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, 2018.

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.

 

 

 

Santiago, Chile. December 17, 2018.- Sociedad Química y Minera de Chile S.A. (SQM) (NYSE: SQM; Santiago Stock Exchange: SQM-B, SQM-A) reports the translation of its financial statements for the six months ended September 30, 2018, the Spanish version of which was filed with the Chilean Comission for the Financial Market (Comisión para el Mercado Financiero or “CMF”) on November 21, 2018.

 

 

CONSOLIDATED FINANCIAL STATEMENTS

For the period ended

September 30, 2018

 

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

In Thousands of United States Dollars

 

This document includes:

-

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		9
Consolidated Statements of Income by Function		11
Consolidated Statements of Comprehensive Income		13
Consolidated Statements of Cash Flows		14
Consolidated Statements of Changes in Equity		16
Note 1	Identification and Activities of the Company and Subsidiaries	18
1.1	Historical background	18
1.2	Main domicile where the Company performs its production activities	18
1.3	Codes of main activities	18
1.4	Description of the nature of operations and main activities	18
1.5	Other background	20
Note 2	Basis of presentation for the consolidated financial statements	22
2.1	Accounting period	22
2.2	Consolidated financial statements	22
2.3	Basis of measurement	23
2.4	Accounting pronouncements	23
2.4	Accounting pronouncements, continued	24
2.5	Basis of consolidation	28
Note 3	Significant accounting policies	31
3.1	Classification of balances as current and non-current	31
3.2	Functional and presentation currency	31
3.3	Foreign currency translation	31
3.4	Subsidiaries	33
3.5	Consolidated statement of cash flows	33
3.6	Financial assets	33
3.7	Financial liabilities	34
3.8	Financial instruments at fair value through profit or loss	34
3.9	Financial instrument offsetting	34
3.10	Reclassification of financial instruments	34
3.11	Derivative and hedging financial instruments	34
3.12	Available for sale financial assets	36
3.13	Derecognition of financial instruments	36
3.14	Derivative financial instruments	36
3.15	Fair value initial measurements	37
3.16	Deferred acquisition costs from insurance contracts	37
3.17	Trade and other receivables	37

 

 

3.18	Inventory measurement	38
3.20	Transactions with non-controlling interests	39
3.21	Related party transactions	40
3.22	Property, plant and equipment	40
3.23	Depreciation of property, plant and equipment, continued	41
3.24	Goodwill	42
3.25	Intangible assets other than goodwill	42
3.26	Research and development expenses	44
3.27	Prospecting expenses	44
3.27	Prospecting expenses	45
3.28	Impairment of non-financial assets	45
3.29	Minimum dividend	46
3.30	Earnings per share	46
3.31	Trade and other payables	46
3.32	Interest-bearing borrowings	46
3.33	Other provisions	47
3.34	Obligations related to employee termination benefits and pension commitments	48
3.35	Compensation plans	49
3.36	Revenue recognition	49
3.37	Finance income and finance costs	50
3.38	Income tax and deferred taxes	50
3.39	Segment reporting	52
3.40	Responsibility for Information and Estimates Made	53
3.41	Environment	54
Note 4	Changes in accounting estimates and policies (consistent presentation)	55
4.1	Changes in accounting estimates	55
4.2	Changes in accounting policies	55
Note 5	Financial risk management	56
5.1	Financial risk management policy	56
5.2	Risk Factors	57
5.3	Risk measurement	76
Note 6	Background of companies included in consolidation	77
6.1	Parent’s stand-alone assets and liabilities	77
6.2	Parent entity	77
Note 7	Board of Directors, Senior Management And Key management personnel	78
7.1	Board of Directors and Senior Management	78
7.2	Key management personnel compensation	81
Note 8	Background on companies included in consolidation and non-controlling interests	82

 

 

8.1	Background on companies included in consolidation	82
8.2	Assets, liabilities, results of consolidated subsidiaries	85
8.3	Detail of transactions between consolidated companies	89
8.4	Background on non-controlling interests	91
Note 9	Equity-accounted investees	92
9.1	Investments in associates recognized according to the equity method of accounting	92
9.2	Assets, liabilities, revenue and expenses of associates	95
9.3	Other information	96
9.4	Disclosures on interest in associates	96
Note 10	Joint Ventures	98
10.1	Policy for the accounting of equity accounted investment in joint ventures	98
10.2	Disclosures of interest in joint ventures	98
10.3	Investment in joint ventures accounted for under the equity method of accounting	100
10.4	Assets, liabilities, revenue and expenses from joint ventures:	103
10.5	Other Joint Venture disclosures:	104
Note 11	Cash and cash equivalents	105
11.1	Types of cash and cash equivalents	105
11.2	Short-term investments, classified as cash equivalents	105
11.3	Information on cash and cash equivalents by currency	106
11.4	Amount restricted (unavailable) cash balances	106
11.5	Short-term deposits, classified as cash equivalents	107
11.6	Other information	109
Note 12	Inventories	110
Note 13	Related party disclosures	112
13.1	Related party disclosures	112
13.2	Relationships between the parent and the entity	112
13.3	Detailed identification of the link between the Parent and subsidiary	113
13.4	Detail of related parties and related party transactions	116
13.5	Trade receivables due from related parties, current:	117
13.6	Trade payables due to related parties, current:	117
Note 14	Financial instruments	118
14.1	Types of other financial assets	118
14.2	Trade and other receivables	119
14.3	Hedging assets and liabilities	122
14.4	Financial liabilities	124
14.5	Trade and other payables	136
14.6	Financial liabilities at fair value through profit or loss	137
14.7	Financial asset and liability categories	138

 

 

14.8	Fair value measurement of assets and liabilities	140
14.9	Financial assets pledged as a guarantee	142
14.10	Estimated fair value of financial instruments and financial derivatives	143
14.11	Nature and scope of risks arising from financing instruments	144
Note 15	Intangible assets and goodwill	145
15.1	Balances	145
15.2	Disclosures on intangible assets and goodwill	145
Note 16	Property, plant and equipment	151
16.1	Types of property, plant and equipment	151
16.2	Reconciliation of changes in property, plant and equipment by type:	153
16.3	Detail of property, plant and equipment pledged as guarantee	157
16.4	Impairment of assets	157
16.5	Información adicional	157
Note 17	Other current and non-current non-financial assets	158
Note 18	Employee benefits	159
18.1	Provisions for employee benefits	159
18.2	Policies on defined benefit plan	160
18.3	Other long-term benefits	161
18.4	Post-employment benefit obligations	162
18.5	Staff severance indemnities	163
18.6	Executive compensation plan	164
Note 19	Provisions and other non-financial liabilities	165
19.1	Types of provisions	165
19.2	Description of other provisions	166
19.3	Other current liabilities	167
19.4	Changes in provisions	168
Note 20	Disclosures on equity	169
20.1	Capital management	169
20.2	Disclosures on preferred share capital	170
20.3	Disclosures on reserves in equity	172
20.4	Dividend policies	175
20.5	Interim and provisional dividends	178
Note 21	Earnings per share	180
Note 22	Contingencies and restrictions	181
22.1	Lawsuits and other relevant events	181
22.2	Restrictions to management or financial limits	190
22.3	Environmental contingencies	191
22.4	Tax contingency, continued	193

