara water reservoir. The project is in the closure stage.

IQ3S:Improvements in the storage facilities of hazardous raw materials in Nueva Victoria. This project is in process.

IQOW:Enabling a deposit in Humberstone Saltpeter to store material of heritage interest recovered in land campaigns of Project ZMNV (performed and to be performed). The project is in the closure stage.

IQWS:Implementation of heritage-related environmental commitments, to make available mining areas in 2013, required to develop the mining exploitation of the VPONV, in compliance with the commitments agreed through the Environmental Assessment System (SEA). The project is in process.

IQWP:This project consists of reclassifying geological resources measured. The project is in process.

IQX6: Implementation of environmental commitments of the Pampa Hermosa Project at Pampa del Tamarugal considered for the years 2013-2014. The project is in process.

IQXB:Implementation of environmental commitments of the Pampa Hermosa Project at Llamara Saltpeter deposit considered for the years 2013-2014. The project is in process.

I00032:Presenting departures from the standard currently in force with respect to storage of hazardous substances and provisions of SD 78/2010. This project is in process.

I0042:The project involves the implementation of equity measures under the Environmental Assessment for the mining area. It comprises the implementation of a fence in the exclusion and archaeological working area in the mining areas, required for the exploitation in 2014. This project is in process.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 24Environment (continued)

24.3Description of each project, indicating whether these are in process or have been finished, continued

I0046:The project consists of the implementation of equity measures committed in the Environmental Assessment of the Pintados sector (geoglyphs and former railway station) and for the Sur Viejo sector the implementation of development activities and archeological works are contemplated. This project is in progress.

SQM Salar S.A.

LQDM:Certification of the liquid fuel storage tanks. This project is in process.

LQI6:Preparation and processing of the EIA Update Operations in the Atacama Saltpeter Deposit. This project is in process.

LQXW: Increasing the availability of brine ponds. The greater capacity of water wells implies the possibility of re-injecting more water to the saltpeter deposit, resulting in an increase in brine extraction. The expense considered only includes environmental processing. The project is in process.

SIT S.A.

TQQ5:This project aims to contain emissions of particulate material to prevent contamination to adjacent communities. The project is in process.

T0013: This project is intended to address sectors where sewage chambers have exceeded their capacity, the replacement of sewage collectors and sewage system chambers is proposed. The project is in progress.

T0008:This project consists of reducing pollution issues in the bulk loading process and increasing port safety. This project is in process.

SQM Nitratos S.A.

IQMH:Creation of an area allowing storing hazardous substances. This project is in process.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 25Other current and non-current non-financial assets

Note 24   Other current and non-current non-financial assets

 

As of December 31, 2014,2016, and December 31, 2013,2015, the detail of other current and non-current assets is as follows:

 

Other non-financial assets, current 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
Domestic Value Added Tax  15,149   21,263   13,999   16,112 
Foreign Value Added Tax  7,388   5,842   2,537   7,795 
Prepaid mining licenses  1,275   1,522   1,136   1,209 
Prepaid insurance  7,916   9,767   6,323   6,536 
Other prepayments  533   623   408   602 
Refund of Value Added Tax to exporters  8,966   -   855   13,183 
Mining royalty tax paid (*)  -   14,565 
Other assets  2,509   5,213   5,015   2,004 
Total  43,736   44,230   30,273   62,006 

 

Other non-financial assets, non-current 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
Stain development expenses and prospecting expenses (1)  29,569   33,388   23,008   31,911 
Guarantee deposits  682   708   685   496 
Pension plan  647   987   -   27 
Other assets  1,273   1,422   997   1,092 
Total  32,171   36,505   24,690   33,526 

(*) The Company reserved its right to file a tax claim with the Courts of Justice against the request for payment by the SII. See Note 19.5

F-166
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 24   Other current and non-current non-financial assets, continued

 

1)Reconciliation of changes in assets for exploration and mineral resource evaluation, by type

 

Movements in assets for the exploration and evaluation of mineral resources as of December 31, 2014,2016, and December 31, 2013:2015:

 

Reconciliation 12/31/2014  12/31/2013 
  ThUS$  ThUS$ 
       
Opening balance  33,388   22,496 
Changes        
Additions, other than business combinations  2,695   13,064 
Depreciation and amortization (*)  (2,092)  (2,059)
Increase (decrease) due to transfers and other charges  (4,422)  (113)
Total changes  (3,819)  10,892 
Total  29,569   33,388 

(*) Assets for the exploration and evaluation of mineral resources are amortized considering the estimated material tonnage on exploited material tonnage.

Reconciliation 12/31/2016  12/31/2015 
  ThUS$  ThUS$ 
       
Opening balance  31,911   29,569 
Changes        
Additions, other than business combinations  -   3,871 
Depreciation and amortization  (9,498)  (2,287)
Increase (decrease) due to transfers and other charges  595   758 
Total changes  (8,903)  2,342 
Total  23,008   31,911 

 

As of the presentation date, no reevaluations of assets for exploration and assessment of mineral resources have been conducted.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-167
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments

 

Note 2625.1Operating segments

26.1OperatingReportable segments

 

General information:

 

The amount of each item presented in each operating segment is equal to that reported to the maximum authority that makes decisions regarding the operation, in order to decide on the allocation of resources to the defined segments and to assess its performance.

These operating segments mentioned are consistent with the way the Company is managed and how results will be reported by Company. These segments reflect separate operating results which are regularly reviewed by chief operating decision maker in order to make decisions about the resources to be allocated to the segment and assess its performance (See Note 24.2).


The segments performance is measured based on net income and revenues. Sales between segments are conducted using terms and conditions at current market rates.

 

Factors used to identify segments on which a report should be presented:

 

Segments reported are strategic business units that offer different products and services. These are managed separately because each business requires different technology and marketing strategies.

 

Description of the types of products and services on which each reportable segment obtain its income from ordinary activities

 

The operating segments, through which incomes of ordinary activities are obtained, that generate expenses and whose operating results are reviewed on a regular basis by the maximum authority who makes decisions regarding operations, relate to the following groups of products:

 

1.Specialty plant nutrients
2.Iodine and its derivatives
3.Lithium and its derivatives
4.Industrial chemicals
5.Potassium
6.Other products and services

 

Description of income sources for all the other segments

 

Information relative to assets, liabilities, profit and expenses that cannot be assigned to the segments indicated above, due to the nature of production processes, is included under "Unassigned amounts” category of the disclosed information.

 

Basis of accounting for transactions between reportable segments

 

Sales between segments are made in the same conditions as those made to third parties, and are consistently measures as presented in the income statement.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-168
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.1Operating segments (continued)

26.1OperatingReportable segments, continued

 

Description of the nature of the differences between measurements of results of reportable segments and the result of the entity before the expense or income tax expense of incomes and discontinued operations.

 

The information reported in the segments is extracted from the Company’s consolidated financial statements and therefore is not required to prepare reconciliations between the data mentioned above and those reported in the respective segments, according to what is stated in paragraph 28 of IFRS 8, "Operating Segments".

For the process of cost allocation in inventory valuation, we identify the direct costs (can be assigned directly to a product) and the common costs (belong to processes of co-production, for example costs of common leaching for the production of iodine and nitrates). The direct costs are directly associated with the product and the common costs are allocated using percentages of sales, prices and inventory rotation.

The allocation of other common costs that are not included in the inventory valuation process, but go straight to the cost of sales, use similar criteria: the costs associated with a product or sales in particular are assigned to that particular product or sales, and the common costs associated with different products or business lines are allocated according to the sales.

 

Description of the nature of the differences between measurements of assets of reportable segments and the Company´s assets

 

Assets are not shown classified by segments, as this information is not readily available. Some of these assets are not separable by the type of activity by which they are affected since this information is not used by management in decision-making with respect to resources to be allocated to each defined segment. All assets are disclosed in the "unallocated amounts" category.

 

Description of the nature of the differences between measurements of liabilities of reportable segments and the Company’s liabilities

 

Liabilities are not shown classified by segments, as this information is not readily available. Some of these liabilities are not separable by the type of activity by which they are affected, since this information is not used by management in decisions making regarding resources to be allocated to each defined segment. All liabilities are disclosed in the "unallocated amounts" category.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-169
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.2Operating segments (continued)

26.2OperatingReportable segment disclosures:

 

12/31/2014
12/31/201612/31/2016
Operating segment items Specialty
plant
nutrients
 Iodine and
its
derivatives
 Lithium and
its
derivatives
 Industrial
chemicals
 Potassium Other
products
and
services
 Reportable
segments
 Operating
segments
 Elimination
of inter-
segments

amounts
 Unallocated
amounts
 Significant
reconciliation
entries
 Total
12/31/2014
  Specialty
plant
nutrients
 Iodine
and its
derivatives
 Lithium
and its
derivatives
 Industrial
chemicals
 Potassium Other
products
and
services
 Reportable
segments
 Operating
segments
 Unallocated
amounts
 Elimination of
inter-segments
amounts
 Total 
12/31/2016
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Revenue  708,023   335,433   206,849   101,933   584,268   77,708   2,014,214   2,014,214   -   -   -   2,014,214   623,853   231,144   514,627   104,137   403,323   62,238   1,939,322   1,939,322   -   -   1,939,322 
Revenues from transactions with other operating segments of the same entity  69,686   560,051   119,900   311,188   358,089   238,614   1,657,528   1,657,528   (1,657,528)  -   -   -   91,087   301,917   372,838   356,334   333,823   198,836   1,654,835   1,654,835   -   (1,654,835)  - 
                                                                                            
Revenues from external customers and transactions with other operating segments of the same entity  777,709   895,484   326,749   413,121   942,357   316,322   3,671,742   3,671,742   (1,657,528)  -   -   2,014,214   714,940   533,061   887,465   460,471   737,146   261,074   3,594,157   3,594,157   -   (1,654,835)  1,939,322 
                                                                                            
Costs of sales  (564,151)  (196,535)  (118,432)  (60,451)  (423,488)  (68,185)  (1,431,242)  (1,431,242)  -   -   -   (1,431,242)  (478,074)  (191,298)  (175,616)  (67,378)  (359,477)  (56,442)  (1,328,285)  (1,328,285)  -   -   (1,328,285)
Administrative expenses  -   -   -   -   -   -   -   -   7,865   (104,397)  -   (96,532)  -   -   -   -   -   -   -   -   (94,647)  6,211   (88,436)
Interest expense  -   -   -   -   -   -   -   -   191,811   (255,184)  -   (63,373)  -   -   -   -   -   -   -   -   (149,051)  91,553   (57,498)
depreciation and amortization expense  (97,037)  (33,805)  (20,371)  (10,399)  (72,842)  (11,726)  (246,180)  (246,180)  -   (5,111)  -   (251,291)
Depreciation and amortization expense  (89,864)  (35,958)  (33,010)  (12,666)  (67,571)  (10,612)  (249,681)  (249,681)  8   -   (249,673)
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   -   -   (973)  19,089   -   18,116   -   -   -   -   -   -   -   -   13,047   -   13,047 
income tax expense, continuing operations  -   -   -   -   -   -   -   -   -   (160,686)  -   (160,686)
Income tax expense, continuing operations  -   -   -   -   -   -   -   -   (132,965)  -   (132,965)
Other items other than significant cash  -   -   -   -   -   -   -   -   -       -   -   -   -   -   -   -   -   -   -   -   -   - 
Income (loss) before taxes  143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  364,347   -   404,964   145,779   39,846   339,011   36,759   43,846   5,796   611,037   611,037   317,894   (514,042)  414,889 
                                                                                            
Net income (loss) from continuing operations  143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  203,661   -   244,278   145,779   39,846   339,011   36,759   43,846   5,796   611,037   611,037   184,929   (514,042)  281,924 
Net income (loss) from discontinued operations                                                                                            
Net income (loss)  143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  203,661   -   244,278   145,779   39,846   339,011   36,759   43,846   5,796   611,037   611,037   184,929   (514,042)  281,924 
                                                                                            
Assets  -   -   -   -   -   -   -   -   (7,142,103)  11,805,758   -   4,663,655   -   -   -   -   -   -   -   -   10,605,056   (6,386,412)  4,218,644 
Equity-accounted investees  -   -   -   -   -   -   -   -   (3,291,962)  3,367,740   -   75,778   -   -   -   -   -   -   -   -   2,803,001   (2,669,861)  133,140 
Increase of non-current assets  -   -   -   -   -   -   -   -   -   (161,624)  -   (161,624)  -   -   -   -   -   -   -   -   (107,269)      (107,269)
Liabilities  -   -   -   -   -   -   -   -   (3,541,966)  5,913,106   -   2,371,140   -   -   -   -   -   -   -   -   5,321,161   (3,409,789)  1,911,372 
Impairment loss recognized in profit or loss  -   -   (989)  -   (164)  (111)  (1,264)  (1,264)  -   (349)  -   (1,613)  -   -   (251)  -   -   (698)  (949)  (949)  (39,595)  -   (40,544)
Reversal of impairment losses recognized in profit or loss for the period  10,487   979   -   2,993   -   -   14,459   14,459   -   -   -   14,459 
Cash flows from (used in) operating activities  -   -   -   -   -   -   -   -   -   -   -   591,044 
Cash flows from (used in) investing activities  -   -   -   -   -   -   -   -   -   -   -   (311,364)
Cash flows from (used in) financing activities  -   -   -   -   -   - �� -   -   -   -   -   (388,035)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-170

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.2Operating segments (continued)

26.2OperatingReportable segment disclosures, , continued

 

12/31/2013
12/31/201512/31/2015
Operating segment items Specialty
plant
nutrients
 Iodine and
its
derivatives
 Lithium and
its
derivatives
 Industrial
chemicals
 Potassium Other
products
and
services
 Reportable
segments
 Operating
segments
 Elimination
of inter-
segments

amounts
 Unallocated
amounts
 Significant
reconciliation
entries
 Total 
12/31/2013
  Specialty
plant
nutrients
 Iodine
and its
derivatives
 Lithium
and its
derivatives
 Industrial
chemicals
 Potassium Other
products
 and
services
 Reportable
segments
 Operating
segments
 Unallocated
amounts
 Elimination of
inter-segments
amounts
 Total 
12/31/2015
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Revenue  687,455   461,015   196,492   153,963   606,315   97,900   2,203,140   2,203,140   -   -   -   2,203,140   652,278   262,570   223,021   97,551   430,642   62,270   1,728,332   1,728,332   -   -   1,728,332 
Revenues from transactions with other operating segments of the same entity  121,735   723,801   122,616   309,127   462,565   337,690   2,077,534   2,077,534   (2,077,534)  -   -   -   137,944   389,172   139,575   347,168   407,903   289,157   1,710,919   1,710,919   -   (1,710,919)  - 
                                                                                            
Revenues from external customers and transactions with other operating segments of the same entity  809,190   1,184,816   319,108   463,090   1,068,880   435,590   4,280,674   4,280,674   (2,077,534)  -   -   2,203,140   790,222   651,742   362,596   444,719   838,545   351,427   3,439,251   3,439,251   -   (1,710,919)  1,728,332 
                                                                                            
Costs of sales  (536,067)  (202,650)  (99,244)  (110,921)  (443,988)  (88,820)  (1,481,690)  (1,481,690)  -   -   -   (1,481,690)  (461,028)  (184,551)  (109,389)  (71,252)  (303,645)  (55,718)  (1,185,583)  (1,185,583)  -   -   (1,185,583)
Administrative expenses  -   -   -   -   -   -   -   -   -   (105,189)  -   (105,189)  -   -   -   -   -   -   -   -   (95,176)  8,346   (86,830)
Interest expense  -   -   -   -   -   -   -   -   195,404   (254,012)  -   (58,608)  -   -   -   -   -   -   -   -   (197,815)  127,962   (69,853)
depreciation and amortization expense  (67,656)  (45,371)  (19,338)  (15,152)  (59,670)  (9,634)  (216,821)  (216,821)  -   -   -   (216,821)
Depreciation and amortization expense  (105,545)  (42,249)  (25,044)  (16,312)  (69,513)  (12,758)  (271,421)  (271,421)  (316)  -   (271,737)
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   -   -   -   18,786   -   18,786   -   -   -   -   -   -   -   -   10,326   -   10,326 
income tax expense, continuing operations  -   -   -   -   -   -   -   -   (2,377)  (136,162)  -   (138,539)
Income tax expense, continuing operations  -   -   -   -   -   -   -   -   (83,766)  -   (83,766)
Other items other tan significant cash  -   -   -   -   -   -   -   -   -   -   - 
Income (loss) before taxes  151,388   258,366   97,248   43,042   162,327   93,079   805,450   805,450   (567,919)  375,578   -   613,109   191,250   78,019   113,632   26,300   126,997   6,552   542,750   542,750   131,291   (365,755)  308,286 
                                                                                            
