UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of September, 2017.

Commission File Number 33-65728

 

CHEMICAL AND MINING COMPANY OF CHILE INC.

(Translation of registrant’s name into English)

 

El Trovador 4285, Santiago, Chile (562) 2425-2000

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F: x Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

For the period ended

June 30, 2017

 

Sociedad Química y Minera de Chile S.A. and Subsidiaries

In Thousands of United States Dollars

  

This document includes:

-

Report of Independent Register Public Accounting Firms

-

Consolidated Classified Statements of Financial Position

-

Consolidated Statements of Income by Function

-

Consolidated Statements of Comprehensive Income

-

Consolidated Statements of Cash Flows

-

Consolidated Statements of Changes in Equity

-

Notes to the Consolidated Financial Statements

  

   

Table of Contents –Consolidated Financial Statements

 

Consolidated Classified Statements of Financial Position		7
Consolidated Statements of Income by Function		9
Consolidated Statements of Comprehensive Income		11
Consolidated Statements of Cash Flows		12
Consolidated Statements of Changes in Equity		14
Note 1	Identification and activities of the Company and Subsidiaries	16
1.1	Historical background	16
1.2	Main domicile where the Company performs its production activities	16
1.3	Codes of main activities	16
1.4	Description of the nature of operations and main activities	16
1.5	Other background	18
Note 2	Basis of presentation for the consolidated financial statements	20
2.1	Accounting period	20
2.2	Financial statements	20
2.3	Basis of measurement	21
2.4	Accounting pronouncements	22
2.5	Basis of consolidation	25
2.6	Significant accounting judgments, estimates and assumptions	28
Note 3	Significant accounting policies	29
3.1	Classification of balances as current and non-current	29
3.2	Functional and presentation currency	29
3.3	Foreign currency translation	29
3.4	Subsidiaries	31
3.5	Consolidated statement of cash flows	31
3.6	Financial assets	31
3.7	Financial liabilities	32
3.8	Financial instruments at fair value through profit or loss	32
3.9	Financial instrument offsetting	32
3.10	Reclassification of financial instruments	32
3.11	Derivative and hedging financial instruments	32
3.12	Available for sale financial assets	34
3.13	Derecognition of financial instruments	34
3.14	Derivative financial instruments	34
3.15	Fair value initial measurements	34

 

  

3.16	Leases	35
3.17	Deferred acquisition costs from insurance contracts	35
3.18	Trade and other receivables	35
3.19	Inventory measurement	36
3.20	Investments in associates and joint ventures	36
3.21	Transactions with non-controlling interests	37
3.22	Related party transactions	37
3.23	Property, plant and equipment	38
3.24	Depreciation of property, plant and equipment	39
3.25	Goodwill	39
3.26	Intangible assets other than goodwill	40
3.27	Research and development expenses	41
3.28	Prospecting expenses	41
3.29	Impairment of non-financial assets	42
3.30	Minimum dividend	42
3.31	Earnings per share	43
3.32	Trade and other payables	43
3.33	Interest-bearing borrowings	43
3.34	Other provisions	44
3.35	Obligations related to employee termination benefits and pension commitments	45
3.36	Compensation plans	45
3.37	Revenue recognition	46
3.38	Finance income and finance costs	46
3.38	Income tax and deferred taxes	47
3.39	Segment reporting	48
3.40	Environment	49
Note 4	Financial risk management	49
4.1	Financial risk management policy	49
4.2	Risk factors	50
4.3	Risk measurement	54
Note 5	Changes in accounting estimates and policies (consistent presentation)	55
5.1	Changes in accounting estimates	55
5.2	Changes in accounting policies	55
Note 6	Background of companies included in consolidation	56
6.1	Parent’s stand-alone assets and liabilities	56
6.2	Parent entity	56

 

  

6.3	Joint arrangements of controlling interest	56
6.4	General information on consolidated subsidiaries	57
6.5	Information attributable to non-controlling interests	60
6.6	Information on consolidated subsidiaries	61
6.7	Detail of transactions between consolidated companies	65
Note 7	Cash and cash equivalents	66
7.1	Types of cash and cash equivalents	66
7.2	Short-term investments, classified as cash equivalents	66
7.3	Information on cash and cash equivalents by currency	67
7.4	Amount restricted (unavailable) cash balances	67
7.5	Short-term deposits, classified as cash equivalents	68
Note 8	Inventories	70
Note 9	Related party disclosures	71
9.1	Related party disclosures	71
9.2	Relationships between the parent and the entity	71
9.3	Detailed identification of the link between the Parent and subsidiary	73
9.4	Detail of related parties and related party transactions	75
9.5	Trade receivables due from related parties, current:	76
9.6	Trade payables due to related parties, current:	76
9.7	Board of Directors and Senior Management	77
9.8	Key management personnel compensation	80
Note 10	Financial instruments	81
10.1	Types of other financial assets	81
10.2	Trade and other receivables	82
10.3	Hedging assets and liabilities	84
10.4	Financial liabilities	86
10.5	Trade and other payables	97
10.6	Financial liabilities at fair value through profit or loss	98
10.7	Financial asset and liability categories	99
10.8	Fair value measurement of assets and liabilities	101
10.9	Financial assets pledged as guarantee	103
10.10	Estimated fair value of financial instruments and financial derivatives	104
10.11	Nature and scope of risks arising from financing instruments	105
Note 11	Equity-accounted investees	106
11.1	Investments in associates recognized according to the equity method of accounting	106
11.2	Assets, liabilities, revenue and expenses of associates	108

 

  

11.3	Other information	109
11.4	Disclosures on interest in associates	109
Note 12	Joint Ventures	110
12.1	Policy for the accounting of equity accounted investment in joint ventures	110
12.2	Disclosures of interest in joint ventures	110
12.3	Investment in joint ventures accounted for under the equity method of accounting	111
12.4	Assets, liabilities, revenue and expenses from joint ventures:	114
12.5	Other Joint Venture disclosures:	115
Note 13	Intangible assets and goodwill	116
13.1	Balances	116
13.2	Disclosures on intangible assets and goodwill	116
Note 14	Property, plant and equipment	122
14.1	Types of property, plant and equipment	122
14.2	Reconciliation of changes in property, plant and equipment by type:	124
14.3	Detail of property, plant and equipment pledged as guarantee	128
14.4	Impairment of assets	128
14.5	Additional information	128
Note 15	Employee benefits	129
15.1	Provisions for employee benefits	129
15.2	Policies on defined benefit plan	130
15.3	Other long-term benefits	131
15.4	Post-employment benefit obligations	132
15.5	Staff severance indemnities	132
Note 16	Executive compensation plan	134
Note 17	Disclosures on equity	135
17.1	Capital management	135
17.2	Disclosures on preferred share capital	136
17.3	Disclosures on reserves in equity	138
17.4	Dividend policies	141
17.5	Interim and provisional dividends	142
Note 18	Provisions and other non-financial liabilities	144
18.1	Types of provisions	144
18.2	Description of other provisions	145
18.3	Other liabilities current	145
18.4	Changes in provisions	146