 

 

22.5	Contingencies regarding the Changes to the Contracts with Corfo. Appeal No. 10301-2018, Santiago Court of Appeals:	195
22.6	Restricted or pledged cash	197
22.7	Securities obtained from third parties	198
22.8	Indirect guarantees	199
Note 23	Lawsuits and complaints	201
Note 24	Sanction proceedings	204
Note 25	Environment	205
22.6	Disclosures of disbursements related to the environment	205
25.2	Detail of information on disbursements related to the environment	206
25.3	Description of each project, indicating whether these are in process or have been finished	215
Note 26	Mineral resource exploration and evaluation expenditure	220
Note 27	Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature	221
27.1	Revenue from customer activities	221
27.2	Cost of sales	223
27.3	Other income	224
27.4	Administrative expenses	224
27.5	Other expenses by function	225
27.6	Other income (expenses)	225
27.7	Summary of expenses by nature	226
27.8	Finance expenses	227
Note 28	Reportable segments	228
28.1	Reportable segments	228
28.2	Reportable segment disclosures:	230
28.3	Statement of comprehensive income classified by reportable segments based on groups of products	232
28.4	Revenue from transactions with other Company’s operating segments	234
28.5	Disclosures on geographical areas	234
28.6	Disclosures on main customers	234
28.7	Segments by geographical areas as of September 30, 2018 and 2017	235
28.8	Property, plant and equipment classified by geographical areas	236
Note 29	Borrowing costs	237
29.1	Costs of capitalized interest, property, plant and equipment	237
Note 30	Effect of fluctuations in foreign currency exchange rates	238
Note 31	Disclosures on the effects of fluctuations in foreign currency exchange rates	240
Note 32	Income tax and deferred taxes	245

 

 

32.1	Current and non-current tax assets	245
32.2	Current tax liabilities	246
32.3	Income tax and deferred taxes	246
Note 33	Assets held for sale	258
Note 34	Events occurred after the reporting date	259
34.1	Authorization of the financial statements	259
34.2	Disclosures on events occurring after the reporting date	259
34.3	Details of dividends declared after the reporting date	261

 

 

Consolidated Classified Statements of Financial Position

 

 

 

Assets		Note		As of September 30, 2018 ThUS$				As of December 31, 2017 ThUS$
Current assets
Cash and cash equivalents		11.1			428,024				630,438
Other current financial assets		14.1			332,367				366,979
Other current non-financial assets		17			39,580				26,883
Trade and other receivables, current		14.2			428,650				446,875
Trade receivables due from related parties, current		13.5			70,862				59,132
Current inventories		12			910,207				902,074
Current tax assets		32.1			52,089				32,291
Current assets other than those classified as held for sale or disposal					2,261,779				2,464,672
Non-current assets or groups of assets classified as held for sale		33			60,131				1,589
Total current assets					2,321,910				2,466,261
Non-current assets
Other non-current financial assets		14.1			31,930				42,879
Other non-current non-financial assets		17			25,812				19,262
Trade receivables, non-current		14.2			2,415				1,912
Investments classified using the equity method of accounting		9.1-10.3			114,081				146,425
Intangible assets other than goodwill		15.1			128,152				113,787
Goodwill		15.1			34,758				44,177
Property, plant and equipment		16.1			1,433,186				1,429,354
Tax assets, non-current		32.1			32,179				32,179
Total non-current assets					1,802,513				1,829,975
Total assets					4,124,423				4,296,236

 

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 September 30, 2018 ThUS$				As of December 31, 2017 ThUS$
Current liabilities
Other current financial liabilities		14.4			20,369				220,328
Trade and other payables, current		14.5			181,778				196,280
Trade payables due to related parties, current		13.6			391				1,365
Other current provisions		19.1			90,405				63,445
Current tax liabilities		32.2			63,188				75,402
Provisions for employee benefits, current		18.1			14,669				22,421
Other current liabilities		19.3			164,053				168,804
Total current liabilities					534,853				748,045
Non-current liabilities
Other non-current financial liabilities		14.4			1,216,491				1,031,507
Other non-current provisions		19.1			29,491				30,001
Deferred tax liabilities		32.3			169,025				205,283
Provisions for employee benefits, non-current		18.1			36,455				33,932
Total non-current liabilities					1,451,462				1,300,723
Total liabilities					1,986,315				2,048,768
Equity		20
Share capital					477,386				477,386
Retained earnings					1,624,784				1,724,784
Other reserves					(16,175	)			(14,349	)
Equity attributable to owners of the Parent					2,085,995				2,187,821
Non-controlling interests					52,113				59,647
Total equity					2,138,108				2,247,468
Total liabilities and equity					4,124,423				4,296,236

 

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

 

Consolidated Statements of Income by Function

 

 

				January to September								July to september
				2018				2017				2018				2017
		Note		ThUS$				ThUS$				ThUS$				ThUS$
Revenue		27.1			1,700,576				1,582,549				543,155				558,685
Cost of sales		27.2			(1,119,830	)			(1,036,162	)			(379,466	)			(370,148	)
Gross profit					580,746				546,387				163,689				188,537
Other income		27.3			10,084				12,098				607				6.236
Administrative expenses		27.4			(83,562	)			(72,605	)			(27,298	)			(26,518	)
Other expenses by function		27.5			(28,117	)			(26,872	)			(10,811	)			(13,476	)
Other gains (losses)		27.6			(712	)			(868	)			(250	)			123
Profit (loss) from operating activities					478,439				458,140				125,937				154,902
Finance income					16,518				8,809				5,825				3,093
Finance costs		27.8-29			(42,083	)			(37,811	)			(13,722	)			(12,265	)
Share of profit of associates and joint ventures accounted for using the equity method		9-10			14,705				10,566				5,213				2,742
Foreign currency translation differences		30			(9,438	)			602				(8.836	)			5,309
Profit (loss) before taxes					458,141				440,306				114,417				153,781
Income tax expense, continuing operations		32.3			(126,232	)			(123,376	)			(30,077	)			(40,766	)
Profit (loss) from continuing operations					331,909				316,930				84,340				113,015
Profit attributable to					331,909				316,930				84,340				113,015
Owners of the Parent					331,198				317,243				83,501				112,857
Non-controlling interests					711				(313	)			839				158
Profit for the year					331,909				316,930				84,340				113,015

 

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

  

Consolidated Statements of Income by Function, (continued)

 

 

						January to September								July to september
		Note				2018				2017				2018				2017
						US$				US$				US$				US$
Earnings per share
Common shares
Basic earnings per share (US$ per share)			21				1.2583				1.2053				0.3172				0.4288
Basic earnings per share (US$ per share) from continuing operations							1.2583				1.2053				0.3172				0.4288
Diluted common shares
Diluted earnings per share (US$ per share)			21				1.2583				1.2053				0.3172				0.4288
Diluted earnings per share (US$ per share) from continuing operations							1.2583				1.2053				0.3172				0.4288

 

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

 

Consolidated Statements of Comprehensive Income

 

 