Net income (loss) from continuing operations  151,388   258,366   97,248   43,042   162,327   93,079   805,450   805,450   (570,296)  239,416   -   474,570   191,250   78,019   113,632   26,300   126,997   6,552   542,750   542,750   47,525   (365,755)  224,520 
Net income (loss) from discontinued operations                                                                                            
Net income (loss)  151,388   258,366   97,248   43,042   162,327   93,079   805,450   805,450   (570,296)  239,416   -   474,570   191,250   78,019   113,632   26,300   126,997   6,552   542,750   542,750   47,525   (365,755)  224,520 
                                                                                            
Assets  -   -   -   -   -   -   -   -   (7,077,766)  11,845,374   -   4,767,608   -   -   -   -   -   -   -   -   10,508,312   (5,864,550)  4,643,762 
Equity-accounted investees  -   -   -   -   -   -   -   -   (3,353,672)  3,430,690   -   77,018   -   -   -   -   -   -   -   -   3,042,011   (2,962,709)  79,302 
Increase of non-current assets  -   -   -   -   -   -   -   -   -   171,980   -   171,980   -   -   -   -   -   -   -   -   (203,806)      (203,806)
Liabilities  -   -   -   -   -   -   -   -   (3,354,422)  5,689,789   -   2,335,367   -   -   -   -   -   -   -   -   4,829,968   (2,586,562)  2,243,406 
Equity  -   -   -   -   -   -   -       -   -   -   2,432,241 
Liabilities and Equity  -   -   -   -   -   -   -       -   -   -   4,767,608 
Impairment loss recognized in profit or loss  (15,985)  (1,832)  (783)  (3,733)  (2,509)  (352)  (25,195)  (25,195)  -   (5,732)  -   (30,927)  -   (200)  (317)  (3)  (3,049)  (373)  (3,942)  (3,942)  (39,801)  -   (43,743)
Cash flows from (used in) operating activities  -   -   -   -   -   -   -   -   -   -   -   651,713 
Cash flows from (used in) investing activities  -   -   -   -   -   -   -   -   -   -   -   (487,385)
Cash flows from (used in) financing activities  -   -   -   -   -   -   -   -   -   -   -   (2,285)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-171
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.2Operating segments (continued)

26.2OperatingReportable segment disclosures, , continued

 

12/31/2012
12/31/201412/31/2014
Operating segment items Specialty
plant
nutrients
 Iodine and
its
derivatives
 Lithium
and its
derivatives
 Industrial
chemicals
 Potassium Other
products
and
services
 Reportable
segments
 Operating
segments
 Elimination
of inter-
segments
amounts
 Unallocated
amounts
 Significant
reconciliation
entries
 Total 
12/31/2012
  Specialty
plant
nutrients
 Iodine
and its
derivatives
 Lithium
and its
derivatives
 Industrial
chemicals
 Potassium Other
products
 and
services
 Reportable
segments
 Operating
segments
 Elimination of
inter-segments
amounts
 Unallocated
amounts
 Total 
12/31/2014
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
                          ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Revenue  675,350   578,091   222,238   245,208   605,059   103,214   2,429,160   2,429,160   -   -   -   2,429,160   708,023   335,433   206,849   101,933   584,268   77,708   2,014,214   2,014,214   -   -   2,014,214 
Revenues from transactions with other operating segments of the same entity  265,814   848,243   154,248   348,667   569,219   493,884   2,680,075   2,680,075   (2,680,075)  -   -   -   69,686   560,051   119,900   311,188   358,089   238,614   1,657,528   1,657,528   (1,657,528)  -   - 
                                                                                            
Revenues from external customers and transactions with other operating segments of the same entity  941,164   1,426,334   376,486   593,875   1,174,278   597,098   5,109,235   5,109,235   (2,680,075)  -   -   2,429,160   777,709   895,484   326,749   413,121   942,357   316,322   3,671,742   3,671,742   (1,657,528)  -   2,014,214 
                                                                                            
Interest revenue  -   -   -   -   -   -   -   -   -   -   -   - 
Costs of sales  (564,151)  (196,535)  (118,432)  (60,451)  (423,488)  (68,185)  (1,431,242)  (1,431,242)  -   -   (1,431,242)
Administrative expenses  -   -   -   -   -   -   -   -   7,865   (104,397)  (96,532)
Interest expense  -   -   -   -   -   -   -   -   225,396   (279,491)  -   (54,095)  -   -   -   -   -   -   -   -   191,811   (255,184)  (63,373)
depreciation and amortization expense  (54,383)  (47,100)  (17,896)  (19,745)  (48,723)  (8,311)  (196,158)  (196,158)  -   -   -   (196,158)
Depreciation and amortization expense  (97,037)  (33,805)  (20,371)  (10,399)  (72,842)  (11,726)  (246,180)  (246,180)  -   (5,111)  (251,291)
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   -   -   -   24,357   -   24,357   -   -   -   -   -   -   -   -   (973)  19,089   18,116 
income tax expense, continuing operations  -   -   -   -   -   -   -   -   -   (216,082)  -   (216,082)
Income tax expense, continuing operations  -   -   -   -   -   -   -   -   -   (160,686)  (160,686)
Other items other tan significant cash  -   -   -   -   -   -   -   -   -       -   -   -   -   -   -   -   -   -   -   -       - 
Income (loss) before taxes  217,880   362,518   110,695   83,055   246,027   8,419   1,028,594   1,028,594   (786,634)  631,491   -   873,451   143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  364,347   404,964 
                                                                                            
Net income (loss) from continuing operations  217,880   362,518   110,695   83,055   246,027   8,419   1,028,594   1,028,594   (786,634)  415,409   -   657,369   143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  203,661   244,278 
Net income (loss) from discontinued operations                                                                                            
Net income (loss)  217,880   362,518   110,695   83,055   246,027   8,419   1,028,594   1,028,594   (786,634)  415,409   -   657,369   143,872   138,898   88,417   41,482   160,780   9,523   582,972   582,972   (542,355)  203,661   244,278 
                                                                                            
Assets  -   -   -   -   -   -   -   -   (7,296,791)  11,713,222   -   4,416,431   -   -   -   -   -   -   -   -   (7,142,103)  11,805,758   4,663,655 
Equity-accounted investees  -   -   -   -   -   -   -   -   (3,423,758)  3.494,056   -   70,298   -   -   -   -   -   -   -   -   (3,291,962)  3,367,740   75,778 
Increase of non-current assets  -   -   -   -   -   -   -   -       255,363   -   255,363   -   -   -   -   -   -   -   -       (161,625)  (161,625)
Liabilities  -   -   -   -   -   -   -   -   (3,393,525)  5,622,510   -   2,228,985   -   -   -   -   -   -   -   -   (3,541,966)  5,913,106   2,371,140 
Equity                                              2,187,446 
Equity and liability                                              4,416,431 
Reversal of impairment losses recognized in profit and loss for the year                  -       -   -       -       - 
Impairment loss recognized in profit or loss  (10,281)  (2,081)  (162)  (3,043)  (2,471)  (120)  (18,158)  (18,158)  -   (2,900)  -   (21,058)  -   -   (989)  -   (164)  (111)  (1,264)  (1,264)  -   (349)  (1,613)
Cash flows from (used in) operating activities  -   -   -   -   -   -   -   -   -   650,206   -   650,206 
Cash flows from (used in) investing activities  -   -   -   -   -   -   -   -   -   (562,885)  -   (562,885)
Cash flows from (used in) financing activities  -   -   -   -   -   -   -   -   -   (197,697)  -   (197,697)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-172
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 26Operating segments (continued)

26.325.3Statement of comprehensive income classified by operatingreportable segments based on groups of products

 

 12/31/2014  12/31/2016 
Items in the statement of comprehensive
income
 Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and its
derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium
ThUS$
 Other products
and services
ThUS$
 Corporate
Unit ThUS$
 Total segments and
Corporate unit
ThUS$
  Specialty
plant
nutrients
 Iodine
and its
derivatives
 Lithium
and its
derivatives
 Industrial
chemicals
 Potassium Other
products and 
services
 Corporate Unit Total segments and
Corporate unit
 
                   ThUS$ ThUS$   ThUS$ ThUS$  ThUS$  ThUS$   ThUS$ ThUS$  
Revenue  708,023   335,433   206,849   101,933   584,268   77,708   -   2,014,214   623,853   231,144   514,627   104,137   403,323   62,238   -   1,939,322 
Cost of sales  (564,151)  (196,535)  (118,432)  (60,451)  (423,488)  (68,185)  -   (1,431,242)  (478,074)  (191,298)  (175,616)  (67,378)  (359,477)  (56,442)      (1,328,285)
                                                                
Gross profit  143,872   138,898   88,417   41,482   160,780   9,523   -   582,972   145,779   39,846   339,011   36,759   43,846   5,796   -   611,037 
                                                                
Other incomes by function  -   -   -   -   -   -   24,055   24,055   -   -   -   -   -   -   14,781   14,781 
Administrative expenses  -   -   -   -   -   -   (96,532)  (96,532)  -   -   -   -   -   -   (88,436)  (88,436)
Other expenses by function  -   -   -   -   -   -   (64,295)  (64,295)  -   -   -   -   -   -   (89,731)  (89,731)
Other gains (losses)  -   -   -   -   -   -   4,424   4,424   -   -   -   -   -   -   679   679 
Financial income  -   -   -   -   -   -   16,142   16,142   -   -   -   -   -   -   10,550   10,550 
Financial costs  -   -   -   -   -   -   (63,373)  (63,373)  -   -   -   -   -   -   (57,498)  (57,498)
interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   18,116   18,116   -   -   -   -   -   -   13,047   13,047 
Exchange differences  -   -   -   -   -   -   (16,545)  (16,545)  -   -   -   -   -   -   460   460 
Profit (loss) before taxes  143,872   138,898   88,417   41,482   160,780   9,523   (178,008)  404,964   145,779   39,846   339,011   36,759   43,846   5,796   (196,148)  414,889 
Income tax expense  -   -   -   -   -   -   (160,686)  (160,686)  -   -   -   -   -   -   (132,965)  (132,965)
Profit (loss) from continuing operations  143,872   138,898   88,417   41,482   160,780   9,523   (338,694) 244,278   145,779   39,846   339,011   36,759   43,846   5,796   (329,113)  281,924 
Profit (loss) from discontinued operations  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Profit (loss)  143,872   138,898   88,417   41,482   160,780   9,523   (338,694)  244,278   145,779   39,846   339,011   36,759   43,846   5,796   (329,113)  281,924 
Profit (loss), attributable to                                                                
Profit (loss) attributable to the controller´s owners  -   -   -   -   -   -   -   236,889   -   -   -   -   -   -   -   278,290 
Profit (loss) attributable to the non-controllers  -   -   -   -   -   -   -   7,389   -   -   -   -   -   -   -   3,634 
Profit (loss)  -   -   -   -   -   -   -   244,278   -   -   -   -   -   -   -   281,924 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-173
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.3OperatingStatement of comprehensive income classified by reportable segments (continued)based on groups of products, continued

 

26.3 Statement of comprehensive income classified by operating segments based on groups of products, continued

  12/31/2015 
Items in the statement of comprehensive income Specialty
 plant
nutrients
  Iodine
and its
derivatives
  Lithium
and its
derivatives
  Industrial
chemicals
  Potassium  Other
products and 
services
  Corporate Unit  Total segments and
Corporate unit
 
   ThUS$  ThUS$    ThUS$  ThUS$   ThUS$   ThUS$   ThUS$   ThUS$  
Revenue  652,278   262,570   223,021   97,551   430,642   62,270   -   1,728,332 
Cost of sales  (461,028)  (184,551)  (109,389)  (71,252)  (303,645)  (55,718)  -   (1,185,583)
                                 
Gross profit  191,250   78,019   113,632   26,299   126,997   6,552   -   542,749 
                                 
Other incomes by function  -   -   -   -   -   -   15,343   15,343 
Administrative expenses  -   -   -   -   -   -   (86,830)  (86,830)
Other expenses by function  -   -   -   -   -   -   (106,415)  (106,415)
Other gains (losses)  -   -   -   -   -   -   3,760   3,760 
Financial income  -   -   -   -   -   -   11,570   11,570 
Financial costs  -   -   -   -   -   -   (69,853)  (69,853)
interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   10,326   10,326 
Exchange differences  -   -   -   -   -   -   (12,364)  (12,364)
Profit (loss) before taxes  191,250   78,019   113,632   26,299   126,997   6,552   (234,463)  308,286 
Income tax expense  -   -   -   -   -   -   (83,766)  (83,766)
Profit (loss) from continuing operations  191,250   78,019   113,632   26,299   126,997   6,552   (318,229)  224,520 
Profit (loss) from discontinued operations  -   -   -   -   -   -   -   - 
Profit (loss)  191,250   78,019   113,632   26,299   126,997   6,552   (318,229)  224,520 
Profit (loss), attributable to                                
Profit (loss) attributable to the controller´s owners  -   -   -   -   -   -   -   220,356 
Profit (loss) attributable to the non-controlling interests  -   -   -   -   -   -   -   4,164 
Profit (loss)  -   -   -   -   -   -   -   224,520 

 

  12/31/2013 
Items in the statement of comprehensive income Specialty
plant nutrients
ThUS$
  Iodine and
its
derivatives
ThUS$
  Lithium and
its
derivatives
ThUS$
  Industrial
chemicals
ThUS$
  Potassium
ThUS$
  Other
products
and
services
ThUS$
  Corporate
Unit ThUS$
  Total
segments
and
Corporate
unit
ThUS$
 
                         
Revenue  687,455   461,015   196,492   153,963   606,315   97,900   -   2,203,140 
Cost of sales  (536,067)  (202,650)  (99,244)  (110,921)  (443,988)  (88,820)  -   (1,481,690)
                                 
Gross profit  151,388   258,365   97,248   43,042   162,327   9,080   -   721,450 
                                 
Other incomes by function  -   -   -   -   -   84,000   12,716   96,716 
Administrative expenses  -   -   -   -   -   -   (105,189)  (105,189)
Other expenses by function  -   -   -   -   -   -   (49,397)  (49,397)
Other gains (losses)  -   -   -   -   -   -   (11,391)  (11,391)
Financial income  -   -   -   -   -   -   12,696   12,696 
Financial costs  -   -   -   -   -   -   (58,608)  (58,608)
interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   18,786   18,786 
Exchange differences  -   -   -   -   -   -   (11,954)  (11,954)
Profit (loss) before taxes  151,388   258,365   97,248   43,042   162,327   93,080   (192,341)  613,109 
Income tax expense  -   -   -   -   -   -   (138,539)  (138,539)
Profit (loss) from continuing operations  151,388   258,365   97,248   43,042   162,327   93,080   (330,880)  474,570 
Profit (loss) from discontinued operations  -   -   -   -   -   -   -   - 
Profit (loss)  151,388   258,365   97,248   43,042   162,327   93,080   (330,880)  474,570 
Profit (loss), attributable to                                
Profit (loss) attributable to the controller´s owners  -   -   -   -   -   -   -   467,113 
Profit (loss) attributable to the non controllers  -   -   -   -   -   -   -   7,457 
Profit (loss)  -   -   -   -   -   -   -   474,570 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-174
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.3OperatingStatement of comprehensive income classified by reportable segments (continued)based on groups of products, continued

 

26.3 Statement of comprehensive income classified by operating segments based on groups of products, continued

  12/31/2014 
Items in the statement of comprehensive income Specialty
 plant
nutrients
  Iodine
and its
derivatives
  Lithium
and its
derivatives
  Industrial
chemicals
  Potassium  Other
 products and
services
  Corporate Unit  Total segments and
Corporate unit
 
   ThUS$  ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$   ThUS$  
Revenue  708,023   335,433   206,849   101,933   584,268   77,708   -   2,014,214 
Cost of sales  (564,151)  (196,535)  (118,432)  (60,451)  (423,488)  (68,185)  -   (1,431,242)
                                 