 

  

18.5	Detail of main types of provisions	147
Note 19	Contingencies and restrictions	148
19.1	Lawsuits and other relevant events	148
19.2	Restrictions to management or financial limits	156
19.3	Arbitration proceedings with CORFO	157
19.4	Environmental contingencies	158
19.5	Tax contingency	159
19.6	Restricted or pledged cash	160
19.7	Securities obtained from third parties	161
19.8	Indirect guarantees	162
Note 20	Revenue	164
Note 21	Earnings per share	164
Note 22	Borrowing costs	165
22.1	Costs of capitalized interest, property, plant and equipment	165
Note 23	Effect of fluctuations on foreign currency exchange rates	166
Note 24	Environment	167
24.1	Disclosures of disbursements related to the environment	167
24.2	Detail of information on disbursements related to the environment	168
24.3	Description of each project, indicating whether these are in process or have been finished	173
Note 25	Other current and non-current non-financial assets	176
Note 26	Reportable segments	177
26.1	Reportable segments	177
26.2	Reportable segment disclosures:	179
26.3	Statement of comprehensive income classified by reportable segments based on groups of products	181
26.4	Revenue from transactions with other Company’s operating segments	183
26.5	Disclosures on geographical areas	183
26.6	Disclosures on main customers	183
26.7	Segments by geographical areas as of June 30, 2017 and 2016	184
Investment accounted for under the equity method		184
Intangible assets other than goodwill		184
Investment accounted for under the equity method		184
Intangible assets other than goodwill		184
26.8	Property, plant and equipment classified by geographical areas	185

 

  

Note 27	Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature	186
27.1	Revenue	186
27.2	Cost of sales	186
27.3	Other income	187
27.4	Administrative expenses	188
27.5	Other expenses by function	189
27.6	Other income (expenses)	189
27.7	Summary of expenses by nature	190
27.8	Finance expenses	191
Note 28	Income tax and deferred taxes	191
28.1	Current and non-current tax assets	191
28.2	Current tax liabilities	192
28.3	Income tax and deferred taxes	193
Note 29	Disclosures on the effects of fluctuations in foreign currency exchange rates	204
Note 30	Mineral resource exploration and evaluation expenditure	209
Note 31	Lawsuits and complaints	210
Note 32	Sanction proceedings	213
Note 33	Railway for transportation of products between the site Coya Sur and the Port of Tocopilla	213
Note 34	Events occurred after the reporting date	214
34.1	Authorization of the financial statements	214
34.2	Disclosures on events occurring after the reporting date	214
34.3	Detail of dividends declared after the reporting date	215

 

 

Consolidated Classified Statements of Financial Position

 

Assets		Note		As of June 30, 2017 ThUS$				As of December 31, 2016 ThUS$
				Unaudited				Audited
Current assets
Cash and cash equivalents		7.1			517,625				514,669
Other current financial assets		10.1			325,837				289,189
Other current non-financial assets		25			39,217				30,273
Trade and other receivables, current		10.2			381,441				368,761
Trade receivables due from related parties, current		9.5			55,574				82,259
Current inventories		8			951,857				993,072
Current tax assets		28.1			46,405				51,954
Current assets other tan assets classified as held-for-sale or disposal					2,317,956				2,330,177
Non-current assets or asset groups for disposal classified as held-for-sale					1,850				2,056
Total current assets					2,319,806				2,332,233
Non-current assets
Other non-current financial assets		10.1			30,683				34,099
Other non-current non-financial assets		25			31,161				24,690
Trade receivables, non-current		10.2			2,560				1,840
Investments classified using the equity method of accounting		11.1-12.3			109,332				113,140
Intangible assets other than goodwill		13.1			108,932				109,439
Goodwill		13.1			44,177				37,972
Property, plant and equipment		14.1			1,448,773				1,532,710
Tax assets, non-current		28.1			31,857				31,857
Deferred tax assets		28.3			457				664
Total non-current assets					1,807,932				1,886,411
Total assets					4,127,738				4,218,644

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Classified Statements of Financial Position, (continued)

 

Liabilities and Equity		Note		As of June 30, 2017 ThUS$				As of December 31, 2016 ThUS$
				Unaudited				Audited
Current liabilities
Other current financial liabilities		10.4			137,551				179,144
Trade and other payables, current		10.5			159,878				200,496
Trade payables due to related parties, current		9.6			1,251				7
Other current provisions		18.1			35,724				41,912
Current tax liabilities		28.2			47,299				75,872
Provisions for employee benefits, current		15.1			9,936				20,998
Other current liabilities		18.3			161,952				61,920
Total current liabilities					553,591				580,349
Non-current liabilities
Other non-current financial liabilities		10.4			1,062,886				1,093,438
Other non-current provisions		18.1			13,619				8,934
Deferred tax liabilities		28.3			222,988				206,119
Provisions for employee benefits, non-current		15.1			26,565				22,532
Total non-current liabilities					1,326,058				1,331,023
Total liabilities					1,879,649				1,911,372
Equity		17
Share capital					477,386				477,386
Retained earnings					1,724,784				1,781,576
Other reserves					(13,112	)			(12,888	)
Equity attributable to owners of the Parent					2,189,058				2,246,074
Non-controlling interests					59,031				61,198
Total equity					2,248,089				2,307,272
Total liabilities and equity					4,127,738				4,218,644

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Income by Function

 

				January to June								April to June
		Note		2017 ThUS$				2016 ThUS$				2017 ThUS$				2016 ThUS$
				Unaudited
Revenue		27.1			1,023,865				881,459				505,719				489,614
Cost of sales		27.2			(666,015	)			(620,967	)			(325,812	)			(342,682	)
Gross profit					357,850				260,492				179,907				146,932
Other income		27.3			5,862				6,688				4,467				2,663
Administrative expenses		27.4			(46,087	)			(40,807	)			(23,876	)			(22,716	)
Other expenses by function		27.5			(13,396	)			(9,611	)			(7,621	)			(3,167	)
Other gains (losses)		27.6			(991	)			755				85				(432	)
Profit (loss) from operating activities					303,238				217,517				152,962				123,280
Finance income					5,716				5,591				3,345				1,284
Finance costs		22-27.8			(25,546	)			(32,421	)			(12,908	)			(14,990	)
Share of profit of associates and joint ventures accounted for using the equity method		11-12			7,824				10,596				3,169				4,852
Foreign currency translation differences		23			(4,707	)			(1,594	)			(6,375	)			2,579
Profit (loss) before taxes					286,525				199,689				140,193				117,005
Income tax expense, continuing operations		28.3			(82,610	)			(57,291	)			(39,319	)			(33,255	)
Profit (loss) from continuing operations					203,915				142,398				100,874				83,750
Profit for the year					203,915				142,398				100,874				83,750
Profit attributable to
Owners of the Parent					204,386				141,613				101,154				83,087
Non-controlling interests					(471	)			785				(280	)			663
Profit for the year					203,915				142,398				100,874				83,750

