Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 20-F
£ |
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
OR
T |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the fiscal year ended December 31, 2007
OR
£ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
OR
£ |
SHELL
COMPANY REPORT PURSUANT TO SECTION 23 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Date
of
event requiring this shell company report_______________________________
.
For
the
transition period from _____________to__________
.
Commission
file number 33-65728
/ 33-99188
/ 333-10068
SOCIEDAD
QUIMICA Y MINERA DE CHILE S.A.
(Exact
name of registrant as specified in its charter)
CHEMICAL
AND MINING COMPANY OF CHILE INC.
(Translation
of registrant's name into English)
CHILE
(Jurisdiction
of incorporation or organization)
El
Trovador 4285, Piso 6, Santiago, Chile +56 2 425-2000
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act.
Title
of each class
|
|
Name
of each exchange on which registered
|
Series A shares, in the form of American Depositary Shares
Series B shares, in the form of American Depositary Shares
|
|
New York Stock Exchange
New York Stock Exchange
|
Securities registered or to be registered pursuant to Section
12(g) of the Act.
NONE
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.
NONE
Indicate
the number of outstanding shares of each of the issuer's classes of capital
or
common stock as of the close of the period covered by the annual
report.
Series
A shares
|
142,819,552
|
Series
B shares
|
120,376,972
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
rule 405 of the Securities Act: T
YES £
NO
If
this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of
the Securities Exchange act of 1934: £ YES T NO
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. T YES £ NO
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non accelerated filer. See definition of “accelerated
filer and large accelerated filer” in rule 12b-2 of the Exchange Act.
T
Large
accelerated filer £
Accelerated filer £
Non-
accelerated filer
Indicate
by check mark which basis of accounting the registrant has used to prepare
the
financial statements included in this filing:
£ U.S.
GAAP £ International
Financial Reporting Standards as issued by the International Accounting
Standards Board T
Other
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
Indicate
by check mark which financial statement item the registrant has elected to
follow. £ Item
17 T Item
18
If
this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act):
£ YES T NO
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Page
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|
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PRESENTATION
OF INFORMATION
|
iii
|
GLOSSARY
|
iii
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|
vi
|
|
|
|
PART
I
|
|
1
|
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
1
|
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
1
|
ITEM
3.
|
KEY
INFORMATION
|
1
|
ITEM
4.
|
INFORMATION
ON THE COMPANY
|
12
|
ITEM
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
45
|
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
62
|
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
74
|
ITEM
8.
|
FINANCIAL
INFORMATION
|
76
|
ITEM
9.
|
THE
OFFER AND LISTING
|
78
|
ITEM
10.
|
ADDITIONAL
INFORMATION
|
81
|
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
92
|
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
93
|
|
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PART
II
|
|
94
|
ITEM
13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
94
|
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
94
|
ITEM
15.
|
CONTROLS
AND PROCEDURES
|
94
|
ITEM
16.
|
RESERVED
|
95
|
ITEM
16.A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
95
|
ITEM
16.B.
|
CODE
OF ETHICS
|
95 |
ITEM
16.C
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
96
|
ITEM
16.D
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
96
|
ITEM
16.E
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUERS AND AFFILIATED
PURCHASERS
|
96
|
|
|
|
PART
III
|
|
97
|
ITEM
17.
|
FINANCIAL
STATEMENTS
|
97
|
ITEM
18.
|
FINANCIAL
STATEMENTS
|
97
|
ITEM
19.
|
EXHIBITS
|
97
|
SIGNATURES
|
|
98
|
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
99
|
EXHIBIT
1.1
|
|
EXHIBIT
8.1
|
|
EXHIBIT
12.1
|
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EXHIBIT
12.2
|
|
|
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EXHIBIT
13.2
|
|
PRESENTATION
OF INFORMATION
In
this
Annual Report on Form 20-F, unless the context requires otherwise, all
references to "we",
"us",
"Company"
or
"SQM"
are to
Sociedad Química y Minera de Chile S.A., an open stock corporation (sociedad
anónima abierta)
organized under the laws of the Republic of Chile, and its consolidated
subsidiaries.
All
references to "$,"
"US$,"
"U.S.
dollars"
and
"dollars"
are to
United States dollars, references to "pesos"
or
"Ch$"
are to
Chilean pesos, and references to "UF"
are to
Unidades
de Fomento.
The UF
is an inflation-indexed, peso-denominated unit that is linked to, and adjusted
daily to reflect changes in, the previous month's Chilean consumer price index.
As of May 31, 2008, UF 1.00 was equivalent to US$41.82 and
Ch$20,061.03.
The
Republic of Chile is governed by a democratic government, organized in fourteen
regions plus the Metropolitan Region (surrounding and including Santiago, the
capital of Chile). Our production operations are concentrated in northern Chile,
specifically in the Tarapacá Region and in the Antofagasta Region.
Our
fiscal year ends on December 31.
We
use
the metric system of weights and measures in calculating our operating and
other
data. The United States equivalent units of the most common metric units used
by
us are as shown below:
1
kilometer equals approximately 0.6214 miles
1
meter
equals approximately 3.2808 feet
1
centimeter equals approximately 0.3937 inches
1
hectare
equals approximately 2.4710 acres
1
metric
ton equals 1,000 kilograms or approximately 2,205 pounds.
We
are
not aware of any independent, authoritative source of information regarding
sizes, growth rates or market shares for most of our markets. Accordingly,
the
market size, market growth rate and market share estimates contained herein
have
been developed by us using internal and external sources and reflect our best
current estimates. These estimates have not been confirmed by independent
sources.
Percentages
and certain amounts contained herein have been rounded for ease of presentation.
Any discrepancies in any figure between totals and the sums of the amounts
presented are due to rounding.
GLOSSARY*
"assay
values"
Chemical result or mineral component amount that contains the
sample.
"average
global metallurgical recoveries"
Percentage that measures the metallurgical treatment effectiveness based on
the
quantitative relationship between the initial product contained in the
mine-extracted material and the final product produced in the
plant.
"average
mining exploitation factor"
Index
or ratio that measures the mineral exploitation effectiveness (defined below),
based on the quantitative relationship between (in-situ mineral minus
exploitation losses) / in-situ mineral.
“Controller
Group”
A
person or company or group of persons or companies that have executed a joint
performance agreement, that have a direct or indirect share in a company’s
ownership and have the power to influence the decisions of the company’s
management.
"Corfo"
Production Development Corporation (Corporación
de Fomento de la Producción),
formed
in 1939, a national organization in charge of promoting Chile's manufacturing
productivity and commercial development.
"cut-off
grade"
The
minimal assay value or chemical amount of some mineral component above which
exploitation is economical.
"dilution"
Loss of
mineral grade because of contamination with barren material (or waste)
incorporated in some exploited ore mineral.
"exploitation
losses"
Amounts
of ore mineral that have not been extracted in accordance with exploitation
designs.
"fertigation"
The
process by which plant nutrients are applied to the ground using an irrigation
system.
"geostatistical
analysis"
Statistical tools applied to mining planning, geology and geochemical data
that
allow estimation of averages, grades and quantities of mineral resources and
reserves.
"heap
leaching"
A
process whereby minerals are leached from a heap, or pad, of crushed ore by
leaching solutions percolating down through the heap and collected from a
sloping, impermeable liner below the pad.
"horizontal
layering"
Rock
mass (stratiform seam) with generally uniform thickness that conform to the
sedimentary fields (mineralized and horizontal rock in these
cases).
"hypothetical
resources"
Mineral
resources that have limited geochemical reconnaissance, based mainly on
geological data and samples assay values spaced between 500–1000
meters.
"Indicated
Mineral Resource"
See
"Resources—Indicated Mineral Resource."
"Inferred
Mineral Resource"
See
"Resources—Inferred Mineral Resource."
"industrial
crops"
Refers
to crops that require processing after harvest in order to be ready for
consumption or sale. Tobacco, tea and seed crops are examples of industrial
crops.
“Kriging
Method” A
technique used to estimate ore reserves, in which the spatial distribution
of
continuous geophysical variables is estimated using control points where values
are known.
"LIBOR"
London
Inter Bank Offered Rate.
"limited
reconnaissance"
Low or
limited level of geological knowledge.
"Measured
Mineral Resource"
See
"Resources—Measured Mineral Resource."
"metallurgical
treatment"
A set
of chemical and physical processes applied to rocks to extract their useful
minerals (or metals).
"old
waste ore deposits"
Ore
deposits that have been previously mined but not entirely depleted because
of
the low-grade quality of the ore.
"ore
depth"
Depth
of the mineral that may be economically exploited.
"ore
type"
Main
mineral having economic value contained in the caliche ore (sodium nitrate
or
iodine).
"ore"
A
mineral or rock from which a substance having economic value may be
extracted.
"Probable
Mineral Reserve"
See
"Reserves—Probable Mineral Reserve."
"Proved
Mineral Reserve"
See
"Reserves—Proved Mineral Reserve."
"Reserves—Probable
Mineral Reserve"*
The
economically mineable part of an Indicated Mineral Resource and, in some
circumstances, Measured Mineral Resource. The calculation of the reserves
includes diluting of materials and allowances for losses which may occur when
the material is mined. Appropriate assessments, which may include feasibility
studies, have been carried out and include consideration of and modification
by
realistically assumed mining, metallurgical, economic, marketing, legal,
environmental, social and governmental factors. These assessments demonstrate
at
the time of reporting that extraction is reasonably justified. A Probable
Mineral Reserve has a lower level of confidence than a Proved Mineral
Reserve.
"Reserves—Proved
Mineral Reserve"*
The
economically mineable part of a Measured Mineral Resource. The calculation
of
the reserves includes diluting materials and allowances for losses which may
occur when the material is mined. Appropriate assessments, which may include
feasibility studies, have been carried out and include consideration of and
modification by realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental factors. These
assessments demonstrate at the time of reporting that extraction is reasonably
justified.
"Resources—Indicated
Mineral Resource"*
That
part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics, grade and mineral content can be estimated with a reasonable
level of confidence. The calculation is based on exploration, sampling and
testing information gathered through appropriate techniques from locations
such
as outcrops, trenches, pits, workings, and drill holes. The locations are too
widely or inappropriately spaced to confirm geological continuity and/or grade
continuity but are spaced closely enough for continuity to be assumed. An
Indicated Mineral Resource has a lower level of confidence than that applying
to
a Measured Mineral Resource, but has a higher level of confidence than that
applying to an Inferred Mineral Resource.
|
|
A
deposit may be classified as an Indicated Mineral Resource when the
nature, quality, amount and distribution of data are such as to allow
the
Competent Person determining the Mineral Resource to confidently
interpret
the geological framework and to assume continuity of mineralization.
Confidence in the estimate is sufficient to allow the appropriate
application of technical and economic parameters and to enable an
evaluation of economic viability.
|
"Resources—Inferred
Mineral Resource"*
That
part of a Mineral Resource for which tonnage, grade and mineral content can
be
estimated with a low level of confidence, by inferring them on the basis of
geological evidence and assumed but not verified geological and/or grade
continuity. The estimate is based on information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes, and this information is of limited or uncertain quality and/or
reliability. An Inferred Mineral Resource has a lower level of confidence than
that applying to an Indicated Mineral Resource.
"Resources—Measured
Mineral Resource"
The
part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics, grade and mineral content can be estimated with a high level
of
confidence. The estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings, and drill holes. The locations
are
spaced closely enough to confirm geological and/or grade
continuity.
|
|
A
deposit may be classified as a Measured Mineral Resource when the
nature,
quality, amount and distribution of data are such as to leave no
reasonable doubt, in the opinion of the Competent Person determining
the
Mineral Resource, that the tonnage and grade of the deposit can be
estimated within close limits and that any variation from the estimate
would not significantly affect potential economic viability. This
category
requires a high level of confidence in, and understanding of, the
geology
and controls of the mineral deposit. Confidence in the estimate is
sufficient to allow the appropriate application of technical and
economic
parameters and to enable an evaluation of economic
viability.
|
“vat
leaching”
A
process whereby minerals are extracted from crushed ore by placing the ore
in
large vats containing leaching solutions.
"waste"
Rock or
mineral which is not economical for metallurgical treatment.
"Weighted
Average Age"
The sum
of the product of the age of each fixed asset at a given facility and its
current gross book value as of December 31, 2007 divided by the total gross
book
value of the Company's fixed assets at such facility as of December 31,
2007.
* |
The
definitions we use for resources and reserves are based on those
provided
by the “Instituto
de Ingenieros de Minas de Chile”
(Chilean Institute of Mining Engineers).
|
** |
The
definition of a Controller Group that has been provided is the one
that
applies to the Company. Chilean law provides for a broader definition
of a
Controller Group.
|
SQM
will
provide a copy of any or all of the documents incorporated herein by reference
(other than exhibits, unless such exhibits are specifically incorporated by
reference in such documents), upon written or oral request. Written requests
for
such copies should be directed to Sociedad Química y Minera de Chile S.A., El
Trovador 4285, Piso 6, Santiago, Chile, Attention: Investor Relations
Department. Requests may also be made by telephone (562-425-2000), facsimile
(562-425-2493) or e-mail ([email protected]).
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Form
20-F contains statements that are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements appear throughout this Form 20-F and include statements
regarding the intent, belief or current expectations of the Company and its
management, including but not limited to any statements concerning:
|
·
|
the
Company's capital investment program and development of new
products;
|
|
·
|
trends
affecting the Company's financial condition or results of
operations;
|
|
·
|
level
of production, quality of the ore and brines, and production
yields;
|
|
·
|
the
future impact of competition;
|
|
·
|
any
statements preceded by, followed by, or that include the words "believe,"
"expect," "predict," "anticipate," "intend," "estimate," "should,"
"may,"
"could" or similar expressions; and
|
|
·
|
other
statements contained in this Form 20-F that are not historical
facts.
|
Such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual results may differ materially from those
described in such forward-looking statements included in this Form 20-F,
including, without limitation, the information under Item 4. Information on
the
Company and Item 5. Operating and Financial Review and Prospects. Factors that
could cause actual results to differ materially include, but are not limited
to:
|
·
|
SQM's
ability to implement its capital expenditures, including its ability
to
arrange financing when required;
|
|
·
|
the
nature and extent of future competition in SQM's principal
markets;
|
|
·
|
political,
economic and demographic developments in the emerging market countries
of
Latin America and Asia where SQM conducts a large portion of its
business;
and
|
|
·
|
the
factors discussed below under Item 3. Key Information—Risk
Factors.
|
PART
I
ITEM
1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
Applicable.
ITEM
2. OFFER
STATISTICS AND EXPECTED TIMETABLE
Not
Applicable.
ITEM
3. KEY
INFORMATION
3.A.
Selected
Financial Data
The
following table presents selected consolidated financial information for
SQM and
one or more of its subsidiaries, as applicable, for each of the periods
indicated. This information should be read in conjunction with, and is qualified
in its entirety by reference to, the Audited Consolidated Financial Statements
of the Company as of December 31, 2007 and 2006 and for each of the three
years
in the period ended December 31, 2007. The consolidated financial statements
as
of December 31, 2004 and 2003 and for the years then ended are not included
herein. The Company's Consolidated Financial Statements are prepared in
accordance with Chilean GAAP, which differs in certain material respects
from
U.S. GAAP. Note 29 to the Consolidated Financial Statements as of December
31,
2007 and 2006 and for each of the three years in the period ended December
31,
2007 provides a description of the principal differences between Chilean
GAAP
and U.S. GAAP and a reconciliation of net income for the years ended December
31, 2007, 2006 and 2005 and total shareholders' equity as of December 31,
2007
and 2006 to U.S. GAAP.
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Income Statement Data
|
|
(in millions of US$) (1)
|
|
|
|
|
|
Chilean
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
1,187.5
|
|
|
1,042.9
|
|
|
896.0
|
|
|
788.5
|
|
|
691.8
|
|
Operating
Income
|
|
|
259.5
|
|
|
219.9
|
|
|
181.2
|
|
|
124.1
|
|
|
87.3
|
|
Non-operating
results, net
|
|
|
(27.1
|
)
|
|
(36.1
|
)
|
|
(34.4
|
)
|
|
(17.6
|
)
|
|
(21.2
|
)
|
Net
income
|
|
|
180.0
|
|
|
141.3
|
|
|
113.5
|
|
|
74.2
|
|
|
46.8
|
|
Net
earnings per share (2)
|
|
|
0.68
|
|
|
0.54
|
|
|
0.43
|
|
|
0.28
|
|
|
0.18
|
|
Net
earnings per ADS (2) (3)
|
|
|
0.68
|
|
|
0.54
|
|
|
0.43
|
|
|
0.28
|
|
|
0.18
|
|
Dividend
per share (4)(5)
|
|
|
0.44
|
|
|
0.349
|
|
|
0.279
|
|
|
0.182
|
|
|
0.088
|
|
Weighted
average shares outstanding (000s) (2)
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
1,187.5
|
|
|
1,042.9
|
|
|
896.0
|
|
|
788.5
|
|
|
691.8
|
|
Operating
Income
|
|
|
237.0
|
|
|
205.5
|
|
|
163.9
|
|
|
114.6
|
|
|
76.7
|
|
Non-operating
results, net (6)
|
|
|
1.7
|
|
|
(14.1
|
)
|
|
(6.1
|
)
|
|
(1.6
|
)
|
|
(4.3
|
)
|
Equity
participation in income (loss) of related companies, net
|
|
|
3.6
|
|
|
2.0
|
|
|
2.6
|
|
|
1.8
|
|
|
2.2
|
|
Net
income
|
|
|
192.7
|
|
|
154.3
|
|
|
125.2
|
|
|
86.8
|
|
|
57.8
|
|
Basic
and diluted earnings per share
|
|
|
0.73
|
|
|
0.59
|
|
|
0.48
|
|
|
0.33
|
|
|
0.22
|
|
Basic
and diluted earnings per ADS (3)
|
|
|
0.73
|
|
|
0.59
|
|
|
0.48
|
|
|
0.33
|
|
|
0.22
|
|
Weighted
average shares outstanding (000s)(2)
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Balance
Sheet Data:
|
|
(In
millions of US$)
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
1,986.3
|
|
|
1,871.2
|
|
|
1,640.6
|
|
|
1,361.4
|
|
|
1,363.5
|
|
Long-term
debt
|
|
|
486.7
|
|
|
480.7
|
|
|
100.0
|
|
|
200.0
|
|
|
260.0
|
|
Total
shareholders' equity
|
|
|
1,182.4
|
|
|
1,085.9
|
|
|
1,020.4
|
|
|
948.6
|
|
|
890.0
|
|
Capital
stock
|
|
|
477.4
|
|
|
477.4
|
|
|
477.4
|
|
|
477.4
|
|
|
477.4
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
1,959.6
|
|
|
1,846.0
|
|
|
1,609.0
|
|
|
1,318.5
|
|
|
1,319.4
|
|
Long-term
debt
|
|
|
485.0
|
|
|
478.7
|
|
|
100.0
|
|
|
200.0
|
|
|
260.0
|
|
Total
shareholders' equity
|
|
|
1,084.1
|
|
|
994.5
|
|
|
923.4
|
|
|
856.9
|
|
|
794.7
|
|
Capital
stock
|
|
|
479.3
|
|
|
479.3
|
|
|
479.3
|
|
|
479.3
|
|
|
479.3
|
|
Note:
The Company is not aware of any material differences between
Chilean and
U.S. GAAP that are not addressed in Note 29 to the Consolidated
Financial
Statements of December 31, 2007.
|
|
(1)
Except shares outstanding, dividend and net earnings per share
and net
earnings per ADS.
(2)
There are no authoritative pronouncements related to the calculation
of
earnings per share in accordance with Chilean GAAP. For comparative
purposes the calculation has been based on the same number of
weighted
average shares outstanding as used for the U.S. GAAP
calculation.
(3)
The ratio of ordinary shares to Series A ADSs was 10:1 for all
periods
reflected in the table. The Series A ADSs were delisted from
the New York
Stock Exchange on March 27, 2008. The ratio of ordinary shares
to Series B
ADSs changed from 10:1 to 1:1 on March 28, 2008. The calculation
of
earnings per ADS is based on the ratio of 1:1.
(4)
Dividends per share are calculated based on 263,196,524 shares
for the
periods ended December 31, 2003, 2004, 2005, 2006 and 2007.
(5)
Dividends may only be paid from net income before amortization
of negative
goodwill as determined in accordance with Chilean GAAP; see Item
8.A.8.
Dividend Policy. For dividends in Ch$ see Item 8.A.8.Dividend
Policy —
Dividends.
(6)
Does not include equity participation in income (loss) of related
companies, net.
|
EXCHANGE
RATES
Chile
has
two currency markets, the Mercado
Cambiario Formal,
or
Formal Exchange Market, and the Mercado
Cambiario Informal,
or
Informal Exchange Market. The Formal Exchange Market comprises banks and
other
entities authorized by the Chilean Central Bank. The Informal Exchange Market
comprises entities that are not expressly authorized to operate in the Formal
Exchange Market, such as certain foreign exchange houses and travel agencies,
among others. The Chilean Central Bank is empowered to determine that certain
purchases and sales of foreign currencies be carried out on the Formal Exchange
Market.