Gross profit  143,872   138,898   88,417   41,482   160,780   9,523   -   582,972 
                                 
Other incomes by function  -   -   -   -   -   -   24,055   24,055 
Administrative expenses  -   -   -   -   -   -   (96,532)  (96,532)
Other expenses by function  -   -   -   -   -   -   (64,295)  (64,295)
Other gains (losses)  -   -   -   -   -   -   4,424   4,424 
Financial income  -   -   -   -   -   -   16,142   16,142 
Financial costs  -   -   -   -   -   -   (63,373)  (63,373)
interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   18,116   18,116 
Exchange differences  -   -   -   -   -   -   (16,545)  (16,545)
Profit (loss) before taxes  143,872   138,898   88,417   41,482   160,780   9,523   (178,008)  404,964 
Income tax expense  -   -   -   -   -   -   (160,686)  (160,686)
Profit (loss) from continuing operations  143,872   138,898   88,417   41,482   160,780   9,523   (338,694)  244,278 
Profit (loss) from discontinued operations  -   -   -   -   -   -   -   - 
Profit (loss)  143,872   138,898   88,417   41,482   160,780   9,523   (338,694)  244,278 
Profit (loss), attributable to                                
Profit (loss) attributable to the controller´s owners  -   -   -   -   -   -   -   236,889 
Profit (loss) attributable to the non-controlling interests  -   -   -   -   -   -   -   7,389 
Profit (loss)  -   -   -   -   -   -   -   244,278 

 

  12/31/2012 
Items in the statement of comprehensive income Specialty
plant nutrients
ThUS$
  Iodine and
its
derivatives
ThUS$
  Lithium and
its derivatives

ThUS$
  Industrial
chemicals
ThUS$
  Potassium
ThUS$
  Other
products
and
services
ThUS$
  Corporate
Unit ThUS$
  Total
segments
and
Corporate
unit
ThUS$
 
                         
Revenue  675,350   578,091   222,238   245,208   605,059   103,214   -   2,429,160 
Cost of sales  (457,470)  (215,573)  (111,543)  (162,153)  (359,032)  (94,796)  -   (1,400,567)
                                 
Gross profit  217,880   362,518   110,695   83,055   246,027   8,418   -   1,028,593 
                                 
Other incomes by function  -   -   -   -   -   -   12,702   12,702 
Administrative expenses  -   -   -   -   -   -   (106,442)  (106,442)
Other expenses by function  -   -   -   -   -   -   (34,628)  (34,628)
Other gains (losses)  -   -   -   -   -   -   683   683 
Financial income  -   -   -   -   -   -   29,068   29,068 
Financial costs  -   -   -   -   -   -   (54,095)  (54,095)
interest in the profit or loss of associates and joint ventures accounted for by the equity method  -   -   -   -   -   -   24,357   24,357 
Exchange differences  -   -   -   -   -   -   (26,787)  (26,787)
Profit (loss )before taxes  217,880   362,518   110,695   83,055   246,027   8,418   (155,142)  873,451 
Income tax expense  -   -   -   -   -   -   (216,082)  (216,082)
Profit (loss )from continuing operations  217,880   362,518   110,695   83,055   246,027   8,418   (371,224)  657,369 
Profit (loss ) from discontinued operations  -   -   -   -   -   -   -   - 
Profit (loss)  217,880   362,518   110,695   83,055   246,027   8,418   (371,224)  657,369 
Profit (loss, attributable to                                
Profit (loss ) attributable to the controller´s owners  -   -   -   -   -   -   -   649,167 
Profit (loss ) attributable to the non-controllers  -   -   -   -   -   -   -   8,202 
Profit (loss)  -   -   -   -   -   -   -   657,369 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-175
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 26Operating segments (continued)

26.425.4Revenue from transactions with other Company’s operating segments of the Company as of December 31, 2014

 

12/31/2014
12/31/201612/31/2016
Items in the statement of
comprehensive income
 Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium
ThUS$
 Other
products
and services
ThUS$
 Total segments
and Corporate
unit
ThUS$
  Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium 
ThUS$
 Other
products
 and services
ThUS$
 Total segments
and Corporate
unit
ThUS$
 
                                           
Revenue  708,023   335,433   206,849   101,933   584,268   77,708   2,014,214   623,853   231,144   514,627   104,137   403,323   62,238   1,939,322 

 

12/31/2013
12/31/201512/31/2015
Items in the statement of
comprehensive income
 Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium 
ThUS$
 Other
products
and services
ThUS$
 Total segments
and Corporate
unit
ThUS$
  Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium 
ThUS$
 Other
products
and services
ThUS$
 Total segments
and Corporate
unit
ThUS$
 
                                           
Revenue  687,455   461,015   196,492   153,963   606,315   97,900   2,203,140   652,278   262,570   223,021   97,551   430,642   62,270   1,728,332 

 

12/31/2012
12/31/201412/31/2014
Items in the statement of
comprehensive income
 Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium 
ThUS$
 Other
products
and services
ThUS$
 Total segments
and Corporate
unit
ThUS$
  Specialty plant
nutrients
ThUS$
 Iodine and its
derivatives
ThUS$
 Lithium and
its derivatives
ThUS$
 Industrial
chemicals
ThUS$
 Potassium 
ThUS$
 Other
products and
services
ThUS$
 Total segments
and Corporate
unit
ThUS$
 
                                           
Revenue  675,350   578,091   222,238   245,208   605,059   103,214   2,429,160   708,023   335,433   206,849   101,933   584,268   77,708   2,014,214 

 

26.525.5Disclosures on geographical areas

 

As indicated in paragraph 33 of IFRS 8, the entity discloses geographical information on its revenue from operating activities with external customers and from non-current assets that are not financial instruments, deferred income tax assets, assets related to post-employment benefits or rights derived from insurance contracts.

 

26.625.6Disclosures on main customers

 

With respect to the degree of dependency of the Company on its customers, in accordance with paragraph N° 34 of IFRS N° 8, the Company has no external customers who individually represent 10% or more of its revenue.revenue, Credit risk concentrations with respect to trade and other accounts receivable are limited due to the significant number of entities in the Company’s portfolio and its worldwide distribution.distribution, The Company’s policy requires guarantees (such as letters of credit, guarantee clauses and others) and/or to maintain insurance policies for certain accounts as deemed necessary by the Company's Management.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-176
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 2625.7Operating segments (continued)

26.7Segments by geographical areas as of December 31, 2016, December 31, 2015 and December 31, 2014 2013 and 2014

 

 12/31/2014  12/31/2016 
Items Chile
ThUS$
 Latin America
and the
Caribbean
ThUS$
 Europe 
ThUS$
 North America
ThUS$
 Asia and others
ThUS$
 Total
ThUS$
  Chile
ThUS$
  Latin America and
the Caribbean
ThUS$
  Europe 
ThUS$
  North America
ThUS$
  Asia and others
ThUS$
  Total
ThUS$
 
Revenue  227,261   356,867   428,538   503,891   497,657   2,014,214   162,478   240,607   411,807   416,380   708,050   1,939,322 
Investment accounted for under the equity method  1,159   -   25,588   13,530   35,501   75,778   -   25,000   25,009   13,456   69,675   133,140 
Intangible assets other than goodwill  114,476   -   -   258   1   114,735   109,227   -   -   211   1   109,439 
Goodwill  26,929   86   11,373   -   -   38,388   23,731   86   11,373   724   2,058   37,972 
Property, plant and equipment, net  1,883,534   133   1,343   2,109   835   1,887,954   1,524,936   234   3,521   2,536   1,483   1,532,710 
Investment property  -   -   -   -   -   -   -   -   -   -   -   - 
Other non-current assets  31,354   170   -   647   -   32,171 
Non-current assets  2,057,452   389   38,304   16,544   36,337   2,149,026 
Other non-current non-financial assets  24,551   139   -   -   -   24,690 
Non-current assets that are not financial instruments  1,682,445   25,459   39,903   16,927   73,217   1,837,951 

 

 12/31/2013  12/31/2015 
Items Chile
ThUS$
 Latin America
and the
Caribbean
ThUS$
 Europe 
ThUS$
 North America
ThUS$
 Asia and others
ThUS$
 Total
ThUS$
  Chile
ThUS$
  Latin America and
the Caribbean
ThUS$
  Europe 
ThUS$
  North America
ThUS$
  Asia and others
ThUS$
  Total
ThUS$
 
Revenue  242,373   379,063   504,043   546,075   531,586   2,203,140   188,592   258,262   351,353   439,645   490,480   1,728,332 
Investment accounted for under the equity method  1,649   -   24,847   13,126   37,396   77,018   1,535   -   23,410   12,913   41,444   79,302 
Intangible assets other than goodwill  104,043   -   -   317   3   104,363   110,199   -   -   228   1   110,428 
Goodwill  26,929   86   11,373   -   -   38,388   26,929   86   11,373   -   -   38,388 
Property, plant and equipment, net  2,050,684   157   460   2,205   871   2,054,377   1,677,194   260   2,183   2,486   1,453   1,683,576 
Investment property  -   -   -   -   -   -   -   -   -   -   -   - 
Other non-current assets  35,326   191   -   988   -   36,505 
Non-current assets  2,218,631   434   36,680   16,636   38,270   2,310,651 
Other non-current non-financial assets  33,384   116   -   26   -   33,526 
Non-current assets that are not financial instruments  1,849,241   462   36,966   15,653   42,898   1,945,220 

 

  12/31/2014 
Items Chile
ThUS$
  Latin America and
the Caribbean
ThUS$
  Europe 
ThUS$
  North America
ThUS$
  Asia and others
ThUS$
  Total
ThUS$
 
Revenue  227,261   356,867   428,538   503,891   497,657   2,014,214 
Investment accounted for under the equity method  1,159   -   25,588   13,530   35,501   75,778 
Intangible assets other than goodwill  114,476   -   -   258   1   114,735 
Goodwill  26,929   86   11,373   -   -   38,388 
Property, plant and equipment, net  1,883,534   133   1,343   2,109   835   1,887,954 
Investment property  -   -   -   -   -   - 
Other non-current non-financial assets  31,354   170   -   647   -   32,171 
Non-current assets that are not financial instruments  2,057,452   389   38,304   16,544   36,337   2,149,026 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-177
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 25   Reportable segments (continued)

 

Note 26Operating segments (continued)

26.7 Segments by geographical areas as of December 31, 2014, 2013 and 2012, continued

  12/31/2013 
Items Chile
ThUS$
  Latin America
and the
Caribbean
ThUS$
  Europe 
ThUS$
  North America
ThUS$
  Asia and others
ThUS$
  Total
ThUS$
 
Revenue  269,421   416,089   558,245   619,667   565,738   2,429,160 
Investment accounted for under the equity method  1,656   -   24,051   15,357   29,234   70,298 
Intangible assets other than goodwill  23,630   -   -   378   5   24,013 
Goodwill  26,929   86   11,373   -   -   38,388 
Property, plant and equipment, net  1,985,128   183   285   2,331   363   1,988,290 
Investment property  -   -   -   -   -   - 
Other non-current assets  17,463   219   -   -   -   17,682 
Non-current assets  2,054,806   488   35,709   18,066   29,602   2,138,671 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 26Operating segments (continued)

26.825.8Property, plant and equipment classified by geographical areas

 

The company's main productive facilities are located near their mines and extraction facilities in northern Chile. The following table presents the main production facilities as of December 31, 20142016 and December 31, 2013:2015:

 

 Location Products
 
-Pedro de Valdivia:Production of iodine and nitrate salts
-María Elena:Production of iodine and nitrate salts
-Coya Sur:Production of nitrate salts
-Nueva Victoria:Production of iodine and nitrate salts
-Salar de Atacama:Potassium chloride, lithium chloride, boric acid and potassium sulfate
-Salar del Carmen:Production of lithium carbonate and lithium hydroxide
-Tocopilla:Port facilities

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-178
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2726Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature

 

27.1Revenue

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Products  2,006,452   2,191,650   2,420,357 
Services  7,762   11,490   8,803 
Total  2,014,214   2,203,140   2,429,160 

27.226.1Cost of sales

 

 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Raw material and supplies  (593,126)  (811,518)  (1,066,803)  (485,788)  (484,797)  (618,131)
Types of employee benefits expenses                        
Salaries and wages  (107,917)  (138,937)  (134,400)  (104,144)  (97,010)  (112,467)
Other short-term employee benefits  (61,525)  (44,601)  (66,370)  (77,507)  (33,662)  (28,884)
Termination benefit expenses  (7,971)  (10,811)  (4,325)  (3,836)  (5,719)  (8,307)
Total employee benefits expenses  (177,413)  (194,349)  (205,095)  (185,487)  (136,391)  (149,658)
Depreciation expense  (246,180)  (216,388)  (190,509)  (239,546)  (253,979)  (246,180)
Impairment loss (reversal of impairment losses) recognized in profit or loss for the year  13,195   (25,195)  (1,762)
Changes in inventories for the period  116,300   416,398   - 
Amortization expense  (3,210)  (3,469)  (2,181)
Exploration cost write-off  (6,917)  -     
Inventory Provision  1,956   96   13,195 
Operating leases  (107,284)  (89,229)  (94,511)
Investment plan expenses  (16,624)  (17,574)  - 
Maintenance and repair  (7,187)  (10,112)  (10,171)
Contractors  (62,501)  (49,727)  (66,091)
Operations transport  (54,476)  (52,079)  (61,119)
Freight and product transport costs  (43,716)  (31,052)  (41,415)
Packaging costs  (1,703)  (1,369)  (1,487)
Sales commissions  (9,434)  (7,742)  (8,887)
Port costs  (20,793)  (11,613)  (17,437)
CORFO right costs  (41,962)  (23,155)  (22,885)
Adjustment of customer prices  (8,380)  (2,132)  - 
Other expenses, by nature  (544,018)  (650,638)  63,602   (35,233)  (11,259)  (104,284)
Total  (1,431,242)  (1,481,690)  (1,400,567)  (1,328,285)  (1,185,583)  (1,431,242)

 

27.3Other income

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Discounts obtained from suppliers  705   1,349   648 
Compensation received and insurance claim recovery  645   5,306   5,240 
Penalties charged to suppliers  255   374   312 
Tax recoveries  40   9   15 
Excess in the provision for liabilities with 3rd parties  1,690   712   669 
Excess in allowance for doubtful accounts  296   -   154 
Sale of property, plant and equipment  39   107   281 
Sale of materials, spare parts and supplies  1,241   1,392   1,388 
Sale de scrap  69   27   176 
Sale of mining concessions  13,000   86,157   1,578 
Indemnity Minera Esperanza  -   -   28 
Options on mining properties  921   -   - 
Reimbursement of mining patents and notarial expenses  1,510   -   - 
Overstated provision for indemnity, Yara South Africa  -   272   335 
Non-conventional renewable energy  2,255   -   - 
Goodwill paid in acquisition of portfolio  -   337   - 
Unrealized gain from acquisition of goodwill  -   248   - 
Other operating income  1,389   426   1,878 
Total  24,055   96,716   12,702 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-180F-179

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2726Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature, (continued)

 

27.426.2Administrative expensesOther income

 

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Employee benefit expenses by nature            
Salaries and wages  (42,218)  (48,033)  (44,429)
Other short-term benefits to employees  (4,710)  (3,176)  (2,868)
Total employee benefit expenses  (46,928)  (51,209)  (47,297)
Other expenses, by nature  (49,604)  (53,980)  (59,145)
Total  (96,532)  (105,189)  (106,442)
  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Discounts obtained from suppliers  771   1,343   705 
Indemnification received and insurance recoveries  205   39   2 
Penalties charged to suppliers  358   73   255 
Tax recoveries  26   12   40 
Insurance recoveries  5,636   2,182   643 
Excess in the provision for liabilities with 3rd parties  573   1,039   1,690 
Overstatement of doubtful accounts  56   115   296 
Sale of property, plant and equipment  657   8   39 
Sale of materials, spare parts and supplies  30   1,358   1,241 
Sale de scrap  1   -   69 
Sale of mining properties  -   -   13,000 
Reversal of allowance for inventories  815   -   - 
Options on mining properties  2,577   2,261   921 
Easements, ducts and roads  219   1,980   - 
Non-conventional renewable energy  639   344   2,255 
Reimbursement of mining patents and notarial expenses  1,300   1,025   1,510 
Miscellaneous services  -   405   - 
Reimbursements from creditors  -   890   - 
Other operating income  918   2,269   1,389 
Total  14,781   15,343   24,055 