		January to september								July to september
		2018				2017				2018				2017
Statement of comprehensive income		ThUS$				ThUS$				ThUS$				ThUS$
Profit (loss) for the year			331,909				316.930				84,340				113,015
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			338				80				279				686
Total other comprehensive income that will not be reclassified to profit for the year, before taxes			338				80				279				686
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			(12,192	)			(1,701	)			(6,421	)			(203	)
Other comprehensive income before taxes			(12,192	)			(1,701	)			(6,421	)			(203	)
Financial assets held for sale
Gain (loss) from revaluations of financial assets held for sale, net of tax			(5,310	)			(57	)			(2,134	)			3,808
Other comprehensive income before taxes			(5,310	)			(57	)			(2,134	)			3,808
Financial assets measured at fair value with changes in other comprehensive income
Gain (loss) from cash flow hedges			14,794				1,826				6,530				(307	)
Other comprehensive income, net of tax			14,794				1,826				6,530				(307	)
Total other comprehensive income that will be reclassified to profit for the year			(2,708	)			68				(2,025	)			3,298
Other items of other comprehensive income before taxes			(2,370	)			148				(1,746	)			3,984
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			214				(79	)			32				(208	)
Accumulated income taxes related to items of other comprehensive income that will not be reclassified to profit for the year			214				(79	)			32				(208	)
Income taxes related to items of other comprehensive income that will be reclassified to profit for the year
Income tax related to financial assets held for sale in other comprehensive income			1,434				(544	)			572				(506	)
Income taxes related to cash flow hedges in other comprehensive income			-				-				-				(24	)
Accumulated income taxes related to items of other comprehensive income that will be reclassified to profit for the year			1,434				(544	)			572				(530	)
Total other comprehensive income			(722	)			(475	)			(1,142	)			3,246
Total comprehensive income			331,187				316,455				83,198				116,261
Comprehensive income attributable to
Owners of the Parent			330,373				316,764				82,332				116,102
Non-controlling interests			814				(309	)			866				159
Total comprehensive income			331,187				316,455				83,198				116,261

 

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

 

Consolidated Statements of Cash Flows

 

 

Consolidated Statements of cash flows		Note		9/30/2018 ThUS$				9/30/2017 ThUS$
Cash flows from operating activities
Cash receipts from sales of goods and rendering of services					1,745,188				1,520,970
Cash receipts from premiums and benefits, annuities and other benefits from policies entered					2,215				154
Cash payments to suppliers for the provision of goods and services (1)					(907,198	)			(690,749	)
Cash payments to and on behalf of employees					(181,352	)			(167,075	)
Other payments related to operating activities					(25,526	)			(7,967	)
Net cash generated from (used in) operating activities					633,327				655,333
Dividends received					8,919				1,769
Interest paid					(41,426	)			(18,351	)
Interest received					15,177				8,809
Income taxes paid					(177,682	)			(146,173	)
Other incomes (outflows) of cash (1)					(25,368	)			(13,992	)
Net cash generated from (used in) operating activities					412,947				515,379
Cash flows from (used in) investing activities
Payments made to acquire interest in joint ventures					(16,711	)			(42	)
Loans to related parties					(8,500	)			-
Proceeds from the sale of property, plant and equipment					23				4,667
Acquisition of property, plant and equipment					(201,011	)			(98,323	)
Purchases of intangible assets					-				5,999
Proceeds from the repayment of advances and loans granted to third parties					(568	)			117
Other inflows (outflows) of cash (2)					50,637				(94,614	)
Net cash generated from (used in) investing activities					(176,130	)			(182,196	)

 

(1) Other inflows (outflows) of cash from operating activities include increases (decreases) net of Value Added Tax.

 

(2) Other inflows (outflows) of cash include investments and redemptions of time deposits and other financial instruments that do not qualify as cash and cash equivalent in accordance with IAS 7, paragraph 7, since they mature in more than 90 days from the original investment date.

 

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

 

Consolidated Statements of Cash Flows, (continued)

 

 

		Note		9/30/2018 ThUS$				9/30/2017 ThUS$
Cash flows used in financing activities
Proceeds from long-term loans					134,228				-
Proceeds from short-term borrowings					120,000				20,000
Repayment of borrowings					(213,000	)			(86,712	)
Dividends paid					(466,525	)			(260,566	)
Net cash generated used in financing activities					(425,297	)			(327,278	)
Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate					(188,480	)			5,905
Effects of exchange rate fluctuations on cash held					(13,934	)			(13	)
Net (decrease) increase in cash and cash equivalents					(202,414	)			5,892
Cash and cash equivalents at beginning of period					630,438				514,669
Cash and cash equivalents at end of period					428,024				520,561

 

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

 

Consolidated Statements of Changes in Equity

 

 

2018		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				Total Other reserves				Retained earnings				Equity attributable to owners of the Parent				Non- controlling interests				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity at beginning of the year			477,386				(24,913	)			2,248				2,937				(5,953	)			11,332				(14,349	)			1,724,784				2,187,821				59,647				2,247,468
Equity at beginning of the year			477,386				(24,913	)			2,248				2,937				(5,953	)			11,332				(14,349	)			1,724,784				2,187,821				59,647				2,247,468
Profit for the year			-				-				-								-				-				-				331,198				331,198				711				331,909
Other comprehensive income			-				(12,302	)			14,794				(3,876	)			559				-				(825	)			-				(825	)			103				(722	)
Comprehensive income			-				(12,302	)			14,794				(3,876	)			559				-				(825	)			331,198				330,373				814				331,187
Dividends			-				-				-				-				-				-				-				(431,198	)			(431,198	)			(8,348	)			(439,546	)
Increase (decrease) due to transfers and other changes			-				-				-				-				-				(1,001	)			(1,001	)			-				(1,001	)			-				(1,001	)
Increase (decrease) in equity			-				(12,302	)			14,794				(3,876	)			559				(1,001	)			(1,826	)			(100,000	)			(101,826	)			(7,534	)			(109,360	)
Equity as of September 30, 2018			477,386				(37,215	)			17,042				(939	)			(5,394	)			10,331				(16,175	)			1,624,784				2,085,995				52,113				2,138,108

 

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				Total Other reserves				Retained earnings				Equity attributable to owners of the Parent				Non- controlling interests				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
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
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			-				-				-								-				-				-				317,243				317,243				(313	)			316,930
Other comprehensive income			-				(1,701	)			1,826				(600	)			(4	)			-				(479	)			-				(479	)			4				(475	)
Comprehensive income			-				(1,701	)			1,826				(600	)			(4	)			-				(479	)			317,243				316,764				(309	)			316,455
Dividends			-				-				-				-				-				-				-				(370,532	)			(370,532	)			(1,699	)			(372,231	)
Increase (decrease) due to transfers and other changes			-				-				-				-				-				3,500				3,500				(3,500	)			-				-				-
Increase (decrease) in equity			-				(1,701	)			1,826				(600	)			(4	)			3,500				3,021				(56,789	)			(53,768	)			(2,008	)			(55,776	)
Equity as of September 30, 2017			477,386				(21,164	)			1,890				2,913				(4,838	)			11,332				(9,867	)			1,724,787				2,192,306				59,190				2,251,496

 

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 and its Tax Identification Number is 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 Financial Markets Commission (formerly the Chilean Superintendence of Securities and Insurance) under number 184 of March 18, 1983 and is therefore subject to oversight by that entity.