Both
the
Formal and Informal Exchange Markets are driven by free market forces. Current
regulations require that the Chilean Central Bank be informed of certain
transactions and that they be effected through the Formal Exchange Market.
For
the purposes of the operation of the Formal Exchange Market, the Chilean
Central
Bank sets a dólar
acuerdo,
or
Reference Exchange Rate. The Reference Exchange Rate is reset daily by the
Chilean Central Bank, taking into account internal and external inflation
and
variations in parities between the Chilean peso and each of the U.S. dollar,
the
euro and the Japanese yen at a ratio of 80:15:5, respectively. In order to
keep
the average exchange rate within certain limits, the Chilean Central Bank
may
intervene by buying or selling foreign currency on the Formal Exchange
Market.
The
dólar
observado,
or
Observed Exchange Rate, which is reported by the Chilean Central Bank and
published daily in the Chilean newspapers, is computed by taking the weighted
average of the previous business day’s transactions on the Formal Exchange
Market. On September 2, 1999, the Chilean Central Bank eliminated the band
within which the Observed Exchange Rate could fluctuate, in order to provide
greater flexibility in the exchange market. Nevertheless, the Chilean Central
Bank has the power to intervene by buying or selling foreign currency on
the
Formal Exchange Market to attempt to maintain the Observed Exchange Rate
within
a desired range.
On
April
10, 2008, the Chilean Central Bank decided to intervene in the Formal Exchange
Market by increasing the level of international reserves by US$8 billion.
This
intervention program is scheduled to take place between April 14, 2008 and
December 12, 2008. The Central Bank decided to implement this program in
order
to strengthen the international liquidity of the Chilean economy, in the
face of
recent uncertain in the global financial markets. In addition, the Central
Bank
considered that world economic conditions had caused the exchange rate between
the Chilean peso and the U.S. dollar to fall below the level that should
prevail
under normal economic conditions.
The
Informal Exchange Market reflects transactions carried out at an informal
exchange rate, or the Informal Exchange Rate. There are no limits imposed
on the
extent to which the rate of exchange in the Informal Exchange Market can
fluctuate above or below the Observed Exchange Rate.
The
following table sets forth the annual low, high, average and year-end Observed
Exchange Rate for U.S. dollars for each year starting in 2003 as reported
by the
Chilean Central Bank. The Federal Reserve Bank of New York does not report
a
noon buying rate for Chilean pesos.
On
May
31, 2008, the Observed Exchange Rate was Ch$479.66 = US$1.00.
Observed
Exchange Rate (1)
Ch$
per US$
Year/Month
|
|
Low (1)
|
|
High (1)
|
|
Average
(2)(3)
|
|
Year/Month
End
|
|
2003
|
|
|
593.10
|
|
|
758.21
|
|
|
687.50
|
|
|
599.40
|
|
2004
|
|
|
559.21
|
|
|
649.45
|
|
|
612.13
|
|
|
559.83
|
|
2005
|
|
|
509.70
|
|
|
592.75
|
|
|
559.27
|
|
|
514.21
|
|
2006
|
|
|
511.44
|
|
|
549.63
|
|
|
531.03
|
|
|
534.43
|
|
2007
|
|
|
493.14
|
|
|
548.67
|
|
|
521.95
|
|
|
495.82
|
|
Dec-07
|
|
|
495.49
|
|
|
506.79
|
|
|
499.28
|
|
|
495.82
|
|
Jan-08
|
|
|
463.58
|
|
|
498.05
|
|
|
480.90
|
|
|
465.30
|
|
Feb-08
|
|
|
458.02
|
|
|
476.44
|
|
|
467.22
|
|
|
458.02
|
|
Mar-08
|
|
|
431.22
|
|
|
454.94
|
|
|
442.94
|
|
|
439.09
|
|
Apr-08
|
|
|
433.98
|
|
|
459.16
|
|
|
446.43
|
|
|
459.16
|
|
May-08
|
|
|
461.49
|
|
|
479.66
|
|
|
470.10
|
|
|
479.66
|
|
Source:
Central Bank of Chile
|
(1)
|
Observed
exchange rates are the actual high and low on a day-to-day basis,
for each
period.
|
|
(2)
|
The
yearly average rate is calculated as the average of the exchange
rates on
the last day of each month during the
period.
|
|
(3)
|
The
monthly average rate is calculated on a day-to-day basis for
each
month.
|
3.B.
Capitalization
and Indebtedness
Not
applicable.
3.C.
Reasons
for the Offer and Use of Proceeds
Not
applicable.
3.D.
Risk
Factors
Our
operations are subject to certain risk factors that may affect SQM's financial
condition or results of operations. In addition to other information contained
in this Annual Report on Form 20-F, you should consider carefully the risks
described below. These risks are not the only ones we face. Additional risks
not
currently known to us or that are known but we currently believe are not
significant may also affect our business operations. Our business, financial
condition or results of operations could be materially affected by any of
these
risks.
Risks
Relating to our Business
Our
sales to emerging markets expose us to risks related to economic conditions
and
trends in those countries
We
sell
our products in more than 100 countries around the world. In 2007, approximately
43% of our sales were made to emerging market countries: (i) approximately
14%
in Central and South America, excluding Chile; (ii) approximately 19% in
Chile;
and (iii) approximately 10% in Asia, excluding Japan. We expect to expand
our
sales in these and other emerging markets in the future. The results of and
prospects for our operations in these countries and other countries in which
we
establish operations can be expected to be dependent, in part, on the general
level of political stability and economic activity and policies in those
countries. Future developments in the political systems or economies of these
countries or the implementation of future governmental policies in those
countries, including the imposition of withholding and other taxes, restrictions
on the payment of dividends or repatriation of capital or the imposition
of new
environmental regulations or price controls, could have a material adverse
effect on our sales or operations in those countries.
Volatility
of world fertilizer and chemical prices and changes in production capacities
could affect our business, financial condition and results of
operations
The
prices of our products are determined principally by world prices, which
in some
cases have been subject to substantial volatility in recent years. World
fertilizer and chemical prices vary depending upon the relationship between
supply and demand at any given time. Furthermore, the supply of certain
fertilizers or chemical products, including certain products that we provide,
varies principally depending upon the production of the major producers (SQM
included) and their respective business strategies.
In
particular, during 2007 world prices of potassium-based commodity fertilizers
increased steadily, and these price increases have been even more pronounced
during the first five months of 2008. These global price increases should
result
in increases in the prices of our potassium-based specialty plant nutrients
and
on the prices of the potassium chloride we sell to third parties. We cannot
assure you that this trend will continue.
During
the last two decades, world iodine prices have displayed volatility in response
to supply and demand conditions. Iodine prices have followed an upward trend
since late 2003, reaching an average price of approximately US$23.60 per
kilogram in 2007. We cannot assure you that this trend will continue.
We
started production of lithium carbonate from the brines of the Salar de Atacama
in October 1996 and started selling lithium carbonate commercially in January
1997. Our entry into the market created an oversupply of lithium carbonate,
resulting in a drop in prices from over US$3,000 per ton before our entry
to
less than US$2,000 per ton. At the end of 2007, prices were higher than US$6,000
per ton. We believe the increase in prices was mainly due to the high growth
in
demand, which had not been fully balanced by the supply of lithium carbonate.
However, during 2007, new producers entered the market, helping to balance
supply and demand, and therefore we believe prices may decrease.
We
expect
that prices for the products we manufacture will continue to be influenced,
among other things, by supply and demand factors and the business strategies
of
major producers. Some of the major producers (including SQM) have increased
or
have the ability to increase production. As a result, the prices of our products
may be subject to substantial volatility. A substantial decline in the prices
of
one or more of our products could have a material adverse effect on our
business, financial condition and results of operations.
Our
exposure to unrecoverable accounts receivable may significantly increase
The
strong increases observed in world fertilizer prices during the first few
months
of 2008 have resulted in increases in our accounts receivable. Should this
trend
continue, our exposure to uncollectible accounts receivable may increase.
Although we take steps to minimize the risk of losses from bad debt, such
as the
use of credit risk insurance and letters of credit for a portion of our accounts
receivable, a substantial increase in such losses could have a material adverse
effect on our business, financial condition and results of
operations.
New
production of lithium carbonate in China
Currently
there are several projects for the expansion of lithium carbonate production
capacity being developed by Chinese competitors. As there is limited information
on the status of these projects we cannot make accurate projections regarding
their capacities and the dates on which they will become operational. However,
should significant new production volumes enter the market in the near term,
we
believe there could be a reduction in prices and volumes that could have
a
significant negative impact on the Company's business, financial condition
or
results of operations.
We
have an ambitious capital expenditure program that is subject to significant
risks and uncertainties
Our
business is capital intensive. Specifically, the exploration and exploitation
of
reserves, mining and processing costs, the maintenance of machinery and
equipment and compliance with applicable laws and regulations require
substantial capital expenditures. We must continue to invest capital to maintain
or to increase our exploitation levels and the amount of finished products
we
produce. We require environmental permits for our new projects. Obtaining
permits in certain cases may cause significant delays in the execution and
implementation of such new projects and, consequently, may require us to
reassess the related risks and economic incentives. No assurance can be made
that we will be able to maintain our production levels or generate sufficient
cash flow, or that we will have access to sufficient investments, loans or
other
financing alternatives to continue our exploration, exploitation and refining
activities at or above present levels, or that we will be able to implement
our
projects or receive the necessary permits required for them in time. Any
or all
of these factors may have a material adverse impact on our business, financial
condition and results of operations.
Currency
fluctuations may have a negative effect on our financial
results
The
Chilean peso has been subject to large devaluations and revaluations in the
past
and may be subject to significant fluctuations in the future. We transact
a
significant portion of our business in U.S. dollars, and the U.S. dollar
is the
currency of the primary economic environment in which we operate and is our
functional currency for financial statement reporting purposes. A significant
portion of our operating costs, however, are related to the Chilean peso.
Therefore, an increase or decrease in the exchange rate between the Chilean
peso
and the U.S. dollar would affect our costs of production. As of December
31,
2007, the Chilean peso had appreciated approximately 7.2% against the U.S.
dollar with respect to December 31, 2006, and this trend has continued during
the first few months of 2008. As a result, our peso-denominated costs have
increased, and this trend may continue in the future.
Additionally,
as an international company operating in Chile and several other countries,
we
transact a portion of our business and have assets and liabilities in Chilean
pesos and other non-U.S. dollar currencies, such as the euro and the South
African Rand, among others. As a result, fluctuations in the exchange rates
of
such foreign currencies to the U.S. dollar may affect our business, financial
condition and results of operations.
Sustained
high raw materials and energy prices could continue to increase our production
costs and cost of goods sold
We
rely
on certain raw materials and various sources of energy (diesel, electricity,
natural gas, fuel oil and others) to manufacture our products. Purchases
of raw
materials that we do not produce and energy constitute a significant part
of our
cost of sales (approximately 13.5% in 2007). To the extent we are unable
to pass
on increases in raw materials and energy prices to our customers, our business,
financial condition and results of operations could be adversely affected.
Our
reserves estimates could significantly vary
Our
mining reserves estimates are prepared by our geologists. Estimation methods
involve numerous uncertainties as to the quantity and quality of the reserves,
and these could change, up or down. A downward change in the quantity and/or
quality of our reserves could affect future volumes and costs of production
and
therefore have a negative impact on our business, financial condition and
results of operations.
Quality
standards in markets where we sell our products could become stricter over
time
In
the
markets where we do business, customers may impose quality standards on our
products and/or governments may enact stricter regulations for the distribution
and/or use of our products. As a result, we may not be able to sell our products
if we cannot meet such standards. In addition, our cost of production may
increase in order to meet any such newly promulgated standards. Failure to
sell
our products in one or more markets or to important customers could materially
affect our business, financial condition or results of operations.
Our
business is subject to many operating and other risks for which we may not
be
fully covered in our insurance policies
Our
facilities located in Chile and abroad are insured against losses, damages
or
other risks by insurance policies that are standard for the industry and
that
would reasonably be expected to be sufficient by prudent and experienced
persons
engaged in a business or businesses similar to ours. Nonetheless, we may
be
subject to certain events that may not be covered under the insurance policies,
and that could materially affect our financial condition or results of
operations.
We
face significantly higher energy costs as a result of the natural gas shortage
in Chile
As
part
of a cost reduction effort, in 2001 we connected our facilities to a natural
gas
network. The natural gas, which originates in Argentina and is subject to
a
10-year agreement, is used mainly for heat generation at our industrial
facilities. Due to energy shortages in Argentina, in 2004 local authorities
began to restrict exports of natural gas to Chile in order to increase the
supply to their domestic markets. Additionally, even though we have long-term
price agreements related to natural gas, the Argentinean government has
increased taxes on gas exports and there can be no assurance that they will
not
do so again in the future.
We
suffered partial shortages of natural gas during 2004, 2005 and 2006, and
during
2007, we received practically no natural gas. We believe this situation will
continue and that during 2008 we will likely receive little or no natural
gas
from Argentina. Most of our industrial equipment that uses natural gas can
also
operate on fuel oil, and the remaining equipment can operate on diesel. However,
the cost of fuel oil and diesel is significantly higher than the cost of
natural
gas, and therefore we have recently faced significantly higher energy costs.
We
expect this situation to continue, and therefore we expect the reduction
in our
natural gas supply to continue to have an adverse effect on our business,
financial condition and results of operations.
Decline
in the supply of natural gas is negatively affecting the supply of electricity
in the Northern Power Grid
The
natural gas supply crisis discussed above has placed the Northern Power Grid
(Sistema
Interconectado del Norte Grande
or
“SING”) under significant stress. The combination of the lack of natural gas
received from Argentina during 2007 and additional events, such as damages
from
an earthquake in November 2007, have made this situation even more critical.
Continued
stress on the Northern Power Grid could lead to a system failure that would
then
affect the supply of electricity. Restrictions on the Company’s electricity
consumption could affect our operations, potentially decreasing our production
volumes and increasing our production costs.
Decline
in the supply of natural gas and increasing global oil prices could negatively
affect our electricity contracts
As
the
supply of natural gas continues to be uncertain, as discussed above, and
oil
prices continue to increase, we are faced with the potential early termination,
partial amendment or temporary suspension of our long-term electricity supply
contracts. We maintain contracts with two main utilities in Chile, Electroandina
S.A. and Norgener S.A., and both have sought relief from the terms of their
electricity supply agreements, arguing that certain unforeseen events have
restricted the supply and increased the price of gas from Argentina. As a
result
of the requests, we entered into negotiations resulting in new tariffs that
have
a negative effect on our results of operations. Further increases in the
cost of
energy could prompt these companies to once again seek to modify, terminate
or
suspend these contracts. If that were to happen, and these companies were
to
prevail in any resulting arbitration proceedings, our business, financial
condition and results of operations could be materially adversely affected.
During
2007, purchases of electricity represented approximately 4.1% of our cost
of
sales.
We
are exposed to labor strikes and liabilities that could impact our production
levels and costs
Of
our
permanent employees in Chile, 70% are represented by 31 labor unions, which
represent their members in collective bargaining negotiations with the Company.
Accordingly, we are exposed to labor strikes that could impact our production
levels. Should a strike occur and extend for a sustained period of time,
we
could be faced with increased costs and even disruption in our product flow
that
could have a material adverse effect on our business, financial condition
or
results of operations.
In
2006,
the Chilean Congress amended the Labor Code, and effective January 15, 2007,
certain changes were made, affecting companies that hire subcontractors to
provide certain services. This new law, known as the “Law on Subcontracting”,
establishes a new requirement that applies in the event of accidents in the
workplace. The law states that when a serious accident occurs, the company
must
halt work at the site where the accident took place until authorities from
the
National Geology and Mining Service inspect the site and prescribe the measures
the company must take to prevent future risks. Work may not be resumed until
the
company has taken the prescribed measures, and the period of time before
work
may be resumed may last for a number of hours, days, or longer. The effects
of
this new law could have a material adverse effect on our business, financial
condition or results of operations.
Pending
lawsuits could adversely impact us
We
are
party to lawsuits and arbitrations involving commercial matters. Although
we
intend to defend our positions vigorously, our defense of these actions may
not
be successful. Judgment in or settlement of these lawsuits may have an adverse
effect on our financial condition or results of operations. See Item 8.A.7.
Legal Proceedings and Note 23 to the Consolidated Financial Statements.
Furthermore, our strategy of being a world leader includes entering into
commercial and production alliances, joint ventures and acquisitions to improve
our global competitive position. As these operations increase in complexity
and
are carried out in different jurisdictions, our Company might be subject
to
legal proceedings that, if settled against us, could have a significant impact
on the Company's business, financial condition or results of
operations.
Risks
Relating to Chile
As
we are a Chilean-based company, we are exposed to Chilean political
risks
The
prospects and results of operations of the Company could be affected by changes
in policies of the Chilean government, other political developments in or
affecting Chile, and regulatory and legal changes or administrative practices
of
Chilean authorities, over which the Company has no control.
Changes
in mining and water rights laws or in regulations affecting port concessions
could affect our operating costs
We
conduct our mining (including brine extraction) operations under exploitation
and exploration concessions granted in accordance with provisions of the
Chilean
Constitution, and the Constitutional Mining Law and related statutes. Our
exploitation concessions essentially grant a perpetual right to conduct mining
operations in the areas covered by the concessions, provided that we pay
annual
concession fees (with the exception of the Salar de Atacama rights, which
have
been leased to us until 2030). Our exploration concessions permit us to explore
for mineral resources on the land covered thereby for a specified period
of
time, and to subsequently request a corresponding exploitation concession.
In
addition, we operate port facilities at Tocopilla, Chile, for the shipment
of
our products and the delivery of certain raw materials, pursuant to concessions
granted by Chilean regulatory authorities. These concessions are renewable
provided that we use such facilities as authorized and pay annual concession
fees.
Any
significant changes to any of these concessions could have a material adverse
impact on our business, financial condition and results of
operations.
We
hold
water rights that are key to our business development. These rights were
obtained from the Chilean Water Authority for a supply of water from rivers
and
wells near our production facilities, which we believe are sufficient to
meet
current operating requirements. However, the Water Code is subject to changes,
which could have a material adverse impact on our business, financial condition
and results of operations. Law No. 20,017, published on June 16,
2005, modified the Chilean laws relating to water rights. Under
certain conditions, these modifications allow the constitution of permanent
water rights of up to 2 liters per second for each well built prior to June
30, 2004, in the locations where we conduct our mining operations. Such rights
may be constituted in favor of parties that requested water rights prior
to
January 1, 2000, when such request had not yet been processed as of June
16,
2005. In constituting these new water rights, the law does not factor in
the
availability of water, or how the new rights may affect holders of existing
rights. Therefore, the amount of water we can effectively extract based on
our
existing rights could be reduced if these additional rights are exercised.
These
and other potential future changes to the Water Code could have a material
adverse impact on our business, financial condition and results of
operations.
The
Chilean government could levy additional taxes on corporations operating
in
Chile
In
2005,
the Chilean Congress approved Law No. 20,026 (also known as the “Royalty Law”)
establishing a royalty tax to be applied to mining activities developed in
Chile. We cannot assure you that the way in which the Royalty Law is interpreted
and applied will not change in the future. In addition, the Chilean Government
may decide to levy additional taxes on mining companies or other corporations
in
Chile. Such changes could have a material adverse impact on our business,
financial condition and results of operations.
Environmental
laws and regulations could expose us to higher costs, liabilities, claims
and
failure to meet current and future production targets
Our
operations in Chile are subject to a variety of national and local regulations
relating to environmental protection. The main environmental laws in Chile
are
the Health Code and Law No. 19,300, which we refer to as the “Chilean
Environmental Framework Law.” The Chilean Environmental Framework Law created
the Comisión
Nacional del Medio Ambiente
(“National Environmental Commission” or “CONAMA”), which is the government
agency in charge of supervising the due compliance with the Chilean
Environmental Framework Law. Under this law, we are required to conduct
environmental impact studies of any future projects or activities (or their
significant modifications) that may affect the environment. CONAMA evaluates
environmental impact studies submitted for its approval and oversees the
implementation of projects. The Chilean Environmental Framework Law also
enables
private citizens, public agencies or local authorities to challenge projects
that may affect the environment, either before these projects are executed
or
once they are already operating. Enforcement remedies available include fines
and temporary or permanent closure of facilities.
Chilean
environmental regulations have become increasingly stringent in recent years,
both with respect to the approval of new projects and in connection with
the
implementation and development of projects already approved. This trend is
likely to continue. Furthermore, recently implemented environmental regulations
have created uncertainty because rules and enforcement procedures for these
regulations have not been fully developed. Given public interest in
environmental enforcement matters, these regulations or their application
may
also be subject to political considerations that are beyond our
control.