 

27.5F-180Other expenses

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Employee benefit expenses by nature            
Other short-term benefits to employees  -   (6)  (24)
Depreciation and amortization expenses            
Depreciation of stopped assets  (284)  (433)  (5,649)
Depreciation of residual value  (4,827)  -     
Subtotal to date  (5,111  (439  (5,673)
Impairment loss (reversal of impairment losses) recognized in profit or loss for the year            
Impairment of allowance for doubtful accounts  (349)  (732)  (1,054)
Subtotal to date  (349)  (732)  (1,054)
             
Other expenses, by nature            
Legal Expenses  (5,465)  (3,791)  (1,984)
Worksite stoppage expenses  (257)  (75)  (75)
VAT and other unrecoverable tax  (1,164)  (1,196)  (1,182)
Fines paid  (857)  (444)  (790)
Article 21 single tax  (4,140)  -   - 
Advisory services  (2)  (8)  (19)
Provisions, investment plan expenses, materials and closing sales  (41,505)  (19,397)  (15,578)
Donations rejected as expense  (1,514)  (5,253)  (5,517)
Provision for work closing  -   (1,276)  (634)
Adjustment to realization amount of property, plant and equipment  -   (10,085)  - 
Indemnities paid  -   (146)  (281)
Other operating expenses  (3,931)  (6,555)  (1,841)
Subtotal to date  (58,835)  (48,226)  (27,901)
Total  (64,295)  (49,397)  (34,628)

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2726Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature, (continued)

 

27.626.4Other income (expenses)

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Provision for restructuring  -   (11,545)  - 
Prior year adjustment, application of equity method of accounting  (2,935)  22   736 
Sale of investments in associates  5,000   -   (404)
Gain (loss) for no involvement in capital contribution (*)  2,359   -   - 
Other  -   132   351 
Total  4,424   (11,391)  683 

(*) Refer Note 6.7

27.7Summary of expenses by nature

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Raw material and supplies used  (593,126)  (811,518)  (1,066,803)
Types of employee benefits expenses            
Salaries and wages  (150,135)  (186,970)  (178,829)
Other short-term employee benefits  (66,235)  (47,783)  (69,262)
Termination benefit expenses  (7,971)  (10,811)  (4,325)
Total employee benefit expenses  (224,341)  (245,564)  (252,416)
Depreciation expense  (246,464)  (216,821)  (196,158)
Depreciation of residual value  (4,827)  -   - 
Impairment loss (reversal of impairment losses) recognized in profit or loss for the year  12,846   (25,927)  (2,816)
Other expenses, by nature  (528,969)  (347,837)  (23,444)
Total  (1,584,881)  (1,647,667)  (1,541,637)

This table corresponds to the summary from Note 27.2 to 27.6 required by the Chilean Superintendence of Securities and Insurance

27.8FinanceAdministrative expenses

 

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
Interest expense from bonds  (61,714)  (65,763)  (56,743)
Interest expense from loans  (8,268)  (9,080)  (10,043)
Capitalized interest expenses  7,732   17,232   14,153 
Other finance costs  (1,123)  (997)  (1,462)
Total  (63,373)  (58,608)  (54,095)
  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Employee benefit expenses by nature            
Salaries and wages  (42,828)  (41,661)  (42,218)
Other short-term benefits to employees  (4,389)  (3,011)  (4,710)
Total employee benefit expenses  (47,217)  (44,672)  (46,928)
Amortization expense  (6)  (5)  - 
Advisory services  (7,086)  (7,293)  (6,714)
Audit fees  (1,767)  (415)  (357)
Marketing costs  (1,338)  (1,614)  (1,929)
Building and facilities rent expenses  (2,489)  (1,836)  (2,178)
Advertising expenses  (173)  (230)  (217)
Luncheon expenses  (548)  (350)  (309)
Accommodation expenses  (633)  (434)  (333)
Personnel expenses  (453)  (27)  (83)
Representation expenses  (506)  (277)  (272)
Tickets and transportation  (1,599)  (1,594)  (1,570)
Isapre (Healthcare institution) contribution payments  (532)  (363)  (207)
Other employee expenses  (1,386)  (1,440)  (1,457)
General materials  (1,110)  (1,434)  (307)
Light truck rent  (622)  (517)  (362)
Professional services  (1,275)  (2,164)  - 
Data transmission services  (1,365)  (1,317)  (1,466)
Maintenance services  (713)  (559)  (834)
Miscellaneous contractors  (2,497)  (2,141)  (626)
Mobile phone services  (584)  (303)  (391)
Acquisition of software  (1,945)  (1,258)  (1,009)
Real estate contributions  (838)  (819)  (880)
Business licenses  (843)  (1,052)  (1,071)
Insurance policies  (1,271)  (774)  (921)
Miscellaneous expenses  (1,184)  (1,044)  (1,224)
Other expenses, by nature  (8,456)  (12,898)  (24,887)
Total  (88,436)  (86,830)  (96,532)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-182F-181

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 26Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

26.4Other expenses by function

  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Employee benefit expenses by nature            
Depreciation and amortization expenses            
Depreciation of stopped assets  (111)  (316)  (284)
Depreciation, residual value  -   -   (4,827)
Subtotal to date  (111)  (316)  (5,111)
Impairment loss (review of impairment losses) recognized in profit or loss for the year            
Impairment of allowance for doubtful accounts  (7.198)  (2.981)  (349)
Subtotal to date  (7.198)  (2.981)  (349)
             
Other expenses, by nature            
Legal Expenses  (5,737)  (17,204)  (5,465)
Mine site activity disruption expenses (impairment)  (32,061)  (57,665)  (257)
Indemnities paid  -   (3,714)  - 
VAT and other unrecoverable tax  (1,015)  (1,146)  (1,164)
Fines, interests and tax (*)  (1,378)  (3,953)  (857)
SEC and Department of Justice fines  (30,488)  -   - 
Advisory services  (59)  (15)  (2)
Provisions, materials and action sales  (815)  -     
Provisions, Investment plan expenses materials and closing  (6,657)  (16,246)  (41,505)
Tax on rejected expenses (*)  -   (1,653)  (6,493)
Donations rejected as tax credits  (1,692)  (1,350)  (1,514)
Other operating expenses  (2,520)  (172)  (1,578)
Subtotal to date  (82,422)  (103,118)  (58,835)
Total  (89,731)  (106,415)  (64,295)

(*) These balances are considered payments as at september 2015 for approximately ThUS$9.5 in taxes (Tax under Article No. 21 of the Income Tax Law and Value-added Tax), interest and other charges performed by the Company to the Chilean Internal Revenue Service (Servicio de Impuestos Internos) because of the submission of amendments to its income tax returns for tax years from 2009 through 2014, as it identified expenses for which the Company did not have sufficient supporting documentation to be considered expenses necessary to generate income in accordance with the current Chilean tax regulations for approximately ThUS$14.7.

F-182
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 26Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

26.5Other Gains (losses)

  12/31/2016  12/31/2015  12/31/2014 
  ThUS$  ThUS$  ThUS$ 
Adjustment of reversal of provision for staff severance indemnities  -   3,575   - 
Sale of investments in associates  7,636   -   5,000 
Profit (loss) for not being involved in capital contribution  -   -   2,359 
Provision for staff severance indemnities  (6,300)  -   - 
Other gains (losses)  (657)  185   (2,935)
Total  679   3,760   4,424 

F-183
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 26Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

26.6Summary of expenses by nature

  January to December 
  2016  2015  2014 
  ThUS$  ThUS$  ThUS$ 
          
Raw material and supplies used  (485,788)  (484,797)  (618,131)
             
Types of employee benefits expenses            
Salaries and wages  (146,972)  (138,671)  (154,685)
Other short-term employee benefits  (81,896)  (36,673)  (33,594)
Termination benefit expenses  (3,836)  (5,719)  (8,307)
Total employee benefit expenses  (232,704)  (181,063)  (196,586)
Depreciation and amortization expenses            
Depreciation expense  (239,657)  (254,295)  (246,464)
Depreciation expense, residual value  -   -   (4,827)
Amortization expense  (3,217)  (3,475)  2,181)
Small deposit amortization expenses  (6,917)  -   - 
Impairment loss (reversal of impairment losses) recognized in profit or loss for the year  (6,057)  (2,887)  12,846 
Operating leases  (107,284)  (89,229)  (94,511)
Production disruption expenses  (32,061)  (61,379)  (5,465)
Fines paid  (31,867)  (4,648)  (1,164)
Investment plan expenses  (23,281)  (37,318)  (2)
Maintenance and repair  (7,187)  (10,112)  (10,171)
Contractors  (62,501)  (49,727)  (66,091)
Operations transport  (54,476)  (52,079)  (61,119)
Freight and product transport costs  (43,716)  (31,052)  (41,415)
Packaging costs  (1,703)  (1,369)  (1,487)
Sales commissions  (9,434)  (7,742)  (8,887)
Port costs  (20,793)  (11,613)  (17,437)
Corfo rights  (41,962)  (23,155)  (22,885)
Adjustment of customer prices  (8,380)  (2,132)  - 
Advisory services  (7,086)  (744)  (7,571)
Audit fees  (1,767)  (415)  (357)
Marketing costs  (1,338)  (1,614)  (1,929)
Rent of buildings and facilities  (2,489)  (417)  (2,178)
Advertising expenses  (173)  (230)  (217)
Luncheon expenses  (548)  (350)  (309)
Accommodation expenses  (633)  (434)  (333)
Personnel expenses  (453)  (27)  (83)
Representation expenses  (506)  (277)  (272)
Tickets and transportation expenses  (1,599)  (1,594)  (1,570)
Isapre (healthcare institution) contributions  (532)  (363)  (207)
Other employee expenses  (1,386)  (1,440)  (1,457)
General material expenses  (1,110)  (1,434)  (307)
Rent of light trucks  (622)  (517)  (362)
Professional services  (1,275)  (2,164)  - 
Data transmission services  (1,365)  (1,317)  (1,466)
Maintenance services  (713)  (559)  (834)
Miscellaneous contractors  (2,497)  (2,141)  (626)
Mobile phone services  (584)  (303)  (391)
Acquisition of software  (1,945)  (1,258)  (1,009)
Real estate contributions  (838)  (819)  (880)
Business license  (843)  (1,052)  (1,071)
Insurance policies  (1,271)  (774)  (921)
Miscellaneous expenses  (1,184)  (1,044)  (1,224)
Other expenses by nature  (54,709)  (56,657)  (180,518)
Total expenses by nature  (1,506,451)  (1,386,016)  (1,592,069)

This table corresponds to the summary required by the Chilean Superintendence of Securities and Insurance (SVS) and considers notes 25.2, 25.4 and 25.5.

F-184
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 26Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

26.7Finance expenses

  January to December 
  2016  2015  2014 
  ThUS$  ThUS$  ThUS$ 
Interest expense from bank borrowings and overdrafts  (854)  (932)  (931)
Interest expense from bonds  (57,409)  (66,456)  (61,714)
Interest expense from loans  (4,581)  (6,922)  (8,268)
Capitalized interest expenses  5,406   4,666   7,732 
Other finance costs  (60)  (209)  (192)
Total  (57,498)  (69,853)  (63,373)

Note 28 Income tax and deferred taxes

Note 27Income tax and deferred taxes

 

Accounts receivable from taxes as of December 31, 20142016 and December 31, 2013,2015, are as follows:

 

28.127.1Current and non-current tax assets

a)Current tax assets

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
Monthly provisional income tax payments, Chilean companies current year  39,551   44,018   49,110   62,126 
Monthly provisional payment Royalty  4,586   10,417   3,542   1,138 
Monthly provisional income tax payments, foreign companies  2,093   1,444   1,323   1,178 
Corporate tax credits (1)  1,729   2,025   748   830 
Corporate tax absorbed by tax losses (2)  16   1,572   64   5 
Total  47,975   59,476   54,787   65,277 

b)Non-current tax assets

12/31/201612/31/2015
ThUS$ThUS$
Monthly provisional income tax payments, Chilean companies prior year3,243-
Specific tax on mining activities paid (on consignment)25,781-
Total29,024-

 

(1)These credits are available to companies and relate to the corporate tax payment in April of the following year. These credits include, amongst others, training expense credits (SENCE) and property, plant and equipment acquisition credits that are equivalent to 4% of the property, plant and equipment purchases made during the year. In addition, some credits relate to the donations the Group has made during 20142016 and 2013.2015.

F-185
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 27Income tax and deferred taxes (continued)

27.1Current and non-current tax assets, continued

(2)This concept corresponds to the absorption of non-operating losses (NOL’s) determined by the company at year end, which must be imputed or recorded in the Retained Taxable Profits Registry (FUT).

 

In accordance with the laws in force and as provided by article 31 No.No, 3 of the Income Tax Law, when profits recorded in the FUT that have not been withdrawn or distributed are totally or partially absorbed by NOL’s, the corporate tax paid on such profits (21%(24%, 22,5%, 21%, 20% or 17%, depending on the year in which profits were generated) will be considered to be a provisional payment with respect to the portion representing the absorbed accumulated tax profits.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-183

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 28 Income tax and deferred taxes (continued)

28.1Current tax assets, continued

 

Tax payers are entitled to apply for a refund of this monthly provisional income tax payments on the absorbed profits recorded in the FUT registry via their tax returns (Form 22).

 

Therefore, the provisional payment for absorbed profits (PPAP) recorded in the FUT is in effect a recoverable tax, and as such the Company records it as an asset.

 

28.227.2Current tax liabilities

 

Current tax liabilities 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
1st Category income tax  2,425   21,466   50,174   30,705 
Foreign company income tax  26,539   10,113   25,276   21,090 
Article 21 single tax  7,207   128 
Tax on rejected expenses  422   275 
Total  36,171   31,707   75,872   52,070 

 

Income tax is calculated based on the profit or loss for tax purposes that is applied to the effective tax rate applicable in Chile. As established by Law No.20.780,No.20,780, an income tax rate of 21% was set starting from 2014, a rate of 22.5% for 2015, and a rate of 24% for 2016; beginning in2016, a rate of 25.5% for 2017, theand a rate will range between 25% andof 27% depending on the taxation system selected by the system, Attributed Income System or Partially-Integrated Taxation System.starting from 2018.

 

The provision for royalty is determined by applying the tax rate determined for the net operating income (NOI). Currently, the Company pays 5% for the application of the Tax Invariability Contract established with the Ministry of Economy in 2010.

 

In conclusion, both concepts represent the estimated amount the Company will have to pay for income tax and specific tax on mining.

 

F-186
 Notes to the Consolidated Financial Statements as of December 31, 2016

28.3Note 27Income tax and deferred taxes (continued)

27.3Tax earnings

 

As of December 31, 2014, 20132016 and 2012,December 31, 2015, the Company and its subsidiaries have recorded the following consolidated balances for retained tax earnings, income not constituting revenue subject to income tax, accumulated tax losses and credit for shareholders:

 

  

12/31/2014

ThUS$

  

12/31/2013

ThUS$

  

12/31/2012

ThUS$

 
Taxable profits with credit rights (1)  1,160,329   1,321,643   1,262,201 
Taxable profits without credit right(1)  62,621   90,628   138,535 
Taxable loss  7,396   7,425   9,931 
Credit for shareholders  268,901   321,006   294,146 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-184

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 28 Income tax and deferred taxes (continued)

28.3Tax earnings, continued
  12/31/2016
ThUS$
  12/31/2015
ThUS$
  12/31/2014
ThUS$
 
Taxable profits with credit rights  727,624   1,254,859   1,160,329 
Taxable profits without credit right  588,942   94,073   62,621 
Taxable loss  9,081   9,947   7,396 
Credit for shareholders  203,612   302,081   268,901 

 

The Retained Taxable Profits Registry (FUT) is a chronological registry where the profits generated and distributed by the company are recorded. The object of the FUT is to control the accumulated tax profits of the company that may be distributed, withdrawn or remitted to the owners, shareholders or partners, and the final taxes that must be imposed, called in Chile Global Aggregate Tax (that levies persons resident or domiciled in Chile), or Withholding Taxadditional tax (that levies persons “not” resident or domiciled in Chile).

 

The FUT Register contains profits with credit rights and profits without credit rights, which arise out of the inclusion of the net taxable income determined by the company or the profits received by the company that may be dividends received or withdrawals made during the period.

