SQM Sociedad Quimica y Minera de Chile SA

 

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 March, 2017.

 

Commission File Number 33-65728

 

CHEMICAL AND MINING COMPANY OF CHILE INC.

(Translation of registrant’s name into English)

 

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

(Address of principal executive office)

 

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

Form 20-F: x Form 40-F ¨

 

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

 

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

 

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

 

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

 

SQM S.A. El Trovador 4285, Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

 

 

Santiago, Chile. March 21, 2017.- 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 twelve months ended December 31, 2016, the Spanish version of which was filed with the Chilean Superintendency of Securities and Insurance ( Superintendencia de Valores y Seguros or “SVS”) on March 1, 2017.

 

 

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

For the period ended

December 31, 2016

 

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

In Thousands of United States Dollars

 

 

This document includes:

 

-

Independent Auditors’ Report

-

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

 

 

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

 

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	Financial statements	22
2.3	Basis of measurement	23
2.4	Accounting pronouncements	24
2.5	Basis of consolidation	28
2.6	Significant accounting judgments, estimates and assumptions	30
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	36

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

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

 

3.16	Leases	37
3.17	Deferred acquisition costs from insurance contracts	37
3.18	Trade and other receivables	37
3.19	Inventory measurement	38
3.20	Investments in associates and joint ventures	38
3.21	Transactions with non-controlling interests	39
3.22	Related party transactions	39
3.23	Property, plant and equipment	40
3.24	Depreciation of property, plant and equipment	41
3.25	Goodwill	41
3.26	Intangible assets other than goodwill	42
3.27	Research and development expenses	43
3.28	Prospecting expenses	43
3.29	Impairment of non-financial assets	44
3.30	Minimum dividend	44
3.31	Earnings per share	45
3.32	Trade and other payables	45
3.33	Interest-bearing borrowings	45
3.34	Other provisions	45
3.35	Obligations related to employee termination benefits and pension commitments	46
3.36	Compensation plans	46
3.37	Revenue recognition	47
3.38	Finance income and finance costs	47
3.39	Income tax and deferred taxes	48
3.40	Segment reporting	49
3.41	Environment	50
Note 4	Financial risk management	50
4.1	Financial risk management policy	50
4.2	Risk factors	51
4.3	Risk measurement	54
Note 5	Changes in accounting estimates and policies (consistent presentation)	54
5.1	Changes in accounting estimates	54
5.2	Changes in accounting policies	54
Note 6	Background of companies included in consolidation	55
6.1	Parent’s stand-alone assets and liabilities	55
6.2	Parent entity	55

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

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

 

6.3	Joint arrangements of controlling interest	55
6.4	General information on consolidated subsidiaries	56
6.5	Information attributable to non-controlling interests	59
6.6	Information on consolidated subsidiaries	60
6.7	Detail of transactions between consolidated companies	64
Note 7	Cash and cash equivalents	65
7.1	Types of cash and cash equivalents	65
7.2	Short-term investments, classified as cash equivalents	65
7.3	Information on cash and cash equivalents by currency	66
7.4	Amount restricted (unavailable) cash balances	66
7.5	Short-term deposits, classified as cash equivalents	67
Note 8	Inventories	68
Note 9	Related party disclosures	69
9.1	Related party disclosures	69
9.2	Relationships between the parent and the entity	69
9.3	Detailed identification of the link between the Parent and subsidiary	71
9.4	Detail of related parties and related party transactions	73
9.5	Trade receivables due from related parties, current:	74
9.6	Trade payables due to related parties, current:	74
9.7	Board of Directors and Senior Management	75
9.8	Key management personnel compensation	78
Note 10	Financial instruments	79
10.1	Types of other financial assets	79
10.2	Trade and other receivables	80
10.3	Hedging assets and liabilities	82
10.4	Financial liabilities	84
10.5	Trade and other payables	95
10.6	Financial liabilities at fair value through profit or loss	96
10.7	Financial asset and liability categories	97
10.8	Fair value measurement of assets and liabilities	99
10.9	Financial assets pledged as guarantee	101
10.10	Estimated fair value of financial instruments and financial derivatives	102
10.11	Nature and scope of risks arising from financing instruments	104
Note 11	Equity-accounted investees	104
11.1	Investments in associates recognized according to the equity method of accounting	104
11.2	Assets, liabilities, revenue and expenses of associates	105

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

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

 

11.3	Other information	106
11.4	Disclosures on interest in associates	106
Note 12	Joint Ventures	107
12.1	Policy for the accounting of equity accounted investment in joint ventures	107
12.2	Disclosures of interest in joint ventures	107
12.3	Investment in joint ventures accounted for under the equity method of accounting	108
12.4	Assets, liabilities, revenue and expenses from joint ventures:	110
12.5	Other Joint Venture disclosures:	111
Note 13	Intangible assets and goodwill	112
13.1	Balances	112
13.2	Disclosures on intangible assets and goodwill	112
Note 14	Property, plant and equipment	118
14.1	Types of property, plant and equipment	118
14.2	Reconciliation of changes in property, plant and equipment by type:	119
14.3	Detail of property, plant and equipment pledged as guarantee	123
14.4	Impairment of assets	123
14.5	Additional information	123
Note 15	Employee benefits	124
15.1	Provisions for employee benefits	124
15.2	Policies on defined benefit plan	125
15.3	Other long-term benefits	126
15.4	Post-employment benefit obligations	127
15.5	Staff severance indemnities	128
Note 16	Executive compensation plan	130
Note 17	Disclosures on equity	131
17.1	Capital management	131
17.2	Disclosures on preferred share capital	132
17.3	Disclosures on reserves in equity	134
17.4	Dividend policies	135
17.5	Interim and provisional dividends	136
Note 18	Provisions and other non-financial liabilities	138
18.1	Types of provisions	138
18.2	Description of other provisions	139
18.3	Other liabilities current	139
18.4	Changes in provisions	140
18.5	Detail of main types of provisions	141

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

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

 

Note 19	Contingencies and restrictions	142
19.1	Lawsuits and other relevant events	142
19.2	Restrictions to management or financial limits	148
19.3	Arbitration proceedings with CORFO	149
19.4	Environmental contingencies	150
19.5	Tax contingency	150
19.6	Restricted or pledged cash	152
19.7	Securities obtained from third parties	153
19.8	Indirect guarantees	154
Note 20	Revenue	156
Note 21	Earnings per share	156
Note 22	Borrowing costs	157
22.1	Costs of capitalized interest, property, plant and equipment	157
Note 23	Effect of fluctuations on foreign currency exchange rates	158
Note 24	Environment	159
24.1	Disclosures of disbursements related to the environment	159
24.2	Detail of information on disbursements related to the environment	160
24.3	Description of each project, indicating whether these are in process or have been finished	166
Note 25	Other current and non-current non-financial assets	169
Note 26	Reportable segments	170
26.1	Reportable segments	170
26.2	Reportable segment disclosures:	172
26.3	Statement of comprehensive income classified by reportable segments based on groups of products	174
26.4	Revenue from transactions with other Company’s operating segments	176
26.5	Disclosures on geographical areas	176
26.6	Disclosures on main customers	176
26.7	Segments by geographical areas as of December 31, 2016 and December 31, 2015	177
Investment accounted for under the equity method		177
Intangible assets other than goodwill		177
Investment accounted for under the equity method		177
Intangible assets other than goodwill		177
26.8	Property, plant and equipment classified by geographical areas	178
Note 27	Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature	179

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

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

 

27.1	Revenue	179
27.2	Cost of sales	179
27.3	Other income	180
27.4	Administrative expenses	181
27.5	Other expenses by function	182
27.7	Summary of expenses by nature	183
27.8	Finance expenses	184
Note 28	Income tax and deferred taxes	184
28.1	Current and non-current tax assets	184
28.2	Current tax liabilities	185
28.3	Tax earnings	186
28.4	Income tax and deferred taxes	186
Note 29	Disclosures on the effects of fluctuations in foreign currency exchange rates	197
Note 30	Mineral resource exploration and evaluation expenditure	202
Note 31	Lawsuits and complaints	203
Note 32	Sanction proceedings	205
Note 33	Closure of the Pedro de Valdivia Site	205
Note 34	Railway for transportation of products between the site Coya Sur and the Port of Tocopilla	206
Note 35	Events occurred after the reporting date	206
35.1	Authorization of the financial statements	206
35.2	Disclosures on events occurring after the reporting date	207
35.3	Detail of dividends declared after the reporting date	207

 

SQM S.A. El Trovador 4285 Las Condes, Santiago, Chile Tel: (56 2) 2425 2000 www.sqm.com

 

 

Consolidated Classified Statements of Financial Position

 

 

Assets		Note		As of December 31, 2016				As of December 31, 2015
				ThUS$				ThUS$
Current assets
Cash and cash equivalents		7.1			514,669				527,259
Other current financial assets		10.1			289,189				636,325
Other current non-financial assets		25			30,273				47,441
Trade and other receivables, current		10.2			368,761				302,225
Trade receivables due from related parties, current		9.5			82,259				99,907
Current inventories		8			993,072				1,003,846
Current tax assets		28.1			54,787				65,277
Current assets other tan assets classified as held-for-sale or disposal					2,333,010				2,682,280
Non-current assets or asset groups for disposal classified as held-for-sale					2,056				-
Total current assets					2,335,066				2,682,280
Non-current assets
Other non-current financial assets		10.1			14,099				486
Other non-current non-financial assets		25			24,690				33,526
Trade receivables, non-current		10.2			1,840				1,050
Investments classified using the equity method of accounting		11.1-12.3			133,140				79,302
Intangible assets other than goodwill		13.1			109,439				110,428
Goodwill		13.1			37,972				38,388
Property, plant and equipment		14.1			1,532,710				1,683,576
Tax assets, non-current					29,024				14,565
Deferred tax assets		28.4			664				161
Total non-current assets					1,883,578				1,961,482
Total assets					4,218,644				4,643,762

 

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 December 31, 2016				As of December 31, 2015
				ThUS$				ThUS$
Current liabilities
Other current financial liabilities		10.4			179,144				402,030
Trade and other payables, current		10.5			200,496				136,840
Trade payables due to related parties, current		9.6			7				435
Other current provisions		18.1			41,912				31,512
Current tax liabilities		28.2			75,872				52,070
Provisions for employee benefits, current		15.1			20,998				10,074
Other current liabilities		18.3			61,920				69,966
Total current liabilities					580,349				702,927
Non-current liabilities
Other non-current financial liabilities		10.4			1,093,438				1,290,203
Other non-current provisions		18.1			8,934				8,890
Deferred tax liabilities		28.4			206,119				219,391
Provisions for employee benefits, non-current		15.1			22,532				21,995
Total non-current liabilities					1,331,023				1,540,479
Total liabilities					1,911,372				2,243,406
Equity		17
Share capital					477,386				477,386
Retained earnings					1,781,576				1,882,196
Other reserves					(12,888	)			(19,797	)
Equity attributable to owners of the Parent					2,246,074				2,339,785
Non-controlling interests					61,198				60,571
Total equity					2,307,272				2,400,356
Total liabilities and equity					4,218,644				4,643,762

 

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

 

 

Consolidated Statements of Income by Function

 

 

				January to December
		Note		2016				2015
				ThUS$				ThUS$
Revenue		27.1			1,939,322				1,728,332
Cost of sales		27.2			(1,328,285	)			(1,185,583	)
Gross profit					611,037				542,749
Other income		27.3			14,781				15,343
Administrative expenses		27.4			(88,436	)			(86,830	)
Other expenses by function		27.5			(89,731	)			(113,603	)
Other gains (losses)		27.6			679				3,760
Profit (loss) from operating activities					448,330				361,419
Finance income					10,550				11,570
Finance costs		22-27.8			(57,498	)			(69,853	)
Share of profit of associates and joint ventures accounted for using the equity method		11-12			13,047				10,326
Foreign currency translation differences		23			460				(12,364	)
Profit (loss) before taxes					414,889				301,098
Income tax expense, continuing operations		28.4			(132,965	)			(83,766	)
Profit (loss) from continuing operations					281,924				217,332
Profit for the year					281,924				217,332
Profit attributable to
Owners of the Parent					278,290				213,168
Non-controlling interests					3,634				4,164
Profit for the year					281,924				217,332

 

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

 

 

Consolidated Statements of Income by Function, (continued)

 

 

				January to December
		Note		2016				2015
				US$				US$
Earnings per share
Common shares
Basic earnings per share (US$ per share)		21			1.0573				0.8099
Diluted common shares
Diluted earnings per share (US$ per share)		21			1.0573				0.8099

 

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

 

 

Consolidated Statements of Comprehensive Income

 

 

		January to December
		2016				2015
Statement of comprehensive income		ThUS$				ThUS$
Profit (loss) for the year			281,924				217,332
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			(3,397	)			(221	)
Total other comprehensive income that will not be reclassified to profit for the year, before taxes			(3,397	)			(221	)
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			(2,252	)			(6,499	)
Other comprehensive income before taxes			(2,252	)			(6,499	)
Cash flow hedges on defined benefit plans
Gains (losses) from cash flow hedges			2,233				401
Other comprehensive income before taxes			2,233				401
Financial assets measured at fair value through other comprehensive income
Gains (losses) in financial assets measured at fair value through other comprehensive income			4,813				-
Other comprehensive income, before taxes, financial assets measured at fair value			4,813				-
Total other comprehensive income that will be reclassified to profit for the year			4,794				(6,098	)
Other items of other comprehensive income before taxes			1,397				(6,319	)
Income taxes related to items of other comprehensive income that will not be reclassified to profit for the year
Income taxes related to investments in equity securities in other comprehensive income			1,300				-
Income taxes related to new measurements of defined benefit plans in other comprehensive income			(921	)			309
Accumulated income taxes related to items of other comprehensive income that will not be reclassified to profit for the year			379				309
Income taxes related to items of other comprehensive income that will be reclassified to profit for the year
Income taxes related to cash flow hedges in other comprehensive income			470				219
Accumulated income taxes related to items of other comprehensive income that will be reclassified to profit for the year			470				219
Total other comprehensive income			548				(6,847	)
Total comprehensive income			282,472				210,485
Comprehensive income attributable to
Owners of the Parent			278,831				206,533
Non-controlling interests			3,641				3,952
Total comprehensive income			282,472				210,485

 

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

 

 

Consolidated Statements of Cash Flows

 

 

Consolidated Statements of cash flows		Note		12/31/2016				12/31/2015
				ThUS$				ThUS$
Cash flows from operating activities
Cash receipts from sales of goods and rendering of services					1,874,202				1,713,549
Cash receipts from premiums and benefits, annuities and other benefits from policies entered					5,071				-
Cash payments to suppliers for the provision of goods and services					(796,961	)			(1,082,704	)
Cash payments to and on behalf of employees					(253,163	)			(44,916	)
Other payments related to operating activities					(32,185	)			(70,991	)
Dividends received					4,345				7,515
Interest paid					(55,217	)			(44,225	)
Interest received					10,550				11,570
Income taxes paid					(87,050	)			(72,579	)
Other incomes (outflows) of cash					(29,473	)			10,098
Net cash generated from (used in) operating activities					640,119				427,317
Cash flows from (used in) investing activities
Payments made to acquire interest in joint ventures					(51,457	)			(59	)
Proceeds from the sale of property, plant and equipment					4,347				388
Acquisition of property, plant and equipment					(131,251	)			(111,315	)
Proceeds from sales of intangible assets					3,435				4,586
Purchases of intangible assets					(2,090	)			-
Cash advances and loans granted to third parties					-				420
Proceeds from the repayment of advances and loans granted to third parties					(163	)			-
Other inflows (outflows) of cash (*)					333,108				36,175
Net cash generated from (used in) investing activities					155,929				(69,805	)

 

(*) Includes other cash receipts (payments), investments and redemptions of time deposits and other financial instruments, which do not qualify as cash and cash equivalents in accordance with IAS 7.7 as they record a maturity date from their date of origin greater than 90 days.

 

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

 

 

Consolidated Statements of Cash Flows, (continued)

 

 

		Note		12/31/2016				12/31/2015
				ThUS$				ThUS$
Cash flows used in financing activities
Proceeds from short-term borrowings					100,000				137,000
Total proceeds from borrowings					100,000				137,000
Repayment of borrowings					(517,000	)			(190,000	)
Dividends paid					(399,410	)			(127,343	)
Net cash generated used in financing activities					(816,410	)			(180,343	)
Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate					(20,362	)			177,169
Effects of exchange rate fluctuations on cash held					7,772				(4,476	)
Net (decrease) increase in cash and cash equivalents					(12,590	)			172,693
Cash and cash equivalents at beginning of period					527,259				354,566
Cash and cash equivalents at end of period					514,669				527,259

 

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

 

 

Consolidated Statements of Changes in Equity

 

 

		Share capital				Foreign currency translation difference reserves				Cash flow hedge reserves				Reserve for gains (losses) from financial assets measured at fair value through other comprehensive income				Actuarial gains (losses) from defined benefit plans				Other miscellaneous reserves				Other reserves				Retained earnings				Equity attributable to owners of the Parent				Non- controlling interests				Total
2016		ThUS$				ThUS$				ThUS$								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity at beginning of the year			477,386				(14,035	)			(1,699	)							(2,386	)			(1,677	)			(19,797	)			1,882,196				2,339,785				60,571				2,400,356
Profit for the year			-				-				-								-				-				-				278,290				278,290				3,634				281,924
Other comprehensive income			-				(2,287	)			1,763				3,513				(2,448	)			-				541				-				541				7				548
Comprehensive income			-				(2,287	)			1,763				3,513				(2,448	)			-				541				278,290				278,831				3,641				282,472
Dividends			-				-				-				-				-				-				-				(375,000	)			(375,000	)			(3,014	)			(378,014	)
Increase (decrease) due to transfers and other changes							(3,141	)			-				-				-				9,509				6,368				(3,910	)			2,458				-				2,458
Increase (decrease) in equity			-				(5,428	)			1,763				3,513				(2,448	)			9,509				6,909				(100,620	)			(93,711	)			627				(93,084	)
Equity as of December 31, 2016			477,386				(19,463	)			64				3,513				(4,834	)			7,832				(12,888	)			1,781,576				2,246,074				61,198				2,307,272

 

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

 

 

Consolidated Statements of Changes in Equity

 

 

		Share capital				Foreign currency translation difference reserves				Cash flow hedge reserves				Actuarial gains (losses) from defined benefit plans				Other miscellaneous reserves				Other reserves				Retained earnings				Equity attributable to owners of the Parent				Non-controlling interests				Total
2015		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity at beginning of the year			477,386				(7,701	)			(1,881	)			(1,903	)			(1,677	)			(13,162	)			1,775,612				2,239,836				59,867				2,299,703
Profit for the year			-				-				-				-				-				-				213,168				213,168				4,164				217,332
Other comprehensive income			-				(6,334	)			182				(483	)			-				(6,635	)			-				(6,635	)			(212	)			(6,847	)
Comprehensive income			-				(6,334	)			182				(483	)			-				(6,635	)			213,168				206,533				3,952				210,485
Dividends			-				-				-				-				-				-				(106,584	)			(106,584	)			(3,248	)			(109,832	)
Increase (decrease) in equity			-				(6,334	)			182				(483	)			-				(6,635	)			106,584				99,949				704				100,653
Equity as of December 31, 2015			477,386				(14,035	)			(1,699	)			(2,386	)			(1,677	)			(19,797	)			1,882,196				2,339,785				60,571				2,400,356

 

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

 

 

Note 1

Identification and activities of the Company and Subsidiaries

 

1.1

Historical background

 

Sociedad Química y Minera de Chile S.A. "SQM" is an open stock corporation organized under the laws of the Republic of Chile, Tax Identification No.93.007.000-9.

 

The Company was incorporated through a public deed dated June 17, 1968 by the notary public of Santiago MR. Sergio Rodríguez Garcés. Its existence was approved by Decree No. 1,164 of June 22, 1968 of the Ministry of Finance, and it was registered on June 29, 1968 in the Registry of Commerce of Santiago, on page 4,537 No. 1,992. SQM's headquarters are located at El Trovador 4285, Fl. 6, Las Condes, Santiago, Chile. The Company's telephone number is +56 2 2425-2000.

 

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

 

1.2

Main domicile where the Company performs its production activities

 

The Company’s main domiciles are: Calle Dos Sur plot No. 5 - Antofagasta; Arturo Prat 1060 - Tocopilla; Administración Building w/n - Maria Elena; Administración Building w/n Pedro de Valdivia - María Elena, Anibal Pinto 3228 - Antofagasta, Kilometer 1378 Ruta 5 Norte Highway - Antofagasta, Coya Sur Plant w/n - Maria Elena, kilometer 1760 Ruta 5 Norte Highway - Pozo Almonte, Salar de Atacama (Atacama Saltpeter deposit) potassium chloride plant s/n - San Pedro de Atacama, potassium sulfate plant at Salar de Atacama s/n – San Pedro de Atacama, Minsal Mining Camp s/n CL Plant CL, Potassium– San Pedro de Atacama, formerly the Iris Saltpeter office S/N, Commune of Pozo Almonte, Iquique.

 

1.3

Codes of main activities

 

The codes of the main activities as established by the Chilean Superintendence of Securities and Insurance are as follows:

 

-

1700 (Mining)

 

-

2200 (Chemical products)

 

-

1300 (Investment)

 

1.4

Description of the nature of operations and main activities

 

Our products are mainly derived from mineral deposits found in northern Chile. We mine and process caliche ore and brine deposits. The ore deposit in northern Chile contains nitrate and iodine deposits. The brine deposits of the Salar de Atacama, in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate.

 

 

Note 1

Identification and Activities of the Company and Subsidiaries (continued)

 

1.4

Description of the nature of operations and main activities, continued

 

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

 

We sell our products in over 100 countries worldwide through our global distribution network and generate our revenue mainly from abroad.

 

Our products are divided into six categories: specialty plant nutrition, iodine and its derivatives, lithium and its derivatives, industrial chemicals, potassium and other products and services, described as follows:

 

Specialty plant nutrition: SQM produces and sells four types of specialty plant nutrition in this line of business: potassium nitrate, sodium nitrate, sodium potassium nitrate, and specialty mixes. This business is characterized by being closely related to its customers for which it has specialized staff who provide expert advisory in best practices for fertilization according to each type of crop, soil and climate. Within this type of business, potassium derivative products and specially potassium nitrate have had a leading role given the contribution they make to develop crops insuring an improvement in post-crop life in addition to improving quality, flavor and fruit color. The potassium nitrate, which is sold in multiple formats and as a part of other specialty mixtures, is complemented by sodium nitrate, potassium sodium nitrate, and more than 200 fertilizing mixtures.

 

Iodine: The Company is a major producer of iodine at worldwide level. Iodine is widely used in the pharmaceutical industry, technology and nutrition. Additionally, iodine is used as X ray contrast media and polarizing film for LCD displays.

 

Lithium: the Company’s lithium is mainly used for manufacturing rechargeable batteries for cell phones, cameras and notebooks. Through the manufacturing of lithium-based products, SQM provides significant materials to face great challenges such as the efficient use of energy and raw materials. Lithium is mainly not used for rechargeable batteries for small electrical appliances such as mobile phones, tablets and laptops. It is also used in industrial applications such as the manufacturing of glass, ceramics and lubricating greases. Other uses include the pharmaceutical and chemical industries.

 

 

Note 1

Identification and Activities of the Company and Subsidiaries (continued)

 

1.4

Description of the nature of operations and main activities, continued

 

Industrial Chemicals: Industrial chemicals are products used as supplies for a number of production processes. SQM participates in this line of business producing sodium nitrate, potassium nitrate and potassium chloride. Industrial nitrates have increased their importance over the last few years due to their use as storage means for thermal energy at solar energy plants, which are widely used in countries as Spain and the United States in their search for decreasing CO ₂ emissions .

 

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

 

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

 

1.5

Other background

 

Staff

 

As of December 31, 2016 and December 31, 2015, staff was detailed as follows:

 

		12/31/2016												12/31/2015
Employees		SQM S.A				Other subsidiaries				Total				SQM S.A.				Other subsidiaries				Total
Executives			31				72				103				26				71				97
Professionals			119				919				1,038				116				838				954
Technicians and operators			262				3,076				3,338				256				2,741				2,997
Foreign employees			8				264				272				-				202				202
Overall total			420				4,331				4,751				398				3,852				4,250

 

 

Note 1

Identification and Activities of the Company and subsidiaries (continued)

 

1.5

Other background, continued

 

Main shareholders

 

The table below establishes certain information about the beneficial property of Series A and Series B shares of SQM as of December 31, 2016 and December 31, 2015. In respect to each shareholder which has interest of more than 5% of outstanding Series A or B shares. The information below is taken from our records and reports controlled in the Central Securities Depository and reported to the Superintendence of Securities and Insurance (SVS) and the Chilean Stock Exchange, whose main shareholders are as follows:

 

Shareholder as of December 31, 2016		No. of Series A with ownership				% of Series A shares				No. of Series B with  ownership				% of Series B shares				% of total shares
The Bank of New York Mellon, ADRs			-				-				59,373,011				49.32	%			22.56	%
Sociedad de Inversiones Pampa Calichera S.A.(*)			44,894,152				31.43	%			7,007,688				5.82	%			19.72	%
Inversiones El Boldo Limitada			29,330,326				20.54	%			16,363,546				13.59	%			17.36	%
Inversiones RAC Chile Limitada			19,200,242				13.44	%			2,202,773				1.83	%			8.13	%
Potasios de Chile S.A.(*)			18,179,147				12.73	%			-				-				6.91	%
Inversiones PCS Chile Limitada			15,526,000				10.87	%			1,600,000				1.33				6.51	%
Banco de Chile on behalf of non-resident third parties			-				-				8,962,355				7.45	%			3.41	%
Inversiones Global Mining (Chile) Limitada (*)			8,798,539				6.16	%			-				-				3.34	%
Banco Itaú on behalf of  investors			20,950				0.01	%			6,502,217				5.40	%			2.48	%
Inversiones La Esperanza Limitada			3,711,598				2.60	%			46,500				0.04	%			1.43	%

 

(*) Total Pampa Group 29.97%

 

Shareholder as of December 31, 2015		No. of Series A with ownership				% of Series A shares				No. of Series B with ownership				% of Series B shares				% of total shares
The Bank of New York Mellon, ADRs			-				-				59,079,533				49,08	%			22,45	%
Sociedad de Inversiones Pampa Calichera S.A.(*)			44,880,793				31.43	%			7,007,688				5.82	%			19.72	%
Inversiones El Boldo Limitada			29,330,326				20.54	%			17,963,546				14.92	%			17.97	%
Inversiones RAC Chile Limitada			19,200,242				13.44	%			2,202,773				1.83	%			8.13	%
Potasios de Chile S.A.(*)			18,179,147				12.73	%			-				-				6.91	%
Inversiones PCS Chile Limitada			15,526,000				10.87	%			-				-				5.90	%
Banco de Chile on behalf of non-resident third parties			-				-				9,055,272				7,52	%			3.44	%
Inversiones Global Mining (Chile) Limitada (*)			8,798,539				6.16	%			-				-				3.34	%
Banco Itaú on behalf of  investors			20,950				0.01	%			5,679,753				4.72	%			2.27	%
Inversiones La Esperanza Limitada			3,711,598				2.60	%			46,500				0.04				1.43	%

 

(*) Total Pampa Group 29.97%

 

On December 31, 2016 the total number of shareholders had risen to 1,187.

 

 

Note 2

Basis of presentation for the consolidated financial statements

 

2.1

Accounting period

 

These consolidated financial statements cover the following periods:

 

-

Consolidated Statements of Financial Position for the periods ended December 31, 2016 and December 31, 2015.

 

-

Consolidated Statements of Changes in Equity for the periods ended December 31, 2016 and 2015.

 

-

Consolidated Statements of Comprehensive Income for the periods between January and December 31, 2016 and 2015.

 

-

Statements of Direct-Method Cash Flows for the periods ended December 31, 2016 and 2015.

 

2.2

Financial statements

 

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

 

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

 

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

 

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

 

Considering that indicated in the preceding paragraph, this represented a specific and temporary departure from the IFRS, starting from 20146 and in conformity with that established in paragraph 4ª of IFRS 1, the Company has decided to retrospectively apply such standards (in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”) as if had never ceased their application.

 

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

 

 

Note 2

Basis of presentation for the consolidated financial (continued)

 

2.2

Financial statements, continued

 

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

 

Certain amounts have been reclassified at year-end for presentation purposes for the line items Other non-financial assets, current; Tax assets, current, non-current; Other current provisions; and Other current liabilities as of December 31, 2015 for a better comparison to the amounts as of December 31, 2016.

 

2.3

Basis of measurement

 

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

 

-

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

-

Financial derivatives at fair value; and

-

Staff severance indemnities and pension commitments at actuarial value

-

Certain financial investments classified as available for sale measured at fair value with a counterparty in other comprehensive income.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting pronouncements

 

New accounting pronouncements

 

a)        The following standards, interpretations and amendments are mandatory for the first time for annual periods beginning on January 1, 2016:

 

Amendments and improvements		Mandatory for annual periods beginning on
Amendment to IFRS 11 “Joint Arrangements” – on the acquisition of interest in a joint operation – Issued in May 2014. This amendment includes guidance related to the method for accounting for an acquisition of an interest in a joint operation in which the activity constitutes a business, specifying the proper treatment for such acquisitions.		01/01/2016
Amendment to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” on depreciation and amortization – Issued in May 2014. The amendments clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate because revenue generated by such an activity in general reflects other factors other than the use of the economic benefits embedded in the asset or item of property, plant and equipment.  Accordingly, a rebuttable presumption exists that a revenue-based depreciation or amortization method is inappropriate.		01/01/2016
Amendment to IAS 27 “Separate Financial Statements” on the equity method – Issued in August 2014. This amendment allows entities to use the equity method of accounting for the recognition of investments in subsidiaries, joint ventures and associates in their separate financial statements.		01/01/2016
Amendment to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures”. Issued in September 2014. This amendment addresses an inconsistency between the requirements of IFRS 10 and IAS 28 for the treatment of a sale or contribution of assets between an investor and its associate or joint venture. The main consequence of this amendment is the recognition of a full gain or loss when the transaction involves a business (whether or not in a subsidiary) and a partial gain or loss when the transaction involves assets that are not a business, even if such assets are in a subsidiary.		01/01/2016
Amendment to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures.” Issued in December 2014. The amendment clarifies the application of the exception from consolidation for investment entities and their subsidiaries. The amendment to IFRS 10 clarifies on the exception on consolidation available for entities in group structures that include investment entities. The amendment to IAS 28 allows an entity that is not an investment entity, but has an interest in an associated or joint venture that is an investment entity, an option of accounting policy in the application of the equity method. The entity may opt for maintaining measurement at fair value applied by the associate or joint venture that is an investment entity or, consolidating at investment entity level (associate or joint venture).		01/01/2016
Amendment to IAS 1 “Presentation of Financial Statements.” Issued in December 2014. This amendment clarifies the application guidance of IAS 1 on materiality and aggregation, presentation of subtotals, structure of the financial statements and disclosure of accounting policies. The amendments are part of the IASB’s Initiative on Disclosures.		01/01/2016

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting Pronouncements, continued

 

Improvements to International Financial Reporting Standards (2014) issued in September 2014		Mandatory for annual periods beginning on
IFRS 5, "Non-current Assets Held for Sale and Discounted Operations.” This amendment clarifies that when an asset (or disposal group) is reclassified from being “held for sale” to “held for distribution” or vice versa, this is not an amendment of a plan of sale or a plan of distribution and should not be accounted for as such. This means that the asset (or disposal group) is not to be reinstated in the financial statements as if it had never been classified as “held for sale” or “held for distribution,” simply because disposal conditions have changed. The amendment also rectifies an omission in the standard explaining that guidance on changes in a sale plan has to be applied to an asset (or disposal group) that is no longer held for distribution, but is not reclassified as “held for sale.”		01/01/2016
IFRS 7 "Financial Instruments: Disclosures " It establishes two amendments to IFRS 7: (1) Service contracts: if a Company transfers a financial asset to a third party under conditions that allow the assigner to dispose of the asset, IFRS 7 requires the disclosure of any type of continued involvement that the entity may still have on transferred assets. IFRS 7 provides guidance on what is understood as continued involvement within this context. The amendment is prospective with the option of applying it retrospectively. This also affects IFRS 1 to provide the same option to the first-time adopters of IFRS 1; (2) Interim Financial Statements: The amendment clarifies that the additional disclosure required by amendments to IFRS 7 “Offsetting Financial Assets and Financial Liabilities” is not specifically required for all interim periods, unless required by IAS 34. The amendment is retrospective.		01/01/2016
IAS 19, "Employee Benefits" – This amendment clarifies that in order to determine the discount rate for post-employment benefit obligations, the important aspect is the currency in which liabilities are denominated, not the country where they generate. The evaluation of whether a deep market exists for high-quality corporate bonds is based on corporate bonds in such currency, not in corporate bonds of a particular country. Likewise, where there is no deep market for high-quality corporate bonuses in such currency, government bonds in the related currency have to be used. Such amendment is retrospective but limited at the beginning of the first period presented.		01/01/2016
IAS 34, "Interim Financial Reporting" – This amendment clarifies the meaning of disclosure of information ‘elsewhere in the interim financial report’ and amends IAS 34 to require the inclusion of a cross-reference from the interim financial statements to the location of the information. This amendment is retrospective.		01/01/2016

 

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

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.4

Accounting Pronouncements, continued

 

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

 

Standards and Interpretations		Mandatory for annual periods beginning on
IFRS 9 “Financial Instruments” – Issued in July 2014. The IASB has issued the full version of IFRS 9, which supersedes the application guidance in IAS 39. This final version includes requirements on the classification and measurement of financial assets and financial liabilities and an expected credit losses model that replaces the incurred loss impairment model used today. The final hedging accounting part of IFRS 9 was issued in November 2013. Early adoption is permitted.		01/01/2018
IFRS 15 “Revenue from Contracts with Customers” – Issued in May 2014. This standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. For such purposes, the basic principle is that an entity will recognize revenue representing the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for such goods or services. The application of this standard will replace IAS 11 Construction Contracts and IAS 18 Revenue, as well as IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue-Barter Transactions Involving Advertising Services. Early application is permitted.		01/01/2018
IFRS 16 “Leases” – issued in January 2016 establishes the principle for the recognition, measurement, presentation and disclosure of leases. IFRS 16 supersedes the current IAS 17 and introduces a single model for accounting recognition for lessees and requires a lessee to recognize the assets and liabilities of all lease contracts over a term of more than 12 months, unless the underlying asset has a low value. The objective is ensuring that lessees and lessors provide relevant information that fairly represents transactions conducted. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, early adoption is permitted for entities applying IFRS 15 or prior to the date of initial application of IFRS 16.		01/01/2019
IFRIC 22 “Foreign Currency Transactions and Advance Consideration.”  Issued in December 2016. This Interpretation is applied to a foreign currency transaction (o a portion thereof) when an entity recognizes a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income (or related part thereof). The interpretation provides guidance for when an entity mas a single payment/receipt, as well as for situations where multiple payments/receipts are made. It is intended to reduce the diversity in the practice.		01/01/2018

 

 

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
Amendment to IAS 7 “Statement of Cash Flows.” – Issued in February 2016. This amendment introduces additional disclosures allowing users of financial statements to assess changes in obligations from financing activities.		01/01/2017
Amendment to IAS 12 “Income Taxes.”   - Issued in February 2016. This amendment clarifies how to account for deferred tax assets related to debt securities measured at fair value.		01/01/2017
Amendment to IFRS 15 “Revenue from Contracts with Customers” issued in April 2016. This amendment provides clarification for the guidance for the identification of performance obligations in contracts with customers, the accounting for intellectual property license and the assessment of principal versus agent (gross presentation vs. net presentation of revenue). It includes new and amended illustrative examples, as well as practical examples related to the transition to the new revenue standard.		01/01/2018
Amendment to IFRS 12 “Disclosure of Interest in Other Entities.” Issued in December 2016.  This amendment clarifies the scope of this standard. These amendments must be applied retrospectively to annual periods beginning on or after January 1, 2017.		01/01/2017
Amendment to IAS 28 “Investments in Associates and Joint Ventures” related to the measurement of the associate or joint venture at fair value. Issued in December 2016.		01/01/2018

 

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

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation

 

(a)

Subsidiaries

 

Relate to all the entities on which Sociedad Química y Minera de Chile S.A. has control when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those variable returns through its power over the entity. Subsidiaries apply the same accounting policies of their Parent.

 

To account for the acquisition, the Company uses the acquisition method. Under this method the acquisition cost is the fair value of assets delivered, equity securities issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingencies assumed in a business combination are measured initially at fair value at the acquisition date. For each business combination, the Company will measure non-controlling interest of the acquiree either at fair value or as proportional share of net identifiable assets of the acquiree.

 

Companies included in consolidation:

 

								Ownership interest
				Country of		Functional		12/31/2016												12/31/2015
TAX ID No.		Foreign subsidiaries		origin		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$			0.5376				99.4624				100.0000				100.0000
Foreign		Royal Seed Trading Corporation A.V.V.		Aruba		US$			1.6700				98.3300				100.0000				100.0000
Foreign		SQM Oceania Pty Limited		Australia		US$			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
				Country of		Functional		12/31/2016												12/31/2015
TAX ID No.		Foreign subsidiaries		origin		currency		Direct				Indirect				Total				Total
Foreign		Rs Agro-Chemical Trading Corporation A.V.V.		Aruba		US$			98.3333				1.6667				100.0000				100.0000
Foreign		SQM Indonesia S.A.		Indonesia		US$			0.0000				80.0000				80.0000				80.0000
Foreign		SQM Virginia L.L.C.		USA		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Italia SRL		Italy		US$			0.0000				100.0000				100.0000				100.0000
Foreign		Comercial Caimán Internacional S.A.		Panama		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Africa Pty.		South Africa		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Lithium Specialties LLC		USA		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Iberian S.A.		Spain		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Agro India Pvt. Ltd.		India		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Beijing Commercial Co. Ltd.		China		US$			0.0000				100.0000				100.0000				100.0000
Foreign		SQM Thailand Limited		Thailand		US$			0.0000				99.996				99.996				99.996
Foreign		SQM Vitas Spain		Spain		Euro			0.0000				100.0000				100.0000				-

 

								Ownership interest
				Country of		Functional		12/31/2016												12/31/2015
TAX ID 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				-				51.0000				51.0000
76.360.575-2		Orcoma SPA		Chile		US$			100.0000				-				100.0000				100.0000

 

(a)

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

 

Subsidiaries are consolidated using the line-by-line method, adding the items that represent assets, liabilities, revenues, and expenses of similar content, and eliminating those related to intragroup transactions.

 

 

Note 2

Basis of presentation for the consolidated financial statements (continued)

 

2.5

Basis of consolidation, continued

 

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

 

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

 

2.6

Significant accounting judgments, estimates and assumptions

 

Management of Sociedad Química y Minera de Chile S.A. and its subsidiaries is responsible for the information contained in these consolidated financial statements, which expressly indicate that all the principles and criteria included in IFRSs, as issued by the International Accounting Standards Board (IASB), have been applied in full.

 

In preparing the consolidated financial statements of Sociedad Química y Minera de Chile S.A. and its subsidiaries, Management has made judgments and estimates to quantify certain assets, liabilities, revenues, expenses and commitments included therein. Basically, these estimates refer to:

 

-

The useful lives of property, plant and equipment, and intangible assets and their residual value;

 

-

Impairment losses of certain assets, including trade receivables;

 

-

Assumptions used in calculating the actuarial amount of pension-related and severance indemnity payment benefit commitments;

 

-

Provisions for commitments assumed with third parties and contingent liabilities;

 

-

Provisions on the basis of technical studies that cover the different variables affecting products in stock (density and moist, among others), and allowance for slow-moving spare-parts in stock;

 

-

Future cost for closure of mining sites;

 

-

The determination of the fair value of certain financial assets and derivative instruments;

 

-

The determination and assignment of fair values in business combinations.

 

Despite the fact that these estimates have been made on the basis of the best information available on the date of preparation of these consolidated financial statements, certain events may occur in the future and oblige their amendment (upwards or downwards) over the next few years, which would be made prospectively, recognizing the effects of the change in estimates in the related future consolidated financial statements.

 

 

Note 3

Significant accounting policies

 

3.1

Classification of balances as current and non-current

 

In the attached consolidated statement of financial position, balances are classified in consideration of their remaining recovery (maturity) dates; i.e., those maturing on a date equal to or lower than twelve months are classified as current and those with maturity dates exceeding the aforementioned period are classified as non-current.

 

The exception to the foregoing relates to deferred taxes, which are classified as non-current, regardless of the maturity they have.

 

3.2

Functional and presentation currency

 

The Company’s consolidated financial statements are presented in United States dollars (“U.S. dollars” or “US$”), which is the Company’s functional and presentation currency and is the currency of the main economic environment in which it operates.

 

Consequently, the term foreign currency is defined as any currency other than the U.S. dollar.

 

The consolidated financial statements are presented in thousands of United States dollars without decimals.

 

3.3

Foreign currency translation

 

(a)

Group entities:

 

The revenue, expenses, assets and liabilities of all entities that have a functional currency other than the presentation currency are converted to the presentation currency as follows:

 

-

Assets and liabilities are converted at the closing exchange rate prevailing on the reporting date.

 

-

Revenues and expenses of each profit or loss account are converted at monthly average exchange rates.

 

-

All resulting foreign currency translation gains and losses are recognized as a separate component in translation reserves.

 

In consolidation, foreign currency differences arising from the translation of a net investment in foreign entities are recorded in equity (other reserves). At the date of disposal, such foreign currency translation differences are recognized in the statement of income as part of the gain or loss from the sale.

 

 

Note 3

Significant accounting policies (continued)

 

3.3

Foreign currency translation, continued

 

The main exchange rates used to translate monetary assets and liabilities, expressed in foreign currency at the end of each period in respect to U.S. dollars, are as follows:

 

		12/31/2016				12/31/2015
		US$				US$
Brazilian real			3.25				3.90
New Peruvian sol			3.35				3.41
Argentine peso			15.84				12.90
Japanese yen			116.83				120.61
Euro			0.95				0.92
Mexican peso			20.63				17.34
Australian dollar			0.72				0.73
Pound Sterling			0.81				0.67
South African rand			13.70				15.61
Ecuadorian dollar			1.00				1.00
Chilean peso			669.47				710.16
UF			39.36				36.09

 

(b)

Transactions and balances

 

Non-monetary transactions in currencies other than the functional currency (U.S. dollar) foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. All differences are recorded in the statement of income except for all monetary item that provide effective hedge for a net investment in a foreign operation. These items are recognized in other comprehensive income on the disposal of the investment; at the time they are recognized in the statement of income. Charges and credits attributable to foreign currency translation differences on those hedge monetary item are also recognize in other comprehensive income.

 

Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are retranslated to the functional currency at the historical exchange rate of the transaction. Non-monetary items that are measured based on fair value in a foreign currency are translated using the exchange rate at the date on which the fair value is determined.

 

 

Note 3

Significant accounting policies (continued)

 

3.4

Subsidiaries

 

SQM S.A. establishes, as basis, the control exercised in subsidiaries, to determine their share in the consolidated financial statements. Control consists of the Company’s ability to exercise power in the subsidiary, exposure, or right, to variable performance from its share in the investee and the ability to use its power on the investee to have an influence on the amount of the investor’s performance.

 

The Company prepares the consolidated financial statements using consistent accounting policies for the entire Group, the consolidation of a subsidiary commences when the Company has control over the subsidiary and stops when control ceases.

 

3.5

Consolidated statement of cash flows

 

Cash equivalents correspond to highly-liquid short-term investments that are easily convertible in known amounts of cash. They are subject to insignificant risk of changes in their value and mature in less than three months from the date of acquisition of the instrument.

 

For purposes of the statement of cash flows, cash and cash equivalents comprise cash and cash equivalents as defined above.

 

The statement of cash flows includes movements in cash performed during the year, determined using the direct method.

 

3.6

Financial assets

 

Management determines the classification of its financial assets at the time of initial recognition, on the basis of the business model for the management of financial assets and the characteristics of contractual cash flows from the financial assets. In accordance with IAS 39, financial assets are measured initially at fair value plus transaction costs that may have been incurred and are directly attributable to the acquisition of the financial asset. Subsequently, financial assets are measured at amortized cost or fair value.

 

The Company assesses, at each reporting date, whether there is objective evidence that an asset or group of assets is impaired. An asset or group of financial assets is impaired if and only if there is evidence of impairment as a result of one or more events occurring after the initial recognition of the asset or group of assets. For the recognition of impairment, the loss event has to have an impact on the estimate of future cash flows from the asset or groups of financial assets.

 

 

Note 3

Significant accounting policies (continued)

 

3.7

Financial liabilities

 

Management determines the classification of its financial liabilities at the time of initial recognition. As established in IAS 39, financial liabilities at the time of initial recognition are measured at fair value, less transaction costs that may have been incurred and are directly attributable to the issue of the financial liability. Subsequently, these are measured at amortized cost using the effective interest method. For financial liabilities that have been initially recognized at fair value through profit or loss, these will be measured subsequently at fair value.

 

3.8

Financial instruments at fair value through profit or loss

 

Management will irrevocably determine, at the time of initial recognition, the designation of a financial instrument at fair value through profit or loss. By doing so, this eliminates and/or significantly reduces measurement or recognition inconsistency that would otherwise have arisen from the measurement of assets or liabilities or from the recognition of gains and losses from them on different bases.