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Income by Function, (continued)

 

				January to June								April to June
		Note		2017				2016				2017				2016
				US$				US$				US$				US$
				Unaudited
Earnings per share
Common shares
Basic earnings per share (US$ per share		21			0.7766				0.5381				0.3843				0.3157
Diluted common shares
Diluted earnings per share (US$ per share)		21			0.7766				0.5381				0.3843				0.3157

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Comprehensive Income

 

		January to June								April to June
		2017				2016				2017				2016
Statement of comprehensive income		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited
Profit (loss) for the year			203,915				142,398				100,874				83,750
Other comprehensive income
Items of other comprehensive income that will not be reclassified to profit for the year, before taxes
Other comprehensive income, before taxes, gains (losses) from new measurements of defined benefit plans			(606	)			(1,014	)			668				(1,013	)
Total other comprehensive income that will not be reclassified to profit for the year, before taxes			(606	)			(1,014	)			668				(1,013	)
Items of other comprehensive income that will be reclassified  to profit for the year, before taxes
Foreign currency exchange difference
Foreign currency exchange gains I(losses) before taxes			(1,498	)			1,316				(313	)			(146	)
Other comprehensive income before taxes			(1,498	)			1,316				(313	)			(146	)
Financial assets available-for-sale
Profit (loss) from new measurements of available for sale financial assets net of taxes			(3,865	)			-				(3,865	)			-
Other comprehensive income before taxes			(3,865	)			-				(3,865	)			-
Cash flow hedges on defined benefit plans
Gains (losses) from cash flow hedges			2,133				(359	)			(2,289	)			2,635
Other comprehensive income before taxes			2,133				(359	)			(2,289	)			2,635
Total other comprehensive income that will be reclassified to profit for the year			(3,230	)			(957	)			(6,467	)			2,489
Other items of other comprehensive income before taxes			(3,836	)			(57	)			(5,799	)			1,476
Income taxes related to items of other comprehensive income that will not be reclassified to profit for the year
Income taxes related to new measurements of defined benefit plans in other comprehensive income			129				197				(117	)			197
Accumulated income taxes related to items of other comprehensive income that will not be reclassified to profit for the year			129				197				(117	)			197
Income taxes related to items of other comprehensive income that will be reclassified to profit for the year
Income taxes related to available for sale financial assets from other comprehensive income			(38	)			-				(38	)			-
Income taxes related to cash flow hedges in other comprehensive income			24				148				24				(617	)
Accumulated income taxes related to items of other comprehensive income that will be reclassified to profit for the year			(14	)			148				(14	)			(617	)
Total other comprehensive income			(3,721	)			288				(5,930	)			1,056
Total comprehensive income			200,194				142,686				94,944				84,806
Comprehensive income attributable to
Owners of the Parent			200,662				141,889				95,222				84,136
Non-controlling interests			(468	)			797				(278	)			670
Total comprehensive income			200,194				142,686				94,944				84,806

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Cash Flows

 

Consolidated Statements of cash flows		Note		6/30/2017 ThUS$				6/30/2016 ThUS$
				Unaudited
Cash flows from operating activities
Cash receipts from sales of goods and rendering of services					1,002,485				866,528
Cash receipts from premiums and benefits, annuities and other benefits from policies entered					-				1,295
Cash payments to suppliers for the provision of goods and services					(469,390	)			(473,072	)
Cash payments to and on behalf of employees					(131,935	)			(91,575	)
Other payments related to operating activities					(6,395	)			(4,920	)
Net cash generated from (used in) operating activities					394,765				298,256
Dividends received					1,481				2,167
Interest paid					(17,605	)			(1,274	)
Interest received					5,716				6,617
Income taxes paid					(33,446	)			(38,263	)
Other incomes (outflows) of cash					(52,072	)			(8,503	)
Net cash generated from (used in) operating activities					298,839				259,000
Cash flows from (used in) investing activities
Payments made to acquire interest in joint ventures					(42	)			(25,000	)
Proceeds from the sale of property, plant and equipment					3,569				572
Acquisition of property, plant and equipment					(48,307	)			(64,399	)
Proceeds from sales of intangible assets					1,291				1,706
Cash advances and loans granted to third parties					-				56
Proceeds from the repayment of advances and loans granted to third parties					21				-
Other inflows (outflows) of cash (*)					(31,602	)			395,846
Net cash generated from (used in) investing activities					(74,715	)			308,784

 

(*) 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.

 

 

Consolidated Statements of Cash Flows, (continued)

 

		Note		6/30/2017 ThUS$				6/30/2016 ThUS$
Cash flows used in financing activities
Proceeds from short-term borrowings					20,000				60,000
Total proceeds from borrowings					20,000				60,000
Repayment of borrowings					(83,697	)			(200,000	)
Dividends paid					(159,412	)			(175,111	)
Other cash receipts (payments)					-				(200,000	)
Net cash generated used in financing activities					(223,109	)			(515,111	)
Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate					1,015				52,673
Effects of exchange rate fluctuations on cash held					1,941				3,059
Net (decrease) increase in cash and cash equivalents					2,956				55,732
Cash and cash equivalents at beginning of period					514,669				527,259
Cash and cash equivalents at end of period					517,625				582,991

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Changes in Equity

 

2017		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$
Equity at beginning of the year			477,386				(19,463	)			64				3,513				(4,834	)			7,832				(12,888	)			1,781,576				2,246,074				61,198				2,307,272
Profit for the year			-				-				-								-				-				-				204,386				204,386				(471	)			203,915
Other comprehensive income			-				(1,501	)			2,157				(3,903	)			(477	)			-				(3,724	)			-				(3,724	)			3				(3,721	)
Comprehensive income			-				(1,501	)			2,157				(3,903	)			(477	)			-				(3,724	)			204,386				200,662				(468	)			200,194
Dividends			-				-				-				-				-				-				-				(257,678	)			(257,678	)			(1,699	)			(259,377	)
Increase (decrease) due to transfers and other changes			-				-				-				-				-				3,500				3,500				(3,500	)			-				-				-
Increase (decrease) in equity			-				(1,501	)			2,157				(3,903	)			(477	)			3,500				(224	)			(56,792	)			(57,016	)			(2,167	)			(59,183	)
Equity as of June 30, 2017 (Unaudited)			477,386				(20,964	)			2,221				(390	)			(5,311	)			11,332				(13,112	)			1,724,784				2,189,058				59,031				2,248,089

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Changes in Equity

 

2016		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$
Equity at beginning of the year			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			-				-				-				-				-				-				141,613				141,613				785				142,398
Other comprehensive income			-				449				(211	)			(792	)			830				276				-				276				12				288
Comprehensive income			-				449				(211	)			(792	)			830				276				141,613				141,889				797				142,686
Dividends			-				-				-				-				-				-				(220,807	)			(220,807	)			(1,330	)			(222,137	)
Increase (decrease) in equity			-				449				(211	)			(792	)			830				276				(79,194	)			(78,918	)			(533	)			79,451
Equity as of June 30, 2016 (Unaudited)			477,386				(13,586	)			(1,910	)			(3,178	)			(847	)			(19,521	)			1,803,002				2,260,867				60,038				2,320,905

 

The accompanying notes form an integral part of these consolidated financial statements.