We
continuously monitor the impact of our operations on the environment and
have,
from time to time, made modifications to our facilities to minimize any adverse
impact. Except for particulate matter levels exceeding permissible levels
in
María Elena facilities (see Item 4.B. Business Overview—Safety, Health and
Environmental Regulations), we are currently in compliance in all material
respects with applicable environmental regulations in Chile of which we are
aware. Future developments in the creation or implementation of environmental
requirements, or in their interpretation, could result in substantially
increased capital, operation or compliance costs or otherwise adversely affect
our business, financial condition and results of operations.
In
connection with our current investments at the Salar de Atacama we have obtained
approval for an environmental impact assessment study that allows us to increase
brine and water extraction, subject to a rigorous environmental monitoring
system. The success of these investments is dependent on the behavior of
the
ecosystem variables being monitored over time. If the behavior of these
variables in future years does not meet environmental requirements, our
operation may be subject to important restrictions by the authorities on
the
maximum allowable amounts of brine and water extraction.
In
connection with our future investments in nitrate and iodine operations,
we have
submitted and expect to submit several environmental impact assessment studies.
The success of these investments is dependent on the approval of such
submissions by the pertinent governmental authorities.
Furthermore,
the future development of the Company depends on our ability to sustain future
production levels, which require additional investments and the submission
of
the corresponding environmental impact assessment studies. If we fail to
obtain
approval, our ability to maintain production at specified levels will be
seriously impaired, thus having a material adverse effect on our business,
financial condition or results of operations.
Our
worldwide operations are also subject to environmental regulations. Since
laws
and regulations in the different jurisdictions in which we operate may change,
we cannot guarantee that future laws, or changes to existing laws, will not
materially impact our business, financial condition or results of
operations.
Our
financial statements are reported, and our dividends are declared, based
on
Chilean GAAP, which generally differs from U.S. GAAP
There
are
important differences between Chilean GAAP and U.S. GAAP. As a result, Chilean
financial statements and reported earnings generally differ from those that
are
reported based on U.S. GAAP. In particular, our earnings and the amount of
dividends that we declare under Chilean GAAP may be subject to a higher degree
of fluctuation as compared to U.S. GAAP, due to accounting pronouncements
or
other modifications required under Chilean GAAP. Note 29 to the consolidated
Financial Statements includes a description of differences and a reconciliation
of the net income and shareholders’ equity amounts reported under Chilean GAAP
to U.S. GAAP.
Risks
related to our financial activities
Interest
rate fluctuations may have a material impact on our financial
results
We
maintain short and long-term debt priced at LIBOR, plus a spread. As we do
not
have derivative instruments to hedge the LIBOR, we are subject to fluctuations
in this rate. As of December 31, 2007, we had approximately 36% of our financial
debt priced at LIBOR, and therefore significant increases in the rate could
impact our financial condition.
Risks
related to our shares and to our ADSs
The
price of our ADSs and the U.S. dollar value of any dividends will be affected
by
fluctuations in the U.S. dollar/Chilean peso exchange
rate
Chilean
trading in the shares underlying our ADSs is conducted in Chilean pesos.
The
depositary will receive cash distributions that we make with respect to the
shares in pesos. The depositary will convert such pesos to U.S. dollars at
the
then prevailing exchange rate to make dividend and other distribution payments
in respect of ADSs. If the value of the peso falls relative to the U.S. dollar,
the value of the ADSs and any distributions to be received from the depositary
will decrease.
Developments
in other emerging markets could materially affect the value of our
ADSs
The
Chilean financial and securities markets are, to varying degrees, influenced
by
economic and market conditions in other emerging market countries or regions
of
the world. Although economic conditions are different in each country or
region,
investor reaction to developments in one country or region can have significant
effects on the securities of issuers in other countries and regions, including
Chile and Latin America. Events in other parts of the world may have an adverse
effect on Chilean financial and securities markets and on the value of our
ADSs.
The
volatility and low liquidity of the Chilean securities markets could affect
the
ability of our shareholders to sell our ADSs
The
Chilean securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. The volatility
and low liquidity of the Chilean markets could increase the price volatility
of
our ADSs and may impair the ability of a holder to sell our ADSs into the
Chilean market in the amount and at the price and time he wishes to do
so.
Our
share price may react negatively to future acquisitions and
investments
As
world
leaders in our core businesses, part of our strategy is to constantly look
for
opportunities that will allow us to consolidate and strengthen our competitive
position. Pursuant to this strategy, we may from time to time, evaluate and
eventually carry out acquisitions relating to any of our businesses or to
new
businesses in which we believe we may have sustainable competitive advantages.
Depending on our capital structure at the time of such acquisitions, we may
need
to raise significant debt and/or equity which will affect our financial
condition and future cash flows. Any change in our financial condition could
affect our results of operations, negatively impacting our share price.
You
may be unable to enforce rights under U.S. Securities
Laws
Because
we are a Chilean company subject to Chilean law, the rights of our shareholders
may differ from the rights of shareholders in companies incorporated in the
United States, and you may not be able to enforce or may have difficulty
enforcing rights currently in effect under U.S. Federal or State securities
laws.
Our
Company is a "sociedad
anónima abierta"
(open
stock corporation) incorporated under the laws of the Republic of Chile.
Most of
SQM's directors and officers reside outside the United States, principally
in
Chile. All or a substantial portion of the assets of these persons are located
outside the United States. As a result, if any of our shareholders, including
holders of our ADSs, were to bring a lawsuit against our officers or directors
in the United States, it may be difficult for them to effect service of legal
process within the United States upon these persons. Likewise, it may be
difficult for them to enforce judgments obtained in United States courts
based
upon the civil liability provisions of the federal securities laws of the
United
States against them in United States courts.
In
addition, there is no treaty between the United States and Chile providing
for
the reciprocal enforcement of foreign judgments. However, Chilean courts
have
enforced judgments rendered in the United States, provided that the Chilean
court finds that the United States court respected basic principles of due
process and public policy. Nevertheless, there is doubt as to whether an
action
could be brought successfully in Chile in the first instance on the basis
of
liability based solely upon the civil liability provisions of the United
States
federal securities laws.
As
preemptive rights may be unavailable for our ADS holders, they have the risk
of
their holdings being diluted if we issue new stock
Chilean
laws require companies to offer their shareholders preemptive rights whenever
selling new shares of capital stock. Preemptive rights permit holders to
maintain their existing ownership percentage in a company by subscribing
for
additional shares. If we increase our capital by issuing new shares, a holder
may subscribe for up to the number of shares that would prevent dilution
of the
holder's ownership interest.
If
we
issue preemptive rights, United States holders of ADSs would not be able
to
exercise their rights unless a registration statement under the Securities
Act
were effective with respect to such rights and the shares issuable upon exercise
of such rights or an exemption from registration were available. We cannot
assure holders of ADSs that we will file a registration statement or that
an
exemption from registration will be available. We may, in our absolute
discretion, decide not to prepare and file such a registration statement.
If our
holders were unable to exercise their preemptive rights because SQM did not
file
a registration statement, the depositary would attempt to sell their rights
and
distribute the net proceeds from the sale to them, after deducting the
depositary's fees and expenses. If the depositary could not sell the rights,
they would expire and holders of ADSs would not realize any value from them.
In
either case, ADS holders' equity interest in SQM would be diluted in proportion
to the increase in SQM's capital stock.
If
the Company were classified as a Passive Foreign Investment Company there
could
be adverse consequences for U.S. investors
We
believe that we were not classified as a passive foreign investment company,
or
PFIC, for 2007. Characterization as a PFIC could result in adverse U.S. tax
consequences to you if you are a U.S. investor in our shares or ADSs. For
example, if we (or any of our subsidiaries) are a PFIC, our U.S. investors
may
become subject to increased tax liabilities under U.S. tax laws and regulations
and will become subject to burdensome reporting requirements. The determination
of whether or not we (or any of our subsidiaries or portfolio companies)
are a
PFIC is made on an annual basis and will depend on the composition of our
(or
their) income and assets from time to time. See Item 10. E Taxation –
United States Tax Considerations – Passive Foreign Investment Company
Considerations.
ITEM
4. INFORMATION ON THE COMPANY
4.A.
History
and Development of the Company
Historical
Background
Sociedad
Química y Minera de Chile S.A. "SQM" is an open stock corporation (sociedad
anónima abierta)
organized under the laws of the Republic of Chile. The Company was constituted
by public deed issued on 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, Piso 6, Las Condes, Santiago,
Chile. The Company's telephone number is +56 2 425-2000.
Commercial
exploitation of the caliche ore deposits in northern Chile began in the 1830s,
when sodium nitrate was extracted from the ore for use in the manufacturing
of
explosives and fertilizers. By the end of the nineteenth century, nitrate
production had become the leading industry in Chile and the country was the
world's leading supplier of nitrates. The accelerated commercial development
of
synthetic nitrates in the 1920s and the global economic depression in the
1930s
caused a serious contraction of the Chilean nitrate business, which did not
recover significantly until shortly before the Second World War. After the
war,
the widespread commercial production of synthetic nitrates resulted in a
further
contraction of the natural nitrate industry in Chile, which continued to
operate
at depressed levels into the 1960s.
SQM
was
formed in 1968 through a joint venture between Compañía Salitrera Anglo Lautaro
S.A. (“Anglo Lautaro”) and Corporación
de Fomento de la Producción
(“Production Development Corporation” or “Corfo”), a Chilean government entity.
Three years after our formation, in 1971, Anglo Lautaro sold all of its shares
to Corfo and we were wholly owned by the Chilean Government until 1983. In
1983,
Corfo began a process of privatization by selling our shares to the public
and
subsequently listing such shares on the Santiago Stock Exchange. By 1988,
all of
our shares were publicly owned. Our Series B ADRs have traded on the NYSE
under
the ticker symbol “SQM” since 1993.
Since
its
inception, in addition to producing nitrates, the Company has produced iodine,
which is also found in the caliche ore deposits in northern Chile.
Between
the years 1994 and 1999, we invested approximately US$300 million in the
development of the Salar de Atacama project in northern Chile. The project
involved the construction of a potassium chloride plant, a lithium carbonate
plant, a potassium sulfate plant, and a boric acid plant.
To
help
finance the above projects, we accessed the international capital markets
by
issuing additional Series B ADRs on the New York Stock Exchange in 1995.
In 1999
we issued additional Series A shares, which were also listed on the New York
Stock Exchange as ADRs.
Effective March 27, 2008, the Company voluntarily delisted its Series A ADR
(“SQM-A”) from the New York Stock Exchange.
During
the period from 2000 through 2004 we principally consolidated the investments
carried out in the preceding five years. We focused on reducing costs and
improving efficiencies throughout the organization.
Since
2005, we have strengthened our leadership in our main businesses by increasing
our capital expenditure program and making appropriate acquisitions and
divestitures. During this period we acquired Kefco in Dubai and the iodine
business of DSM. We also sold our stake in the Italian subsidiary Impronta
S.R.L. and the Mexican Subsidiary Fertilizantes Olmeca; these sales allowed
SQM
to concentrate its efforts on its core products. In 2007, we completed the
construction of a new prilling and granulating plant. We also started
construction of our lithium carbonate capacity expansion and began work on
the
engineering stage of a new potassium nitrate plant.
Capital
Expenditure Program
We
are
constantly reviewing different opportunities to improve our production methods,
increase production capacity of existing products and develop new products
and
markets. Additionally, significant capital expenditures are required every
year
in order to sustain our production capacity. We are focused on developing
new
products in response to identified customer demand, as well as new products
that
can be derived as part of our existing production or other products that
could
fit our long-term development strategy. Our capital expenditures in the past
five years were mainly related to the acquisition of new assets, construction
of
new facilities and renewal of plant and equipment.
SQM's
capital expenditures in the 2005-2007 period were the following:
|
|
2007
|
|
2006 (2)
|
|
2005 (3)
|
|
|
|
(in millions
of US$)
|
|
Capital
Expenditures (1)
|
|
|
185.0
|
|
|
290.5
|
|
|
198.1
|
|
|
(1)
|
For
purposes of this item, capital expenditures include investments
aimed at
sustaining, improving or increasing production levels, including
acquisitions and investments in related companies. Amounts set
forth in
this table do not match the consolidated statements of cash flows,
as the
Company does not consolidate development stage
companies.
|
|
(2)
|
Includes
acquisition of DSM’s Iodine business for a total of US$72 million, plus
all the cash, accounts receivable and final product inventories
minus the
total liabilities of the Chilean and Dutch companies considered
in the
transaction.
|
|
(3)
|
Includes
acquisition of Kefco in Dubai (US$9.3
million)
|
We
have
developed a capital expenditure program calling for investments totaling
approximately US$320 million for the year 2008 and a total of approximately
US$680 million during 2009 and 2010. The main purpose of our capital expenditure
program is to increase the production capacities of several of our products,
including the completion of the lithium carbonate expansion (by approximately
30%), as well as expansions in natural nitrates (by approximately 25%),
potassium-based products from the Salar de Atacama (by approximately 25%)
and
iodine (by approximately 25%).
During
2007, the Company had total capital expenditures of approximately US$185.0
million, primarily relating to:
|
·
|
the
María Elena project including a new crushing
facility;
|
|
·
|
completion
of the new prilling and granulating facility located at Coya
Sur;
|
|
·
|
expansion
of lithium carbonate facility;
|
|
·
|
construction
of new evaporation ponds at the Salar de Atacama;
|
|
·
|
upgrade
of our railroad system to handle expanded capacity;
and
|
|
·
|
various
projects designed to maintain capacity, increase yields and lower
costs.
|
The
Company has budgeted for 2008 total capital expenditures of approximately
US$320
million, primarily relating to:
|
·
|
completion
of lithium carbonate facility
expansion;
|
|
·
|
new
potassium nitrate production facility at Coya
Sur;
|
|
·
|
start-up
of investments related to increase production capacity of potassium-based
products at the Salar de Atacama;
|
|
·
|
upgrade
of our railroad system to handle expanded
capacity;
|
|
·
|
construction
of a new mining camp at María Elena;
and
|
|
·
|
various
projects designed to maintain capacity, increase yields and reduce
costs.
|
For
2009
and 2010, we estimate total capital expenditures of approximately US$680
million, primarily for (i) the completion of the potassium nitrate production
facility at Coya Sur; (ii) the increase in the production capacity of
potassium-based products; (iii) a portion of the investments necessary to
increase iodine and nitrates production capacity; (iv) upgrade of our railroad
system to handle expanded capacity; (v) various projects designed to maintain
capacity, increase yields and lower costs.
4.B.
Business
Overview
The
Company
We
believe we are the world’s largest integrated producer of potassium nitrate,
iodine and lithium carbonate. We also produce other specialty plant nutrients
(such as potassium sulfate), potassium chloride, iodine and lithium and their
derivatives, and certain industrial chemicals, including industrial nitrates,
and we import and commercialize other commodity fertilizers in Chile. Our
products are sold in over 100 countries through our worldwide distribution
network and we generate approximately 81% of our revenues from countries
outside
Chile. Our products are mainly derived from mineral deposits found in northern
Chile, specifically in the Tarapacá and Antofagasta Regions, where we mine and
process caliche ore and brine deposits. The caliche ore in northern Chile
contains the largest known nitrate and iodine deposits in the world and is
the
world’s only commercially exploited source of natural nitrates. The brine
deposits of the Salar de Atacama, a salt-encrusted depression within the
Atacama
Desert in northern Chile, contain high concentrations of lithium and potassium
as well as significant concentrations of sulfate and boron.
From
our
caliche ore deposits, we produce a wide range of nitrate-based products used
for
specialty plant nutrition and industrial applications, as well as iodine
and
iodine derivatives. At the Salar de Atacama, we extract brines rich in
potassium, lithium, sulfate and boron, in order to produce potassium chloride,
potassium sulfate, lithium solutions, boric acid and bischofite (magnesium
chloride). We produce lithium carbonate and lithium hydroxide at a plant
near
the city of Antofagasta, Chile, from the solutions brought from the Salar
de
Atacama. We market all of these products through an established worldwide
distribution network.
Our
products are divided into five main categories: specialty plant nutrients,
iodine and its derivatives, lithium and its derivatives; industrial chemicals;
and potassium chloride and other commodity fertilizers. Specialty plant
nutrients are fertilizers that enable farmers to improve yields and quality
of
certain crops. Iodine, lithium and their derivatives are used in human
nutrition, pharmaceuticals and other industrial applications. Specifically,
iodine and its derivatives are mainly used in the x-ray contrast media and
biocides industries and a growing application is in the production of polarizing
film, which is an important component in liquid crystal display (“LCD”) screens.
Lithium and its derivatives are mainly used in batteries, greases and frits
for
production of ceramics. Industrial chemicals have a wide range of applications
in certain chemical processes such as the manufacturing of glass, explosives
and
ceramics, and more recently, industrial nitrates are being used in solar
energy
plants as a means for energy storage. Potassium chloride is a commodity
fertilizer that is produced and sold by the Company, primarily in the Chilean
market. In addition, we complement our portfolio of plant nutrients in Chile
by
importing other commodity fertilizers.
For
the
year ended December 31, 2007, we had revenues of US$1,187.5 million, operating
income of US$259.5 million and net income of US$180.0 million.
Specialty
Plant Nutrition:
We
produce five principal types of specialty plant nutrients: potassium nitrate,
sodium nitrate, sodium potassium nitrate, potassium sulfate and specialty
blends. All of these specialty plant nutrients are used in either solid or
liquid form mainly on high value crops such as fruits, vegetables, industrial
crops, cereals and cotton, and they are widely used in crops that employ
modern
agricultural techniques such as hydroponics, greenhousing, fertigation (where
fertilizer is dissolved in water prior to irrigation) and foliar application.
According to the type of use or application the products are marketed under
the
brands: Ultrasol™ (fertigation), Qrop™ (field application), Speedfol™ (foliar
application), Allganic™ (organic farming) and Nutrilake™ (aquaculture).
Specialty plant nutrition has certain advantages over commodity fertilizers,
such as rapid and effective absorption (without requiring nitrification),
superior water solubility, alkaline pH (which reduces soil acidity) and low
chlorine content. These advantages, plus customized specialty blends that
meet
specific needs along with technical service provided by us, allow us to create
plant nutrition solutions that add value to crops through higher yields and
better quality production. Because our products are natural or derived from
natural nitrate compounds or natural potassium brines, they have certain
advantages over synthetically produced fertilizers, including the presence
of
certain beneficial trace elements and their organic nature, which makes them
more attractive to customers who prefer products of natural origin. As a
result,
our specialty plant nutrients enable our customers to achieve higher yields
and
better quality crops. Consequently, specialty plant nutrients are sold at
a
premium price.
Iodine:
We are
the world's leading producer of iodine and iodine derivatives, which are
used in
a wide range of medical, pharmaceutical, agricultural and industrial
applications, including x-ray contrast media, antiseptics, biocides and
disinfectants, in the synthesis of pharmaceuticals, herbicides, electronics,
pigments, dye components and heat stabilizers.
Lithium:
We are
the world's leading producer of lithium carbonate, which is used in a variety
of
applications, including batteries, frits for the ceramic and enamel industries,
heat-resistant glass (ceramic glass), primary aluminum, lithium bromine for
air
conditioner equipment, continuous casting powder for steel extrusion,
pharmaceuticals, and lithium derivatives. We are also a leading supplier
of
lithium hydroxide, which is used primarily as a raw material in the lubricating
grease industry.
Industrial
Chemicals:
We
produce four industrial chemicals: sodium nitrate, potassium nitrate, boric
acid
and potassium chloride. Sodium nitrate is used primarily in the production
of
glass, explosives, charcoal briquettes and metal treatment. Potassium nitrate
is
used in the manufacture of specialty glass, and it is also an important raw
material for the production of frits for the ceramics and enamel industries.
Also, a combination of potassium nitrate and sodium nitrate is used as a
thermal
storage medium in solar-based electricity generating plants. Boric acid is
used
in the manufacture of frits for the ceramics and enamel industries, liquid
crystal displays (LCD), glass, and fiberglass. Potassium chloride is used
as an
additive in oil drilling as well as in the production of
carragenine.
Potassium
Chloride and Other Commodity Fertilizers:
We
produce and market potassium chloride, which in Chile is distributed through
our
subsidiary Soquimich Comercial S.A. We have close to 100% of the market share
for this product in Chile. In addition, we import fertilizers that are
distributed through Soquimich Comercial S.A. in Chile, offering complete
fertilization services to our customers.