 

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; Administration Building w/n - Maria Elena; Administration 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 CMF, 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 110 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 especially potassium nitrate have had a leading role because of the contribution they make to developing crops, ensuring 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 global producer of iodine. 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 cellphones, cameras and laptops and electric vehicles. It is also used in industrial applications, such as the manufacture of glass, ceramics and lubricating grease. Other uses are in pharmaceuticals and the chemicals industry.

 

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 such as Spain, the United States, South Africa, Morocco and Chile.

 

Potassium: Potassium is a primary essential macro-nutrient, and even though does not form part of the plant’s structure, it has a significant role for the development of its basic functions, ensuring the quality of a crop, increasing post-crop life, improving crop flavor, the amount of vitamins it contains and its physical appearance. Within this business line, SQM also has 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 September 30, 2018, and December 31, 2017, the workforce was as follows:

 

		9/30/2018												12/31/2017
Employees		SQM S.A.				Other subsidiaries				Total				SQM S.A.				Other subsidiaries				Total
Executives			35				89				124				43				77				120
Professionals			115				1,069				1,184				143				942				1,085
Technicians and operators			258				3,264				3,522				248				3,177				3,425
Foreign employees			11				375				386				19				272				291
Overall total			419				4,797				5,216				453				4,468				4,921

 

 

Note 1

Identification and Activities of the Company and subsidiaries (continued)

 

1.5

Other background, continued

 

Main shareholders

 

The following table shows information about the main shareholders of the Company’s Series A or Series B shares in circulation as of September 30, 2018 and December 31, 2017, in line with information provided by the Central Securities Depository:

 

The information below is taken from our records and reports controlled in the Central Securities Depository and reported to the CMF, and the Chilean Stock Exchange, whose main shareholders are as follows:

 

Shareholder as of September 30, 2018		No, of Series A with ownership				% of Series A shares				No, of Series B with ownership				% of Series B shares				% of total shares
Sociedad de Inversiones Pampa Calichera S.A.(*)			44,894,152				31.43	%			10,093,154				8.38	%			20.89	%
The Bank of New York Mellon, ADRs			-				-				38,574,995				32.05	%			14.66	%
Inversiones El Boldo Limitada			29,330,326				20.54	%			-				-				11.14	%
Potasios de Chile S.A.(*)			18,179,147				12.73	%			-				-				6.91	%
Inversiones RAC Chile Limitada			17,700,242				12.39	%			-				-				6.73	%
Inversiones PCS Chile Limitada			15,526,000				10.87	%			-				-				5.90	%
Banco de Chile via non-resident third party accounts			-				-				10,673,064				8.87	%			4.06	%
Inversiones Global Mining (Chile) Limitada (*)			8,798,539				6.16	%			-				-				3.34	%
Banco Itau via investor accounts			-				-				8,236,248				6.84	%			3.13	%
Banco Santander via foreign investor accounts			-				-				7,017,253				5.83	%			2.67	%

 

(*)

Total Pampa Group 32% (2.247.895 Series B shares are in the custody of different brokers).

 

Shareholder as of December 31, 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			-				-				54,599,961				45.36	%			20.74	%
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	%
Inversiones Global Mining (Chile) Limitada (*)			8,798,539				6.16	%			-				-				3.34	%
Banco de Chile via non-resident third party accounts			-				-				8,394,289				6.97	%			3.19	%
Banco Itau via Investor Accounts			19,125				0.01	%			7,017,504				5.83	%			2.67	%
Banco Santander via foreign investor accounts			-				-				4,593,336				3.82	%			1.75	%

 

(*)

Total Pampa Group 29,97%

 

On September 30, 2018 the total number of shareholders had risen to 1,478.

  

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 as of September 30, 2018 and, December 31,2017.

-

Consolidated Statements of Changes in Equity as of September 30, 2018 and 2017

-

Consolidated Statements of Comprehensive Income as of September 30, 2018 and 2017

-

Consolidated Statements of Direct-Method Cash Flows as of September 30, 2018 and 2017.

 

2.2

Consolidated 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 (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.

Note 2 Basis of presentation for the consolidated financial statements (continued)

 

2.2

Consolidated financial statements, continued

 

The accounting policies used in the preparation of these consolidated annual accounts comply with each IFRS in force at their date of presentation.

 

For the close of these consolidated financial statements, certain reclassifications were made as of December 31, 2017 for the items intangible assets other than goodwill and property, for the purpose of comparison with the figures as of September 30, 2018.

 

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 an offsetting entry in other comprehensive income.

-

Other current and non-current assets and financial liabilities at amortized cost

 

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, 2018:

 

Standars and interpretations		Mandatory for annual periods beginning on
IFRS 9, “Financial Instruments”- Published in July 2014. The IASB has published a complete new version of IFRS 9, which replaces the guidance in IAS 39. This final version includes requirements regarding the classification and measurement of financial assets and liabilities and a new model for the recognition of expected credit losses that replaces the incurred loss impairment model used today. The part relating to hedge accounting that forms part of this final version of IFRS 9 was published in November 2013.		01/01/2018
IFRS 15, “Revenue from Contracts with Customers” – Published in May 2014. This established the principles that an entity must apply for presenting useful information to users of financial statements with regard to the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. 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. This standard replaces the following standards and interpretations: IAS 11 Construction contracts; IAS 18 Revenue; IFRIC 13 Customer Loyalty Programs; 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.		01/01/2018

 

  

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting pronouncements, continued

 

Standars and interpretations		Mandatory for annual periods beginning on
IFRIC 22, “Transactions in Foreign Currency and Advance Payments” -Published in December 2016. This interpretation applies to a foreign currency transaction (or part of one) if an entity recognizes a non-financial asset or non-financial liability arising from the payment or receipt of an advance consideration prior to the entity recognizing the related asset, expense or income (or the applicable portion thereof). The interpretation provides a guideline for the transaction date to be used for both single payments/receipts and situations when there are multiple payments/receipts. Its objective is to reduce diversity in practice.		01/01/2018

 

Amendments and improvements		Mandatory for annual periods beginning on or after
Amendment to IFRS 2, “Share-based Payments” Published in June 2016. The amendment clarifies the measurement of share-based payments liquidated in cash and the accounting of modifications that change these payments to liquidation with equity instruments. In addition, it introduces an exception to the IFRS 2 principles that will require the treatment of awards as if they were all liquidation as an equity instrument, when the employer is required to retain taxes related to share-based payments.		01/01/2018
Amendment to IFRS 15 “Revenue from Contracts with Customers”. Published in April 2016. The amendment provides clarifications with regard to identifying performance obligations in contracts with customers, accounting for licensing involving intellectual property and assessing principal versus agent considerations (i.e. recording revenue on a gross basis versus the net amount it retains). It includes new and modified illustrative examples as a guide, along with practical examples related to the transition to the new standard on revenue.		01/01/2018
Amendment to IAS 28 “Investments in Associates and Joint Ventures” in regard to measuring an associate or joint venture at fair value. Published in December 2016.		01/01/2018

 

The adoption of the standards, amendments and interpretations indicated above had 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 that had not become effective for financial statements beginning on January 1, 2018 and which the Company has not adopted early are as follows:

 

Standards and interpretations		Mandatory for annual periods beginning on
IFRS 16 “Leases” – Published in January 2016, it establishes the principle for recognizing, measuring, presenting and disclosing leases. IFRS 16 replaces IAS 17 and introduces a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases with a lease term of more than 12 months unless the underlying asset has a low value. IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 before the initial application date of IFRS 16.		01/01/2019
IFRIC 23 “Uncertainty over Income Tax Treatments”. Published in June 2016. This interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.		01/01/2019

 

 

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 or after
Amendment to IFRS 9 “Financial Instruments”. Published in October 2017. The amendment permits more assets to be measured at amortized cost than under the previous version of IFRS 9, in particular some prepayable financial assets with negative compensation. The assets affected, which include some loans and debt securities, would otherwise have been measured at fair value through profit and loss (FVTPL). For them to qualify for amortized cost measurement, the negative compensation must be "reasonable compensation for early termination of the contract.”		01/01/2019
Amendment to IAS 28 “Investments in Associates and Joint Ventures”. Published in October 2017. This amendment clarifies that companies should apply IFRS 9 to account for long-term interests in an associate or joint venture to which the equity method is not applied. The Board has published an example that illustrates how companies should apply the requirements of IFRS 9 and IAS 28 to long-term interests in an associate or joint venture.		01/01/2019
Amendment to IFRS 3 “Business Combinations” Published in December 2017. The amendment clarifies that gaining control of a company that is a joint venture is a business combination that is achieved in stages. The acquiring party must remeasure previously held interests in that business at fair value at the date of acquisition.		01/01/2019
Amendment to IFRS 11 “Joint Arrangements”. Published in December 2017. The amendment clarifies that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.		01/01/2019
Amendment to IAS 12 “Income Tax” Published in December 2017. This amendment clarifies that the income tax consequences of dividends on financial instruments classified as equity should be recognized when the past transactions or events that generated distributable profits were originally recognized.		01/01/2019
Amendment to IAS 23 “Borrowing Costs”. Published in December 2017. This amendment clarifies that the borrowing costs of specific borrowings that remain outstanding after the related qualifying asset is ready for intended use or for sale will be considered as part of the general borrowing costs of the entity.		01/01/2019
Amendment to IAS 19 “Employee Benefits” Published in February 2018. The amendment requires that the entities use updated conjectures to determine the cost of the current service and the net interest for the rest of the period after an amendment, reduction or liquidation of the plan; and recognize in profits or losses as part of the cost of the past service, or a profit or loss in the liquidation, any reduction in a surplus, even if this surplus was not previously recognized because it did not exceed the upper threshold of the asset.		01/01/2019

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting pronouncements, continued

 

The following amendment was issued by the IASB and was originally scheduled to take effect in 2016. However, the organization has changed its position and the mandatory effective date is yet to be determined.

 

Amendment to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures”. Published in September 2014. These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with 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 (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

Undetermined

 

For those standards to be applied as of 2019, the corresponding studies and analysis will be carried out during 2018.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation

 

(a)

Subsidiaries

 

These are all those entities where Sociedad Química y Minera de Chile S.A. has control over directing their financial and operational policies. This is generally accompanied by a share of more than half of the voting rights. 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. For more information, please see Note 8.1.

 

Companies included in consolidation:

 

								Ownership interest
TAX ID				Country of				9/30/2018												12/31/2017
No.		Foreign subsidiaries		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		Rs Agro-Chemical Trading Corporation A.V.V.		Aruba		US$			98.3333				1.6667				100.0000				100.0000
Foreign		SQM Colombia SAS		Colombia		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Australia PTY		Australia		Australian dollar			0.0000				100.0000				100.0000				100.0000
Foreign		SACAL S.A.		Argentina		Argentine peso			0.0000				100.0000				100.0000				100.0000

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation, continued

 

								Ownership interest
TAX ID				Country of				9/30/2018												12/31/2017
No.		Foreign subsidiaries		origin		Functional currency		Direct				Indirect				Total				Total
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 Beijing Commercial Co. Ltd.		China		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Thailand Limited		Thailand		US$			0.0000				99.996				99.996				99.996
Foreign		SQM Internacional N.V.		Belgium		US$			0.5800				99.4200				100.0000				0.0000
Foreign		SQM (Shanghai) Chemicals Co. Ltd.		China		US$			0.0000				100.0000				100.0000				0.0000

 

								Ownership interest
TAX ID				Country of		Functional		9/30/2018												12/31/2017
No.		Domestic subsidiaries		origin		currency		Direct				Indirect				Total				Total
96.801.610-5		Comercial Hydro S.A.		Chile		US$			0,0000				60,6383				60,6383				60,6383
96.651.060-9		SQM Potasio S.A.		Chile		US$			99,9999				0,0000				99,9999				99,9999
96.592.190-7		SQM Nitratos S.A.		Chile		US$			99,9999				0,0001				100,0000				100,0000
96.592.180-K		Ajay SQM Chile S.A.		Chile		US$			51,0000				0,0000				51,0000				51,0000
86.630.200-6		SQMC Internacional Ltda.		Chile		Ch$			0,0000				60,6381				60,6381				60,6381
79.947.100-0		SQM Industrial S.A.		Chile		US$			99,0470				0,9530				100,0000				100,0000
79.906.120-1		Isapre Norte Grande Ltda.		Chile		Ch$			1,0000				99,0000				100,0000				100,0000
79.876.080-7		Almacenes y Depósitos Ltda.		Chile		Ch$			1,0000				99,0000				100,0000				100,0000
79.770.780-5		Servicios Integrales de Tránsitos y Transferencias S.A.		Chile		US$			0,0003				99,9997				100,0000				100,0000
79.768.170-9		Soquimich Comercial S.A.		Chile		US$			0,0000				60,6383				60,6383				60,6383
79.626.800-K		SQM Salar S.A.		Chile		US$			18,1800				81,8200				100,0000				100,0000
78.053.910-0		Proinsa Ltda.		Chile		Ch$			0,0000				60,5800				60,5800				60,5800
76.534.490-5		Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.		Chile		Ch$			0,0000				100,0000				100,0000				100,0000
76.425.380-9		Exploraciones Mineras S.A.		Chile		US$			0,2691				99,7309				100,0000				100,0000
76.064.419-6		Comercial Agrorama Ltda. (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				0,0000				51,0000				51,0000
76.360.575-2		Orcoma SPA		Chile		US$			100,0000				0,0000				100,0000				100,0000
76.686.311-9		SQM MaG SpA.		Chile		US$			0,0000				100,0000				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 divested 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 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 recovery (maturity) dates; i.e. those maturing within a period equal to or less than 12 months are classified as current counted from the closing date of the consolidated financial statements 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”), 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 and the adjustment unit 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:

 

		9/30/2018				12/31/2017
		US$				US$
Brazilian real			4.02				3.02
New Peruvian sol			3.30				3.08
Argentine peso			41.05				18.40
Japanese yen			113.59				113.00
Euro			0.86				0.83
Mexican peso			18.68				19.65
Australian dollar			0.72				0.78
Pound Sterling			0.77				0.74
South African rand			14.14				12.35
Ecuadorian dollar			1.00				1.00
Chilean peso			660.42				614.75
Chinese yuan			6.88				6.51
Indian rupee			72.49				63.84
Thai baht Turkish lira			32.29 6.08				32.85 3.79
UF (*)			41.42				43.59

 

(*) The Unidad de Fomento (UF) is an indexed monetary unit used in Chile, calculated based on the variation in the Consumer Price Index (CPI).