 

   

Note 1

Identification and activities of the Company and Subsidiaries

 

1.1

Historical 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.

 

The Company was incorporated through a public deed dated June 17, 1968 by the notary public of Santiago 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.

 

The Company is registered with the Securities Registry of the Chilean Superintendence of Securities and Insurance (SVS) under No. 0184 dated March 18. 1983 and is subject to the inspection of the SVS.

 

1.2

Main 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, Minsal Mining Camp s/n CL Plant CL, Potassium– San Pedro de Atacama, formerly the Iris Saltpeter office S/N, Commune of Pozo Almonte, Iquique.

 

1.3

Codes 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)

 

1.4

Description 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 ore deposit in northern Chile contains nitrate and iodine deposits. The brine deposits of the Salar de Atacama, in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate.

 

 

Note 1

Identification and Activities of the Company and Subsidiaries (continued)

 

1.4

Description 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 and sulfate in order to produce potassium chloride, potassium sulfate, lithium solutions, 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 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 mixes. This business is characterized by being closely related to its customers for which it has 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 specially potassium nitrate have had a leading role given the contribution they make to develop crops insuring an improvement in post-crop life in addition to improving quality, flavor and fruit color. The potassium nitrate, which is sold in multiple formats and as a part of other specialty mixtures, is complemented by sodium nitrate, potassium sodium nitrate, and more than 200 fertilizing mixtures.

 

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: The 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 mainly not used for rechargeable batteries for small electrical appliances such as mobile phones, tablets and laptops. It is also used in industrial applications such as the manufacturing of glass, ceramics and lubricating greases. Other uses include the pharmaceutical and chemical industries.

 

 

Note 1

Identification and Activities of the Company and Subsidiaries (continued)

 

1.4

Description 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 participates in this line of business producing sodium nitrate, potassium nitrate 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 widely used in countries as Spain and the United States in their search for decreasing CO₂ emissions.

 

Potassium: The potassium is a primary essential macro-nutrient, and even though does not form part of the plant’s structure, has a significant role for the developing of its basic functions, validating the quality of a crop, increasing post-crop life, improving the crop flavor, its amount in vitamins and its physical appearance. Within this business line, SQM has also potassium chlorate and potassium sulfate, both extracted from the salt layer located under the Salar de Atacama (the Atacama Saltpeter Deposit).

 

Other products and services: This business line includes revenue from commodities, services, interests, royalties and dividends.

 

1.5

Other background

 

Staff

 

As of June 30, 2017 and December 31, 2016, staff was detailed as follows:

 

		6/30/2017												12/31/2016
Employees		SQM S.A				Other subsidiaries				Total				SQM S.A.				Other subsidiaries				Total
Executives			41				71				112				31				72				103
Professionals			138				906				1,044				119				919				1,038
Technicians and operators			251				3,073				3,324				262				3,076				3,338
Foreign employees			16				277				293				8				264				272
Overall total			446				4,327				4,773				420				4,331				4,751

 

 

Note 1

Identification and Activities of the Company and subsidiaries (continued)

 

1.5

Other background, continued

 

Main shareholders

 

The table below establishes certain information about the beneficial property of Series A and Series B shares of SQM as of June 30, 2017 and December 31, 2016. In respect 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 in the Central Securities Depository and reported to the Superintendence of Securities and Insurance (SVS) and the Chilean Stock Exchange, whose main shareholders are as follows:

 

Shareholder as of June 30, 2017		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			-				-				54,198,593				45,02	%			20,59	%
Sociedad de Inversiones Pampa Calichera S.A.(*)			44,894,152				31,43	%			7,007,688				5,82	%			19,72	%
Inversiones El Boldo Limitada			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	%
Potasios de Chile S.A.(*)			18,179,147				12,73	%			-				-				6,91	%
Inversiones PCS Chile Limitada			15,526,000				10,87	%			1,600,000				1,33	%			6,51	%
Banco de Chile por Cuenta de Terceros no Residentes			-				-				8,941,307				7,43	%			3,40	%
Inversiones Global Mining (Chile) Limitada (*)			8,798,539				6,16	%			-				-				3,34	%
Banco Itau por Cuenta de Inversionistas			20,950				0,01	%			6,757,260				5,61	%			2,58	%
Banco Santander por cuenta de inversionistas extranjeros			-				-				3,896,903				3,24				1,48	%

  

(*) Total Pampa Group 29.97%

 

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			-				-				59,373,011				49.32	%			22.56	%
Sociedad de Inversiones Pampa Calichera S.A.(*)			44,894,152				31.43	%			7,007,688				5.82	%			19.72	%
Inversiones El Boldo Limitada			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	%
Potasios de Chile S.A.(*)			18,179,147				12.73	%			-				-				6.91	%
Inversiones PCS Chile Limitada			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	%
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	%			46,500				0.04	%			1.43	%

 

(*) Total Pampa Group 29.97%

 

On June 30, 2017 the total number of shareholders had risen to 1,229.

 

 

Note 2

Basis of presentation for the consolidated financial statements

 

2.1

Accounting period

 

These consolidated financial statements cover the following periods:

 

-

Consolidated Statements of Financial Position for the periods ended June 30, 2017 and December 31, 2016.

 

-

Consolidated Statements of Changes in Equity for the periods ended June 30, 2017 and 2016.

 

-

Consolidated Statements of Comprehensive Income for the periods between January and June 30, 2017 and 2016.

 

-

Statements of Direct-Method Cash Flows for the periods ended June 30, 2017 and 2016.

 

2.2

Financial statements

 

The consolidated financial statements of Sociedad Química y Minera de Chile S.A. and its Subsidiaries were prepared in accordance with International Financial Reporting Standards (hereinafter “IFRS”) and represent the full, explicit and unreserved adoption of International Financial Reporting Standards as issued by the International Accounting Standards Board (hereinafter the “IASB”).

 

These consolidated financial statements fairly reflect the Company’s financial position, the comprehensive results of operations, changes in equity and cash flows occurring during the years then ended.

 

IFRS establish certain alternatives for their application. Those applied by the Company are detailed in this Note.