The
following table sets forth the percentage breakdown of our revenues in the
2003-2007 period according to our product lines:
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Specialty
Plant Nutrition
|
|
|
49
|
%
|
|
48
|
%
|
|
54
|
%
|
|
54
|
%
|
|
52
|
%
|
Iodine
and Derivatives
|
|
|
18
|
%
|
|
21
|
%
|
|
17
|
%
|
|
14
|
%
|
|
12
|
%
|
Lithium
and Derivatives
|
|
|
15
|
%
|
|
12
|
%
|
|
9
|
%
|
|
8
|
%
|
|
7
|
%
|
Industrial
Chemicals
|
|
|
7
|
%
|
|
7
|
%
|
|
8
|
%
|
|
9
|
%
|
|
10
|
%
|
Potassium
Chloride and Other Commodity Fertilizers
|
|
|
11
|
%
|
|
12
|
%
|
|
12
|
%
|
|
15
|
%
|
|
19
|
%
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Business
Strategy
Our
general business strategy is to:
|
(1)
|
participate
in businesses where we are or will be a cost leader supported by
strong
fundamentals;
|
|
(2)
|
differentiate
ourselves from commodity producers by manufacturing, marketing
and
distributing specialty products that sell at high
value;
|
|
(3)
|
continually
increase the efficiency of our production processes and reduce
costs;
|
|
(4)
|
maintain
leadership in our core business areas – specialty plant nutrition,
iodine and lithium – in terms of installed capacity, costs,
production, pricing and development of new products; and
|
|
(5)
|
pursue
vertical integration into value-added
markets.
|
We
have
identified market demand in each of our major product lines, both within
our
existing customer base and in new markets, for existing products and for
additional products that can be extracted from our natural resources. In
order
to take advantage of these opportunities, we have developed a specific strategy
for each of our product lines, as set forth below:
Specialty
Plant Nutrition
Our
strategy in our specialty plant nutrition business is to: (i) continue expanding
our sales of natural nitrates by continuing to leverage the advantages of
our
specialty products over commodity-type fertilizers; (ii) increase our sales
of
higher margin specialty plant nutrients based on potassium and natural nitrates,
particularly soluble potassium nitrate and NPK-soluble blends; (iii) pursue
investment opportunities in complementary businesses to increase production,
reduce costs, and add value to and improve the marketing of our products;
(iv)
develop new specialty nutrient blends produced in our mixing plants that
are
strategically located in or near our principal markets, in order to meet
specific customer needs; (v) focus primarily on the markets for plant nutrients
in soluble and foliar applications in order to establish a leadership position;
(vi) further develop our global distribution and marketing system directly
and
through strategic alliances with other producers and global or local
distributors; and (vii) reduce our production costs through improved processes
and higher labor productivity so as to compete more effectively.
Iodine
Our
strategy in our iodine business is to (i) maintain our leadership in the
iodine
market by encouraging demand growth and expanding our production capacity
in
line with such demand growth; (ii) develop new iodine derivatives and
participate in iodine recycling projects; and (iii) reduce our production
costs
through improved processes and higher labor productivity in order to compete
more effectively.
Lithium
Our
strategy in our lithium business is to (i) maintain our leadership in the
lithium industry as the largest producer and distributor of lithium carbonate
and lithium hydroxide; (ii) selectively pursue downstream opportunities in
the
lithium derivatives business; and (iii) reduce our production costs through
improved processes and higher labor productivity in order to compete more
effectively.
Industrial
Chemicals
Our
strategy in our industrial chemical business is to (i) maintain our leadership
position in sodium nitrate and potassium nitrate; (ii) develop new industrial
markets for our current products; (iii) target sales of boric acid to industrial
niche markets; and (iv) reduce our production costs through improved processes
and higher labor productivity in order to compete more effectively.
New
Business Ventures
From
time
to time we evaluate opportunities to expand our business in our current core
businesses or within new businesses in which we believe we may have sustainable
competitive advantages, both within and outside Chile, and we expect to continue
to do so in the future. We may decide to acquire part or all of the equity
of,
or undertake joint ventures or other transactions with, other companies involved
in our businesses or in other businesses.
Production
Process
Our
integrated production process can be classified according to our natural
resources:
•
Caliche
ore deposits: contain nitrates and iodine.
•
Salar
brines: contain potassium, lithium, sulfate and boron.
Caliche
Ore Deposits
We
mine
caliche ore from open pit deposits located in northern Chile. Caliche deposits
are the largest known source of natural nitrates in the world. The geological
origin of caliche ore deposits in northern Chile is uncertain, with a number
of
possible geological formation theories. The consensus is that a volcanic
formation of deposits was followed by water runoff, leaching and depositing
in
existing sediments.
Caliche
deposits are located in northern Chile, where we currently operate four mines:
Pedro de Valdivia, María Elena, Pampa Blanca and Nueva Victoria.
Caliche
ore is found under a layer of barren overburden in seams with variable thickness
from twenty centimeters to five meters, and with the overburden varying in
thickness from half a meter to one and a half meters.
Before
proper mining begins, a full exploration stage is carried out, including
full
geological reconnaissance and drilling of dust recovery drill holes to determine
the features of each deposit and its quality. Drill-hole samples properly
identified are tested at our chemical laboratories. With the exploration
information on a closed grid pattern of drill holes, the ore evaluation stage
provides information for mine planning purpose. Mine planning is done on
a
long-term basis (10 years), medium-term basis (3 years) and short-term basis
(1
year). A mine production plan is a dynamic tool that details daily, weekly
and
monthly production plans. After drill holes are made, information is updated
to
offer the most accurate ore supply schedule to the processing
plants.
Generally,
bulldozers first rip and remove the overburden in the mining area. This process
is followed by production drilling and blasting to break the caliche seams.
Front-end loaders load the ore on off-road trucks. In the Pedro de Valdivia
mine, trucks deliver the ore to stockpiles next to rail loading stations.
The
stockpiled ore is later loaded on to railcars that take the mineral to the
processing facilities. In the María Elena mine, trucks haul the ore and dump it
directly at a primary crushing installation, after which a 14-kilometer-long
overland conveyor belt system delivers the ore to the processing facilities.
At
the
Pedro de Valdivia and María Elena facilities, the ore is crushed and leached to
produce concentrated solutions carrying the nitrate, iodine and sodium sulfate.
The crushing of the ore produces a coarse fraction that is leached in a vat
system and a fine fraction that is leached by agitation. These are followed
by
liquid-solid separation, where solids precipitate as sediment and liquids
containing nitrate and iodine are sent to be processed.
In
Pampa
Blanca and Nueva Victoria the run of mine ore is loaded in heaps and leached
to
produce concentrated solutions.
Caliche
Ore-Derived Products
Caliche
ore-derived products are: sodium nitrate, potassium nitrate, sodium potassium
nitrate, iodine and iodine derivatives.
Sodium
Nitrate
Sodium
nitrate for both agricultural and industrial applications is produced at
the
María Elena and Pedro de Valdivia facilities using the Guggenheim method, which
was originally patented in 1921. This closed circuit method involves adding
a
heated leaching solution to the crushed caliche in the vats to selectively
dissolve the contents. The concentrated solution is then cooled, causing
the
sodium nitrate to crystallize. Part of the unloaded solution is then recycled
to
the leaching vats. The other part of the solution is stripped of its iodine
content at the treatment plants. The crystallized sodium nitrate is separated
from the remaining solution by centrifuging. The residue resulting from the
crushing of the caliche ore is leached at ambient temperature with water,
producing a weak solution that is pumped to solar evaporation ponds at our
Coya
Sur facilities, near María Elena, for concentration. While the process of
extracting sodium nitrate from caliche ore is well established, variations
in
chemical content of the ore, temperature of the leaching solutions and other
operational features require a high degree of know-how to manage the process
effectively and efficiently.
The
remaining materials from the sodium nitrate crystallization process are vat
leach tailings and a weak solution. The ore tailings are unloaded from the
leaching vats and deposited at sites near the production facilities. The
weak
solution is re-cycled for further leaching and for the extraction of
iodine.
Our
current crystallized sodium nitrate production capacity at Pedro de Valdivia
and
María Elena is approximately 770,000 metric tons per year. Crystallized sodium
nitrate is processed further at Coya Sur and María Elena to produce prilled
sodium nitrate, which is transported to our port facilities in Tocopilla
for
shipping to customers and distributors worldwide. A significant part of the
sodium nitrate produced at María Elena and Pedro de Valdivia is used in the
production of potassium nitrate at Coya Sur, sodium potassium nitrate at
María
Elena and a highly refined industrial grade sodium nitrate at Coya
Sur.
Potassium
Nitrate
Potassium
nitrate is produced at our Coya Sur facility using production methods we
have
developed. The solutions from the leaching of the fine fraction of the ore,
once
the iodine is extracted, are pumped to the Coya Sur facilities. These solutions
loaded with nitrate are concentrated in solar evaporation ponds. Once an
adequate level of concentration is reached, the solution is combined with
potassium chloride to produce potassium nitrate and discard sodium chloride.
The
resulting solution, which is rich in potassium nitrate, is crystallized using
a
cooling and centrifuging process. The crystallized potassium nitrate is either
processed further to produce prilled potassium nitrate or used for the
production of sodium potassium nitrate. The weak solution of the process
is
re-used for further production of potassium nitrate. A portion of the potassium
nitrate is used in the production of a high purity technical grade potassium
nitrate.
Concentrated
nitrate salts are produced at Pampa Blanca by leaching caliche ore in heaps
in
order to extract solutions that are rich in iodine and nitrate. These solutions
are sent to plants where iodine is extracted and subsequently the solutions
are
sent to solar evaporation ponds where the solutions are evaporated and rich
nitrate salt is produced. These concentrated nitrate salts are sent to Coya
Sur
or another of our salt processing facilities where they are leached and the
resulting rich nitrate solution is used in the production of potassium
nitrate.
Our
current potassium nitrate production capacity at Coya Sur is approximately
650,000 metric tons per year, including 260,000 metric tons per year of
technical grade potassium nitrate. We expect to increase that capacity by
approximately 300,000 metric tons per year by early 2010. The effective
production of the new facility will depend on the availability of nitrate
salts
to feed the facility.
Crystallized
or prilled potassium nitrate produced at Coya Sur and María Elena is transported
to Tocopilla for shipping to customers and distributors worldwide.
Sodium
Potassium Nitrate
Sodium
potassium nitrate is a mixture of approximately two parts sodium nitrate
per one
part potassium nitrate. We produce sodium potassium nitrate at our María Elena
facilities using standard, non-patented production methods we have developed.
Crystallized sodium nitrate is mixed with the crystallized potassium nitrate
to
make sodium potassium nitrate, which is then prilled. The prilled sodium
potassium nitrate is transported to Tocopilla for bulk shipment to
customers.
The
production process for sodium potassium nitrate is basically the same as
that
for sodium nitrate and potassium nitrate.
Our
aggregate current production capacity for nitrate salts is 1,100,000 metric
tons
per year. With certain production restraints and following market conditions
we
may supply sodium nitrate, potassium nitrate or sodium potassium nitrate
either
in prilled or crystallized form.
Iodine
and Iodine Derivatives
We
produce iodine at our Pedro de Valdivia and Nueva Victoria facilities,
extracting it from the solutions resulting from the leaching of caliche ore
at
the Pedro de Valdivia, María Elena, Nueva Victoria and Pampa Blanca facilities.
As in the case of nitrates, the process of extracting iodine from the caliche
ore is well established, but variations in the iodine and other chemical
contents of the treated ore and other operational parameters require a high
level of know-how to manage the process effectively and
efficiently.
The
solutions from the leaching of caliche carry iodine in iodate form. Part
of the
iodate solution is reduced to iodide using sulfur dioxide, which is produced
by
burning sulfur. The resulting iodide is combined with the rest of the untreated
iodate solution to release elemental iodine. The solid iodine is then refined
through a smelting process and prilled. We have obtained patents in Chile
and in
the United States for our iodine prilling process.
Prilled
iodine is tested for quality control purposes, then packed in 20-50 kilogram
drums or 350-700 kilogram maxibags and transported by truck to Antofagasta
or
Iquique for export. Our iodine and iodine derivative production facilities
have
qualified under the ISO-9002 program, providing third-party certification –
by TÜV Rheinland – of the quality management system and international
quality control standards that we have implemented.
Our
total
iodine production in 2007 was approximately 8.1 thousand metric tons:
approximately 2.3 thousand metric tons from Pedro de Valdivia, 1.1 thousand
metric tons from María Elena, 1.0 thousand metric tons from Pampa Blanca, and
3.7 thousand metric tons from Nueva Victoria. The Nueva Victoria facility
is
also used for tolling iodine delivered from Pampa Blanca and María Elena. We
have the flexibility to adjust our production according to market conditions.
Our current iodine production capacity is approximately 11,000 metric tons
per
year, considering one facility in Nueva Victoria that is not currently in
operation.
We
use a
portion of the produced iodine to manufacture inorganic iodine derivatives,
which are intermediate products used for manufacturing agricultural and
nutritional applications, at facilities located near Santiago, Chile, and
also
produce inorganic and organic iodine derivative products together with Ajay
North America L.L.C., "Ajay," a U.S.-based Company that purchases iodine
from
us. We have in the past primarily marketed our iodine derivative products
in
South America, Africa and Asia, while Ajay and its affiliates have primarily
sold their iodine derivative products in North America and Europe.
Salar
de Atacama Brine Deposits
The
Salar
de Atacama, located approximately 250 kilometers east of Antofagasta, is
a
salt-encrusted depression within the Atacama Desert, within which lies an
underground deposit of brines contained in porous sodium chloride rock fed
by an
underground inflow of water from the Andes Mountains. The brines are estimated
to cover a surface of approximately 2,900 square kilometers and contain
commercially exploitable deposits of potassium, lithium, sulfates and boron.
Concentrations vary at different locations throughout the salar.
Our
production rights to the Salar de Atacama are pursuant to a contract with
the
Chilean government, expiring in 2030.
Brines
are pumped from depths between 1.5 and 60 meters below surface, through a
field
of wells that are located in areas of the salar
that
contain relatively high concentrations of potassium, lithium, sulfate, boron
and
other minerals.
We
process these brines to produce potassium chloride, lithium carbonate, lithium
hydroxide, potassium sulfate, boric acid and bischofite (magnesium chloride).
Potassium
Chloride
We
use
potassium chloride in the production of potassium nitrate. Production of
our own
supplies of potassium chloride provides us with substantial raw material
cost
savings.
In
order
to produce potassium chloride, brines from the Salar de Atacama are pumped
to
solar evaporation ponds. Evaporation of the brines results in a complex
crystallized mixture of salts of potassium chloride and sodium chloride.
One
portion of this mixture is harvested and stored, and the other portion is
reprocessed and the remaining salts are transferred by truck to a processing
facility where the potassium chloride is separated by a grinding, flotation,
and
filtering process. Potassium chloride is sent approximately 300 kilometers
to
our Coya Sur facilities via a dedicated dual transport system (truck/rail),
where it is used in the production of potassium nitrate. We sell potassium
chloride produced at the Salar de Atacama and in excess of our needs to third
parties. Our production facilities currently have a production capacity up
to
650,000 metric tons per year. Actual capacity will depend on volumes and
quality
of the mining resources pumped from the salar.
During
2007 actual production was higher than in 2006 and we expect that 2008
production will be higher than in 2007.
The
by-products of the potassium chloride production process are (i) brines
remaining after removal of the potassium chloride, which are used to produce
lithium carbonate as described below, and the amount in excess of our needs
is
reinjected into the Salar de Atacama; (ii) sodium chloride, which is similar
to
the surface material of the Salar de Atacama and is deposited at sites near
the
production facility; and (iii) other salts containing magnesium
chloride.
Lithium
Carbonate
A
portion
of the brines remaining after the production of potassium chloride is sent
to
additional solar concentration ponds adjacent to the potassium chloride
production facility. Following additional evaporation, the remaining
concentrated solution of lithium chloride is transported by truck to a
production facility located near Antofagasta, approximately 250 kilometers
from
the Salar de Atacama. At the production facility, the solution is purified
and
treated with sodium carbonate to produce lithium carbonate, which is dried
and
then, if necessary, compacted and finally packaged for shipment. The production
capacity of our lithium carbonate facility is approximately 30,000 metric
tons
per year. A project is currently under way to increase our production capacity
to 40,000 metric tons per year, and this project should be completed by the
second half of 2008. Future production will depend on the actual volumes
and
quality of the lithium solutions sent by the Salar de Atacama operations,
as
well as prevailing market conditions.
Lithium
Hydroxide
Lithium
carbonate is sold to customers, and we also use it as a raw material for
our
lithium hydroxide monohydrate facility, which started operating at the end
of
2005. This facility has a capacity of 6,000 metric tons per year and is located
in the Salar del Carmen, adjacent to our lithium carbonate operations. In
the
production process, lithium carbonate is reacted with a lime solution to
produce
lithium hydroxide brine and calcium carbonate salt, which is filtered and
piled
in reservoirs. The brine is evaporated in a multiple effect evaporator and
crystallized to produce the lithium hydroxide monohydrate, which is dried
and
packaged for shipment to customers.
Potassium
Sulfate and Boric Acid
Approximately
12 kilometers northeast of the potassium chloride facilities at the Salar
de
Atacama, we use the brines from the Salar de Atacama to produce potassium
sulfate and boric acid. The plant is located in an area of the salar
where
higher sulfate and potassium concentrations are found in the brines. Brines
are
pumped to preconcentration solar evaporation ponds where waste sodium chloride
salts are removed by precipitation. After further evaporation, the sulfate
and
potassium salts are harvested and sent for treatment at the potassium sulfate
plant. Potassium sulfate is produced using flotation, concentration and reaction
processes, after which it is crystallized, dried and packaged for shipment.
Production capacity for potassium sulfate is approximately 200,000 metric
tons
per year. Boric acid is produced in crystallized form by acidulation of the
final concentrated brines, and then it is dried and packaged for shipment
at the
same facility. Production capacity for boric acid is approximately 10,000
metric
tons per year.
The
principal by-products of the production of potassium sulfate are: (i)
non-commercial sodium chloride, which is deposited at sites near the production
facility, and (ii) remaining solutions, which are reinjected into the Salar
de
Atacama or returned to the evaporation ponds. The principal by-products of
the
boric acid production process are remaining solutions that are treated with
sodium carbonate to neutralize acidity and then are reinjected into the Salar
de
Atacama.
Specialty
Plant Nutrition
We
believe we are the world's largest producers of potassium nitrate. We also
produce the following specialty plant nutrients: sodium nitrate, potassium
nitrate, sodium potassium nitrate, potassium sulfate, urea phosphate and
specialty blends (containing various combinations of nitrogen, phosphate
and
potassium and generally known as "NPK blends"). These specialty plant nutrients
have specific characteristics that increase productivity and enhance quality
when used on certain crops and soils. Additionally, these plant nutrients
are
well suited for high-yield agricultural techniques such as hydroponics,
fertigation, greenhousing and foliar applications. High-value crop farmers
are
prompted to invest in specialty plant nutrients due to their technical
advantages over commodity fertilizers (such as urea and potassium chloride).
These advantages translate into products and crops with higher yields and
added
quality. Our specialty plant nutrients have significant advantages for certain
applications over commodity fertilizers based on nitrogen and potassium,
such as
the aforementioned urea and potassium chloride.
In
particular, our specialty plant nutrients:
|
·
|
are
fully water soluble, allowing their use in hydroponics, fertigation,
foliar applications and other advanced agricultural
techniques;
|
|
·
|
are
absorbed more rapidly by plants because they do not require nitrification,
unlike ammonia-based fertilizers;
|
|
·
|
are
free of chlorine content, reducing the risk of scorching roots
and other
problems caused by chlorine;
|
|
·
|
do
not release hydrogen after application, thereby avoiding increased
soil
acidity;
|
|
·
|
possess
trace elements, which promote disease resistance in plants and
have other
beneficial effects;
|
|
·
|
are
more attractive to customers who prefer products of natural origin;
and
|
|
·
|
are
more efficient than commodity fertilizers because they deliver
more
nutrients per unit of product
applied.
|
In
2007,
our revenues from specialty plant nutrients were approximately US$580.8 million,
representing approximately 49% of our total revenues for that year. The main
reasons for these results were the increase in sales volumes and the increase
in
prices during 2007 compared with the previous year.
Specialty
Plant Nutrition: Market
The
target market for our specialty plant nutrients is high-value crops such
as
fruits, vegetables, and crops grown using modern agricultural techniques.
Since
1990, the international market for specialty plant nutrients has grown at
a
faster rate than the international market for commodity-type fertilizers.
This
is mostly due to: (i) the application of new agricultural technologies such
as
fertigation and hydroponics and increasing use of greenhousing; (ii) the
increase in the cost of land, which has forced farmers to improve their yields;
(iii) the scarcity of water; (iv) the increase of consumption of fresh fruits
and vegetables per capita, and (v) the increasing demand for higher quality
crops.
Worldwide
scarcity of water and weather changes force farmers to develop new agricultural
techniques such as fertigation that minimize water requirements. These
applications require fully water-soluble plant nutrients.
Increasing
land costs near urban centers also force farmers to maximize their yield
per
surface area. Specialty plant nutrients, when applied to certain crops, help
to
increase productivity for various reasons. In particular, since our
nitrate-based specialty plant nutrients provide nitrogen in nitric form,
crops
absorb them faster than they absorb urea- or ammonium-based fertilizers,
which
provide nitrogen in ammonium form. This is because crops absorb nitrogen
in
nitric form; thus nitrogen in ammonium form has to be converted into nitric
form
in the soil first. This process does not occur immediately (it takes time
and
requires special soil conditions), and it releases hydrogen into the soil,
increasing soil acidity, which in most cases is harmful to the soil and the
crop. Nitric nitrogen application facilitates a more efficient application
of
nutrients to the plant, thereby increasing the crop's yield and improving
its
quality.