 

(b)

Transactions and balances

 

Non-monetary transactions in currencies other than the functional currency (Dollar) are translated to the respective functional currencies of Group entities at the exchange rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. All differences are recorded in the statement of income except for all monetary items that provide an effective hedge for a net investment in a foreign operation. These items are recognized in other comprehensive income on the divestment, when they are recognized in the statement of income. Charges and credits attributable to foreign currency translation differences on those hedge monetary items are also recognized in other comprehensive income.

 

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. uses the level of control it has in subsidiaries as a basis to determine their share in the consolidated financial statements. This 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 into 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 the 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

 

Corporate management (“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.

 

As of January 1, 2018, the Company classifies its financial assets in the following categories: at fair value (be it through other comprehensive income or through profit or loss), and at amortized cost. The classification depends on the entity’s business model for managing financial assets and the contractual terms for cash flows.

 

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. Financial liabilities that have been initially recognized at fair value through profit or loss 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 the 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.

 

The Company forecasts the expected credit losses associated with its debt instruments accounted for at amortized cost. The impairment method applied depends on whether there has been a significant increase in the credit risk.

 

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 such time when the Company changes its business model for managing financial assets, it will reclassify those financial assets affected by the new business model.

 

Financial liabilities 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, they are subsequently assessed at fair value. The method for recognizing the resulting gain or loss depends on whether the derivative has been designated as an accounting hedge instrument and, if so, it depends on the type of hedging, which may be as follows:

 

a)

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

b)

Hedging of a single risk associated with an asset or liability recognized or a highly probable forecast transaction (cash flow hedge).

 

 

Note 3

Significant accounting policies (continued)

 

3.11

Derivative and hedging financial instruments, continued

 

At the beginning of the transaction, the Company documents the relationship that exists between hedging instruments and those items hedged, as well as their objectives for risk management purposes and the strategy to conduct different hedging operations.

 

The Company also documents its evaluation both at the beginning and at the end of each period if the 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 more than 12 months, and as a current asset or liability if the remaining expiration period of the entry is less 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 that hedge fixed rate borrowings is recognized 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 recognized 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 amortized to profit or loss over the period to maturity using a recalculated effective interest rate.

 

b)

Cash flow hedges

 

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.

 

If the expected firm transaction or commitment is no longer 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 transaction costs are recognized when incurred. Subsequent to initial recognition, any changes in the 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 September 30, 2018, and December 31, 2017, there were no embedded derivatives.

 

Note 3

Significant accounting policies (continued)

 

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

 

3.16

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.

 

(a)

Lease - Finance lease

 

Leases are classified as finance leases when the Company substantially owns all the risks and rewards inherent in the ownership of the asset. Finance leases are capitalized at the commencement of the lease term at the lower of the fair value of the leased asset and the present value of the minimum lease payments.

 

Each finance lease payment is apportioned between the liability and the finance charges so as to obtain the constant rate of interest on the remaining balance of the liability. The respective lease obligations, net of finance charges, are included in other non-current liabilities. The interest part of the finance cost is charged to the consolidated financial statements for the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each year.

 

(b)

Lease - Operating lease

 

Leases where the lessor retains a significant part of the risks and benefits derived from the property are classified as operating leases. Operating lease payments (net of any incentive received by the lessor) should be recognized as an expense in the income statement or capitalized (as appropriate) over the lease term on a straight-line basis.

 

3.17

Trade and other receivables

 

The Company’s trade receivables are maintained to obtain contractual cash flows (charge and collect) and do not contain a significant financing component, being recognized at the transaction price defined in IFRS 15. Meanwhile, the Company is using the simplified approach for recognizing expected credit losses if there is no significant increase in the credit risk since initial recognition and the terms of sale are less than 12 months. Similarly, the Company is using an impairment model for trade receivables based on expected credit losses that considers the credit risk separately from its hedges, generating an effect equal to that established in the previous accounting standard IAS 39. The Company has established the procedures and controls for beginning to apply IFRS 9 as of January 1, 2018.

 

Note 3

Significant accounting policies (continued)

 

3.18

Inventory measurement

 

The Company measures inventories at the lower of production cost and net realizable value. The cost price of finished products and work in progress includes the direct cost of materials and, when applicable, labor costs, the depreciation of goods that are involved in the production process, the indirect costs incurred in transforming 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 the weighted average monthly cost and the average cost of warehouse storage.

 

Commercial discounts, rebates obtained, and other similar entries are deducted when determining the acquisition price.

 

The net realizable value represents the estimated selling price, less all the estimated costs of completion and the estimated costs necessary to make the sale.

 

The Company conducts an evaluation of the net realizable value of inventories at the end of each year, recording a debit to profit or loss when the inventory costs exceed the realizable value. This estimate is made for all the finished and intermediate products in the Company’s inventory. The valuation of obsolete, impaired or slow-moving products relates to their estimated net realizable value.

 

The provisions for uncertainties in the technical specifications for the Company’s stocks of finished goods and work in progress have been made based on a technical study which covers the different variables that affect products in stock (such as density and humidity). This study is updated periodically to include new measurement technologies and the results from previous financial periods.

 

Inventories of raw materials, supplies, materials and parts are recorded at the lower of acquisition cost or market value. The acquisition cost is calculated according to the average acquisition price method. Nonetheless, an estimate is made for each financial period of the potential lower value relating to the proportion of inventory that consists of obsolete, defective or slow-moving materials. This provision reduces the value of the Company’s raw materials, supplies, materials and parts.

 

Note 3

Significant accounting policies (continued)

 

3.19

Investments in associates and joint ventures, continued

 

Interests in companies over which joint control is exercised (joint venture) or where an entity has a 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 according to the Company’s interest percentage in such entities. Unrealized losses are also eliminated, except if the transaction provides evidence of impairment loss of the transferred asset.

 

Changes in the equity of associates are recognized on a proportional basis with a charge or credit to “Other reserves” and classified according to 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 the 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 as zero 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 according to the equity share 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”.

 

3.20

Transactions with non-controlling interests

 

Non-controlling interests are recorded in the consolidated statement of financial position within equity, but separate from equity attributable to the owners of the Parent.

 

Note 3

Significant accounting policies (continued)

 

3.21

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. These transactions have been eliminated in consolidation. The expiration conditions vary according to the originating transaction.

 

3.22

Property, plant and equipment

 

The assets 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 that 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.Having initially recognized provisions for closure and refurbishment, the corresponding cost is capitalized as an asset in Property, plant and equipment and amortized in line with the amortization criteria for the associated assets.

 

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 they are 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 the daily maintenance of property, plant and equipment are recognized when incurred.

 

Note 3

Significant accounting policies (continued)

 

3.23

Depreciation of property, plant and equipment, continued

 

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.

 

Fixed assets associated with the Salar de Atacama consider useful life to be the lesser value between the technical useful life and the years remaining until 2030.