 

On October 17, 2014, the Chilean Superintendence of Securities and Insurance issued Official Communication No. 856 providing instructions for inspected entities to recognize in 2014 against equity differences in deferred tax assets and liabilities resulting directly from the increase in the corporate income introduced by Law No. 20.780. Such accounting treatment differs from that provided by International Accounting Standard 12 (IAS 12) and, accordingly, represented a change in the accounting framework for the preparation and presentation of financial information that had been adopted through such date.

 

Considering that indicated in the preceding paragraph, this represented a specific and temporary departure from the IFRS, starting from 2016 and in conformity with that established in paragraph 4ª of IFRS 1, the Company has decided to retrospectively apply such standards (in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”) as if had never ceased their application.

 

Because of that indicated in the preceding paragraph it does not amend any of the accounts disclosed in the statements of financial position as of June 30, 2017 and 2016 or those as of December 31, 2016 and 2015 in conformity with that indicated in paragraph 40A of IAS 1 “Presentation of Financial Statements”, the presentation of the statement of financial position as of January 1, 2015 (third column) is not necessary.

 

 

Note 2

Basis of presentation for the consolidated financial (continued)

 

2.2

Financial statements, continued

 

The accounting policies used for the preparation of the annual consolidated accounts comply with all IFRS in issue at the reporting date.

 

For the closing date of these financial statements certain reclassifications have been mad for the captions current tax assets, other non-current financial assets, equity accounted investees, current tax assets, non-current as of December 31, 2016, for consistent presentation and comparability to the figures as of June 30, 2017.

 

2.3

Basis of measurement

 

The consolidated financial statements have been prepared on the historical cost basis except for the following:

 

-

Inventories are recorded at the lower of cost and net realizable value.

-

Financial derivatives at fair value; and

-

Staff severance indemnities and pension commitments at actuarial 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

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting pronouncements

 

New accounting pronouncements

 

a)          The following standards, interpretations and amendments are mandatory for the first time for annual periods beginning on January 1, 2017:

 

Amendments and improvements		Mandatory for annual periods beginning on
Amendment to IAS 7 “Statement of Cash Flows.”  Issued in February 2016. The amendment introduces additional disclosures allowing users of the financial statements to assess changes in obligations from financing activities.		01/01/2017
Amendment to IAS 12 “Income Taxes.”   Issued in February 2016. The amendment clarifies how to account for deferred taxes associated with debt securities measured at their fair value.		01/01/2017
Amendment to IFRS 12 “Disclosure of Interest in Other Entities.”  Issued in December 2016.   The amendment clarifies the scope of this standard.  Such amendments must be applied retrospectively to annual periods beginning on January 1, 2017.		01/01/2017
Amendment to IAS 28 “Investments in Associates and Joint Ventures”, related to the measurement of the associate or joint venture at fair value. Issued in December 2016.		01/01/2017

 

The adoption of the standards, amendments and interpretations indicated above has no significant impact on the Company’s consolidated financial statements.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting Pronouncements, continued

 

b)           Standards, interpretations and amendments issued, not effective for the financial statements beginning on January 1, 2016, which the Company has not adopted early are as follows:

  

Standards and interpretations		Mandatory for annual periods beginning on
IFRS 9 “Financial Instruments” – Issued in July 20014.  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” – 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. Earlier adoption is permitted.		01/01/2018
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.   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.		01/01/2019
IFRS 17 "Insurance Contracts" Issued in May 2017, it replaces the current IFRS 4. IFRS 17 will mainly amend the accounting for all entities issuing insurance contracts and investment contracts with discretionary involvement characteristics.  This standard is applicable to all annual periods beginning on January 1, 2021 and early adoption is allowed provided that the entity applies IFRS 15 "Revenue from Contracts with Customers" and IFRS 9 "Financial Instruments."		01/01/2021
IFRIC 22 “Foreign Currency Transactions and Advance Consideration.”   Issued in December 2016.  This interpretation is applicable to a transaction in foreign currency (or a portion thereof) if an entity recognizes a non-financial asset or non-financial liability arising from the payment of receipt  of an advance consideration prior to the entity recognizing the related asset, expense or income (or the applicable portion thereof).  The interpretation provides guidance for when a single payment / receipt occurs, as well as for situations in which multiple payments / receipts are made. It is intended to reduce diversity in practice		01/01/2018

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting Pronouncements, continued

 

Amendments and improvements		Mandatory for annual periods beginning on
IFRIC 23   “Uncertainty over Income Tax Treatments.” Issued in June 2016. This interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when uncertainty over the income tax treatments exists.		01/01/2013
Amendment to IFRS 15 "Revenue from Contracts with Customers." Issued in April 2016. This amendment provides clarification for the guidance for the identification of 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 includes new and amended illustrative examples, as well as practical examples related to the transition to the new revenue standard.		01/01/2018
Amendments to IFRS 10: Separate Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures." Issued in September 2014. Such amendment addresses an inconsistency between the requirements in IFRS 10 and IAS 28 for the treatment of the sale or contribution of assets between an investor and its associate or joint venture.  The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (either in a subsidiary or not) and a partial gain or loss is recognized when the transaction involves assets that do not constitute a business, even if such assets are housed in a subsidiary.		Not yet determined

 

As of june 30, 2017 the Company's management is in the process of assessing the impacts on the consolidated financial statements of the adoption of IFRS 9, IFRS 15 and IFRS 16. However, for the remaining standards, amendments and interpretations described above, it believes they will not have any significant impact for the initial application period.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation

 

(a)

Subsidiaries

 

Relate to all the entities on which Sociedad Química y Minera de Chile S.A. has control 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 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 acquiree either at fair value or as proportional share of net identifiable assets of the acquiree.

 

Companies included in consolidation:

 

								Ownership interest
								06/30/2017												12/31/2016
TAX ID No.		Foreign subsidiaries		Country of origin		Functional currency		Direct				Indirect				Total				Total
Foreign		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
Foreign		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
Foreign		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
Foreign		SQM Corporation N.V.		Netherlands		US$			0.0002				99.9998				100.0000				100.0000
Foreign		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$			0.0100				99.9900				100.0000				100.0000
Foreign		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
Foreign		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
Foreign		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
Foreign		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
Foreign		SQM France S.A.		France		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Japan Co. Ltd.		Japan		US$			0.1597				99.8403				100.0000				100.0000
Foreign		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
Foreign		SQM Colombia SAS		Colombia		US$			0.0000				100.0000				100.0000				-

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation, continued

 

								Ownership interest
								6/30/2017												12/31/2016
TAX ID No.		Foreign subsidiaries		Country of origin		Functional currency		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

 

								Ownership interest
								6/30/2017												12/31/2016
TAX ID No.		Domestic subsidiaries		Country of origin		Functional 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. (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
76.686.311-9		Compañia Minera Arfwedson Spa		Chile		US$			100.0000				-				100.0000				-

 

(a)

The Company consolidated Comercial Agrorama Ltda. as it has the control of this company’s relevant activities.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation, continued

 

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.