Our
potassium-based specialty plant nutrients are chlorine free, unlike potassium
chloride, which is the most commonly used potassium-based commodity fertilizer.
In certain crops, chlorine has negative effects that translate into
lower yield and quality.
The
most
important agricultural applications of sodium nitrate, potassium nitrate,
potassium sulfate and sodium potassium nitrate plant nutrients are: industrial
crops, vegetables, fruits, sugar beet, cotton and other high-value crops.
Specialty
Plant Nutrition: Our Products
Potassium
nitrate, sodium potassium nitrate and specialty blends are higher margin
products derived from, or consisting of, sodium nitrate, and they are all
produced in crystallized or prilled form. Specialty blends are produced using
our own specialty plant nutrients and other components at blending plants
operated by the Company or its affiliates and related companies in Chile,
the
United States, Mexico, United Arab Emirates, Belgium, the Netherlands, South
Africa, Turkey and Egypt.
The
following table shows our sales volumes of and revenues from specialty plant
nutrients during the 2003-2007 period.
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Sales
Volume
(in metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sodium
nitrate
|
|
|
45,900
|
|
|
43,300
|
|
|
63,300
|
|
|
58,900
|
|
|
62,500
|
|
Potassium
nitrate and sodium potassium nitrate
|
|
|
695,300
|
|
|
615,000
|
|
|
690,200
|
|
|
707,600
|
|
|
696,500
|
|
Potassium
sulfate
|
|
|
172,000
|
|
|
172,400
|
|
|
178,600
|
|
|
157,700
|
|
|
143,200
|
|
Blended
and other specialty plant nutrients(1)
|
|
|
378,600
|
|
|
393,800
|
|
|
350,700
|
|
|
374,400
|
|
|
377,100
|
|
Revenues
(in US$ millions)
|
|
|
580.8
|
|
|
503.1
|
|
|
487.8
|
|
|
426.8
|
|
|
362.8
|
|
(1)
|
Includes
blended and other specialty plant nutrients. It also includes Yara's
products sold pursuant to our commercial
agreement.
|
Specialty
Plant Nutrition: Marketing and Customers
In
2007,
we sold our specialty plant nutrients in close to 90 countries. During the
same
year, approximately 90% of the Company's specialty plant nutrients sales
were
exported: approximately 28% were sold to customers in Central and South America,
23% to customers in North America, 19% to customers in Europe and 20% to
customers in other regions. Without considering any sales to related parties,
no
single customer represented more than 5.2% of SQM's specialty plant nutrient
sales during 2007, and our 10 largest customers accounted in the aggregate
for
approximately 24.8% of sales during that period.
Sales
Breakdown
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Central
and South America
|
|
|
28
|
%
|
|
29
|
%
|
|
29
|
%
|
|
29
|
%
|
|
26
|
%
|
North
America
|
|
|
23
|
%
|
|
22
|
%
|
|
22
|
%
|
|
22
|
%
|
|
18
|
%
|
Europe
|
|
|
19
|
%
|
|
19
|
%
|
|
20
|
%
|
|
19
|
%
|
|
20
|
%
|
Others
|
|
|
20
|
%
|
|
21
|
%
|
|
20
|
%
|
|
20
|
%
|
|
27
|
%
|
Chile
|
|
|
10
|
%
|
|
9
|
%
|
|
9
|
%
|
|
10
|
%
|
|
9
|
%
|
The
amounts set forth in the table above reflect sales of SQM’s specialty plant
nutrition products and do not include sales by SQM of third-party specialty
plant nutrition products. We sell our specialty plant nutrition products
outside
Chile mainly through our own worldwide network of representative offices
and
through our distribution affiliates.
In
November 2001, we signed an agreement with Yara International ASA (“Yara”,
formerly Norsk Hydro ASA). This agreement allows us to make use of Yara’s
distribution network in countries where its presence and commercial
infrastructure are larger than ours. Similarly, in those markets where our
presence is larger, both our specialty plant nutrients and Yara International
ASA's are marketed through our offices. Both parties, however, maintain an
active control over the marketing of their own products.
We
also
signed a joint venture agreement with Yara and Israel Chemicals Limited at
the
end of 2001. Under this joint venture agreement, SQM, Yara, and Israel Chemicals
Limited are developing the liquid and soluble plant nutrient blends business
through their participation in a Belgian company called NU3 N.V. (“NU3”), to
which SQM and Israel Chemicals Limited contributed their blending facility
in
Belgium, and Yara International ASA contributed its blending facility in
the
Netherlands. With this joint venture agreement, important synergies have
been
achieved, particularly in production costs, administration and the marketing
of
soluble blends, strengthening the development of new products and improving
customer services.
In
2005,
SQM and Yara International ASA formed a joint venture, called MISR Specialty
Fertilizers (MSF), for the production of tailor-made liquid NPK
(nitrogen-phosphate-potassium) fertilizers. The plant is located in Egypt
and
has a production capacity of 80,000 metric tons per year.
In
2005
SQM also acquired 50% of the shares of Kemira Emirates Fertilizers Company
(Kefco), which has a urea phosphate plant located in Dubai. Urea phosphate
is a
specialty plant nutrient that is used primarily in drip irrigation systems.
The
plant has an annual production capacity of 30,000 tons.
In
May
2008 we signed a joint venture agreement with Migao Corporation (“Migao”) for
the production and distribution of specialty plant nutrients in China. Through
the joint venture, we will construct a potassium nitrate plant with a production
capacity of 40,000 metric tons per year. We expect this plant to be ready
during
the first quarter of 2009. In addition, the joint venture will distribute
the
potassium nitrate produced by Migao in China and imports of SQM’s specialty
plant nutrients to China, and it will also handle any exports of potassium
nitrate produced by the joint venture or by Migao. This joint venture will
enable us to increase our presence in China, which represents one of the
most
important and fastest-growing markets for the fertilizer industry.
We
maintain stocks of our specialty plant nutrients in the main markets of the
Americas, Asia, Europe, the Middle East and Africa, in order to facilitate
prompt deliveries to customers. In addition, we sell specialty plant nutrients
directly to some of our large customers. Sales are made pursuant to spot
purchase orders and short-term contracts.
In
connection with our marketing efforts, we provide technical and agronomical
assistance and support to our customers. By working closely with our customers,
we are able to identify new, higher-value-added products and markets. Our
specialty plant nutrition products are used on a wide variety of crops,
particularly value-added crops, where the use of our products enables our
customers to increase yield and command a premium price.
Our
customers are located in the northern and southern hemispheres. Consequently,
there are no material seasonal or cyclical factors that can materially affect
the sales of our specialty plant nutrient products.
Specialty
Plant Nutrition: Fertilizer Sales in Chile
We
market
specialty plants nutrients in Chile through Soquimich Comercial S.A. which
sells
these products either alone or in blends with other imported products, mainly
triple super phosphate (TSP) and diammonium phosphate (DAP), among others.
Soquimich Comercial sells imported fertilizers to farmers in Chile mainly
for
application in the production of sugar beets, cereals, industrial crops,
potatoes, grapes and other fruits. Most of the fertilizers that Soquimich
Comercial imports are purchased on a spot basis from different countries
in the
world.
We
believe that all contracts and agreements between Soquimich Comercial and
third
party suppliers, with respect to imported fertilizers, contain standard and
customary commercial terms and conditions. During the preceding ten years,
Soquimich Comercial has experienced no material difficulties in obtaining
adequate supplies of such fertilizers at satisfactory prices, and we expect
continuing to do so in the future.
We
estimate that Soquimich Comercial's sales of fertilizers represented
approximately 36% of total fertilizer sales in Chile during 2007. No single
customer represented more than 5% of Soquimich Comercial’s total fertilizer
sales revenues, and its 10 largest customers in total represented less than
9%
of revenues.
Revenues
generated by Soquimich Comercial represented 17.2% of the Company's 2007
consolidated revenues. Soquimich Comercial's consolidated revenues were
approximately US$203 million, US$142 million, and US$144 million in 2007,
2006
and 2005, respectively.
Specialty
Plant Nutrition: Competition
We
believe we are the world's largest producer of sodium and potassium nitrate
for
agricultural use. Our sodium nitrate products compete indirectly with specialty
and commodity-type substitutes, which may be used by some customers instead
of
sodium nitrate depending on the type of soil and crop to which the product
will
be applied. Such substitute products include calcium nitrate, ammonium nitrate
and calcium ammonium nitrate.
In
the
potassium nitrate market our largest competitor is Haifa Chemicals Ltd.,
in
Israel, which is a subsidiary of Trans Resources International Inc. We estimate
that sales of potassium nitrate by Haifa Chemicals accounted for approximately
35% of total world sales during the year 2007 (excluding the Chinese market,
where most of the production is consumed domestically).
S.C.M.
Virginia, a Chilean iodine producer, ultimately controlled by Inverraz S.A.,
also produces potassium nitrate from caliche ore and potassium chloride.
ACF,
another Chilean producer, mainly oriented to iodine production, began production
of potassium nitrate from caliche ore and potassium chloride during 2005.
Kemapco, a Jordanian producer owned by Arab Potash, produces potassium nitrate
in a plant located close to the Port of Aqaba, Jordan. In
addition, there are several potassium nitrate producers in China, the largest
of
which are Wentong and Migao; most of the Chinese production is consumed by
the
domestic market.
In
June
2008, Atacama Minerals Corp., a Canadian company with iodine operations in
Chile, announced plans to build a plant in order to produce sodium nitrate,
potassium nitrate, and sodium potassium nitrate. According to statements
made by
the company, the plant should have production capacity of 70,000 tons per
year
and be operational by the second half of 2010.
The
principal means of competition in the sale of potassium nitrate are product
quality, customer service, location, logistics, agronomic expertise, and
price.
In
the
potassium sulfate market, we have several competitors of which the most
important are K+S KALI GmbH (Germany), Tessenderlo Chemie (Belgium) and Great
Salt Lake Minerals Corp. (United States). We believe that those three producers
account for a majority of the world production of potassium
sulfate.
Through
a
partially owned facility, NU3, we also produce soluble and liquid fertilizers
using our potassium nitrate as a raw material. Through this activity, we
have
acquired production technology and marketing know-how, which we believe will
be
useful for selling our products to greenhouse growers and for use in certain
high-technology processes such as fertigation and hydroponics.
We
believe we are the largest Chilean producer of bulk specialty blends. In
Chile,
our products mainly compete with imported fertilizer blends that use calcium
ammonium nitrate or potassium magnesium sulfate. Our specialty plant nutrients
also compete indirectly with lower-priced synthetic commodity-type fertilizers
such as ammonia and urea, which are produced by many producers in a highly
price-competitive market. Our products compete on the basis of advantages
that
make them more suitable for certain applications as described
above.
Iodine
We
believe we are the world's largest producer of iodine. In 2007, our revenues
from iodine and iodine derivatives amounted to approximately US$215.1 million,
representing approximately 18 % of our total revenues in that year. We estimate
that our sales accounted for approximately 29% of world iodine sales by volume
in 2007.
Iodine:
Market
Iodine
and iodine derivatives are used in a wide range of medical, agricultural
and
industrial applications as well as in human and animal nutrition products.
Iodine and iodine derivatives are used as raw materials or catalysts in the
formulation of products, such as x-ray contrast media, biocides, antiseptics
and
disinfectants, pharmaceutical intermediates, polarizing films for liquid
crystal
displays (LCD), chemicals, herbicides, organic compounds and pigments. Iodine
is
added in the form of potassium iodate or potassium iodide to edible salt
to
prevent iodine deficiency disorders.
Iodine:
Our Products
We
produce iodine and, through a joint venture with Ajay, organic and inorganic
iodine derivatives. SQM through Ajay or alone, is also actively participating
in
the iodine recycling business using iodinated side-streams from a variety
of
chemical processes in Europe, the United States and Asia.
Ajay-SQM
Group (ASG) was formed in the mid 1990s, as a joint venture between SQM and
Ajay
Chemicals, a U.S.-based company. ASG currently has production plants in the
United States, Chile and France and is the world's leading inorganic and
organic
iodine derivatives producer. In 2007, approximately 27% of SQM's iodine sales
were made to ASG.
Consistent
with our business strategy, we are constantly working on the development
of new
applications for our iodine-based products, pursuing a continuing expansion
of
our businesses and maintaining our market leadership.
We
manufacture our iodine and iodine derivatives in accordance with international
quality standards and have qualified our iodine facilities and production
processes under the ISO-9001:2000 program, providing third party certification
of the quality management system and international quality control standards
that we have implemented.
The
following table sets forth our total sales and revenues from iodine and iodine
derivatives in the 2003-2007 period:
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Sales
Volume (thous. metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iodine
and iodine derivatives
|
|
|
9.1
|
|
|
9.8
|
|
|
8.1
|
|
|
7.7
|
|
|
6.6
|
|
Revenues
(in US$ millions)
|
|
|
215.1
|
|
|
217.7
|
|
|
149.1
|
|
|
110.5
|
|
|
84.6
|
|
Iodine:
Marketing and Customers
In
2007,
we sold our iodine products to around 350 customers in more than 70 countries.
During the same year, most of our iodine production was exported: approximately
31% was sold to customers in Europe, 38 % to customers in North America,
5% to
customers in Central and South America and 26% to customers in Asia, Oceania
and
other regions. Not considering sales to related parties, no single customer
accounted for more than 10 % of the Company's iodine sales in 2007, and our
ten
largest customers accounted in the aggregate for approximately 40% of
sales.
Sales
Breakdown
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Europe
|
|
|
31
|
%
|
|
34
|
%
|
|
30
|
%
|
|
27
|
%
|
|
34
|
%
|
North
America
|
|
|
38
|
%
|
|
40
|
%
|
|
37
|
%
|
|
38
|
%
|
|
40
|
%
|
Central
and South America
|
|
|
5
|
%
|
|
5
|
%
|
|
13
|
%
|
|
13
|
%
|
|
6
|
%
|
Others
|
|
|
26
|
%
|
|
21
|
%
|
|
20
|
%
|
|
22
|
%
|
|
20
|
%
|
We
sell
iodine through our own worldwide network of representative offices and through
our sales, support and distribution affiliates. We maintain inventories of
iodine at our facilities throughout the world to facilitate prompt delivery
to
customers. Iodine sales are made pursuant to spot purchase orders and short,
medium and long-term contracts. Sales agreements generally specify annual
minimum and maximum purchase commitments, and prices are adjusted on
periodically, according to prevailing market prices.
Iodine:
Competition
SQM
and
several producers in Chile, Japan and the United States are the world's main
iodine producers.
Japanese
producers extract iodine from underground brines, which are mainly obtained
together with the extraction of natural gas. Several Japanese producers also
have recycling facilities where they recover iodine and iodine derivatives
from
iodine waste streams. Iodine recycling, mainly related to LCD consumption,
has
increased over the past few years and currently represents approximately
13% of
world iodine sales. It is estimated that around 70% of the world recycling
was
done by Japanese iodine producers.
We
estimate that eight Japanese iodine producers accounted for approximately
24% of
world virgin iodine sales in the year 2007. We estimate that the largest
Japanese producer, Ise Chemicals Ltd., accounted for approximately 8% of
the
world virgin iodine sales.
We
estimate that iodine producers in the United States (one of which is owned
by
Ise Chemicals) accounted for approximately 5% of world iodine sales in the
year
2007, while four Chilean companies, including SQM iodine business, accounted
for
approximately 55% of such sales (29% by SQM and 26% by the other Chilean
producers).
The
prices of our iodine and iodine derivative products are determined by world
iodine prices, which are subject to market conditions. World iodine prices
vary
depending upon, among other things, the relationship between supply and demand
at any given time. The supply of iodine varies principally depending upon
the
production of the few major iodine producers (including us) and their respective
business strategies. As a result of a steady growing demand, iodine prices
have
been increasing since the end of 2003. While prices were around US$13 per
kilogram in 2003, they reached an average of approximately US$24 per kilogram
in
2007.
Demand
for iodine varies depending upon overall levels of economic activity and
the
level of demand in the medical, pharmaceutical, industrial and other sectors
that are the main users of iodine and iodine derivative products. Prices
for
iodine and iodine derivative products in the future are expected to be
influenced by similar supply and demand factors and the business strategies
of
major producers, a few of whom either have or can acquire additional production
capacity. SQM has total production capacity of approximately 11,000 tons,
which
exceeds our current production levels.
The
main
factors of competition in the sale of iodine and iodine derivative products
are
reliability, price, quality, customer services and the price and availability
of
substitutes. We believe we have competitive advantages compared to other
producers due to the size of our mining reserves, the installed capacity
and
relatively lower production costs (as most part of our iodine is produced
as
part of a process for other products -mainly sodium nitrate and potassium
nitrate for agricultural and industrial purposes). We believe our iodine
is
competitive with that produced by other manufacturers in certain advanced
industrial processes. We also believe we have benefited competitively from
the
long-term relationships we have established with our larger customers. While
there are substitutes for iodine available for certain applications, such
antiseptics and disinfectants, there are no cost-effective substitutes currently
available for the main nutritional, pharmaceutical, animal feed, and main
chemical uses of iodine, which together account for most iodine
sales.
Lithium
We
believe we are the world's largest producer of lithium carbonate and one
of the
world’s largest producers of lithium hydroxide. In 2007, our revenues from
lithium sales amounted to approximately US$179.8 million, representing
approximately 15% of our total revenues. We estimate that our sales accounted
for approximately 31% of world's lithium units used in production of lithium
chemicals. Lithium is also available in the form of lithium minerals. However,
there is virtually no overlap of the markets demanding lithium minerals and
lithium chemicals.
Lithium:
Market
Lithium
carbonate is used in a variety of applications, including batteries, frits
for
the ceramic and enamel industries, heat resistant glass (ceramic glass),
primary
aluminum, air conditioning chemicals, continuous casting powder for steel
extrusion, pharmaceuticals, and lithium derivatives. Lithium hydroxide is
primarily used as a raw material in the lubricating grease industry, as well
as
in the dyes and battery industries. Butyllithium is used as a catalyst in
the
synthetic rubber and pharmaceutical industries.
Lithium:
Our Products
We
produce lithium carbonate at the Salar del Carmen facilities, near Antofagasta,
Chile, from solutions with high concentrations of lithium coming from the
potassium chloride production at the Salar de Atacama. The technologies we
use,
together with the high concentrations of lithium we obtain from the Salar
de
Atacama, allow us to be one of the lowest cost producers
worldwide.
SQM
used
to produce lithium hydroxide through tolling operations in the United States
and
Russia. During the second half of 2005, we began to produce it at our lithium
hydroxide facility, at the Salar del Carmen next to our lithium carbonate
facility in Antofagasta. The lithium hydroxide facility has a production
capacity of 6,000 TM/per year and is one of the largest plants in the
world.
SQM
produces butyllithium in its own plant located in Pasadena, Texas. This product
is sold in North America, Europe and Asia.
The
following table sets forth our total sales and revenues from lithium carbonate
and derivatives in the 2003-2007 period:
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Sales
Volume (thous. metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium
carbonate and derivatives
|
|
|
28.6
|
|
|
30.4
|
|
|
27.8
|
|
|
31.2
|
|
|
27.4
|
|
Revenues
(in US$ millions)
|
|
|
179.8
|
|
|
128.9
|
|
|
81.4
|
|
|
62.6
|
|
|
49.7
|
|
Lithium:
Marketing and Customers
In
2007,
we sold our lithium products to approximately 290 customers in approximately
50
countries. Virtually all of our lithium products were sold overseas:
approximately 34% to customers in Europe, 21% to customers in North America,
38%
to customers in Asia and Oceania and 7% to customers in other regions. No
single
customer accounted for more than 12% of the Company's sales in 2007, and
our ten
largest customers accounted in the aggregate for approximately 43% of
sales.
Sales
Breakdown
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Europe
|
|
|
34
|
%
|
|
32
|
%
|
|
33
|
%
|
|
32
|
%
|
|
31
|
%
|
North
America
|
|
|
21
|
%
|
|
24
|
%
|
|
25
|
%
|
|
26
|
%
|
|
29
|
%
|
Asia
and Oceania
|
|
|
38
|
%
|
|
36
|
%
|
|
31
|
%
|
|
37
|
%
|
|
37
|
%
|
Others
|
|
|
7
|
%
|
|
8
|
%
|
|
11
|
%
|
|
5
|
%
|
|
3
|
%
|
Lithium:
Competition
Our
main
competitors in the lithium carbonate and lithium hydroxide businesses are
Chemetall GmbH (“Chemetall”, subsidiary of Rockwood Specialties Group Inc.) and
FMC Corporation (“FMC”). In addition, a number of Chinese producers together
accounted for approximately 26% of the world market in 2007. We estimate
that
they together sold approximately 42% of lithium in the lithium chemicals
market
(excluding lithium minerals) in 2007. Chemetall produces lithium carbonate
in
its operations located in Chile (Sociedad Chilena del Litio Limitada) and
Nevada, USA. Its production of downstream lithium products is mostly performed
in the United States, Germany and Taiwan. FMC has production facilities in
Argentina (Minera del Altiplano), where they produce lithium chloride and
lithium carbonate. Production of its downstream lithium products is mostly
performed in the United States and the United Kingdom.