 

3.9

Financial instrument offsetting

 

The Company offsets an asset and liability if and only if it presently has a legally enforceable right of setting off the amounts recognized and has the intent of settling for the net amount of realizing the asset and settling the liability simultaneously.

 

3.10

Reclassification of financial instruments

 

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

 

For financial liabilities these could not be reclassified.

 

3.11

Derivative and hedging financial instruments

 

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

 

(a)

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

 

(b)

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

 

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

 

 

Note 3

Significant accounting policies (continued)

 

3.11

Derivative and hedging financial instruments, continued

 

The Company also documents its evaluation both at the beginning and at the end of each period if derivatives used in hedging transactions are highly effective to offset changes in the fair value or in cash flows of hedged items.

 

The fair value of derivative instruments used for hedging purposes is shown in Note 10.3 (hedging assets and liabilities). Changes in the cash flow hedge reserve are classified as a non-current asset or liability if the remaining expiration period of the hedged item is higher than 12 months, and as a current asset or liability if the remaining expiration period of the entry is lower than 12 months.

 

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

 

(a)

Fair value hedge

 

The change in the fair value of a derivative is recognized with a debit or credit to profit or loss, as applicable. The change in the fair value of the hedged asset or liabilities that are attributable to the hedged risk is recognized with a debit or credit to profit or loss.

 

For fair value hedges related to items recorded at amortized cost, the adjustment of the fair value is amortized against profit or loss during the period, through maturity. Any adjustment to the carrying value of a hedged financial instrument, for which the effective rate is used, is amortized with a debit or credit to profit or loss at its fair value, attributable to the risk being covered.

 

If the hedged entry is derecognized, the fair value not amortized is immediately recognized with a debit or credit to profit or loss.

 

(b)

Cash flow hedges

 

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

 

Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, as when the hedged interest income or expense is recognized when a projected sale occurs. When the hedged entry is the cost of a non-financial asset or liability, amounts taken to other reserves are transferred to the initial carrying value of the non-financial asset or liability.

 

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

 

 

Note 3

Significant accounting policies (continued)

 

3.12

Available for sale financial assets

 

Available for sale financial assets are non-derivative financial assets, which have been designated as available for sale and are not classified in any of the previous categories of financial instruments. Available for sale financial instruments are initially recognized at fair value plus any directly attributable transaction costs.

 

Subsequent to initial recognition, they are recognized at fair value and changes other than impairment losses are recognized in other comprehensive income and presented in equity in the fair value reserve. If an investment is derecognized, the accumulated gain or loss is reclassified to profit or loss.

 

3.13

Derecognition of financial instruments

 

In accordance with IAS 39, the Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred; and the control of the financial assets has not been retained.

 

The Company derecognizes a financial liability when its contractual obligations or a part of these are discharged, paid to the creditor or legally extinguished.

 

3.14

Derivative financial instruments

 

The Company maintains derivative financial instruments to hedge its exposure to foreign currencies. Derivative financial instruments are recognized initially at fair value; attributable transaction costs are recognized when incurred. Subsequent to initial recognition, changes in fair value of such derivatives are recognized in profit or loss as part of gains and losses.

 

The Company permanently assesses the existence of embedded derivatives, both in its contracts and financial instruments. As of December 31, 2016 and December 31, 2015, there are no embedded derivatives.

 

3.15

Fair value initial measurements

 

From the initial recognition, the Company measures its assets and liabilities at fair value plus or minus transaction costs incurred that are directly attributable to the acquisition of a financial asset or issuance of a financial liability.

 

 

Note 3

Significant accounting policies (continued)

 

3.16

Leases

 

(a)

Lease - Finance lease

 

Leases are classified as finance leases when the Company holds substantially all the risks and rewards derived from the ownership of the asset. Finance leases are capitalized at the beginning of the lease, at the lower of the fair value of the leased asset or the present value of minimum lease payments.

 

Each lease payment is distributed between the liability and the interest expenses to obtain ongoing interest on the pending balance of debt. The respective lease obligations, net of interest expense, are included in other non-current liabilities. The interest element of finance cost is debited in the consolidated statement of income during the lease period so that a regular ongoing interest rate is obtained on the remaining balance of the liability for each year.

 

(b)

Lease – Operating lease

 

Leases in which the lessor maintains a significant part of the risks and rewards derived from the ownership are classified as operating leases. Operating lease payments (net of any incentive received from the lessor) are debited to the statement of income or capitalized (as applicable) on a straight-line basis over the lease period.

 

3.17

Deferred acquisition costs from insurance contracts

 

Acquisition costs from insurance contracts are classified as prepayments and correspond to insurance contracts in force, recognized using the straight-line method and on an accrual basis, and are recognized under other non-financial assets.

 

3.18

Trade and other receivables

 

Trade and other receivables relate to non-derivative financial assets with fixed and determinable payments and are not quoted in any active market. These arise from sales operations involving the products and/or services, of which the Company commercializes directly to its customers.

 

These assets are initially recognized at their fair value and subsequently at amortized cost according to the effective interest rate method, less a provision for impairment loss. An allowance for impairment loss is established for trade receivables when there is objective evidence that the Company will not be able to collect all the amounts which are owed to it, according to the original terms of receivables.

 

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

 

 

Note 3

Significant accounting policies (continued)

 

3.19

Inventory measurement

 

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

 

Commercial discounts, rebates obtained, and other similar entries are deducted in the determination of the acquisition price.

 

The net realizable value represents the estimate of the sales price, less all finishing estimated costs and costs which will be incurred in commercialization, sales, and distribution processes.

 

The Company conducts an evaluation of the net realizable value of inventories at the end of each year, recording an estimate with a charge to income when these are overstated. When a situation arises whereby the circumstances, which previously caused the rebate to cease to exist, or when there is clear evidence of an increase in the net realizable value due to a change in the economic circumstances or prices of main raw materials, the estimate made previously is modified.

 

The valuation of obsolete, impaired or slow-moving products relates to their net estimated, net realizable value.

 

Provisions on the Company's inventories have been made based on a technical study which covers the different variables which affect products in stock (density and humidity, among others).

 

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

 

3.20

Investments in associates and joint ventures

 

Interests in companies on which joint control is exercised (joint venture) or where an entity has significant influence (associates) are recognized using the equity method of accounting. Significant influence is presumed to exist when interest greater than 20% is held in the capital of an investee.

 

Under this method, the investment is recognized in the statement of financial position at cost plus changes, subsequent to the acquisition, and considering the proportional share in the equity of the associate. For such purposes, the interest percentage in the ownership of the associate is used. The associated goodwill acquired is included in the carrying amount of the investee and is not amortized. The debit or credit to profit or loss reflects the proportional share in the profit or loss of the associate.

 

Unrealized gains for transactions with affiliates or associates are eliminated considering the interest percentage the Company has on such entities. Unrealized losses are also eliminated, except if the transaction provides evidence of impairment loss of the transferred asset.

 

 

Note 3

Significant accounting policies (continued)

 

3.20

Investments in associates and joint ventures, continued

 

Changes in the equity of associates are recognized considering the proportional amounts with a charge or credit to “Other reserves” and classified considering their origin.

 

Reporting dates of the associate, the Company and related policies are similar for equivalent transactions and events under similar circumstances.

 

In the event that the significant influence is lost or the investment is sold or is held as available for sale, the equity method is discontinued, suspending the recognition of proportional share of profit or loss.

 

If the resulting amount according to the equity method is negative, the share of profit or loss is reflected at zero value in the consolidated financial statements, unless a commitment exists by the Company to reinstate the Company’s equity position, in which case the related provision for risks and expenses is recorded.

 

Dividends received by these companies are recorded by reducing the equity value, and the proportional share of profit or loss recognized in conformity with the share of equity are included in the consolidated profit or loss accounts in the caption “Equity share of profit (loss) of associates and joint ventures that are accounted for using the equity method of accounting”.

 

3.21

Transactions with non-controlling interests

 

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

 

3.22

Related party transactions

 

Transactions between the Company and its subsidiaries are part of the Company’s normal operations within its scope of business activities. Conditions for such transactions are those normally effective for those types of operations with regard to terms and market prices. Also, these transactions have been eliminated in consolidation. Expiration conditions for each case vary according to the originating transaction.

 

 

Note 3

Significant accounting policies (continued)

 

3.23

Property, plant and equipment

 

Tangible property, plant and equipment assets are stated at acquisition cost, net of the related accumulated depreciation, amortization and impairment losses that they might have experienced.

 

In addition to the price paid for the acquisition of tangible property, plant and equipment, the Company has considered the following concepts as part of the acquisition cost, as applicable:

 

1. Accrued interest expenses during the construction period which are directly attributable to the acquisition, construction or production of qualifying assets, which are those that require a substantial period prior to being ready for use. The interest rate used is that related to the project’s specific financing or, should this not exist, the average financing rate of the investor company.

 

2. The future costs that the Company will have to experience, related to the closure of its facilities at the end of their useful life, are included at the present value of disbursements expected to be required to settle the obligation.

 

Construction-in-progress is transferred to property, plant and equipment in operation once the assets are available for use and the related depreciation and amortization begins on that date.

 

Extension, modernization or improvement costs that represent an increase in productivity, ability or efficiency or an extension of the useful lives of property, plant and equipment are capitalized as a higher cost of the related assets. All the remaining maintenance, preservation and repair expenses are charged to expense as incurred.

 

The replacement of full assets, which increase the asset’s useful life or its economic capacity, are recorded as a higher value of property, plant and equipment with the related derecognition of replaced or renewed elements.

 

Gains or losses which are generated from the sale or disposal of property, plant and equipment are recognized as income (or loss) in the period, and calculated as the difference between the asset’s sales value and its net carrying value.

 

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

 

 

Note 3

Significant accounting policies (continued)

 

3.24

Depreciation of property, plant and equipment

 

Property, plant and equipment are depreciated through the straight-line distribution of cost over the estimated technical useful life of the asset which is the period in which the Company expects to use the asset. When components of one item of property, plant and equipment have different useful lives, they are recorded as separate assets. Useful lives are reviewed on an annual basis.

 

In the case of mobile equipment depreciation is performed depending on the hours of operation

 

The useful lives used for the depreciation and amortization of assets included in property, plant and equipment are presented below.

 

Types of property, plant and equipment		Minimum life or rate				maximum life or rate
Buildings			3				40
Machinery			2				25
Transport equipment			3				30
Furniture and fixtures			2				18
Office equipment			2				20
Production plants			1				25
Mining assets			3				20
Other property, plant and equipment			1				30

 

3.25

Goodwill

 

Goodwill acquired represents the excess in acquisition cost on the fair value of the Company's ownership of the net identifiable assets of the subsidiary on the acquisition date. Goodwill acquired related to the acquisition of subsidiaries is included in goodwill, which is subject to impairment tests annually, and is stated at cost less accumulated impairment losses. Gains and losses related to the sale of an entity include the carrying value of goodwill related to the entity sold.

 

This intangible asset is assigned to cash-generating units with the purpose of testing impairment losses. It is allocated based on cash-generating units expected to obtain benefits from the business combination from which the aforementioned goodwill acquired arose.

 

 

Note 3

Significant accounting policies (continued)

 

3.26

Intangible assets other than goodwill

 

Intangible assets mainly relate to water rights, rights issue, electric line easement expenses and software license and development expenses.

 

(a)

Water rights

 

Water rights acquired by the Company relate to water from natural sources and are recorded at acquisition cost. Given that these assets represent legal rights granted in perpetuity to the Company, they are not amortized, but are subject to annual impairment tests.

 

(b)

Right of way for electric lines

 

As required for the operation of industrial plants, the Company has paid rights of way in order to install wires for the different electric lines in third party land. These rights are presented under intangible assets. Amounts paid are capitalized at the date of the agreement and charged to the statement of income, according to the life of the right of way.

 

(c)

Computer software

 

Licenses for IT programs acquired are capitalized based on costs that have been incurred to acquire them and prepare them to use the specific program. These costs are amortized over their estimated useful lives.

 

Expenses related to the development or maintenance of IT programs are recognized as an expense as and when incurred. Costs directly related to the production of unique and identifiable IT programs controlled by the Group, and which will probably generate economic benefits that are higher than costs during more than a year, are recognized as intangible assets. Direct costs include expenses of employees that develop information technology software and general expenses in accordance with corporate charges received.

 

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

 

(d)	Mining property and concession rights

 

The Company holds mining property and concession rights from the Chilean Government. Property rights are usually obtained with no initial cost (other than the payment of mining patents and minor recording expenses) and upon obtaining rights on these concessions, these are retained by the Company while annual patents are paid. Such patents, which are paid annually, are recorded as prepaid assets and amortized over the following twelve months. Amounts attributable to mining concessions acquired from third parties that are not from the Chilean Government are recorded at acquisition cost within intangible assets.

 

No impairment of intangible assets exists as of December 31, 2016 and December 31, 2015.

 

 

Note 3

Significant accounting policies (continued)

 

3.27

Research and development expenses

 

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

 

3.28

Prospecting expenses

 

The Company has mining property and concession rights from the Chilean Government and acquired from third parties other than the Chilean Government, destined to the exploitation of caliche ore and saltpeter deposits and also the exploration of this type of deposits.

 

Upon obtaining these rights, the Company initially records disbursements directly associated with the exploration and evaluation of deposits (associated with small deposits with trading feasibility) as asset at cost. Such disbursements include the following concepts:

 

-

Disbursements for geological reconnaissance evaluation

 

-

Disbursements for drilling

 

-

Disbursements for drilling work and sampling

 

-

Disbursements for activities related to technical assessment and trading feasibility of drilling work

 

-

And any disbursement directly related to specific projects where its objective is finding mining resources.

 

Subsequently, the Company distinguishes exploration and evaluation projects according to the economic feasibility of the mineral extracted in the area or exploration, among those that finally will deliver future benefits to the Company (profitable projects) and those projects for which it is not probable that economic benefit will flow to the Company in the future (i.e., when the mine site has low ore grade and its exploitation is not economically profitable).

 

If technical studies determine that the ore grade is not economically suitable for exploitation, the asset is directly expensed. Otherwise, it is held in the caption “other non-current assets”, reclassifying the portion related to the area to be exploited in the year in the caption inventories and such amount is amortized as production cost on the basis of estimated tons to be extracted.

 

The technical reasons for this classification correspond to the fact that this is an identifiable non-monetary asset that is owned to be used in the production of our processes as a main raw material.

 

For this reason and because our disbursements correspond to proven reserves with a trading feasibility and used as main raw material in our production processes, these are presented as inventories that will be exploited within the commercial year and the remainder as development expenses for small deposits and prospecting expenses in the caption “other non-current assets”.

 

 

Note 3

Significant accounting policies (continued)

 

3.29

Impairment of non-financial assets

 

Assets subject to depreciation and amortization are subject to impairment testing, provided that an event or change in the circumstances indicates that the amounts in the accounting records may not be recoverable. An impairment loss is recognized for the excess of the book value of the asset over its recoverable amount.

 

The recoverable amount of an asset is the higher between the fair value of an asset or cash generating unit (“CGU”) less costs of sales and its value in use, and is determined for an individual asset unless the asset does not generate any cash inflows that are clearly independent from other assets or groups of assets.

 

When the carrying value of an asset exceeds its recoverable amount, the asset is considered an impaired asset and is reduced to its net recoverable amount.

 

In evaluating value in use, estimated future cash flows are discounted using a discount rate before taxes which reflects current market evaluation on the time value of money and specific asset risks.

 

To determine the fair value less costs to sell, an appropriate valuation model is used.

 

Impairment losses from continuing operations are recognized with a debit to profit or loss in the categories of expenses associated with the impaired asset function, except for properties reevaluated previously where the revaluation was taken to equity.

 

For assets other than acquired goodwill, an annual evaluation is conducted of whether there are impairment loss indicators recognized previously that might have already decreased or ceased to exist. The recoverable amount is estimated if such indicators exist. An impairment loss previously recognized is reversed only if there have been changes in estimates used to determine the asset’s recoverable amount from the last time in which an impairment loss was recognized. If this is the case, the carrying value of the asset is increased to its recoverable amount. This increased amount cannot exceed the carrying value that would have been determined net of depreciation if an asset impairment loss would have not been recognized in prior years. This reversal is recognized with a credit to profit or loss.

 

3.30

Minimum dividend

 

As required by the Shareholders’ Corporations Act, unless decided otherwise by the unanimous vote by the shareholders of subscribed and paid shares, a public company must distribute dividends as agreed by the shareholders at the General Shareholders’ Meeting held each year with a minimum of 30% of its profit, except when the Company records unabsorbed losses from prior years. However, the Company defines as policy the distribution of 50% of its profit for the year, unless decided otherwise by the unanimous vote by the shareholders at the General Shareholders´ meeting held each year.

 

 

Note 3

Significant accounting policies (continued)

 

3.31

Earnings per share

 

The basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary owners of the parent by the weighted average number of ordinary shares outstanding during the year.

 

The Company has not conducted any type of operation of potential dilutive effect that implies the disclosure of diluted earnings per share.

 

3.32

Trade and other payables

 

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

 

3.33

Interest-bearing borrowings

 

At initial recognition, interest-bearing borrowings are measured at fair value net of transaction costs incurred. Subsequently, they are measured at amortized cost using the effective interest rate method. Amortized cost is calculated considering any premium or discount from the acquisition and includes costs of transactions which are an integral part of the effective interest rate.

 

These are recorded as non-current when their expiration period exceeds twelve months and as current when the term is lower than such term. Interest expense is calculated in the year in which they are accrued following a financial criterion.

 

3.34

Other provisions

 

Provisions are recognized when:

 

-

The Company has a present obligation or constructive obligation as the result of a past event.

 

-

It is more likely than not that certain resources must be used, including benefits, to settle the obligation.

 

-

A reliable estimate can be made of the amount of the obligation.

 

In the event that the provision or a portion of it is reimbursed, the reimbursement is recognized as a separate asset solely if there is certainty of income.

 

In the consolidated statement of income, the expense for any provision is presented net of any reimbursement.

 

Should the effect of the time value of money be significant, provisions are discounted using a discount rate before tax that reflects the liability’s specific risks. When a discount rate is used, the increase in the provision over time is recognized as a finance cost.

 

 

Note 3

Significant accounting policies (continued)

 

3.34

Other provisions, continued

 

The Company’s policy is maintaining provisions to cover risks and expenses based on a better estimate to deal with possible or certain and quantifiable responsibilities from current litigation, compensations or obligations, pending expenses for which the amount has not yet been determined, collaterals and other similar guarantees for which the Company is responsible. These are recorded at the time the responsibility or the obligation that determines the compensation or payment is generated.

 

3.35

Obligations related to employee termination benefits and pension commitments

 

Obligations with the Company’s employees are in accordance with that established in the collective bargaining agreements in force, formalized through collective employment agreements and individual employment contracts, except for the United States that is regulated in accordance with employment plans in force up to 2002.

 

These obligations are valued using actuarial calculations, according to the projected unit credit method which considers such assumptions as the mortality rate, employee turnover, interest rates, retirement dates, effects related to increases in employees’ salaries, as well as the effects on variations in services derived from variations in the inflation rate. This, considering criteria in force contained in the revised IAS 19.

 

Actuarial gains and losses that may be generated by variations in defined, pre-established obligations are directly recorded in other comprehensive income.

 

Actuarial losses and gains have their origin in departures between the estimate and the actual behavior of actuarial assumptions or in the reformulation of established actuarial assumptions.

 

The discount rate used by the Company for calculating the obligation was 4.52% and 4.89% for the periods ended December 31, 2016 and December 31, 2015, respectively.

 

The Company’s subsidiary SQM North America has established pension plans for its retired employees that are calculated by measuring the projected obligation using a net salary progressive rate net of adjustments for inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 4.5% interest rate for 2016 and 5.00% for 2015. The net balance of this obligation is presented under the non-current provisions for employee benefits (refer to Note 15.4).

 

3.36

Compensation plans

 

Compensation plans implemented through benefits in share-based payments settled in cash, which have been provided, are recognized in the financial statements at their fair value, in accordance with International Financial Reporting Standards No. 2 "Share-based Payments.” Changes in the fair value of options granted are recognized with a charge to payroll on a straight-line basis during the period between the date on which these options are granted and the payment date (see Note 16).

 

 

Note 3

Significant accounting policies (continued)

 

3.37

Revenue recognition

 

Revenue includes the fair value of considerations received or receivable for the sale of goods and services during performance of the Company's activities. Revenue is presented net of value added tax, estimated returns, rebates and discounts and after the elimination of sales among subsidiaries.

 

Revenue is recognized when its amount can be stated reliably. It is possible that the future economic rewards will flow to the entity and the specific conditions for each type of activity related revenue are complied with, as follows:

 

(a)

Sale of goods

 

The sale of goods is recognized when the Company has delivered products to the customer, and there is no obligation pending compliance that could affect the acceptance of products by the customer. The delivery does not occur until products have been shipped to the customer or confirmed as received by customers. When the related risks of obsolescence and loss have been transferred to the customer and the customer has accepted products in accordance with the conditions established in the sale, when the acceptance period has ended, or when there is objective evidence that those criteria required for acceptance have been met.

 

Sales are recognized in consideration of the price set in the sales agreement, net of volume discounts and estimated returns at the date of the sale. Volume discounts are evaluated in consideration of annual foreseen purchases and in accordance with the criteria defined in agreements.

 

(b)

Sale of services

 

Revenue associated with the rendering of services is recognized considering the degree of completion of the service as of the date of presentation of the consolidated classified statement of financial position, provided that the result from the transaction can be estimated reliably.

 

(c)

Interest income

 

Interest income is recognized when interest is accrued in consideration of the principal pending payment using the effective interest rate method.

 

(d)

Income from dividends

 

Income from dividends is recognized when the right to receive the payment is established.

 

3.38

Finance income and finance costs

 

Finance income is mainly composed of interest income in financial instruments such as term deposits and mutual fund deposits. Interest income is recognized in profit or loss at amortized cost, using the effective interest rate method.

 

Finance costs are mainly composed of interest on bank borrowing expenses, interest on bonds issued and interest capitalized for borrowing costs for the acquisition, construction or production or qualifying assets.

 

Borrowing costs and bonds issued are recognized in profit or loss using the effective interest rate method.

 

 

Note 3

Significant accounting policies (continued)

 

3.38

Finance income and finance costs, continued

 

For finance costs accrued during the construction period that are directly attributable to the acquisition, construction or production of qualifying assets, the effective interest rate related to the project’s specific financing is used. If none exist, the average financing rate of the subsidiary that makes the investment is utilized. Borrowing and financing costs that are directly attributable to the acquisition, construction or production of an asset are capitalized as part of that asset’s cost.

 

3.39

Income tax and deferred taxes

 

Corporate income tax for the year is determined as the sum of current taxes from the different consolidated companies.

 

Current taxes are based on the application of the various types of taxes attributable to taxable income for the year.

 

Differences between the book value of assets and liabilities and their tax basis generate the balance of deferred tax assets or liabilities, which are calculated using the tax rates expected to be applicable when the assets and liabilities are realized.

 

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

 

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

 

At each reporting period, the carrying amount of deferred tax assets has been reviewed and reduced to the extent there will not be sufficient taxable income to allow the recovery of all or a portion of the deferred tax assets. Likewise, as of the date of the consolidated financial statements, deferred tax assets that are not recognized were evaluated and not recognized as it was more likely than not that future taxable income will allow for recovery of the deferred tax asset.

 

With respect to deductible temporary differences associated with investments in subsidiaries, associated companies and interest in joint ventures, deferred tax assets are recognized solely provided that it is more likely than not that the temporary differences will be reversed in the near future and that there will be taxable income with which they may be used.

 

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

 

 

Note 3

Significant accounting policies (continued)

 

3.39

Income tax and deferred taxes, continued

 

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

 

3.40

Segment reporting

 

IFRS 8 requires that companies adopt a “management approach” to disclose information on the operations generated by its operating segments. In general, this is the information that management uses internally for the evaluation of segment performance and making the decision on how to allocate resources for this purpose.

 

An operating segment is a group of assets and operations responsible for providing products or services subject to risks and performance different from those of other business segments. A geographical segment is responsible for providing products or services in a given economic environment subject to risks and performance different from those of other segments that operate in other economic environments.

 

For assets and liabilities the allocation to each segment is not possible given that these are associated with more than one segment, except for depreciation, amortization and impairment of assets, which are directly allocated to the applicable segments, in accordance with the criteria established in the costing process for product inventories.

 

The following operating segments have been identified by the Company:

 

-

Specialty plant nutrients

 

-

Industrial chemicals

 

-

Iodine and derivatives

 

-

Lithium and derivatives

 

-

Potassium

 

-

Other products and services

 

 

Note 3

Significant accounting policies (continued)

 

3.41

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

Financial risk management

 

4.1

Financial risk management policy

 

The Company’s financial risk management policy is focused on safeguarding the stability and sustainability of Sociedad Química y Minera de Chile S.A. and its subsidiaries with regard to all such relevant financial uncertainty components.

 

The Company’s operations are subject to certain financial risk factors that may affect its financial position or results. The most significant risk exposures are market risk, liquidity risk, currency risk, doubtful accounts risk, and interest rate risk, among others.

 

Potentially, additional known or unknown risks may exist, of which we currently deem not to be significant, which could also affect the Company’s business operations, its business, financial position, or profit or loss.

 

The financial risk management structure includes identifying, determining, analyzing, quantifying, measuring and controlling these events. Management and, in particular, Finance Management, is responsible for constantly assessing the financial risk. The Company uses derivatives to hedge a significant portion of those risks.

 

 

Note 4

Financial risk management, continued

 

4.2

Risk factors

 

4.2.1

Market risk

 

Market risk refers to the uncertainty associated with fluctuations in market variables affecting the Company’s assets and liabilities, including:

 

a)

Country risk: The economic situation of the countries where the Company operates may affect its financial position. For example, sales conducted in emerging markets expose SQM to risks related to economic conditions and trends in those countries. In addition, inventories may also be affected by the economic scenario in such countries and/or the global economy, among other probable economic impacts.

 

b)

Price risk : The Company’s product prices are affected by the fluctuations in international prices of fertilizers and chemicals, as well as changes in productive capacities or market demand, all of which might affect the Company’s business, financial position and results of operations.

 

c)

Commodity price risk : The Company is exposed to changes in commodity prices and energy which may have an impact on its production costs that may cause unstable results.

 

As of to-date, the SQM Group incurs an annual expenditure of approximately US$95 million associated with fuel, gas, energy and equivalents from which US$60 million related to direct electrical supply consumption. A change of 10% in the prices of energy required for the Company’s operations may involve costs of approximately US$9.5 million in short-term movements.

 

The markets in which the Company operates are unpredictable, exposed to significant fluctuations in supply and demand, and price high volatility. Additionally, the supply of certain fertilizers or chemicals, including certain products which the Company trades, vary mainly depending on the production of top producers and their related business strategies. Accordingly, the Company cannot forecast with certainty changes in demand, responses from competitors or fluctuations in the final price of its products. These factors can lead to significant impacts on the Company’s product sales volumes, financial position and share price.

 

d)

Quality standards: In the markets in which we operate, customers might impose quality standards on our products and/or governments could enact more stringent standards for the distribution and/or use of our products. Consequently, we might not be able to sell our products if we are not able to meet those new standards. In addition, our production costs might increase to meet such new standards. Not being able to sell our products in one or more markets or to key customers might significantly affect our business, financial position or the results of our operations.

 

 

Note 4

Financial risk management, continued

 

4.2.2

Credit risk

 

A contraction of the global economy and the potentially adverse effects in the financial position of our customers may extend the receivables recovery period for SQM, increasing its exposure to doubtful account risk. While measures have been taken to minimize such risk, the global economic situation may result in losses that might have a material adverse effect on the Company’s business, financial position or results of operations.

 

To mitigate these risks, SQM actively controls debt collection and has established certain safeguards which include loan insurance, letters of credit, and prepayments for a portion of receivables.

 

Financial investments correspond to time deposits with maturities exceeding 90 days and less than 360 days from the investment date, so they are not exposed to significant market risks.

 

4.2.3

Currency risk

 

As a result of its influence on price level determination as well as its relationship with cost of sales, and since a significant portion of the Company’s business transactions are performed in that foreign currency, the functional currency of SQM is the United States dollar. However, the global business activities of the Company expose it to the foreign exchange fluctuations of several currencies with respect to the value of the U.S. dollar. Accordingly, SQM has entered into hedge contracts to mitigate the exposure generated by its main mismatches (assets, net of liabilities) in currencies other than the U.S. dollar against the foreign exchange fluctuation. These contracts are periodically updated depending on the mismatch amount to be hedged in such currencies. Occasionally, and subject to the Board of Directors’ approval, in the short-term the Company insures cash flows from certain specific items in currencies other than the U.S. dollar.

 

A significant portion of the Company’s costs, particularly payroll, is denominated in Chilean pesos. Accordingly, an increase or decrease in the exchange rate against the U.S. dollar would affect the Company’s profit for the period. Approximately US$ 317 million of the Company’s costs are denominated in Chilean pesos. A significant portion of the effect of such obligations on the statement of financial position is hedged by derivative instrument transactions on the balance mismatch in such currency.

 

As of December 31, 2016, the Company recorded derivative instruments classified as currency and interest rate hedges associated with all the bonds payable, denominated in UF, with a fair value of US$40.5 million against SQM. As of December 31, 2015, this amounts to US$75 million in against SQM.

 

As of December 31, 2016, the Chilean peso to U.S. dollar exchange rate was Ch$669.47 per US$1.00 (Ch$ 710.16 per US$ 1.00 as of December 31, 2015).

 

 

Note 4

Financial risk management, continued

 

4.2.4

Interest rate risk

 

Interest rate fluctuations, primarily due to the uncertain future behavior of markets, may have a material impact on the financial results of the Company.

 

The Company has current and non-current debts valued at LIBOR, plus a spread. The Company is partially exposed to fluctuations in such rate, as SQM currently holds hedging derivative instruments to hedge a portion of its liabilities subject to the LIBOR rate fluctuations.

 

As of December 31, 2016, approximately 2% of the Company’s financial liabilities are measured at LIBOR. Accordingly, any significant increase in this rate may have an impact on the Company’s financial position. A 100 basic point variation in this rate may trigger variations in financial expenses of close to US$ 0.03 million. However, this effect is significantly counterbalanced by the returns of the Company’s investments that are also strongly related to LIBOR.

 

In addition, as of December 31, 2016, the Company's financial liabilities are mainly concentrated in the long-term and approximately 12% have maturities of less than 12 months, decreasing in the process the exposure to changes in interest rates.

 

4.2.5

Liquidity risk

 

Liquidity risk relates to the funds needed to comply with payment obligations. The Company’s objective is to maintain financial flexibility through a comfortable balance between fund requirements and cash flows from regular business operations, bank borrowings, bonds, short term investments, and marketable securities, among others.

 

The Company has an important capital expense program which is subject to change over time.

 

On the other hand, world financial markets go through periods of contraction and expansion that are unforeseeable in the long-term and may affect SQM’s access to financial resources. Such factors may have a material adverse impact on the Company’s business, financial position and results of operations.

 

SQM constantly monitors the matching of its obligations with its investments, taking due care of maturities of both, from a conservative perspective, as part of this financial risk management strategy. As of December 31, 2016, the Company had unused, available revolving credit facilities with banks, for a total of approximately US$267 million.

 

The position in other cash and cash equivalents generated by the Company are invested in highly liquid mutual funds with an AAA risk rating.

 

 

Note 4

Financial risk management, continued

 

4.3

Risk measurement

 

The Company has methods to measure the effectiveness and efficiency of financial risk hedging strategies, both prospectively and retrospectively. These methods are consistent with the risk management profile of the Group.

 

Note 5

Changes in accounting estimates and policies (consistent presentation)

 

5.1

Changes in accounting estimates

 

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

 

5.2

Changes in accounting policies

 

As of December 31, 2016, the Company’s consolidated financial statements present no changes in accounting policies or estimates compared to the prior period (for further details refer to Note 2.6).

 

The consolidated statements of financial position as of December 31, 2016 and December 31, 2015 and the statements of comprehensive income, changes in equity and cash flows for the periods ended December 31, 2016 and 2015, have been prepared in accordance with the Standards issued by the Chilean Superintendence of Securities and Insurance (SVS), which consider the International Financial Reporting Standards (IFRS).

 

The accounting principles and criteria were applied consistently.

 

 

Note 6

Background of companies included in consolidation

 

6.1

Parent’s stand-alone assets and liabilities

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Assets			3,824,137				4,012,556
Liabilities			(1,578,063	)			(1,672,771	)
Equity			2,246,074				2,339,785

 

6.2

Parent entity

 

As provided in the Company’s by-laws, no shareholder can concentrate more than 32% of the Company’s voting right shares and therefore there is no controlling entity.

 

6.3

Joint arrangements of controlling interest

 

Sociedad de Inversiones Pampa Calichera S.A., Potasios de Chile S.A., and Inversiones Global Mining (Chile) Limitada, collectively the Pampa Group, are the owners of a number of shares that are equivalent to 29.97% as of December 31, 2016 of the current total amount of shares issued, subscribed and fully-paid of the Company. In addition, Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A. and La Esperanza Delaware Corporation, collectively the Kowa Group, are the owners of a number of shares equivalent to 2.12% of the total amount of issued, subscribed and fully-paid shares of SQM S.A.

 

The Pampa Group and the Kowa Group have informed SQM S.A., the Chilean SVS and the relevant stock exchanges in Chile and abroad that they are not and have never been related parties between them. In addition, this is regardless of the fact that both Groups on December 21, 2006 have entered into a Joint Action Agreement (JAA) related to those shares. Consequently, the Pampa Group, by itself, does not concentrate more than 32% of the voting right capital of SQM S.A., and the Kowa Group does not concentrate by itself more than 32% of the voting right capital of SQM S.A.

 

Likewise, the Joint Action Agreement has not transformed the Pampa and Kowa Groups into related parties between them. The Joint Action Agreement has only transformed the current controller of SQM S.A., composed of the Pampa Group, and the Kowa Group into related parties of SQM S.A.

 

Detail of effective concentration

 

Tax ID No.		Name		Ownership interest %
96.511.530-7		Sociedad de Inversiones Pampa Calichera S.A.			19.72
76.165.311-5		Potasios de Chile S.A.			6.91
96.863.960-9		Inversiones Global Mining (Chile) Limitada			3.34
Total Pampa Group					29.97
79.798.650-k		Inversiones la Esperanza (Chile)  Ltda.			1.43
59.046.730-8		Kowa Co Ltd.			0.30
96.518.570-4		Kochi S.A.			0.30
59.023.690-k		La Esperanza Delaware Corporation			0.09
Total Kowa Group					2.12

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4

General information on consolidated subsidiaries

 

As of December 31, 2016 and December 31, 2015, the general information of the companies on which the Company exercises control and significant influence is as follows:

 

						Country of		Functional		Ownership interest
Subsidiary		Tax ID		Address		incorporation		currency		Direct				Indirect				Total
SQM Nitratos S.A.		96.592.190-7		El Trovador 4285 Las Condes		Chile		US$			99.9999				0.0001				100.0000
Proinsa Ltda.		78.053.910-0		El Trovador 4285 Las Condes		Chile		Ch$			-				60.5800				60.5800
SQMC Internacional Ltda.		86.630.200-6		El Trovador 4285 Las Condes		Chile		Ch$			-				60.6381				60.6381
SQM Potasio S.A.		96.651.060-9		El Trovador 4285 Las Condes		Chile		US$			99.9999				-				99.9999
Serv. Integrales de Tránsito y Transf. S.A.		79.770.780-5		Arturo Prat 1060, Tocopilla		Chile		US$			0.0003				99.9997				100.0000
Isapre Norte Grande Ltda.		79.906.120-1		Anibal Pinto 3228, Antofagasta		Chile		Ch$			1.0000				99.0000				100.0000
Ajay SQM Chile S.A.		96.592.180-K		Av. Pdte. Eduardo Frei 4900, Santiago		Chile		US$			51.0000				-				51.0000
Almacenes y Depósitos Ltda.		79.876.080-7		El Trovador 4285 Las Condes		Chile		Ch$			1.0000				99.0000				100.0000
SQM Salar S.A.		79.626.800-K		El Trovador 4285 Las Condes		Chile		US$			18.1800				81.8200				100.0000
SQM Industrial S.A.		79.947.100-0		El Trovador 4285 Las Condes		Chile		US$			99.0470				0.9530				100.0000
Exploraciones Mineras S.A.		76.425.380-9		El Trovador 4285 Las Condes		Chile		US$			0.2691				99.7309				100.0000
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.		76.534.490-5		Anibal Pinto 3228, Antofagasta		Chile		Ch$			-				100.0000				100.0000
Soquimich Comercial S.A.		79.768.170-9		El Trovador 4285 Las Condes		Chile		US$			-				60.6383				60.6383
Comercial Agrorama Ltda. (*)		76.064.419-6		El Trovador 4285 Las Condes		Chile		Ch$			-				42.4468				42.4468
Comercial Hydro S.A.		96.801.610-5		El Trovador 4285 Las Condes		Chile		Ch$			-				60.6383				60.6383
Agrorama S.A.		76.145.229-0		El Trovador 4285 Las Condes		Chile		Ch$			-				60.6377				60.6377
Orcoma Estudios SPA		76.359.919-1		Apoquindo 3721 Of.131 Las Condes		Chile		US$			51.0000				-				51.0000
Orcoma SPA		76.360.575-2		Apoquindo 3721 Of.131 Las Condes		Chile		US$			100.0000				-				100.0000
SQM North America Corp.		Foreign		2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA		United States		US$			40.0000				60.0000				100.0000
RS Agro Chemical Trading Corporation A.V.V.		Foreign		Caya Ernesto O. Petronia 17, Orangestad		Aruba		US$			98.3333				1.6667				100.0000
Nitratos Naturais do Chile Ltda.		Foreign		Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo		Brazil		US$			-				100.0000				100.0000
Nitrate Corporation of Chile Ltd.		Foreign		1 More London Place London SE1 2AF		United Kingdom		US$			-				100.0000				100.0000
SQM Corporation N.V.		Foreign		Pietermaai 123, P.O. Box 897, Willemstad, Curacao		Netherlands		US$			0.0002				99.9998				100.0000
SQM Peru S.A.		Foreign		Avenida Camino Real N° 348 of. 702, San Isidro, Lima		Peru		US$			0.9800				99.0200				100.0000
SQM Ecuador S.A.		Foreign		Av. José Orrantia y Av. Juan Tanca Marengo Edificio Executive Center Piso 2 Oficina 211		Ecuador		US$			0.0040				99.9960				100.0000
SQM Brasil Ltda.		Foreign		Al. Tocantis 75, 6° Andar, Conunto 608 Edif. West Gate, Alphaville Barureri, CEP 06455-020, Sao Paulo		Brazil		US$			1.0900				98.9100				100.0000

 

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

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4

General information on consolidated subsidiaries, continued

 

Country of

Functional

Ownership interest

Subsidiary

Tax ID

Address

incorporation

currency

Direct

Indirect

Total

SQI Corporation N.V.

Foreign

Pietermaai 123, P.O. Box 897, Willemstad, Curacao

Netherlands

US$

0.0159

99.9841

100.0000

SQMC Holding Corporation L.L.P.

Foreign

2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta

United States

US$

0.1000

99.9000

100.0000

SQM Japan Co. Ltd.

Foreign

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

Japan

US$

0.5376

99.4624

100.0000

SQM Europe N.V.

Foreign

Houtdok-Noordkaai 25a B-2030 Antwerp, Belgium

Belgium

US$

0.5800

99.4200

100.0000

SQM Italia SRL

Foreign

Via A. Meucci, 5 500 15 Grassina Firenze

Italy

US$

-

100.0000

100.0000

SQM Indonesia S.A.

Foreign

Perumahan Bumi Dirgantara Permai, Jl Suryadarma Blok Aw No 15 Rt 01/09 17436 Jatisari Pondok Gede

Indonesia

US$

-

80.0000

80.0000

North American Trading Company

Foreign

2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA

United States

US$

-

100.0000

100.0000

SQM Virginia LLC

Foreign

2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA

United States

US$

-

100.0000

100.0000

SQM Comercial de México S.A. de C.V.

Foreign

Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México

Mexico

US$

0.0010

99.9900

100.0000

SQM Investment Corporation N.V.

Foreign

Pietermaai 123, P.O. Box 897, Willemstad, Curacao

Netherlands

US$

1.0000

99.0000

100.0000

Royal Seed Trading Corporation A.V.V.

Foreign

Caya Ernesto O. Petronia 17, Orangestad

Aruba

US$

1.6700

98.3300

100.0000

SQM Lithium Specialties LLP

Foreign

2727 Paces Ferry Road, Building Two, Suite 1425, Atlanta, GA

United States

US$

-

100.0000

100.0000

Soquimich SRL Argentina

Foreign

Espejo 65 Oficina 6 – 5500 Mendoza

Argentina

US$

-

100.0000

100.0000

Comercial Caimán Internacional S.A.

Foreign

Edificio Plaza Bancomer  Calle 50

Panama

US$

-

100.0000

100.0000

SQM France S.A.

Foreign

ZAC des Pommiers  27930   FAUVILLE

France

US$

-

100.0000

100.0000

Administración y Servicios Santiago S.A. de C.V.

Foreign

Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México

Mexico

US$

-

100.0000

100.0000

SQM Nitratos México S.A. de C.V.

Foreign

Av. Moctezuma 144-4  Ciudad del Sol. CP 45050, Zapopan, Jalisco México

Mexico

US$

-

100.0000

100.0000

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.4

General information on consolidated subsidiaries, continued

 

Country of

Functional

Ownership interest

Subsidiary

Tax ID

Address

incorporation

currency

Direct

Indirect

Total

Soquimich European Holding B.V.

Foreign

Loacalellikade 1 Parnassustoren 1076 AZ Amsterdam

Netherlands

US$

-

100.0000

100.0000

SQM Iberian S.A

Foreign

Provenza 251 Principal 1a CP 08008, Barcelona

Spain

US$

-

100.0000

100.0000

SQM Africa Pty Ltd.

Foreign

Tramore House, 3 Wterford Office Park, Waterford Drive, 2191 Fourways, Johannesburg

South Africa

US$

-

100.0000

100.0000

SQM Oceania Pty Ltd.

Foreign

Level 9, 50 Park Street, Sydney NSW 2000, Sydney

Australia

US$

-

100.0000

100.0000

SQM  Agro India Pvt. Ltd.

Foreign

C 30 Chiragh Enclave New Delhi, 110048

India

US$

-

100.0000

100.0000

SQM Beijing Commercial Co. Ltd.

Foreign

Room 1001C, CBD International Mansion N 16 Yong An Dong Li, Jian Wai Ave Beijing 100022, P.R.