 

Profit or loss of subsidiaries acquired or disposed during the year are included in profit or loss accounts consolidated from the date control is transferred to the Group, or up to the date control is lost, as applicable.

 

Non-controlling interest represents the equity of a subsidiary not directly or indirectly attributable to the Parent.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.6

Significant 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.

 

 

Note 3

Significant accounting policies

 

3.1

Classification 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.

 

3.2

Functional 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.

 

3.3

Foreign currency translation

 

(a)

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.

 

 

 

Note 3

Significant accounting policies (continued)

 

3.3

Foreign 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:

 

		6/30/2017				12/31/2016
		US$				US$
Brazilian real			3.31				3.25
New Peruvian sol			3.25				3.35
Argentine peso			16.62				15.84
Japanese yen			112.43				116.83
Euro			0.88				0.95
Mexican peso			18.14				20.63
Australian dollar			1.30				0.72
Pound Sterling			0.77				0.81
South African rand			13.07				13.70
Ecuadorian dollar			1.00				1.00
Chilean peso			664.29				669.47
UF			40.14				39.36

 

(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 recognize 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.4

Subsidiaries

 

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.

 

3.5

Consolidated statement of cash flows

 

Cash equivalents correspond 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 mature in less than three months 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 performed during the year, determined using the direct method.

 

3.6

Financial assets

 

Management determines the classification of its financial assets at the time of initial recognition, on the basis of the business 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.7

Financial 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.

 

3.8

Financial 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 have arisen from the measurement of assets or liabilities or from the recognition of gains and losses from them on different bases.

 

3.9

Financial 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.

 

3.10

Reclassification 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.

 

3.11

Derivative 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:

 

Fair value hedge of assets and liabilities recognized (fair value hedges);

 

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.

 

 

Note 3

Significant accounting policies (continued)

 

3.11

Derivative 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.

 

Derivatives that are not designated or do not qualify as hedging derivatives are classified as current assets or liabilities, and changes in the fair value are directly recognized through profit or loss.

 

a)

Fair value hedge

 

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in profit or loss within other income or other expenses. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a 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..

 

 

Note 3

Significant accounting policies (continued)

 

3.12

Available 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.

 

3.13

Derecognition 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, paid to the creditor or legally extinguished.

 

3.14

Derivative financial instruments

 

The Company maintains derivative financial instruments to hedge its exposure to foreign currencies. Derivative financial instruments are recognized initially at fair value; attributable transact 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 June 30, 2017 and December 31, 2016, there are no embedded derivatives.

 

3.15

Fair 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.16

Leases

 

(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 lessor 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 lessor) are debited to the statement of income or capitalized (as applicable) on a straight-line basis over the lease period.

 

3.17

Deferred 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.

 

3.18

Trade 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.19

Inventory measurement

 

The Company states inventories at 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.

 

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.

 

3.20

Investments 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.20

Investments in associates and joint ventures, continued

 

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”.

 

3.21

Transactions 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.

 

3.22

Related 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 according to the originating transaction.

 

 

Note 3

Significant accounting policies (continued)

 

3.23

Property, 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.

 

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.

 

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 value and its net carrying value.

 

Costs derived from daily maintenance of property, plant and equipment are recognized when incurred.

 

 

Note 3

Significant accounting policies (continued)

 

3.24

Depreciation 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.

 

Classes of property, plant and equipment		Minimum life or rate (years)				Maximum life or rate (years)
Mining assets			3				10
Energy generating assets			2				16
Buildings			2				30
Supplies and accessories			2				15
Office equipment			3				20
Transport equipment			3				20
Network and communication equipment			2				15
IT equipment			2				15
Machinery, plant and equipment			2				30
Other property, plant and equipment			1				30

 

3.25

Goodwill

 

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 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.26

Intangible assets other than goodwill

 

Intangible assets mainly relate to water rights, rights issue, electric line easement expenses and software 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 of employees that develop information technology software and general expenses in accordance with corporate charges received.

 

The costs of development for IT programs recognized as assets are amortized over their estimated useful lives.

 

(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 June 30, 2017 and December 31, 2016.

 

 

Note 3

Significant accounting policies (continued)

 

3.27

Research and development expenses

 

Research and development expenses are charged to profit or loss in the period in which the expenditure was incurred.

 

3.28

Prospecting 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 that finally will deliver future benefits to 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).

 

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 the production of our processes as a main raw material.

 

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 expenses for small deposits and prospecting expenses in the caption “other non-current assets”.

 

 

Note 3

Significant accounting policies (continued)

 

3.29

Impairment 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 sales and its value in use, and is determined for an individual asset unless the asset does not generate any cash inflows 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.

 

To determine the fair value less costs to sell, an appropriate valuation 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, except for properties reevaluated previously where the revaluation was taken to equity.

 

For assets other than acquired goodwill, an annual evaluation is conducted of whether there are impairment loss indicators recognized previously that might have already 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 would have not been recognized in prior years. This reversal is recognized with a credit to profit or loss.

 

3.30

Minimum 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, 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, unless decided otherwise by the unanimous vote by the shareholders at the General Shareholders´ meeting held each year.

 

On April 11, 2017, the Company’s Board of Directors at the extraordinary meeting recommended to the Ordinary Shareholders’ Meeting (the Meeting) which was held on April 28, 2017, that the Company distributes and pays as dividend declared 100% of net profit for distribution obtained by the Company during the commercial year 2016. Such recommendation was accepted by the Meeting.

 

 

Note 3

Significant accounting policies (continued)

 

3.30

Minimum dividend, continued

 

For 2017, the Company has defined the following dividend policy: (a) Distributing and paying as dividend declared and in favor of the related shareholder, a percentage of the profits that will be determined as per the following financial parameters.

 

(i) 100% of the profit for 2017 if all the copulative financial parameters are met: (a) that the addition of cash and cash equivalents and other current financial assets (“Cash”) divided by the addition of other current financial liabilities (the “Short-term Financial Liabilities”) is equal to or higher than 2.5 times, and (b) the addition of current liabilities and non-current liabilities (“Total Liabilities”) divided by total equity (“Equity”) is equal to or lower than 1.1 times.

 

(ii) 80% of profit for 2017 if all the following copulative financial parameters are met: (a) that Cash divided by Short-term Financial Liabilities is equal to or higher than 2.0 times, and (b) Total Liabilities divided by Total Equity is equal to or lower than 1.2 times.

 

(iii) 60% of profit for 2017 if all the following copulative financial parameters are met: (a) that Cash divided by Short-term Financial Liabilities is equal to or higher than 1.5 times, and (b) Total Liabilities divided by Total Equity is equal to or lower than 1.3 times. Should none of these parameters be met, the Company will distribute and pay as dividend declared and in favor of the related shareholders, 50% of profit for 2017.

 

3.31

Earnings per share

 

The 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 implies the disclosure of diluted earnings per share.