 

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)				life or average rate in years
Mining assets			3				10				7
Energy generating assets			3				16				7
Buildings			3				30				10
Supplies and accessories			2				15				5
Office equipment			3				20				6
Transport equipment			3				20				10
Network and communication equipment			2				15				5
IT equipment			2				15				3
Machinery, plant and equipment			2				20				9
Other property, plant and equipment			1				26				7

 

Note 3

Significant accounting policies (continued)

 

3.24

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.

 

3.25

Intangible assets other than goodwill

 

Intangible assets other than goodwill mainly relate to water rights, emission rights, commercial brands, costs for rights of way for electricity lines, license costs and the development of computer software and mining property and concession rights, client portfolio and commercial agent.

 

(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)

Rights 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 on 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 their acquisition and customization costs. These costs are amortized over their estimated useful lives.

 

Note 3

Significant accounting policies (continued)

 

3.25

Intangible assets other than goodwill (continued)

 

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 its costs during more than a year, are recognized as intangible assets. Direct costs include the expenses of employees who 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 and Australian Governments. Property rights are usually obtained at no initial cost (other than the payment of mining patents and minor recording expenses) and once the rights on these concessions have been obtained, they 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.

 

(e)

Client portfolio

 

The period for exploiting these portfolios is unlimited so they are considered assets with an indefinite useful life and are therefore not subject to amortization. However, they are subjected to an annual impairment test and the corresponding amounts are recorded in the profit or loss.

 

(f)

Commercial agent

 

The rights obtained through the acquisition of the commercial agent of Sociedad Agrocom Ltda. corresponded to the fair value of that company’s line of business. The period for exploiting these rights is unlimited so they are considered assets with an indefinite useful life and are therefore not subject to amortization. However the indefinite useful life is subject to review for every reporting period, to see whether indefinite useful life continues to apply.

 

 

Note 3

Significant accounting policies (continued)

 

3.26

Research and development expenses

 

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

 

3.27

Prospecting expenses

 

The Company has mining property and concession rights from the Chilean Government and others that it has acquired from third parties other than the Chilean Government, destined to the exploitation of caliche ore and saltpeter deposits and also the exploration of these types 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 that are unlikely to bring profit to the Company in the future (i.e., when the ore grade at the site is low 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.

 

Note 3

Significant accounting policies (continued)

 

3.27

Prospecting expenses

 

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 reserves that have proved to be financially feasible and used as a principal 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”

 

3.28

Impairment of non-financial assets

 

Assets subject to depreciation and amortization are also 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 pre-tax discount rate that reflects current market assessment, the value of money over time and the 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 carried out to determine whether any previously recognized impairment losses have already decreased or ceased to exist. If this should be the case, the recoverable amount is estimated. A previously recognized impairment loss is only reversed if there have been changes in the estimates used to determine the asset’s recoverable amount since the last time 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 had not been recognized in prior years. This reversal is recognized with a credit to profit or loss.

 

Note 3

Significant accounting policies (continued)

 

3.29

Minimum dividend

 

As required by the Law of Corporations (the “Law”), unless otherwise decided by unanimous vote of shareholders, a publicly-held corporation must distribute dividends in accordance with the policy determined in the ordinary general assembly of shareholders held each year, holding a minimum of 30% of profits, except in the case that the corporation has losses not absorbed in previous years. However, the Corporation defines as its policy the distribution of up to 100% of its net profits for the period.

 

3.30

Earnings per share

 

The basic earnings per share amounts are calculated by dividing the profit for the year attributable to the 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 would entail the disclosure of diluted earnings per share.

 

3.31

Trade and other payables

 

Trade and other payables are measured at fair value plus all costs associated with the transaction. Subsequently, these are carried out at amortized cost using the effective interest rate method.

 

3.32

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 it is accrued following a financial criterion.

 

Note 3

Significant accounting policies (continued)

 

3.33

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 value of money over time 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 to maintain 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)

 

3.34

Obligations related to employee termination benefits and pension commitments

 

Obligations towards the Company’s employees comply with the provisions of the collective bargaining agreements in force, which are formalized through collective employment agreements and individual employment contracts, except for the United States, which is regulated in accordance with employment plans in force up to 2002. (See more details in Note 18.4).

 

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. The criteria in force contained in the revised IAS 19 are also taken into account.

 

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 5.027% and 5.114% for the periods ended September 30, 2018 and December 31, 2017, 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 3.75% interest rate for 2018 and 4.50% for 2017. The net balance of this obligation is presented under the non-current provisions for employee benefits (refer to Note 18.4).

  

Note 3

Significant accounting policies (continued)

 

3.35

Compensation plans

 

Compensation plans implemented through benefits provided in share-based payments settled in cash 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 18.6).

 

3.36

Revenue recognition

 

Revenue includes the fair value of considerations received or receivable for the sale of goods and services during the 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.

 

The company has adopted the method indicated in appendix C.3 (b) of IFRS 15 and therefore has not re-expressed the comparative financial statements.

 

At the date of closure of the financial statements, there are no effects that amend the company’s accumulated results derived from the application of the aforementioned method.

 

Revenue is recognized when its amount can be stated reliably, it is probable that the future economic rewards will flow to the entity and it meets the specific conditions for each type of activity-related revenue, 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 the customer, and the related risks of obsolescence and loss have been transferred to the customer and the customer has accepted the 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.

 

 

Note 3

Significant accounting policies (continued)

 

Revenue recognition, continued

 

(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

 

3.37

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.

 

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 exists, the average financing rate of the subsidiary making 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.

  

Note 3

Significant accounting policies (continued

 

3.38

Income tax and deferred taxes

 

Tax on companies and variations in deferred tax assets or liabilities that are not the result of business combinations are recorded in the 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 where 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.

 

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.

 

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

 

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

 

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

 

  

Note 3

Significant accounting policies (continued)

 

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 that are 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 that are different from those of other segments operating 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

Responsibility for Information and Estimates Made

 

The 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 IFRS, 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:

 

-

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 3.22, 15 and 16.

 

-

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 the recoverable values of these assets. Estimates are reviewed regularly by management. See Notes 15 and 16.

 

-

Assumptions used in calculating the actuarial amount of pension-related and severance indemnity payment benefit commitments. See Note 18.

 

-

Contingencies – The amount recognized as a 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, the 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 Notes 19 and 22.

 

-

Provisions on the basis of technical studies that cover the different variables affecting products in stock (density and moisture, among others), and related allowance.

 

-

Obsolescence to ensure that the carrying value of inventory is not in excess of the net realizable Inventory valuation requires judgment to determine obsolescence and estimates of provisions for value. See Note 12.

 

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 (continued)

 

3.41

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

Changes in accounting estimates and policies (consistent presentation)

 

4.1

Changes in accounting estimates

 

The Company had no changes in the determination of accounting estimates at the closing date of the consolidated financial statements, (For more information, see Note 3.40).

 

4.2

Changes in accounting policies

 

As of September 30, 2018, 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 3.40).

 

The consolidated statements of financial position as of September 30, 2018 and December 31, 2017 and the statements of comprehensive income, changes in equity and cash flows for the periods ended September 30, 2018 and 2017, have been prepared in accordance with the IFRS.