Additionally,
lithium carbonate is being produced in China and we believe this production
will
increase in the near future.
We
estimate that worldwide sales of lithium chemicals expressed as lithium
carbonate equivalent (excluding lithium minerals) amounted to approximately
93,000 metric tons in 2007.
Industrial
Chemicals
In
addition to producing sodium nitrate for agricultural applications, we produce
three grades of sodium nitrate for industrial applications: industrial,
technical and refined grades. The three grades differ mainly in purity. Our
industrial grades of potassium nitrate also differ from agricultural grade
potassium nitrate in its degree of purity. We enjoy certain operational
flexibility when producing industrial potassium nitrate because it is produced
from the same process as its equivalent agricultural grade, needing only
an
additional step of purification. We may, with certain constraints, shift
production from one grade to the other depending on market conditions. This
flexibility allows us to maximize yields as well as to reduce commercial
risk.
In addition to producing industrial nitrates, we produce boric acid. Boric
acid
is a by-product of the production of potassium sulfate. In 2007, our revenues
from industrial chemicals were approximately US$81.2 million, representing
approximately 7% of our total revenues for that year.
Industrial
Chemicals: Market
Industrial
sodium nitrate and potassium nitrate are used in a wide range of industrial
applications, including the production of glass, ceramics, explosives, charcoal
briquettes and various chemical processes and metal treatments. In addition,
industrial nitrates are being used as a medium for heat storage in solar
energy
projects. Boric acid is mainly used in glass, ceramics, fiberglass, enamels
and
as a raw material in the fabrication of screens for LCDs.
We
estimate that our sales of industrial sodium nitrate (excluding production
in
China and India, which is consumed internally) and potassium nitrate in 2007
accounted for 58%, and 31%, respectively, of worldwide sales in that
period.
Industrial
Chemicals: Our Products
We
produce technical potassium nitrate and three grades of industrial sodium
nitrate in crystallized and prilled form. We market our refined grade sodium
nitrate under the brand name "Niterox." We produce boric acid in crystalline
form.
The
following table sets forth our sales volumes of industrial chemicals and
total
revenues in the 2003-2007 period:
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Sales
Volume (metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
nitrates
|
|
|
175,200
|
|
|
162,000
|
|
|
176,300
|
|
|
192,800
|
|
|
193,200
|
|
Boric
Acid
|
|
|
9,200
|
|
|
9,700
|
|
|
6,300
|
|
|
6,120
|
|
|
10,700
|
|
Revenues
(in US$ millions)
|
|
|
81.2
|
|
|
71.3
|
|
|
70.5
|
|
|
68.8
|
|
|
66.7
|
|
Our
aggregate current sodium nitrate production capacity is approximately 740,000
metric tons per year (agricultural and industrial grades). Within certain
production constraints, we may use our production capacity to produce either
agricultural or industrial sodium nitrate. We have a plant capacity to produce
approximately 260,000 metric tons per year of technical potassium nitrate
and
10,000 metric tons per year of boric acid.
Industrial
Chemicals: Marketing and Customers
We
sold
our industrial nitrate products in more than 50 countries in 2007. Approximately
40% of our sales of industrial chemicals were made to customers in North
America, 34% to customers in Europe, 17% to customers in Central and South
America and 9% to customers in Asia, Oceania and other regions. No single
customer accounted for more than 6% of the Company's sales of industrial
chemicals in 2007, and our ten largest customers accounted in the aggregate
for
approximately 31% of such sales.
Sales
Breakdown
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
North
America
|
|
|
40
|
%
|
|
41
|
%
|
|
42
|
%
|
|
38
|
%
|
|
39
|
%
|
Europe
|
|
|
34
|
%
|
|
29
|
%
|
|
28
|
%
|
|
23
|
%
|
|
25
|
%
|
Central
and South America
|
|
|
17
|
%
|
|
17
|
%
|
|
17
|
%
|
|
24
|
%
|
|
12
|
%
|
Others
|
|
|
9
|
%
|
|
13
|
%
|
|
13
|
%
|
|
15
|
%
|
|
24
|
%
|
We
sell
our industrial chemical products mainly through our own worldwide network
of
representative offices and through our sales and distribution affiliates.
We
maintain inventories of our industrial sodium nitrate and technical potassium
nitrate products at our facilities in Europe, North America, South Africa
and
South America to achieve prompt deliveries to customers. Industrial sodium
nitrate and technical potassium nitrate sales are made pursuant to spot purchase
orders. Our Research and Development department, together with our foreign
affiliates, provide technical support to our customers and continuously work
with them to develop new products or applications for our
products.
Industrial
Chemicals: Competition
We
believe we are the world's largest producer of industrial sodium nitrate.
We
estimate that our production satisfied 58% of world demand for industrial
sodium
nitrate in 2007 (excluding China and India internal demand, for which reliable
estimates are not available). Our competitors are mainly in Europe and Asia.
These producers together represent 42% of total production and produce sodium
nitrate as a by-product of other production processes. In refined grade sodium
nitrate, Badische Anilin und Soda Fabrik AG (BASF), a German corporation,
and
several producers in Japan (the largest of which is Mitsubishi & Co. Ltd.),
are highly competitive in the European and Asian markets. Our industrial
sodium
nitrate products also compete indirectly with substitute chemicals, including
sodium carbonate, sodium hydroxide, sodium sulfate, calcium nitrate and ammonium
nitrate, which may be used in certain applications instead of sodium nitrate
and
are available from a large number of producers worldwide.
Our
main
competitor in the technical potassium nitrate market is Haifa Chemicals Ltd.,
which we estimate has a 30% market share in the industrial sector. We estimate
our market share at approximately 31% for 2007.
Producers
compete in the market for industrial sodium nitrate and technical potassium
nitrate based on reliability, product quality, price and customer service.
We
believe that we are a low cost producer of industrial sodium nitrate and
are
able to produce high quality products.
Raw
Materials
The
main
raw material that SQM requires in the production of nitrate and iodine is
caliche ore, which is obtained from our surface mines. The main raw material
in
the production of potassium chloride, lithium carbonate, potassium sulfate
and
boric acid is the brine extracted from our operations at the Salar de
Atacama.
Other
important raw materials are sodium carbonate (in lithium carbonate production
and for the neutralization of iodine solutions), anti-caking and anti-dust
agents (in the production of nitrates), kerosene (in iodine production),
ammonium nitrate (in the preparation of the anfo that is used as explosives
in
the mining operations), woven bags for packaging our final products, electricity
acquired from electric utilities, and diesel and fuel oil in heat generation.
The Company previously used natural gas as the primary raw material in heat
generation, but recent natural gas shortages have led us to use alternative
fuels. Our raw material costs (excluding caliche ore and salar brines and
including energy) represented approximately 13.5% of our cost of sales in
2007.
Most
of
our raw materials have experienced significant price increases during the
last
year.
In
1998
we entered into a long-term (fifteen-year) electricity supply agreement with
Norgener, a major Chilean electricity producer. In 1999, we entered into
a
long-term electricity supply agreement with Electroandina S.A., also a major
Chilean electricity producer. The agreement has a ten-year term, extending
to
2009, with a six-year renewal option. Since April 2000, the Company has been
connected to the Northern Power Grid (Sistema
Interconectado del Norte Grande
or
“SING”), which currently supplies us with electricity and also supplies most
cities and industrial facilities in northern Chile with electricity. During
2006
and 2007, both Norgener and Electroandina sought relief from the terms of
their electricity supply agreements, arguing that certain unforeseen events
had
restricted the supply and increased the price of gas from Argentina. As of
December 2007, in the case of Norgener, an agreement was reached among the
parties, whereas in the case of Electroandina, an arbitrator determined the
resolution of the dispute. In both cases the prices of energy to be paid
by SQM
were adjusted upwards, in line with increases in variable generation costs.
For
a discussion of risks related to electricity supply, see Item 3. Key
Information—Risk Factors.
In
May
2001, we entered into a 10-year gas supply contract with Distrinor S.A.,
which
would supply a maximum of 3,850,000 million Btu per year. This gas supply
was
sufficient to satisfy the requirements for the facilities that are connected
to
a natural gas supply. However, beginning in 2004, the Argentinean government
has
imposed restrictions on the supply of natural gas, and in 2007 we received
practically no gas from Argentina. Consequently, we have had to use other,
higher-cost fuels as substitutes for natural gas. For a discussion of risks
related to natural gas supply see Item 3. Key Information—Risk
Factors.
The
natural gas supply crisis discussed above has placed the Northern Power Grid
under significant stress. In order to mitigate the risks to our operations
from
energy shortages, at the beginning of 2008 we purchased five generators that
will enable the critical points of our production processes to continue
operating in the event of a blackout.
We
obtain
ammonium nitrate, kerosene and soda ash from several large suppliers, mainly
in
Chile and the United States, under long-term contracts or general agreements,
some of which contain provisions for annual revisions of prices, quantities
and
deliveries. In addition to the potassium chloride we produce, we acquire
potassium chloride from Sociedad Chilena del Litio Limitada, a local Chilean
supplier. Diesel fuel is obtained under contracts that provide for sales
of fuel
at international market prices.
We
believe that all of the contracts and agreements between SQM and third-party
suppliers with respect to our main raw materials contain standard and customary
commercial terms and conditions.
Water
Supply
The
main
sources of water for our nitrate and iodine facilities at Pedro de Valdivia,
María Elena and Coya Sur are the Loa and San Salvador rivers, which run near
our
production facilities. Water for our Pampa Blanca, Nueva Victoria and Salar
de
Atacama facilities is obtained from wells near the production facilities.
In the
case of Pampa Blanca we additionally buy water from third parties for our
production processes. We have permits from the Chilean Water Authority to
explore for additional non-potable water and permits to use granted water
rights
for an indefinite period of time (based on specified maximum volumes) without
charge. In addition, we purchase potable water from local utility companies.
We
have not experienced significant difficulties obtaining the necessary water
to
conduct our operations.
Government
Regulations
Regulations
in Chile Generally
We
are
subject to the full range of government regulations and supervision generally
applicable to companies engaged in business in Chile, including labor laws,
social security laws, public health laws, consumer protection laws,
environmental laws, securities laws and anti-trust laws. These include
regulations to ensure sanitary and safe conditions in manufacturing plants.
We
conduct our mining operations pursuant to exploration concessions and
exploitation concessions granted pursuant to applicable Chilean law.
Exploitation concessions essentially grant a perpetual right to conduct mining
operations in the areas covered by the concessions, provided that annual
concession fees are paid (with the exception of the Salar de Atacama rights,
which have been leased to us until 2030). Exploration concessions permit
us to
explore for mineral resources on the land covered thereby for a specified
period
of time, and to subsequently request a corresponding exploitation
concession.
We
also
hold water rights obtained from the Chilean water regulatory authority for
a
supply of water from rivers or wells near our production facilities sufficient
to meet our current and anticipated operating requirements. See Item 3. Key
Information for a discussion under "Risk Factors" of how changes in mining
and
water rights laws could affect our operating costs. We operate port facilities
at Tocopilla for shipment of products and delivery of certain raw materials
pursuant to maritime concessions, under applicable Chilean laws, which are
normally renewable on application, provided that such facilities are used
as
authorized and annual concession fees are paid.
Under
Law
No. 16,319, the Company has an agreement with the Chilean Commission of Nuclear
Energy (the “CCHEN”) regarding the exploitation and sale of lithium from the
Salar de Atacama. The agreement sets yearly quotas for the tonnage of lithium
authorized to be sold for each year of the Salar de Atacama, as determined
by
the agreement.
We
hold
water rights that are key to our business development. These rights were
obtained from the Chilean Water Authority for a supply of water from rivers
and
wells near our production facilities, which we believe are sufficient to
meet
current operating requirements. However, the Water Code is subject to changes,
which could have a material adverse impact on our business, financial condition
and results of operations. Law No. 20,017, published on June 16,
2005, modified the Chilean laws relating to water rights. Under
certain conditions, these modifications allow the constitution of permanent
water rights of up to 2 liters per second for each well built prior to June
30, 2004, in the locations where we conduct our mining operations. Such rights
may be constituted in favor of parties that requested water rights prior
to
January 1, 2000, when such request had not yet been processed as of June
16,
2005. In constituting these new water rights, the law does not factor in
the
availability of water, or how the new rights may affect holders of existing
rights. Therefore, the amount of water we can effectively extract based on
our
existing rights could be reduced if these additional rights are exercised.
These
and other potential future changes to the Water Code could have a material
adverse impact on our business, financial condition and results of
operations.
In
2005,
the Chilean Congress approved Law No. 20,026 (also known as the “Royalty Law”)
establishing a royalty tax to be applied to mining activities developed in
Chile. The Chilean Government may decide to levy additional taxes on mining
companies or other corporations in Chile, and such taxes could have a material
adverse impact on our business, financial condition and results of operations.
In
2006,
the Chilean Congress amended the Labor Code, and effective January 15, 2007,
certain changes were made, affecting companies that hire subcontractors to
provide certain services. This new law, known as the “Law on Subcontracting”,
establishes a new requirement that applies in the event of accidents in the
workplace. The law states that when a serious accident occurs, the company
must
halt work at the site where the accident took place until authorities from
the
National Geology and Mining Service inspect the site and prescribe the measures
the company must take to prevent future risks. Work may not be resumed until
the
company has taken the prescribed measures, and the period of time before
work
may be resumed may last for a number of hours, days, or longer. The effects
of
this new law could have a material adverse effect on our financial condition
or
results of operations.
There
are
currently no material legal or administrative proceedings pending against
the
Company with respect to any regulatory matter, except as discussed under
“Safety, Health and Environmental Regulations” below, and we believe that we are
in compliance in all material respects with all applicable statutory and
administrative regulations with respect to our business.
Safety,
Health and Environmental Regulations in Chile
Our
operations in Chile are subject to both national and local regulations related
to safety, health, and environmental protection.
In
Chile,
the main regulations on these matters that are applicable to SQM are the
Code on
Safety in Mining Operations, the Health Code, the Law on Subcontracting,
and the
Environmental Framework Law.
Health
and safety at work are fundamental aspects in the management of mining
operations, which is why SQM has made constant efforts to improve the health
and
safety conditions of the people working at its mining sites.
In
addition to the role played by the Company in this important matter, the
government has a regulatory role, enacting and enforcing regulations in order
to
protect and ensure the health and safety of workers. The State, acting through
the Ministry of Health and the National Service for Geology and Mining
(“Sernageomin”), performs mine safety inspections and oversees mining projects,
among other tasks, and it has exclusive powers to enforce standards related
to
environmental conditions and the health and safety of the people performing
activities related to mining.
The
Mine
Health and Safety Act of 1989 (Ministry of Economy, Reglamento de Seguridad
Minera, Supreme Decree DS No. 72, amended by DS No. 132/2002) protects workers
and nearby communities against health and safety hazards, and it provides
for
enforcement of the law where compliance has not been achieved.
The
main
provisions of this act are related to:
|
·
|
Securing
the health, safety and well-being of persons at work;
|
|
·
|
Protecting
nearby communities against risks to health or safety arising out
of or in
connection with mining operations in the vicinity;
|
|
·
|
Controlling
the use and storage of explosive, highly flammable or otherwise
dangerous
substances;
|
|
·
|
Controlling
the emission or pollution into the atmosphere of noxious or offensive
substances.
|
SQM’s
Internal Mining Standards (“Reglamentos
internos mineros”)
establish our obligation to maintain a workplace that is safe and free of
health
risks, inasmuch as this is reasonably practicable. We must comply with the
general provisions of the Health and Safety Act 1999 (Ministry of Health,
Standards on Basic Sanitary and Environmental Conditions in the Workplace,
or
“Reglamento sobre Condiciones Sanitarias y Ambientales Básicas en los Lugares de
Trabajo” DS No. 594, amended by DS No. 57/2003), our own internal standards, and
the provisions of the Mine Health and Safety Act of 1989. In the event of
non-compliance, the Ministry of Health and particularly the National Service
for
Geology and Mining are entitled to use their enforcement powers to achieve
compliance with the law.
The
Chilean Environmental Framework Law created the National Corporation of the
Environment (“Corporación Nacional del Medio Ambiente” or “CONAMA”), which is
the governmental agency responsible for coordinating and supervising
environmental issues. Under the Environmental Framework Law, we are required
to
conduct environmental impact studies of any future projects or activities
(or
their significant modifications) that may affect the environment. CONAMA,
together with other public institutions with mandates related to the
environment, evaluates environmental impact studies submitted for its approval
and also oversees the implementation and operation of projects. The
Environmental Framework Law also promotes citizen participation in project
evaluation and implementation.
Chilean
environmental regulations have become increasingly stringent in recent years,
both with respect to new project approval and approved projects in their
construction and operation phases. In this context, recently implemented
environmental regulations in Chile have created uncertainty because rules
and
enforcement procedures for these regulations have not been fully developed
or
have been developed without taking into consideration specific aspects of
the
regulated industries. Given public interest in environmental enforcement
matters, these regulations are subject to political considerations that are
beyond our control.
On
August
10, 1993, the Ministry of Health published in the Official Gazette a resolution
establishing that atmospheric particulate levels at our production facilities
in
María Elena and Pedro de Valdivia exceeded air quality standards, affecting the
nearby towns. The high particulate matter levels are principally from dust
produced during the processing of caliche ore, particularly the crushing
of the
ore before leaching. Residents of the town of Pedro de Valdivia were relocated
to the town of María Elena, practically removing Pedro de Valdivia from the
scope of the determination of the Ministry of Health. In the year 2000, CONAMA
approved a plan to reduce the atmospheric particulate levels below permissible
levels by July of the same year, with certain amendments, by Decree No.
164/2000. Although we followed the plan and reduced substantially the
atmospheric particulate levels at our principal production facilities, as
a
result of the investments and processes implemented, we were not able to
fully
comply with the July 2000 timetable. Resolution No. 384, published in the
Official Gazette on May 16, 2000, initiated a revision and reformulation
of the
plan. The new plan was published by Decree No. 37/2004 on March 2004, and
it
called for an 80% reduction of the emissions of atmospheric particulate material
in two years. We designed a new project to modify the milling and screening
systems used in the processing of the caliche ore at María Elena facilities, in
order to achieve the necessary reduction of particulate material emissions.
An
environmental impact study for this project was approved by CONAMA through
Resolution No. 270 in October 2005. Upon issuing the approval for the
environmental impact study, CONAMA issued the Decree No. 53975, authorizing
this
project as the one through which we will comply with the emission reductions
required by Decree No. 37/2004. Construction of this project was completed
in
April of 2007, but after it started operating in mid-2007, certain design
modifications became necessary. These modifications are currently being made,
and the project is estimated to be in full operation by December
2008.
On
March
16, 2007, the Ministry of Health published in the Official Gazette a resolution
establishing that atmospheric particulate levels exceeded air quality standards
in the coast-town of Tocopilla, where we have our port operations. The high
particulate matter levels are caused mainly by two thermoelectric power plants
that use coal and fuel oil and are located next to our port operations. Our
participation in particulate matter emissions is very small (less than 0.50%
of
the total). However, a decontamination plan is being developed and additional
operating and control measures will be required in our port operations under
this plan. CONAMA estimates that this plan will begin implementation by the
end
of 2008.
We
continuously monitor the impact of our operations on the environment and
have
made, from time to time, modifications to our facilities trying to eliminate
any
adverse impacts. Also, over time, new environmental standards and regulations
have been enacted, which have required minor adjustments or modifications
of our
operations for full compliance. We anticipate that additional laws and
regulations will be enacted over time with respect to environmental matters.
While we believe that we will continue to be in compliance with all applicable
environmental regulations of which we are now aware, there can be no assurance
that future legislative or regulatory developments will not impose new
restrictions on our operations. We are committed to both complying with all
applicable environmental regulations and applying an Environmental Management
System (EMS) to continuously improve our environmental performance.
We
have
submitted and will continue to submit several environmental impact assessment
studies related to our projects to the governmental authorities. We require
the
authorization of these submissions in order to maintain and to increase our
production capacity.
International
Regulations
In
2007,
a new European Community Regulation on chemicals and their safe use went
into
effect. This regulation, called REACH (Regulation, Evaluation, Authorisation
and
Restriction of Chemical Substances), requires all manufacturers and importers
of
chemicals - including SQM - to identify and manage risks linked to the
substances they manufacture and market. Non-compliance with this regulation
would preclude the Company from commercializing its products in the European
market.
4.C.
Organizational
Structure
All
of
our principal operating subsidiaries are essentially wholly-owned, except
for
Soquimich Comercial, which is 61% owned by SQM and whose shares are listed
and
traded on the Chilean Stock Exchanges, and Ajay SQM Chile S.A., which is
51%
owned by SQM. The following is a summary of our main subsidiaries as of March
31, 2008. For a list of all our consolidated subsidiaries see Note 2(a) to
the
Consolidated Financial Statements.