 

3.32

Trade 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.

 

3.33

Interest-bearing borrowings

 

At initial recognition, interest-bearing borrowings are measured at fair 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.34

Other 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.

 

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.

 

 

Note 3

Significant accounting policies (continued)

 

3.35

Obligations 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 other comprehensive 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 4.577% and 4.522% for the periods ended June 30, 2017 and December 31, 2016, 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 4.5% interest rate for 2016 and 5.00% for 2015. The net balance of this obligation is presented under the non-current provisions for employee benefits (refer to Note 15.4).

 

3.36

Compensation 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, 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 payroll on a straight-line basis during the period between the date on which these options are granted and the payment date (see Note 16).

 

 

Note 3

Significant accounting policies (continued)

 

3.37

Revenue recognition

 

Revenue includes the fair value of considerations 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 stated reliably. It is possible that the future economic rewards 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.

 

3.38

Finance 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.38

Finance 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.

 

3.38

Income 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.

 

 

Note 3

Significant accounting policies (continued)

 

3.38

Income 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.

 

3.39

Segment 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

 

 

Note 3

Significant accounting policies (continued)

 

3.40

Environment

 

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.

 

Note 4

Financial risk management

 

4.1

Financial 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.

 

 

Note 4

Financial risk management, continued

 

4.2

Risk factors

 

4.2.1

Market 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)

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$118 million associated with fuel, gas, energy and equivalents from which US$78 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$12 million in short-term movements.

 

The 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 related 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)

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.

 

 

Note 4

Financial risk management, continued

 

4.2.2

Credit 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:

 

Rating Institution

06/30/2017

Financial institution

Financial assets

Moody´s

S&P

Fitch

ThUS$

Banco BBVA Chile

Time deposits

P-1

A-2

-

3,700

Banco Crédito e Inversiones

Time deposits

P-1

-

N1+

14,535

Banco de Chile

Time deposits

P-1

A-1

-

11,515

Banco Santander - Santiago

Time deposits

P-1

A1

N1+

8,916

BBVA Banco Francés

Time deposits

-

-

-

186

Itau-Corpbanca

Time deposits

P-1

A-2

-

71,268

JP Morgan US dollar Liquidity Fund Institutional

Investment fund deposits

P-1

-

-

159,758

Legg Mason - Western Asset Institutional Cash Reserves

Investment fund deposits

-

-

-

158,510

Banco Estado

Time deposits

P-1

A1

F1

6,317

Nedbank

Time deposits

P-3

F3

-

5,835

Total

440,540

 

Rating Institution

06/30/2017

Financial institution

Financial assets

Moody´s

S&P

Fitch

ThUS$

Banco Crédito e Inversiones

90 days to 1 year

P-1

-

N1+

139,068

Banco Itau Chile

90 days to 1 year

-

A-2

-

15,129

Itau-Corpbanca

90 days to 1 year

P-1

A-2

-

39,995

Banco Santander - Santiago

90 days to 1 year

P-1

A1

N1+

75,680

Banco Security

90 days to 1 year

-

A-3

N1+

15,120

Morgan Stanley

90 days to 1 year

A-2

A-2

F1

3,581

Scotiabank Sud Americano

90 days to 1 year

-

-

N1+

27,189

Total

315,762

 

 

Note 4

Financial risk management, continued

 

4.2.3

Currency 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$317 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 June 30, 2017, the Company recorded derivative instruments classified as currency and interest rate hedges associated with all the bonds payable, denominated in UF, with a fair value of US$26.8 million against SQM. As of June 30, 2016, this amounts to US$53 million in against SQM.

 

As of June 30, 2017, the Chilean peso to U.S. dollar exchange rate was Ch$664.29 per US$1.00 (Ch$ 661.37 per US$ 1.00 as of June 30, 2016).

 

 

Note 4

Financial risk management, continued

 

4.2.4

Interest 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 June 30, 2017, approximately 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$ 0.03 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 June 30, 2017, the Company's financial liabilities are mainly concentrated in the long-term and approximately 7% have maturities of less than 12 months, decreasing in the process the exposure to changes in interest rates.

 

4.2.5

Liquidity 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 30 2016, the Company had unused, available revolving credit facilities with banks, for a total of approximately US$330 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.

 

 

Note 4

Financial risk management, continued

 

4.2.5

Liquidity risk, continued

 

		Nature of undiscounted cash flows
As of June 30, 2017		Carrying amount				Less than 1 year				1 to 5 years				Over 5 years				Total
(in millions of US$)
Other non-derivative financial liabilities
Bank borrowings			80.47				80.7				-				-				80.7
Unsecured obligations			1,092,76				54,26				534,88				783,70				1,372,84
Subtotal			1,173,23				134,96				534,88				783,70				1,453,54
Other derivative financial liabilities
Hedging liabilities			29.06				(12.65	)			2.47				37.42				27.24
Derivative financial instruments			(0.73	)			(0,73	)			-				-				(0.73	)
Subtotal			28.33				(13,38	)			2,47				37,42				26.51
Total			1,201,56				121,58				537,35				821,12				1,480,05

 

		Nature of undiscounted cash flows
As of December 31, 2016		Carrying amount				Less than 1				1 to 5 years				Over 5 years				Total
(in millions of US$)
Other non-derivative financial liabilities
Bank borrowings			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 derivative financial liabilities
Hedging liabilities			42.62				17.20				40.33				(23,58	)			33.95
Derivative financial instruments			(2,175	)			(2.18	)			-				-				(2.18	)
Subtotal			40.45				15.02				40.33				(23.58	)			31.77
Total			1,271,94				211,86				519,87				850,33				1,582,06

 

4.3

Risk 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 5

Changes in accounting estimates and policies (consistent presentation)

 

5.1

Changes in accounting estimates

 

The Company had no changes in the determination of accounting estimates at the closing date of the consolidated financial statements.

 

5.2

Changes in accounting policies

 

As of June 30, 2017, the Company’s consolidated financial statements present no 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 June 30, 2017 and December 31, 2016 and the statements of comprehensive income, changes in equity and cash flows for the periods ended June 30, 2017 and 2016, have been prepared in accordance with the Standards issued by the Chilean Superintendence of Securities and Insurance (SVS), which consider the International Financial Reporting Standards (IFRS).

 

The accounting principles and criteria were applied consistently.

 

 

Note 6

Background of companies included in consolidation

 

6.1

Parent’s stand-alone assets and liabilities

 

 

		6/30/2017				12/31/2016
		ThUS$				ThUS$
Assets			3,853,009				3,824,137
Liabilities			(1,663,951	)			(1,578,063	)
Equity			2,189,058				2,246,074

 

6.2

Parent 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.

 

6.3

Joint 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 29.97% as of June 30, 2017 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 2.12% of the total amount of issued, subscribed and fully-paid shares of SQM 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.

 

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.