 

Profits without credit rights represent the tax payable by the company within the year and filed the following year, therefore they will be deducted from the FUT Registry the following year.

 

Profits with credit rights may be used to reduce the final tax burden of owners, shareholders or partners, which upon withdrawal are entitled to use the credits associated with the relevant profits.

 

In summary, companies use the FUT Registry to maintain control over the profits they generate that have not been distributed to the owners and the relevant credits associated with such profits.

 

28.427.4Income tax and deferred taxes

 

Assets and liabilities recognized in the statement of financial position are offset if and only if:

 

1The Company has legally recognized before the right the tax authority to offset the amounts recognized in these entries; and

 

2Deferred income tax assets and liabilities are derived from income tax related to the same tax authority on:

 

(i)the same entity or tax subject; or

 

(ii)      different entities or tax subjects who intend either to settle current fiscal assets and liabilities for their net amount, or to realize assets and pay liabilities simultaneously in each of the future periods in which the Company expects to settle or recover significant amounts of deferred tax assets or liabilities.

(ii)different entities or tax subjects who intend either to settle current fiscal assets and liabilities for their net amount, or to realize assets and pay liabilities simultaneously in each of the future periods in which the Company expects to settle or recover significant amounts of deferred tax assets or liabilities.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-185F-187

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 27Income tax and deferred taxes (continued)

 

Note 28 Income tax and deferred taxes (continued)

28.4 Income tax and deferred taxes, continued

27.4Income tax and deferred taxes, continued

 

Deferred income tax assets recognized are the income taxes that are to be recovered in future periods, related to:

 

a)deductible temporary differences;differences.

b)the offset of losses obtained in prior periods and not yet subject to tax deduction; and

c)the offset of unused credits from prior periods.

 

The Company recognizes a deferred tax asset when there is certainty that these can be offset with tax income from subsequent periods, losses or fiscal credits not yet used, but solely as long as it is more likely than not that there will be tax earnings in the future against which to charge to these losses or unused fiscal credits.

 

Deferred tax liabilities recognized refer to the amounts of income taxes payable in future periods related to taxable temporary differences.

 

d.1Income tax assets and liabilities as of December 31, 20142016 are detailed as follows:

 

 Net position, assets Net position, liabilities 
 Assets Liabilities Assets Liabilities  Net position, assets Net position, liabilities 
Description of deferred income tax assets and liabilities ThUS$ ThUS$ ThUS$ ThUS$  Assets Liabilities Assets Liabilities 
 ThUS$ ThUS$ ThUS$ ThUS$ 
Depreciation  27   -   -   233,889   -   (1)  -   (221,791)
Doubtful accounts impairment  40   -   6,715   -   32   -   4,273   - 
Accrued vacations  -   -   3,735   -   -   -   4,062   - 
Manufacturing expenses  -   -   -   81,650   -   -   -   (110,718)
Unrealized gains (losses) from sales of products  -   -   83,355   -   -   -   86,156   - 
Fair value of bonds  -   -   350   -   -   -   -   (24)
Severance indemnity  -   -   -   5,950   -   -   -   (5,203)
Hedging  -   -   5,512   -   -   -   10,230   - 
Inventory of products, spare parts and supplies  49   -   24,583   -   77   -   20,899   - 
Research and development expenses  -   -   -   4,285   -   -   -   (4,641)
Tax losses  -   -   715   -   -   -   1,302   - 
Capitalized interest  -   -   -   26,904   -   -   -   (1,340)
Expenses in assumption of bank loans  -   -   -   4,011   -   -   -   (3,115)
Unaccrued interest  -   -   150   -   -   -   136   - 
Fair value of property, plant and equipment  -   -   70   -   -   -   -   (4,179)
Employee benefits  -   -   2,450   -   -   -   6,783   - 
Royalty deferred income taxes  -   -   -   7,791   -   -   -   (6,458)
Acquisition of intangible assets  -   -   -   235           -   (218)
Provision for lawsuits and legal expenses  -   -   3,663   -   -   -   9,276   - 
Provision for investment plan  -   -   8,946   -   -   -   1,953   - 
Provision of fines and crushing site closure  -   -   1,654   - 
Provision for materials, spare-parts and supplies  -   -   7,547   - 
Deferred taxes, investments in equity instruments  -   -   -   (1,300)
Provision for mine closure, fine copper and crushing  -   -   -   - 
Other  224   -   -   532   575   (19)  251   - 
Balance to date  340   -   141,898   365,247   684   (20)  152,868   (358,987)
Net balance  340   -   -   223,349   664   -   -   (206,119)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-186F-188

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 28 Income tax and deferred taxes (continued)

Note 27Income tax and deferred taxes (continued)

 

28.427.4Income tax and deferred taxes, continued

 

d.2       Income tax assets and liabilities as of December 31, 2013 are detailed as follows

d.2Income tax assets and liabilities as of December 31, 2015 are detailed as follows

 

 Net position, assets Net position, liabilities 
 Assets Liabilities Assets Liabilities  Net position, assets Net position, liabilities 
Description of deferred income tax assets and liabilities ThUS$ ThUS$ ThUS$ ThUS$  Assets Liabilities Assets Liabilities 
 ThUS$ ThUS$ ThUS$ ThUS$ 
Depreciation  -   -   -   162,378   -   -   -   233.073 
Doubtful accounts impairment  -   -   7,030   -   -   -   5.119   - 
Accrued vacations  -   -   3,566   -   -   -   3.368   - 
Manufacturing expenses  -   -   -   66,759   -   -   -   109.134 
Unrealized gains (losses) from sales of products  -   -   84,711   -   -   -   87.440   - 
Fair value of bonds  -   -   661   -   -   -   446   - 
Severance indemnity  -   -   -   4,628   -   -   -   4.178 
Hedging  -   -   -   5,261   -   -   11.876   - 
Inventory of products, spare parts and supplies  1   -   20,828   -   1   -   29.473   - 
Research and development expenses  -   -   -   7,018   -   -   -   7.981 
Tax losses  -   -   468   -   -   -   1.522   - 
Capitalized interest  -   -   -   21,759   -   -   -   3.133 
Expenses in assumption of bank loans  -   -   -   2,917   -   -   -   3.651 
Unaccrued interest  -   -   39   -   -   -   156   - 
Fair value of property, plant and equipment  -   -   -   603   -   -   -   3.375 
Employee benefits  -   -   381   -   -   -   1.920   - 
Royalty deferred income taxes  -   -   -   7,923   -   -   -   6.410 
Purchase of intangible assets  -   -   -   235 
Acquisition of intangible assets  -   -   -   - 
Provision for lawsuits and legal expenses  -   -   1,878   -   -   -   7.357   - 
Provision for investment plan  -   -   4,225   -   -   -   3.312   - 
Provision of fines and crushing site closure  -   -   1,600   - 
Provision for mine closure, fine copper and crushing  -   -   -   - 
Other  530   -   -   201   160   -   -   445 
Balance to date  531   -   125,387   279,682   161   -   151.989   371.380 
Net balance  531   -   -   154,295   161   -   -   219.391 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-187F-189

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 28 Income tax and deferred taxes (continued)

 

28.4Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

 

d.3       Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2014

d.3Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2016

 

 

Deferred tax

liabilities

(assets) at

the beginning

of the period

 

Deferred tax

expense

(income)

recognized in

profit or loss

 

Deferred

tax related

to items

credited

(debited)

directly to

equity

 

Total increase

(decrease) of

deferred tax

liabilities

(assets)

 

Deferred

tax

liabilities

(assets) at

the end of

the period

  Deferred tax
liabilities
(assets) at the
beginning of
the period
 Deferred tax
expense
(income)
recognized in
profit or loss
 Deferred tax
related to
items credited
(debited)
directly to
equity
 Total increase
(decrease) of
deferred tax
liabilities
(assets)
 Deferred tax
liabilities
(assets) at the
end of the
period
 
 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 
Depreciation  162,378   71,484   -   71,484   233,862   233,073   (11,281)  -   (11,281)  221,792 
Doubtful accounts impairment  (7,030)  275   -   275   (6,755)  (5,119)  814   -   814   (4,305)
Accrued vacations  (3,566)  (169)  -   (169)  (3,735)  (3,368)  (694)  -   (694)  (4,062)
Manufacturing expenses  66,759   14,891   -   14,891   81,650   109,134   1,584   -   1,584   110,718 
Unrealized gains (losses) from sales of products  (84,711)  1,356   -   1,356   (83,355)  (87,440)  1,284   -   1,284   (86,156)
Fair value of bonds  (661)  -   311   311   (350)  (446)  -   470   470   24 
Severance indemnity  4,628   1,322   -   1,322   5,950   4,178   1,946   (920)  1,026   5,204 
Hedging  5,261   (10,773)  -   (10,773)  (5,512)  (11,876)  1,646   -   1,646   (10,230)
Inventory of products, spare parts and supplies  (20,829)  (3,803)  -   (3,803)  (24,632)  (29,474)  8,498   -   8,498   (20,976)
Research and development expenses  7,018   (2,733)  -   (2,733)  4,285   7,981   (3,340)  -   (3,340)  4,641 
Capitalized interest  21,759   5,145   -   5,145   26,904   3,133   (1,793)  -   (1,793)  1,340 
Expenses in assumption of bank loans  2,917   1,094   -   1,094   4,011   3,651   (536)  -   (536)  3,115 
Unaccrued interest  (39)  (111)  -   (111)  (150)  (156)  20   -   20   (136)
Fair value of property, plant and equipment  603   (673)  -   (673)  (70)  3,375   804   -   804   4,179 
Employee benefits  (381)  (2,069)  -   (2,069)  (2,450)  (1,920)  (4,863)  -   (4,863)  (6,783)
Royalty deferred income taxes  7,923   (132)  -   (132)  7,791   6,410   48   -   48   6,458 
Unused tax losses  (468)  (247)  -   (247)  (715)  (1,522)  220   -   220   (1,302)
Purchase of intangible assets  235   -   -   -   235   -   218   -   218   218 
Provision for lawsuits and legal expenses  (1,878)  (1,785)  -   (1,785)  (3,663)  (7,357)  (1,919)  -   (1,919)  (9,276)
Provision for investment plan  (4,225)  (4,721)  -   (4,721)  (8,946)  (3,312)  1,359   -   1,359   (1,953)
Provision of fines and crushing site closure  (1,600)  (54)  -   (54)  (1,654)  -   (7,547)  -   (7,547)  (7,547)
Other ID  (329)  637   -   637   308   -   -   1,299   1,299   1,299 
Depreciation 285  (1,092) -  (1,092) (807)
Total temporary differences, losses and unused fiscal credits  153,764   68.934   311   69,245   223,009   219,230   (14,624)  849   (13,775)  205,455 

F-190
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

d.4Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2015

  Deferred tax
liabilities
(assets) at the
beginning of
the period
  Deferred tax
expense 
(income)
recognized in
profit or loss
  Deferred tax
related to
items credited
(debited)
directly to
equity
  Total increase
(decrease) of
deferred tax
liabilities
 (assets)
  Deferred tax
liabilities
(assets) at the
end of the
period
 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Depreciation  233,862   (789)  -   (789)  233,073 
Doubtful accounts impairment  (6,755)  1,636   -   1,636   (5,119)
Accrued vacations  (3,735)  367   -   367   (3,368)
Manufacturing expenses  81,650   27,484   -   27,484   109,134 
Unrealized gains (losses) from sales of products  (83,355)  (4,085)  -   (4,085)  (87,440)
Fair value of bonds  (350)  -   (96)  (96)  (446)
Severance indemnity  5,950   (2,081)  309   (1,772)  4,178 
Hedging  (5,512)  (6,364)  -   (6,364)  (11,876)
Inventory of products, spare parts and supplies  (24,632)  (4,842)  -   (4,842)  (29,474)
Research and development expenses  4,285   3,696   -   3,696   7,981 
Capitalized interest  26,904   (23,771)  -   (23,771)  3,133 
Expenses in assumption of bank loans  4,011   (360)  -   (360)  3,651 
Unaccrued interest  (150)  (6)  -   (6)  (156)
Fair value of property, plant and equipment  (70)  3,445   -   3,445   3,375 
Employee benefits  (2,450)  530   -   530   (1,920)
Royalty deferred income taxes  7,791   (1,381)  -   (1,381)  6,410 
Unused tax losses  (715)  (807)  -   (807)  (1,522)
Purchase of intangible assets  235   (235)  -   (235)  - 
Provision for lawsuits and legal expenses  (3,663)  (3,694)  -   (3,694)  (7,357)
Provision for investment plan  (8,946)  5,634   -   5,634   (3,312)
Provision of fines and crushing site closure  (1,654)  1,654   -   1,654   - 
Other ID  308   (23)  -   (23)  285 
Total temporary differences, losses and unused fiscal credits  223,009   (3,992)  213   (3,779)  219,230 

 

During the period ended December 31, 2014,2016 and December 31, 2015, the Company calculated and accounted for taxable income considering a rate of 21% for commercial year 201424% and 22.5% respectively, in conformity with Law No. 20.780,No, 20,780, Tax Reform, published in the Official Gazette on September 29, 2014.

 

The main amendments include a gradual increase in the corporate income tax rate up to 27% starting from 2018 for taxpayers who apply the “partially-integrated taxation system.” The maximum rate would be 25% starting from 2017 if the Company opts to use the “Attributed Income Taxation System.”2018.

 

Such Law establishes that because SQM S.A. is openly-held shareholders’ corporations, in general the “Partially-integrated taxation system” is applicable, unless the Company opts to use the “Attributed Income Taxation System” as agreed by the shareholders at an Extraordinary Shareholders’ Meeting in the future.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-188F-191

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 28 Income tax and deferred taxes (continued)

 

28.4Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

 

d.4 Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2013

  

Deferred tax

liabilities

(assets) at

the beginning

of the period

  

Deferred tax

expense

(income)

recognized in

profit or loss

  

Deferred tax

related to

items credited

(debited)

directly to

equity

  

Total increase

(decrease) of

deferred tax

liabilities

(assets)

  

Deferred

tax

liabilities

(assets) at

the end of

the period

 
  ThUS$  ThUS$  ThUS$  ThUS$  ThUS$ 
Depreciation  145,251   17,127   -   17,127   162,378 
Doubtful accounts impairment  (5,807)  (1,223)  -   (1,223)  (7,030)
Accrued vacations  (3,971)  405   -   405   (3,566)
Manufacturing expenses  60,160   6,599   -   6,599   66,759 
Unrealized gains (losses) from sales of products  (105,879)  21,168   -   21,168   (84,711)
Fair value of bonds  (3,684)  -   3,023   3,023   (661)
Severance indemnity  4,483   145   -   145   4,628 
Hedging  22,890   (17,629)  -   (17,629)  5,261 
Inventory of products, spare parts and supplies  (15,027)  (5,802)  -   (5,802)  (20,829)
Research and development expenses  4,917   2,101   -   2,101   7,018 
Capitalized interest  20,449   1,310   -   1,310   21,759 
Expenses in assumption of bank loans  2,243   674   -   674   2,917 
Unaccrued interest  (215)  176   -   176   (39)
Fair value of property, plant and equipment  2,743   (2,140)  -   (2,140)  603 
Employee benefits  (2,027)  1,646   -   1,646   (381)
Royalty deferred income taxes  8,430   (507)  -   (507)  7,923 
Unused tax losses  (1,509)  1,041   -   1,041   (468)
Purchase of intangible assets  -   235   -   235   235 
Provision for lawsuits and legal expenses  (1,823)  (55)  -   (55)  (1,878)
Provision for investment plan  (2,487)  (1,738)  -   (1,738)  (4,225)
Provision of fines and crushing site closure  (745)  (855)  -   (855)  (1,600)
Other  (3,170)  2,841   -   2,841   (329)
Total temporary differences, losses and unused fiscal credits  125,222   25,519   3,023   28,542   153,764 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-189

Notes to the Consolidated Financial Statements as of December 31, 2014

Note 28 Income tax and deferred taxes (continued)

28.4d.5IncomeDeferred taxes related to benefits for tax and deferred taxes, continuedlosses

d.5         Deferred taxes related to benefits for tax losses

 

The Company’s tax loss carryforwards (NOL carryforwards) were mainly generated by losses in Chile, which in accordance with current Chilean tax regulations have no expiration date.