Main subsidiaries
|
|
Activity
|
|
Country of
Incorporation
|
|
SQM Beneficial
Ownership
Interest
(Direct/Indirect)
|
|
|
|
|
|
|
|
SQM Nitratos S.A.
|
|
Extracts and sells caliche ore to subsidiaries and
affiliates of SQM
|
|
Chile
|
|
100%
|
|
|
|
|
|
|
|
SQM
Industrial S.A.
|
|
Produces
and markets the Company’s products directly and through other
subsidiaries and affiliates of SQM
|
|
Chile
|
|
100%
|
|
|
|
|
|
|
|
SQM
Salar
S.A.
|
|
Exploits
the Salar de Atacama to produce and market the Company’s products directly
and through other subsidiaries and affiliates of SQM
|
|
Chile
|
|
100%
|
|
|
|
|
|
|
|
Minera
Nueva Victoria S.A.
|
|
Produces
and markets the Company’s products directly and through other subsidiaries
and affiliates of SQM
|
|
Chile
|
|
100%
|
|
|
|
|
|
|
|
Servicios
Integrales de Tránsitos y Transferencias S.A. (SIT)
|
|
Owns
and operates a rail transport system and also owns and operates
the
Tocopilla port facilities
|
|
Chile
|
|
100%
|
|
|
|
|
|
|
|
Soquimich
Comercial S.A.
|
|
Markets
the Company’s specialty plant nutrition products domestically and imports
fertilizers for resale in Chile
|
|
Chile
|
|
61%
|
|
|
|
|
|
|
|
Ajay-SQM
Chile S.A.
|
|
Produces
and markets the Company’s iodine and iodine derivatives
|
|
Chile
|
|
51%
|
|
|
|
|
|
|
|
Sales
and distribution subsidiaries in the United States, Belgium, Brazil,
Venezuela, Ecuador, Peru, Argentina, Mexico, South Africa and other
locations.
|
|
Market
the Company’s products throughout the world
|
|
Various
|
|
|
4.D.
Property,
Plants and Equipment
Discussion
of our mining rights is organized below according to the geographic location
of
our mining operations. SQM's mining interests located throughout the valley
of
the Tarapacá and Antofagasta regions of northern Chile (in a part of the country
known as “el Norte Grande”), referred to collectively as the "Caliche Ore
Mines", are discussed first. The Company's mining interests within the Atacama
Desert in the eastern region of el Norte Grande (the "Salar de Atacama Brines")
are discussed second.
DESCRIPTION
OF THE CALICHE ORE MINES
As
of
December 31, 2007, we held exploitation rights to mineral resources representing
approximately 1,675,000 hectares, and we have applied for additional
exploitation rights for approximately 472,000. In addition, we held exploration
rights to mineral resources representing approximately 283,000 hectares,
and we
have applied for additional exploration rights for approximately 55,000
hectares. As part of these rights, we have four mines covering an area of
approximately 597,731 hectares. These four mines are currently being exploited.
During
2007, we modified the criteria we use to define a mine. The new criteria
require
that a property have both reserves and the processing facilities necessary
to
carry out exploitation. As a result, certain properties we previously defined
as
mines but that do not have processing facilities are now considered part
of
other mines, and the number of mines has been reduced from six to four. The
Nueva Victoria mine now includes the mining properties Soronal, Mapocho and
Iris, which were described separately in previous Company filings. The mining
properties in terms of surface area and quantity of reserves have not changed
as
a result of the new criteria.
Pedro
de Valdivia
The
mine
and facilities that we operate in Pedro de Valdivia are located 170 kilometers
northeast of Antofagasta and are accessible by highway. These facilities
have
been in operation for approximately 77 years and were previously owned and
operated by Anglo Lautaro. The areas currently being mined are located
approximately 17 kilometers southeast and approximately 20 kilometers west
of
the Pedro de Valdivia production facilities. Our mining facilities at Pedro
de
Valdivia have a Weighted Average Age of approximately 10.88 years. Electricity,
diesel, and fuel oil are the primary sources of power for this
operation.
María
Elena
The
mine
and facilities that we operate in María Elena are located 220 kilometers
northeast of Antofagasta and are accessible by highway. These facilities
have
been in operation for approximately 82 years and were previously owned and
operated by Anglo Lautaro. The area currently being mined is located
approximately 14 kilometers north of the María Elena production facilities. The
power sources of power utilized are mainly electricity, diesel, and fuel
oil.
The Weighted Average Age of the Company's mining facilities at María Elena is
approximately 10.99 years.
Pampa
Blanca
We
currently conduct caliche ore operations in Pampa Blanca, which is located
100
kilometers northeast of Antofagasta and is accessible by highway. Ore from
the
Pampa Blanca mine is transported by truck to nearby heap leaching pads where
it
is used to produce iodine and nitrate salts. The Weighted Average Age of
the ore
recovery facilities at Pampa Blanca is approximately 13.46 years. The power
source utilized is mostly electricity, produced by mobile diesel
generators.
Nueva
Victoria
We
currently conduct caliche ore operations in Nueva Victoria, which is located
180
kilometers north of María Elena and is accessible by highway. Ore from Nueva
Victoria is transported by truck to heap leaching pads where it is then used
to
produce iodine. The Weighted Average Age of the ore recovery facilities at
Nueva
Victoria is approximately 5.38 years. The power source utilized is mostly
electricity, obtained from the Northern Power Grid (SING).
Description
of the Salar de Atacama Brines
Salar
de Atacama Brines
We
hold
rights to exploit the mineral resources in an area covering approximately
197,000 hectares of land in the Salar de Atacama in northern Chile, and we
have
applied for additional exploitation rights covering approximately 70,000
hectares. In addition, we hold exploration rights covering approximately
60,000
hectares, and we have applied for additional exploration rights covering
approximately 2,000 hectares. Exploration rights are valid for a period of
two
years, after which the Company can (i) request an exploitation concession
for
the land, (ii) request an extension of the exploration rights for an additional
two years (the extension only applies to a reduced surface area equal to
50% of
the initial area), or (iii) cease exploration of the zone covered by the
rights.
The Weighted Average Age of our mining facilities at the Salar de Atacama
is
approximately 8.28 years. The main source of power used by the operation
is
electricity.
Additional
Mining Operations Leased in the Salar de Atacama
Region
SQM
Salar
S.A. holds exclusive rights to exploit the mineral resources in an area covering
approximately 197,000 hectares of land in the Salar de Atacama in northern
Chile. These rights include 147,000 hectares that are owned by Corfo and
leased
to SQM Salar S.A. pursuant to a lease agreement between Corfo and SQM Salar
S.A.
(the Lease Agreement). Corfo may not unilaterally amend the Lease Agreement,
and
the rights to exploit the resources cannot be transferred. The Lease Agreement
provides that SQM Salar S.A. is responsible for the maintenance of Corfo’s
exploitation rights and for annual payments to the Chilean government, and
it
expires on December 31, 2030. SQM Salar S.A. is required to make lease-royalty
payments to Corfo according to specified percentages of the value of production
of minerals extracted from the Salar de Atacama brines. In the years
2007, 2006, and 2005, royalty payments amounted to approximately US$13.9
million, US$ 9.2 million, and US$ 6.8 million, respectively.
In
addition to the mining rights leased to SQM Salar S.A. described above, Corfo
has exclusive mining rights covering a total area of approximately 65,200
additional hectares in the Salar de Atacama. Under the terms of the Salar
de
Atacama Project Agreement between Corfo and SQM Salar S.A., (the Project
Agreement), Corfo has agreed that it will not permit any other person to
explore, exploit or mine any mineral resources in those 65,200 hectares of
the
Salar de Atacama. The Project Agreement expires on December 31,
2030.
Concessions,
Extraction Yields and Reserves for the Caliche Ore Mines and Salar
Brines
Concessions
Generally
Caliche
ore.
We hold
our mineral rights pursuant to one of two types of exclusive concessions
granted
pursuant to applicable law in Chile:
(1)
"Exploitation Concessions" These are concessions whereby we are legally entitled
to use the land in order to exploit the mineral resources contained therein
on a
perpetual basis subject to annual payments to the Chilean government;
or
(2)
"Exploration Concessions" These are concessions whereby we are legally entitled
to use the land in order to explore for mineral resources for a period of
two
years, at the expiration of which the concession may be extended one time
only
for two additional years if the area covered by the concession is reduced
by
half.
An
Exploration Concession is generally obtained for purposes of evaluating the
mineral resources in an area. Generally, after the holder of the Exploration
Concession has determined that the area contains exploitable mineral resources,
such holder will apply for an Exploitation Concession for the area. Such
application will give the holder absolute priority with respect to such
Exploitation Concession against third parties. If the holder of the Exploration
Concession determines that the area does not contain commercially exploitable
mineral resources, the concession is usually allowed to lapse, although it
is
our policy to convert substantially all Exploration Concessions to Exploitation
Concessions. An application also can be made for an Exploitation Concession
without first having obtained an Exploration Concession for the area
involved.
Concessions
for the Caliche Ore Mines and Salar Brines
Approximately
84% of our total mining concessions are held pursuant to Exploitation
Concessions and 16% pursuant to Exploration Concessions, not including areas
within the Salar de Atacama Mines. Of the Exploitation Concessions,
approximately 77% have been already granted pursuant to applicable Chilean
law,
and approximately 23% are in the process of being granted. Of the Exploration
Concessions, approximately 78% have been already granted pursuant to applicable
Chilean law, and approximately 22% are in the process of being granted. Chile
owns substantially all the surface land covering our Exploration and
Exploitation Concessions.
We
made
payments to the Chilean government for our Exploration and Exploitation
Concessions of approximately US$6.4 million in the year 2007.
The
following table sets forth our exploitation and exploration concessions as
of
December 31, 2007:
|
|
Exploitation Concessions
|
|
Exploration Concessions
|
|
Total
|
|
Mines (1)
|
|
Total
number
|
|
Hectares
|
|
Total
number
|
|
Hectares
|
|
Total
number
|
|
Hectares
|
|
Pedro de Valdivia
|
|
|
585
|
|
|
149,128
|
|
|
5
|
|
|
900
|
|
|
590
|
|
|
150,028
|
|
Maria
Elena
|
|
|
619
|
|
|
185,049
|
|
|
24
|
|
|
8,100
|
|
|
643
|
|
|
193,149
|
|
Pampa
Blanca
|
|
|
463
|
|
|
136,888
|
|
|
1
|
|
|
400
|
|
|
464
|
|
|
137,288
|
|
Nueva
Victoria (2)
|
|
|
344
|
|
|
89,466
|
|
|
77
|
|
|
27,800
|
|
|
421
|
|
|
117,266
|
|
Salar
de Atacama
|
|
|
409
|
|
|
266,965
|
|
|
209
|
|
|
61,800
|
|
|
618
|
|
|
328,765
|
|
Subtotal
mines
|
|
|
2,420
|
|
|
827,496
|
|
|
316
|
|
|
99,000
|
|
|
2,736
|
|
|
926,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
caliche areas
|
|
|
7,039
|
|
|
1,586,168
|
|
|
1,058
|
|
|
301,400
|
|
|
8,097
|
|
|
1,887,568
|
|
Other
salars and other areas
|
|
|
581
|
|
|
117,756
|
|
|
308
|
|
|
81,400
|
|
|
889
|
|
|
199,156
|
|
Subtotal
other areas
|
|
|
7,620
|
|
|
1,703,924
|
|
|
1,366
|
|
|
382,800
|
|
|
8,986
|
|
|
2,086,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,040
|
|
|
2,531,421
|
|
|
1,682
|
|
|
481,800
|
|
|
11,722
|
|
|
3,013,221
|
|
|
(1)
|
We
have included in this table both concessions that have been granted
and
concessions in the process of being
granted.
|
|
(2)
|
Nueva
Victoria amounts include the Mapocho and Soronal properties, which
were
presented separately in our 2006 Annual Report on Form 20-F.
|
Extraction
Yields
The
following table sets forth certain operating data relating to each of our
mines:
(Values in thousands unless otherwise stated)
|
|
2007
|
|
2006
|
|
2005
|
|
Pedro de
Valdivia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric
tons of ore mined
|
|
|
10,670
|
|
|
11,652
|
|
|
12,362
|
|
Average
grade nitrate (% by weight)
|
|
|
7.5
|
|
|
7.4
|
|
|
7.2
|
|
Iodine
(parts per million (ppm))
|
|
|
354
|
|
|
399
|
|
|
402
|
|
Metric
tons of crystallized nitrate produced
|
|
|
423
|
|
|
454
|
|
|
476
|
|
Metric
tons of iodine produced
|
|
|
2.3
|
|
|
2.5
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
María
Elena (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric
tons of ore mined
|
|
|
4,651
|
|
|
5,682
|
|
|
5,917
|
|
Average
grade nitrate (% by weight)
|
|
|
7.4
|
|
|
7.5
|
|
|
8.0
|
|
Iodine
(ppm)
|
|
|
363
|
|
|
399
|
|
|
428
|
|
Metric
tons of crystallized nitrate produced
|
|
|
424
|
|
|
504
|
|
|
479
|
|
Metric
tons of iodine produced
|
|
|
1.0
|
|
|
1.3
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Pampa
Blanca
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric
tons of ore mined
|
|
|
3,108
|
|
|
4,832
|
|
|
5,309
|
|
Iodine
(ppm)
|
|
|
527
|
|
|
530
|
|
|
520
|
|
Metric
tons of iodine produced
|
|
|
1.1
|
|
|
1.4
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Nueva
Victoria (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric
tons of ore mined
|
|
|
12,285
|
|
|
14,635
|
|
|
7,140
|
|
Iodine
(ppm)
|
|
|
495
|
|
|
941
|
|
|
504
|
|
Metric
tons of iodine produced
|
|
|
3.7
|
|
|
4,6
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Salar
de Atacama
|
|
|
|
|
|
|
|
|
|
|
Metric
tons of lithium carbonate produced (3)
|
|
|
30
|
|
|
29
|
|
|
27
|
|
Metric
tons of potassium chloride produced
|
|
|
611
|
|
|
539
|
|
|
632
|
|
Metric
tons of potassium sulfate produced
|
|
|
157
|
|
|
170
|
|
|
162
|
|
Metric
tons of boric acid produced
|
|
|
7
|
|
|
8
|
|
|
9
|
|
|
(1)
|
Includes
production at Coya Sur from treatment of fines from María Elena and Pedro
de Valdivia and nitrates from pile treatment at Pampa
Blanca.
|
|
(2)
|
Includes
the Iris mining property, which was acquired in 2006 and was presented
separately in the 2006 Annual Report on Form 20-F. Nueva Victoria
extraction yields were higher in 2006 than they were in 2007 because
they
reflect extraction yields from the Iris property, which SQM continued
to
exploit for the first six months of 2006, subsequent to the acquisition.
The Iris property has not been exploited since mid-2006, and it
represents
a future extension of the Nueva Victoria
operations.
|
|
(3)
|
Lithium
carbonate is extracted at the Salar de Atacama and processed at
our
facilities at the Salar del Carmen.
|
Reserves
Reserves
for the Caliche Ore Deposits
Our
in-house staff of geologists and mining engineers prepares our estimates
of
caliche ore reserves. The proven and probable reserve figures presented below
are estimates, and no assurance can be given that the indicated levels of
recovery of nitrates and iodine will be realized. See Item 3. D. Risk
Factors.
We
estimate ore reserves based on engineering evaluations of assay values derived
from sampling of drill-holes and other openings. Drill-holes have been made
at
different space intervals in order to recognize mining resources. Normally,
we
start with 400 x 400 meters and then we reduce spacing to 200x200 meters,
100x100 meters and 50x50 meters. The geological occurrence of caliche mineral
is
unique and different from other metallic and non-metallic minerals. Caliche
ore
is found in large horizontal layers at depths ranging from 1 to 4 meters
and has
an overburden between 0 and 2 meters. This horizontal layering is a natural
geological condition and allows the Company to estimate the continuity of
the
caliche bed based on surface geological reconnaissance and analysis of samples
and trenches. Mining resources can be calculated using the information from
the
drill-hole sampling.
According
to our experience in caliche ore, the grid pattern drill-holes with spacing
equal to or less than 100 meters produce data on the caliche resources that
is
sufficiently defined to consider them measured resources and then, adjusting
for
technical, economic and legal aspects, as proven reserves. These reserves
are
obtained using the Kriging Method and the application of operating parameters
to
obtain economically profitable reserves. Similarly, the information obtained
from detailed geologic work and samples taken from grid pattern drill-holes
with
spacing equal to or less than 200 meters can be used to determine indicated
resources. By adjusting such indicated resources to account for technical,
economic and legal factors, it is possible to calculate probable reserves.
Probable reserves are calculated by evaluating polygons and have an uncertainty
or error margin greater than that of proven reserves; however, the degree
of
certainty of probable reserves is high enough to assume continuity between
points of observation.
Proven
and probable reserves are determined using extensive drilling, sampling and
mine
modeling, in order to estimate potential restrictions on production yields,
including cut-off grades, ore type, dilution, waste-to-ore ratio and ore
depth.
Economic feasibility is determined on the basis of this information.
The
updated estimates of our proven reserves of caliche ore at each of our mines,
as
of December 31, 2007, are as follows:
Mine
|
|
Proven Reserves (1)
(millions of metric tons)
|
|
Nitrate Average Grade
(percentage by weight)
|
|
Iodine Average Grade
(parts per million)
|
|
Pedro de
Valdivia
|
|
|
152.3
|
|
|
7.1
|
%
|
|
370
|
|
María
Elena
|
|
|
134.8
|
|
|
7.3
|
%
|
|
415
|
|
Pampa
Blanca
|
|
|
74.9
|
|
|
6.3
|
%
|
|
549
|
|
Nueva
Victoria (2)
|
|
|
283.8
|
|
|
5.7
|
%
|
|
427
|
|
In
addition, the updated estimates of our probable reserves of caliche ore at
each
of our principal mines as of December 31, 2007, are as follows:
Mine
|
|
Probable Reserves (1) (3)
(millions of metric tons)
|
|
Nitrate Average Grade
(percentage by weight)
|
|
Iodine Average Grade
(parts per million)
|
|
Pedro de
Valdivia
|
|
|
136.8
|
|
|
6.8
|
%
|
|
428
|
|
María
Elena
|
|
|
97.6
|
|
|
7.3
|
%
|
|
380
|
|
Pampa
Blanca
|
|
|
429.4
|
|
|
6.0
|
%
|
|
524
|
|
Nueva
Victoria (2)
|
|
|
129.9
|
|
|
5.5
|
%
|
|
407
|
|
Notes
on
Reserves:
(1) |
The
proven and probable reserves set forth in the tables above are
shown
before losses related to exploitation and metallurgical treatment.
Proven
and probable reserves are affected by mining exploitation methods,
which
result in differences between the estimated reserves that are available
for exploitation in the mining plan and the recoverable material
that is
finally transferred to the leaching vats or heaps. The average
mining
exploitation factor for our different mines ranges between 80%
and 90%,
whereas the average global metallurgical recoveries of processes
for
nitrate and iodine contained in the recovered material vary between
55%
and 65%.
|
(2) |
Proven
and probable reserves for Nueva Victoria include the Soronal and
Mapocho
mining properties, which were presented separately in the Company’s 2006
Annual Report on Form 20-F. Nueva Victoria also includes the reserves
for
the Iris mining property, which was acquired in 2006 and whose
reserves
had not yet been estimated at the time the 2006 Form 20-F was
filed.
|
(3) |
Probable
reserves amounts can be transformed in order to obtain amounts
expressed
as proven reserves. On average, the transformation factor to express
probable reserves as proven reserves is higher than 60%. This factor
depends on geological conditions and caliche ore continuity, which
vary
from mine to mine. The difference between the probable reserve
amounts and
the transformed probable reserve amounts is the result of the lower
degree
of certainty pertaining to probable reserves compared with proven
reserves.
|
The
proven and probable reserves shown above are the result of exploration and
evaluation of approximately 16.0% of the total caliche-related mining property
of our Company. However, we have explored those areas in which we believe
there
is a higher potential of finding high-grade caliche ore minerals. The remaining
84.0% of this area has not been explored yet or has limited reconnaissance
as
inferred or hypothetical resources. Reserves shown in these tables consider
and
are calculated over mining properties that are not involved in any legal
issues
between SQM and other parties.
Exploration
Program.
We
maintain an ongoing program of exploration and resource evaluation on the
land
surrounding the mines at Nueva Victoria, Pedro de Valdivia, María Elena and
Pampa Blanca and at other sites for which we have the appropriate concessions.