China

US$

-

100.0000

100.0000

SQM Thailand Limited

Foreign

Unit 2962, Level 29, N° 388, Exchange Tower Sukhumvit Road, Klongtoey Bangkok

Thailand

US$

-

99.996

99.996

SQM Vitas Spain

Foreign

C/Manuel Echeverria Manzana 2 Muelle de la Cab (Puerto Real)

Spain

Euro

-

100.0000

100.0000

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.5

Information attributable to non-controlling interests

 

Subsidiary		% of interests in the ownership held by non- controlling interests.				Profit (loss) attributable to non-controlling interests								Equity, non-controlling interests								Dividends paid to non- controlling interests
						12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
						ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Proinsa Ltda.			0.1	%			-				-				-				-				-				-
SQM Potasio S.A.			0.0000001	%			-				-				-				-				-				-
Ajay SQM Chile S.A.			49	%			1,360				1,551				8,303				8,107				1,163				1,946
SQM Indonesia S.A.			20	%			-				-				1				1				-				-
Soquimich Comercial S.A.			39.3616784	%			2,378				2,605				50,416				49,897				1,851				1,303
Comercial Agrorama Ltda.			30	%			(06	)			3				201				292				-				-
Agrorama S.A.			0.001	%			-				-				-				-				-				-
Orcoma Estudios SPA			49	%			2				5				2,277				2,274				-				-
SQM (Thailand) Limited.			0.004	%			-				-				-				-				-				-
Total							3,634				4,164				61,198				60,571				3,014				3,249

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries

 

12/31/2016
		Assets								Liabilities																Comprehensive
Subsidiary		Current				Non-current				Current				Non-current				Revenue				Profit (loss)				income (loss)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Nitratos S.A.			656,221				54,180				644,610				5,990				96,235				12,178				12,164
Proinsa Ltda.			56				1				-				-				-				(4	)			(4	)
SQMC Internacional Ltda.			204				-				-				-				-				(3	)			(3	)
SQM Potasio S.A.			176,976				722,965				37,167				26,933				5,902				253,322				252,435
Serv. Integrales de Tránsito y Transf. S.A.			75,296				36,407				107,567				224				30,315				(18,192	)			(18,362	)
Isapre Norte Grande Ltda.			664				746				714				131				3,053				23				23
Ajay SQM Chile S.A.			17,240				1,069				975				388				28,035				2,776				2,776
Almacenes y Depósitos Ltda.			278				45				1				-				-				(10	)			105
SQM Salar S.A.			785,127				828,606				751,857				195,369				975,326				316,182				316,024
SQM Industrial S.A.			1,212,960				658,277				882,593				97,714				600,075				17,262				21,790
Exploraciones Mineras S.A.			510				31,598				6,027				-				-				(286	)			(284	)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S,A.			337				632				614				291				2,265				85				-
Soquimich Comercial S.A.			153,068				14,663				38,533				1,115				134,501				6,041				6,020
Comercial Agrorama Ltda.			10,759				1,589				11,644				35				15,185				(356	)			(341	)
Comercial Hydro S.A.			5,242				56				115				15				47				350				350
Agrorama S.A.			12,348				842				14,078				37				16,462				(582	)			(584	)
Orcoma SpA			-				2,360				14				-				-				(1	)			(1	)
Orcoma Estudio SpA			671				4,135				159				-				-				4				4
SQM North America Corp.			175,834				15,621				204,201				485				228,229				(27,821	)			(29,082	)
RS Agro Chemical Trading Corporation A.V.V.			5,179				-				8				-				-				(23	)			(23	)
Nitratos Naturais do Chile Ltda.			6				251				3,456				-				-				(175	)			(175	)
Nitrate Corporation of Chile Ltd.			5,076				-				-				-				-				-				-
SQM Corporation N.V.			668				116,267				3,568				-				-				2,479				5,819
SQM Peru S.A.			249				1				1,170				-				8				(165	)			(165	)
SQM Ecuador S.A.			18,870				121				17,538				41				24,161				471				471
SQM Brasil Ltda.			200				1				714				2,266				296				(173	)			(173	)
SQI Corporation N.V.			-				23				55				-				-				(17	)			(17	)
SQMC Holding Corporation L.L.P.			23,135				13,936				1,000				-				-				1,977				1,977
SQM Japan Co. Ltd.			2,868				276				6,708				561				3,013				(7,615	)			(7,615	)

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries, continued

 

12/31/2016
		Assets								Liabilities																Comprehensive
Subsidiary		Current				Non-current				Current				Non-current				Revenue				Profit (loss)				income (loss)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Europe N.V.			365,805				2,510				317,147				-				723,192				6,118				8,075
SQM Italia SRL			1,086				-				14				-				-				-				-
SQM Indonesia S.A.			3				-				1				-				-				-				-
North American Trading Company			158				145				39				-				-				-				-
SQM Virginia LLC			14,811				14,357				14,811				-				-				(3	)			(3	)
SQM Comercial de México S.A. de C.V.			73,791				2,200				49,048				-				186,769				(1,757	)			(1,757	)
SQM Investment Corporation N.V.			53,037				117				6,191				863				-				(5,441	)			(5,441	)
Royal Seed Trading Corporation A.V.V.			28,662				-				49,788				-				-				(914	)			(719	)
SQM Lithium Specialties LLP			15,763				3				1,264				-				-				(3	)			(3	)
Soquimich SRL Argentina			209				-				177				-				-				(12	)			(12	)
Comercial Caimán Internacional S.A.			259				-				1,122				-				-				(2	)			(2	)
SQM France S.A.			345				6				114				-				-				-				-
Administración y Servicios Santiago S.A. de C.V.			148				24				504				55				2,687				268				268
SQM Nitratos México S.A. de C.V.			41				1				24				6				266				(2	)			(2	)
Soquimich European Holding B.V.			55,198				115,761				65,005				3,142				-				1,025				5,581
SQM Iberian S.A.			81,119				1,709				73,198				-				146,677				3,501				9,464
SQM Africa Pty Ltd.			89,627				1,399				84,292				-				92,122				(7,627	)			(7,627	)
SQM Oceanía Pty Ltd.			2,387				-				570				-				2,383				(99	)			(99	)
SQM Agro India Pvt. Ltd.			1				-				1				-				-				(3	)			(3	)
SQM Beijing Commercial Co. Ltd.			2,285				30				171				-				5,106				(34	)			(34	)
SQM Thailand Limited			10,228				5				7,288				-				5,579				319				319
SQM Vitas Spain S.A.			2,287				686				1,583				-				13,673				157				253
Total			4,137,420				2,643,568				3,406,703				332,549				3,341,563				556,286				575,411

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries, continued

 

12/31/2015
		Assets								Liabilities																Comprehensive
Subsidiary		Current				Non-current				Current				Non-current				Revenue				Profit (loss)				income (loss)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Nitratos S.A.			521,948				69,159				531,903				7,913				146,731				(715	)			(739	)
Proinsa Ltda.			149				-				-				-				-				-				-
SQMC Internacional Ltda.			195				-				-				-				-				(1	)			(1	)
SQM Potasio S.A.			90,230				843,842				7,748				23,438				10,785				184,315				184,533
Serv. Integrales de Tránsito y Transf. S.A.			46,646				63,973				81,703				6,642				44,045				(12,450	)			(12,316	)
Isapre Norte Grande Ltda.			791				540				664				143				3,883				-				6
Ajay SQM Chile S.A.			17,044				942				879				563				38,414				3,165				3,165
Almacenes y Depósitos Ltda.			264				41				-				-				-				(12	)			(77	)
SQM Salar S.A.			625,239				885,904				474,225				201,581				762,058				193,367				193,300
SQM Industrial S.A.			1,030,937				702,192				741,820				83,751				685,634				19,144				11,224
Exploraciones Mineras S.A.			482				31,443				5,560				-				-				(666	)			(666	)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S,A.			296				550				423				364				2,299				(130	)			12
Soquimich Comercial S.A.			138,413				22,447				33,058				1,037				162,582				6,618				6,301
Comercial Agrorama Ltda.			10,231				1,554				10,796				16				13,806				11				12
Comercial Hydro S.A.			9,014				87				122				-				50				460				460
Agrorama S.A.			12,848				595				13,759				16				15,131				(380	)			(380	)
Orcoma SpA			-				2,356				9				-				-				(8	)			(8	)
Orcoma Estudio SpA			2,059				2,931				347				-				-				9				9
SQM North America Corp.			200,156				16,348				201,343				-				255,455				(12,774	)			(12,774	)
RS Agro Chemical Trading Corporation A.V.V.			5,194				-				-				-				-				(7	)			(7	)
Nitratos Naturais do Chile Ltda.			2				229				3,255				-				-				618				618
Nitrate Corporation of Chile Ltd.			5,076				-				-				-				-				-				-
SQM Corporation N.V.			668				115,720				3,539				-				-				4,882				303
SQM Peru S.A.			421				1				1,176				-				22				(104	)			(104	)
SQM Ecuador S.A.			19,660				147				18,883				35				16,778				447				447
SQM Brasil Ltda.			121				1				585				2,142				375				(2,694	)			(2,694	)
SQI Corporation N.V.			-				23				38				-				-				53				52
SQMC Holding Corporation L.L.P.			21,296				13,873				1,000				-				-				2,044				2,044
SQM Japan Co. Ltd.			2,327				211				239				495				2,861				159				159

 

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.6

Information on consolidated subsidiaries, continued

 

12/31/2015
		Assets								Liabilities																Comprehensive
Subsidiary		Current				Non-current				Current				Non-current				Revenue				Profit (loss)				income (loss)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Europe N.V.			315,642				2,111				273,123				-				530,912				(5,536	)			(5,536	)
SQM Italia SRL			1,124				-				14				-				-				-				-
SQM Indonesia S.A.			3				-				1				-				-				-				-
North American Trading Company			158				145				39				-				-				(1	)			(1	)
SQM Virginia LLC			14,814				14,360				14,814				-				-				(7	)			(7	)
SQM Comercial de México S.A. de C.V.			87,686				1,710				61,589				-				183,374				(3,399	)			(3,399	)
SQM Investment Corporation N.V.			81,328				130				29,054				861				-				17,865				17,865
Royal Seed Trading Corporation A.V.V.			72,828				-				93,235				-				-				(3,490	)			(3,089	)
SQM Lithium Specialties LLP			15,766				3				1,264				-				-				(7	)			(7	)
Soquimich SRL Argentina			243				-				199				-				-				(135	)			(135	)
Comercial Caimán Internacional S.A.			261				-				1,122				-				-				(5	)			(5	)
SQM France S.A.			345				6				114				-				-				-				-
Administración y Servicios Santiago S.A. de C.V.			167				-				635				227				3,094				(90	)			(90	)
SQM Nitratos México S.A. de C.V.			40				4				25				6				291				4				4
Soquimich European Holding B.V.			71,166				112,488				79,906				-				-				3,245				(1,881	)
SQM Iberian S.A.			55,444				65				50,169				-				137,869				11				11
SQM Africa Pty Ltd.			94,508				1,372				81,552				-				88,247				4,945				4,945
SQM Oceania Pty Ltd.			2,357				-				440				-				2,378				(192	)			(192	)
SQM Agro India Pvt, Ltd.			3				-				-				-				-				(1	)			(1	)
SQM Beijing Commercial Co. Ltd.			2,827				43				608				-				5,373				(58	)			(58	)
SQM Thailand Limited			9,765				27				6,991				-				11,539				125				125
Total			3,588,182				2,907,573				2,827,968				329,230				3,123,986				398,625				381,428

 

 

Note 6

Background of companies included in consolidation (continued)

 

6.7

Detail of transactions between consolidated companies

 

a)

Transactions conducted in 2016

 

On May 12, 2016, the subsidiary SQM Iberian S.A. acquired 100% of interest in SQM Vitas Spain for ThUS$ 1,710.

 

b)

Transactions conducted in 2015

 

On August 5, 2015, the subsidiary SQM Brasil Ltda. made a capital contribution of ThUS$572 in its subsidiary Nitratos Naturais do Chile Ltda. As a result of such transaction, SQM Brasil Ltda. increased its interest from 0.001% to 70.82% in such company. SQM Industrial S.A. was not involved in such capital increase, decreasing its interest from 99.99% to 29.18%. This generated no effects on the consolidated profit or loss of SQM S.A.

 

 

Note 7

Cash and cash equivalents

 

7.1

Types of cash and cash equivalents

 

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

 

		12/31/2016				12/31/20151
a)     Cash		ThUS$				ThUS$
Cash on hand			53				87
Cash in banks			80,287				31,977
Other demand deposits			1,260				9,042
Total cash			81,600				41,106

 

		12/31/2016				12/31/2015
b)      Cash equivalents		ThUS$				ThUS$
Short-term deposits, classified as cash equivalents			95,673				84,662
Short-term investments, classified as cash equivalents			337,396				401,491
Total cash equivalents			433,069				486,153
Total cash and cash equivalents			514,669				527,259

 

7.2

Short-term investments, classified as cash equivalents

 

As of December 31, 2016 and December 31, 2015, short-term investments, classified as cash and cash equivalents relate to mutual funds (investment liquidity funds) for investments in:

 

		12/31/2016				12/31/2015
Institution		ThUS$				ThUS$
Legg Mason - Western Asset Institutional Cash Reserves			178,446				204,082
JP Morgan US dollar Liquidity Fund Institutional			158,950				197,409
Total			337,396				401,491

 

Short-term investments are highly liquid fund manager accounts that are basically invested in short-term fixed rate notes in the U.S. market.

 

 

Note 7

Cash and cash equivalents (continued)

 

7.3

Information on cash and cash equivalents by currency

 

As of December 31, 2016 and December 31, 2015, information on cash and cash equivalents by currency is detailed as follows:

 

		12/31/2016				12/31/2015
Original currency		ThUS$				ThUS$
Chilean Peso (*)			6,044				2,656
US Dollar			490,978				512,809
Euro			11,386				4,245
Mexican Peso			309				1,439
South African Rand			3,250				4,123
Japanese Yen			2,149				1,690
Peruvian Sol			3				1
Brazilian Real			59				8
Chinese Yuan			400				272
Indian Rupee			8				14
Thai Baht			8				1
Argentine Peso			4				1
Pound Sterling			71				-
Total			514,669				527,259

 

(*)The Company maintains financial derivative policies which allow to minimize the risk of the variation in Chilean pesos exchange rate .

 

7.4

Amount restricted (unavailable) cash balances

 

Cash on hand and in current bank accounts are available resources, and their carrying value is equal to their fair value.

 

As of December 31, 2016 and December 31, 2015, restricted cash balances are presented in Note 10.9.

 

 

Note 7

Cash and cash equivalents (continued)

 

7.5

Short-term deposits, classified as cash equivalents

 

The detail at the end of each period is as follows:

 

2016 Receiver of the deposit		Type of deposit		Original Currency		Interest rate				Placement date		Expiration date		Principal				Interest accrued to-date				12/31/2016
														ThUS$				ThUS$				ThUS$
Banco Santander		Fixed term		US$			1.28			12/29/2016		1/31/2017			9,900				1				9,901
Banco Crédito e Inversiones		Fixed term		US$			0.90			12/30/2016		1/9/2017			15,000				1				15,001
Banco Santander		Fixed term		US$			0.90			12/30/2016		1/10/2017			10,000				-				10,000
Scotiabank Sud Americano		Fixed term		US$			0.93			10/11/2016		1/30/2017			13,000				27				13,027
Banco de Chile		Fixed term		US$			0.75			10/11/2016		1/30/2017			2,000				3				2,003
Corpbanca		Fixed term		US$			1.21			12/1/2016		1/3/2017			3,500				4				3,504
Banco Santander - Santiago		Fixed term		US$			0.76			12/7/2016		1/6/2017			3,900				2				3,902
Banco Crédito e Inversiones		Fixed term		US$			0.90			12/12/2016		1/12/2017			5,000				2				5,002
Corpbanca		Fixed term		US$			1.30			12/12/2016		1/12/2017			1,700				1				1,701
Banco Crédito e Inversiones		Fixed term		US$			0.88			12/14/2016		1/17/2017			2,000				1				2,001
Banco Santander - Santiago		Fixed term		US$			1.28			12/20/2016		2/21/2017			800				-				800
Banco Santander - Santiago		Fixed term		US$			1.28			12/20/2016		2/21/2017			5,000				2				5,002
Banco BBVA Chile		Fixed term		US$			0.75			12/22/2016		1/23/2017			3,500				1				3,501
Banco de Chile		Fixed term		US$			1.25			12/28/2016		2/9/2017			3,900				1				3,901
Banco Santander - Santiago		Fixed term		US$			1.31			12/28/2016		2/9/2017			3,300				-				3,300
Banco Crédito e Inversiones		Fixed term		US$			1.00			12/29/2016		1/30/2017			3,800				-				3,800
Corpbanca		Fixed term		Ch$			0.31			12/16/2016		1/2/2017			1,942				3				1,945
Scotiabank Sud Americano		Fixed term		Ch$			0.32			12/29/2016		1/9/2017			597				1				598
Scotiabank Sud Americano		Fixed term		Ch$			0.33			12/30/2016		1/9/2017			2,091				-				2,091
Citibank New York		Overnight		US$			0.01			12/31/2016		1/1/2017			1,742				-				1,742
BBVA Banco Francés		Fixed term		US$			0.21			24/102016		1/31/2017			199				-				199
Nedbank		On demand		US$			-			12/1/2016		1/31/2017			2,752				-				2,752
Total															95,623				50				95,673

 

2015 Receiver of the deposit		Type of deposit		Original Currency		Interest rate				Placement date		Expiration date		Principal				Interest accrued to-date				12/31/2015
														ThUS$				ThUS$				ThUS$
Banco Crédito e Inversiones		Fixed term		US$			0.50			12/23/2015		1/27/2016			50,000				6				50,006
Corpbanca		Fixed term		US$			0.65			12/22/2015		1/21/2016			25,000				4				25,004
Banco Crédito e Inversiones		Fixed term		Ch$			0.32			12/30/2015		1/14/2016			1,338				-				1,338
Banco Santander Santiago		Fixed term		Ch$			0.31			12/30/2015		1/14/2016			704				-				704
Banco Crédito e Inversiones		Fixed term		US$			0.30			12/11/2015		1/11/2016			1,000				-				1,000
Citibank New York		Overnight		US$			0.01			12/31/2015		1/2/2016			225				-				225
Citibank New York		Overnight		US$			0.01			12/31/2015		1/2/2016			614				-				614
BBVA Banco Francés		Fixed term		US$			19.00			12/2/2015		1/4/2016			236				-				236
ABN Amro Bank		On demand		Euro			-			12/31/2015		1/2/2016			1,240				-				1,240
Nedbank		On demand		US$			-			12/31/2015		1/2/2016			4,295				-				4,295
Total															84,652				10				84,662

 

 

Note 8

Inventories

 

The composition of inventory at each period-end is as follows:

 

Type of inventory		12/31/2016 ThUS$				12/31/2015 ThUS$
Raw material reserves			7,536				4,844
Supplies for production reserves			23,610				29,353
Products-in-progress reserves			482,261				478,627
Finished product reserves			479,665				491,022
Total			993,072				1,003,846

 

As of December 31, 2016, the Company had inventories of caliche ore available for processing for ThUS$43,400 (ThUS$ 32,203 as of December 31, 2015).

 

As of December 31, 2016, the sum registered as cost of sale related to inventory in the statement of income amounts to ThUS$1,116,057 and to ThUS$1,070,387 as of December 31, 2015.

 

Inventory reserves recognized as of December 31, 2016 amount to ThUS$81,295, and ThUS$80,369 as of December 31, 2015. Inventory reserves have been made based on a technical study that covers the different variables affecting products in stock (density and humidity, among others). Additionally, reserves are recognized if goods are sold cheaper than the related cost, and for differences that arise from inventory counts.

 

The breakdown of inventory reserves is detailed as follows:

 

Type of inventory		12/31/2016 ThUS$				12/31/2015 ThUS$
Raw material reserves			93				93
Supplies for production reserves			920				920
Products-in-progress reserves			52,843				53,187
Finished product reserves			27,439				26,169
Total			81,295				80,369

 

The Company has not delivered inventory as collateral for the periods indicated above.

 

 

Note 8

Inventories, continued

 

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

 

Reconciliation		12/31/2016				12/31/2015
		ThUS$				ThUS $
Opening balance			80,369				82,966
Changes
Additional provisions			33,118				18,461
Increase (decrease) in existing provisions			(32,192	)			(21,058	)
Total changes			926				(2,597	)
Total			81,295				80,369

 

Note 9

Related party disclosures

 

9.1

Related party disclosures

 

Balances pending at period-end are not guaranteed, accrue no interest and are settled in cash. No guarantees have been delivered or received for trade and other receivables due from related parties or trade and other payables due to related parties. For the period ended December 31, 2016, the Company has not recorded any impairment in accounts receivable related to amounts owed by related parties. This evaluation is conducted every year through an examination of the financial position of the related party in the market in which it operates.

 

9.2

Relationships between the parent and the entity

 

According to the Company’s by-laws, no shareholder can own more than 32% of the Company’s voting right shares.

 

Sociedad de Inversiones Pampa Calichera S.A., Potasios de Chile S.A., and Inversiones Global Mining (Chile) Ltda., collectively the Pampa Group, are the owners of a number of shares that are equivalent to 29.97% as of December 31, 2016 of the current total amount of shares issued, subscribed and fully-paid of the Company. In addition, Kowa Company Ltd., Inversiones La Esperanza (Chile) Limitada, Kochi S.A. and La Esperanza Delaware Corporation, collectively the Kowa Group, are the owners of a number of shares equivalent to 2.12% of the total amount of shares of SQM S.A. issued, subscribed and fully-paid.

 

The Pampa Group and the Kowa Group have informed SQM S.A., the Chilean SVS and the relevant stock exchanges in Chile and abroad that they are not and have never been related parties between them. In addition, this is regardless of the fact that both Groups on December 21, 2006 have entered into a Joint Action Agreement (JAA) related to those shares. Consequently, the Pampa Group, by itself, does not concentrate more than 32% of the voting right capital of SQM S.A., and the Kowa Group does not concentrate by itself more than 32% of the voting right capital of SQM S.A.

 

Likewise, the Joint Action Agreement has not transformed the Pampa and Kowa Groups into related parties between them. The Joint Action Agreement has only transformed the current controller of SQM S.A., composed of the Pampa Group, and the Kowa Group into related parties of SQM S.A.

 

 

Note 9

Related party disclosures (continued)

 

9.2

Relationships between the parent and the entity, continued

 

Detail of effective concentration

 

Tax ID No.		Name		Ownership interest %
96.511.530-7		Sociedad de Inversiones Pampa Calichera S.A.			19.72
76.165.311-5		Potasios de Chile S.A.			6.91
96.863.960-9		Inversiones Global Mining (Chile) Ltda.			3.34
Total Pampa Group					29.97
79.798.650-k		Inversiones la Esperanza (Chile) Ltda.			1.43
59.046.730-8		Kowa Co Ltd.			0.30
96.518.570-4		Kochi S.A.			0.30
59.023.690-k		La Esperanza Delaware Corporation			0.09
Total Kowa Group					2.12

 

 

Note 9

Related party disclosures (continued)

 

9.3

Detailed identification of the link between the Parent and subsidiary

 

As of December 31, 2016 and December 31, 2015, the detail of entities that are related parties of the SQM S.A. Group is as follows:

 

Tax ID No.	Name	Country of origin	Functional currency	Nature
Foreign	Nitratos Naturais Do Chile Ltda.	Brazil	US$	Subsidiary
Foreign	Nitrate Corporation Of Chile Ltd.	United Kingdom	US$	Subsidiary
Foreign	SQM North America Corp.	United States	US$	Subsidiary
Foreign	SQM Europe N.V.	Belgium	US$	Subsidiary
Foreign	Soquimich S.R.L. Argentina	Argentina	US$	Subsidiary
Foreign	Soquimich European Holding B.V.	The Netherlands	US$	Subsidiary
Foreign	SQM Corporation N.V.	The Netherlands	US$	Subsidiary
Foreign	SQI Corporation N.V.	The Netherlands	US$	Subsidiary
Foreign	SQM Comercial De México S.A. de C.V.	Mexico	US$	Subsidiary
Foreign	North American Trading Company	United States	US$	Subsidiary
Foreign	Administración y Servicios Santiago S.A. de C.V.	Mexico	US$	Subsidiary
Foreign	SQM Peru S.A.	Peru	US$	Subsidiary
Foreign	SQM Ecuador S.A.	Ecuador	US$	Subsidiary
Foreign	SQM Nitratos Mexico S.A. de C.V.	Mexico	US$	Subsidiary
Foreign	SQMC Holding Corporation L.L.P.	United States	US$	Subsidiary
Foreign	SQM Investment Corporation N.V.	The Netherlands	US$	Subsidiary
Foreign	SQM Brasil Limitada	Brazil	US$	Subsidiary
Foreign	SQM France S.A.	France	US$	Subsidiary
Foreign	SQM Japan Co.  Ltd.	Japan	US$	Subsidiary
Foreign	Royal Seed Trading Corporation A.V.V.	Aruba	US$	Subsidiary
Foreign	SQM Oceania Pty Limited	Australia	US$	Subsidiary
Foreign	Rs Agro-Chemical Trading Corporation A.V.V.	Aruba	US$	Subsidiary
Foreign	SQM Indonesia S.A.	Indonesia	US$	Subsidiary
Foreign	SQM Virginia L.L.C.	United States	US$	Subsidiary
Foreign	SQM Italia SRL	Italy	US$	Subsidiary
Foreign	Comercial Caiman Internacional S.A.	Panamá	US$	Subsidiary
Foreign	SQM Africa Pty. Ltd.	South Africa	US$	Subsidiary
Foreign	SQM Lithium Specialties LLC	United States	US$	Subsidiary
Foreign	SQM Iberian S.A.	Spain	US$	Subsidiary
Foreign	SQM Agro India Pvt. Ltd.	India	US$	Subsidiary
Foreign	SQM Beijing Commercial Co. Ltd.	China	US$	Subsidiary
Foreign	SQM Thailand Limited	Thailand	US$	Subsidiary
Foreign	SQM Vitas Spain (2)	Spain	US$	Subsidiary
96.801.610-5	Comercial Hydro  S.A.	Chile	Chilean peso	Subsidiary
96.651.060-9	SQM Potasio S.A.	Chile	US$	Subsidiary
96.592.190-7	SQM Nitratos S.A.	Chile	US$	Subsidiary
96.592.180-K	Ajay SQM Chile S.A.	Chile	US$	Subsidiary

 

 

Note 9

Related party disclosures (continued)

 

9.3

Detailed identification of the link between the Parent and subsidiary, continued

 

As of December 31, 2016 and December 31, 2015, the detail of entities that are a related parties of the SQM S.A: Group is as follows:

 

Tax ID No.	Name	Country of origin	Functional currency	Nature
86.630.200-6	SQMC Internacional Ltda.	Chile	Chilean peso	Subsidiary
79.947.100-0	SQM Industrial S.A.	Chile	US$	Subsidiary
79.906.120-1	Isapre Norte Grande Ltda.	Chile	Chilean peso	Subsidiary
79.876.080-7	Almacenes y Depósitos Ltda.	Chile	Chilean peso	Subsidiary
79.770.780-5	Servicios Integrales de Tránsitos y Transferencias S.A.	Chile	US$	Subsidiary
79.768.170-9	Soquimich Comercial S.A.	Chile	US$	Subsidiary
79.626.800-K	SQM Salar S.A.	Chile	US$	Subsidiary
78.053.910-0	Proinsa Ltda.	Chile	Chilean peso	Subsidiary
76.534.490-5	Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.	Chile	Chilean peso	Subsidiary
76.425.380-9	Exploraciones Mineras S.A.	Chile	US$	Subsidiary
76.064.419-6	Comercial Agrorama Ltda.	Chile	Chilean peso	Subsidiary
76.145.229-0	Agrorama S.A.	Chile	Chilean peso	Subsidiary
76.359.919-1	Orcoma Estudios SPA	Chile	US$	Subsidiary
76.360.575-2	Orcoma SPA	Chile	US$	Subsidiary
77.557.430-5	Sales de Magnesio Ltda.	Chile	Chilean peso	Associate
Foreign	Abu Dhabi Fertilizer Industries WWL	Arab Emirates	Arab Emirates dirham	Associate
Foreign	Doktor Tarsa Tarim Sanayi AS	Turkey	Turkish lira	Associate
Foreign	Ajay North America	United States	US$	Associate
Foreign	Ajay Europe SARL	France	Euro	Associate
Foreign	SQM Eastmed Turkey	Turkey	Euro	Associate
Foreign	Charlee SQM Thailand Co. Ltd.	Thailand	Thai baht	Associate
Foreign	Sichuan SQM Migao Chemical Fertilizers Co Ltda.	China	US$	Joint venture
Foreign	Coromandel SQM India	India	Indian rupee	Joint venture
Foreign	SQM Vitas Fzco.	Arab Emirates	Arab Emirates dirham	Joint venture
Foreign	SQM Star Qingdao Corp Nutrition Co., Ltd.	China	US$	Joint venture
Foreign	SQM Vitas Holland B.V.	Dutch Antilles	Euro	Joint venture
Foreign	Kowa Company Ltd.	Japan	US$	Joint control
96.511.530-7	Sociedad de Inversiones Pampa Calichera	Chile	US$	Joint control
96.529.340-k	Norte Grande S.A.	Chile	Chilean peso	Other related parties
79.049.778-9	Callegari Agricola S.A.	Chile	Chilean peso	Other related parties
Foreign	Coromandel Internacional	India	Indian rupee	Other related parties
Foreign	Vitas Roullier SAS	France	Euro	Other related parties
Foreign	SQM Vitas Brazil Agroindustria	Brazil	US$	Joint control or significant influence
Foreign	SQM Vitas Peru S.A.C.	Peru	US$	Joint control or significant influence
Foreign	SQM Vitas Plantacote B.V	Dutch Antilles	Euro	Joint control or significant influence
Foreign	Minera Exar S.A.	Argentina	US$	Joint venture
Foreign	SQM Vitas Southern Africa Pty.(1)	South Africa	US$	Joint control or significant influence

 

(1)

During June 2015, SQM Vitas Fzco. sold the ownership it had in SQM Vitas Southern Africa Pty., generating a loss of ThUS$450.

 

(2)

During May 2016, SQM Vitas Holland B.V. sold the interest it had in SQM Vitas Spain, to SQM Iberian S.A. resulting in the latter obtaining 100% of the interest through such transaction, which generated a loss of ThUS$ 104.

 

(3)

During December 2016, SQM Salar S.A. sold the interest it had in Sales de Magnesio Ltda. to Rock Litio Ltda. This transaction generated a gain of ThUS$7,635.

 

 

Note 9

Related party disclosures (continued)

 

9.4

Detail of related parties and related party transactions

 

Transactions between the Parent and its subsidiaries are part of the Company's common transactions. Their conditions are those customary for this type of transactions in respect of terms and market prices. In addition, these have been eliminated in consolidation and are not detailed in this note.

 

Maturity terms for each case vary by virtue of the transaction giving rise to them.

 

As of December 31, 2016 and December 31, 2015, there are no allowances for doubtful accounts related to balances pending of transactions with related parties as there is no impairment in them.

 

As of December 31, 2016 and December 31, 2015, the detail of significant transactions with related parties is as follows:

 

Tax ID No.

Company

Nature

Country of origin

Transaction

12/31/2016 ThUS$

12/31/2015 ThUS$

Foreign

Doktor Tarsa Tarim Sanayi As

Associate

Turkey

Sale of products

11,619

17,842

Foreign

Ajay Europe S,A.R.L.

Associate

France

Sale of products

17,977

23,545

Foreign

Ajay Europe S.A.R.L.

Associate

France

Dividends

1,338

1,748

Foreign

Ajay North America LLC.

Associate

United States

Sale of products

12,865

15,618

Foreign

Ajay North America LLC.

Associate

United States

Dividends

2,605

5,185

Foreign

Abu Dhabi Fertilizer Industries WWL

Associate

United Arab Emirates

Sale of products

8,312

7,902

Foreign

Charlee SQM Thailand Co. Ltd.

Associate

Thailand

Sale of products

3,798

5,557

Foreign

Charlee SQM Thailand Co. Ltd.

Associate

Thailand

Dividends

-

296

77.557.430-5

Sales de Magnesio Ltda.

Associate

Chile

Sale of products

-

1,187

77.557.430-5

Sales de Magnesio Ltda.

Associate

Chile

Dividends

-

286

77.557.430-5

Sales de Magnesio Ltda.

Associate

Chile

Sale of services

-

34

Foreign

Kowa Company Ltd.

Other related parties

Japan

Sale of products

91,678

62,543

Foreign

Kowa Company Ltd.

Other related parties

Japan

Services received

(933

)

Foreign

SQM Vitas Brasil Agroindustria

Joint control or significant influence

Brazil

Sale of products

17,686

32,019

Foreign

SQM Vitas Peru S.A.C.

Joint control or significant influence

Peru

Sale of products

22,090

34,586

Foreign

SQM Vitas Southern Africa Pty.

Joint control or significant influence

South Africa

Sale of products

-

2,187

Foreign

SQM Vitas Fzco.

Joint venture

United Arab Emirates

Sale of products

965

1,060

Foreign

Sichuan SQM Migao Chemical Fertilizers Co Ltda.

Joint venture

China

Sale of products

9,950

22,624

Foreign

Sichuan SQM Migao Chemical Fertilizers Co Ltda.

Joint venture

China

Sale of services

257

-

Foreign

Coromandel SQM India

Joint venture

India

Sale of products

4,630

4,012

Foreign

SQM Vitas Spain

Joint venture

Spain

Sale of products

5,528

8,587

Foreign

SQM Vitas Plantacote B.V.

Joint venture

Netherlands

Sale of products

49

27

Foreign

SQM Star Qingdao Corp Nutrition Co., Ltd.

Joint venture

China

Sale of products

166

-

Foreign

SQM Vitas Holland B.V.

Joint venture

Holland

Sale of products

634

 

 

Note 9

Related party disclosures (continued)

 

9.5

Trade receivables due from related parties, current:

 

Tax ID N°

Company

Nature

Country of origin

Currency

12/31/2016

12/31/2015

ThUS$

ThUS$

77.557.430-5

Sales de Magnesio Ltda.

Associate

Chile

Ch$

-

377

Foreign

Charlee SQM Thailand Co. Ltd.

Associate

Thailand

US$

1.315

2.338

Foreign

Ajay Europe S.A.R.L.

Associate

France

Euro

3.801

3.031

Foreign

Ajay North America LLC.

Associate

United States

US$

3.095

2.538

Foreign

Abu Dhabi Fertilizer Industries WWL

Associate

United Arab Emirates

Arab Emirates dirham

764

772

Foreign

Doktor Tarsa Tarim Sanayi AS

Associate

Turkey

YTL

-

9.314

Foreign

Kowa Company Ltd.

Jointly controlled entity

Japan

US$

34.377

23.465

96.511.530-7

Soc.de Inversiones Pampa Calichera

Jointly controlled entity

Chile

US$

6

6

Foreign

SQM Vitas Brasil Agroindustria

Joint venture

Brazil

US$

9.580

19.156

Foreign

SQM Vitas Peru S.A.C.

Joint venture

Peru

US$

13.318

16.026

Foreign

Coromandel SQM India

Joint venture

India

Indian rupee

1.177

750

Foreign

Sichuan SQM Migao Chemical Fertilizers Co Ltda.

Joint venture

China

US$

14.547

21.464

79.049.778-9

Callegari Agrícola S.A.

Other related parties

Chile

Ch$

41

52

Foreign

SQM Vitas Fzco.

Joint venture

United Arab Emirates

Arab Emirates dirham

97

-

Foreign

SQM Vitas Spain

Joint venture

Spain

Euro

-

566

Foreign

SQM Vitas Plantacote B.V.

Joint venture

Holland

Euro

91

-

Foreign

SQM Star Qingdao Corp Nutrition Co., Ltd.

Joint venture

China

US$

48

52

Foreign

Plantacote N.V.

Associate

Belgium

Euro

2

-

Total

82.259

99.907

 

9.6

Trade payables due to related parties, current:

 

Tax ID No.

Company.

Nature

Country of origin

Currency

12/31/2016 ThUS$

12/31/2015 ThUS$

Foreign

Doktor Tarsa Tarim Sanayi AS

Associate

Turkey

YTL

7

-

Foreign

SQM Vitas Fzco.

Joint venture

Arab Emirates

Arab Emirates dirham

-

251

Foreign

SQM Vitas Plantacote B.V.

Joint venture

Holland

Euro

-

184

Total as of to-date

7

435

 

 

Note 9

Related party disclosures (continued)

 

9.7

Board of Directors and Senior Management

 

1)

Board of directors

 

SQM S.A. is managed by a Board of Directors which is composed of 8 regular directors, 2 of which are independent directors, who are elected for a three-year period. The present Board of Directors was elected by the shareholders at the Ordinary Shareholders' Meeting of April 26, 2016.

 

As of December 31, 2016, the Company has the following Committees:

 

-

Directors’ Committee: composed of Hans Dieter Linneberg A. and Edward J. Waitzer, Julio Rebolledo D. Such Committee performs the duties contained in Article 50 bis of Law No. 18.046, the Chilean “Securities Act”.

 

-

Audit Committee: composed of Hans Dieter Linneberg A. and Edward J. Waitzer, Julio Rebolledo D.

 

-

Health, Safety and Environmental Matters Committee: composed of Mrs. Joanne L. Boyes, Gonzalo Guerrero Y. and Arnfinn F. Prugger.

 

-

Corporate Governance Committee: composed of Edward J. Waitzer, Robert A. Kirkpatrick, and Hans Dieter Linneberg A.

 

During the periods covered by these financial statements, there are no pending balances receivable and payable between the Company, its directors or members of Senior Management other than those related to remuneration, fee allowances and profit-sharing. In addition, there were no transactions conducted between the Company, its directors or members of Senior Management.

 

 

Note 9

Related party disclosures (continued)

 

9.7

Board of Directors and Senior Management, continued

 

2)

Directors’ Compensation

 

Directors’ compensation is detailed as follows:

 

a)

The payment of a fixed, gross and monthly amount of three hundred Unidades de Fomento (inflation-adjusted units) in favor the Chairman of the Board of Directors of SQM S.A. and of two hundred Unidades de Fomento in favor of each of the remaining seven directors of SQM S.A. regardless of the number of Meetings held or not held during the related month and for the periods between May 1, 2016 and April 30, 2017.

 

b)

A payment in domestic currency in favor of the Chairman of the Company’s Board of Directors consisting of a variable and gross amount equivalent to 0.135% of profit for the period effectively earned by the Company during fiscal year 2016.

 

c)

A payment in domestic currency in favor of each Company’s directors excluding the Chairman of the Board, consisting of a variable and gross amount equivalent to 0.06% of profit for the period effectively earned by the Company during fiscal years 2016.

 

d)

The fixed and variable amounts indicated above will not be subject to any challenge between them and those expressed in percentages will be paid after the related General Shareholders’ Meeting of SQM S.A. approves the Balance Sheet, Financial Statements, Annual Report, the Account Inspectors’ Report and Independent Auditor’s Report of SQM S.A. for the commercial year ended December 31, 2016.

 

e)

The amounts expressed in UF will be paid in accordance with the value determined by the Chilean Superintendence of Banks and Financial Institutions (SBIF), the Central Bank of Chile (Banco Central de Chile) or another relevant institution replacing them during the last day of the calendar year applicable. The amounts reflected in or referred to in U.S. dollars will be converted to Chilean pesos and paid in Chilean pesos in accordance with the exchange rate with which the dividend declared for the commercial year 2016 is paid.

 

f)

Therefore, the remunerations and profit sharing paid to members of the Board of Directors and Audit Committee during 2016 amount to ThUS$2,292 (ThUS$ 2,769 as of December 31, 2015).

 

3)

Audit Committee

 

The remuneration of Directors Committee is composed of:

 

a)

The payment of a fixed, gross and monthly amount of three seventy-five Unidades de Fomento (inflation-adjusted units) in favor the three Directors that are members of the Director’s Committee regardless of the number of Meetings held or not held during the related month and for the periods between May 1, 2016 and April 30, 2017.

 

b)

A payment in domestic currency in favor of each of the three Directors consisting of a variable and gross amount equivalent to 0.02% of profit for the period effectively earned by the Company during fiscal year 2016 resulting after deducting the relevant amount for the concept of the amortization of gain from bargain purchase and regardless of the number of Meetings held or not held by the Directors’ Committee during such year.

 

 

Note 9

Related party disclosures (continued)

 

9.7

Board of Directors and Senior Management, continued

 

c)

The fixed and variable amounts indicated above will not be subject to any challenge between them and those expressed in percentages will be paid after the related General Shareholders’ Meeting of SQM S.A. approves the Balance Sheet, Financial Statements, Annual Report, the Account Inspectors’ Report and Independent Auditor’s Report of SQM S.A. for the commercial year ended December 31, 2016.

 

d)

The amounts expressed in UF will be paid in accordance with the value determined by the Chilean Superintendence of Banks and Financial Institutions (SBIF), the Central Bank of Chile (Banco Central de Chile) or another relevant institution replacing them during the last day of the calendar year applicable. The amounts reflected in or referred to in U.S. dollars will be converted to Chilean pesos and paid in Chilean pesos in accordance with the exchange rate with which the dividend declared for the commercial year 2016 is paid.

 

4) Corporate Governance Committee, Health, Safety and Environmental Matters Committee and other Company’s Committees

 

Remuneration of such committees is composed of the payment of a fixed, gross, monthly amount of UF 50 for each director comprising such committees, regardless of the number of meetings held or not held during the related month or year.

 

5)

No guarantees have been constituted in favor of the directors.

 

6)

Senior management compensation:

 

a)

As of December 31, 2016, the global compensation paid to the 105 main executives amounts to ThUS$20,439 and the global compensation paid to the 103 main executives as of December 31, 2015 amounted to ThUS$19,355. This includes monthly fixed salary and variable performance bonuses.

 

b)

The Company has a bonuses intermediate and biannual plan for compliance target and level of individual contribution to the Company’s profit or loss. These benefits are structured in a minimum and maximum of gross remunerations which are paid once a year or every two years.

 

 

Note 9

Related party disclosures (continued)

 

9.7

Board of Directors and Senior Management, continued

 

7)

Additionally, the Company has retention bonuses for the Company’s executives. The amount of these bonuses is linked to the price of the Company’s share and is payable in cash between 2012 and 2016 (see Note 16).

 

8)

No guarantees have been constituted in favor of the Company’s management.

 

9)

The Company’s Managers and Directors do not receive or have not received any benefit during the period ended December 31, 2016 and the year ended December 31, 2015 or compensation for the concept of pensions, life insurance, paid time off, profit sharing, incentives, or benefits due to disability other than those mentioned in the preceding points.

 

9.8

Key management personnel compensation

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Key management personnel compensation			20,439				19,355

 

 

Note 10

Financial instruments

 

Financial instruments in accordance with IAS 39 are detailed as follows:

 

10.1

Types of other financial assets

 

Description of other financial assets		12/31/2016 ThUS$				12/31/2015 ThUS$
Other current financial assets (1)			284,160				617,267
Derivatives (2)			4,095				19,058
Hedging assets			934				-
Total other current financial assets			289,189				636,325
Other non-current financial assets (3)			14,099				486
Total other non-current financial assets			14,099				486

 

(1)

Relates to term deposits with maturities exceeding 90 days and less than 360 days from the investment date.

 

(2)

Relate to forwards and options that were not classified as hedging instruments (see detail in Note 10.3).

 

(3)

The detail of other financial assets, non-current is as follows:

 

		12/31/2016 ThUS$				12/31/2015 ThUS$
Non-current investments not accounted for using the equity method of accounting, classified as available for sale			6,899				444
Hedging assets			7,156				-
Other financial assets, non-current			44				42
Total other financial assets, non-current			14,099				486

 

Detail of other current financial assets

 

Institution		12/31/2016 ThUS$				12/31/2015 ThUS$
Banco Santander			54,364				175,433
Banco de Crédito e Inversiones			40,627				97,739
Banco de Chile			-				20,049
Corpbanca			19,247				122,951
Banco Itaú			44,722				80,830
Banco Security			15,007				24,861
Morgan Stanley			3,150				8,200
Scotiabank Sud Americano			107,043				78,180
HSBC Bank Chile			-				9,024
Total			284,160				617,267

 

 

Note 10

Financial instruments, (continued)

 

10.2

Trade and other receivables

 

		12/31/2016												12/31/2015
		Current				Non-current				Total				Current				Non-current				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$$				ThUS$
Trade receivables			344,839				-				344,839				279,590				-				279,590
Prepayments			6,621				-				6,621				9,155				-				9,155
Other receivables			17,301				1,840				19,141				13,480				1,050				14,530
Total trade and other receivables			368,761				1,840				370,601				302,225				1,050				303,275

 

		12/31/2016												12/31/2015
		Assets before allowances				Allowance for doubtful trade receivables				Assets for trade receivables, net				Assets before allowances				Allowance for doubtful trade receivables				Assets for trade receivables, net
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Receivables related to credit operations, current			361,656				(16,817	)			344,839				294,525				(14,935	)			279,590
Trade receivables, current			361,656				(16,817	)			344,839				294,525				(14,935	)			279,590
Prepayments, current			9,421				(2,800	)			6,621				11,955				(2,800	)			9,155
Other receivables, current			19,300				(1,999	)			17,301				15,476				(1,996	)			13,480
Current trade and other receivables			390,377				(21,616	)			368,761				321,956				(19,731	)			302,225
Other receivables, non-current			1,840				-				1,840				1,050				-				1,050
Non-current receivables			1,840				-				1,840				1,050				-				1,050
Total trade and other receivables			392,217				(21,616	)			370,601				323,006				(19,731	)			303,275

 

 

 

Note 10

Financial instruments, (continued)

 

10.2

Trade and other receivables, continued

 

Portfolio stratification, continued

 

The Company’s policy is to require guarantees (such as letters of credit, guarantee clauses and others) and/or maintaining insurance policies for certain accounts as deemed necessary by management.

 

Unsecuritized portfolio

 

As of December 31, 2016 and December 31, 2015, the detail of the unsecuritized portfolio is as follows:

 

12/31/2016
		Not overdue				1 - 30 days				31 - 60 days				61 - 90 days				91 - 120 days				121 - 150 days				151 - 180 days				181 - 210 days				211 - 250 days				Over 250 days				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Number of customers, portfolio under no renegotiated terms			1,943				2,502				1,666				1,324				1,473				372				290				227				221				1,903				11,921
Portfolio under no renegotiated terms			298,872				18,511				5,097				2,951				3,441				1,010				643				522				309				25,849				357,205
Number of customers under renegotiated terms portfolio			22				333				155				30				17				9				3				19				5				218				811
Portfolio under renegotiated terms, gross			947				602				83				62				118				5				8				33				33				2,560				4,451
Total gross portfolio			299,819				19,113				5,180				3,013				3,559				1,015				651				555				342				28,409				361,656

 

12/31/2015
		Not overdue				1 - 30 days				31 - 60 days				61 - 90 days				91 - 120 days				121 - 150 days				151 - 180 days				181 - 210 days				211 - 250 days				Over 250 days				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Number of customers, portfolio under no renegotiated terms			3,653				698				388				2,617				565				241				253				667				311				1,836				11,229
Portfolio under no renegotiated terms			249,892				13,268				1,484				9,572				2,720				19				264				6,159				1,067				6,340				290,785
Number of customers under renegotiated terms portfolio			17				1				551				38				8				1				3				7				6				235				867
Portfolio under renegotiated terms, gross			540				10				625				13				170				15				259				35				293				1,780				3,740
Total gross portfolio			250,432				13,278				2,109				9,585				2,890				34				523				6,194				1,360				8,120				294,525

 

 

Note 10

Financial instruments, (continued)

 

10.2

Trade and other receivables, continued

 

The detail of allowances is as follows:

 

Provision and write-offs		12/31/2016 ThUS$				12/31/2015 ThUS$
Allowance for portfolio under no renegotiated terms			19,428				18,980
Allowance for portfolio with renegotiated terms			2,193				2,356
Write-offs for the period			(5	)			(1,605	)
Total			21,616				19,731

 

Credit risk concentration

 

Credit risk concentration with respect to trade receivables is reduced due to the great number of entities included in the Company’s client database and their distribution throughout the world.