 

As of December 31, 20142016 and December 31, 2013,2015, tax loss carryforwards (NOL carryforwards) are detailed as follows:

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
          
Chile  715   468   1,302   1,522 
Total  715   468   1,302   1,522 

 

Tax losses as of December 31, 2016 correspond mainly to Servicios Integrales de Tránsitos y TransferenciasSQM S.A., Exploraciones Mineras S.A. e Isapre Norte Grande Ltda.and Agrorama S.A.

 

d.6       Unrecognized deferred income tax assets and liabilities

Unrecognized deferred tax assets and liabilities as of December 31, 2014, 2013 and 2012 are as follows:

  12/31/2014  12/31/2013  12/31/2012 
  ThUS$  ThUS$  ThUS$ 
  Assets (liabilities)  Assets (liabilities)  Assets (liabilities) 
          
Tax losses (NOL’s)  139   139   139 
Doubtful accounts impairment  81   81   81 
Inventory impairment  1,020   1,020   1,020 
Pensions plan  (536)  (536)  (536)
Accrued vacations  29   29   29 
Depreciation  (57)  (57)  (57)
Other  (19)  (19)  (19)
Balances to date  657   657   657 

Tax losses mainly relate to the United States, and they expire in 20 years.

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-190F-192

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2827      Income tax and deferred taxes (continued)

 

28.427.4Income tax and deferred taxes, continued

 

d.7       Movements in deferred tax assets and liabilities

d.6Movements in deferred tax assets and liabilities

 

Movements in deferred tax assets and liabilities as of December 31, 20142016 and December 31, 20132015 are detailed as follows:

 

 12/31/2014 12/31/2013  12/31/2016 12/31/2015 
 ThUS$ ThUS$  ThUS$ ThUS$ 
 Liabilities
(assets)
 Liabilities
(assets)
  Liabilities (assets) Liabilities (assets) 
          
Deferred tax assets and liabilities, net opening balance  153,764   125,222   219,230   223,009 
Increase (decrease) in deferred taxes in profit or loss  68,934   25,519   (14,624)  (3,992)
Increase (decrease) in deferred taxes in equity  311   3,023   849   213 
Balances to date  223,009   153,764   205,455   219,230 

 

d.8      Disclosures on income tax expense (income)

d.7Disclosures on income tax expense (income)

 

The Company recognizes current tax and deferred taxes as income or expenses, and they are included in profit or loss, unless they arise from:

 

(a)a transaction or event recognized in the same period or in a different period, outside profit or loss either in other comprehensive income or directly in equity; or

 

(b)a business combination

 

Current and deferred tax expenses (income) are detailed as follows:

 

 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
 Income
(expenses)
 Income
(expenses)
 Income
(expenses)
  Income (expenses) Income (expenses) Income (expenses) 
              
Current income tax expense                        
Current income tax expense  (94,796)  (113,326)  (187,715)  (149,669)  (89,869)  (94,796)
Adjustments to prior year current income tax  3,043   305   145   2,080   2,111   3,043 
Current income tax expense, net, total  (91,753)  (113,021)  (187,570)  (147,589)  (87,758)  (91,753)
                        
Deferred tax expense                        
Deferred tax expense (income) related to the creation and reversal of temporary differences  (16,629)  (25,518)  (28,512)
            
Deferred tax expense (income) related to changes in tax rates  (52,304)  -   - 
            
Deferred tax expense (income) relating to the creation and reversal of temporary differences  14,624   3,992   (68,933)
Deferred tax expense, net, total  (68,933)  (25,518)  (28,512)  14,624   3,992   (68,933)
Tax expense (income)  (160,686)  (138,539)  (216,082   (132,965)  (83,766)  (160,686)

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-191F-193

 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 2827      Income tax and deferred taxes (continued)

 

28.427.4Income tax and deferred taxes, continued

 

Tax expenses (income) for foreign and domestic parties are detailed as follows:

 

 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
 Income
(expenses)
 Income
(expenses)
 Income
(expenses)
  Income
(expenses)
 Income
(expenses)
 Income
(expenses)
 
              
Current income tax expense by foreign and domestic parties, net                        
Current income tax expense, foreign parties, net  (7,761)  (8,267)  (14,790)  (10,844)  (5,719)  (7,761)
Current income tax expense, domestic, net  (136,296)  (104,769)  (172,780)  (136,745)  (82,039)  (83,992)
Current income tax expense, net, total  (144,057)  (113,036)  (187,570)  (147,589)  (87,758)  91,573 
                        
Deferred tax expense by foreign and domestic parties, net                        
Deferred tax expense, foreign parties, net  (138)  492   474   626   (232)  (138)
Deferred tax expense, domestic, net  (16,491)  (25,995)  (28,986)  13,998   4,224   (68,975)
Deferred tax expense, net, total  (16,629)  (25,503)  (28,512   14,624   3,992   (69,113)
Income tax expense  (160,686)  (138,539)  (216,082)  (132,965)  (83,766)  (160,686)

 

d.9d.8Equity interest in taxation attributable to equity-accounted investees

 

The Company does not recognize any deferred tax liability in all cases of taxable temporary differences associated with investments in subsidiaries, branches and associated companies or interest in joint ventures, because as indicated in the standard, the following two conditions are jointly met:

 

(a)the parent, investor or interest holder is able to control the time for reversal of the temporary difference; and

 

(b)It is more likely than not that the temporary difference is not reversed in the foreseeable future.

 

In addition, the Company does not recognize deferred income tax assets for all deductible temporary differences from investments in subsidiaries, branches and associated companies or interests in joint ventures because it is not possible to meet for the following requirements:

 

(a)      Temporary differences are reversed in a foreseeable future; and 

(b)      The Company has tax earnings, against which temporary differences can be used.

(a)Temporary differences are reversed in a foreseeable future; and

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

(b)The Company has tax earnings, against which temporary differences can be used.

F-192F-194

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 28 Income tax and deferred taxes (continued)

 

28.4Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

 

d.10     Disclosures on the tax effects of other comprehensive income components:

d.9Disclosures on the tax effects of other comprehensive income components:

 

Income tax related to other income and expense
components with a charge or credit to net equity
 

Amount

before taxes

(expense)

gain

 

(Expense)

income for

income taxes

 

Amount

after taxes

  Amount before
taxes (expense)
gain
 (Expense)
income for
income taxes
 Amount after
taxes
 
 12/31/2014 12/31/2014 12/31/2014  12/31/2016 12/31/2016 12/31/2016 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Gain (loss) from defined benefit plans  (3,397)  920   (2,477)
Cash flow hedge  1,638   (311)  1,327   2,233   (470)  1,763 
Reserve for gains (losses) from financial assets measured at fair value through other comprehensive income  4,813   (1,299)  3,514 
Total  1,638   (311)  1,327   3,649   (849)  2,800 

 

Income tax related to components of other income and
expense with a charge or credit to net equity
 

Amount

before taxes

(expense)

gain

 

(Expense)

income for

income taxes

 

Amount

after taxes

  Amount before
taxes (expense)
gain
 ((Expense)
income for
income taxes
 Amount after
taxes
 
 12/31/2013 31/12/2013 31/12/2013  12/31/2015 12/31/2015 12/31/2015 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Gain (loss) from defined benefit plans  (174)  (309)  (483)
Cash flow hedge  15,113   (3,023)  12,090   86   96   182 
Total  15,113   (3,023)  12,090   (88)  (213)  (301)

 

Income tax related to components of other income and
expense with a charge or credit to net equity
 

Amount

before taxes

(expense)

gain

 

(Expense)

income for

income taxes

 

Amount

after taxes

  Amount before
taxes (expense)
gain
 ((Expense)
income for
income taxes
 Amount after
taxes
 
 12/31/2012 31/12/2012 31/12/2012  12/31/2014 12/31/2014 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Cash flow hedge  (6,236)  1,580   (4,656)  1,638   (311)  1,327 
Total  (6,236)  1,580   (4,656)  1,638   (311)  1,327 

 

d.11    Explanation of the relationship between expense (income) for tax purposes and accounting income.

d.10Explanation of the relationship between expense (income) for tax purposes and accounting income.

 

In accordance with paragraph No.No, 81, letter c) of IAS 12, the Company has estimated that the method that discloses more significant information for the users of its financial statements is the reconciliation of tax expense (income) to the result of multiplying income for accounting purposes by the tax rate in force in Chile.Chile, This option is based on the fact that the Parent and its subsidiaries incorporated in Chile generate almost the total amount of tax expense (income) and the fact that amounts of subsidiaries incorporated in foreign countries have no relevant significance within the context of the total amount of tax expense (income).

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-193F-195

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 28 Income tax and deferred taxes (continued)

 

28.4Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

 

Reconciliation of numbers in income tax expenses (income) and the result of multiplying financial gain by the rate prevailing in Chile.Chile,

 

 Income (expense)  Income (expense) 
 12/31/2014 12/31/2013 12/31/2012  12/31/2016 12/31/2015 12/31/2014 
 ThUS$ ThUS$ ThUS$  ThUS$ ThUS$ ThUS$ 
Consolidated income before taxes  404,964   613,109   873,451   414,889   301,098   404,964 
Income tax rate in force in Chile  21%  20%  20%  24%  22,5%  21%
                        
Tax expense using the legal rate  (85,042)  (122,622)  (174,690)  (99,573)  (67,747)  (85,042)
Effect of royalty tax expense  (7,583)  (10,277)  (25,486)  (6,311)  (9,157)  (7,583)
Tax effect of non-taxable revenue  5,420   5,669   7,419   2,461   1,511   2,503 
Effect of taxable rate of non-deductible expenses for determination of taxable income (loss)  (1,897)  (1,955)  (3,091)  (10,202)  (4,350)  (1,897)
Tax effect of tax rates supported abroad  (4,050)  (2,268)  (5,265)
Tax effect from foreign subsidiaries  (15,187)  (3,968)  (7,697)
Effect of tax rate from changes in tax rate  (52,304)  -   -   -   -   (52,304)
Other tax effects from reconciliation between accounting income and tax expense (income)  (15,230)  (7,086)  (17,969)
Tax expense using effective rate  (160,686)  (138,539)  (138,539)
Other tax effects from the reconciliation between the accounting income and tax expense  (4,153)  (55)  (8,666)
Tax expense using the effective rate  (132,965)  (83,766)  (160,686)

 

d.12    Tax periods potentially subject to verification:

d.11Tax periods potentially subject to verification:

 

The Group’s Companies are potentially subject to income tax audits by tax authorities in each country. These audits are limited to a number of interim tax periods, which, in general, when they elapse, give rise to the expiration of these inspections.

 

Tax audits, due to their nature, are often complex and may require several years.years, Below, we provide a summary of tax periods that are potentially subject to verification, in accordance with tax regulations in force in the country of origin:

 

Chile

 

According to article 200 of Decree Law No.No 830, the tax authority shall review for any deficiencies in its settlement and taxes turn giving rise, by applying a requirement of 3 years term from the expiration of the legal deadline when payment should have been made.made, Besides, this requirement was extended to 6 years term for the revision of taxes subject to declaration, when such declaration was not been filed or has been presented maliciously false.

 

United States

 

In the United States, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return.return, In the event that an omission or error is detected in the tax return of sales or cost of sales, the review can be extended for a period of up to 6 years.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-194F-196

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 28 Income tax and deferred taxes (continued)

 

28.4Note 27Income tax and deferred taxes (continued)

27.4Income tax and deferred taxes, continued

 

Mexico:

 

In Mexico, the tax authority can review tax returns up to 5 years from the expiration date of the tax return.

 

Spain:

 

In Spain, the tax authority can review tax returns up to 4 years from the expiration date of the tax return.

 

Belgium:

 

In Belgium, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return if no tax losses exist.exist, In the event of detecting an omission or error in the tax return, the review can be extended for a period of up to 5 years.

 

South Africa:

 

In South Africa, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return.return, In the event an omission or error in the tax return is detected, the review can be extended for a period of up to 5 years.

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-195F-197

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 29 Disclosures on the effects of fluctuations in foreign currency exchange rates

Note 28Disclosures on the effects of fluctuations in foreign currency exchange rates

 

Assets held in foreign currency subject to fluctuations in exchange rates are detailed as follows:

 

Class of assets Currency 

12/31/2014

ThUS$

 

12/31/2013

ThUS$

  Currency 12/31/2016
ThUS
 12/31/2015
ThUS$
 
Current assets          
Current assets:          
Cash and cash equivalents ARS  12   -  ARS  4   1 
Cash and cash equivalents BRL  29   73  BRL  60   8 
Cash and cash equivalents CLP  6,355   25,391  CLP  6,044   2,656 
Cash and cash equivalents CNY  769   384  CNY  400   272 
Cash and cash equivalents EUR  10,449   9,230  EUR  11,386   4,245 
Cash and cash equivalents GBP  5   14  GBP  71   - 
Cash and cash equivalents IDR  4   4  IDR  -   - 
Cash and cash equivalents INR  12   7  INR  12   14 
Cash and cash equivalents MXN  736   428  MXN  310   1,439 
Cash and cash equivalents PEN  1   2  PEN  3   1 
Cash and cash equivalents THB  2,055   2,161  THB  -   1 
Cash and cash equivalents YEN  1,701   1,435  YEN  2,150   1,690 
Cash and cash equivalents ZAR  4,046   7,229  ZAR  3,250   4,123 
Subtotal cash and cash equivalents    26,174   46,358     23,690   14,450 
Other current financial assets CLF  60,153   -  CLF  -   17,507 
Other current financial assets CLP  255,045   108,892  CLP  50,740   131,633 
Subtotal other current financial assets    315,198   108,892     50,740   149,140 
Other current non-financial assets ARS  22   21  ARS  5   - 
Other current non-financial assets AUD  -   95  AUD  45   34 
Other current non-financial assets BRL  2   1  BRL  -   8 
Other current non-financial assets CLF  59   75  CLF  47   38 
Other current non-financial assets CLP  20,985   25,814  CLP  14,554   39,091 
Other current non-financial assets CNY  101   33  CNY  10   27 
Other current non-financial assets EUR  5,594   5,383  EUR  822   2,278 
Other current non-financial assets AED  -   -  MXN  1,734   1,036 
Other current non-financial assets INR  -   -  THB  21   8 
Other current non-financial assets MXN  1,503   793  YEN  53   29 
Other current non-financial assets PEN  -   3  ZAR  18   4,466 
Other current non-financial assets THB  42   13 
Other current non-financial assets ZAR  972   801 
Subtotal other current non-financial assets    29,280   33,032     17,309   47,015 
Trade and other receivables ARS  -   - 
Trade and other receivables AUD  -   - 
          
Trade and other receivables BRL  29   32  BRL  23   19 
Trade and other receivables CLF  1,174   507  CLF  545   993 
Trade and other receivables CLP  80,240   50,112  CLP  71,908   76,748 
Trade and other receivables CNY  2,368   9  CNY  48   77 
Trade and other receivables EUR  24,496   31,975  EUR  30,941   38,797 
Trade and other receivables GBP  269   261  GBP  152   582 
Trade and other receivables MXN  322   240  MXN  423   425 
Trade and other receivables PEN  88   92  PEN  -   112 
Trade and other receivables THB  4,713   1,823  THB  2,777   1,473 
Trade and other receivables INR  -   -  YEN  209   - 
Trade and other receivables ZAR  18,162   14,742  ZAR  25,835   15,549 
Subtotal trade and other receivables    131,861   99,793     132,861   134,775 
Receivables from related parties AED  379   379  PEN  40   - 
Receivables from related parties CLP  87   517  CLP  41   52 
Receivables from related parties EUR  1,360   845  EUR  476   604 
Receivables from related parties THB  1,506   -  THB  705   1,112 
Receivables from related parties CNY  105   -  CNY  48   - 
Receivables from related parties YEN  206   197  YEN  -   193 
Receivables from related parties ZAR  3,771   9,157 
Subtotal receivables from related parties    7,414   11,095     1,310   1,961 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-196F-198

 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 29 Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

Class of assets Currency 

12/31/2014

ThUS$

  