 

Detail of effective concentration

 

Tax ID No.		Name		Ownership interest %
96.511.530-7		Sociedad de Inversiones Pampa Calichera S.A.			19.72
76.165.311-5		Potasios de Chile S.A.			6.91
96.863.960-9		Inversiones Global Mining (Chile) Limitada			3.34
Total Pampa Group					29.97
79.798.650-k		Inversiones la Esperanza (Chile)  Ltda.			1.43
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					2.12

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4

General information on consolidated subsidiaries

 

As of June 30, 2017 and December 31, 2016, the general information of the companies on which the Company exercises control and significant influence is as follows:

 

										Ownership interest
Subsidiary		Tax ID		Address		Country of incorporation		Functional 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
Proinsa Ltda.		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
SQM Potasio S.A.		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
Isapre Norte Grande Ltda.		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
Almacenes y Depósitos Ltda.		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
SQM Industrial S.A.		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		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
Soquimich Comercial S.A.		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 Hydro S.A.		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
Orcoma Estudios SPA		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
Compañia Minera Arfwedon SPA		76.686.311-9		Los Militares 4290, 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
RS Agro Chemical Trading Corporation A.V.V.		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
Nitrate Corporation of Chile Ltd.		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		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
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
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

(*) SQM is the Parent of Soquimich Comercial and, in its turn, the latter is the Parent of Comercial Agrorama Ltda.

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4       General information on consolidated subsidiaries, continued

 

Ownership interest

Subsidiary

Tax ID

Address

Country of incorporation

Functional currency

Direct

Indirect

Total

SQI Corporation N.V.

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

SQM Japan Co. Ltd.

Foreign

From 1st Bldg 207, 5-3-10 Minami- Aoyama, Minato-ku, Tokyo

Japan

US$

0.1597

99.8403

100.0000

SQM Europe N.V.

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

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

North American Trading Company

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

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

SQM Investment Corporation N.V.

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

SQM Lithium Specialties LLP

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

Comercial Caimán Internacional S.A.

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

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

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

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4

General information on consolidated subsidiaries, continued

 

Ownership interest

Subsidiary

Tax ID

Address

Country of incorporation

Functional 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 Colombia SAS

Foreign

Cra 7 No 32 – 33 piso 29 Pbx: (571) 3384904 Fax: (571) 3384905 Bogotá D.C. – Colombia

Colombia

US$

-

100.0000

100.0000

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.5

Information 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
							6/30/2017				12/31/2016				6/30/2017				12/31/2016				6/30/2017				12/31/2016
							ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Proinsa Ltda.			0.1	%			-				-				-				-				-				-
SQM Potasio S.A.			0.0000001	%			-				-				-				-				-				-
Ajay SQM Chile S.A.			49	%			391				1,360				8,185				8,303				510				1,163
SQM Indonesia S.A.			20	%			-				-				1				1				-				-
Soquimich Comercial S.A.			39.3616784	%			(780	)			2,378				48,449				50,416				1,189				1,851
Comercial Agrorama Ltda.			30	%			(82	)			(106	)			119				201				-				-
Agrorama S.A.			0.001	%			-				-				-				-				-				-
Orcoma Estudios SPA			49	%			-				2				2,277				2,277				-				-
SQM (Thailand) Limited.			0.004	%			-				-				-				-				-				-
Total							(471	)			3,634				59,031				61,198				1,699				3,014

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries

 

		06/30/2017
		Assets								Liabilities								Revenue				Profit (loss)				Comprehensive income (loss)
		Current				Non-current				Current				Non-current
Subsidiary		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Nitratos S.A.			719,261				44,181				696,526				4,607				52,236				3,535				3,567
Proinsa Ltda.			55				1				-				-				-				(2	)			(2	)
SQMC Internacional Ltda.			203				-				-				-				-				(2	)			(2	)
SQM Potasio S.A.			227,220				814,858				43,141				23,213				2,047				139,014				139,916
Serv. Integrales de Tránsito y Transf. S.A.			92,188				36,993				121,704				1,041				17,306				2,537				2,524
Isapre Norte Grande Ltda.			509				758				528				137				283				31				33
Ajay SQM Chile S.A.			16,796				1,191				876				407				10,974				798				798
Almacenes y Depósitos Ltda.			280				46				1				-				-				(4	)			32
SQM Salar S.A.			734,239				796,552				543,315				198,139				463,002				174,589				175,208
SQM Industrial S.A.			1,324,952				633,440				967,539				93,553				313,183				8,797				9,869
Exploraciones Mineras S.A.			534				31,684				6,157				-				-				(19	)			(19	)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.			349				590				540				323				178				31				12
Soquimich Comercial S.A.			142,429				14,603				32,874				1,072				33,150				(1,981	)			(1,977	)
Comercial Agrorama Ltda.			8,054				1,669				9,285				39				5,119				(274	)			(276	)
Comercial Hydro S.A.			5,213				49				30				13				15				51				51
Agrorama S.A.			10,215				1,060				12,755				47				4,231				(592	)			(596	)
Orcoma SpA			-				2,360				14				-				-				-				-
Orcoma Estudio SpA			375				4,278				5				-				-				-				-
Compañia Minera Arfwedon SPA			10				-				-				-				-				-				-
SQM North America Corp.			156,973				15,523				184,488				782				148,557				1,910				1,642
RS Agro Chemical Trading Corporation A.V.V.			5,165				-				8				-				-				(15	)			(15	)
Nitratos Naturais do Chile Ltda.			2				140				3,455				-				-				(113	)			(113	)
Nitrate Corporation of Chile Ltd.			5,076				-				-				-				-				-				-
SQM Corporation N.V.			668				107,701				3,575				-				-				(6,621	)			(5,073	)
SQM Perú S.A.			270				1				1,166				-				-				25				25
SQM Ecuador S.A.			16,900				109				14,664				40				13,377				898				898
SQM Brasil Ltda.			194				1				700				2,346				161				(71	)			(71	)
SQI Corporation N.V.			-				21				61				-				-				(7	)			(7	)
SQMC Holding Corporation L.L.P.			23,966				14,166				1,000				-				-				602				602
SQM Japan Co. Ltd.			29,908				293				27,416				576				41,917				(2,298	)			2,861

 

  

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries, continued

 

06/30/2017
		Assets								Liabilities								Revenue				Profit (loss)				Comprehensive income (loss)
		Current				Non-current				Current				Non-current
Subsidiary		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Europe N.V.			405,720				2,725				366,419				-				418,416				(9,167	)			(9,167	)
SQM Italia SRL			1,176				-				15				-				-				-				-
SQM Indonesia S.A.			4				-				1				-				-				-				-
North American Trading Company			158				145				39				-				-				-				-
SQM Virginia LLC			14,805				14,350				14,805				-				-				(6	)			(6	)
SQM Comercial de México S.A. de C.V.			78,587				1,810				52,484				(210	)