 

10.3

Hedging assets and liabilities

 

The balance represents derivative instruments measured at fair value which have been classified as hedges from exchange and interest rate risks related to the total obligations associated with bonds of the Company in Chilean pesos and UF (and the exchange risk in Chilean pesos of the Company’s investment plans). As of December 31, 2016, the notional amount of cash flows in Cross Currency Swap contracts agreed upon in US dollars amounted to ThUS$320,155 and as of December 31, 2015 such contracts amounted to ThUS$331,853.

 

Hedging assets with underlying debt

Derivative instruments (Fwds)

Effect on profit or loss for the period Derivative instruments

Hedging reserve in gross equity

Deferred tax hedging reserve in equity

Hedging reserve in equity

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

December 31, 2016

830

789

41

(9

)

32

 

Hedging liabilities with underlying debt

Derivative instruments (CCS)

Effect on profit or loss for the period Derivative instruments

Hedging reserve in gross equity

Deferred tax hedging reserve in equity

Hedging reserve in equity

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

December 31, 2016

43,235

28,108

(29

)

5

(24

)

 

Hedging liabilities with underlying investments

Derivative instruments (CCS)

Effect on profit or loss for the period Derivative instruments

Hedging reserve in gross equity

Deferred tax hedging reserve in equity

Hedging reserve in equity

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

December 31, 2016

218

(294

)

76

(19

)

57

 

 

Note 10

Financial instruments (continued)

 

10.3

Hedging assets and liabilities, continued

 

Hedging liabilities

Derivative instruments (CCS)

Effect on profit or loss for the period Derivative instruments

Hedging reserve in gross equity

Deferred tax hedging reserve in equity

Hedging reserve in equity

ThUS$

ThUS$

ThUS$

ThUS$

ThUS$

December 31, 2015

74,786

(29,245

)

86

96

182

 

 

The balances in the “effect on profit or loss” column consider the interim effects of the contracts in force As of December 31, 2016 and December 31, 2015.

 

Derivative contract maturities are detailed as follows:

 

Series		Contract amount ThUS$				Currency		Maturity date
C			51,315			UF			12/01/2026
H			191,638			UF			01/05/2018
M			46,463			UF			02/01/2017
O			68,339			UF			02/01/2017

 

The Company uses cross currency swap derivative instruments to hedge the possible financial risk associated with the volatility of the exchange rate associated with Chilean pesos and UF. The objective is to hedge the exchange rate financial risks associated with bonds payable. Hedges are documented and tested to measure their effectiveness.

 

Based on a comparison of critical terms, hedging is highly effective, given that the hedged amount is consistent with obligations maintained for bonds denominated in Chilean pesos and UF. Likewise, hedging contracts are denominated in the same currencies and have the same expiration dates of bond principal and interest payments.

 

Hedge Accounting

 

The Company classifies derivative instruments as hedging that may include derivative or embedded derivatives either as fair value hedge derivative instruments, cash flow hedge derivative instruments, or hedge derivative instruments for net investment in a business abroad.

 

a) Fair value hedge

 

Changes in fair values of derivative instruments classified as fair value hedge derivative instruments are accounted for in gains and losses immediately along with any change in the fair value of the hedged item that is attributable to the risk being hedged.

 

 

Note 10

Financial instruments (continued)

 

10.3

Hedging assets and liabilities, continued

 

The Company documents the relationship between hedge instruments and the hedged item along with the objectives of its risk management and strategy to carry out different hedging transactions. In addition, upon commencement of the period hedged and then on a quarterly basis the Company documents whether hedge instruments have been efficient and met the objective of hedging market fluctuations for the purpose of which we use the effectiveness test. A hedge instrument is deemed effective if the effectiveness test result is between 80% and 125%.

 

The hedge instruments are classified as effective or not effective on the basis of the effectiveness test results. As of to date, hedges are classified as effective on the basis of the effectiveness tests. This note includes the detail of fair values of derivatives classified as hedging instruments.

 

b) Cash flow hedges

 

Cash flow hedges cover exposure to the cash flow variations attributable to a risk associated with a specific transaction that is very likely to be executed, that may have material effects on the results of the Company.

 

10.4

Financial liabilities

 

Other current and non-current financial liabilities

 

As of December 31, 2016 and December 31, 2015, the detail is as follows:

 

 

		12/31/2016												12/31/2015
		Current				Non-current				Total				Current				Non-current				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Bank borrowings			101,270				-				101,270				178,183				140,000				318,183
Obligations with the public (bonds)			58,973				1,059,706				1,118,679				221,092				1,077,172				1,298,264
Derivatives			1,920				-				1,920				981				-				981
Hedging liabilities			16,981				33,732				50,713				1,774				73,031				74,805
Total			179,144				1,093,438				1,272,582				402,030				1,290,203				1,692,233

 

Current and non-current bank borrowings

 

As of December 31, 2016 and December 31, 2015, the detail is as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Long-term bank borrowings			-				140,000
Short-term bank borrowings			101,270				97,079
Current portion of long-term bank borrowings			-				81,104
Short-term borrowings and current portion of long-term borrowings			101,270				178,183
Total bank borrowings			101,270				318,183

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

a)

Bank borrowings, current:

 

As of December 31, 2016 and December 31, 2015, the detail of this caption is as follows:

 

Debtor						Creditor						Currency or adjustment				Effective				Nominal
Tax ID No		Company		Country		Tax ID No.		Financial institution		Country		index		Repayment		rate				rate
93.007.000-9		SQM.S.A.		Chile		97.018.000-1		Scotiabank Sud Americano		Chile		US$		Upon maturity			1.00	%			1.00	%
93.007.000-9		SQM.S.A.		Chile		97.030.000-7		Banco Estado		Chile		US$		Upon maturity			4.3	%			4.3	%
93.007.000-9		SQM.S.A.		Chile		97.018.000-1		Scotiabank Sud Americano		Chile		US$		Upon maturity			0.74	%			0.85	%
93.007.000-9		SQM.S.A.		Chile		97.018.000-1		Scotiabank Sud Americano		Chile		US$		Upon maturity			0.74	%			0.84	%
79.626.800-K		SQM Salar S.A.		Chile		97.018.000-1		Scotiabank Sud Americano		Chile		US$		Upon maturity			1.34	%			0.84	%
79.947.100-0		SQM Industrial S.A.		Chile		97.030.000-7		Banco Estado		Chile		US$		Upon maturity			1.20	%			1.20	%

 

				12/31/2016												12/31/2016
Debtor		Creditor		Nominal amounts												Current amounts
Company		Financial institution		Up to 90 days ThUS$				90 days to 1 year ThUS$				Total ThUS$				Up to 90 days ThUS$				90 days to 1 year ThUS$				Subtotal ThUS$				Borrowing costs ThUS$				Total ThUS$
SQM.S.A.		Scotiabank Sud Americano			-				20,000				20,000				30				20,000				20,030				-				20,030
SQM.S.A.		Banco Estado			-				20,412				20,412				-				20,919				20,919				-				20,919
SQM.S.A.		Scotiabank Sud Americano			-				17,000				17,000				-				17,057				17,057				-				17,057
SQM.S.A.		Scotiabank Sud Americano			-				3,000				3,000				-				3,010				3,010				-				3,010
SQM Salar S.A.		Scotiabank Sud Americano			-				20,000				20,000				-				20,042				20,042				-				20,042
SQM Industrial S.A.		Banco Estado			20,000				-				20,000				20,212				-				20,212				-				20,212
Total					20,000				80,412				100,412				20,242				81,028				101,270				-				101,270

 

85

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

Debtor

Creditor

Currency or adjustment

Effective

Nominal

Tax ID No

Company

Country

Tax ID No.

Financial institution

Country

index

Repayment

rate

rate

93.007.000-9

SQM.S.A.

Chile

97.018.000-1

Scotiabank Sud Americano

Chile

US$

Upon maturity

0.57

%

0.57

%

93.007.000-9

SQM.S.A.

Chile

97.030.000-7

Banco Estado

Chile

US$

Upon maturity

0.70

%

0.70

%

93.007.000-9

SQM.S.A.

Chile

97.018.000-1

Scotiabank Sud Americano

Chile

US$

Upon maturity

0.58

%

0.58

%

93.007.000-9

SQM S.A.

Chile

Foreign

Banco Estado NY Branch

United States

US$

Upon maturity

1.94

%

2.54

%

79.626.800-K

SQM Salar S.A.

Chile

97.018.000-1

Scotiabank Sud Americano

Chile

US$

Upon maturity

0.57

%

0.57

%

79.947.100-0

SQM Industrial S.A.

Chile

97.030.000-7

Banco Estado

Chile

US$

Upon maturity

0.44

%

0.44

%

Foreign

Royal Seed Trading Corporation A.V.V.

Aruba

Foreign

Bank of America

United States

US$

Upon maturity

1.43

%

1.30

%

Foreign

Royal Seed Trading Corporation A.V.V.

Aruba

Foreign

The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York)

United States

US$

Upon maturity

1.18

%

1.05

%

Foreign

Royal Seed Trading Corporation A.V.V.

Aruba

Foreign

Export Development Canada

Canada

US$

Upon maturity

1.75

%

1.39

%

 

				12/31/2015												12/31/2015
Debtor		Creditor		Nominal amounts												Current amounts
Company		Financial institution		Up to 90 days ThUS$				90 days to 1 year ThUS$				Total ThUS$				Up to 90 days ThUS$				90 days to 1 year ThUS$				Subtotal ThUS$				Borrowing costs ThUS$				Total ThUS$
SQM.S.A.		Scotiabank Sud Americano			-				20,000				20,000				13				20,000				20,013				-				20,013
SQM.S.A.		Banco Estado			-				20,000				20,000				9				20,000				20,009				-				20,009
SQM.S.A.		Scotiabank Sud Americano			-				17,000				17,000				8				17,000				17,008				-				17,008
SQM S.A.		Banco Estado NY Branch			-				-				-				1,067				-				1,067				-				1,067
SQM Salar S.A.		Scotiabank Sud Americano			-				20,000				20,000				16				20,000				20,016				-				20,016
SQM Industrial S.A.		Banco Estado			20,000				-				20,000				20,032				-				20,032				-				20,032
Royal Seed Trading Corporation A.V.V.		Bank of America			-				40,000				40,000				-				40,137				40,137				(49	)			40,088
Royal Seed Trading Corporation A.V.V.		The Bank of Tokyo-Mitsubishi UFJ, Lda. (New York)			-				20,000				20,000				-				20,052				20,052				(54	)			19,998
Royal Seed Trading Corporation A.V.V.		Export Development Canada			-				20,000				20,000				-				20,010				20,010				(58	)			19,952
Total					20,000				157,000				177,000				21,145				157,199				178,344				(161	)			178,183

 

86

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

b)

Unsecured obligations, current:

 

As of December 31, 2016 and December 31, 2015, the detail of current unsecured interest-bearing obligations is composed of promissory notes and bonds, as follows:

Bonds

 

Debtor						Number of registration or ID of the instrument		Series		Maturity date		Currency or adjustment index		Periodicity				Effective rate				Nominal rate
Tax ID No.		Company		País										Payment of interest		Repayment
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		10/21/2016		US$		Semiannual		Upon maturity			1.97	%			5.50	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		1/28/2017		US$		Semiannual		Upon maturity			3.61	%			4.38	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$300,000		10/3/2016		US$		Semiannual		Upon maturity			2.48	%			3.63	%
93.007.000-9		SQM S.A.		Chile		446		C		12/1/2016		UF		Semiannual		Semiannual			1.34	%			4.00	%
93.007.000-9		SQM S.A.		Chile		564		H		1/5/2017		UF		Semiannual		Semiannual			2.47	%			4.90	%
93.007.000-9		SQM S.A.		Chile		700		M		2/1/2017		UF		Semiannual		Upon maturity			0.69	%			3.30	%
93.007.000-9		SQM S.A.		Chile		699		O		2/1/2017		UF		Semiannual		Upon maturity			3.00	%			3.80	%

 

						12/31/2016												12/31/2016
						Nominal maturities												Current maturities
						Up to 90 days				91 days to 1 year				Total				Up to 90 days				91 days to 1 year				Subtotal				Bond issuance costs				Total
Company		Country		Series		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM S,A,		Chile		ThUS$250,000			-								-				-				2,674				2,674				(386	)			2,288
SQM S,A,		Chile		ThUS$250,000			-								-				4,649				-				4,649				(433	)			4,216
SQM S,A,		Chile		ThUS$300,000			-				-				-				-				2,658				2,658				(615	)			2,043
SQM S,A,		Chile		C							5,903				5,903				-				6,098				6,098				-				6,098
SQM S,A,		Chile		H			-				-				-				3,726				-				3,726				(139	)			3,587
SQM S,A,		Chile		M			39,356				-				39,356				39,893				-				39,893				(11	)			39,882
SQM S,A,		Chile		O			-				-				-				926				-				926				(67	)			859
Total							39,356				5,903				45,259				49,194				11,430				60,624				(1,651	)			58,973

 

Effective rates of bonds in Chilean pesos and UF are expressed and calculated in U.S. dollars based on the flows agreed in Cross Currency Swap Agreements.

 

87

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

Debtor						Number of registration or ID of the instrument		Series		Maturity date		Currency or adjustment index		Periodicity				Effective rate				Nominal rate
Tax ID No.		Company		País										Payment of interest		Repayment
93.007.000-9		SQM S.A.		Chile		-		ThUS$200,000		4/15/2016		US$		Semiannual		Upon maturity			9.19	%			6.13	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		4/21/2016		US$		Semiannual		Upon maturity			5.89	%			5.50	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		1/28/2016		US$		Semiannual		Upon maturity			4.61	%			4.38	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$300,000		4/3/2016		US$		Semiannual		Upon maturity			3.93	%			3.63	%
93.007.000-9		SQM S.A.		Chile		446		C		6/1/2016		UF		Semiannual		Semiannual			6.52	%			4.00	%
93.007.000-9		SQM S.A.		Chile		564		H		1/5/2016		UF		Semiannual		Semiannual			5.20	%			4.90	%
93.007.000-9		SQM S.A.		Chile		700		M		2/1/2016		UF		Semiannual		Upon maturity			4.32	%			3.30	%
93.007.000-9		SQM S.A.		Chile		699		O		2/1/2016		UF		Semiannual		Upon maturity			3.97	%			3.80	%

 

						12/31/2015												12/31/2015
						Nominal maturities												Current maturities
						Up to 90 days				91 days to 1 year				Total				Up to 90 days				91 days to 1 year				Subtotal				Bond issuance costs				Total
Company		Country		Series		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM S,A,		Chile		ThUS$200,000			-				200,000				200,000				-				202,586				202,586				(73	)			202,513
SQM S,A,		Chile		ThUS$250,000			-				-				-				-				2,674				2,674				(386	)			2,288
SQM S,A,		Chile		ThUS$250,000			-				-				-				4,648				-				4,648				(433	)			4,215
SQM S,A,		Chile		ThUS$300,000			-				-				-				-				2,658				2,658				(614	)			2,044
SQM S,A,		Chile		C			-				5,413				5,413				-				5,610				5,610				-				5,610
SQM S,A,		Chile		H			-				-				-				3,417				-				3,417				(139	)			3,278
SQM S,A,		Chile		M			-				-				-				492				-				492				(130	)			362
SQM S,A,		Chile		O			-				-				-				849				-				849				(67	)			782
Total							-				205,413				205,413				9,406				213,528				222,934				(1,842	)			221,092

 

Effective rates of bonds in Chilean pesos and UF are expressed and calculated in U.S. dollars based on the flows agreed in Cross Currency Swap Agreements.

 

88

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

c)

Types of interest-bearing borrowings, non-current

 

Non-current interest-bearing borrowings as of December 31, 2016 and December 31, 2015 are detailed as follows:

 

Debtor

Creditor

Currency or adjustment

Effective

Nominal

Tax ID No.

Company

Country

Tax ID No.

Financial institution

Country

index

Repayment

rate

rate

93.007.000-9

SQM S.A.

Chile

Foreign

Banco Estado NY Branch

United States

US$

Upon maturity

1.94

%

2.54

%

 

				Nominal non-current maturities																Non-current maturities
				12/31/2015																12/31/2015
Company		Financial institution		Over 1 years to 2				Over 2 years to 3				Over 3 years to 4				Total				Over 1 years to 2				Over 2 years to 3				Over 3 years to 4				Subtotal				Borrowings costs				Total
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM S.A.		Banco Estado NY Branch			140,000				-				-				140,000				140,000				-				-				140,000				-				140,000
Total					140,000				-				-				140,000				140,000				-				-				140,000				-				140,000

 

89

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

d)

Non-current unsecured interest-bearing bonds

 

The breakdown of non-current unsecured interest-bearing bonds as of December 31, 2016 and December 31, 2015 is detailed as follows:

 

														Periodicity
Tax ID No.		Company		Country		Number of registration or ID of the instrument		Series		Maturity date		Currency or adjustment index		Payment of interest		Repayment		Effective rate				Nominal rate
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		04/21/2020		US$		Semiannual		Upon maturity			5.94	%			5.50	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		01/28/2025		US$		Semiannual		Upon maturity			4.62	%			4.38	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$300,000		04/03/2023		US$		Semiannual		Upon maturity			3.95	%			3.63	%
93.007.000-9		SQM S.A.		Chile		446		C		12/01/2026		UF		Semiannual		Semiannual			5.57	%			4.00	%
93.007.000-9		SQM S.A.		Chile		564		H		01/05/2030		UF		Semiannual		Semiannual			5.22	%			4.90	%
93.007.000-9		SQM S.A.		Chile		699		O		02/01/2033		UF		Semiannual		Upon maturity			3.97	%			3.80	%

 

Nominal non-current maturities 12/31/2016																										Non-current maturities 12/31/2016
Series		Over 1 year to 2				Over 2 years to 3				Over 3 Years to 4				Over 4 Years to 5				Over 5 years				Total				Over 1 year to 2				Over 2 years to 3				Over 3 Years to 4				Over 4 Years to 5				Over 5 years				Subtotal				Bond issuance costs				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
MUS$250			-				250,000				-				-				-				250,000				-				250,000				-				-				-				250,000				(904	)			249,096
MUS$250			-				-				-				-				250,000				250,000				-				-				-				-				250,000				250,000				(3,069	)			246,931
MUS$300			-				-				-				-				300,000				300,000				-				-				-				-				300,000				300,000				(3,230	)			296,770
C			5,903				5,903				5,903				5,903				29,519				53,131				5,903				5,903				5,903				5,903				29,519				53,131				-				53,131
H			-				-				-				-				157,426				157,426				-				-				-				-				157,426				157,426				(1,671	)			155,755
O			-				-				-				-				59,035				59,035				-				-				-				-				59,035				59,035				(1,012	)			58,023
Total			5,903				255,903				5,903				5,903				795,980				1,069,592				5,903				255,903				5,903				5,903				795,980				1,069,592				(9,886	)			1,059,706

 

90

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

d)

Non-current unsecured interest-bearing bonds, continued

 

As of December 31, 2016 and December 31, 2015, the breakdown of unsecured interest-bearing liabilities, non-current is as follows:

 

														Periodicity
Tax ID No.		Company		Country		Number of registration or ID of the instrument		Series		Maturity date		Currency or adjustment index		Payment of interest		Repayment		Effective rate				Nominal rate
93.007.000-9		SQM S.A.		Chile		-		ThUS$200,000		04/15/2016		US$		Semiannual		Upon maturity			9.19	%			6.13	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		04/21/2020		US$		Semiannual		Upon maturity			5.89	%			5.50	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$250,000		01/28/2025		US$		Semiannual		Upon maturity			4.61	%			4.38	%
93.007.000-9		SQM S.A.		Chile		-		ThUS$300,000		04/03/2023		US$		Semiannual		Upon maturity			3.93	%			3.63	%
93.007.000-9		SQM S.A.		Chile		446		C		12/01/2026		UF		Semiannual		Semiannual			6.53	%			4.00	%
93.007.000-9		SQM S.A.		Chile		564		H		01/05/2030		UF		Semiannual		Semiannual			5.20	%			4.90	%
93.007.000-9		SQM S.A.		Chile		700		M		02/01/2017		UF		Semiannual		Upon maturity			4.32	%			3.30	%
93.007.000-9		SQM S.A.		Chile		699		O		02/01/2033		UF		Semiannual		Upon maturity			3.97	%			3.80	%

 

Nominal non-current maturities 12/31/2015																										Non-current maturities 12/31/2015
Series		Over 1 year to 2				Over 2 years to 3				Over 3 Years to 4				Over 4 Years to 5				Over 5 years				Total				Over 1 year to 2				Over 2 years to 3				Over 3 Years to 4				Over 4 Years to 5				Over 5 years				Subtotal				Bond issuance costs				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
MUS$250		-				-				250,000				-				-				250,000				-				-				250,000				-				-				250,000				(1,290)				248,710
MUS$250			-				-				-				-				250,000				250,000				-				-				-				-				250,000				250,000				(3,502	)			246,498
MUS$300			-				-				-				-				300,000				300,000				-				-				-				-				300,000				300,000				(3,843	)			296,157
C			5,413				5,413				5,413				5,413				32,482				54,134				5,413				5,413				5,413				5,413				32,482				54,134				-				54,134
H			-				-				-				-				144,357				144,357				-				-				-				-				144,357				144,357				(1,810	)			142,547
M			36,089				-				-				-				-				36,089				36,089				-				-				-				-				36,089				(17	)			36,072
O			-				-				-				-				54,134				54,134				-				-				-				-				54,134				54,134				(1,080	)			53,054
Total			41,502				5,413				255,413				5,413				780,973				1,088,714				41,502				5,413				255,413				5,413				780,973				1,088,714				(11,542	)			1,077,172

 

91

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

e)

Additional information

 

Bonds

 

On the 30 of September 2016 and the 31st of December 2015, short term bonds of ThUS$58,973 and ThUS$221,092 respectively were classified as short-term, consisting of the current portion due plus accrued interest to date, debt is presented net of bond issuance costs. The non-current portion consisted of ThUS$1,059,706 on the 31 of December 2016 and ThUS$1,077,172 on the 31 ^st December 2015, corresponding to the issuance of series C bonds, Single series bonds (ThUS$200), series H bonds second issue single series bonds (ThUS$250), series M bonds, series O bonds, third issue single series bonds (ThUS$300) and fourth issue single series bonds (ThUS$250) excluding debt issue costs.

 

As of December 31, 2016 and December 31, 2015, the details of each issuance are as follows:

 

Series “C” bonds

 

On January 24, 2006, the Company placed Series C bonds for UF 3,000,000 (ThUS$101,918) at an annual rate of 4.00%.

 

As of December 31, 2016 and December 31, 2015, the Company has made the following payments with a charge to the Series C bonds:

 

Payments made		12/31/2016				12/31/2015
		ThUS$				ThUS$
Principal payment			5,729				5,729
Interest payment			3,275				3,570

 

Single series first issue ThUS$200,000

 

On April 5, 2006, the Company placed Single Series bonds for ThUS$200,000 at an annual rate of 6.125% under "Rule 144 and regulation S of the U.S. Securities Act of 1933."

 

As of December 31, 2016 and December 31, 2015, the Company has made the following payments with a charge to the Single series bonds:

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Payments of principal owed			200,000				-
Payments of interest			6,125				12,250

 

92

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

Series “G” and “H” bonds

 

On January 13, 2009, the Company placed two bond series in the domestic market. Series H for UF 4,000,000 (ThUS$139,216) at an annual interest rate of 4.9% at a term of 21 years with payment of principal beginning in 2019 and Series G for ThCh$ 21,000,000 (ThUS$34,146), which was placed at a term of 5 years with a single payment at the maturity of the term and an annual interest rate of 7%.

 

As of December 31, 2016 and December 31, 2015, the Company has made the following payments with a charge to the Series G and H bonds:

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Payments of interest, Series H bonds			7,289				7,696

 

93

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

Single series bonds, second issue ThUS$250,000

 

On April 21, 2010, the Company informed the Chilean Superintendence of Securities and Insurance of its placement in international markets of an unsecured bond of ThUS$250,000 with a maturity of 10 years beginning on the aforementioned date with an annual interest rate of 5.5% and destined to refinance long-term liabilities.

 

As of December 31, 2016 and December 31, 2015, the detail of payments charged to the line of single series bonds, second issue is as follows:

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Interest payment			13,750				13,750

 

Series “M” and “O” bonds

 

On April 4, 2012, the Company placed two bond series in the domestic market. Series M for UF 1,000,000 (ThUS$46,601) was placed at a term of 5 years with a single payment at the maturity of the term and an annual interest rate of 3.3%, and Series O for UF 1,500,000 (ThUS$69,901) was placed at a term of 21 years with a single payment at the maturity of the term and an annual interest rate of 3.80%

 

As of December 31, 2016, and December 31, 2015 the Company has made the following payments with a charge to the Series M and O bonds:

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Payment of interest, Series M bonds			1,242				1,248
Payment of interest, Series O bonds			2,142				2,153

 

Single series bonds, third issue ThUS$300,000

 

On April 3, 2013 in the United States, the Company issued a non-guaranteed bond with a value of US$ 300 million. The bond is for a 10 year term with an annual coupon rate of 3.625% and an annual yield of 3.716%. This rate equates to a difference of 180 basis points to comparable US Treasury bonds. The funds raised will be used to refinance long term liabilities and finance general corporate objectives.

 

As of December 31, 2016 and December 31, 2015, the following payments have been made with a debit to the line of single-series bonds, third issue:

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Payment of interest			10,875				10,875

 

94

 

 

Note 10

Financial instruments (continued)

 

10.4

Financial liabilities, continued

 

Single series bonds, fourth issuance ThUS$ 250

 

On October 23, 2014, the Company informed the Chilean Superintendence of Securities and Insurance that Sociedad Química y Minera de Chile S.A. agreed to issue and place unsecured bonds of ThUS$ 250,000 in international markets. This, essentially, maturing in 2025 with a cover annual interest rate of 4.375% equivalent to a spread of 215 basis points on comparable US Treasury bonds, which were offered to the investors at a price of 99.410% with respect to capital. The aforementioned agreement was agreed on October 23, 2014 and the issuance and placement of such bonds was performed in conformity with the provisions of Rule 144A of the US Securities Act of 1933 and these bonds will not be publicly offered in Chile.

 

As of December 31, 2016 and December 31, 2015, the following payments have been made.

 

Payments made		12/31/2016 ThUS$				12/31/2015 ThUS$
Payment of interest			10,938				8,203

 

10.5

Trade and other payables

 

		12/31/2016												12/31/2015
		Current				Non- current				Total				Current				Non- current				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Accounts payable			200,215				-				200,215				136,668				-				136,668
Other accounts payable			281				-				281				172				-				172
Total			200,496				-				200,496				136,840				-				136,840

 

Purchase commitments held by the Company are recognized as liabilities when the goods and services are received by the Company. As of December 31, 2016, the Company has purchase orders amounting to ThUS$19,959 (ThUS$15,888 as of December 31, 2015).

 

95

 

 

Note 10

Financial instruments (continued)

 

10.6

Financial liabilities at fair value through profit or loss

 

This balance relates to derivative instruments measured at their fair value, which has generated balances against the Company. The detail of this type of instrument is as follows:

 

Financial liabilities at fair value through profit or loss		12/31/2016 ThUS$				Effect on profit or loss as of 12/31/2016				12/31/2015 ThUS$				Effect on profit or loss as of 12/31/2015
						ThUS$								ThUS$
Current
Derivative instruments (IRS)			-				(229	)			283				(242	)
			-				(229	)			283				(242	)

 

Balances in the column effect on profit or loss consider the effects of agreements which were in force as of December 31, 2016, including derivatives, received during the year.

 

96

 

 

Note 10

Financial instruments (continued)

 

10.7

Financial asset and liability categories

 

a)

Financial Assets

 

		12/31/2016												12/31/2015
		Current				Non-current				Total				Current				Non-current				Total
Description of financial assets		Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$
Financial assets measured at amortized cost			284,160				44				284,204				617,267				-				617,267
Loans and receivables measured at amortized cost			368,761				1,840				370,601				302,225				1,050				303,275
Total financial assets measured at amortized cost			652,921				1,884				654,805				919,492				1,536				921,028
Financial assets at fair value through profit or loss			5,029				7,156				12,185				19,058				-				19,058
Financial assets classified as available for sale at fair value through equity			-				6,899				6,899
Total financial assets at fair value			5,029				14,055				19,084				19,058				-				19,058
Total financial assets			657,950				15,939				673,889				938,550				1,536				940,086

 

97

 

 

Note 10

Financial instruments (continued)

 

10.7

Financial asset and liability categories (continued)

 

b)

Financial liabilities

 

		12/31/2016												12/31/2015
		Current				Non-current				Total				Current				Non-current				Total
Description of financial liabilities		Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$				Amount ThUS$
Financial liabilities at fair value through profit or loss			18,900				33,732				52,632				2,755				73,031				75,786
Financial liabilities at fair value through profit or loss			18,900				33,732				52,632				2,755				73,031				75,786
Financial liabilities measured at amortized cost			360,740				1,059,706				1,420,446				536,115				1,217,172				1,753,287
Total financial liabilities measured at amortized cost			360,740				1,059,706				1,420,446				536,115				1,217,172				1,753,287
Total financial liabilities			379,640				1,093,438				1,473,078				538,870				1,290,203				1,829,073

 

98

 

 

Note 10

Financial instruments (continued)

 

10.8

Fair value measurement of assets and liabilities

 

Financial assets and liabilities measured at fair value consist of Options and Forwards hedging the mismatch in the balance sheet and cash flows, Cross Currency Swaps (CCS) to hedge bonds issued in local currency ($/UF), and Interest Rate Swaps (IRS) to hedge LIBOR rate debt issued.

 

The value of the Company’s assets and liabilities recognized by CCS contracts is calculated as the difference between the present value of discounted cash flows of the asset (pesos/UF) and liability (US$) parts of the derivative. In the case of the IRS, the asset value recognized is calculated as the difference between the discounted cash flows of the asset (variable rate) and liability (fixed rate) parts of the derivative. Forwards: Are calculated as the difference between the strike price of the contract and the spot price plus the forwards points at the date of the contract. Options: The value recognized is calculated using the Black-Scholes method.

 

In the case of CCS, the entry data used for the valuation models are UF, peso, and basis swap rates. In the case of fair value calculations for IRS, the FRA (Forward Rate Agreement) rate and ICVS 23 Curve (Bloomberg: cash/deposits rates, futures, swaps). In the case of forwards, the forwards curve for the currency in question is used. Finally, with options, the spot price, risk-free rate and volatility of exchange rate are used, all in accordance with the currencies used in each valuation. The financial information used as entry data for the Company’s valuation models is obtained from Bloomberg, the well-known financial software company. Conversely, the fair value provided by the counterparties of derivatives contracts is used only as a control and not for valuation.

 

The effects on profit or loss of movements in these amounts may be recognized in the caption Finance costs, foreign currency translation gain (loss) or cash flow hedges in the statement of comprehensive income, depending on each particular case.

 

The fair value measurement of debt is only performed to determine the present market value of secured and unsecured long-term obligations; bonds denominated in local currency (Ch$/UF) and foreign currency (US$), credits denominated in foreign currency (US$), which is classified under Level 2 in the fair value hierarchy established by IFRS.

 

The value of the Company’s reported liabilities is calculated as the present value of discounted cash flows at market rates at the time of valuation, taking into account the maturity date and exchange rate. The entry data used for the model includes the UF and peso rates, which are obtained using Bloomberg, the well-known financial software company and the ‘Asociación de Bancos e Instituciones Financieras’ (ABIF) (Association of Banks and Financial Institutions’).

 

99

 

   

Note 10

Financial instruments (continued)

 

10.8

Fair value measurement of assets and liabilities, continued

 

Fair value hierarchy

 

The fair value hierarchy is detailed as follows:

 

a)

Level 1: using quoted prices (unadjusted) only in active markets.

 

b)

Level 2: when in any phase in the valuation process inputs other than quoted prices have been used in Level 1 that are observable directly in markets.

 

c)

Level 3: inputs for the asset or liability that are not based on observable market data.

 

The valuation technique used for determining fair value of our hedging instruments is that indicated in Level 2.

 

		Fair value				Measurement methodology
		12/31/2016				Level 1				Level 2				Level 3
		ThUS$				ThUS$				ThUS$				ThUS$
Financial assets
Investment
Shares			6,879				6,879				-				-
Non-hedging derivatives
Forwards			924				-				924				-
Options			426				-				426				-
Swaps			2,745				-				2,745				-
Hedging derivatives
Swaps			8,090				-				8,090				-
Other			64				-				64				-
Financial liabilities
Non-hedging derivatives
Forwards			1,557				1,557				-				-
Options			363				363				-				-
Hedging derivatives
Swaps			50,713				50,713				-				-

 

100

 

 

Note 10

Financial instruments (continued)

 

10.8

Fair value measurement of assets and liabilities, continued

 

		Fair value				Measurement methodology
		12/31/2015				Level 1				Level 2				Level 3
		ThUS$				ThUS$				ThUS$				ThUS$
Financial assets
Investment
Investment in companies			424				424				-				-
Non-hedging derivatives
Forwards			18,710				-				18,710				-
Options			349				-				349				-
Other			63				-				63				-
Financial liabilities
Non-hedging derivatives
Forwards			601				-				601				-
Options			5643				-				5643				-
Hedging derivatives
Swaps			74,805				-				74,805				-

 

10.9

Financial assets pledged as guarantee

 

On November 4, 2004, Isapre Norte Grande maintains a guarantee equivalent to the total amount owed to its members and healthcare providers, which is managed and maintained by Banco de Chile.

 

As of December 31, 2016 and December 31, 2015, assets pledged as guarantees are as follows:

 

Restricted cash		12/31/2016 ThUS$				12/31/2015 ThUS$
Isapre Norte Grande Ltda.			685				496
Total			685				496

 

101

 

 

Note 10

Financial instruments (continued)

 

10.10

Estimated fair value of financial instruments and financial derivatives

 

As required by IFRS 7, the following information is presented for the disclosure of the estimated fair value of financial assets and liabilities.

 

Although inputs represent Management's best estimate, they are subjective and involve significant estimates related to the current economic and market conditions, as well as risk features.

 

Methodologies and assumptions used depend on the risk terms and characteristics of instruments and include the following as a summary:

 

-

Cash equivalent approximates fair value due to the short-term maturities of these instruments.

 

-

The fair value of trade receivables, current is considered to be equal to the carrying amount due to the maturity of such accounts at short-term.

 

-

The fair value of other current financial liabilities are considered to be equal to their carrying values.

 

-

For interest-bearing liabilities with original maturity of more than a year, fair values are calculated at discounting contractual cash flows at their original current market with similar terms.

 

-

The fair value of debt is considered in Level 2.

 

-

For forward and swap contracts, fair value is determined using quoted market prices of financial instruments with similar characteristics.

 

102

 

 

Note 10

Financial instruments (continued)

 

10.10

Estimated fair value of financial instruments and financial derivatives, continued

 

The detail of the Company’s instruments at carrying value and estimated fair value is as follows:

 

		12/31/2016								12/31/2015
		Carrying value				Fair value				Carrying value				Fair value
		ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			514,669				514,669				527,259				527,259
Current trade and other receivables			368,761				368,761				302,225				302,225
Receivables due from related parties, current			82,259				82,259				99,907				99,907
Other financial assets, current:
- Time deposits			284,160				284,160				617,267				617,267
- Derivative instruments			4,095				4,095				19,058				19,058
- Hedging assets			934				934				-				-
Total other current financial assets			289,189				289,189				636,325				636,325
Non-Current Trade Receivables			1,840				1,840				1,050				1,050
Other non-current financial assets:			14,099				14,099				486				486
Other non-current financial assets:			14,099				14,099				486				486
Other financial liabilities, current:
- Bank loans			101,270				101,270				178,183				178,183
- Derivative instruments			1,920				1,920				981				981
- Hedging liabilities			16,981				16,981				1,774				1,774
- Unsecured obligations			58,973				58,973				221,092				221,092
Other financial liabilities, current			179,144				179,144				402,030				402,030
Current and non-current accounts payable			200,496				200,496				136,840				136,840
Payables due to related parties, non-current			7				7				435				435
Other non-current financial liabilities:
- Bank loans			-				-				140,000				160,265
- Unsecured obligations			1,059,706				1,195,512				1,077,172				1,221,002
- Non-current hedging liabilities			33,732				33,732				73,031				73,031
Other non-current financial liabilities:			1,093,438				1,229,244				1,290,203				1,454,298

 

103

 

 

Note 10

Financial instruments (continued)

 

10.11

Nature and scope of risks arising from financing instruments

 

As indicated in paragraphs 33 to 42 of IFRS 7 the disclosure of information associated with the nature and scope of risks arising from financial instruments is presented in Note 4 - Financial Risk Management.

 

Note 11

Equity-accounted investees

 

11.1

Investments in associates recognized according to the equity method of accounting

 

As of December 31, 2016 and December 31, 2015, in accordance with criteria established in Note 3.19, investment in associates recognized according to the equity method of accounting and joint ventures are as follows:

 

Associates		Equity-accounted investees								Share on profit (loss) of associates and joint ventures accounted for using the equity method								Share on other comprehensive income of associates and joint ventures accounted for using the equity method, net of tax								Share on total other comprehensive income of associates and joint ventures accounted for using the equity method
		12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sales de Magnesio Ltda.			-				1,535				-				819				-				-				-				819
Abu Dhabi Fertilizer Industries WWL			13,343				11,766				1,482				1,455				-				455				1,482				1,910
Doktor Tarsa Tarim Sanayi AS			16,712				15,032				4,026				2,505				590				-				4,616				2,505
Ajay North America			13,457				12,913				2,794				3,600				-				-				2,794				3,600
Ajay Europe SARL			7,373				7,202				1,132				1,732				(7	)			(21	)			1,126				1,711
SQM Eastmed Turkey			-				70				(100	)			(4	)			-				-				(100	)			(4	)
Charlee SQM Thailand Co. Ltd,			1,763				1,318				244				122				-				89				244				210
Kore Potash Ltd.			20,000				-				-				-				-				-				-				-
Total			72,604				49,836				9,578				10,229				583				523				10,162				10,751

 

		Description of the nature of the				Country of		Share of ownership in				Dividends received
Associate		relationship		Domicile		incorporation		associates				12/31/2016				12/31/2015
												ThUS$				ThUS$
Sales de Magnesio Ltda. (1)		Commercialization of magnesium salts.		El Trovador 4285, Las Condes		Chile			50	%			409				286
Abu Dhabi Fertilizer Industries WWL		Distribution and commercialization of specialty plant nutrients in the Middle East.		PO Box 71871, Abu Dhabi		United Arab Emirates			37	%			-				-
Doktor Tarsa Tarim Sanayi AS		Distribution and commercialization of specialty plant nutrients in Turkey.		Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya		Turkey			50	%			-				-
Ajay North America		Production and distribution of iodine derivatives.		1400 Industry RD Power Springs GA 30129		United States			49	%			2.605				5.185
Ajay Europe SARL		Production and commercialization of iodine derivatives.		Z.I. du Grand Verger BP 227 53602 Evron Cedex		France			50	%			1.338				1.748
SQM Eastmed Turkey		Production and commercialization of specialty products.		Organize Sanayi Bolgesi, Ikinci Kisim, 22 cadde TR07100 Antalya		Turkey			50	%			-				-
Charlee SQM Thailand Co. Ltd.		Distribution and commercialization of specialty plant nutrients.		31 Soi 138 (Meesuk) LLapdrawrd, Bangkapi, 10240 Bangkok		Thailand			40	%			-				296
Kore Potash Ltd.		Prospecting, exploration and mining development		L 3 88 William St Perth, was 6000		Australia			18.02	%			-				-

 

(1)

During December 2016, SQM Salar S.A. sold the interest it had in Sales de Magnesio Ltda. to Rockwood Litio Ltda. This transaction generated a gain of ThUS$7,635.

 

104

 

 

Note 11

Equity-accounted investees (continued)

 

11.2

Assets, liabilities, revenue and expenses of associates

 

12/31/2016
																		Revenue				Gain (loss) from continuing operations				Other comprehensive income				Comprehensive income
		Assets								Liabilities
		Current				Non-current				Current				Non-current
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sales de Magnesio Ltda.			-				-				-				-				-				-				-				-
Abu Dhabi Fertilizer Industries WWL			37,801				2,104				3,843				-				41,442				4,005				-				4,005
Doktor Tarsa Tarim Sanayi AS			68,449				5,984				39,729				1,281				83,905				8,052				1,180				9,232
Ajay North America			18,844				11,633				3,015				-				35,715				5,702				-				5,702
Ajay Europe SARL			20,675				1,361				7,290				-				33,319				2,265				(13	)			2,252
SQM Eastmed Turkey			727				2,265				719				2,362				833				(200	)			-				(200	)
Charlee SQM Thailand Co. Ltd.			6,264				591				2,448				-				12,065				609				-				609
Total			152,760				23,938				57,044				3,643				207,279				20,433				1,167				21,600

 

12/31/2015
																		Revenue				Gain (loss) from continuing operations				Other comprehensive income				Comprehensive income
		Assets								Liabilities
		Current				Non-current				Current				Non-current
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sales de Magnesio Ltda.			4,141				825				1,881				16				11,982				1,638				-				1,638
Abu Dhabi Fertilizer Industries WWL			33,770				2,529				4,499				-				46,609				3,932				1,230				5,162
Doktor Tarsa Tarim Sanayi AS			103,099				7,555				80,588				-				64,374				5,009				-				5,009
Ajay North America			18,651				10,619				2,917				-				43,453				7,347				-				7,347
Ajay Europe SARL			18,979				1,661				6,239				-				40,484				3,464				(42	)			3,422
SQM Eastmed Turkey			976				380				27				1,189				-				(8	)			-				(8	)
Charlee SQM Thailand Co. Ltd.			7,418				566				4,687				-				12,524				304				222				526
Total			187,034				24,135				100,838				1,205				219,516				21,686				1,410				23,096

 

105

 

 

Note 11

Investment in Associates (continued)

 

11.3

Other information

 

The Company has no participation in unrecognized losses in investments in associates.

 

The Company presents no investments unaccounted for according to the equity method of accounting.

 

The equity method was applied to the Statement of Financial Position as of December 31, 2016 and December 31, 2015.

 

The basis of preparation of the financial information of associates corresponds to the amounts included in the financial statements in conformity with the entity’s IFRS.

 

11.4

Disclosures on interest in associates

 

a) Transactions conducted in 2016:

 

During December 2016, SQM Salar S.A. sold the interest it had in Sales de Magnesio Ltda. to Rockwood Litio Ltda. generating a gain of ThUS$7,635.

 

During November 2016, SQM S.A. made a capital contribution of ThUS$20,000, in exchange for 18.02% of the interest of Kore Potash Limited. This contribution was paid to Elemental Minerals Limited.

 

106

 

 

Note 12

Joint Ventures

 

12.1

Policy for the accounting of equity accounted investment in joint ventures

 

The method for the recognition of joint ventures is that in which participation is initially recorded at cost, and subsequently adjusted, considering changes after the acquisition in the portion of the entity’s net assets of the entity which correspond to the investor. Profit or loss for the period of the investor will collect the portion which belongs to it in the results of the controlled entity as a whole.

 

12.2

Disclosures of interest in joint ventures

 

a)

Operations conducted in 2016

 

On March 28, 2016, Sociedad Química y Minera de Chile S.A. entered into an agreement to enter a joint venture with Lithium Americas Corp to develop the Cauchari-Olaroz lithium project in Argentina.

 

SQM S.A. made a capital contribution of ThUS$25,000 in exchange for 50% of the ownership of Minera Exar S.A.

 

During May 2016, SQM Vitas Holland B.V. sold its interest in SQM Vitas Spain, to SQM Iberian S.A. resulting in the latter obtaining 100% in this transaction generating a loss of ThUS$ 104.

 

b)

Operations conducted in 2015

 

During June 2015, SQM Vitas Fzco. sold the ownership it had in SQM Vitas Southern Africa Pty., generating a loss of ThUS$450.

 

107

 

 

Note 12

Joint Ventures (continued)

 

12.3

Investment in joint ventures accounted for under the equity method of accounting

 

						Country of		Share of interest				Dividends received
Joint venture		Description of the nature of the relationship		Domicile		incorporation		in ownership				12/31/2016				12/31/2015
												ThUS$				ThUS$
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.		Production and distribution of soluble fertilizers.		Huangjing Road, Dawan Town, Qingbaijiang District, Chengdu Municipality, Sichuan Province		China			50	%			-				-
Coromandel SQM India		Production and distribution of potassium nitrate.		1-2-10,  Sardar Patel Road, Secunderabad – 500003 Andhra Pradesh		India			50	%			-				-
SQM Vitas Fzco.		Production and commercialization of specialty plant and animal nutrition and industrial hygiene.		Jebel ALI Free Zone P.O. Box 18222, Dubai		United Arab Emirates			50	%			-				-
SQM Star Qingdao Corp Nutrition. Co. Ltd.		Production and distribution of nutrient plant solutions with specialties NPK soluble		Longquan Town, Jimo City, Qingdao Municipality, Shangdong Province		China			50	%			-				-
SQM Vitas Brazil Agroindustria		Production and commercialization of specialty plant and animal nutrition and industrial hygiene.		Via Cndeias, Km. 01 Sem Numero, Lote 4, Bairro Cia Norte, Candeias, Bahia.		Brazil			49.99	%			-				-
SQM Vitas Southern Africa Pty.		Production and commercialization of specialty plant and animal nutrition and industrial hygiene		33 Waterford Office Park Waterford Drive Fourways, 2055 South Africa		South Africa			50	%			-				-
SQM Vitas Peru S.A.C.		Production and commercialization of specialty plant and animal nutrition and industrial hygiene		Av. Juan de Arona 187, Torre B, Oficina 301-II, San Isidro, Lima		Peru			50	%			-				-
SQM Vitas Spain(1)		Production and commercialization of specialty plant nutrition		C/Manuel Echeverria Manzana 2 Muelle de la Cab ( Puerto Real )		Spain			50	%			-				-
SQM Vitas Holland B.V		Without information		Herikerbergweg 238, 1101 CM Amsterdam Zuidoost		Holland			50	%			-				-
SQM Vitas Plantacote B.V.		Production and commercialization of controlled-released fertilizers		Herikerbergweg 238, 1101 CM Amsterdam Zuidoost		Holland			50	%			-				-
Minera Exar S.A.		Exploration and exploitation of minerals, processing and trading of such minerals		Dr. Sabín 1082 Ciudad de Nieva – San Salvador de Jujuy- Jujuy- República Argentina		Argentina			50	%			-				-

 

(1)

During May 2016, SQM Vitas Holland B.V. sold its interest in SQM Vitas Spain, to SQM Iberian S.A. resulting in the latter obtaining 100% in this transaction generating a loss of ThUS$ 104.