12/31/2013

ThUS$

 
Current tax assets AUD  -   - 
Current tax assets CLP  1,803   1,033 
Current tax assets EUR  68   75 
Current tax assets ZAR  -   - 
Current tax assets MXN  1,122   230 
Current tax assets PEN  253   267 
Subtotal current tax assets    3,246   1,605 
Non-current assets          
Other non-current financial assets BRL  -   27 
Other non-current financial assets CLP  20   20 
Other non-current financial assets YEN  39   45 
Subtotal other non-current financial assets    59   92 
Other non-current non-financial assets BRL  170   191 
Other non-current non-financial assets CLP  727   758 
Subtotal other non-current non-financial assets    897   949 
Non-current right receivable CLF  1,028   465 
Non-current right receivable CLP  1,016   818 
Subtotal non-current rights receivable    2,044   1,283 
Equity-accounted investees AED  19,459   24,215 
Equity-accounted investees CLP  1,159   1,649 
Equity-accounted investees IDR  -   802 
Equity-accounted investees EUR  8,004   7,924 
Equity-accounted investees INR  754   - 
Equity-accounted investees THB  2,038   1,876 
Equity-accounted investees TRY  14,956   15,336 
Subtotal equity-accounted investees    46,370   51,802 
Intangible assets other than goodwill CLP  402   507 
Intangible assets other than goodwill CNY  1   3 
Subtotal intangible assets other than goodwill    403   510 
Property, plant and equipment CLP  4,240   5,633 
Subtotal property, plant and equipment    4,240   5,633 
Total non-current assets    54,013   60,269 
Total assets    567,186   361,044 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-197
2016

 

Note 28Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

Class of assets Currency 12/31/2016
ThUS$
  12/31/2015
ThUS$
 
         
Current tax assets ARS  5   - 
Current tax assets CLP  1,640   1,453 
Current tax assets EUR  118   177 
Current tax assets BRL  3   - 
Current tax assets ZAR  386   424 
Current tax assets MXN  202   8 
Current tax assets PEN  203   222 
Subtotal current tax assets    2,557   2,284 
Non-current assets          
Other non-current financial assets CLP  20   20 
Other non-current financial assets YEN  41   39 
Subtotal other non-current financial assets    61   59 
Other non-current non-financial assets BRL  139   116 
Other non-current non-financial assets CLP  729   536 
Subtotal other non-current non-financial assets    868   652 
Non-current right receivable CLF  344   415 
Non-current right receivable CLP  1,382   467 
Subtotal non-current rights receivable    1,726   882 
Equity-accounted investees AED  31,297   23,369 
Equity-accounted investees CLP  -   1,535 
Equity-accounted investees EUR  7,373   7,201 
Equity-accounted investees INR  1,499   962 
Equity-accounted investees THB  1,932   1,672 
Equity-accounted investees TRY  16,712   15,103 
Subtotal equity-accounted investees    58,813   49,842 
Intangible assets other than goodwill CLP  294   284 
Intangible assets other than goodwill CNY  1   1 
Subtotal intangible assets other than goodwill    295   285 
Property, plant and equipment CLP  3,810   4,089 
Subtotal property, plant and equipment    3,810   4,089 
Total non-current assets    65,573   55,809 
Total assets    294,040   405,434 

F-199
 Notes to the Consolidated Financial Statements as of December 31, 20142016

 

Note 29 Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

Note 28Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

 

Liabilities held in foreign currencies are detailed as follows:

 

 12/31/2014 12/31/2013    12/31/2016 12/31/2015 
Class of liability 

 

Currency 

 

Up to90

days

ThUS$

 

91 days to

1 year

ThUS$

 

Total

ThUS$

 

Up to90

days

ThUS$

 

91 days to

1 year

ThUS$

 

Total

ThUS$

  Currency 91 days to 1
year
ThUS$
 over 90 days
to 1 year
ThUS$
 Total
ThUS$
 Up to 90 days
ThUS$
 91 days to 1
year
ThUS$
 Total
ThUS$
 
Current liabilities                                                  
Other current financial liabilities CLF  4,822   6,329   11,151   1,455   77,866   79,321  CLF  44,327   6,098   50,425   4,423   5,610   10,033 
Other current financial liabilities CLP  -   -   -   -   141,704   141,704  CLP  -   20,919   20,919   -   -   - 
Subtotal other current financial liabilities  4,822   6,329   11,151   1,455   219,570   221,025     44,327   27,017   71,344   4,423   5,610   10,033 
Trade and other payables ARS  -   -   -   3   -   3  BRL  38   -   38   38   -   38 
Trade and other payables BRL  52   -   52   64   -   64  THB  131   -   131   -   -   - 
Trade and other payables CHF  1   -   1   1   -   1  CLP  40,604   2,808   43,412   48,707   -   48,707 
Trade and other payables CLP  67,326   3,163   70,489   55,785   26,224   82,009  EUR  30,545   -   30,545   8,591   -   8,591 
Trade and other payables CNY  2,622   -   2,622   117   -   117  GBP  6   -   6   55   -   55 
Trade and other payables EUR  10,442   -   10,442   18,654   -   18,654  INR  1   -   1   1   -   1 
Trade and other payables GBP  14   -   14   6   -   6  MXN  67   -   67   76   -   76 
Trade and other payables INR  1   -   1   1   -   1  PEN  4   -   4   11   -   11 
Trade and other payables MXN  20   -   20   485   -   485  ZAR  3,054   -   3,054   1,727   -   1,727 
Trade and other payables PEN  6   -   6   3   -   3 
Trade and other payables ZAR  1,470   -   1,470   2,517   -   2,517 
Subtotal trade and other payables  81,954   3,163   85,117   77,636   26,224   103,860     74,450   2808   77,258   59,206   -   59,206 
Other current provisions ARS  -   -   -   62   -   62 
Other current provisions BRL  524   13   537   821   595   1,416 
Other current provisions CLP  9   -   9   6   -   6  BRL  -   -   -   9   -   9 
Other current provisions EUR  6   -   6   7   -   7  CLP  -   70   70   15   -   15 
Other current provisions INR  -   -   -   1   -   1  EUR  5   -   5   5   -   5 
Subtotal other current provisions  539   13   552   897   595   1,492     5   70   75   29   -   29 
Current tax liabilities CLP  -   -   -   -   33   33  CLP  -   131   131   -   -   - 
Current tax liabilities EUR  -   1,544   1,544   -   1,553   1,553  CNY  -   36   36   -   2   2 
Current tax liabilities MXN  -   896   896   -   -   -  EUR  -   3,987   3,987   -   889   889 
Current tax liabilities ZAR  27   -   27   -   -   - 
Current tax liabilities MXN  -   56   56   -   24   24 
Subtotal current tax liabilities  -   2,440   2,440   -   1,586   1,586     27   4,210   4,237   -   915   915 
Current provisions for employee benefits CLP  -   -   -   24,172   -   24,172 
Current provisions for employee benefits MXN  -   -   -   156   -   156 
Subtotal current provisions for employee benefits  -   -   -   24,328   -   24,328 

 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-198F-200

 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 29 Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

    12/31/2014  12/31/2013 
Class of liability Currency 

Up to 90

days

ThUS$

  

over 90

days to 1

year

ThUS$

  

Total

ThUS$

  

Up to90

days

ThUS$

  

Over 90

days to 1

year

ThUS$

  

Total

ThUS$

 
Other current non-financial liabilities BRL  18   -   18   55   -   55 
Other current non-financial liabilities CLP  5,557   2,158   7,715   7,055   19,922   26,977 
Other current non-financial liabilities CNY  -   -   -   18   -   18 
Other current non-financial liabilities EUR  546   -   546   2,442   -   2,442 
Other current non-financial liabilities MXN  1,479   62   1,541   720   62   782 
Other current non-financial liabilities AUD  70   -   70   -   -   - 
Other current non-financial liabilities PEN  -   -   -   70   -   70 
Other current non-financial liabilities THD  4   -   4   -   -   - 
Other current non-financial liabilities ZAR  37   -   37   8   -   8 
Subtotal other current non-financial liabilities    7,711   2,220   9,931   10,368   19,984   30,352 
Total current liabilities    95,026   14,165   109,191   114,684   267,959   382,643 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-199
2016

 

Note 28Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

    12/31/2016  12/31/2015 
Class of liability Currency Up to 90
days
ThUS$
  over 90 days
to 1 year
ThUS$
  Total
ThUS$
  Up to90 days
ThUS$
  Over 90 days
to 1 year
ThUS$
  Total
ThUS$
 
Other current non-financial liabilities BRL  4   -   4   3   -   3 
Other current non-financial liabilities CLP  7,481   2,820   10,301   4,684   6,556   11,240 
Other current non-financial liabilities CNY  78   -   78   28   -   28 
Other current non-financial liabilities EUR  958   -   958   1,143   -   1,143 
Other current non-financial liabilities MXN  1,284   35   1,319   394   31   425 
Other current non-financial liabilities PEN  70   -   70   70   -   70 
Other current non-financial liabilities GBP  -   -   -   -   -   - 
Other current non-financial liabilities ZAR  866   -   866   13   -   13 
Subtotal other current non-financial liabilities    10,741   2,855   13,596   6,335   6,587   12,922 
Total current liabilities    129,550   36,960   166,510   69,993   13,112   83,105 

F-201
 Notes to the Consolidated Financial Statements as of December 31, 2014

Note 29 Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

       12/31/2014          
Class of liability Currency 

1 to 2

years

ThUS$

  

2 to 3

years

ThUS$

  

3 to 4

years

ThUS$

  

4 to 5

years

ThUS$

  

Over 5

years

ThUS$

  

Total

ThUS$

 
Non-current liabilities                          
Other non-current financial liabilities CLF  6,088   46,524   6,088   6,088   262,761   327,549 
Other non-current financial liabilities CLP  -   -   -   -   -   - 
Subtotal other non-current financial liabilities    6,088   46,524   6,088   6,088   262,761   327,549 
Deferred tax liabilities CLP  -   -   -   -   -   - 
Deferred tax liabilities MXN  -   -   -   -   -   - 
Subtotal deferred tax liabilities    -   -   -   -   -   - 
Non-current provisions for employee benefits CLP  -   -   -   -   1,793   1,793 
Non-current provisions for employee benefits MXN  -   -   -   -   115   115 
Non-current provisions for employee benefits YEN  -   -   -   -   449   449 
Subtotal non-current provisions for employee benefits    -   -   -   -   2,357   2,357 
Total non-current liabilities    6,088   46,524   6,088   6,088   265,118   329,906 

       12/31/2013          
Class of liability Currency 

1 to 2

years

ThUS$

  

2 to 3

years

ThUS$

  

3 to 4

years

ThUS$

  

4 to 5

years

ThUS$

  

Over 5

years

ThUS$

  

Total

ThUS$

 
Non-current liabilities                          
Other non-current financial liabilities CLF  6,471   6,488   50,648   6,521   293,841   363,969 
Other non-current financial liabilities CLP  -   -   -   -   -   - 
Subtotal other non-current financial liabilities    6,471   6,488   50,648   6,521   293,841   363,969 
Deferred tax liabilities CLP  -   -   -   -   -   - 
Deferred tax liabilities MXN  -   -   -   -   -   - 
Subtotal deferred tax liabilities    -   -   -   -   -   - 
Non-current provisions for employee benefits CLP  -   -   -   -   28,532   28,532 
Non-current provisions for employee benefits MXN  -   -   -   -   131   131 
Non-current provisions for employee benefits YEN  -   -   -   -   494   494 
Subtotal non-current provisions for employee benefits    -   -   -   -   29,157   29,157 
Total non-current liabilities    6,471   6,488   50,648   6,521   322,998   393,126 

SQM S.A.

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-200
2016

 

Note 28Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

  12/31/2016
Class of liability Currency 1 to 2
years
ThUS$
  2 to 3
years
ThUS$
  3 to 4
years
ThUS$
  4 to 5 years
ThUS$
  Over 5 years
ThUS$
  Total
ThUS$
 
Non-current liabilities                          
Other non-current financial liabilities CLF  5,903   5,903   5,903   5,903   243,297   266,909 
Subtotal other non-current financial liabilities    5,903   5,903   5,903   5,903   243,297   266,909 
Non-current provisions for employee benefits CLP  -   -   -   -   494   494 
Non-current provisions for employee benefits MXN  -   -   -   -   61   61 
Non-current provisions for employee benefits YEN  -   -   -   -   561   561 
Subtotal non-current provisions for employee benefits    -   -   -   -   1,116   1,116 
Total non-current liabilities    5,903   5,903   5,903   5,903   244,413   268,025 

  12/31/2015
Class of liability Currency 1 to 2
years
ThUS$
  2 to 3
years
ThUS$
  3 to 4
years
ThUS$
  4 to 5 years
ThUS$
  Over 5 years
ThUS$
  Total
ThUS$
 
Non-current liabilities                          
Other non-current financial liabilities CLF  41,485   5,413   5,413   5,413   228,083   285,807 
Subtotal other non-current financial liabilities    41,485   5,413   5,413   5,413   228,083   285,807 
Non-current provisions for employee benefits CLP  -   -   -   -   539   539 
Non-current provisions for employee benefits MXN  -   -   -   -   100   100 
Non-current provisions for employee benefits YEN  -   -   -   -   495   495 
Subtotal non-current provisions for employee benefits    -   -   -   -   1,134   1,134 
Total non-current liabilities    41,485   5,413   5,413   5,413   229,217   286,941 

F-202
 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 30 Mineral resource exploration and evaluation expenditure

Note 29Mineral resource exploration and evaluation expenditure

 

Because of the nature of the operations of Sociedad Química y Minera de Chile S.A. and its subsidiaries and the type of exploration they conduct (which is different than other mining businesses where the exploration process results in significant time), the exploration and process and the definition of the economic feasibility occurs normally within the year. Accordingly, although expenditure is initially capitalized, it could be recognized in profit or loss for the same year should there be no technical and commercial feasibility. This results in having no significant expenditure that have no feasibility study at the end of the year.

 

Prospecting expenditure can be found in 4 different stages: execution, economically feasible, not economically feasible and under exploitation:

 

1.          Execution: prospecting expenditure which are under execution and accordingly there is no yet a definition as to its economic feasibility are classified in the caption property, plant and equipment. Asequipment, as of December 31, 20142016 and December 31, 2013,2015, the balance amounts to ThUS$28,40112,163 and ThUS$ 28,568, respectively.10,135, respectively,

 

2.           Economically feasible: prospecting expenditure, which upon completion, has been concluded to be economically feasible is classified in the caption non-current assets in other non-current non-financial assets. Asassets, as of December 31, 20142016 and December 31, 2013,2015, the balance amounts to ThUS$ 29,56923,008 and ThUS$ 33,388 respectively.31,911 respectively,

 

3.           Not economically feasible: Prospecting expenditure, which upon completion it has been concluded that are not economically feasible are recorded in profit or loss: As of December 31, 2016, this amounts to ThUS$0 and ThUS$520 as of December 31, 2014 and December 31, 2013, the balance amounts to ThUS$2,352 and ThUS$7,064, respectively.2015.

 

4.           Under exploitation: Prospecting expenditure under exploitation is classified in the caption current assets in current inventories. These are amortized considering the exploited material. Asmaterial, as of December 31, 20142016 and December 31, 2013,2015, the balance amounts to ThUS$2,207674 and ThUS$ 630,1,269 respectively.

 

For the amount of capitalized expenditure, the total amount disbursed in exploration and evaluation of mineral resources for the year endedas of December 31, 2014ThUS$9,910,2016ThUS$2,028, and correspond to non-metallic projects. Such expenditure mainly correspondcorresponds to studies, either topographical, geological, exploratory drilling, sampling, among others.

 

With respect to this expenditure, the Company has defined classifying it in accordance with IFRS 6.9:

 

For exploration expenditure where the mineral has low ore grade that is not economically exploitable, it is debited directly to profit or loss.

 

If studies determine that the ore grade is economically exploitable, it is classified in other non-current assets in the caption stain development and prospecting expenses and at the time of making the decision for exploiting the zone it is classified in the caption inventories as part of the cost of raw materials required for production purposes.

 

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-201F-203

 Notes to the Consolidated Financial Statements as of December 31, 20142016

Note 30Lawsuits and complaints

Lawsuits and complaints

During 2015, the Chilean IRS has filed several lawsuits and complaints related to the so-called “SQM Case”, which are associated with the irregular financing of politicians against a number of individuals, amongst others, the legal representatives of the Company Patricio de Sominihac T. – CEO – and Ricardo Ramos R. – Vice President of Corporate Services –. Basically, those lawsuits and complaints relate to alleged tax crimes associated with a possible undue decrease in taxable net income of the Company and two of its subsidiaries over the last seven years by recording as expenses in their accounting records invoices and fee receipts, which could be considered to be ideologically false. Such legal actions are also filed against the taxpayers who provided the tax documents that allowed the alleged performance of the related illicit acts.