 

The accounting principles and criteria were applied consistently.

 

  

Note 5

Financial risk management

 

5.1

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.

 

There could also be additional risks, which are either unknown or known but not currently deemed 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 5

Financial Risk Management (continued)

 

5.2

Risk Factors

 

5.2.1   Risks Relating to Our Business

 

We could be subject to numerous risks in Chile as a result of investigations by the Chilean Internal Revenue Service (“SII”) and the Chilean Public Prosecutor in relation to certain payments made by SQM between the tax years 2009 and 2015

 

The SII has conducted investigations related to the payment of invoices by SQM and its subsidiaries, SQM Salar S.A. and SQM Industrial S.A., for services that may not have been properly supported or that may not have been necessary to generate corporate income.  The Chilean Public Prosecutor also has conducted related inquiries to determine whether such payments may be linked with alleged violations by SQM, these subsidiaries and public officials of political contribution or anticorruption laws. 

 

On January 13, 2017, the Company and the DOJ reached an agreement on the terms of a Deferred Prosecution Agreement (“DPA”) that would resolve the DOJ’s inquiry, based on alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. In the DPA, the DOJ agreed to not pursue charges against the Company for a period of three years and to release the Company from liability after that period as long as the Company complies with the terms of the DPA, which include paying a monetary penalty of US$15,487,500, and engaging a compliance monitor for a term of two (2) years. Upon successful completion of the three (3) year term of the DPA, all charges against the Company will be dismissed. On the same date, the SEC agreed to resolve its inquiry through an administrative cease and desist order, arising out of the alleged violations of the same accounting provisions of the FCPA. Among other terms, the SEC order called for the Company to pay an additional monetary penalty of US$15 million.

 

On January 26, 2018, the 8th Court of Santiago approved a deferred prosecution agreement proposed by the Chilean Public Prosecutor relating to SQM and its subsidiaries SQM Salar and SQM Nitratos S.A., to suspend an investigation against these entities related to their duties of supervision and management. Under the deferred prosecution agreement, SQM, SQM Salar and SQM Nitratos S.A., agreed to pay an aggregate amount of (i) Ch$900,000,000 to the Chilean government, and (ii) Ch$1,650,000,000 to various charitable organizations. These amounts were accrued in the Company’s Consolidated Financial Statements for 2017. In addition, the companies have agreed to provide the Chilean Public Prosecutor with a report on the enhancements to their compliance program, implemented in recent years, with special emphasis on the incorporation of best practices in various jurisdictions. Under the deferred prosecution agreement, SQM, SQM Salar and SQM Nitratos S.A. have not admitted any responsibility in the matter. On August 17, 2018, the 8th Civil Court of Santiago definitively dismissed the case.

 

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

Responding to our regulators’ inquiries and any future civil, criminal or regulatory inquiries or proceedings diverts our management’s attention from day-to-day operations. Additionally, expenses that may arise from responding to such inquiries or proceedings, our review of responsive materials, any related litigation or other associated activities may continue to be significant. Current and former employees, officers and directors may seek indemnification, advancement or reimbursement of expenses from us, including attorneys’ fees, with respect to the current inquiry or future proceedings related to this matter. The occurrence of any of the foregoing or adverse determination in litigation or other proceedings or similar actions could materially and adversely affect our business, financial condition, cash flows, results of operations and the prices of our securities.

 

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

Our annual report on Form 20-F (available in Spanish on the Company’s website) for the year ended December 31, 2014, that we filed with the SEC identified a material weakness in our internal controls over payments directed by the office of the former Chief Executive Officer as of December 31, 2014

 

In the past, our management determined that the Company did not maintain effective control over payments directed by the office of the former CEO. This determination was reported in our annual report on Form 20-F, filed with the SEC on May 18, 2015.

 

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

 

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

 

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

 

World prices of potassium-based fertilizers (including some of our specialty plant nutrients, potassium chloride and potassium sulfate) fluctuated as a result of the broader global economic and financial conditions. During the second half of 2013, potassium prices declined as a result of an unexpected announcement made by the Russian company Uralkali (“Uralkali”) that it was terminating its participation in the exporter Belarus Potash Corporation (“BPC”). We cannot assure you that potassium-based fertilizer prices and sales volumes will not decline in the future.

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

Iodine prices followed an upward trend beginning at the end of 2008 and continuing through 2012, reaching an average price of approximately US$53 per kilogram in 2012, over 40% higher than average prices in 2011. During the following years, supply growth outpaced demand growth, causing a decline in iodine prices. We cannot assure you that iodine prices or sales volumes will not continue to decline in the future.

 

Driven mostly by an increase in demand related to battery use, lithium demand growth in 2016 was accompanied by an increase in supply that was lower than expected, and as a result, average prices for this business line increased approximately 80% compared to 2015. In 2017, lithium demand continued to grow creating tight market conditions and increasing prices by 25% compared to 2016. We cannot assure you that lithium prices or sales volumes will not continue to decline in the future.

 

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

 

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

 

We sell our products in more than 110 countries around the world. We expect to expand our sales in these and other emerging markets in the future. In addition, we may carry out acquisitions or joint ventures in jurisdictions in which we currently do not operate, relating to any of our businesses or to new businesses in which we believe we may have sustainable competitive advantages. The results of our operations and our prospects in other countries in which we establish operations will depend, in part, on the general level of political stability and economic activity and policies in those countries. Future developments in the political systems or economies of these countries or the implementation of future governmental policies in those countries, including the imposition of withholding and other taxes, restrictions on the payment of dividends or repatriation of capital or the imposition of new environmental regulations or price controls could have a material adverse effect on our business, financial condition and results of operations in those countries.

 

Our inventory levels may increase for economic or operational reasons

 

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

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

Our reserves estimates are internally prepared and not subject to review by external geologists or an external auditing firm and could be subject to significant changes, which may have a material adverse effect on our business, financial condition and results of operations

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

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

 

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

 

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

 

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

 

Over 95% of our employees are employed in Chile, of which approximately 64% were represented by 22 labor unions as of December 31, 2017. We are exposed to labor strikes and illegal work stoppages that could impact our production levels. If a strike or illegal work stoppage occurs and continues for a sustained period of time, we could be faced with increased costs and even disruption in our product flow that could have a material adverse effect on our business, financial condition and results of operations.

 

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

 

On September 8, 2016, Chilean Law No. 20,940 was published and modified the Labor Code by introducing, among other things, changes to the formation of trade unions, the election of inter-company union delegates, the presence of women on union boards, anti-union practices and related sanctions, and collective negotiations. Due to these changes to the labor regulations, we may face an increase in our expenses that may have a significant adverse effect on our business, financial condition, and results of operations.

 

 

Note 5

Financial Risk Management (continued)

 

5.2

Risk Factors (continued)

 

5.2.1   Risks Relating to Our Business (continued)

 

Lawsuits and arbitrations could adversely impact us

 

We are party to a range of lawsuits and arbitrations involving different matters as described in the note on contingencies and restrictions. Although we intend to defend our positions vigorously, our defense of these actions may not be successful. Adverse judgments or settlements in these lawsuits may have a material adverse effect on our business, financial condition and results of operations. In addition, our strategy of