 

108

 

 

Note 12

Joint Ventures (continued)

 

12.3

Investment in joint ventures accounted for under the equity method of accounting, continued:

 

Joint Venture		Equity-accounted investees								Share on profit (loss) of associates and joint ventures accounted for using the equity method								Share on other comprehensive income of associates and joint ventures accounted for using the equity method, net of tax								Share on total other comprehensive income of associates and joint ventures accounted for using the equity method
		12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sichuan SQM Migao Chemical Fertilizers Co. Ltd.			12,150				13,257				-1,372				(845	)			-				(12	)			(1,372	)			(857	)
Coromandel SQM India			1,499				962				435				88				-				-				435				88
SQM Vitas Fzco,			17,956				11,604				3,458				369				449				9,686				3,907				10,055
SQM Star Qingdao Corp. Nutrition Co. Ltd.			2,618				2,462				163				495				-				-				163				495
SQM Vitas Holland			1,269				1,181				171				(10	)			-				-				171				(11	)
Minera Exar S.A.			25,000				-				-								-								-
Total			60,492				29,466				2,855				97				449				9,674				3,303				9,770

 

Joint Venture		Equity-accounted investees								Share on profit (loss) of associates and joint ventures accounted for using the equity method								Share on other comprehensive income of associates and joint ventures accounted for using the equity method, net of tax								Share on total other comprehensive income of associates and joint ventures accounted for using the equity method
		12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
SQM Vitas Brazil Agroindustria(1)			9,343				3,722				4,570				(72	)			2,845				-				5,130				(36	)
SQM Vitas Peru S.A.C (1)			5,964				5,061				815				786				-				-				408				393
SQM Vitas Spain (2)			-				1,182				-				(251	)			-				-				-				109
SQM Vitas Plantacote B.V. (2)			588				3,598				187				215				-				-				(80	)			(125	)
Total			15,895				13,563				5,572				678				2,,845				-				5,458				341

 

The following companies are subsidiaries of

 

(1)

SQM Vitas Fzco.

(2)

SQM Vitas Holland

 

109

 

 

Note 12

Joint Ventures (continued)

 

12.4

Assets, liabilities, revenue and expenses from joint ventures:

 

		12/31/2016
																						Gain (loss)
																						from				Other
		Assets								Liabilities												continuing				comprehensive				Comprehensive
Joint Venture		Current				Non-current				Current				Non-current				Revenue				operations				Income				Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.			43,639				7,399				26,738				-				16,051				(2,744	)			-				(2,744	)
Coromandel SQM India			4,485				847				2,334				-				8,034				870				-				870
SQM Vitas Fzco,			20,896				16,395				1,380				-				16,210				6,916				897				7,813
SQM Star Qingdao Corp. Nutrition Co. Ltd.			5,733				203				697				-				7,553				325				-				325
SQM Vitas Brazil Agroindustria			21,511				8,917				21,085				-				63,055				4,570				5,690				10,260
SQM Vitas Peru S.A.C			23,598				8,931				20,333				6,231				36,926				815				-				815
SQM Vitas Holland B.V			1,961				588				11				-				-				342				-				342
SQM Vitas Plantacote B.V.			619				-				31				-				-				(159	)			-				(159	)
Total			122,442				43,280				72,609				6,231				147,829				10,935				6,587				17,522

 

		12/31/2015
																						Gain (loss)
																						from				Other
		Assets								Liabilities												continuing				comprehensive				Comprehensive
Joint Venture		Current				Non-current				Current				Non-current			Revenue				operations				Income				Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.			56,053				8,023				37,563				-				65,929				(1,689	)			(24	)			(1,713	)
Coromandel SQM India			3,738				924				2,668				70				5,816				176				-				176
SQM Vitas Fzco.			14,096				10,575				1,464				-				17,893				738				19,371				20,109
SQM Star Qingdao Corp. Nutrition Co. Ltd.			5,100				202				377				-				10,539				990				-				990
SQM Vitas Brazil Agroindustria			32,449				6,638				35,365				-				67,870				(72	)			-				(72	)
SQM Vitas Peru S.A.C			24,432				6,562				25,933				-				45,739				786				-				786
SQM Vitas Spain			1,662				729				1,208				-				11,875				218				-				218
SQM Vitas Holland B.V			428				1,955				18				-				-				(21	)			-				(21	)
SQM Vitas Plantacote B.V.			802				-				30				-				-				(250	)			-				(250	)
Total			138,760				35,608				104,626				70				225,661				876				19,347				20,223

 

110

 

 

Note 12

Joint Ventures (continued)

 

12.5

Other Joint Venture disclosures:

 

		Cash and cash equivalents								Other current financial liabilities								Other non-current financial liabilities
		12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$$
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.			4,097				737				-				13,955				-				-
Coromandel SQM India			15				63				478				1,027				-				-
SQM Vitas Fzco,			11,514				7,574				-				-				-				-
SQM Star Qingdao Corp. Nutrition Co. Ltd.			3,756				3,870				-				-				-				-
SQM Vitas Brazil Agroindustria			2,168				827				8,718				11,215				-				-
SQM Vitas Peru S.A.C.			958				160				3,834				-				1,781				-
SQM Vitas Spain			-				272				-				-				-				-
SQM Vitas Holland B.V			1,961				428				-				-				-				-
SQM Vitas Plantacote B.V.			615				802				-				-				-				-
Total			25,084				14,733				13,030				26,197				1,781				-

 

		Depreciation and amortization expense								Interest expense								Income tax expense, continuing operations
		12/31/2016				12/31/2015				12/31/2016				12/31/2015				12/31/2016				12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Sichuan SQM Migao Chemical Fertilizers Co. Ltda.			(691	)			(687	)			(433	)			(241	)			200				233
Coromandel SQM India			-				(69	)			(49	)			(73	)			(44	)			(89	)
SQM Vitas Fzco.			(717	)			(1,067	)			(16	)			(10	)			-				-
SQM Star Qingdao Corp. Nutrition Co. Ltd.			(64	)			(66	)			(1	)			(2	)			(195	)			(378	)
SQM Vitas Brazil Agroindustria			(438	)			(29	)			(2,127	)			(1,651	)			(337	)			(49	)
SQM Vitas Peru S.A.C.			(82	)			(29	)			(323	)			-				(362	)			(370	)
SQM Vitas Spain			-				(116	)			-				(4	)			-				(73	)
SQM Vitas Holland B.V			-				-				-				(2	)			-				-
SQM Vitas Plantacote B.V.			-				-				(1	)			(3	)			-				-
Total			(1,992	)			(2,063	)			(2,950	)			(1,986	)			(738	)			(726	)

 

The basis of preparation of the financial information of joint ventures corresponds to the amounts included in the financial statements in conformity with the entity’s IFRS.

 

111

 

 

Note 13

Intangible assets and goodwill

 

13.1

Balances

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Intangible assets other than goodwill			109,439				110,428
Goodwill (1)			37,972				38,388
Total			147,411				148,816

 

(1)

The recoverable amount of the cash-generating unit has been determined based on a calculation of the value in use which used cash flow projections for a 5-year period, plus perpetuity.

 

The present value of the future cash flows generated by these assets has been estimated given a variance in sales volumes, market prices and costs, discounted at weighted average cost of capital (WACC).

 

13.2

Disclosures on intangible assets and goodwill

 

Intangible assets relate to goodwill, water rights, trademarks, industrial patents, rights of way, software, and mining claims which correspond to exploitation rights acquired from third-parties.

 

Balances and movements in the main classes of intangible assets as of December 31, 2016 and December 31, 2015 are detailed as follows:

 

				12/31/2016
Intangible assets and goodwill		Useful life		Gross amount ThUS$				Accumulated Amortization ThUS$				Net Value ThUS$
Software		Finite			23,280				(16,234	)			7,046
Intellectual property rights, patents and other industrial property rights, service		Finite			1,483				(1,023	)			460
Intellectual property rights, patents and other industrial property rights, service		Indefinite			98,596				-				98,596
Other intangible assets		Indefinite			3,337				-				3,337
Intangible assets other than goodwill					126,696				(17,257	)			109,439
Goodwill		Indefinite			37,972				-				37,972
Total intangible assets and goodwill					164,668				(17,257	)			147,411

 

112

 

 

Note 13

Intangible assets and goodwill (continued)

 

13.2

Disclosures on intangible assets and goodwill, continued

 

				12/31/2015
Intangible assets and goodwill		Useful life		Gross amount ThUS$				Accumulated Amortization ThUS$				Net Value ThUS$
Software		Finite			23,251				(13,438	)			9,813
Intellectual property rights, patents and other industrial property rights, service		Finite			1,448				(984	)			464
Intellectual property rights, patents and other industrial property rights, service		Indefinite			96,500				-				96,500
Other intangible assets		Indefinite			3,651				-				3,651
Intangible assets other than goodwill					124,850				(14,422	)			110,428
Goodwill		Indefinite			38,388				-				38,388
Total intangible assets and goodwill					163,238				(14,422	)			148,816

 

a)

Estimated useful lives or amortization rates used for finite identifiable intangible assets

 

Finite useful life measures the lifetime or the number of productive units or other similar variables which constitute its useful life.

 

The estimated useful life for software is 3 and 6 years, for other finite useful life assets the period in which they are amortized relates to periods defined by contracts or rights which generate them.

 

Intellectual property rights, patents and other industrial property rights, service and exploitation rights, mainly relate to water rights and are obtained as indefinite.

 

b)

Method used to express the amortization of identifiable intangible assets (life or rate)

 

The method used to express the amortization is useful life, and estimated tons to be extracted in the case of mining claims.

 

113

 

 

Note 13

Intangible assets and goodwill (continued)

 

13.2

Disclosures on intangible assets and goodwill, continued

 

c)

Minimum and maximum amortization lives or rates of intangible assets:

 

Estimated useful lives or amortization rate	Minimum life or rate		Maximum life or rate
Intellectual property rights, patents and other industrial property rights, service and exploitation rights	Indefinite		Indefinite
Intangible assets other than goodwill	Indefinite		Indefinite
Intellectual property rights, patents and other industrial property rights, service and exploitation rights	1 year		16 years
Trademarks	1 year		5 years
Software	2 years		6 years

 

d)

Information to be disclosed on assets generated internally

 

The Company has no intangible assets generated internally.

 

e)

Other information to disclose on intangible assets

 

SQM has property rights and mining concessions of the Chilean Government, intended for the exploration and exploitation of saltpeter and brine. Such rights, have had no initial cost over registration costs, which are insignificant.

 

Also, SQM has acquired from third-parties other than the Chilean Government, mining concessions, which have been recognized at acquisition cost, which are amortized as the corresponding area is exploited based on the tons estimated to be extracted.

 

Expenses prior to obtaining the mining concessions are recognized in profit or loss for the year as incurred.

 

114

 

 

Note 13

Intangible assets and goodwill (continued)

 

13.2

Disclosures on intangible assets and goodwill, continued

 

f)

Movements in identifiable intangible assets as of December 31, 2016:

 

Movements in identifiable intangible assets, gross		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service, rights of way				Intellectual property rights, patents and other industrial property rights, service, rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			3,821				23,251				1,448				96,500				3,651				38,388				167,059
Additions			-				160				25				2,100				-				-				2,285
Other increases (decreases)			(3,821	)			(131	)			10				(4	)			(314	)			(416	)			(4,676	)
Final balance			-				23,280				1,483				98,596				3,337				37,972				164,668

 

Movements in identifiable intangible assets, accumulated amortization		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service, rights of way				Intellectual property rights, patents and other industrial property rights, service, rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			(3,821	)			(13,438	)			(984	)			-				-				-				(18,243	)
Additions			-				-				-				-				-				-				-
Amortization			-				(2,796	)			(38	)			-				-				-				(2,834	)
Other increases (decreases)			3,821				-				(1	)			-				-				-				3,820
Final balance							(16,234	)			(1,023	)			-				-				-				(17,257	)

 

115

 

 

Note 13

Intangible assets and goodwill (continued)

 

13.2

Disclosures on intangible assets and goodwill, continued

 

f)

Movements in identifiable intangible assets as of December 31, 2016, continued

 

Movements in identifiable intangible assets, net		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service, rights of way				Intellectual property rights, patents and other industrial property rights, service rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			-				9,813				464				96,500				3,651				38,388				148,816
Additions			-				160				25				2,100				-				-				2,285
Amortization			-				(2,796	)			(38	)			-				-				-				(2,834	)
Other increases (decreases)			-				(131	)			9				(4	)			(314	)			(416	)			(856	)
Final balance			-				7,046				460				98,596				3,337				37,972				147,411

 

g)

Movements in identifiable intangible assets as of December 31, 2015:

 

Movements in identifiable intangible assets, gross		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service, rights of way				Intellectual property rights, patents and other industrial property rights, service, rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			3,821				23,062				1,524				97,386				3,698				38,388				167,879
Additions			-				189				15				-				-				-				204
Other increases (decreases)			-				-				(91	)			(886	)			(47	)			-				(1,024	)
Final balance			3,821				23,251				1,448				96,500				3,651				38,388				167,059

 

116

 

 

Note 13

Intangible assets and goodwill (continued)

 

13.2

Disclosures on intangible assets and goodwill, continued

 

g)

Movements in identifiable intangible assets as of December 31, 2015:

 

Movements in identifiable intangible assets, accumulated amortization		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service, rights of way				Intellectual property rights, patents and other industrial property rights, service, rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			(3,821	)			(9,996	)			(939	)			-				-				-				(14,756	)
Additions			-				-				-				-				-				-				-
Amortization			-				(3,432	)			(45	)			-				-				-				(3,477	)
Other increases (decreases)			-				(10	)			-				-				-				-				(10	)
Final balance			(3,821	)			(13,438	)			(984	)			-				-				-				(18,243	)

 

Movements in identifiable intangible assets, net		Trademarks				Software				Intellectual property rights, patents and other industrial property rights, service rights of way				Intellectual property rights, patents and other industrial property rights, service rights of way				Other intangible assets				Goodwill				Identifiable intangible assets
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			-				13,066				585				97,386				3,698				38,388				153,123
Additions			-				189				15				-				-				-				204
Amortization			-				(3,432	)			(45	)			-				-				-				(3,477	)
Other increases (decreases)			-				(10	)			(91	)			(886	)			(47	)			-				(1,034	)
Final balance			-				9,813				464				96,500				3,651				38,388				148,816

 

117

 

 

Note 14

Property, plant and equipment

 

As of December 31, 2016 and December 31, 2015, the detail of property, plant and equipment is as follows:

 

14.1

Types of property, plant and equipment

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Description of types of property, plant and equipment
Property, plant and equipment, net
Land			32,701				34,589
Buildings			120,691				128,375
Machinery			312,878				393,461
Transport equipment			2,153				14,766
Furniture and fixtures			5,429				8,516
Office equipment			5,768				6,168
Production plants			113,630				80,027
Mining assets			29,726				41,392
Constructions in progress			170,710				151,831
Other property, plant and equipment (1)			739,024				824,451
Total			1,532,710				1,683,576
Property, plant and equipment, gross
Land			32,701				34,589
Buildings			272,791				264,645
Machinery			1,223,174				1,211,927
Transport equipment			74,628				79,979
Furniture and fixtures			38,264				37,492
Office equipment			37,665				38,285
Production plants			227,494				171,769
Mining assets			230,567				228,240
Constructions in progress			170,710				151,831
Other property, plant and equipment			1,832,847				1,804,515
Total			4,140,841				4,023,272
Accumulated depreciation and value impairment of property, plant and equipment, total
Accumulated depreciation and impairment of buildings			152,100				136,270
Accumulated depreciation and impairment of machinery			910,296				818,466
Accumulated depreciation and impairment of transport equipment			72,475				65,213
Accumulated depreciation and impairment of furniture and fixtures			32,835				28,976
Accumulated depreciation and impairment of office equipment			31,897				32,117
Accumulated depreciation and impairment of production plants			113,864				91,742
Accumulated depreciation and impairment of mining assets			200,841				186,848
Accumulated depreciation and impairment of other property, plant and equipment			1,093,823				980,064
Total			2,608,131				2,339,696

 

(1)

The detail of other property, plant and equipment is as follows:

 

		12/31/2016 ThUS$				31/12/2015 ThUS$
Other property, plant and equipment, net
Conveyor belt system in plant			33,046				39,666
Tank (TK)			18,993				26,046
Geomembrane/liner							155,409
Electric facilities			45,408				56,600
Lights			1,110				2,252
Other constructions			126,969				109,478
Piping							17,174
Pool			284,025				160,869
Well (water)			42,584				44,432
Pipes/HDPE lines			127,805				131,431
Railroad track			2,274				11,001
Other property, plant and equipment			56,810				70,093
Total			739,024				824,451

 

118

 

 

Note 14

Property, plant and equipment (continued)

 

14.2

Reconciliation of changes in property, plant and equipment by type:

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2016, gross		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			34,589				264,645				1,211,927				79,979				37,492				38,285				171,769				228,240				151,831				1,804,515				4,023,272
Changes
Additions			-				-				1,192				50				14				763				-				-				145,606				1,473				149,098
Divestitures			-				-				(1,166	)			(5,540	)			(28	)			(1	)											(3,370	)			(753	)			(10,858	)
Increase(decrease) in foreign currency exchange			28				1				18				8				-				52				-				-				-				65				172
Reclassification			-				8,145				11,203				277				786				548				55,725				2,327				(101,105	)			27,950				5,856
Other increases (decreases) (*)			(25	)			-				-				(146	)			-				(1,982	)			-				-				(22,252	)			(209	)			(24,614	)
Decreases for classification as held-for-sale (1)			(1,891	)			-				-				-				-				-				-				-				-				(194	)			(2,085	)
Total changes			(1,888	)			8,146				11,247				(5,351	)			772				(620	)			55,725				2,327				18,879				28,332				117,569
Final balance			32,701				272,791				1,223,174				74,628				38,264				37,665				227,494				230,567				170,710				1,832,847				4,140,841

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2016, Accumulated depreciation		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			-				(136,270	)			(818,466	)			(65,213	)			(28,976	)			(32,117	)			(91,742	)			(186,848	)							(980,064	)			(2,339,696	)
Changes
Divestitures			-				-				759				5,540				28				-				-				-				-				-				6,327
Depreciation expense			-				(14,379	)			(81,090	)			(2,682	)			(3,426	)			(1,893	)			(22,125	)			(13,993	)			-				(100,069	)			(239,657	)
Impairment							(180	)			(5,612	)			(14,209	)			(269	)			-				-				-				-				(11,312	)			(31,582	)
Increase(decrease) in foreign currency exchange			-				(13	)			-				(14	)			-				(28	)			-				-				-				(13	)			(68	)
Reclassification			-				(1,258	)			(5,889	)			3,974				(192	)			(36	)			-				-				-				(2,455	)			(5,856	)
Other increases (decreases) (*)			-				-				2				129				-				2,177				3				-				-				61				2,372
Decreases for classification as held-for-sale (1)			-				-				-				-				-				-				-				-				-				29				29
Total changes			-				(15,830	)			(91,830	)			(7,262	)			(3,859	)			220				(22,122	)			(13,993	)			-				(113,759	)			(268,435	)
Final balance			-				(152,100	)			(910,296	)			(72,475	)			(32,835	)			(31,897	)			(113,864	)			(200,841	)			-				(1,093,823	)			(2,608,131	)

 

119

 

 

Note 14

Property, plant and equipment (continued)

 

14.2

Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2016, net		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			34,589				128,375				393,461				14,766				8,516				6,168				80,027				41,392				151,831				824,451				1,683,576
Changes
Additions			-				-				1,192				50				14				763				-				-				145,606				1,473				149,098
Divestitures			-				-				(407	)			-				-				(1	)			-				-				(3,370	)			(753	)			(4,531	)
Depreciation expense			-				(14,379	)			(81,090	)			(2,682	)			(3,426	)			(1,893	)			(22,125	)			(13,993	)			-				(100,069	)			(239,657	)
Impairment							(180	)			(5,612	)			(14,209	)			(269	)			-				-				-				-				(11,312	)			(31,582	)
Increase(decrease) in foreign currency exchange			28				(12	)			18				(6	)			-				24				-				-				-				52				104
Reclassification			-				6,887				5,314				4,251				594				512				55,725				2,327				(101,105	)			25,495				-
Other increases (decreases) (*)			(25	)			-				2				(17	)			-				195				3				-				(22,252	)			(148	)			(22,242	)
Decreases for classification as held-for-sale (1)			(1,891	)			-				-				-				-				-				-				-				-				(165	)			(2,056	)
Total changes			(1,888	)			(7,684	)			(80,583	)			(12,613	)			(3,087	)			(400	)			33,603				(11,666	)			18,879				(85,427	)			(150,866	)
Final balance			32,701				120,691				312,878				2,153				5,429				5,768				113,630				29,726				170,710				739,024				1,532,710

 

(*) The net balance of other increases (decreases) corresponds to: 1) Work in progress which are expensed to profit or loss (forming part of cost of sales and other expenses per function, as appropriate), 2) the variation representing the purchase and use of materials and spare parts and 3) reclassifications to other captions for the sale of property, plant and equipment and 4) projects which correspond to prospecting and development of small deposits.

 

(1) The Company classifies as non-current assets held-for-sale the property, plant and equipment (asset groups held-for-sale) whose date has been committed at the date of the consolidated financial statements or negotiations have started for such sale and the sale is estimated to occur within twelve months following such date.

 

These assets or asset groups held for sale are measured at the lower of carrying amount or the estimated sales value less costs to sell, and their amortization stops at the time they are classified as non-current assets held for sale.

 

120

 

 

Note 14

Property, plant and equipment (continued)

 

14.2

Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2015, gross		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			34,622				240,356				1,145,426				78,402				32,082				35,512				171,277				225,917				237,321				1,711,266				3,912,181
Changes
Additions			49				933				1,109				32				28				1,338				-				-				145,376				4,122				152,987
Divestitures			-				-				(13	)			(5	)			-				(1	)			-				-				(9,193	)			(369	)			(9,581	)
Impairment
Increase(decrease) in foreign currency exchange			(82	)			-				(53	)			(23	)			-				(104	)			-				-				(1	)			(180	)			(443	)
Reclassification			-				23,355				68,187				3,742				5,382				1,585				491				2,324				(178,445	)			88,703				15,324
Other increases (decreases) (*)							1				(2,729	)			(2,169	)							(45	)			1				(1	)			(43,227	)			973				(47,196	)
Total changes			(33	)			24,289				66,501				1,577				5,410				2,773				492				2,323				(85,490	)			93,249				111,091
Final balance			34,589				264,645				1,211,927				79,979				37,492				38,285				171,7689				228,240				151,831				1,804,515				4,023,272

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2015, Accumulated depreciation		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			-				(115,954	)			(791,878	)			(64,227	)			(23,066	)			(29,147	)			(62,504	)			(142,585	)			-				(794,866	)			(2,024,227	)
Changes
Divestitures			-				-				-				-				-				-				-				-				-				-				-
Depreciation expense			-				(13,945	)			(94,006	)			(15,575	)			(4,250	)			(3,051	)			(7,594	)			(15,236	)			-				(114,611	)			(268,268	)
Impairment
Increase(decrease) in foreign currency exchange			-				1				-				16				-				66				-				-				-				30				113
Reclassification			-				(5,348	)			70,419				24,887				(433	)			2				(21,644	)			(29,027	)			-				(54,180	)			(15,324	)
Other increases (decreases) (*)			-				(1,024	)			(3,001	)			(10,314	)			(1,227	)			13												-				(16,437	)			(31,990	)
Total changes			-				(20,316	)			(26,588	)			(986	)			(5,910	)			(2,970	)			(29,238	)			(44,263	)			-				(185,198	)			(315,469	)
Final balance			-				(136,270	)			(818,466	)			(65,213	)			(28,976	)			(32,117	)			(91,742	)			(186,848	)			-				(980,064	)			(2,339,696	)

 

121

 

 

Note 14

Property, plant and equipment (continued)

 

14.2

Reconciliation of changes in property, plant and equipment by type, continued:

 

Reconciliation entries of changes in property, plant and equipment by type as of December 31, 2015, net		Land				Buildings				Machinery				Transport equipment				Furniture and fixtures				Office equipment				Production plants				Mining assets				Constructions in progress				Other property, plant and equipment				Property, plant and equipment
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance			34,622				124,402				353,548				14,175				9,016				6,365				108,773				83,332				237,321				916,400				1,887,954
Changes
Additions			49				933				1,109				32				28				1,338				-				-				145,376				4,122				152,987
Divestitures			-				-				(13	)			(5	)			-				(1	)			-				-				(9,193	)			(369	)			(9,581	)
Depreciation expense			-				(13,945	)			(94,006	)			(15,575	)			(4,250	)			(3,051	)			(7,594	)			(15,236	)			-				(114,611	)			(268,268	)
Impairment
Increase(decrease) in foreign currency exchange			(82	)			1				(53	)			(7	)			-				(38	)			-				-				(1	)			(150	)			(330	)
Reclassification			-				18,007				138,606				28,629				4,949				1,587				(21,153	)			(26,703	)			(178,445	)			34,523				-
Other increases (decreases) (*)			-				(1,023	)			(5,730	)			(12,483	)			(1,227	)			(32	)			1				(1	)			(43,227	)			(15,464	)			(79,186	)
Total changes			(33	)			3,973				39,913				591				(500	)			(197	)			(28,746	)			(41,940	)			(85,490	)			(91,949	)			(204,378	)
Final balance			34,589				128,375				393,461				14,766				8,516				6,168				80,027				41,392				151,831				824,451				1,683,576

 

(*) The net balance of other increases (decreases) corresponds to: 1) Work in progress which are expensed to profit or loss (forming part of cost of sales and other expenses per function, as appropriate), 2) the variation representing the purchase and use of materials and spare parts 3) projects corresponding mainly to exploration expenditures and stain development and

 

122

 

 

Note 14

Property, plant and equipment (continued)

 

14.3

Detail of property, plant and equipment pledged as guarantee

 

There are no restrictions in title or guarantees for the compliance with obligations which affect property, plant and equipment.

 

14.4

Impairment of assets

 

As stated in Note 3.28, the recoverable amount of property, plant and equipment is measured whenever there is an indication that the asset may be impaired. As of December 31, 2016 and December 31, 2015, impairment adjustments were generated because of the closure of the railway stations for the transportation of products, see Note 34 and the closure of the Pedro de Valdivia mine site indicated in Note 33, respectively.

 

Railway for transportation of products from the Coya Sur location and the Port of Tocopilla

 

As a result of the rain storms that affected the Tocopilla Zone at the beginning of August 2015, SQM S.A. confirmed the existence of damages in several zones in the railway between the sites Coya Sur and Tocopilla. Accordingly, starting from such date the Company has used the transport of trucks replacing the transport through the railway. SQM has performed several internal and external studies with the purpose of determining the costs and terms necessary to repair the damages in the railway.

 

The analysis of the internal and external reports performed during 2016 allows concluding that the costs associated with repairing the damages caused by the rain storms would imply long-terms and high costs, and accordingly, it is not convenient at short and medium-term to repair the railway. Such decision does not affect the production process or imply additional employee reductions.

 

Consequently, SQM has adjusted the value of the assets associated with the railway (fixed equipment, facilities and rolling equipment), which has translated into a charge of approximately US$ 32 million which are reflected in the line other expenses by function in the consolidated statement of income for the period. Such amount approximately represents 0.8% of SQM’s total assets reported at the end of December 2016.

 

14.5

Additional information

 

Interest capitalized in construction-in-progress:

 

The amount capitalized for this concept amounted to ThUS$5,406 as of December 31, 2016 and ThUS$ 4,466 as of December 31, 2015.

 

Financing costs are not capitalized for periods which exceed the normal term of acquisition, construction or installation of the asset, such as the case of delays, interruptions or temporary suspension of the project due to technical, financial or other issues, which prevent that the asset is maintained in good conditions for its use.

 

123

 

 

Note 14

Property, plant and equipment (continued)

 

14.5

Additional information, continued

 

Available for sale assets

 

Non-current assets held for sale and the components of groups held for sale classified as held for sale are recorded in the Consolidated Statement of Financial Position in a single line under the following concept: “Non-current assets or asset groups for disposal classified as held for sale.”

 

The main classes of assets of non-current assets held for sale are shown below.

 

Available for sale assets		12/31/2016				12/31/2015
		ThUS$				ThUS$
Land			1,891				-
Facilities and fixtures			165				-
Total			2,056				-

 

Note 15

Employee benefits

 

15.1

Provisions for employee benefits

 

Classes of benefits and expenses by employee		12/31/2016				12/31/2015
		ThUS$				ThUS$
Current
Profit sharing and bonuses			20,998				10,074
Total			20,998				10,074
Non-current
Profit sharing and bonuses			-				-
Severance indemnity payments			22,532				21,995
Total			22,532				21,995

 

124

 

 

Note 15

Employee benefits (continued)

 

15.2

Policies on defined benefit plan

 

This policy is applied to all benefits received for services provided by the Company's employees.

 

Short-term benefits for active employees are represented by salaries, social welfare benefits, paid time-off, sickness leaves and other leaves, profit sharing and incentives and non-monetary benefits; e.g., healthcare service, housing, subsidized or free goods or services. These will be paid in a term which does not exceed twelve months.

 

The Company only provides compensation and benefits to active employees, with the exemption of SQM North America which applies the definitions under 15.4 below.

 

SQM maintains incentive programs for its employees based on the personal performance, the Company’s performance and other short-term, mid-term and long-term indicators.

 

For each incentive bonus delivered to the Company’s employees, there will be a disbursement in the first quarter of the following year and this will be calculated based on profit for the period at the end of each period applying a factor obtained subsequent to the employee appraisal process.

 

Employee benefits include retention bonuses for the Company’s executives, which are linked to the Company’s share price and it is paid in cash. The short-term portion is presented as provision for current employee benefits and the long-term portion as non-current.

 

The bonus provided to the Company’s directors is calculated based on Profit for the period at each year-end and will consider the application of a percentage factor.

 

The benefit related to vacations (short-term benefits to employees, current), which is provided in the Labor Code which indicates that employees with more than a year of service will be entitled to annual holidays for a period not lower than fifteen paid business days. The Company provides the benefit of two additional vacation days.

 

Staff severance indemnities are agreed and payable based on the last salary for each year of service for the Company or with certain maximum limits in respect to the number of years to be considered or in respect to monetary terms. In general, this benefit is payable when the employee or worker ceases to provide his/her services to the Company and the right for its collection can be acquired because of different causes, as indicated in the respective agreements; e.g., retirement, dismissal, voluntary retirement, incapacity or disability, death, etc..

 

Law No. 19,728 published on May 14, 2001 which became effective on October 1, 2002 required “Compulsory Unemployment Insurance” in favor of all depending employees regulated by the Chilean Labor Code. Article 5 of this law provided the financing of this insurance through monthly contribution payments by both the employee and the employer.

 

125

 

 

Note 15

Employee benefits (continued)

 

15.3

Other long-term benefits

 

The other long-term benefits relate to staff severance indemnities and are recorded at their actuarial value.

 

Staff severance indemnities at actuarial value		12/31/2016				12/31/2015
		ThUS$				ThUS$
Staff severance indemnities, Chile			21,384				20,883
Other obligations in companies elsewhere			1,148				1,112
Total other non-current liabilities			22,532				21,995

 

Staff severance indemnities have been calculated under the actuarial assessment method of the Company’s obligations with respect to staff severance indemnities, which relate to defined benefit plans which consist of days of remuneration per year served at the time of retirement under conditions agreed in the respective agreements established between the Company and its employees.

 

Under this benefit plan, the Company retains the obligation for the payment of staff severance indemnities related to retirements, without establishing a separate fund with specific assets, which is referred to as not funded. The discount interest rate of expected flows to be used was 4.5 522 %.

 

Benefit payment conditions

 

The staff severance indemnity benefit relates to remuneration days for year worked for the Company with no limit of salary or years of services for the Company, when employees cease to work for the Company due to turnover or death. In this case, the maximum age for men is 65 years and 60 years old for women, which are the usual ages for retirement due to achieving the senior citizen age according to the Chilean pensions system provided in Decree Law 3,500 of 1,980.

 

Methodology

 

The determination of the obligation for benefits under IAS 19 Projected Benefit Obligation (PBO) is described as follows:

 

To determine the Company's total liability, we used a mathematical simulation model which was programmed using a computer and which processed the situation of each employee on an individual basis.

 

126

 

 

Note 15

Employee benefits (continued)

 

15.3

Other long-term benefits, continued

 

This model considered months as discrete time; i.e., the Company determined the age of each person and his/her salary on a monthly basis according to the growth rate. Thus, information on each person was simulated from the beginning of the life of his/her employment contract or when he/she started earning benefits up to the month in which it reaches the normal retirement age, generating in each period the possible retirement according to the Company’s turnover rate and the mortality rate according to the age reached. When he/she reaches the retirement age, the employee finishes his/her service for the Company and receives indemnity related to retirement due to old age.

 

The methodology followed to determine the accrual for all the employees adhered to agreements has considered turnover rates and the mortality rate RV-2009 established by the Chilean Superintendence of Securities and Insurance to calculate pension-related life insurance reserves in Chile according to the Accumulated Benefit Valuation or Accrued Cost of Benefit Method. This methodology is established in IAS 19 on Retirement Benefit Costs.

 

15.4

Post-employment benefit obligations

 

Our subsidiary SQM North America, has established with its employees, a pension plan until 2002 called “SQM North America Retirement Income Plan”, whereby obligation is calculated measuring the expected future forecasted staff severance indemnity obligation using a net salary gradual rate of restatements for inflation, mortality and turnover assumptions discounting the resulting amounts at present value using the interest rate defined by the authorities.

 

Since 2003, SQM North America offers to its employee benefits related to pension plans based on the 401-K system, which do not generate obligations for the Company.

 

Reconciliation		12/31/2016				12/31/2015
Changes in the benefit obligation		ThUS$				ThUS$
Benefit obligation at the beginning of the year			7,949				7,324
Service cost			2				3
Interest cost			387				380
Actuarial loss			200				600
Benefits paid			(353	)			(358	)
Benefit obligation at the end of the year			8,185				7,949

 

127

 

 

 

Note 15

Employee benefits (continued)

 

15.4

Post-employment benefit obligations, continued

 

		12/31/2016				12/31/2015
Changes in the plan assets:		ThUS$				ThUS$
Fair value of plan assets at the beginning of the year			7,464				7,967
Actual return (loss) in plan assets			293				(145	)
Benefits paid			(353	)			(358	)
Fair value of plan assets at the end of the year			7,404				7,464
Financing status			(782	)			(485	)
Items not yet recognized as net periodic pension cost components:
Net actuarial loss at the beginning of the year			(3,165	)			(1,903	)
Amortization during the year			184				68
Net estimated gain or loss occurred during the year			(451	)			(1,330	)
Adjustment to recognize the minimum pension obligation			(3,432	)			(3,165	)

 

The net periodic pension expense was composed of the following components for the years ended December 31, 2015 and 2014:

 

Reconciliation		12/31/2016				12/31/2015
		ThUS$				ThUS$
Service cost or benefits received during the year			2				3
Interest cost in benefit obligation			387				380
Actual return in plan assets			293				(145	)
Amortization of prior year losses			184				68
Net gain during the year			610				728
Net periodic pension expense			29				(133	)

 

15.5

Staff severance indemnities

 

As of December 31, 2016 and December 31, 2015, severance indemnities calculated at the actuarial value are as follows:

 

		12/31/2016 ThUS$				12/31/2015 ThUS$
Opening balance			(21,995	)			(30,952	)
Current cost of service			(1,333	)			(898	)
Interest cost			(1,407	)			(1,588	)
Actuarial gain/loss			(2,253	)			1,242
Exchange rate difference			(1,215	)			3,582
Benefits paid during the year			5,671				6,619
Balance			(22,532	)			(21,995	)

 

128

 

 

Note 15

Employee benefits (continued)

 

15.5

Staff severance indemnities, continued

 

a)

Actuarial assumptions

 

The liability recorded for staff severance indemnity is valued at the actuarial value method, using the following actuarial assumptions:

 

		12/31/2016				12/31/2015
Mortality rate			RV - 2014				RV - 2009
Actual annual interest rate			4.522	%			4.89	%
Voluntary retirement rotation rate:
Men			7.16	%			7.16	%		annual
Women			7.16	%			7.16	%		annual
Salary increase			3.60	%			3.60	%		annual
Retirement age:
Men			65				65			years
Women			60				60			years

 

b)

Sensitivity analysis of assumptions

 

As of December 31, 2016 and December 31, 2015, on the actuarial calculation, the Company has conducting the sensitivity analysis of the main assumptions, determining the following:

 

Sensitivity analysis 12/31/2016		Effect + 100 basis points ThUS$				Effect - 100 basis points ThUS$
Discount rate			(1,576	)			1,773
Employee turnover rate			(207	)			231

 

Sensitivity analysis 12/31/2015		Effect + 100 basis points ThUS$				Effect - 100 basis points ThUS$
Discount rate			(1,432	)			1,471
Employee turnover rate			(250	)			148

 

Sensitivity relates to an increase/decrease of 100 basis points.

 

129

 

 

Note 16

Executive compensation plan

 

Through the present date, the Company has a compensation plan with the purpose of encouraging the Company’s executives and encourage them to stay in the Company, by granting payments based on the change in price of SQM’s shares.

 

Average Share Price Spread

 

Plan characteristics

 

This compensation plan is related to the Company’s performance through the SQM Series B share price (Santiago Stock Exchange).

 

Plan participants

 

This compensation plan includes 24 of the Company’s executives, who obtain this benefit, provided they remain in the Company at the payment dates. Payment dates, if applicable, will be in the first weeks of January 2017 and 2018.

 

Compensation

 

The compensation for each executive is the differential between the average share price during each of the months of December 2015, December 2016 and December 2017, respectively, in its equivalent in US dollars and the reference prices, of US$23.43 and the average weighted price of the trading of SQM Series B shares in the Santiago Stock Exchange during December 2014. The differential cannot exceed US$15.00 and will be multiplied by 5,000. If the amount calculated is negative or zero, no bonus will be paid during that period, but in such case, the bond of benefit payable in the following period to the employee will be equal to the product of multiplying the difference by 10,000. If the value was negative or zero in December 2015 and also in December 2016, for calculating the bond of December 2017, the differential will be multiplied by 15,000.

 

The movement of the options in effect for the period, the average prices for the fiscal year of the options and the average contractual life of the options in effect as of December 31, 2016 and December 31, 2015 are the following:

 

Movement for the period		2016				2015
In effect as of January 1			405,000				390,000
Redundant workers			(45,000	)			(45,000	)
Granted during the fiscal year			-				60,000
In circulation			360,000				405,000
Average weighted contractual life			12 months				24 months
Executives			24				27

 

130

 

   

Note 17

Disclosures on equity

 

The detail and movements in the funds of equity accounts are shown in the consolidated statement of changes in equity.

 

17.1

Capital management

 

The main object of capital management relative to the administration of the Company’s financial debt and equity is to ensure the regular conduct of operations and business continuity in the long term, with the constant intention of maintaining an adequate level of liquidity and in compliance with the financial safeguards established in the debt contracts in force. Within this framework, decisions are made in order to maximize the value of SQM.

 

Capital management must comply with, among others, the limits contemplated in the Financing Policy approved Board of Directors, which establish a maximum consolidated indebtedness level of 1.5 times the debt/equity. This limit can be exceeded only if the Company’s management has a written and previously granted authorization issued at the Extraordinary Shareholders’ Meeting.

 

In addition, capital management must comply with the external capital requirements imposed (or covenants) in its financial obligations, which regulate the indebtedness level by 1.2 times, in its more strict level.

 

In conjunction with the level of indebtedness, it is also important for the Company to maintain a comfortable profile of maturities for its financial obligations, in order to oversee the relation between its short-term financial obligations and the long-term maturities, and the relation they have with the Company’s asset distribution. Consequently, the Company has maintained a liquidity level of 3 times during the last periods.

 

The Company’s management controls capital management based on the following ratios:

 

CAPITAL MANAGEMENT		12/31/2016				12/31/2015				Description (1)		Calculation (1)
Net Financial Debt ThUS$			461,569				528,649			Financial Debt – Financial Resources		Other current Financial Liabilities + Other Non-Current Financial Liabilities – Cash and Cash Equivalents – Other Current Financial Assets – Hedging Assets, non-current
Liquidity			4.02				3.84			Current Asset divided by Current Liability		Total Current Assets / Total Current Liabilities
Net Debt / Capitalization			0.17				0.18			Net Financial Debt divided by Total Equity		Net financial debt / ( Net financial debt + Total Equity)
ROE			12.25	%			9.1	%		Income divided by Total Equity		Total Income / Equity (UH 12 months)
ROA			16.0	%			13.4	%		EBITDA – Depreciation divided by Net Total Assets of financial resources less  related parties investments		(Gross Income – Administrative Expenses)/ (Total Assets – Cash and Cash Equivalents – Other Current Financial Assets – Other Non-Current Financial Assets – Equity-accounted Investees) (UH 12 months)
Indebtedness			0.83				0.93			Total Liability on Equity		Total Liabilities / Total Equity
										(1) Assumes the absolute value of the accounting records

 

131

 

  

Note 17

Disclosures on equity (continued)

 

17.1

Capital management, continued

 

The Company’s capital requirements change depending on variables such as work capital requirements, of new investment financing and dividends, among others. The Company manages its capital structure and makes adjustments on the basis of the predominant economic conditions so as to mitigate the risks associated with adverse market conditions and take advantage of the opportunities there may be to improve the liquidity position.

 

There have been no changes in the capital management objectives or policy within the years reported in this document. No breaches of external requirements of capital imposed (or covenants) have been recorded.

 

17.2

Disclosures on preferred share capital

 

Issued share capital is divided into 263,196,524 fully paid and subscribed shares composed of 142,819,552 Series "A" shares and 120,376,972 Series “B” shares, where both series are preferred shares.

 

The preferential voting rights for each series are detailed as follows:

 

Series “A”:

 

If the election of the Company’s President results in a tie vote, the Company's directors may vote once again, without the vote of the director elected by the Series B shareholders.

 

Series “B”:

 

1)

A general or extraordinary shareholders' meeting may be called at the request of shareholders representing 5% of the Company's Series B shares.

 

2)

An extraordinary meeting of the Board of Directors may be called with or without the agreement of the Company's President, at the request of the director elected by Series B shareholders.

 

As of December 31, 2016 and December 31, 2015, the Group does not maintain shares in the parent either directly or through its companies in which it has investments.

 

132

 

  

Note 17

Disclosures on equity (continued)

 

17.2

Disclosures on preferred share capital, continued

 

Detail of types of capital in preference shares:

 

Type of capital in preferred shares		12/31/2016								12/31/2015
Description of type of capital in preferred shares		Series A				Series B				Series A				Series B
Number of authorized shares			142,819,552				120,376,972				142,819,552				120,376,972
Number of fully subscribed and paid shares			142,819,552				120,376,972				142,819,552				120,376,972
Number of subscribed, partially paid shares			-				-				-				-
Par value of shares in ThUS$			0.9435				2.8464				0.9435				2.8464
Increase (decrease) in the number of current shares			-				-				-				-
Number of current shares			142,819,552				120,376,972				142,819,552				120,376,972
Number of shares owned by the entity or its subsidiaries or associates			-				-				-				-
Number of shares whose issuance is reserved due to the existence of options or agreements to dispose shares			-				-				-				-
Capital amount in shares ThUS$			134,750				342,636				134,750				342,636
Amount of premium issuance ThUS$			-				-				-				-
Amount of reserves ThUS$			-				-				-				-
Total number of subscribed shares, total			142,819,552				120,376,972				142,819,552				120,376,972

 

As of December 31, 2016 and December 31, 2015, the Company has not placed any new issuances of shares on the market.

 

133

 

 

Note 17

Disclosures on equity (continued)

 

17.3

Disclosures on reserves in equity

 

As of December 31, 2016 and December 31, 2015, this caption comprises the following:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Reserve for currency exchange conversion			(19,463	)			(14,035	)
Reserve for cash flow hedges			64				(1,699	)
Reserve for gains and losses from financial assets measured at fair value through other comprehensive income			3,513
Reserve for actuarial gains or losses in defined benefit plans			(4,834	)			(2,386	)
Other reserves			7,832				(1,677	)
Total other reserves			(12,888	)			(19,797	)

 

Reserves for currency exchange conversion

 

This balance reflects retained earnings for changes in the exchange rate when converting financial statements of subsidiaries whose functional currency is from each company’s origin country and the presentation currency is the US dollar.