Additionally, during 2015 and within the context of the “SQM Case”, the Deputy of the Tarapacá Region of Chile Hugo Gutiérrez G. filed a lawsuit for alleged extortion-bribery and money laundering referred to in Law No. 20.393 on Legal Responsibility of Juridical Persons against SQM and its legal representative Patricio de Sominihac T. and Senators of the Tarapacá Region of Chile Jaime Orpis B. and Fulvio Rossi C.

Actions performed by the Authority

The Public Ministry and Chilean IRS (Servicio de Impuestos Internos (SII)) have performed a number of actions within the framework of the so-called “SQM Case” where the Company and its executives have provided their cooperation. Several of the Company’s executives have granted access to their computers and made several statements at the request of the Prosecutors responsible for the investigation. Additionally, SQM has provided physical and digital copies of its accounting records and its subsidiaries’ accounting records. In addition, SQM has also provided the Public Ministry with its email files and all the documentation that has been required by the related authority.

F-204
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 30Lawsuits and complaints, (continued)

Shearman & Sterling and Ad-Hoc Committee

On February 26, 2015, SQM’s Board of Directors resolved to establish an ad-hoc committee of the Board of Directors (the “ad-hoc Committee”) authorized to conduct an internal investigation relating to the issues that were the subject of the SII and Public Prosecutor investigations and to retain such independent external advice as it deemed appropriate.

The ad-hoc Committee engaged its own lawyers from Chile and the U.S. and forensic accountants from the U.S. to assist with its internal review. The U.S. lawyers retained by the ad-hoc Committee were principally charged with reviewing the relevant facts and analyzing those facts against the requirements of the U.S. Foreign Corrupt Practices Act (“FCPA”). The factual findings of the ad-hoc Committee, however, were ultimately shared with Chilean as well as U.S. authorties.

On December 15, 2015, the ad-hoc Committee presented its findings to the Board of Directors. In addition to presenting a discussion of the facts surrounding the payments at issue, the ad-hoc Committee concluded that, for purposes of the U.S. Foreign Corrupt Practices Act:

(a) payments were identified that had been authorized by SQM's former CEO for which the Company did not find sufficient supporting documentation;

(b) no evidence was identified that demonstrates that the payments were made in order to induce a public official to act or refrain from acting in order to assist SQM in obtaining economic benefits;

(c) regarding the cost center managed by SQM's former CEO, it was concluded that the Company's books did not accurately reflect transactions that have been questioned, notwithstanding the fact that, based on the amounts involved, these transactions were deemed quantitatively immaterial in comparison to SQM's equity, revenues, expenses or earnings within the reported period; and

(d) SQM's internal controls were not sufficient to supervise the expenses made by the cost center managed by SQM's former CEO and that the Company trusted Patricio Contesse G. to make proper use of the resources.

Following the presentation by the ad-hoc Committee of its findings to the Board of Directors, the Company voluntarily shared the findings of the ad-Hoc Committee investigation with authorities in Chile and the U.S. (including the SEC and the U.S. Department of Justice (“DOJ”)), and it has cooperated with requests for additional documents and information from these authorities regarding the internal investigation discussed above.

F-205
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 30Lawsuits and complaints, (continued)

Investigation by the Department of Justice and the Securities Exchange Commission

SQM informed of the investigation performed by Shearman & Sterling on US regulating entities (Department of Justice and Securities and Exchange Commission), in conformity with the standards effective in the United States of America. The outcome of such investigation was delivered to these regulating entities, which have started investigations to determine the existence of possible noncompliance with FCPA (Foreign Corruption Practices Act) or internal control standards (refer to Note 35).

Note 31Sanction proceedings

On April 1, 2015, the SVS started an administrative proceeding against five Directors of SQM for supposedly not having provided to the market on a timely and truthful basis information which could be significant for making investment decisions. Such information mainly relates to the preliminary estimate of the impact on the Company’s financial statements of certain expenses paid by the Company between 2008 and 2014 and which might not qualify as expenses under current Chilean tax regulations because of the absence of supporting documentation.

On December 31, 2015, the Company reported that the Chilean Superintendence of Securities and Insurance (SVS) has made its resolution to impose sanctions on Patricio Contesse Fica, Julio Ponce Lerou – former Company’s Directors–, Hernán Büchi Buc, Juan Antonio Guzmán Molinari and Wolf von Appen Berhmann – former Directors of SQM – for not having reported to the market, in March 2015, as an Essential event and in their role of Company’s Directors, on the expenses that SQM incurred during certain years, which did not have sufficient reporting documentation or might be considered to be unnecessary to generate income. The sanction imposed relates to a fine of UF 1,000 on each of the aforementioned individuals and a remedy can be sought with the Chilean Superintendence of Securities and Insurance (SVS) and courts of justice.

Note 32Closure of the Pedro de Valdivia Site

On September 22, 2015, the Company reported to the Chilean Superintendence of Securities and Insurance (SVS) that its Board of Directors opted to close the mining operations at the Pedro de Valdivia site and a portion of such site’s industrial operations. The larger part of this closure occurred at the end of November 2015 and the nitrate and iodine operations that will continue to generate production in the remaining industrial plants at the Pedro de Valdivia operation will amount to approximately one third of the current production volumes.

F-206
 Notes to the Consolidated Financial Statements as of December 31, 2016

Note 32Closure of the Pedro de Valdivia Site (continued)

This decision is based on the fact that the Company has continued to increase its production capacity of iodine and nitrate salts in its industrial mining operations at the Nueva Victoria site and has reduced its production costs to meet sales forecasts and increase its current worldwide market share in the iodine market.

As of December 31, 2015, the effect on profit or loss of stopping operations are detailed as follows:

ThUS$
Property, plant and equipment36,823
Constructions in progress3,195
Total property, plant and equipment40,018
Legal and voluntary severance indemnity payments17,647
Total closure of the Pedro de Valdivia site57,665

Note 33Railway for transportation of products between the site Coya Sur and the Port of Tocopilla

As a result of the rain storms that affected the Tocopilla Zone at the beginning of August 2015, SQM S.A. confirmed the existence of damages in several zones in the railway between the sites Coya Sur and Tocopilla. Accordingly, starting from such date the Company has used the transport of trucks replacing the transport through the railway. SQM has performed several internal and external studies with the purpose of determining the costs and terms necessary to repair the damages in the railway.

The analysis of the internal and external reports allows concluding that the costs associated with repairing the damages caused by the rain storms would imply long-terms and high costs, and accordingly, it is not convenient at short and medium-term to repair the railway. Such decision does not affect the production process or imply additional employee reductions.

Consequently, SQM has adjusted the value of the assets associated with the railway (fixed equipment, facilities and rolling equipment), which has translated into a charge of approximately US$32 million which are reflected in the line other expenses by function in the consolidated statement of income for the period. Such amount approximately represents 0.7% of SQM’s total assets reported at the end of September 2016.

Note 31 Events occurred after the reporting date

Note 34Events occurred after the reporting date

 

31.134.1Authorization of the financial statements

 

The consolidated financial statements of Sociedad Química y Minera de Chile S.A. and subsidiaries prepared in accordance with International Financial Reporting Standards for the period ended December 31, 20142016 were approved and authorized for issuance by the Company’s Audit CommitteeManagement on May 15, 2015.April 26, 2017.

F-207
 Notes to the Consolidated Financial Statements as of December 31, 2016

 

31.2Note 34Events occurred after the reporting date, (continued)

34.2Disclosures on events occurring after the reporting date

 

The Chilean Internal Revenue Service (Servicio de Impuestos Internos orOn January 13, 2017, the “SII”Company entered into agreements with the Department of Justice (the “DOJ”) has been conducting tax investigations related toand the payment of invoices by companies, including SQM, for services that may not have been properly supported. The Chilean Public Prosecutor (Ministerio Público) has been conducting related inquiries to determine whether such payments may be linked with alleged violations of political contribution laws involving a variety of Chilean companies, including SQM,Securities and government officials.

On February 26, 2015, SQM’s Board of Directors resolved to establish an ad-hoc committee of the Board of DirectorsExchange Commission (the “ad-hoc Committee”“SEC”) authorized to conduct an internal investigation relating to the issues referred to,both based in the above paragraph and to retain such independent external advice as it deemed appropriate. The original members of the ad-hoc Committee were José María Eyzaguirre B., Juan Antonio Guzmán M. and Wolf von Appen B.

The ad-hoc Committee has engaged its own lawyers from Chile and the United States and forensic accountants from the United States to assist as it proceedsof America (the “United States”), with its internal review.

On March 12, 2015, José María Eyzaguirre B. resigned from the ad-hoc Committee and his position was subsequently filled by Hernán Büchi B.

On March 16, 2015, the Board of Directors decided to terminate the employment contract of the Company’s former CEO, Patricio Contesse G. This followed his failure to cooperate with the ad-hoc Committee’s investigation.

On March 17, 2015, three members of the Board of Directors resigned, all of whom had been nominated by Potash Corp., one of SQM’s two principal shareholder groups. Potash Corp. issued a press release stating that the directors resigned because of their concern that they could not ensure that the Company was conducting an appropriate investigation and collaborating effectively with the Public Prosecutor.

On March 20, 2015, the Company identifiedrespect to the SII approximately US$11 million in payments of invoicesinvestigations that may notsuch agencies have been properly supported by services rendered and therefore may not qualify as tax expenses under the Chilean tax code. These payments originated from the office of the former CEO during the six-year tax period from 2009 to 2014. The statute of limitations under Chilean law for tax claims is up to six years, during which period the former CEO had an annual discretionary budget covering the Company and its subsidiaries of approximately US$6 million.

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-202

Notes to the Consolidated Financial Statements as of December 31, 2014

On March 23, 2015, the SII, based on the Income Tax Law (Ley de Impuesto a La Renta) filed a criminal claim against the Company’s former CEO and current CEO and CFO in their capacities as the Company’s tax representatives relating to the US$11 million in payments referred to above. This and subsequent related claims filed by the SII are subject to review by the Public Prosecutor in order to determine whether to pursue charges against any of the parties in their personal capacities.

On March 30, 2015, the Company submitted amendments to its tax returns for the 2009 to 2014 tax years and has paid taxes and interest relating to such amended returns totaling approximately US$7 million. The aggregate amount was approximately evenly distributed over the six-year period, but as the amounts were inconsequential in each individual year, the Company recorded a provision for the aggregate amount in the “other expenses” line-item of the income statement for the year ended December 31, 2014. The Company’s management does not believe there will be any additional material impact to the Company’s business, financial condition, cash flows or results of operations.

On March 31, 2015, the SVS filed an administrative claim against five current or former members of the Board of Directors, alleging that they did not release information in a timely manner relating to the payments that are subject to the tax claim referred to above.

On April 24, 2015, the Company announced that it had identified up to an additional US$2 million in payments by its subsidiaries during the same six-year tax period that were authorized by the former CEO and that also may have been insufficiently supported. On the same date, new members were elected to the Board of Directors at the Annual General Shareholders’ Meeting, including three new members that were nominated by Potash Corp., and the ad-hoc Committee was subsequently reconstituted by Board of Directors members Robert A. Kirkpatrick, Wolf von Appen B. and Edward J. Waitzer.

On April 30, 2015, the Public Prosecutor, after reviewing the claims filed by the SII informed the Company’s former CEO that it was formally investigating allegations that he approved the payment of the invoices that were not properly supported by services rendered and in connection therewith made intentionally false or incomplete declarations or used fraudulent procedures designed to conceal or disguise the true amount of transactions or to circumvent taxes. If,conducted as a result of payments to suppliers and entities that might have been related to politically exposed persons during the formalyears from 2008 through 2015, which resulted in the performance of an internal investigation the former CEO is charged and finally adjudicated responsible,at the Company may also bethrough an Ad-hoc Committee from its Board of Directors and which was led by the law firm Shearman & Sterling (the “Investigated Facts”). Because the Company’s securities are traded in the United States, the Company is subject to the U.S. legislation. The Company has voluntarily provided the results of its internal investigation and documents supporting it to the DOJ, the SEC and the relevant Chilean authorities.

In conformity with the terms of the agreement entered into with the DOJ, referred to as Deferred Prosecution Agreement (the “DPA”), the Company has accepted that the DOJ presents (i) a charge for the infractions referred to the absence of implementation of effective internal accounting systems and internal accounting controls and (ii) a charge for infractions related to failure to properly maintain accounting ledgers, records and sections with respect to the Investigated Facts. By virtue of the DPA, the DOJ has agreed not to prosecute those charges against the Company for a period of 3 years and releasing the Company from such responsibility after such period to the extent that within such term the Company complies with the terms in the DPA, which include the payment of a fine of 15,487,500 United States dollars (“U.S. dollars”) and the acceptance of an external monitor for a term of 24 months (the “Monitor”) which evaluates the Company’s compliance program, for a subsequent independent report by the Chilean Criminal Court (Octavo Tribunal de Juicio Oral en lo Penal de Santiago) totaling 50% to 300% of the tax paid. The Company estimates that no provision is needed at this stage.for an additional year.

 

With respect to the agreement entered into with the SEC, the Company has agreed to (i) pay a fine of 15 million of U.S. dollars and (ii) maintaining the Monitor for the aforementioned term.

The SEC has issued a Cease and Desist Order which does not identify any other events of noncompliance with the standards applicable in the United States.

On May 11, 2015,

The aforementioned amounts of approximately US$30.5 million were reflected in the SII filed an additional criminal claim againstprofit or loss of SQM during the former CEOfourth quarter of 2016 in the line item Other expenses by function.

Management is not aware of any other significant events occurring between December 31, 2016 and the current CEO and CFO in their capacities as the Company’s tax representatives alleging violationsdate of the Chilean Inheritance and Donations Law (Ley sobre Impuesto a Las Herencias, Asignaciones y Donaciones). The claim states that the Company paid two invoices in 2009 and 2010 totaling approximately US$175,000 that are alleged to have been improperly supported. The claim states thatissuance of these payments should have been classified as donations, and appropriate taxes should have been paid. These payments were accounted for in the amended tax returns filed with the SII on March 30, 2015. This claim is subject to review by the Public Prosecutor in order to determine whether to pursue charges against any of the parties in their personal capacities.consolidated financial statements, which affect them.

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-203

Notes to the Consolidated Financial Statements as of December 31, 2014

 

31.334.3Detail of dividends declared after the reporting date

 

As of the closing date of the financial statements, there are no dividends declared after the reporting date.

On March 24, 2015,April 11, 2017, the Company’s Board of Directors, who met in an Ordinary Meeting, unanimously agreed to recommend to the shareholders the payment of a definitive dividend representing 100% of the 2016 net income. This definitive dividend payment will be presented for consideration at the next Annual General Shareholders' Meeting of SQM to distribute and pay, by way of final dividend, 50% of the distributable net income obtained by SQM during the fiscal year 2014 (as presented in the Chilean statutory consolidated financial statements).

This recommendation maintains SQM’s "Dividend Policy for the 2014 Business Year" which was presented to shareholders at SQM’s Annual General Shareholders'Shareholders’ Meeting held on April 25, 2014.

At28, 2017. Therefore, and subject to the Annual General Shareholders' Meeting on April 24, 2015, SQM’s shareholders approvedapproval at the payment byShareholders’ meeting, the Company ofshall pay a final dividend of US$ 0.563041.05735 per share, based on the distributable net income obtained during the 2014 fiscal year. The amount of US$ 0.414930.85487 per share must be deducted from the final dividend, which was already paid as ana provisional dividend must be deducted from this final dividend and theon December 20, 2016. The balance, in the amount of US$ 0.148110.20248 per share, wasshall be paid and distributed to SQM’sCompany’s shareholders who were registered in the respective Registry by the fifth business day before the day on which the dividend was paid. This amount was paid in the equivalent in Chilean national currency according to the value of the "Observed Dollar” or "US Dollar” that was published in the Official Gazette on April 24, 2015.May 11, 2017., pending shareholders’ approval.

 

This dividend amount was paid to the corresponding shareholders, in person or through their duly authorized representatives, as of 9:00 am on May 8, 2015.

Management was not aware of any other significant events that occurred between December 31, 2014 and the date of issuance of these consolidated financial statements that may affect them significantly.

SQM

Los Militares 4290,

Las Condes, Santiago, Chile

Tel: (562) 425 2000

www.sqm.com

F-204F-208