 

Reserve for cash flow hedges

 

The Company maintains, as hedge instruments, financial derivatives related to obligations with the public issued in UF and Chilean pesos. Changes from the fair value of derivatives designated and classified as hedges are recognized under this classification.

 

Reserve for gains and losses from financial assets measured at fair value through other comprehensive income

 

This caption includes investments in shares where the Company has no significant influence and; accordingly, have been measured at fair value through equity. In the event that such equity instruments are fully or partially disposed of, the proportional accumulated effect of accumulated fair value will be transferred to profit or loss.

 

Reserve for actuarial gains or losses in defined benefit plans

 

For the domestic subsidiaries the effects of changes in assumptions are considered, mainly changes in the discount rate.

 

The subsidiary SQM North America has established pension plans for its retired employees that are calculated by measuring the projected obligation of IAS using a net salary progressive rate net of adjustments to inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 5.5% interest rate for 2016 and 2015.

 

134

 

 

Note 17

Disclosures on equity (continued)

 

17.3

Disclosures on reserves in equity, continued

 

Other reserves

 

Corresponds to the acquisition of the subsidiary SQM Iberian S.A., which was already under ownership of the Company at the acquisition date (IAS 27 R).

 

17.4

Dividend policies

 

As required by Article 79 of the Chilean Companies Act, unless otherwise decided by unanimous vote of the holders of issued and subscribed shares, we must distribute a cash dividend in an amount equal to at least 30% of our consolidated Profit for the period for year ended as of December 31, unless and except to the extent it has a deficit in retained earnings (losses not absorbed in prior years).

 

The Company’s dividend policy for 2016 is as follows:

 

-

Distribution and payment in favor of each shareholder of a final dividend which will be equivalent to 50% of Profit for the period obtained in 2016.

 

-

Distribution and payment, if possible during 2016, of a provisional dividend which will be recorded against the aforementioned final dividend. This provisional dividend will be paid probably during the last quarter of 2016 and its amount could not exceed 50% of the retained earnings for distribution obtained during 2016, which are reflected in the Company’s financial statements as of December 31, 2016.

 

-

The distribution and payment by the Company of the remaining balance of the final dividend related to Profit for the period for the 2016 commercial year in up to two installments, which will have to be effectively paid and distributed prior to June 30, 2017.

 

-

An amount equivalent to the remaining 50% of the Company’s Profit for the period for 2016 will be retained and destined to the financing of operations of one or more of the Company’s investment projects with no prejudice of the possible future capitalization of the entirety or a portion of this.

 

-

The Board of Directors does not consider the payment of any additional dividends.

 

-

The Board of Directors does not consider the payment of any interim dividends

 

-

The Board of Directors considers as necessary to indicate that the aforementioned dividends policy corresponds to the intention or expectation of the Board regarding this matter. Consequently, the enforcement of such dividends policy is necessarily conditioned to net incomes finally obtained, to the results indicating the Company’s regular forecasts or the existence of certain conditions that could affect them. Notwithstanding the above and to the extent that such policy dividend does not suffer a significant change, SQM S.A. will timely communicate its shareholders on this matter.

 

135

 

  

Note 17 -

Disclosures on equity (continued)

 

17.5

Interim and provisional dividends

 

On March 22, 2016, the Company communicated that the Directors of Sociedad Química y Minera de Chile S.A. (SQM), at the Ordinary Meeting unanimously agreed the following:

 

Partially amend the “Dividend Policy for Commercial Year 2015 of SQM S.A.” which was reported to the Ordinary Shareholders’ Meeting of April 24, 2015 with the main purpose of including in such “Policy” the payment of an interim dividend of US$150,000,000, equivalent to US$0.56992 per share, which will be paid with a charge to retained earnings of SQM S.A.

 

On November 23, 2016, the Board of Directors of Sociedad Química y Minera de Chile S.A, approved paying a provisional dividend of US$ 225 million, equivalent to US$ 0.85487 per share with a charge to profit for 2016. Such amount will be paid at its equivalent in Chilean pesos using the Observed U.S. dollar exchange rate published in the Official Gazette of December 13, 2016.

 

This payment of dividend will be made in favor of the shareholders personally or through their duly authorized representatives from 9:00 am of December 20, 2016. The shareholders of record with the Shareholder’ Registry 5 business days prior to December 20, 2016.

 

Change in the Dividend Policy in 2016

 

On November 23, 2016, the provisional dividend described above was approved and the Dividend Policy for the Commercial Year 2016 at the Ordinary Shareholders’ Meeting of April 26, 2016 (the “Dividend Policy”) was replaced with the following:

 

(i)          Except for the dividend approved on such date, which will be paid during the last quarter of 2016 the Company decided not to distribute any more provisional dividends during 2016..

 

(ii)         The remaining amount of net profit for 2016, if any, will be withheld and destined for the financing the operations of one or more of the Company’s investment projects notwithstanding the possible and future capitalization of all or a portion of this or its distribution as a dividend declared as decided by the shareholders at the Company’s Ordinary Shareholders’ Meeting.

 

(iii)        The Dividend Policy indicated above relates to the Board of Directors’ intention or expectation with respect to such matter. Consequently, compliance with such Dividend Policy necessarily depends on the net profit that are finally obtained and the profit or loss indicated by the Company’s regular forecasts.

 

To the extent that the Dividend Policy has any significant change, the Board of Directors will timely communicate and inform its shareholders of such situation through an essential event.

 

136

 

  

Note 17 -

Disclosures on equity (continued)

 

17.5

Interim and provisional dividends, continued

 

On November 17, 2015, the Board of Directors of Sociedad Química y Minera de Chile S.A. agreed that the Company pay and distribute a provisional dividend referred to in the “Dividend Policy for Commercial year 2015 of SQM S.A.” as agreed at the Annual General Ordinary Shareholders’ Meeting of April 24, 2015.

 

Accordingly, the Company paid and distributed starting from December 10, 2015 a provisional dividend per share of US$0.31915, which was equivalent to approximately US$84,000,000 and, this, to 49.82889% of net profit for distribution from the commercial year 2015, which was accumulated as of December 31 of such year. Such dividend will be charged to profit from the commercial year to the Shareholders recorded in the Shareholders’ Record of SQM on the fifth business day prior to December 10 indicated above and at its amount equivalent in Chilean pesos, the domestic currency at its "Observed U.S. Dollar” or “U.S. dollar” exchange rate published in the Official Gazette on December 3, 2015.

 

On April 24, 2015, at the Fortieth General Ordinary Shareholders’ Meeting, the shareholders agreed the payment of a dividend declared of US$ 0.56304 per share for the net profit obtained during the 2014 commercial year. From this dividend declared the amount of US$ 0.41493 per share was discounted, which was paid for the concept of the provisional dividend and the remaining balance, then amounting to US$0.14811 per share, was paid and distributed in favor of the Shareholders of SQM recorded with the related Shareholders’ Record on the fifth business day prior to the date in which the dividend was paid. Such amount was paid at its equivalent amount in Chilean pesos the domestic currency per the “Observed U.S. dollar” or “U.S. dollar” exchange rate, which was published on April 24, 2015.

 

Dividends presented deducted from equity are:

 

		12/31/2016 ThUS$				12/31/2015 ThUS$
Dividends attributable to owners of the parent			3,014				3,248
Provisional dividend			225,000				106,584
Interim dividend			150,000				-
Total			378,014				109,832

 

137

 

 

Note 18

Provisions and other non-financial liabilities

 

18.1

Types of provisions

 

		12/31/2016												12/31/2015
		Current				Non- current				Total				Current				Non- current				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Provision for legal complaints (*)			20,867				3,000				23,867				18,067				3,000				21,067
Provision for dismantling, restoration and rehabilitation cost (**)			-				5,890				5,890				-				5,890				5,890
Other provisions			21,045				44				21,089				13,445				-				13,445
Total			41,912				8,934				50,846				31,512				8,890				40,402

 

(*) Provisions for legal complaints relate to legal expenses for lawsuits whose resolution are pending, and correspond to funds estimated necessary to make the disbursement of expenses incurred for this purpose. This provision relates mainly to the litigation of its subsidiary located in Chile, Brazil and the United States (see note 19.1). 

(**) Such provision is calculated considering the instructions issued by the regulating agency (Servicio Nacional de Geología y Minería de Chile, Sernageomin (The Chilean National Geology and Mining Service).

 

138

 

   

Note 18

Provisions and other non-financial liabilities (continued)

 

18.2

Description of other provisions

 

Current provisions, other short-term provisions		12/31/2016				12/31/2015
		ThUS$				ThUS$
Provision for tax loss in fiscal litigation			750				610
Royalties, agreement with CORFO (the Chilean Economic Development Agency)			11,452				6,310
Provision for additional tax related to foreign loans			450				524
Miscellaneous provisions			8,393				6,001
Total			21,045				13,445
Other long-term provisions
Mine closure			5,890				5,890
Miscellaneous			44				-
Total			5,934				5,890

 

18.3

Other liabilities current

 

Description of other liabilities		12/31/2016				12/31/2015
		ThUS$				ThUS$
Tax withholdings			14,340				5,946
VAT payable			3,949				6,677
Guarantees received			2,638				748
Accrual for dividend			1,189				23,887
Monthly tax provisional payments			9,545				5,985
Deferred income			6,507				9,764
Withholdings from employees and salaries payable			5,552				3,459
Accrued vacations			15,841				13,171
Other current liabilities			2,359				329
Total			61,920				69,966

 

139

 

   

Note 18

Provisions and other non-financial liabilities (continued)

 

18.4

Changes in provisions

 

		12/31/2016
Description of items that gave rise to variations		Guarantee				Restructuring				Legal complaints				Onerous contracts				Provision for dismantling, restoration and rehabilitation cost				Other provisions				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Total provisions, initial balance			-				-				21,067				-				5,890				13,445				40,402
Changes in provisions:
Additional provisions			-				-				2.800				-				-				12.764				15.564
Provision used			-				-				-				-				-				(5.715	)			(5.715	)
Increase(decrease) in foreign currency exchange			-				-				-				-				-				128				128
others			-				-				-				-				-				467				467
Total provisions, final balance			-				-				23.867				-				5.890				21.089				50.846

 

		12/31/2015
Description of items that gave rise to variations		Guarantee				Restructuring (*)				Legal complaints				Onerous contracts				Provision for dismantling, restoration and rehabilitation cost				Other provisions				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Total provisions, initial balance			-				-				22,567				-				5,890				8,180				36,637
Changes in provisions:
Additional provisions			-				16,327				8,500				-				-				14,733				39,560
Provision used			-				(16,327	)			(10,000	)			-				-				(9,111	)			(35,438	)
Increase(decrease) in foreign currency exchange			-				-				-				-				-				(357	)			(357	)
Total provisions, final balance			-				-				21,067				-				5,890				13,445				40,402

 

(*) Provisions relating to restructuring in 2015 are related to the closure of the Pedro de Valdivia site. See Note 34.

 

140

 

  

Note 18

Provisions and other non-financial liabilities (continued)

 

18.5

Detail of main types of provisions

 

Legal expenses: This provision depends on the pending resolution of a legal lawsuit, to pay the expenses associated to and incurred during such lawsuit (incurred mainly in Brazil, Chile and the United States).

 

Tax accrual in tax litigation: This accrual relates to lawsuits pending resolution related to taxes in Brazil for two of our subsidiaries, SQM Brazil and NNC.

 

CORFO (Economic Development Agency) Royalties agreement: Relates to the commercialization of mining properties that SQM Salar S.A. pays the Economic Development Agency for on a quarterly basis. The amount of the lease payable is calculated based on sales of products extracted from the Atacama Saltpeter deposit.

 

The settlement of the aforementioned amounts is performed on a quarterly basis.

 

To date, the Company and its subsidiaries have no significant uncertainties about the timing and amount of one class of provision.

 

141

 

  

Note 19

Contingencies and restrictions

 

According to note 18.1 the Company has only registered a provision for the lawsuits in which the probability that judgments are unfavorable for the Company is more likely than not. The Company is party to lawsuits and other relevant legal actions that are detailed as follows:

 

19.1

Lawsuits and other relevant events

 

1.	Plaintiff	:	Nancy Erika Urra Muñoz.
	Defendants	:	Fresia Flores Zamorano, Duratec-Vinilit S.A. and SQM S.A. and their Insurers.
	Date	:	December 2008.
	Court	:	1st Civil Court of Santiago.
	Reason	:	Labor Accident.
	Status	:	Appeal filed by the plaintiff.
	Nominal value	:	ThUS$550.
2.	Plaintiff	:	City of Pomona, California USA.
	Defendant	:	SQM North America Corporation.
	Date	:	December 2010.
	Court	:	United States District Court Central District of California.
	Reason	:	Payment of expenses and other amount related to the treatment of groundwater to allow for consumption by removing the existing perchlorate in such groundwater and that supposedly come from Chilean fertilizer.
	Status	:	The Jury rejected the lawsuit. The plaintiff files an appeal, the resolution of which is pending.
	Nominal value	:	ThUS$32,000.
3.	Plaintiff	:	City of Lindsay, California USA.
	Defendant	:	SQM North America Corporation
			The lawsuit also was filed against Sociedad Química y Minera de Chile S.A. this
			lawsuit has not yet been notified to the Company.
	Date	:	December 2010.
	Court	:	United States District Court Eastern District of California.
	Reason	:	Payment of expenses and other amount related to the treatment of groundwater to allow for consumption by removing the existing perchlorate in such groundwater and that supposedly come from Chilean fertilizer.
	Status	:	Claim. Processing suspended.
	Nominal value	:	Not possible to determine.

 

142

 

 

Note 19

Contingencies and restrictions (continued)

 

19.1

Lawsuits and other relevant events, continued

 

4.	Plaintiff	:	H&V Van Mele N.V.
	Defendant	:	SQM Europe N.V. and its insurance companies.
	Date	:	July 2013.
	Court	:	Commercial Court.
	Reason	:	Alleged indirect responsibility for the absence of adequate specification for the SOP–WS by the Belgian distributor.
	Status	:	Evidence.
	Nominal value	:	ThUS$430.
5.	Plaintiff	:	Carlos Aravena Carrizo et al.
	Defendant	:	SQM Nitratos S.A. and its insurers.
	Date	:	May 2014.
	Court	:	18th Civil Court of Santiago.
	Reason	:	Compensation claim for alleged civil liability under tort as a result of an explosion that occurred on September 6, 2010 near Baquedano, causing the death of 6 workers. Transactions performed with the families of five of such workers.
	Status	:	Evidence.
	Nominal value	:	ThUS$500.
6.	Plaintiff	:	Corporación de Fomento de la Producción (CORFO).
	Defendant	:	SQM Salar S.A. and Sociedad Química y Minera de Chile S.A.
	Date	:	May 2014.
	Court	:	Arbitration court.
	Reason	:	Early termination of Lease Agreement entered into on November 12, 1993 for (i) alleged failure in full payment of quarterly rental payments linked to certain products during the period 2009–2013 and (ii) alleged absence of demarcation of certain mining properties owned by Corfo which such agency never demarcated with respect to which never requested a demarcation in such Agreement and also seeking compensation for damages among other matters.
	Status	:	Evidence.
	Nominal value	:	ThUS$9,000.

 

143

 

   

Note 19

Contingencies and restrictions (continued)

 

19.1

Lawsuits and other relevant events, continued

 

7.	Plaintiff	:	CORFO
	Defendants	:	SQM Salar S.A, SQM Potasio S.A. and SQM S.A.
	Date	:	August 2016.
	Court	:	Arbitration Court- Arbitrator Mr. Héctor Humeres.
	Reason	:	Project early termination entered on November 12, 1993 and other related contracts among other matters involving compensation for damages.
	Status	:	Deliberation stage finished. Through resolution of January 24, 2017, the Court ordered accumulating this case with the case reported in No. 6 above.
	Nominal value	:	Not determined.
8.	Plaintiff	:	SQM Salar S.A and SQM S.A.
	Defendant	:	CORFO
	Date	:	September 28, 2016.
	Court	:	Arbitration Court - Arbitrator Mr. Héctor Humeres.
	Reason	:	Declaratory action to seek determination whether rent payments made by SQM Salar S.A. under the Lease Agreement entered into on November 12, 1993, have been in accordance with the agreement entered into by the parties and the rent formula applied has been useful for CORFO.
	Status	:	Deliberation stage finished. Through resolution of January 24, 2017, the Court ordered accumulating this case with the case reported in No. 6 above.
	Nominal value	:	Not yet defined.
9.	Plaintiff	:	Evt Consulting SpA.
	Defendant	:	SQM Nitratos S.A.
	Date	:	October 2014.
	Court	:	23th Civil Court of Santiago.
	Reason	:	Lawsuit seeking compensation for damages related to the termination of the purchase and sale agreement for metallic structures.
	Status	:	Judgment of December 15, 2016 final judgment, absolving SQM Nitratos S.A. of the payment of compensation. An appeal and appeal in cassation was filed by the plaintiff and an appeal was filed by SQM Nitratos S.A.
	Nominal value	:	ThUS$ 835.

 

144

 

   

Note 19

Contingencies and restrictions (continued)

 

19.1

Lawsuits and other relevant events, continued

 

10.	Plaintiff	:	Hugo Gutiérrez Gálvez.
	Defendant	:	Sociedad Química y Minera de Chile S.A. et al and Senators Jaime Orpis B. and Fulvio Rossi C.
	Date	:	July 2015.
	Court	:	8 th Supervisory Court in Preliminary Proceedings of Santiago, Chile
	Reason	:	Alleged extortion–bribery and money laundering under Law No. 20.393 on the Legal Responsibility of Juridical Persons and other standards.
	Status	:	Initial filing.
	Nominal value	:	None.
11.	Plaintiff	:	Patricio Contesse G.
	Defendant	:	SQM S.A.
	Date	:	September 2015.
	Court	:	First Labor Court of Santiago.
	Reason	:	Seeking the payment of severance indemnities and other employment termination benefits.
	Status	:	On November 8, 2016, judgment was provided rejecting the exception of prescription filed by SQM. As a result, the case will return to the first instance for the discussion of the amounts owed.
	Nominal value	:	ThUS$5,665.
12.	Plaintiff	:	SQMS y SQM S.A.
	Defendant	:	RSA Seguros Chile S.A.
	Date	:	In August 2016.
	Court	:	Arbitration Court – Arbitrator Mr. Gonzalo Fernández.
	Reason	:	Complaint for forced compliance and collection of indemnification for insurance claim of February 7 and 8, 2013.
	Status	:	Deliberation stage finished
	Nominal value	:	US$ 20,657,860.

 

145

 

   

Note 19

Contingencies and restrictions (continued)

 

19.1

Lawsuits and other relevant events, continued

 

13.	Plaintiff	:	Tyne and Wear Pension Fund as represented by the Council of the Borough of South Tyneside acting as Lead Plaintiff – Class Action – Class Period.
	Defendant	:	Sociedad Química y Minera de Chile S.A.
	Date	:	January 2016.
	Court	:	United States District Court – Southern District of New York.
	Reason	:	Class Actions – Class Period. SQM would have not reported properly to the US Securities and Exchange Commission on certain expenses made during certain years which could be associated with alleged contributions to politicians. Such expenses would not have the related supporting documentation for being substantiated as necessary to generate income and this would have generated the intervention by several Chilean Government authorities – the Chilean Superintendence of Securities and Insurance (SVS), the Chilean Internal Revenue Service and Public Ministry – and the decrease of the value of the shares –ADS’s of SQM owned by the plaintiffs.
	Status	:	Exceptions to demand.
	Nominal value	:	Not determined.
14.	Plaintiff	:	Thorco Shipping A/S
	Defendant	:	Sociedad Química y Minera de Chile S.A.
	Date	:	January 2015.
	Court	:	Arbitration court – London Maritime Arbitrators' Association.
	Reason	:	Lawsuit seeking compensation for damages alleging a freight agreement breach.
	Status	:	On January 31, 2017, the Company was ordered to pay US$247,845. The Company is currently analyzing filing an appeal against such judgment.
	Nominal value	:	ThUS$325
15.	Plaintiff	:	Ernesto Saldaña González et al.
	Defendant	:	SQM Salar S.A., SQM Industrial S.A. and their insurance companies
	Date	:	May 2016.
	Court	:	13 th Civil Court of Santiago.
	Reason	:	Lawsuit seeking compensation for damages for alleged civil liability under tort law arising from the accident occurred on July 21, 2014 to Mr. Marco Antonio Saldaña González while he was repairing a truck of a contractor in the María Elena location which resulted in his death when a portion of the truck’s structure fell down on him.
	Status	:	Evidentiary stage.
	Nominal value	:	ThUS$ 515.

 

146

 

   

Note 19

Contingencies and restrictions (continued)

 

19.1

Lawsuits and other relevant events, continued

 

16.	Plaintiff	:	María Yolanda Achiardi Tapia et al.
	Defendant	:	SQM Salar S.A. and its insurance companies and other 5 defendants
	Date	:	February 2015.
	Court	:	1 st Civil Court of Antofagasta.
	Reason	:	Lawsuit seeking compensation for damages for the alleged civil liability in tort law arising from a traffic accident occurred in April 20, 2011 in the city of Antofagasta, caused by a bus subcontracted by a Contractor, resulting in the death of three people travelling in a light vehicle which was collided by the bus.
	Status	:	The lawsuit is pending notice to one of the defendants.
	Nominal value	:	ThUS$ 1,265.

 

The Company and its subsidiaries have been involved and will probably continue to be involved either as plaintiffs or defendants in certain judicial proceedings that have been and will be heard by the Arbitration or Ordinary Courts of Justice that will make the final decision. Those proceedings that are regulated by the appropriate legal regulations are intended to exercise or oppose certain actions or exceptions related to certain mining claims either granted or to be granted and that do not or will not affect in an essential manner the development of the Company and its subsidiaries.

 

Soquimich Comercial S.A. has been involved and will probably continue being involved either as plaintiff or defendant in certain judicial proceedings through which it intends to collect and receive the amounts owed, the total nominal value of which is approximately ThUS$1,200.

 

The Company has made efforts and continues making efforts to obtain payment of certain amounts that are still owed it on occasion of their activities. Such amounts will continue to be required using judicial or non-judicial means by the plaintiffs, and the actions and exercise related to these are currently in full force and effect.

 

The Company and its subsidiaries have received no legal notice on lawsuits other than those indicated above, which exceed ThUS$200.

 

147

 

  

Note 19

Contingencies and restrictions (continued)

 

19.2

Restrictions to management or financial limits

 

Credit contracts subscribed by the SQM Group with domestic and foreign banks and the issuance of bonuses in the local and international market require that the Company comply with the following level of consolidated financial indicators, calculated for a moving period which considers the last twelve months:

 

-

To maintain a minimum equity of ThUS$1,000,000.

-

To maintain a Net Financial Debt and EBITDA ratio not higher than 3 times.

-

To maintain a Total Indebtedness Ratio not higher than 1.2 times Total Indebtedness level defined as the Total Liabilities ratio divided by Total Equity.

-

To maintain a ratio between the operating subsidiaries SQM Industrial S.A. and SQM Salar S.A., or their respective legal successor financial debt and the total Issuer’s consolidated current assets not higher than 0.3 times.

 

As of December 31, 2016, the aforementioned financial indicators are as follows:

 

Indicator		12/31/2016				12/31/2015
Equity ThUS$			2,307,272				2,400,356
Net Financial Debt/ EBITDA			0.58				0.73
Indebtedness			0.83				0.93
SQM Industrial and SQM Salar debt / Current assets			0.02				0.01

 

Issuance contracts for bonuses issued abroad does not require that the Company merge or dispose at any title the asset as a whole or as a substantial part of it, unless the following copulative conditions are met: (i) the legal successor company is an entity subject to Chilean or American laws, and assumes under a complimentary contract the Company’s obligations, (ii) the Issuer does not fail to comply immediately after the merge or disposal, and (iii) the Issuer delivers a legal opinion stating the merge or disposal and the complimentary contract meet the requirements described in the original contract.

 

In addition, SQM S.A. is committed to disclose financial information on quarterly basis.

 

The Company and its subsidiaries have complied and are fully complying with all aforementioned limitations, restrictions and obligations.

 

148

 

  

Note 19

Contingencies and restrictions (continued)

 

19.3

Arbitration proceedings with CORFO

 

The subsidiary SQM Salar S.A. (SQMS) has signed a rental contract with the Economic Development Agency (CORFO), which establishes that the subsidiary will pay rent to CORFO for the concept of commercialization of certain mining properties owned by CORFO and for the products resulting from the commercialization. The annual rent stated in the aforementioned contract is calculated on the basis of sales of each type of product. The contract is in force until 2030, and rent began being paid in 1996 reflecting an expense amount of ThUS$ 41,962 as of December 31, 2016 (ThUS$ 23,155 as of December 31, 2015).

 

On 15 November 2013, Corporación de Fomento de la Producción (CORFO) sent a letter to SQMS stating its intention to a) collect the amount of Ch$2,530,298,919 (ThUS$4,823) that in CORFO’s opinion, SQMS would owe to it for the calculation and payment of rental payments according to the “Lease Agreement of OMA Mining Claims located in the Atacama Salt Flat” entered into between CORFO and SQMS on November 12, 1993 (the AGREEMENT) and b) require the constitution of an instance of arbitration stated in the AGREEMENT with the purpose that the arbitrator appointed by the “Arbitration Center of the Santiago Chamber of Commerce” determines if other alleged lease payment obligations may exist that SQMS could owe to CORFO under the AGREEMENT.

 

During May 2014, CORFO filed a lawsuit against SQMS requesting the early termination of the agreement and other requests explained in Note 19.1. Such lawsuit is currently being processed.

 

SQMS differs completely form CORFO’s claims. In fact, the AGREEMENT has been in force for more than 20 years and during all this time, SQMS has paid to CORFO more than 80 quarterly payments in their entirety and on a timely basis that CORFO has received satisfactorily.

 

In our legal advisors’ opinion, there are no legal grounds to early terminate the lease agreement as –i- noncompliance on which the lawsuit is based do not exist and, if any, -ii- these are not gross or essential or hinder the purpose of the agreement –iii- the company has never had the intention of deceiving and has always been fully transparent in providing the information delivered. On the contrary, the conflict solely corresponds to a discussion on the right formula to calculate the rent amount.

 

The total amount finally requested by CORFO was at least US$ 8,940,829 – plus interests and costs – and the arbitration proceeding is close to the end of the evidentiary stage. CORFO and SQMS waived all recourses against the judgment provided by the arbitrator. However, it is not possible to discard the filing of a complaint appeal or an appeal in cassation alleging incompetence or ultra petita and indicating the jurisprudence of the courts of justice, considering that both recourses cannot be waived.

 

On August 17, 2016, CORFO noticed a new arbitration claim filed against SQM Potasio S.A., SQM S.A. and SQMS, by virtue of which it required the early termination of the Project Contract entered on November 12, 1993 and other related contracts among other matters.

 

149

 

 

Note 19

Contingencies and restrictions (continued)

 

19.3

Commitments, continued

 

In addition, on September 28, 2016, SQM and SQMS have filed a request for a third arbitration with CORFO. Through this last arbitration, SQM and SQMS expect to obtain a declaratory action determining that in the payment of the rent payments made under the lease agreement for the agreement’s term, there has been no damage for CORFO. Such arbitration is at the deliberation stage.

 

During the period ended December 31, 2016, income related to products from the Atacama saltpeter deposit represented a 47.42% of total comprehensive income of the Company for the same period. This corresponds to income considered in the Potassium and Lithium product business lines.

 

Additionally, during the same period, SQMS sold potassium salts (sylvinite) and wet potassium chloride for a total of ThUS$ 96,037 to SQM Industrial S.A., a subsidiary of SQM to be used as supplies in the production of potassium nitrate.

 

19.4

Environmental contingencies

 

On June 6, 2016, The Chilean Superintendence of the Environment filed charges against SQM with respect to the Pampa Hermosa project for possible noncompliance with RCA 890/2010.

 

This relates to charges associated with certain variables in the Follow-up Plan and the implementation of a mitigation action contemplated in the related Environmental Impact Study. SQM has submitted a compliance program detailing the actions and commitments that the Company will perform to overcome the objections filed by the environmental authority. The Chilean Superintendence of the Environment is currently reviewing such compliance program.

 

Through Exempt Resolution No. 1/Journal F-041-2016 of November 28, 2016 as amended through Exempt Resolution No. 4/Journal F-041-2016 of December 23, 2016, the Chilean Superintendence of the Environment presented charges against SQMS for the extraction of brine over the authorized amount, gradual impact on the vitality status of carob trees, delivery of incomplete information, amendment of variables, among others. SQMS has submitted a compliance program detailing the actions and commitments that the Company will perform to try to overcome the objections presented by the environmental authority. The Chilean Superintendence of the Environment is currently reviewing such compliance program.

 

Should the Chilean Superintendence of the Environment reject any of the aforementioned compliance programs, the Company is exposed to fines and other sanctions established in the Chilean environmental legislation.

 

19.5

Tax contingency

 

During 2015, SQM and its subsidiaries SQM Salar and SQM Industrial have submitted to the Chilean IRS four tax amendments (two by SQM, one by SQM Salar and one by SQM Industrial).

 

The first two (one filed by SQM and another filed by SQM Salar), subsequent to being approved by the Chilean IRS generated payments of taxes, interests and other charges for ThUS$ 8,100, which was recorded in a provision in the results for the first quarter of 2015.

 

150

 

 

Note 19

Contingencies and restrictions (continued)

 

19.5

Tax contingency, continued

 

Additionally, during August 2015, the Company provided to the Chilean IRS for review and approval, the documentation required to amend the annual income tax returns of SQM and SQM Industrial. SQM believes that as a result of these amendments the Company will have to pay approximately US$1.4 million for the concept of taxes, interests and other charges, Such amount was recorded in a provision in the results for the second quarter of 2015.

 

Finally, during 2016, the last 12 invoices were amended with approximate payment of US$ 50 thousand.

 

Accordingly, SQM and its subsidiaries understand the internal analysis they have been performing has ended, the purpose of which was the identification of the expenses incurred by them during the commercial years 2008 to 2014 and which could be a matter of tax amendment.

 

Because of the aforementioned amendments, SQM, SQM Salar and SQM Industrial might be affected by additional penalty established in article 97 No. 4, of the Tax Code. The Company has currently not estimated making any provisions related to this possible additional penalty.

 

On August 28, 2015, the Chilean IRS sent to SQM a request for payment of taxes of US$8.7 million plus interests and fines related to the tax difference resulting from the application of articles 64 Bis and 64 Ter of the Chilean Income Tax Law. On September 9, 2015, SQM filed a Request for Voluntary Administrative Reconsideration with the Chilean IRS, which was not accepted. As a result, the Company paid the amounts as requested totaling US$14.6 million, and reserved its right to file a tax claim against the request for payment by the Chilean IRS with the Courts of Justice.

 

In the Company’s tax lawyers’ opinion, grounds exist to believe this case will be resolved in favor of the Company and, as such, no provisions have been made with respect to this case.

 

On August 26, 2016, SQM Salar filed with the Third Tax and Customs Court of the Metropolitan Region of Chile a tax claim against tax assessments Nos. 169, 170, 171 and 172, seeking to extend the application of the Specific Tax on Mining Activities to the exploitation of lithium. The amount involved is approximately ThUS$17,809. The tax claim is at the deliberation stage.

 

On December 7, 2016, the Chilean Internal Revenue Service (Servicio de Impuestos Internos (SII)) through notice No.1587-16 communicated to SQMS the outcome of its inspections of Income Taxes for the tax years 2015 and 2016, through Resolution No.156 / 2016 and tax assessment No. 207, respectively. Tax differences claimed by the SII will amount to ThUS$13,168 plus interests and fines associated with an interpretation of whether the specific tax on mining activities is applicable or not to lithium. SQMS is analyzing filing a complaint against such resolution and tax assessment issued by the SII.

 

151

 

 

Note 19

Contingencies and restrictions (continued)

 

19.6

Restricted or pledged cash

 

The subsidiary Isapre Norte Grande Ltda., in compliance with that established by the Chilean Superintendence of Healthcare which regulates the running of pension-related health institutions, maintains a guarantee in financial instruments delivered in deposits, custody and administration to Banco de Chile.

 

This guarantee, according to the regulations issued by the Chilean Superintendence of Healthcare is equivalent to the total sum owed to its members and medical providers Banco de Chile reports the present value of the guarantee to the Chilean Superintendence of Healthcare and Isapre Norte Grande Ltda. on a daily basis. As of December 31, 2016, the guarantee amounts to ThUS$685.

 

SQM S.A. maintains funds with Morgan Stanley for the concept of Marging Call, which provide collateral for the Bank’s exposition towards the Company.

 

Such collateral hedges the fair value of the Cross Currency Swap that SQM S.A. has to hedge a portion of the Series H Bond.

 

Through the present date, SQM S.A. has delivered ThUS$ 3,810 to Morgan Stanley, which will be released when any of the following conditions occur:

 

1.

The market value of the Cross Currency Swap is lower than the sum of that delivered ThUS$3,810 and the collateral threshold ThUS$ 5,000.

2.

The Cross Currency Swap associated with the H Series Bond expires on January 5, 2018.

 

SQM S.A. maintains funds with BCI for the concept of margin call, which provide collateral for the Bank’s exposition towards the Company.

 

Such collateral hedges the fair value of the Cross Currency Swap that SQM S.A. has to hedge the Series H Bond.

 

Through the present date, SQM S.A. has delivered ThUS$0 to BCI, which will be released when any of the following conditions occur:

 

1.

The market value of the Cross Currency Swap of the last business day of the month is lower than the sum of that delivered ThUS$0 and the collateral threshold ThUS$ 10,000.

2.

The Cross Currency Swap associated with the H Series Bond expires on January 5, 2018.

 

152

 

 

Note 19

Contingencies and restrictions (continued)

 

19.7

Securities obtained from third parties

 

The main security received (exceeding ThUS$100) from third parties to guarantee Soquimich Comercial S.A.’s compliance with obligations in contracts of commercial mandates for the distribution and sale of fertilizers amounted to ThUS$6,984 and ThUS$6,445 on December 31, 2016 and December 31, 2015 respectively; which is detailed as follows:

 

Grantor		Relationship		12/31/2016				12/31/2015
				ThUS$				ThUS$
Tattersall Agroinsumos S.A.		Unrelated third party			2,000				2,000
Contador Frutos S.A.		Unrelated third party			1,574				1,443
Agrícola Lobert Ltda.		Unrelated third party			1,141				760
Covepa SPA		Unrelated third party			747				780
Johannes Epple Davanzo		Unrelated third party			333				451
Juan Luis Gaete Chesta		Unrelated third party			241				227
Arena Fertilizantes y Semillas		Unrelated third party			224				211
Vicente Oyarce Castro		Unrelated third party			220				202
Soc. Agrocom. Julio Polanco		Unrelated third party			149				141
Bernardo Guzmán Schmidt		Unrelated third party			125				115
Gilberto Rivas Y Cia. Ltda.		Unrelated third party			125				115
Comercial Agrosal Ltda.		Unrelated third party			105				-
Total					6,984				6,445

 

153

 

   

Note 19

Contingencies and restrictions (continued)

 

19.8

Indirect guarantees

 

Guarantees in which there is no pending balance indirectly reflect that the respective guarantees are in force and approved by the Company’s Board of Directors and have not been used by the respective subsidiary.

 

The bonds which disclose a balance as of December 31, 2016 and December 31, 2015 are detailed below:

 

Debtor

Type of

Balances as of the closing date of the financial statements

Creditor of the guarantee

Name

Relationship

guarantee

12/31/2016

12/31/2015

ThUS$

ThUS$

Australian and New Zealand Bank

SQM North America Corp

Subsidiary

Bond

-

-

Australian and New Zealand Bank

SQM Europe N.V.

Subsidiary

Bond

-

-

Generale Bank

SQM North America Corp

Subsidiary

Bond

-

-

Generale Bank

SQM Europe N.V.

Subsidiary

Bond

-

-

Kredietbank

SQM North America Corp

Subsidiary

Bond

-

-

Kredietbank

SQM Europe N.V.

Subsidiary

Bond

-

-

Banks and financial institutions

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

Banks and financial institutions

SQM Europe N.V.

Subsidiary

Bond

-

-

Banks and financial institutions

SQM North America Corp

Subsidiary

Bond

-

-

Banks and financial institutions

Nitratos Naturais do Chile Ltda.

Subsidiary

Bond

-

-

Banks and financial institutions

SQM México S.A. de C.V.

Subsidiary

Bond

-

-

Banks and financial institutions

SQM Brasil Ltda.

Subsidiary

Bond

-

-

“BNP”

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

Sociedad Nacional de Mineria A.G.

SQM Potasio S.A.

Subsidiary

Bond

-

-

Scotiabank & Trust (Cayman) Ltd.

Royal Seed Trading A.V.V.

Subsidiary

Bond

-

-

Scotiabank & Trust (Cayman) Ltd.

Royal Seed Trading A.V.V.

Subsidiary

Bond

-

-

Bank of America

Royal Seed Trading A.V.V.

Subsidiary

Bond

-

40,137

Export Development Canada

Royal Seed Trading A.V.V.

Subsidiary

Bond

-

20,010

The Bank of Tokyo-Mitsubishi UFJ Ltd.

Royal Seed Trading A.V.V.

Subsidiary

Bond

-

20,052

JP Morgan Chase Bank

SQM Industrial S.A.

Subsidiary

Bond

-

-

The Bank of Nova Scotia

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

 

154

 

   

Note 19

Contingencies and restrictions (continued)

 

19.8

Indirect guarantees, continued

 

Debtor

Type of

Pending balances as of the closing date of the financial statements

Creditor of the guarantee

Name

Relationship

guarantee

12/31/2016

12/31/2015

ThUS$

ThUS$

Credit Suisse International

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

Morgan Stanley Capital Services

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

The Bank of Tokyo-Mitsubishi UFJ Ltd.

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

HSBC

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

Deutsche Bank AG

SQM Investment Corp. N.V.

Subsidiary

Bond

-

-

 

155

 

  

Note 20

Revenue

 

As of December 31, 2016 and 2015, revenue is detailed as follows:

 

		January to December
		2016				2015
Types of revenue		ThUS$				ThUS$
Sales of goods			1,933,828				1,721,064
Provision of services			5,494				7,268
Total			1,939,322				1,728,332

 

Detail by line of business in Note 26.2 and 26.3

 

Note 21

Earnings per share

 

Basic earnings per share are calculated by dividing net income attributable to the Company’s shareholders by the weighted average of the number of shares in circulation during that period.

 

As expressed, earnings per share are detailed as follows:

  

Basic earnings per share		12/31/2016 ThUS$				12/31/2015 ThUS$
Earnings (losses) attributable to owners of the parent			278,290				213,168

 

		12/31/2016 Units				12/31/2015 Units
Number of common shares in circulation			263,196,524				263,196,524

 

		12/31/2016				12/31/2015
Basic earnings per share (US$ per share)			1.0573				0.8099

 

The Company has not made any operations with a potential dilutive effect that assumes diluted earnings per share are different from the basic earnings per share.

 

156

 

  

Note 22

Borrowing costs

 

The cost of interest is recognized as expenses in the year in which it is incurred, except for interest that is directly related to the acquisition and construction of tangible property, plant and equipment assets and that complies with the requirements of IAS 23. As of December 31, 2016, total interest expenses incurred amount to ThUS$57,459 (ThUS$69,853 as of December 31, 2015).

 

The Company capitalizes all interest costs directly related to the construction or to the acquisition of property, plant and equipment, which require a substantial time to be suitable for use.

 

22.1

Costs of capitalized interest, property, plant and equipment

 

The cost of capitalized interest is determined by applying the average or weighted average of all financing costs incurred by the Company to the monthly end balances of works-in-progress meeting the requirements of IAS 23.

 

The rates and costs for capitalized interest of property, plant and equipment are detailed as follows:

 

		12/31/2016				12/31/2015
Capitalization rate of costs for capitalized interest, property, plant and equipment			4	%			5	%
Amount of costs for interest capitalized in ThUS$			5,406				4,666

 

157

 

  

Note 23

Effect of fluctuations on foreign currency exchange rates

 

a)

Foreign currency exchange differences recognized in profit or loss except for financial instruments measured at fair value through profit or loss:

 

		12/31/2016 ThUS$				12/31/2015 ThUS$
Conversion foreign exchange gains (losses) recognized in the result of the year.			460				(12,364	)
Conversion foreign exchange reserves attributable to the owners of the controlling entity			(5,428	)			(6,334	)
Conversion foreign exchange reserves attributable to the non-controlling entity			35				(165	)

 

b)

Reserves for foreign currency exchange differences:

 

As of December 31, 2016, and December 31, 2015, foreign currency exchange differences are detailed as follows:

 

Detail		12/31/2016 ThUS$				12/31/2015 ThUS$
Changes in equity generated by conversion of equity value:
Comercial Hydro S.A.			1.004				1,004
SQMC Internacional Ltda.			(13	)			(20	)
Proinsa Ltda.			(10	)			(15	)
Comercial Agrorama Ltda.			(69	)			(100	)
Isapre Norte Grande Ltda.			(124	)			(155	)
Almacenes y Depósitos Ltda.			47				(31	)
Sales de Magnesio Ltda.			(29	)			(161	)
Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.			(6	)			(9	)
Agrorama S.A.			(49	)			(35	)
Doktor Tarsa			(12.264	)			(8,305	)
SQM Vitas Fzco			(1.801	)			(2,245	)
Ajay Europe			(1.935	)			(1,731	)
SQM Eastmed Turkey			(95	)			(81	)
Charlee SQM (Thailand) Co. Ltd.			(460	)			(476	)
Coromandel SQM India			(282	)			(301	)
SQM Italia SRL			(287	)			(250	)
SQM Oceania Pty Ltd.			(634	)			(634	)
SQM Indonesia S.A.			(124	)			(123	)
Abu Dhabi Fertilizers Industries WWL.			(434	)			21
SQM Vitas Holland			(280	)			(320	)
SQM Thailand Limited			(68	)			(68	)
SQM Europe N.V.			(1.550	)			-
Total			(19.463	)			(14,035	)

 

158

 

  

Note 23

Effect of fluctuations on foreign currency exchange rates (continued)

 

c)

Functional and presentation currency

 

The functional currency in these companies corresponds to the currency of the country of origin of each entity, and its presentation currency is the U.S. dollar.

 

d)

Reasons to use one presentation currency and a different functional currency

 

-

The total revenues of these subsidiaries are associated with the local currency.

-

The commercialization cost structure of these companies is affected by the local currency.

-

The equities of these companies are expressed in local currency (Chilean peso).

 

Note 24

Environment

 

24.1

Disclosures of disbursements related to the environment

 

The Company is continuously concerned with protecting the environment both in its production processes and with respect to products manufactured. This commitment is supported by the principles indicated in the Company’s Sustainable Development Policy. The Company is currently operating under an Environmental Management System (EMS) that has allowed it to strengthen its environmental performance through the effective application of the Company’s Sustainable Development Policy.

 

Operations that use caliche as a raw material are carried out in desert areas with climatic conditions that are favorable for drying solids and evaporating liquids using solar energy. Operations involving the open-pit extraction of minerals, due to their low waste-to-mineral ratio, generate remaining deposits that slightly alter the environment. A portion of the ore extracted is crushed, a process in which particle emissions occur. Currently this operation is conducted only at the Pedro de Valdivia worksite and no ore crushing process is conducted in the María Elena sector.

 

Many of the Company’s products are shipped in bulk at the Port of Tocopilla. In 2007, the city of Tocopilla was declared a zone saturated with MP10 Particles mainly due to the emissions from the electric power plants that operate in that city. In October 2010, the Decontamination Plan for Tocopilla was put in place. Accordingly, the Company has committed to taking several measures to mitigate the effects derived from bulk product movements in the port. These measures have been successfully implemented since 2007.

 

The Company carries out environmental follow-up and monitoring plans based on specialized scientific studies. Within this context, the Company entered into a contract with the National Forestry Corporation (CONAF) aimed at researching the activities of flamingo groups that live in the Salar de Atacama (Atacama Saltpeter Deposit) lagoons. Such research includes a population count of the birds, as well as breeding research. Environmental monitoring activities carried out by the Company at the Salar de Atacama and other systems in which it operates are supported by a number of studies that have integrated diverse scientific efforts from prestigious research centers, including Dictuc from the Pontificia Universidad Católica in Santiago and the School of Agricultural Science of the Universidad de Chile.

 

159

 

    

Note 24

Environment (continued)

 

24.1

Disclosures of disbursements related to the environment, continued

 

Furthermore, within the framework of the environmental studies which the Company is conducting, the Company performs significant activities in relation to the recording of Pre-Columbian and historical cultural heritage, as well as the protection of heritage sites, in accordance with current Chilean laws. These activities have been especially performed in the areas surrounding Maria Elena and the Nueva Victoria plants. This effort is being accompanied by cultural initiatives within the community and the organization of exhibits in local and regional museums.

 

As emphasized in its Sustainable Development Policy, the Company strives to maintain positive relationships with the communities surrounding the locations in which it carries out its operations, as well as to participate in communities’ development by supporting joint projects and activities which help to improve the quality of life for residents. For this purpose, the Company has focused its efforts on activities involving the rescue of historical heritage, education and culture, as well as development.

 

In order to do so, it acts both individually and in conjunction with private and public entities.

 

24.2

Detail of information on disbursements related to the environment

 

The accumulated disbursements in which the Company incurred as of December 31, 2016 for the concept of investments in production processes, verification and control of compliance with ordinances and laws relative to industrial processes and facilities, including prior year disbursements related to these projects amounted to ThUS$4,986 and are detailed as follows:

 

160

 

 

Note 24

Environment (continued)

 

24.2

Detail of information on disbursements related to the environment, continued

 

Accumulated expenses as of 12/31/2016

 

Identification of the Parent or subsidiary

Name of the project with which expenditure is associated

Concept for which the expenditure was made or will be made

Asset / Expense

Description of the asset or expense Item

Amount of expenditure

Actual or estimated date on which expenditure was or will be made

Miscellaneous

Environmental-operational area

Not classified

Expense

Not classified

2,331

12/31/2016

SQM S.A.

01-I003200 - Standardization of hazardous materials

Sustainability: Environment and Risk Prevention

Asset

Not classified

79

12/31/2016

SQM S.A.

01-I005500 - Standardization of SO2 plants

Sustainability

Asset

Not classified

188

12/31/2016

SQM S.A.

01-I007300 – Compliance with Exposure to Iodine Gas Standard

Sustainability: Environment and Risk Prevention

Asset

Not classified

721

12/31/2016

SQM S.A.

01-I006700 - Enablement of CPC wells

Sustainability: Environment and Risk Prevention

Expense

Not classified

-

12/31/2016

SQM S.A.

01-I007100 - 2015-2016 Environmental Follow-up Plan for Pampa del Tamarugal

Sustainability

Expense

Not classified

290

31/03/2017

SQM S.A.

01-I007200 – 2015-2016 Environmental Follow-up Plan Salar de Llamara

Sustainability: Environment and Risk Prevention

Asset

Not classified

54

12/31/2016

SQM S.A.

01-P003500 - Tur Development Master Plan

Sustainability: Environment and Risk Prevention

Expense

Not classified

20

12/31/2016

SQM S.A.

01-P003000 - Plant 1 Scrubber and Plant 3 Scrubber

Sustainability: Environment and Risk Prevention

Asset

Not classified

355

12/31/2016

SQM Industrial S.A.

04-I007600 - NV evaporation ponds

Sustainability: Environment and Risk Prevention

Expense

Not classified

78

12/31/2016

SQM Industrial S.A.

04-J004100 – Coya Sur Field Disposal DIA

Environmental processing

Asset

Not classified

31

12/31/2016

SQM Industrial S.A.

04-J004300 – Energetic Efficiency Study

Sustainability: Environment and Risk Prevention

Expense

Not classified

31

12/31/2016

SQM Industrial S.A.

04-J007000 – Environmental Impact Statement

Sustainability: Environment and Risk Prevention

Expense

Not classified

40

30/04/2017

SQM Industrial S.A.

04-J003300 – Improvement to water distribution

Sustainability: Environment and Risk Prevention

Expense

Not classified

376

12/31/2016

SQM Industrial S.A.

04-P003600 - NK PV project

Sustainability: Environment and Risk Prevention

Expense

Not classified

214

31/12/2017

SIT S.A.

03-T003000 - Archeological salvage for northern access, Port of Tocopilla

Sustainability

Expense

Not classified

51

12/31/2016

SQM Salar S.A.

19-L008100 – 2015 EIS Saltpeter Deposit

Sustainability: Environment and Risk Prevention

Expense

Not classified

35

12/31/2016

SQM Salar S.A.

19-C001500 – 2016 Disposal ponds

Sustainability: Environment and Risk Prevention

Expense

Not classified

92

31/12/2017

Total

4,986

 

161

 

 

Note 24

Environment (continued)

 

24.2

Detail of information on disbursements related to the environment, continued

 

Future expenses as of 12/31/2016

 

Identification of the Parent or subsidiary

Name of the project with which expenditure is associated

Concept for which the expenditure was made or will be made

Asset / Expense

Description of the asset or expense Item

Amount of expenditure

Actual or estimated date on which expenditure was or will be made

SQM S.A.

01-I003200 - Standardization of hazardous materials

Sustainability: Environment and Risk Prevention

Asset

Not classified

25

12/31/2017

SQM S.A.

01-I005500 – Standardization of SO2 plants

Sustainability

Asset

Not classified

15

12/31/2017

SQM S.A.

01-I006700 – Enablement of CPC wells

Sustainability: Environment and Risk Prevention

Expense

Not classified

133

12/31/2017

SQM S.A.

01-I007100 – 2015-2016 Environmental Follow-up Plan for Pampa del Tamarugal

Sustainability

Expense

Not classified

2

03/31/2017

SQM S.A.

01-I007200 - Environmental Follow-up Plan Salar de Llamara 2015-2016

Sustainability: Environment and Risk Prevention

Asset

Not classified

1

12/31/2017

SQM S.A.

01-P003000 – Plant 1 Scrubber and Plant 3 Scrubber

Sustainability: Environment and Risk Prevention

Asset

Not classified

3

12/31/2017

SQM S.A.

01-P003500 – Tur Development Master Plan

Sustainability: Environment and Risk Prevention

Expense

Not classified

18

12/31/2017

SQM S.A.

01-I007300 – Compliance with Exposure to Iodine Gas Standard

Sustainability: Environment and Risk Prevention

Asset

Not classified

90

12/31/2017

SQM Industrial S.A.

04-I007600 - NV evaporation ponds

Sustainability: Environment and Risk Prevention

Expense

Not classified

0

12/31/2017

SQM Industrial S.A.

04-J003300 – Improvement to water distribution

Sustainability: Environment and Risk Prevention

Expense

Not classified

55

12/31/2017

SQM Industrial S.A.

04-J004300 – Energetic Efficiency Study

Sustainability: Environment and Risk Prevention

Expense

Not classified

54

12/31/2017

SQM Industrial S.A.

04-J007000 – Environmental Impact Statement

Sustainability: Environment and Risk Prevention

Expense

Not classified

229

04/30/2017

SQM Industrial S.A.

04-I012400 – Acquisition of backup power generator for injection system at Puquios in Salar de Llamara

Sustainability: Environment and Risk Prevention

Asset

Not classified

33

12/31/2017

SQM Industrial S.A.

04-P003600 - NK PV project

Sustainability: Environment and Risk Prevention

Expense

Not classified

86

01/02/2018

SQM Salar S.A.

19-L012100 – Regularization of meteorological station

Sustainability: Environment and Risk Prevention

Expense

Not classified

65

12/31/2017

SQM Salar S.A.

19-C001500 – 2016 Disposal ponds

Sustainability: Environment and Risk Prevention

Expense

Not classified

27

01/01/2018

SIT S.A.

03-T003000 - Archeological salvage for northern access, Port of Tocopilla

Sustainability

Expense

Not classified

6

12/31/2017

Total

842

 

162

 

 

Note 24

Environment (continued)

 

24.2

Detail of information on disbursements related to the environment, continued

 

Accumulated expenses as of 12/31/2015

 

Identification of the Parent or subsidiary

Name of the project with which expenditure is associated

Concept for which the expenditure was made or will be made

Asset / Expense

Description of the asset or expense Item

Amount of expenditure

Actual or estimated date on  which expenditure was or will be made

Miscellaneous

Environmental-operational area

Not classified

Expense

Not classified

1,683

12/31/2015

SQM Industrial S.A.

04-IQWZ00 - Normalization TK NV liquid fuels

Sustainability: Environment and Risk Prevention

Asset

Not classified

138

04/30/2016

SQM Industrial S.A.

04-MP5W00 - Normalization TK´s Fuels

Sustainability: Environment and Risk Prevention

Asset

Not classified

2,619

12/31/2015

SQM Industrial S.A.

04-PPZU00 - Standardize and Certify Plant Fuel Tanks

Environmental processing

Asset

Not classified

3,174

12/31/2016

SQM Industrial S.A.

04-PQXM00 – Elaboration DIA Operation with batteries in PV

Environmental processing

Asset

Not classified

1

12/31/2015

SQM Industrial S.A.

04-I000200 - Nueva Iris  TAS

Sustainability

Asset

Not classified

48

12/31/2015

SQM Industrial S.A.

04-I002300 - Acquisition of leak detection equipment

Sustainability: Environment and Risk Prevention

Asset

Not classified

39

12/31/2015

SQM Industrial S.A.

04-J003300 – Improvements to water distribution

Sustainability: Environment and Risk Prevention

Expense

Not classified

392

12/31/2015

SQM Industrial S.A.

04-I007600– NV evaporation ponds

Sustainability: Environment and Risk Prevention

Expense

Not classified

62

09/29/2016

SQM S.A.

01-IPFT00 - Cultural Heritage Region I

Sustainability

Expense

Not classified

174

12/31/2015

SQM S.A.

01-IQ1M00 - PSA Re-injection of water to Puquios Llamara

Sustainability: Environment and Risk Prevention

Asset

Not classified

2,579

12/31/2015

SQM S.A.

01-IQOW00- Deposit authorization for Humberstone heritage

Sustainability: Environment and Risk Prevention

Expense

Not classified

2

12/31/2015

SQM S.A.

01-IQWS00 - Mine Area equity measures Stage II

Sustainability: Environment and Risk Prevention

Expense

Not classified

102

12/31/2015

SQM S.A.

01-IQX600 – Environmental management plan of Tamarugos Pampa del Tamarugal 2013-2014

Sustainability: Environment and Risk Prevention

Asset

Not classified

154

12/31/2015

SQM S.A.

01-IQXB00– Environmental management plan of Tamarugos Salar de Llamara 2013-2014

Sustainability: Environment and Risk Prevention

Asset

Not classified

19

12/31/2015

SQM S.A.

01-I003200 – Standardization of hazardous materials

Sustainability: Environment and Risk Prevention

Asset

Not classified

20

12/31/2016

SQM S.A.

01-I004200 – Mine are equity measures Stage III

Sustainability: Environment and Risk Prevention

Expense

Not classified

41

12/31/2015

SQM S.A.

01-I004600 – Cultural Heritage Pampa Hermosa 2014 - 2015

Sustainability

Expense

Not classified

15

03/31/2016

 

163

 

 

Note 24

Environment (continued)

 

24.2

Detail of information on disbursements related to the environment, continued

 

Accumulated expenses as of 12/31/2015, continued

 

Identification of the Parent or subsidiary

Name of the project with which expenditure is associated

Concept for which the expenditure was made or will be made

Asset / Expense

Description of the asset or expense Item

Amount of expenditure

Actual or estimated date on which expenditure was or will be made

SQM S.A.

01-IQWP00 - 01-J001100 - DIA expansion of NV mine site

Environmental processing

Expense

Not classified

19

04/02/2016

SQM S.A.

01-I005500 – Standardization of SO2 plants

Sustainability

Asset

Not classified

5

12/31/2016

SQM S.A.

01-I006700 – Enablement of CPC wells

Sustainability: Environment and Risk Prevention

Expense

Not classified

133

01/01/2016

SQM S.A.

01-I007100 – 2015-2016 Environmental Follow-up Plan for Pampa del Tamarugal

Sustainability

Expense

Not classified

363

03/31/2017

SQM S.A.

01-I007200 - Environmental Follow-up Plan Salar de Llamara 2015-2016

Sustainability: Environment and Risk Prevention

Asset

Not classified

54

03/31/2017

SQM S.A.

01-I007300 – Compliance with Iodine and Gas Capture Standard

Sustainability: Environment and Risk Prevention

Asset

Not classified

6

07/31/2017

SQM S.A.

01-P003000 – Plant 1 Scrubber and Plant 3 Scrubber

Sustainability: Environment and Risk Prevention

Asset

Not classified

210

12/31/2015

SQM S.A.

01-P003500 – Tur Development Master Plan

Sustainability: Environment and Risk Prevention

Expense

Not classified

12

01/31/2016

SQM Salar S.A.

19-LQDM00 – certification of tanks

Sustainability: Replacement of equipment

Asset

Not classified

256

12/31/2015

SIT S.A.

03-TQQ500 – Environmental curtains, Field No.8

Sustainability: Environment and Risk Prevention

Expense

Not classified

221

12/31/2015

SIT S.A.

03-T000800 – Mobile belt protections 2, 5 and 7

Sustainability: Environment and Risk Prevention

Expense

Not classified

11

12/31/2016

SIT S.A.

03-T003000 – Archeological salvage for northern access, Port of Tocopilla

Sustainability

Expense

Not classified

8

12/31/2015

Total

12,560

 

164

 

 

Note 24

Environment (continued)

 

24.2

Detail of information on disbursements related to the environment, continued

 

Future expenses as of 12/31/2015

 

Identification of the Parent or subsidiary

Name of the project with which expenditure is associated

Concept for which the expenditure was made or will be made

Asset / Expense

Description of  the asset or  expense Item

Amount of expenditure

Actual or estimated date on which expenditure was or will be made

SQM Industrial S.A.

04-IQWZ00 - Normalization TK NV liquid fuels

Sustainability: Environment and Risk Prevention

Asset

Not classified

373

04/30/2016

SQM Industrial S.A.

04-MP5W00 - Normalization TK´s Fuels

Sustainability: Environment and Risk Prevention

Asset

Not classified

30

12/31/2016

SQM Industrial S.A.

04-PPZU00 - Standardize and Certify Plant Fuel Tanks

Environmental processing

Asset

Not classified

290

12/31/2016

SQM Industrial S.A.

04-M000600 – Significant maintenance of ME town streets and ME garbage dumps

Sustainability

Asset

Not classified

150

12/31/2016

SQM Industrial S.A.

04-J004100 – Coya Sur Field Disposal DIA

Environmental processing

Asset

Not classified

83

12/31/2016

SQM Salar S.A.

19-LQXW00 – White water

Environmental processing

Asset

Not classified

269

12/31/2016

SQM S.A.

01-I003200- Hazardous Materials Standardization

Sustainability

Asset

Not classified

80

12/31/2016

SQM S.A.

01-I004600 - Cultural heritage Pampa Hermosa 2014 – 2015

Sustainability

Expense

Not classified

130

03/31/2016

SQM S.A.

01-I005500 – Standardization of SO2 plants

Sustainability

Asset

Not classified

10

12/31/2016

SQM S.A.

01-I006700 – Enablement of CPC wells

Sustainability: Environment and Risk Prevention

Expense

Not classified

56

01/01/2016

SQM S.A.

01-I007100 – 2015-2016 Environmental Follow-up Plan for Pampa del Tamarugal

Sustainability

Expense

Not classified

658

03/31/2017

SQM S.A.

01-I007200 – 2015-2016 Environmental Follow-up Plan Salar de Llamara 2015-2016

Sustainability: Environment and Risk Prevention

Asset

Not classified

248

03/31/2017

SQM S.A.

01-I007300 – Compliance with Iodine and Gas Capture Standard

Sustainability: Environment and Risk Prevention

Asset

Not classified

124

07/31/2017

Total

2,501

 

165

 

 

Note 24

Environment (continued)

 

24.3

Description of each project, indicating whether these are in process or have been finished

 

SQM Industrial S.A.

 

J0033: This project contemplates improving the reliability and sustainability of industrial water and drinking water, mitigating uncontrolled water loss, making investments for the change in the distribution line to processing plants, investment in technological equipment and engineering studies; improving water adduction from the Loa and San Salvador rivers, complying with the ongoing controls by the Governmental Authorities (DGA (the General Directorate of Water and Seremi Salud (the Ministerial Regional Secretariat for Health). This project is in process.

 

I0076: Development of the Project for the exploitation of iodine in the northern area of Iquique. This project is in progress. Fundación San José is a not-for-profit Foundation engaged in providing aid to children and pregnant women complying with a social responsibility for helping both children and mothers at risk.

 

J0041: Preparation and processing of the Environmental Impact Statement: 1. New areas:137.1 hectares 2. Area to be regularized:7.7 hectares 3. Extension of authorized area: 11.2 hectares. The project is in process.

 

J0043: Conducting a strategic alliance with a related party for new technologies and energetic efficiency – search for new technology and alternatives – Performance of alternative engineering. The project is in progress.

 

J0070: Relates to the preparation and processing of an Environmental Impact Statement (EIS), with the purpose of obtaining the environmental authorization (RCA) of the fields, including in the background information the air quality baseline for which a MP 2.5 and gas monitoring station was installed supplementing the stations existing at ME. The project is in progress.

 

P0036: This project’s objective is that, based on basic engineering which has already been developed and completed in December 2015, the Company is able to develop detailed engineering to allow the acquisition of critical equipment (at long-term or key for the project).This project is in process.

 

I0124: This project consists of acquiring a power generator which allows providing continuity to water injection through the operation of an extraction well directly feeding the injection pipeline when energy outages occur. This project is in process.

 

SQM S.A.

 

I0032: Presenting departures from the standard currently in force with respect to storage of hazardous substances and provisions of SD 78/2010. This project is in process.

 

166

 

 

Note 24

Environment (continued)

 

24.3

Description of each project, indicating whether these are in process or have been finished, continued

 

I0055: This project consists of changing gas extractors to increase air flows, changing SO2 absorption towers for prilling, extending the diameter of ducts; thereby guaranteeing an increase and sustaining the gas/liquid ratio. In order to decrease SO2 emissions require the installation of a scrubber unit (tower, pump, gas extractor and piping), the same concept developed at the ME Iodine SO2 plant. This project is in progress.

 

I0067: This stage of the project will allow identifying equity findings and other environmental commitments in addition to the performance of the basic engineering for the impulsion, electric line and crossing of Ruta 5 Norte highway. This project is in progress.

 

I0071: This project consists of implementing mitigation and compensation actions as committed in the Environmental Assessment of the Pampa Hermosa Environmental Impact Assessment (EIA). Actions to be implemented are those contemplated in the Environmental Management Plan of Tamarugos in Pampa del Tamarugal (Environmental Education Program, planting tamarugos, ex situ conservation of tamarugos, tamarugo production, and support for the phytosanitary control of tamarugos). This project is in progress.

 

I0072: This project consists of implementing mitigation and compensation actions as committed in the Environmental Assessment of the Pampa Hermosa Environmental Impact Assessment (EIA). Actions to be implemented are those contemplated in the Environmental Management Plan of Tamarugos in Salar de Llamara (Environmental Education Program, planting tamarugos, ex situ conservation of tamarugos, tamarugo production, and support for the phytosanitary control of tamarugos). This project is in progress.

 

I0073: System for capturing iodine gases operating very inefficiently. Iodine steam level exceed the range between 150% and 4,900% of the levels allowed for work positions at the Iodine Plant and Warehouse in accordance with Article 61 Supreme Decree 594/1999 approving Basic Sanitary and Environmental Conditions in Workplaces. This project is in process.

 

167

 

 

Note 24

Environment (continued)

 

24.3

Description of each project, indicating whether these are in process or have been finished, continued

 

SQM S.A.

 

P0030 : To reply to the indication by the Health Service, the Company must install a Scrubber tower in each plant, which will collect the residual SO2 from the plant chimneys. To perform this, the Company will install existing towers through which brine solutions will go through absorbing the SO2 found in the gaseous phase. This project is in progress.

 

P0035 : The cultural, historical and local promotion, the dissemination of the saltpeter touristic amenities and the enhancement of tangible and intangible saltpeter equity. This project is in progress.

 

SIT S.A.

 

T0030: An archeological salvage must be performed through excavations with stratigraphic control, with the purpose of recovering the remains of, at least, four funeral contexts noted in the profiles of trenches Nos. 9 and 11. In addition, it is necessary to collect the disturbed osseous remains, which, due to reasons unknown to us, are located in the current surface of the land where the trenches are located. This project is in process.

 

SQM Salar.

 

L0081: The authority requires conducting different environmental impact studies either for exploration or the construction of new wells and being able to support current production. This project is in process.

 

C0015: It will be harvested and floor will be built for a pool. A propulsion system will be built. This process is in progress.

 

L0121: Acquisition and change of equipment in meteorological station. This process is in process.

 

168

 

 

Note 25

Other current and non-current non-financial assets

 

As of December 31, 2016, and December 31, 2015, the detail of other current and non-current assets is as follows:

 

Other non-financial  assets, current		12/31/2016				12/31/2015
		ThUS$				ThUS$
Domestic Value Added Tax			13,999				16,112
Foreign Value Added Tax			2,537				7,795
Prepaid mining licenses			1,136				1,209
Prepaid insurance			6,323				6,536
Other prepayments			408				602
Refund of Value Added Tax to exporters			855				13,183
Other assets			5,015				2,004
Total			30,273				47,441

 

Other non-financial  assets, non-current		12/31/2016				12/31/2015
		ThUS$				ThUS$
Stain development expenses and prospecting expenses (1)			23,008				31,911
Guarantee deposits			685				496
Pension plan			-				27
Other assets			997				1,092
Total			24,690				33,526

 

1)

Reconciliation of changes in assets for exploration and mineral resource evaluation, by type

 

Movements in assets for the exploration and evaluation of mineral resources as of December 31, 2016, and December 31, 2015:

 

Reconciliation		12/31/2016				12/31/2015
		ThUS$				ThUS$
Opening balance			31,911				29,569
Changes
Additions, other than business combinations			-				3,871
Depreciation and amortization			(9,498	)			(2,287	)
Increase (decrease) due to transfers and other charges			595				758
Total changes			(8,903	)			2,342
Total			23,008				31,911

 

As of the presentation date, no reevaluations of assets for exploration and assessment of mineral resources have been conducted.

 

169

 

 

Note 26

Reportable segments

 

26.1

Reportable segments

 

General information:

 

The amount of each item presented in each operating segment is equal to that reported to the maximum authority that makes decisions regarding the operation, in order to decide on the allocation of resources to the defined segments and to assess its performance.

 

Factors used to identify segments on which a report should be presented:

 

Segments reported are strategic business units that offer different products and services. These are managed separately because each business requires different technology and marketing strategies.

 

Description of the types of products and services on which each reportable segment obtain its income from ordinary activities

 

The operating segments, through which incomes of ordinary activities are obtained, that generate expenses and whose operating results are reviewed on a regular basis by the maximum authority who makes decisions regarding operations, relate to the following groups of products:

 

1.

Specialty plant nutrients

2.

Iodine and its derivatives

3.

Lithium and its derivatives

4.

Industrial chemicals

5.

Potassium

6.

Other products and services

 

Description of income sources for all the other segments

 

Information relative to assets, liabilities, profit and expenses that cannot be assigned to the segments indicated above, due to the nature of production processes, is included under "Unassigned amounts” category of the disclosed information.

 

Basis of accounting for transactions between reportable segments

 

Sales between segments are made in the same conditions as those made to third parties, and are consistently measures as presented in the income statement.

 

170

 

 

Note 26

Reportable segments (continued)

 

26.1

Reportable segments, continued

 

Description of the nature of the differences between measurements of results of reportable segments and the result of the entity before the expense or income tax expense of incomes and discontinued operations.

 

The information reported in the segments is extracted from the Company’s consolidated financial statements and therefore is not required to prepare reconciliations between the data mentioned above and those reported in the respective segments, according to what is stated in paragraph 28 of IFRS 8, "Operating Segments".

 

Description of the nature of the differences between measurements of assets of reportable segments and the Company´s assets

 

Assets are not shown classified by segments, as this information is not readily available, Some of these assets are not separable by the type of activity by which they are affected since this information is not used by management in decision-making with respect to resources to be allocated to each defined segment, All assets are disclosed in the "unallocated amounts" category.

 

Description of the nature of the differences between measurements of liabilities of reportable segments and the Company’s liabilities

 

Liabilities are not shown classified by segments, as this information is not readily available, Some of these liabilities are not separable by the type of activity by which they are affected, since this information is not used by management in decisions making regarding resources to be allocated to each defined segment, All liabilities are disclosed in the "unallocated amounts" category.

 

171

 

 

Note 26

Reportable segments (continued)

 

26.2

Reportable segment disclosures:

 

		12/31/2016
Operating segment items		Specialty plant nutrients				Iodine and its derivatives				Lithium and its derivatives				Industrial chemicals				Potassium				Other products and services				Reportable segments				Operating segments				Elimination of inter- segments amounts				Unallocated amounts				Total 12/31/2016
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Revenue			623,853				231,144				514,627				104,137				403,323				62,238				1,939,322				1,939,322				-				-				1,939,322
Revenues from transactions with other operating segments of the same entity			91,087				301,917				372,838				356,334				333,823				198,836				1,654,835				1,654,835				(1,654,835	)			-				-
Revenues from external customers and transactions with other operating segments of the same entity			714,940				533,061				887,465				460,471				737,146				261,074				3,594,157				3,594,157				(1,654,835	)			-				1,939,322
Costs of sales			(478,074	)			(191,298	)			(175,616	)			(67,378	)			(359,477	)			(56,442	)			(1,328,285	)			(1,328,285	)			-				-				(1,328,285	)
Administrative expenses			-				-				-				-				-				-				-				-				6,211				(94,647	)			(88,436	)
Interest expense			-				-				-				-				-				-				-				-				91,553				(149,051	)			(57,498	)
Depreciation and amortization expense			(89,864	)			(35,958	)			(33,010	)			(12,666	)			(67,571	)			(10,612	)			(249,681	)			(249,681	)			-				(111	)			(249,792	)
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method			-				-				-				-				-				-				-				-				-				13,047				13,047
Income tax expense, continuing operations			-				-				-				-				-				-				-				-				-				(132,965	)			(132,965	)
Other items other than significant cash			-				-				-				-				-				-				-				-				-				-				-
Income (loss) before taxes			145,779				39,846				339,011				36,759				43,846				5,796				611,037				611,037				(514,042	)			317,894				414,889
Net income (loss) from continuing operations			145,779				39,846				339,011				36,759				43,846				5,796				611,037				611,037				(514,042	)			184,929				281,924
Net income (loss) from discontinued operations
Net income (loss)			145,779				39,846				339,011				36,759				43,846				5,796				611,037				611,037				(514,042	)			184,929				281,924
Assets			-				-				-				-				-				-				-				-				(6,386,412	)			10,605,056				4,218,644
Equity-accounted investees			-				-				-				-				-				-				-				-				(2,669,861	)			2,803,001				133,140
Increase of non-current assets			-				-				-				-				-				-				-				-								(107,268	)			(107,268	)
Liabilities			-				-				-				-				-				-				-				-				(3,409,789	)			5,321,161				1,911,372
Impairment loss recognized in profit or loss			-				-				(251	)			-				-				(698	)			(949	)			(949	)			-				(39,595	)			(40,544	)
Reversal of impairment losses recognized in profit or loss for the period			133				325								233				2,216				-				2,907				2907				-				-				2,907
Cash flows from (used in) operating activities			-				-				-				-				-				-				-				-				-				640,119				640,119
Cash flows from (used in) investing activities			-				-				-				-				-				-				-				-				-				155,929				155,929
Cash flows from (used in) financing activities			-				-				-				-				-				-				-				-				-				(816,410	)			(816,410	)

 

172

 

 

Note 26

Reportable segments (continued)

 

26.2

Reportable segment disclosures, continued

 

		12/31/2015
Operating segment items		Specialty plant nutrients				Iodine and its derivatives				Lithium and its  derivatives				Industrial chemicals				Potassium				Other products and services				Reportable segments				Operating segments				Elimination of inter- segments amounts				Unallocated amounts				Total  12/31/2015
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Revenue			652,278				262,570				223,021				97,551				430,642				62,270				1,728,332				1,728,332				-				-				1,728,332
Revenues from transactions with other operating segments of the same entity			137,944				389,172				139,575				347,168				407,903				289,157				1,710,919				1,710,919				(1,710,919	)			-				-
Revenues from external customers and transactions with other operating segments of the same entity			790,222				651,742				362,596				444,719				838,545				351,427				3,439,251				3,439,251				(1,710,919	)			-				1,728,332
Costs of sales			(461,028	)			(184,551	)			(109,389	)			(71,252	)			(303,645	)			(55,718	)			(1,185,583	)			(1,185,583	)			-				-				(1,185,583	)
Administrative expenses			-				-				-				-				-				-				-				-				8,346				(95,176	)			(86,830	)
Interest expense			-				-				-				-				-				-				-				-				127,962				(197,815	)			(69,853	)
Depreciation and amortization expense			(105,545	)			(42,249	)			(25,044	)			(16,312	)			(69,513	)			(12,758	)			(271,421	)			(271,421	)			-				(316	)			(271,737	)
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method			-				-				-				-				-				-				-				-				-				10,326				10,326
Income tax expense, continuing operations			-				-				-				-				-				-				-				-				-				(83,766	)			(83,766	)
Other items other tan significant cash			-				-				-				-				-				-				-				-				-				-				-
Income (loss) before taxes			191,250				78,019				113,632				26,300				126,997				6,552				542,750				542,750				(372,943	)			131,291				301,098
Net income (loss) from continuing operations			191,250				78,019				113,632				26,300				126,997				6,552				542,750				542,750				(372,943	)			47,525				217,332
Net income (loss) from discontinued operations
Net income (loss)			191,250				78,019				113,632				26,300				126,997				6,552				542,750				542,750				(372,943	)			47,525				217,332
Assets			-				-				-				-				-				-				-				-				(5,864,550	)			10,508,312				4,643,762
Equity-accounted investees			-				-				-				-				-				-				-				-				(2,962,709	)			3,042,011				79,302
Increase of non-current assets			-				-				-				-				-				-				-				-								(203,806	)			(203,806	)
Liabilities			-				-				-				-				-				-				-				-				(2,586,562	)			4,829,968				2,243,406
Impairment loss recognized in profit or loss			-				(200	)			(317	)			(3	)			(3,049	)			(373	)			(3,939	)			(3,939	)			-				(39,804	)			(43,743	)
Reversal of impairment losses recognized in profit or loss for the period			2,751				-				-				1,285				-				-				4,036				4,036				-				-				4,036
Cash flows from (used in) operating activities			-				-				-				-				-				-				-				-				-				427,317				427,317
Cash flows from (used in) investing activities			-				-				-				-				-				-				-				-				-				(69,805	)			(69,805	)
Cash flows from (used in) financing activities			-				-				-				-				-				-				-				-				-				(180,343	)			(180,343	)

 

173

 

 

Note 26

Reportable segments (continued)

 

26.3

Statement of comprehensive income classified by reportable segments based on groups of products

 

		12/31/2016
Items in the statement of comprehensive income		Specialty plant nutrients ThUS$				Iodine and its derivatives ThUS$				Lithium and its derivatives ThUS$				Industrial chemicals ThUS$				Potassium ThUS$				Other products and services ThUS$				Corporate Unit ThUS$				Total segments and Corporate unit ThUS$
Revenue			623,853				231,144				514,627				104,137				403,323				62,238				-				1,939,322
Cost of sales			(478,074	)			(191,298	)			(175,616	)			(67,378	)			(359,477	)			(56,442	)							(1,328,285	)
Gross profit			145,779				39,846				339,011				36,759				43,846				5,796				-				611,037
Other incomes by function			-				-				-				-				-				-				14,781				14,781
Administrative expenses			-				-				-				-				-				-				(88,436	)			(88,436	)
Other expenses by function			-				-				-				-				-				-				(89,731	)			(89,731	)
Other gains (losses)			-				-				-				-				-				-				679				679
Financial income			-				-				-				-				-				-				10,550				10,550
Financial costs			-				-				-				-				-				-				(57,498	)			(57,498	)
interest in the profit or loss of associates and joint ventures accounted for by the equity method			-				-				-				-				-				-				13,047				13,047
Exchange differences			-				-				-				-				-				-				460				460
Profit (loss) before taxes			145,779				39,846				339,011				36,759				43,846				5,796				(196,148	)			414,889
Income tax expense			-				-				-				-				-				-				(132,965	)			(132,965	)
Profit (loss) from continuing operations			145,779				39,846				339,011				36,759				43,846				5,796				(329,113	)			281,924
Profit (loss) from discontinued operations			-				-				-				-				-				-				-				-
Profit (loss)			145,779				39,846				339,011				36,759				43,846				5,796				(329,113	)			281,924
Profit (loss), attributable to
Profit (loss) attributable to the controller´s owners			-				-				-				-				-				-				-				278,290
Profit (loss) attributable to the non-controllers			-				-				-				-				-				-				-				3,634
Profit (loss)			-				-				-				-				-				-				-				281,924

 

174

 

 

Note 26

Reportable segments (continued)

 

26.3

Statement of comprehensive income classified by reportable segments based on groups of products, continued

 

		12/31/2015
Items in the statement of comprehensive income		Specialty plant nutrients ThUS$				Iodine and its derivatives ThUS$				Lithium and its derivatives ThUS$				Industrial chemicals ThUS$				Potassium ThUS$				Other products and services ThUS$				Corporate Unit ThUS$				Total segments and Corporate unit ThUS$
Revenue			652,278				262,570				223,021				97,551				430,642				62,270				-				1,728,332
Cost of sales			(461,028	)			(184,551	)			(109,389	)			(71,252	)			(303,645	)			(55,718	)			-				(1,185,583	)
Gross profit			191,250				78,019				113,632				26,299				126,997				6,552				-				542,749
Other incomes by function			-				-				-				-				-				-				15,343				15,343
Administrative expenses			-				-				-				-				-				-				(86,830	)			(86,830	)
Other expenses by function			-				-				-				-				-				-				(113,603	)			(113,603	)
Other gains (losses)			-				-				-				-				-				-				3,760				3,760
Financial income			-				-				-				-				-				-				11,570				11,570
Financial costs			-				-				-				-				-				-				(69,853	)			(69,853	)
interest in the profit or loss of associates and joint ventures accounted for by the equity method			-				-				-				-				-				-				10,326				10,326
Exchange differences			-				-				-				-				-				-				(12,364	)			(12,364	)
Profit (loss) before taxes			191,250				78,019				113,632				26,299				126,997				6,552				(241,651	)			301,098
Income tax expense			-				-				-				-				-				-				(83,766	)			(83,766	)
Profit (loss) from continuing operations			191,250				78,019				113,632				26,299				126,997				6,552				(325,417	)			217,332
Profit (loss) from discontinued operations			-				-				-				-				-				-				-				-
Profit (loss)			191,250				78,019				113,632				26,299				126,997				6,552				(325,417	)			217,332
Profit (loss), attributable to
Profit (loss) attributable to the controller´s owners			-				-				-				-				-				-				-				213,168
Profit (loss) attributable to the non-controlling interests			-				-				-				-				-				-				-				4,164
Profit (loss)			-				-				-				-				-				-				-				217,332

 

175

 

 

Note 26

Reportable segments (continued)

 

26.4

Revenue from transactions with other Company’s operating segments

 

12/31/2016
Items in the statement of comprehensive income		Specialty plant nutrients ThUS$				Iodine and its derivatives ThUS$				Lithium and its derivatives ThUS$				Industrial chemicals ThUS$				Potassium ThUS$				Other products and services ThUS$				Total segments and Corporate unit ThUS$
Revenue			623,853				231,144				514,627				104,137				403,323				62,238				1,939,322

 

12/31/2015
Items in the statement of comprehensive income		Specialty plant nutrients ThUS$				Iodine and its derivatives ThUS$				Lithium and its derivatives ThUS$				Industrial chemicals ThUS$				Potassium ThUS$				Other products and services ThUS$				Total segments and Corporate unit ThUS$
Revenue			652,278				262,570				223,021				97,551				430,642				62,270				1,728,332

 

26.5

Disclosures on geographical areas

 

As indicated in paragraph 33 of IFRS 8, the entity discloses geographical information on its revenue from operating activities with external customers and from non-current assets that are not financial instruments, deferred income tax assets, assets related to post-employment benefits or rights derived from insurance contracts.

 

26.6

Disclosures on main customers

 

With respect to the degree of dependency of the Company on its customers, in accordance with paragraph N° 34 of IFRS N° 8, the Company has no external customers who individually represent 10% or more of its revenue, Credit risk concentrations with respect to trade and other accounts receivable are limited due to the significant number of entities in the Company’s portfolio and its worldwide distribution, The Company’s policy requires guarantees (such as letters of credit, guarantee clauses and others) and/or to maintain insurance policies for certain accounts as deemed necessary by the Company's Management.

 

176

 

 

Note 26

Reportable segments (continued)

 

26.7

Segments by geographical areas as of December 31, 2016 and December 31, 2015

 

		12/31/2016
Items		Chile ThUS$				Latin America and the Caribbean ThUS$				Europe  ThUS$				North America ThUS$				Asia and others ThUS$				Total ThUS$
Revenue			162,478				240,607				411,807				416,380				708,051				1,939,323
Investment accounted for under the equity method			-				25,000				25,009				13,456				69,674				133,139
Intangible assets other than goodwill			109,227				-				-				211				1				109,439
Goodwill			23,731				86				11,373				724				2,058				37,972
Property, plant and equipment, net			1,524,936				234				3,521				2,536				1,483				1,532,710
Investment property			-				-				-				-				-				-
Other non-current assets			24,551				139				-				-				-				24,690
Non-current assets that are not financial instruments			1,682,445				25,459				39,903				16,927				73,216				1,837,950

 

		12/31/2015
Items		Chile ThUS$				Latin America and the Caribbean ThUS$				Europe  ThUS$				North America ThUS$				Asia and others ThUS$				Total ThUS$
Revenue			188,592				258,262				351,353				439,645				490,480				1,728,332
Investment accounted for under the equity method			1,535				-				23,410				12,913				41,444				79,302
Intangible assets other than goodwill			110,199				-				-				228				1				110,428
Goodwill			26,929				86				11,373				-				-				38,388
Property, plant and equipment, net			1,677,194				260				2,183				2,486				1,453				1,683,576
Investment property			-				-				-				-				-				-
Other non-current assets			33,384				116				-				26				-				33,526
Non-current assets that are not financial instruments			1,849,241				462				36,966				15,653				42,898				1,945,220

 

177

 

 

Note 26

Reportable segments (continued)

 

26.8

Property, plant and equipment classified by geographical areas

 

The company's main productive facilities are located near their mines and extraction facilities in northern Chile, The following table presents the main production facilities as of December 31, 2016 and December 31, 2015:

 

	Location		Products
-	Pedro de Valdivia	:	Production of iodine and nitrate salts
-	María Elena	:	Production of iodine and nitrate salts
-	Coya Sur	:	Production of nitrate salts
-	Nueva Victoria	:	Production of iodine and nitrate salts
-	Salar de Atacama	:	Potassium chloride, lithium chloride, boric acid and potassium sulfate
-	Salar del Carmen	:	Production of lithium carbonate and lithium hydroxide
-	Tocopilla	:	Port facilities

 

178

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature

 

27.1

Revenue

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Products			1,933,828				1,721,064
Services			5,494				7,268
Total			1,939,322				1,728,332

 

27.2

Cost of sales

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Raw material and supplies			(485,788	)			(484,797	)
Types of employee benefits expenses
Salaries and wages			(104,144	)			(97,010	)
Other short-term employee benefits			(77,507	)			(33,662	)
Termination benefit expenses			(3,836	)			(5,719	)
Total employee benefits expenses			(185,487	)			(136,391	)
Depreciation expense			(239,546	)			(253,979	)
Amortization expense			(3,210	)			(3,469	)
Small deposit amortization expense			(6,917	)			-
Impairment losses (reversals of impairment losses) recognized in profit or loss for the period			1,956				96
Operating leases			(107,284	)			(89,229	)
Investment plan expenses			(16,624	)			(17,574	)
Maintenance and repair			(7,187	)			(10,112	)
Contractors			(62,501	)			(49,727	)
Operations transport			(54,476	)			(52,079	)
Freight and product transport costs			(43,716	)			(31,052	)
Packaging costs			(1,703	)			(1,369	)
Sales commissions			(9,434	)			(7,742	)
Port costs			(20,793	)			(11,613	)
CORFO right costs			(41,962	)			(23,155	)
Adjustment of customer prices			(8,380	)			(2,132	)
Other expenses, by nature			(35,233	)			(11,260	)
Total			(1,328,285	)			(1,185,583	)

 

179

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature, (continued)

 

27.3

Other income

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Discounts obtained from suppliers			771				1,343
Indemnification received and insurance recoveries			205				39
Penalties charged to suppliers			358				73
Tax recoveries			26				12
Insurance recoveries			5,636				2,182
Excess in the provision for liabilities with 3rd parties			573				1,039
Overstatement of doubtful accounts			56				115
Sale of property, plant and equipment			657				8
Sale of materials, spare parts and supplies			30				1,358
Sale de scrap			1				-
Overstatement of allowance for inventories			815				5
Options on mining properties			2,577				2,261
Easements, ducts and roads			219				1,980
Non-conventional renewable energy			639				344
Reimbursement of mining patents and notarial expenses			1,300				1,025
Miscellaneous services			-				405
Reimbursements from creditors			-				890
Other operating income			918				3,154
Total			14,781				15,343

 

180

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature, (continued)

 

27.4

Administrative expenses

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Employee benefit expenses by nature
Salaries and wages			(42,828	)			(41,661	)
Other short-term benefits to employees			(4,389	)			(3,011	)
Total employee benefit expenses			(47,217	)			(44,672	)
Amortization expense			(6	)			(5	)
Advisory services			(7,086	)			(7,293	)
Audit fees			(1,767	)			(415	)
Marketing costs			(1,338	)			(1,614	)
Building and facilities rent expenses			(2,489	)			(1,836	)
Advertising expenses			(173	)			(230	)
Luncheon expenses			(548	)			(350	)
Accommodation expenses			(633	)			(434	)
Personnel expenses			(453	)			(27	)
Representation expenses			(506	)			(277	)
Tickets and transportation			(1,599	)			(1,594	)
Isapre (Healthcare institution) contribution payments			(532	)			(363	)
Other employee expenses			(1,386	)			(1,440	)
General materials			(1,110	)			(1,434	)
Light truck rent			(622	)			(517	)
Professional services			(1,275	)			(2,164	)
Data transmission services			(1,365	)			(1,317	)
Maintenance services			(713	)			(559	)
Miscellaneous contractors			(2,497	)			(2,141	)
Mobile phone services			(584	)			(303	)
Acquisition of software			(1,945	)			(1,258	)
Real estate contributions			(838	)			(819	)
Business licenses			(843	)			(1,052	)
Insurance policies			(1,271	)			(774	)
Miscellaneous expenses			(1,184	)			(1,044	)
Other expenses, by nature			(8,456	)			(12,898	)
Total			(88,436	)			(86,830	)

 

181

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

 

27.5

Other expenses by function

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Employee benefit expenses by nature
Depreciation and amortization expenses
Depreciation of stopped assets			(111	)			(316	)
Subtotal to date			(111	)			(316	)
Impairment loss (review of impairment losses) recognized in profit or loss for the year
Impairment of allowance for doubtful accounts			(7.198	)			(2.981	)
Subtotal to date			(7.198	)			(2.981	)
Other expenses, by nature
Legal Expenses			(5,737	)			(17,204	)
Mine site activity disruption expenses			(32,061	)			(57,665	)
Indemnities paid			-				(3,714	)
VAT and other unrecoverable tax			(1,015	)			(1,146	)
Fines, interests and tax (*)			(1,378	)			(4,648	)
SEC and Department of Justice fines			(30,488	)			-
Advisory services			(59	)			(15	)
Provisions, materials and action sales			(815	)			(2	)
Investment plan expenses			(6,657	)			(19,744	)
Provision for energy arbitration proceeding			-				3,500
Article No, 21 one-off tax, (*)			-				(5,793	)
Donations rejected as tax credits			(1,692	)			(1,350	)
Other operating expenses			(2,520	)			(2,525	)
Subtotal to date			(82,422	)			(110,306	)
Total			(89,731	)			(113,603	)

 

(*) These balances are considered payments as at September 2015 for approximately ThUS$9.5 in taxes (Tax under Article No. 21 of the Income Tax Law and Value-added Tax), interest and other charges performed by the Company to the Chilean Internal Revenue Service (Servicio de Impuestos Internos) because of the submission of amendments to its income tax returns for tax years from 2009 through 2014, as it identified expenses for which the Company did not have sufficient supporting documentation to be considered expenses necessary to generate income in accordance with the current Chilean tax regulations for approximately ThUS$14.7.

 

27.6

Other income (expenses)

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Adjustment of reversal of provision for staff severance indemnities			-				3,575
Provision for staff severance indemnities			(6,300	)			-
Sale of investments in associates			7,636
Other gains (losses)			(657	)			185
Total			679				3,760

 

182

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

 

27.7

Summary of expenses by nature

 

		January to December
		2016				2015
		ThUS$				ThUS$
Raw material and supplies used			(485,788	)			(484,797	)
Types of employee benefits expenses
Salaries and wages			(146,972	)			(138,671	)
Other short-term employee benefits			(81,896	)			(36,673	)
Termination benefit expenses			(3,836	)			(5,719	)
Total employee benefit expenses			(232,704	)			(181,063	)
Depreciation and amortization expenses
Depreciation expense			(239,657	)			(254,295	)
Amortization expense			(3,217	)			(3,475	)
Small deposit amortization expenses			(6,917	)			-
Impairment loss (reversal of impairment losses) recognized in profit or loss for the year			(6,057	)			(2,887	)
Operating leases			(107,284	)			(89,229	)
Production disruption expenses			(32,061	)			(61,379	)
Fines paid			(31,867	)			(4,648	)
Investment plan expenses			(23,281	)			(37,318	)
Maintenance and repair			(7,187	)			(10,112	)
Contractors			(62,501	)			(49,727	)
Operations transport			(54,476	)			(52,079	)
Freight and product transport costs			(43,716	)			(31,052	)
Packaging costs			(1,703	)			(1,369	)
Sales commissions			(9,434	)			(7,742	)
Port costs			(20,793	)			(11,613	)
Corfo rights			(41,962	)			(23,155	)
Adjustment of customer prices			(8,380	)			(2,132	)
Advisory services			(7,086	)			(744	)
Audit fees			(1,767	)			(415	)
Marketing costs			(1,338	)			(1,614	)
Rent of buildings and facilities			(2,489	)			(417	)
Advertising expenses			(173	)			(230	)
Luncheon expenses			(548	)			(350	)
Accommodation expenses			(633	)			(434	)
Personnel expenses			(453	)			(27	)
Representation expenses			(506	)			(277	)
Tickets and transportation expenses			(1,599	)			(1,594	)
Isapre (healthcare institution) contributions			(532	)			(363	)
Other employee expenses			(1,386	)			(1,440	)
General material expenses			(1,110	)			(1,434	)
Rent of light trucks			(622	)			(517	)
Professional services			(1,275	)			(2,164	)
Data transmission services			(1,365	)			(1,317	)
Maintenance services			(713	)			(559	)
Miscellaneous contractors			(2,497	)			(2,141	)
Mobile phone services			(584	)			(303	)
Acquisition of software			(1,945	)			(1,258	)
Real estate contributions			(838	)			(819	)
Business license			(843	)			(1,052	)
Insurance policies			(1,271	)			(774	)
Miscellaneous expenses			(1,184	)			(1,044	)
Other expenses by nature			(54,709	)			(56,657	)
Total expenses by nature			(1,506,451	)			(1,386,016	)

 

This table corresponds to the summary required by the Chilean Superintendence of Securities and Insurance (SVS) and considers notes 27.2, 27.4 and 27.5.

 

183

 

 

Note 27

Gains (losses) from operating activities in the statement of income by function of expenses, included according to their nature (continued)

 

27.8

Finance expenses

 

		January to September
		2016				2015
		ThUS$				ThUS$
Interest expense from bank borrowings and overdrafts			(854	)			(932	)
Interest expense from bonds			(57,409	)			(66,456	)
Interest expense from loans			(4,581	)			(6,922	)
Capitalized interest expenses			5,406				4,666
Other finance costs			(60	)			(209	)
Total			(57,498	)			(69,853	)

 

Note 28

Income tax and deferred taxes

 

Accounts receivable from taxes as of December 31, 2016 and December 31, 2015, are as follows:

 

28.1

Current and non-current tax assets

 

a)

Current tax assets

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Monthly provisional income tax payments, Chilean companies current year			49,110				62,126
Monthly provisional payment Royalty			3,542				1,138
Monthly provisional income tax payments, foreign companies			1,323				1,178
Corporate tax credits (1)			748				830
Corporate tax absorbed by tax losses (2)			64				5
Total			54,787				65,277

 

b)

Non-current tax assets

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Monthly provisional income tax payments, Chilean companies prior year			3,243				-
Specific tax on mining activities paid (on consignment)			25,781				14,566
Total			29,024				14,566

 

(1)

These credits are available to companies and relate to the corporate tax payment in April of the following year, These credits include, amongst others, training expense credits (SENCE) and property, plant and equipment acquisition credits that are equivalent to 4% of the property, plant and equipment purchases made during the year, In addition, some credits relate to the donations the Group has made during 2016 and 2015.

 

184

 

   

Note 28

Income tax and deferred taxes (continued)

 

28.1

Current and non-current tax assets, continued

 

(2)

This concept corresponds to the absorption of non-operating losses (NOL’s) determined by the company at year end, which must be imputed or recorded in the Retained Taxable Profits Registry (FUT).

 

In accordance with the laws in force and as provided by article 31 No, 3 of the Income Tax Law, when profits recorded in the FUT that have not been withdrawn or distributed are totally or partially absorbed by NOL’s, the corporate tax paid on such profits (24%, 22,5%, 21%, 20% or 17%, depending on the year in which profits were generated) will be considered to be a provisional payment with respect to the portion representing the absorbed accumulated tax profits.

 

Tax payers are entitled to apply for a refund of this monthly provisional income tax payments on the absorbed profits recorded in the FUT registry via their tax returns (Form 22).

 

Therefore, the provisional payment for absorbed profits (PPAP) recorded in the FUT is in effect a recoverable tax, and as such the Company records it as an asset.

 

28.2

Current tax liabilities

 

Current tax liabilities		12/31/2016				12/31/2015
		ThUS$				ThUS$
1st Category income tax			50,174				30,705
Foreign company income tax			25,276				21,090
Article 21 single tax			422				275
Total			75,872				52,070

 

Income tax is calculated based on the profit or loss for tax purposes that is applied to the effective tax rate applicable in Chile. As established by Law No.20,780, an income tax rate of 21% was set starting from 2014, a rate of 22.5% for 2015, a rate of 24% for 2016, a rate of 25.5% for 2017, and a rate of 27% starting from 2018.

 

The provision for royalty is determined by applying the tax rate determined for the net operating income (NOI). Currently, the Company pays 5% for the application of the Tax Invariability Contract established with the Ministry of Economy in 2010.

 

In conclusion, both concepts represent the estimated amount the Company will have to pay for income tax and tax on mining.

 

185

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.3

Tax earnings

 

As of December 31, 2016 and December 31, 2015, the Company and its subsidiaries have recorded the following consolidated balances for retained tax earnings, income not constituting revenue subject to income tax, accumulated tax losses and credit for shareholders:

 

 

		12/31/2016 ThUS$				12/31/2015 ThUS$
Taxable profits with credit rights			727,624				1,254,859
Taxable profits without credit right			588,942				94,073
Taxable loss			9,081				9,947
Credit for shareholders			203,612				302,081

 

The Retained Taxable Profits Registry (FUT) is a chronological registry where the profits generated and distributed by the company are recorded. The object of the FUT is to control the accumulated tax profits of the company that may be distributed, withdrawn or remitted to the owners, shareholders or partners, and the final taxes that must be imposed, called in Chile Global Aggregate Tax (that levies persons resident or domiciled in Chile), or additional tax (that levies persons “not” resident or domiciled in Chile).

 

The FUT Register contains profits with credit rights and profits without credit rights, which arise out of the inclusion of the net taxable income determined by the company or the profits received by the company that may be dividends received or withdrawals made during the period.

 

Profits without credit rights represent the tax payable by the company within the year and filed the following year, therefore they will be deducted from the FUT Registry the following year.

 

Profits with credit rights may be used to reduce the final tax burden of owners, shareholders or partners, which upon withdrawal are entitled to use the credits associated with the relevant profits.

 

In summary, companies use the FUT Registry to maintain control over the profits they generate that have not been distributed to the owners and the relevant credits associated with such profits.

 

28.4

Income tax and deferred taxes

 

Assets and liabilities recognized in the statement of financial position are offset if and only if:

 

1

The Company has legally recognized before the right the tax authority to offset the amounts recognized in these entries; and

 

2

Deferred income tax assets and liabilities are derived from income tax related to the same tax authority on:

 

(i)

the same entity or tax subject; or

 

( ii)

different entities or tax subjects who intend either to settle current fiscal assets and liabilities for their net amount, or to realize assets and pay liabilities simultaneously in each of the future periods in which the Company expects to settle or recover significant amounts of deferred tax assets or liabilities.

 

186

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

Deferred income tax assets recognized are the income taxes that are to be recovered in future periods, related to:

 

a)

deductible temporary differences.

b)

the offset of losses obtained in prior periods and not yet subject to tax deduction; and

c)

the offset of unused credits from prior periods.

 

The Company recognizes a deferred tax asset when there is certainty that these can be offset with tax income from subsequent periods, losses or fiscal credits not yet used, but solely as long as it is more likely than not that there will be tax earnings in the future against which to charge to these losses or unused fiscal credits.

 

Deferred tax liabilities recognized refer to the amounts of income taxes payable in future periods related to taxable temporary differences.

 

d.1

Income tax assets and liabilities as of December 31, 2016 are detailed as follows:

 

Description of deferred income tax assets and		Net position, assets								Net position, liabilities
liabilities		Assets				Liabilities				Assets				Liabilities
		ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			-				(1	)			-				(221,791	)
Doubtful accounts impairment			32				-				4,273				-
Accrued vacations			-				-				4,062				-
Manufacturing expenses			-				-				-				(110,718	)
Unrealized gains (losses) from sales of products			-				-				86,156				-
Fair value of bonds			-				-				-				(24	)
Severance indemnity			-				-				-				(5,203	)
Hedging			-				-				10,230				-
Inventory of products, spare parts and supplies			77				-				20,899				-
Research and development expenses			-				-				-				(4,641	)
Tax losses			-				-				1,302				-
Capitalized interest			-				-				-				(1,340	)
Expenses in assumption of bank loans			-				-				-				(3,115	)
Unaccrued interest			-				-				136				-
Fair value of property, plant and equipment			-				-				-				(4,179	)
Employee benefits			-				-				6,783				-
Royalty deferred income taxes			-				-				-				(6,458	)
Acquisition of intangible assets											-				(218	)
Provision for lawsuits and legal expenses			-				-				9,276				-
Provision for investment plan			-				-				1,953				-
Provision for materials, spare-parts and supplies			-				-				7,547				-
Deferred taxes, investments in equity instruments			-				-				-				(1,300	)
Provision for mine closure, fine copper and crushing			-				-				-				-
Other			575				(19	)			251				-
Balance to date			684				(20	)			152,868				(358,987	)
Net balance			664				-				-				(206,119	)

 

187

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.2

Income tax assets and liabilities as of December 31, 2015 are detailed as follows

 

Description of deferred tax assets and		Net asset position								Net liability position
liabilities		Assets				Liabilities				Assets				Liabilities
		ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			-				-				-				233.073
Doubtful accounts impairment			-				-				5.119				-
Accrued vacations			-				-				3.368				-
Manufacturing expenses			-				-				-				109.134
Unrealized gains (losses) from sales of products			-				-				87.440				-
Fair value of bonds			-				-				446				-
Severance indemnity			-				-				-				4.178
Hedging			-				-				11.876				-
Inventory of products, spare parts and supplies			1				-				29.473				-
Research and development expenses			-				-				-				7.981
Tax losses			-				-				1.522				-
Capitalized interest			-				-				-				3.133
Expenses in assumption of bank loans			-				-				-				3.651
Unaccrued interest			-				-				156				-
Fair value of property, plant and equipment			-				-				-				3.375
Employee benefits			-				-				1.920				-
Royalty deferred income taxes			-				-				-				6.410
Acquisition of  intangible assets			-				-				-				-
Provision for lawsuits and legal expenses			-				-				7.357				-
Provision for investment plan			-				-				3.312				-
Provision for mine closure, fine copper and crushing			-				-				-				-
Other			160				-				-				445
Balance to date			161				-				151.989				371.380
Net balance			161				-				-				219.391

 

188

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.3

Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2016

 

		Deferred tax liabilities (assets) at the beginning of the period				Deferred tax expense (income) recognized in profit or loss				Deferred tax related to items credited (debited) directly to equity				Total increase (decrease) of deferred tax liabilities (assets)				Deferred tax liabilities (assets) at the end of the period
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			233,073				(11,281	)			-				(11,281	)			221,792
Doubtful accounts impairment			(5,119	)			814				-				814				(4,305	)
Accrued vacations			(3,368	)			(694	)			-				(694	)			(4,062	)
Manufacturing expenses			109,134				1,584				-				1,584				110,718
Unrealized gains (losses) from sales of products			(87,440	)			1,284				-				1,284				(86,156	)
Fair value of bonds			(446	)			-				470				470				24
Severance indemnity			4,178				1,946				(920	)			1,025				5,203
Hedging			(11,876	)			1,646				-				1,646				(10,230	)
Inventory of products, spare parts and supplies			(29,474	)			8,498				-				8,498				(20,976	)
Research and development expenses			7,981				(3,340	)			-				(3,340	)			4,641
Capitalized interest			3,133				(1,793	)			-				(1,793	)			1,340
Expenses in assumption of bank loans			3,651				(536	)			-				(536	)			3,115
Unaccrued interest			(156	)			20				-				20				(136	)
Fair value of property, plant and equipment			3,375				804				-				804				4,179
Employee benefits			(1,920	)			(4,863	)			-				(4,863	)			(6,783	)
Royalty deferred income taxes			6,410				48				-				48				6,458
Unused tax losses			(1,522	)			220				-				220				(1,302	)
Purchase of intangible assets			-				218				-				218				218
Provision for lawsuits and legal expenses			(7,357	)			(1,919	)			-				(1,919	)			(9,276	)
Provision for investment plan			(3,312	)			1,359				-				1,359				(1,953	)
Provision of fines and crushing site closure			-				(7,547	)			-				(7,547	)			(7,547	)
Other ID			-				-				1,300				1,300				1,300
Depreciation			285				(1,092	)			-				(1,092	)			(807	)
Total temporary differences, losses and unused fiscal credits			219,230				(14,624	)			849				(13,775	)			205,455

 

189

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.4

Reconciliation of changes in deferred tax liabilities (assets) as of December 31, 2015

 

		Deferred tax liabilities (assets) at the beginning of the period				Deferred tax expense (income) recognized in profit or loss				Deferred tax related to items credited (debited) directly to equity				Total increase (decrease) of deferred tax liabilities (assets)				Deferred tax liabilities (assets) at the end of the period
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			233,862				(789	)			-				(789	)			233,073
Doubtful accounts impairment			(6,755	)			1,636				-				1,636				(5,119	)
Accrued vacations			(3,735	)			367				-				367				(3,368	)
Manufacturing expenses			81,650				27,484				-				27,484				109,134
Unrealized gains (losses) from sales of products			(83,355	)			(4,085	)			-				(4,085	)			(87,440	)
Fair value of bonds			(350	)			-				(96	)			(96	)			(446	)
Severance indemnity			5,950				(2,081	)			309				(1,772	)			4,178
Hedging			(5,512	)			(6,364	)			-				(6,364	)			(11,876	)
Inventory of products, spare parts and supplies			(24,632	)			(4,842	)			-				(4,842	)			(29,474	)
Research and development expenses			4,285				3,696				-				3,696				7,981
Capitalized interest			26,904				(23,771	)			-				(23,771	)			3,133
Expenses in assumption of bank loans			4,011				(360	)			-				(360	)			3,651
Unaccrued interest			(150	)			(6	)			-				(6	)			(156	)
Fair value of property, plant and equipment			(70	)			3,445				-				3,445				3,375
Employee benefits			(2,450	)			530				-				530				(1,920	)
Royalty deferred income taxes			7,791				(1,381	)			-				(1,381	)			6,410
Unused tax losses			(715	)			(807	)			-				(807	)			(1,522	)
Purchase of intangible assets			235				(235	)			-				(235	)			-
Provision for lawsuits and legal expenses			(3,663	)			(3,694	)			-				(3,694	)			(7,357	)
Provision for investment plan			(8,946	)			5,634				-				5,634				(3,312	)
Provision of fines and crushing site closure			(1,654	)			1,654				-				1,654				-
Other ID			308				(23	)			-				(23	)			285
Total temporary differences, losses and unused fiscal credits			223,009				(3,992	)			213				(3,779	)			219,230

 

During the period ended December 31, 2016 and December 31, 2015, the Company calculated and accounted for taxable income considering a rate of 24% and 22.5% respectively, in conformity with Law No, 20,780, Tax Reform, published in the Official Gazette on September 29, 2014.

 

The main amendments include a gradual increase in the corporate income tax rate up to 27% starting from 2018.

 

190

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.5

Deferred taxes related to benefits for tax losses

 

The Company’s tax loss carryforwards (NOL carryforwards) were mainly generated by losses in Chile, which in accordance with current Chilean tax regulations have no expiration date.

 

As of December 31, 2016 and December 31, 2015, tax loss carryforwards (NOL carryforwards) are detailed as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
Chile			1,302				1,522
Total			1,302				1,522

 

Tax losses as of December 31, 2016 correspond mainly to SQM S.A., Exploraciones Mineras S.A. and Agrorama S.A.

 

d.6 Unrecognized deferred income tax assets and liabilities

 

Unrecognized deferred tax assets and liabilities as of December 31, 2016 and December 31, 2015 are as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
		Assets (liabilities)				Assets (liabilities)
Tax losses (NOL’s)			139				139
Doubtful accounts impairment			81				81
Inventory impairment			1,020				1,020
Pensions plan			(715	)			(715	)
Accrued vacations			29				29
Depreciation			(57	)			(57	)
Other			(19	)			(19	)
Balances to date			478				478

 

Tax losses mainly relate to the United States, and they expire in 20 years.

 

191

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.7

Movements in deferred tax assets and liabilities

 

Movements in deferred tax assets and liabilities as of December 31, 2016 and December 31, 2015 are detailed as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
		Liabilities (assets)				Liabilities (assets)
Deferred tax assets and liabilities, net opening balance			219,230				223,009
Increase (decrease) in deferred taxes in profit or loss			(14,624	)			(3,992	)
Increase (decrease) in deferred taxes in equity			849				213
Balances to date			205,455				219,230

 

d.8 Disclosures on income tax expense (income)

 

The Company recognizes current tax and deferred taxes as income or expenses, and they are included in profit or loss, unless they arise from:

 

(a)

a transaction or event recognized in the same period or in a different period, outside profit or loss either in other comprehensive income or directly in equity; or

 

(b)

a business combination

 

Current and deferred tax expenses (income) are detailed as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
		Income (expenses)				Income (expenses)
Current income tax expense
Current income tax expense			(147,589	)			(89,869	)
Adjustments to prior year current income tax			-				2,111
Current income tax expense, net, total			(147,589	)			(87,758	)
Deferred tax expense
Deferred tax expense (income) relating to the creation and reversal of temporary differences			14,624				3,992
Deferred tax expense, net, total			14,624				3,992
Tax expense (income)			(132,965	)			(83,766	)

 

192

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

Tax expenses (income) for foreign and domestic parties are detailed as follows:

 

		12/31/2016				12/31/2015
		ThUS$				ThUS$
		Income (expenses)				Income (expenses)
Current income tax expense by foreign and domestic parties, net
Current income tax expense, foreign parties, net			(10,844	)			(5,719	)
Current income tax expense, domestic, net			(136,745	)			(82,039	)
Current income tax expense, net, total			(147,589	)			(87,758	)
Deferred tax expense by foreign and domestic parties, net
Deferred tax expense, foreign parties, net			626				(232	)
Deferred tax expense, domestic, net			13,998				4,224
Deferred tax expense, net, total			14,624				3,992
Income tax expense			(132,965	)			(83,766	)

 

d.9

Equity interest in taxation attributable to equity-accounted investees

 

The Company does not recognize any deferred tax liability in all cases of taxable temporary differences associated with investments in subsidiaries, branches and associated companies or interest in joint ventures, because as indicated in the standard, the following two conditions are jointly met:

 

(a)

the parent, investor or interest holder is able to control the time for reversal of the temporary difference; and

(b)

It is more likely than not that the temporary difference is not reversed in the foreseeable future.

 

In addition, the Company does not recognize deferred income tax assets for all deductible temporary differences from investments in subsidiaries, branches and associated companies or interests in joint ventures because it is not possible to meet for the following requirements:

 

(a)

Temporary differences are reversed in a foreseeable future; and

(b)

The Company has tax earnings, against which temporary differences can be used.

 

193

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

d.10

Disclosures on the tax effects of other comprehensive income components:

 

Income tax related to other income and expense components with a charge or credit to net equity		Amount before taxes (expense) gain				(Expense) income for income taxes				Amount after taxes
		12/31/2016				12/31/2016				12/31/2016
		ThUS$				ThUS$				ThUS$
Gain (loss) from defined benefit plans			(3,397	)			920				(2,477	)
Cash flow hedge			2,233				(470	)			1,763
Reserve for gains (losses) from financial assets measured at fair value through other comprehensive income			4,813				(1,300	)			3,513
Total			3,649				(849	)			2,800

 

 

Income tax related to components of other income and expense with a charge or credit to net equity		Amount before taxes (expense) gain				((Expense) income for income taxes				Amount after taxes
		12/31/2015				12/31/2015				12/31/2015
		ThUS$				ThUS$				ThUS$
Gain (loss) from defined benefit plans			(174	)			(309	)			(483	)
Cash flow hedge			86				96				182
Total			(88	)			(213	)			(301	)

 

d.11        Explanation of the relationship between expense (income) for tax purposes and accounting income.

 

In accordance with paragraph No, 81, letter c) of IAS 12, the Company has estimated that the method that discloses more significant information for the users of its financial statements is the reconciliation of tax expense (income) to the result of multiplying income for accounting purposes by the tax rate in force in Chile, This option is based on the fact that the Parent and its subsidiaries incorporated in Chile generate almost the total amount of tax expense (income) and the fact that amounts of subsidiaries incorporated in foreign countries have no relevant significance within the context of the total amount of tax expense (income).

 

194

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

Reconciliation of numbers in income tax expenses (income) and the result of multiplying financial gain by the rate prevailing in Chile,

 

		Income (expense)
		12/31/2016				12/31/2015
		ThUS$				ThUS$
Consolidated income before taxes			414,889				301,098
Income tax rate in force in Chile			24	%			22,5	%
Tax expense using the legal rate			(99,573	)			(67,747	)
Effect of royalty tax expense			(6,310	)			(9,157	)
Tax effect of non-taxable revenue			3,610				3,013
Effect of taxable rate of non-deductible expenses for determination of taxable income (loss)			(9,768	)			(4,350	)
Tax effect of tax rates supported abroad			3,980				1,572
Other tax effects from the reconciliation between the accounting income and tax expense			(24,904	)			(7,097	)
Tax expense using the effective rate			(132,965	)			(83,766	)

 

d.12

Tax periods potentially subject to verification:

 

The Group’s Companies are potentially subject to income tax audits by tax authorities in each country, These audits are limited to a number of interim tax periods, which, in general, when they elapse, give rise to the expiration of these inspections,

 

Tax audits, due to their nature, are often complex and may require several years, Below, we provide a summary of tax periods that are potentially subject to verification, in accordance with tax regulations in force in the country of origin:

 

Chile

 

According to article 200 of Decree Law No 830, the tax authority shall review for any deficiencies in its settlement and taxes turn giving rise, by applying a requirement of 3 years term from the expiration of the legal deadline when payment should have been made, Besides, this requirement was extended to 6 years term for the revision of taxes subject to declaration, when such declaration was not been filed or has been presented maliciously false.

 

United States

 

In the United States, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return, In the event that an omission or error is detected in the tax return of sales or cost of sales, the review can be extended for a period of up to 6 years.

 

195

 

 

Note 28

Income tax and deferred taxes (continued)

 

28.4

Income tax and deferred taxes, continued

 

Mexico:

 

In Mexico, the tax authority can review tax returns up to 5 years from the expiration date of the tax return.

 

Spain:

 

In Spain, the tax authority can review tax returns up to 4 years from the expiration date of the tax return.

 

Belgium:

 

In Belgium, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return if no tax losses exist, In the event of detecting an omission or error in the tax return, the review can be extended for a period of up to 5 years.

 

South Africa:

 

In South Africa, the tax authority may review tax returns for up to 3 years from the expiration date of the tax return, In the event an omission or error in the tax return is detected, the review can be extended for a period of up to 5 years.

 

196

 

 

Note 29

Disclosures on the effects of fluctuations in foreign currency exchange rates

 

Assets held in foreign currency subject to fluctuations in exchange rates are detailed as follows:

 

Class of assets		Currency		12/31/2016 ThUS				12/31/2015 ThUS$
Current assets:
Cash and cash equivalents		ARS			4				1
Cash and cash equivalents		BRL			60				8
Cash and cash equivalents		CLP			6,044				2,656
Cash and cash equivalents		CNY			400				272
Cash and cash equivalents		EUR			11,386				4,245
Cash and cash equivalents		GBP			71				-
Cash and cash equivalents		IDR			-				-
Cash and cash equivalents		INR			12				14
Cash and cash equivalents		MXN			310				1,439
Cash and cash equivalents		PEN			3				1
Cash and cash equivalents		THB			-				1
Cash and cash equivalents		YEN			2,150				1,690
Cash and cash equivalents		ZAR			3,250				4,123
Subtotal cash and cash equivalents					23,690				14,450
Other current financial assets		CLF			-				17,507
Other current financial assets		CLP			50,740				131,633
Subtotal other current financial assets					50,740				149,140
Other current non-financial assets		ARS			5				-
Other current non-financial assets		AUD			45				34
Other current non-financial assets		BRL			-				8
Other current non-financial assets		CLF			47				38
Other current non-financial assets		CLP			14,554				39,091
Other current non-financial assets		CNY			10				27
Other current non-financial assets		EUR			822				2,278
Other current non-financial assets		MXN			1,734				1,036
Other current non-financial assets		THB			21				8
Other current non-financial assets		YEN			53				29
Other current non-financial assets		ZAR			18				4,466
Subtotal other current non-financial assets					17,309				47,015
Trade and other receivables		BRL			23				19
Trade and other receivables		CLF			545				993
Trade and other receivables		CLP			71,908				76,748
Trade and other receivables		CNY			48				77
Trade and other receivables		EUR			30,941				38,797
Trade and other receivables		GBP			152				582
Trade and other receivables		MXN			423				425
Trade and other receivables		PEN			-				112
Trade and other receivables		THB			2,777				1,473
Trade and other receivables		YEN			209				-
Trade and other receivables		ZAR			25,835				15,549
Subtotal trade and other receivables					132,861				134,775
Receivables from related parties		PEN			40				-
Receivables from related parties		CLP			41				52
Receivables from related parties		EUR			476				604
Receivables from related parties		THB			705				1,112
Receivables from related parties		CNY			48				-
Receivables from related parties		YEN			-				193
Subtotal receivables from related parties					1,310				1,961

 

197

 

 

Note 29

Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

 

Class of assets		Currency		12/31/2016 ThUS$				12/31/2015 ThUS$
Current tax assets		ARS			5				-
Current tax assets		CLP			1,640				1,453
Current tax assets		EUR			118				177
Current tax assets		BRL			3				-
Current tax assets		ZAR			386				424
Current tax assets		MXN			202				8
Current tax assets		PEN			203				222
Subtotal current tax assets					2,557				2,284
Non-current assets
Other non-current financial assets		CLP			20				20
Other non-current financial assets		YEN			41				39
Subtotal other non-current financial assets					61				59
Other non-current non-financial assets		BRL			139				116
Other non-current non-financial assets		CLP			729				536
Subtotal other non-current non-financial assets					868				652
Non-current right receivable		CLF			344				415
Non-current right receivable		CLP			1,382				467
Subtotal non-current rights receivable					1,726				882
Equity-accounted investees		AED			31,297				23,369
Equity-accounted investees		CLP			-				1,535
Equity-accounted investees		EUR			7,373				7,201
Equity-accounted investees		INR			1,499				962
Equity-accounted investees		THB			1,932				1,672
Equity-accounted investees		TRY			16,712				15,103
Subtotal equity-accounted investees					58,813				49,842
Intangible assets other than goodwill		CLP			294				284
Intangible assets other than goodwill		CNY			1				1
Subtotal intangible assets other than goodwill					295				285
Property, plant and equipment		CLP			3,810				4,089
Subtotal property, plant and equipment					3,810				4,089
Total non-current assets					65,573				55,809
Total assets					294,040				405,434

 

198

 

 

Note 29

Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

 

Liabilities held in foreign currencies are detailed as follows:

 

				12/31/2016												12/31/2015
Class of liability		Currency		91 days to 1 year ThUS$				91 days to 1 year ThUS$				Total ThUS$				Up to90 days ThUS$				91 days to 1 year ThUS$				Total ThUS$
Current liabilities
Other current financial liabilities		CLF			44,327				6,098				50,425				4,423				5,610				10,033
Other current financial liabilities		CLP			-				20,919				20,919				-				-				-
Subtotal other current financial liabilities					44,327				27,017				71,344				4,423				5,610				10,033
Trade and other payables		BRL			38				-				38				38				-				38
Trade and other payables		THB			131				-				131				-				-				-
Trade and other payables		CLP			40,604				2,808				43,412				48,707				-				48,707
Trade and other payables		EUR			30,545				-				30,545				8,591				-				8,591
Trade and other payables		GBP			6				-				6				55				-				55
Trade and other payables		INR			1				-				1				1				-				1
Trade and other payables		MXN			67				-				67				76				-				76
Trade and other payables		PEN			4				-				4				11				-				11
Trade and other payables		ZAR			3,054				-				3,054				1,727				-				1,727
Subtotal trade and other payables					74,450				2808				77,258				59,206				-				59,206
Other current provisions		BRL			-				-				-				9				-				9
Other current provisions		CLP			-				70				70				15				-				15
Other current provisions		EUR			5				-				5				5				-				5
Subtotal other current provisions					5				70				75				29				-				29
Current tax liabilities		CLP			-				131				131				-				-				-
Current tax liabilities		CNY			-				36				36				-				2				2
Current tax liabilities		EUR			-				3,987				3,987				-				889				889
Current tax liabilities		ZAR			27				-				27				-				-				-
Current tax liabilities		MXN			-				56				56				-				24				24
Subtotal current tax liabilities					27				4,210				4,237				-				915				915

 

199

 

 

Note 29

Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

 

				12/31/2016												12/31/2015
Class of liability		Currency		Up to 90 days ThUS$				over 90 days to 1 year ThUS$				Total ThUS$				Up to90 days ThUS$				Over 90 days to 1 year ThUS$				Total ThUS$
Other current non-financial liabilities		BRL			4				-				4				3				-				3
Other current non-financial liabilities		CLP			7,481				2,820				10,301				4,684				6,556				11,240
Other current non-financial liabilities		CNY			78				-				78				28				-				28
Other current non-financial liabilities		EUR			958				-				958				1,143				-				1,143
Other current non-financial liabilities		MXN			1,284				35				1,319				394				31				425
Other current non-financial liabilities		PEN			70				-				70				70				-				70
Other current non-financial liabilities		GBP			-				-				-				-				-				-
Other current non-financial liabilities		ZAR			866				-				866				13				-				13
Subtotal other current non-financial liabilities					10,741				2,855				13,596				6,335				6,587				12,922
Total current liabilities					129,550				36,960				166,510				69,993				13,112				83,105

 

200

 

 

Note 29

Disclosures on the effects of fluctuations in foreign currency exchange rates (continued)

 

				12/31/2016
Class of liability		Currency		1 to 2 years ThUS$				2 to 3 years ThUS$				3 to 4 years ThUS$				4 to 5 years ThUS$				Over 5 years ThUS$				Total ThUS$
Non-current liabilities
Other non-current financial liabilities		CLF			5,903				5,903				5,903				5,903				243,297				266,909
Subtotal other non-current financial liabilities					5,903				5,903				5,903				5,903				243,297				266,909
Non-current provisions for employee benefits		CLP			-				-				-				-				494				494
Non-current provisions for employee benefits		MXN			-				-				-				-				61				61
Non-current provisions for employee benefits		YEN			-				-				-				-				561				561
Subtotal non-current provisions for employee benefits					-				-				-				-				1,116				1,116
Total non-current liabilities					5,903				5,903				5,903				5,903				244,413				268,025

 

				12/31/2015
Class of liability		Currency		1 to 2 years ThUS$				2 to 3 years ThUS$				3 to 4 years ThUS$				4 to 5 years ThUS$				Over 5 years ThUS$				Total ThUS$
Non-current liabilities
Other non-current financial liabilities		CLF			41,485				5,413				5,413				5,413				228,083				285,807
Subtotal other non-current financial liabilities					41,485				5,413				5,413				5,413				228,083				285,807
Non-current provisions for employee benefits		CLP			-				-				-				-				539				539
Non-current provisions for employee benefits		MXN			-				-				-				-				100				100
Non-current provisions for employee benefits		YEN			-				-				-				-				495				495
Subtotal non-current provisions for employee benefits					-				-				-				-				1,134				1,134
Total non-current liabilities					41,485				5,413				5,413				5,413				229,217				286,941

 

201

 

 

Note 30

Mineral resource exploration and evaluation expenditure

 

Because of the nature of the operations of Sociedad Química y Minera de Chile S.A. and its subsidiaries and the type of exploration they conduct (which is different than other mining businesses where the exploration process results in significant time), the exploration and process and the definition of the economic feasibility occurs normally within the year. Accordingly, although expenditure is initially capitalized, it could be recognized in profit or loss for the same year should there be no technical and commercial feasibility. This results in having no significant expenditure that have no feasibility study at the end of the year.

 

Prospecting expenditure can be found in 4 different stages: execution, economically feasible, not economically feasible and under exploitation:

 

1.           Execution: prospecting expenditure which are under execution and accordingly there is no yet a definition as to its economic feasibility are classified in the caption property, plant and equipment, as of December 31, 2016 and December 31, 2015, the balance amounts to ThUS$12,163 and ThUS$ 10,135, respectively,

 

2.           Economically feasible: prospecting expenditure, which upon completion, has been concluded to be economically feasible is classified in the caption non-current assets in other non-current non-financial assets, as of December 31, 2016 and December 31, 2015, the balance amounts to ThUS$23,008 and ThUS$ 31,911 respectively,

 

3.           Not economically feasible: Prospecting expenditure, which upon completion it has been concluded that are not economically feasible are recorded in profit or loss: As of December 31, 2016, this amounts to ThUS$ 0 and ThUS$520 as of December 31, 2015.

 

4.           Under exploitation: Prospecting expenditure under exploitation is classified in the caption current assets in current inventories, These are amortized considering the exploited material, as of December 31, 2016 and December 31, 2015, the balance amounts to ThUS$674 and ThUS$ 1,269 respectively.

 

For the amount of capitalized expenditure, the total amount disbursed in exploration and evaluation of mineral resources as of December 31, 2016 ThUS$2,028, and correspond to non-metallic projects, Such expenditure mainly correspond to studies, either topographical, geological, exploratory drilling, sampling, among others,.

 

With respect to this expenditure, the Company has defined classifying it in accordance with IFRS 6.9:

 

For exploration expenditure where the mineral has low ore grade that is not economically exploitable, it is debited directly to profit or loss.

 

If studies determine that the ore grade is economically exploitable, it is classified in other non-current assets in the caption stain development and prospecting expenses and at the time of making the decision for exploiting the zone it is classified in the caption inventories as part of the cost of raw materials required for production purposes.

 

202

 

 

Note 31

Lawsuits and complaints

 

Lawsuits and complaints

 

During 2015, the Chilean IRS has filed several lawsuits and complaints related to the so-called “SQM Case”, which are associated with the irregular financing of politicians against a number of individuals, amongst others, the legal representatives of the Company Patricio de Sominihac T. – CEO – and Ricardo Ramos R. – Vice President of Corporate Services–. Basically, those lawsuits and complaints relate to alleged tax crimes associated with a possible undue decrease in taxable net income of the Company and two of its subsidiaries over the last seven years by recording as expenses in their accounting records invoices and fee receipts, which could be considered to be ideologically false. Such legal actions are also filed against the taxpayers who provided the tax documents that allowed the alleged performance of the related illicit acts.

 

Likewise, during 2015 Oscar Gajardo S. filed several similar lawsuits against the Directors and Executives of ten major Chilean companies, including SQM, alleging undue appropriation incurred by making contributions regulated by the Law and the Chilean Electoral Service without the approval of their shareholders. Subsequently, Mr. Gajardo filed a new lawsuit against Patricio Contesse G. – former CEO of SQM – and Ricardo Ramos R. el al for the alleged perpetration of several crimes for the irregular financing of politicians to the detriment of SQM and its shareholders.

 

Additionally, during 2015 and within the context of the “SQM Case”, the Deputy of the Tarapacá Region of Chile Hugo Gutiérrez G. filed a lawsuit for alleged extortion-bribery and money laundering referred to in Law No. 20.393 on Legal Responsibility of Juridical Persons against SQM and its legal representative Patricio de Sominihac T. and Senators of the Tarapacá Region of Chile Jaime Orpis B. and Fulvio Rossi C.

 

Actions performed by the Authority

 

The Public Ministry and Chilean IRS (Servicio de Impuestos Internos (SII)) have performed a number of actions within the framework of the so-called “SQM Case” where the Company and its executives have provided their cooperation. Several of the Company’s executives have granted access to their computers and made several statements at the request of the Prosecutors responsible for the investigation. Additionally, SQM has provided physical and digital copies of its accounting records and its subsidiaries’ accounting records. In addition, SQM has also provided the Public Ministry with its email files and all the documentation that has been required by the related authority.

 

203

 

 

Note 31

Lawsuits and complaints, (continued)

 

Shearman & Sterling and Ad-Hoc Committee

 

The Company’s Board of Directors, at its Extraordinary Meeting of February 26, 2015, formed an Ad-hoc Committee. This Committee was formed with the purpose of conducting an investigation and gather all the information necessary related to the “Penta case –SQM aspect,” so that upon completion of such investigation the Committee is able to report to the Board of Directors its results, conclusions and recommendations. The Board of Directors provided the Committee with the authority necessary to conduct its intended duties and provided it with powers so that, at its discretion, engages all the legal and accounting, and other independent advisory services it deemed appropriate and that, upon completion of its duties, reports to the Board of Directors under the aforementioned terms.

 

The Committee engaged the legal Advisory of the law firms Shearman & Sterling and Vial / Serrano, and the forensic services provided by the US company FTI (the “Advisors”) to conduct an investigation and analysis of the possible contingencies to which SQM may be exposed under the standards contained in the Foreign Corrupt Practices Act (FCPA) of the United States of America, which is applicable to the Company as the issuer of securities in the US market. Specifically, the investigation was focused on conducting an analysis of: (a) whether the Company had made any undue payment defined as a corrupt practice for FCPA purposes; and (b) whether the Company had not complied with the accounting regulations in accordance with that established in the FCPA.

 

On December 15, 2015, the Committee, together with the Advisors, reported to the Board of Directors the results, conclusions and recommendations resulting from their work. Likewise, on the same date, the Advisors reported such results, conclusions and recommendations to the Chilean Authorities and on January 7, 2016, they reported these to the US Regulators.

 

The main conclusions contained in the Ad-Hoc Committee Report are: (a) the Committee identified payments authorized by the former General Manager of SQM, Mr. Patricio Contesse G. with respect to which the Company found no sufficient supporting documentation; (b) no evidence was identified demonstrating that such payments were made with the purpose of inducing an public officer to act or refrain from acting with the purpose of helping SQM obtain economic benefits: (c) a conclusion was reached with respect to the cost center managed by the former General Manager of SQM Mr. Patricio Contesse G., that the Company’s accounting records did not accurately reflect the transactions challenged, notwithstanding the fact that, because of their amount, such transactions are below the materiality level defined by the Company’s external auditors determined in comparison to the volume of equity, sales, expenses or profits of SQM within the reported period; and that (d) SQM’s internal controls were not sufficient to monitor the expenses included in the cost center managed by the former General Manager of SQM and that the Company relied in the adequate use of the resources by Mr. P. Contesse G. ”

 

204

 

 

Note 31

Lawsuits and complaints, (continued)

 

Investigation by the Department of Justice and the Securities Exchange Commission

 

SQM informed of the investigation currently being performed by Shearman & Sterling on US regulating entities (Department of Justice and Securities and Exchange Commission), in conformity with the standards effective in the United States of America. The outcome of such investigation was delivered to these regulating entities, which have started investigations to determine the existence of possible noncompliance with FCPA (Foreign Corruption Practices Act) or internal control standards (refer to Note 35).

 

Note 32

Sanction proceedings

 

On April 1, 2015, the SVS started an administrative proceeding against five Directors of SQM for supposedly not having provided to the market on a timely and truthful basis information which could be significant for making investment decisions. Such information mainly relates to the preliminary estimate of the impact on the Company’s financial statements of certain expenses paid by the Company between 2008 and 2014 and which might not qualify as expenses under current Chilean tax regulations because of the absence of supporting documentation.

 

On December 31, 2015, the Company reported that the Chilean Superintendence of Securities and Insurance (SVS) has made its resolution to impose sanctions on Patricio Contesse Fica, Julio Ponce Lerou – former Company’s Directors–, Hernán Büchi Buc, Juan Antonio Guzmán Molinari and Wolf von Appen Berhmann –former Directors of SQM– for not having reported to the market, in March 2015, as an Essential event and in their role of Company’s Directors, on the expenses that SQM incurred during certain years, which did not have sufficient reporting documentation or might be considered to be unnecessary to generate income. The sanction imposed relates to a fine of UF 1,000 on each of the aforementioned individuals and a remedy can be sought with the Chilean Superintendence of Securities and Insurance (SVS) and courts of justice.

 

Note 33

Closure of the Pedro de Valdivia Site

 

On September 22, 2015, the Company reported to the Chilean Superintendence of Securities and Insurance (SVS) that its Board of Directors opted to close the mining operations at the Pedro de Valdivia site and a portion of such site’s industrial operations. The larger part of this closure occured at the end of November 2015 and the nitrate and iodine operations that will continue to generate production in the remaining industrial plants at the Pedro de Valdivia operation will amount to approximately one third of the current production volumes.

 

205

 

 

Note 33

Closure of the Pedro de Valdivia Site, continued

 

This decision is based on the fact that the Company has continued to increase its production capacity of iodine and nitrate salts in its industrial mining operations at the Nueva Victoria site and has reduced its production costs to meet sales forecasts and increase its current worldwide market share in the iodine market.

 

As of December 31, 2015, the effect on profit or loss of stopping operations are detailed as follows:

 

		ThUS$
Property, plant and equipment			36,823
Constructions in progress			3,195
Total property, plant and equipment			40,018
Legal and voluntary severance indemnity payments			17,647
Total closure of the Pedro de Valdivia site			57,665

  

Note 34

Railway for transportation of products between the site Coya Sur and the Port of Tocopilla

 

As a result of the rain storms that affected the Tocopilla Zone at the beginning of August 2015, SQM S.A. confirmed the existence of damages in several zones in the railway between the sites Coya Sur and Tocopilla. Accordingly, starting from such date the Company has used the transport of trucks replacing the transport through the railway. SQM has performed several internal and external studies with the purpose of determining the costs and terms necessary to repair the damages in the railway.

 

The analysis of the internal and external reports allows concluding that the costs associated with repairing the damages caused by the rain storms would imply long-terms and high costs, and accordingly, it is not convenient at short and medium-term to repair the railway. Such decision does not affect the production process or imply additional employee reductions.

 

Consequently, SQM has adjusted the value of the assets associated with the railway (fixed equipment, facilities and rolling equipment), which has translated into a charge of approximately US$ 32 million which are reflected in the line other expenses by function in the consolidated statement of income for the period. Such amount approximately represents 0.7% of SQM’s total assets reported at the end of September 2016.

 

Note 35

Events occurred after the reporting date

 

35.1

Authorization of the financial statements

 

The consolidated financial statements of Sociedad Química y Minera de Chile S.A. and subsidiaries prepared in accordance with International Financial Reporting Standards for the period ended December 31, 2016 were approved and authorized for issuance by the Board of Directors at their meeting held on November 23, 2016.

 

206

 

 

Note 35

Events occurred after the reporting date, (continued)

 

35.2

Disclosures on events occurring after the reporting date

 

On January 13, 2017, the Company entered into agreements with the Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”),both based in the United States of America (the “United States”), with respect to the investigations that such agencies have conducted as a result of payments to suppliers and entities that might have been related to politically exposed persons during the years from 2008 through 2015, which resulted in the performance of an internal investigation at the Company through an Ad-hoc Committee from its Board of Directors and which was led by the law firm Shearman & Sterling (the “Investigated Facts”). Because the Company’s securities are traded in the United States, the Company is subject to the U.S. legislation. The Company has voluntarily provided the results of its internal investigation and documents supporting it to the DOJ, the SEC and the relevant Chilean authorities.

 

In conformity with the terms of the agreement entered into with the DOJ, referred to as Deferred Prosecution Agreement (the “DPA”), the Company has accepted that the DOJ presents (i) a charge for the infractions referred to the absence of implementation of effective internal accounting systems and internal accounting controls and (ii) a charge for infractions related to failure to properly maintain accounting ledgers, records and sections with respect to the Investigated Facts. By virtue of the DPA, the DOJ has agreed not to prosecute those charges against the Company for a period of 3 years and releasing the Company from such responsibility after such period to the extent that within such term the Company complies with the terms in the DPA, which include the payment of a fine of 15,487,500 United States dollars (“U.S. dollars”) and the acceptance of an external monitor for a term of 24 months (the “Monitor”) which evaluates the Company’s compliance program, for a subsequent independent report by the Company for an additional year.

 

With respect to the agreement entered into with the SEC, the Company has agreed to (i) pay a fine of 15 million of U.S. dollars and (ii) maintaining the Monitor for the aforementioned term.

 

The SEC has issued a Cease and Desist Order which does not identify any other events of noncompliance with the standards applicable in the United States.

 

The aforementioned amounts of approximately US$ 30.5 million were reflected in the profit or loss of SQM during the fourth quarter of 2016 in the line item Other expenses by function.

 

Management is not aware of any other significant events occurring between December 31, 2016 and the date of issuance of these consolidated financial statements, which affect them.

 

35.3

Detail of dividends declared after the reporting date

 

As of the closing date of the financial statements, there are no dividends declared after the reporting date.

  

207

 

   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	CHEMICAL AND MINING COMPANY OF CHILE INC.
	(Registrant)
Date: March 21, 2017	/s/ Ricardo Ramos
	By: Ricardo Ramos
	CFO & Vice President of Corporate Services

 

Persons who are to respond to the collection of information contained SEC 1815 (04-09) in this form are not required to respond unless the form displays currently valid OMB control number.

 

SQM El Trovador 4285, Las Condes, Santiago, Chile Tel: (56 2) 425 2000 www.sqm.com

 

208

 

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