In 2007, we continued a basic reconnaissance program on new mining properties
including a geological mapping of the surface and spaced drill-hole campaign
covering approximately 46,516 hectares. Additionally, we conducted general
explorations based on a closer grid pattern of drill-holes over a total area
of
approximately 2,480 hectares and, in addition, carried out in-depth sampling
of
approximately 2,305 hectares (896 hectares at Pedro de Valdivia, 413 hectares
at
María Elena, and 996 hectares at Nueva Victoria). The exploration and
development program in 2008 calls for a basic reconnaissance program over
a
total area of 44,710 hectares, general exploration over a total area of about
4,067 hectares and, in addition, in-depth sampling of approximately 2,654
hectares.
Reserves
for the Salar de Atacama Brines
Our
in-house staff of hydro-geologists and mining engineers prepares our estimates
of potassium, sulfate, lithium and boron reserves at the Salar de Atacama.
We
have explored the land up to a depth of 100 meters and estimate that our
proven
and probable reserves, based on economic restrictions, geostatistical analysis
and brine sampling up to a depth of 30 and 50 meters, are as
follows:
|
|
Proven Reserves (1)
(millions of metric tons)
|
|
Probable Reserves (1)
(millions of metric tons)
|
|
Potassium (K
+)
(2)
|
|
|
49.9
|
|
|
7.3
|
|
Sulfate
(SO4 2-)
(3)
|
|
|
36.1
|
|
|
1.3
|
|
Lithium
(Li +)
(4)
|
|
|
3.0
|
|
|
2.0
|
|
Boron
(B 3+)
(5)
|
|
|
1.2
|
|
|
0.1
|
|
Notes
on
Reserves:
(1) |
Metric
tons of potassium, sulfate, lithium and boron considered in the
proven and
probable reserves are shown before losses from evaporation processes
and
metallurgical treatment. The recoveries of each ion depend on both
brine
composition, which changes over time, and the process applied to
produce
the desired commercial products.
|
(2) |
Recoveries
for potassium vary from 47% to 68%.
|
(3) |
Recoveries
for sulfate vary from 27% to 44%.
|
(4) |
Recoveries
for lithium vary from 28% to 32%.
|
(5) |
Recoveries
for boron are approximately 29%.
|
The
proven and probable reserves are based on drilling, brine sampling and
geo-statistic reservoir modeling in order to estimate brine volumes and their
composition. To evaluate reserves, we conduct a geostatistical study using
the
Kriging Method in 2D. We calculate the quality of brine effectively drainable
or
exploitable in each evaluation unit. We consider chemical parameters to
determine the process to be applied to the brines. Based on the chemical
characteristics, the volume of brine and drainable percentage, we determine
the
number of metric tons for each of the chemical ions. Proven reserves are
defined
as those geographical blocks that comply with a Kriging method estimation
error
of up to 15%. In the case of probable reserves, the selected blocks must
comply
with an estimation error between 15% and 35%. Blocks with an error greater
than
35% are not considered in the evaluation of reserves. This procedure is used
to
estimate potential restrictions on production yields, and the economic
feasibility or producing such commercial products as potassium chloride,
potassium sulfate, lithium carbonate and boric acid is determined on the
basis
of the evaluation.
PORTS
AND WATER RIGHTS
We
operate port facilities at Tocopilla for shipment of products and delivery
of
certain raw materials pursuant to renewable concessions granted by Chilean
regulatory authorities, provided that such facilities are used as authorized
and
annual concession fees are paid by us. We also hold water rights for a supply
of
water from rivers and wells near our production facilities sufficient to
meet
our current and anticipated operational requirements.
PRODUCTION
FACILITIES
Our
principal production facilities are located near our mines and extraction
facilities in northern Chile. The following table sets forth the principal
production facilities as of December 31, 2007:
Location
|
|
Type of Facility
|
|
Approximate Size (1) (Hectares)
|
|
Pedro de Valdivia
|
|
|
Nitrates
and iodine production
|
|
|
126
|
|
María
Elena
|
|
|
Nitrates
and iodine production
|
|
|
110
|
|
Coya
Sur
|
|
|
Nitrates
and iodine production
|
|
|
232
|
|
Pampa
Blanca
|
|
|
Concentrated
nitrate salts and iodine production
|
|
|
86
|
|
Nueva
Victoria
|
|
|
Iodine
production
|
|
|
11
|
|
Salar
de Atacama (2)
|
|
|
Potassium
chloride, lithium chloride, potassium sulfate and boric
acid
|
|
|
2,288
|
|
Salar
del Carmen, Antofagasta
|
|
|
Lithium
carbonate and lithium hydroxide production
|
|
|
32
|
|
Tocopilla
|
|
|
Port
facilities
|
|
|
24
|
|
|
(1) |
Includes
production facilities, solar evaporation ponds and leaching heaps,
if
any.
|
|
(2) |
We
lease the exploitation rights used at the Salar de Atacama from
Corfo.
|
We
own,
directly or indirectly through subsidiaries, all of the facilities, free
of any
material liens, pledges or encumbrances, and believe that they are suitable
and
adequate for the business we conduct in them. As of December 31, 2007, the
approximate gross book value of the property and associated plant and equipment
at our locations was as follows: Pedro de Valdivia (US$74.04 million), María
Elena (US$156.48 million), Coya Sur (US$106.77 million), Pampa Blanca (US$4.07
million), Nueva Victoria (US$104.76 million), Salar de Atacama (US$250.58
million), Salar del Carmen (US$44.00 million) and Tocopilla (US$39.04
million).
In
addition to the above-listed facilities, we operate a computer and information
system linking our principal subsidiaries to our operating facilities throughout
Chile via a local area network. The computer and information system is used
mainly for accounting, monitoring of supplies and inventories, billing, quality
control and research activities. The system's mainframe computer equipment
is
located at our offices in Santiago.
The
map
below shows the location of SQM's principal mining operations and land
concessions.
The
approximate Weighted Average Age of our production facilities as of December
31,
2007 was as follows: Pedro de Valdivia (10.88 years), María Elena (10.99 years),
Coya Sur (5.97 years), Nueva Victoria (5.38 years), Salar de Atacama (8.28
years), and Salar del Carmen (8.95 years). Our railroad line between our
production facilities and Tocopilla was originally constructed in 1890, but
the
rails, locomotives and rolling stock have been replaced and refurbished as
needed. The Tocopilla port facilities were originally constructed in 1961
and
have been refurbished and expanded since that time. The Weighted Average
Age of
the Tocopilla port facilities is approximately 13.70 years. We consider the
condition of our principal plant and equipment to be good.
We
maintain different projects to improve our production methods, to increase
production capacity of current products and to develop new products and markets.
We have in place a capital expenditure program calling for investments of
approximately US$320 million for the year 2008 and a total of approximately
US$680 million during 2009 and 2010. For further discussion see item 4.A
History
and Development of the Company - Capital Expenditure Program.
TRANSPORTATION
AND STORAGE FACILITIES
We
own
and operate railway lines and equipment, as well as port and storage facilities,
for the transport and handling of finished products and consumable
materials.
The
main
center for our production and storage of raw materials is the hub composed
of
the facilities in Coya Sur, Pedro de Valdivia and María Elena. Our Salar de
Atacama facilities constitute the second largest concentration of plants
and raw
material storage. Other facilities include Nueva Victoria, Pampa Blanca,
and the
lithium carbonate and lithium hydroxide finishing plants. The Tocopilla Port
Terminal, which we own, is the main facility for storage and shipment of
our
products.
Nitrate
raw materials are produced and first stored at our Pampa Blanca, Pedro de
Valdivia and María Elena mines, and then transported by rail (Pedro de
Valdivia), conveyor belt (María Elena) and truck (others) to the plants
described in the next paragraph, for further production processes.
Nitrate
finished products are produced at our facilities in Pedro de Valdivia, María
Elena and Coya Sur and then transported by our rail system to Tocopilla Port
Terminal, where they are stored and shipped, either bagged or in bulk.
Potassium
chloride is produced at our facilities in the Salar de Atacama and transported
either to Tocopilla Port Terminal or Coya Sur by a dedicated dual transport
system (rail/truck) owned by a third-party dedicated contractor. Product
transported to Coya Sur is used as a raw material for the production of
potassium nitrate or for potassium chloride finished product.
Potassium
sulfate and boric acid are both produced at our facilities in the Salar de
Atacama and then are transported to Tocopilla Port Terminal to follow the
rest
of the process. Potassium sulfate is transported by the same dual mode system
as
potassium chloride, and boric acid is transported by a contracted trucking
company, after being bagged at the Salar de Atacama.
Lithium
solutions, produced at our facilities in the Salar de Atacama, are transported
to the lithium carbonate facility in the Salar del Carmen area, where finished
lithium carbonate is produced. Part of the lithium carbonate is fed to the
adjacent lithium hydroxide plant, where finished lithium hydroxide is produced.
These two products are bagged and stored on the premises and are subsequently
transported by truck to Tocopilla Port Terminal or to the Antofagasta Terminal
for shipment on charter vessels or container vessels.
Iodine
raw material, obtained in the same mines the nitrates, is processed, bagged
and
stored exclusively in the facilities of Pedro de Valdivia and Nueva Victoria,
and then shipped by truck to Antofagasta or Iquique for vessel container
transport or by truck to Santiago, where iodine derivatives are
produced.
The
facilities at Tocopilla Port Terminal are located approximately 186 kilometers
north of Antofagasta and approximately 124 kilometers west of Pedro de Valdivia,
84 kilometers west of María Elena and Coya Sur and 372 kilometers west of the
Salar de Atacama. SIT operates the facilities under maritime concessions
granted
pursuant to applicable Chilean laws. The port also complies with ISPS
(International Ship and Port Facility Security Code) regulation. The Tocopilla
Port Terminal facilities include a railcar dumper to transfer bulk product
into
the Conveyor Belt system used to store and ship bulk product.
Storage
facilities consist of a six silo system, with a total capacity of 54,000
metric
tons, and an open storage area for approximately 180,000 metric tons. A bagging
station capable of bagging both small and maxi bags is also connected to
the
conveyor system.
For
shipping bulk product, the conveyor belt system extends over the coast line
to
deliver product directly inside bulk carrier hatches. Using this system,
the
loading capacity is 1,200 tons per hour. Bags are loaded to bulk vessels
using
barges that are loaded in Tocopilla Port Terminal dock and unloaded by vessel
cranes into the hatches. Both bulk and bagged trucks are loaded in Tocopilla
Port Terminal for transferring product directly to customers or for container
vessels shipping from other ports, mainly Antofagasta, Mejillones and Iquique.
Bulk
carrier loading in the Tocopilla Port Terminal is mostly contracted for by
us to
transfer the product to our hubs around the world or for shipping to customers,
which in limited cases use their own contracted vessels for delivery. Trucking
is provided by a mix of spot, contracted and customer owned
equipment.
ITEM
4A. UNRESOLVED STAFF COMMENTS
Not
applicable
ITEM
5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
CRITICAL
ACCOUNTING POLICIES
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, which would potentially result in materially
different results under different assumptions and conditions.
We
believe that our critical accounting policies in the preparation of our Chilean
GAAP financial statements are limited to those described below. It should
be
noted that in many cases, Chilean GAAP specifically dictates the accounting
treatment of a particular transaction, with no need for management's judgment
in
their application. Additionally, significant differences can exist between
Chilean GAAP and U.S. GAAP, as explained below in the Notes to the Financial
Statements in Note 29—Differences between Chilean and United States Generally
Accepted Accounting Principles. There are also areas in which management's
judgment in selecting available alternatives would not produce materially
different results. For a summary of significant accounting policies and methods
used in the preparation of the financial statements, see Note 2 to the
Consolidated Financial Statements as of December 31, 2007 and 2006, and for
the
three years in the period ended December 31, 2007.
Allowance
for doubtful accounts
We
maintain allowances for doubtful accounts for estimated losses resulting
from
the assessed inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate
unexpectedly, impacting their ability
to make
payments, additional allowances may be required. We routinely review the
financial condition of our customers and make assessments of
collectibility.
Deferred
income tax asset valuation allowance
Our
Company and each of its subsidiaries compute and pay income tax on a separate
basis, except for the U.S. subsidiaries. We estimate our tax exposure and
assess
temporary differences resulting from differing treatment of various items
for
tax and accounting purposes. These differences result in deferred tax assets
and
liabilities, which are reflected in our consolidated balance sheet.
We
record
a valuation allowance to reduce deferred tax assets to the amount that we
believe is more likely than not to be realized. The valuation of the deferred
tax asset is dependent on, amongst other things, the ability of the Company
to
generate a sufficient level of future taxable income.
Inventories
Inventories
of finished products and work in process are valued at average production
cost.
Raw materials and products acquired from third parties are stated at average
cost and materials-in-transit are valued at cost. We regularly review inventory
for impairment and record an obsolescence provision so that carrying values
do
not exceed net realizable values.
Staff
severance indemnities
We
have
significant staff severance indemnity liabilities, which are recognized on
accrual basis. Inherent in the valuations of these obligations are key
assumptions, including discount rates. We are required to consider current
market conditions, including changes in interest rates, in selecting these
assumptions. Changes in the related benefit plan liabilities may occur in
the
future due to changes resulting from fluctuations in our related headcount
or to
changes in the assumptions.
Mining
development costs
Mine
exploration costs and stripping costs to maintain production of mineral
resources extracted from operating mines are considered variable production
costs and are included in the cost of inventory produced during the period.
Mine
development costs at new mines, and major development costs at operating
mines
outside existing areas under extraction that are expected to benefit future
production, are capitalized under “other long-term assets” and amortized using a
units-of-production method over the associated proven and probable reserves.
The
Company determines its proven and probable reserves based on drilling, brine
sampling and geostatistic reservoir modeling in order to estimate mineral
volume
and composition. See Item 4.D. Property, Plants and
Equipment—Reserves.
All
other
mine exploration assets costs, including expenses related to low grade mineral
resources rendering reserves that are not economically exploitable, are charged
to the results of operations in the period in which they are
incurred.
Long-lived
assets and their impairment
We
estimate the useful lives of property, plant and equipment in order to determine
the amount of depreciation expense to be recorded during any reporting period.
The estimated useful lives are based on historical experience with similar
assets, taking into account anticipated technological or other changes. If
technological changes are expected to occur more rapidly or in a different
way
than previously anticipated, the useful lives assigned to these assets may
need
to be reduced, resulting in the recognition of increased depreciation expense
in
future periods.
We
evaluate the recoverability of our long-lived assets (other than
intangibles and
deferred tax assets) in accordance with Technical Bulletin No. 33 “Accounting
treatment of Property, Plant and Equipment”, issued by the Chilean Association
of Accountants, and SFAS No. 144 "Accounting for the Impairment or Disposal
of
Long-Lived Assets". Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. The rules require recognition of impairment of
long-lived assets in the event that the net book value of such assets exceeds
the future undiscounted net cash flows attributable to such assets. Impairment,
if any, is recognized in the period of identification to the extent the carrying
amount of an asset exceeds the fair value of such asset. We believe that
the
accounting estimate related to asset impairment is critical because it requires
us to make assumptions about future cash flows generated from the use of
the
assets over their estimated useful lives.
Impairment
of goodwill
We
have
intangible assets related to goodwill. Under Chilean GAAP, goodwill should
be
reviewed for impairment when events or circumstances, such as recurrent losses
for two or more periods, indicate a possible inability to realize the carrying
amount. Under SFAS No. 142, goodwill must be allocated to reporting units
and
tested for impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate, indicate
that
there may be justification for conducting an interim test. The first part
of the
test is a comparison, at the reporting unit level, of the fair value of each
reporting unit to its carrying amount, including goodwill. If the fair value
is
less than the carrying value, then the second part of the test is needed
to
measure the amount of potential goodwill impairment. The implied fair value
of
the reporting unit’s goodwill is calculated and compared to the carrying amount
of goodwill recorded in the Company’s financial records. If the carrying value
of the reporting units goodwill exceeds the implied fair value of that goodwill,
then we would recognize an impairment loss in the amount of the difference,
which would be recorded as a charge against net income.
The
fair
values of the reporting units are determined using discounted cash flow models
based on each reporting unit’s internal forecasts.
The
impairment analysis requires management to make subjective judgments concerning
estimates of how the assets will perform in the future using a discounted
cash
flow analysis. Additionally, estimated cash flows may extend beyond ten years
and, by their nature, are difficult to determine. Events and factors that
may
significantly affect the estimates include, among others, competitive forces,
customer behavior and attrition, changes in revenue growth trends, cost
structures and technology, and changes in interest rates and specific industry
or market sector conditions. Impairment is recognized earlier whenever
warranted.
During
the period ended December 31, 2007, there were no changes in the application
of
generally accepted accounting principles in Chile compared to the prior
year.
5.A.
Operating
Results
Introduction
The
following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included in Item
18.
Certain calculations (including percentages) that appear herein have been
rounded.
Our
Consolidated Financial Statements are prepared in accordance with Chilean
GAAP,
which differ in certain material respects from U.S. GAAP. Note 29 to the
Consolidated Financial Statements provides a description of the material
differences between Chilean GAAP and U.S. GAAP and a reconciliation to U.S.
GAAP
of net income for the years ended December 31, 2007, 2006 and 2005 and of
total
shareholders' equity as of December 31, 2007 and 2006. Our Consolidated
Financial Statements are prepared in U.S. dollars. The U.S. dollar is the
primary currency in which we operate.
We
operate as an independent corporation. Nonetheless we are a "controlled
corporation", as that term is defined under Chilean law. See Item 6.E. Share
Ownership.
Certain
segment information by products group and by geographical area is provided
in
Note 29 -Differences between Chilean and United States Generally Accepted
Accounting Principles— II. k) Industry segment and geographic area
information.
Overview
of Our Results of Operations
We
divide
our operations into the following five product lines:
|
·
|
Specialty
plant nutrition: production and commercialization of specialty
fertilizers.
|
|
·
|
Iodine
and derivatives: production and commercialization of iodine and
derivatives.
|
|
·
|
Lithium
and derivatives: production and commercialization of lithium and
derivatives.
|
|
·
|
Industrial
chemicals: production and commercialization of industrial nitrates,
and
boric acid.
|
|
·
|
Potassium
chloride and other commodity fertilizers: production and commercialization
of potassium chloride and commercialization of other commodity
fertilizers.
|
We
sell
our products through three primary channels: our own sales offices, a network
of
distributors and, with respect to our fertilizer products, through Yara
International ASA pursuant to a commercial agreement.
FACTORS
AFFECTING OUR RESULTS OF OPERATIONS
Our
results of operations substantially depend on:
|
·
|
Trends
in demand for and supply of our products. See Item 5.D. Trend
Information;
|
|
·
|
Our
efficiency in operating our facilities, as they are generally running
at
nameplate capacity;
|
|
·
|
Our
ability to accomplish our capital expenditures program in a timely
manner,
as we are the main supplier in our core
businesses;
|
|
·
|
Trends
in the exchange rate between the US dollar and Chilean peso, as
a
significant portion of the cost of sales is related to the Chilean
peso;
|
|
·
|
Logistics,
raw materials and maintenance costs, which have been increasing
in the
last several years; and
|
|
·
|
Energy
costs, which have increased due to the high cost of oil and the
interruption of our natural gas
supply.
|
The
following table sets forth our revenues (in millions of U.S. dollars) and
the
percentage accounted for by each of our product lines for each of the periods
indicated:
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
Specialty
plant nutrition
|
|
|
580.0
|
|
|
49
|
|
|
503.1
|
|
|
48
|
|
|
487.8
|
|
|
54
|
|
Iodine
and derivatives
|
|
|
215.1
|
|
|
18
|
|
|
217.7
|
|
|
21
|
|
|
149.1
|
|
|
17
|
|
Lithium
and derivatives
|
|
|
179.8
|
|
|
15
|
|
|
128.9
|
|
|
12
|
|
|
81.4
|
|
|
9
|
|
Industrial
chemicals
|
|
|
81.2
|
|
|
7
|
|
|
71.3
|
|
|
7
|
|
|
70.5
|
|
|
8
|
|
Potassium
chloride and other commodity fertilizers(1)
|
|
|
130.7
|
|
|
11
|
|
|
121.9
|
|
|
12
|
|
|
107.2
|
|
|
12
|
|
Total
|
|
|
1,187.5
|
|
|
100
|
|
|
1,042.9
|
|
|
100
|
|
|
896.0
|
|
|
100
|
|
|
(1)
|
Primarily
imported fertilizers distributed in Chile and potassium chloride
sold to
third parties.
|
The
following table sets forth certain financial information of the Company under
Chilean GAAP (in millions of U.S. dollars) for each of the periods indicated,
as
a percentage of revenues:
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
Total
revenues
|
|
|
1,187.5
|
|
|
100.0
|
|
|
1,042.9
|
|
|
100.0
|
|
|
896.0
|
|
|
100.0
|
|
Cost
of goods sold
|
|
|
(857.7
|
)
|
|
(72.2
|
)
|
|
(753.3
|
)
|
|
(72.2
|
)
|
|
(652.9
|
)
|
|
(72.9
|
)
|
Gross
margin
|
|
|
329.8
|
|
|
27.8
|
|
|
289.6
|
|
|
27.8
|
|
|
243.1
|
|
|
27.1
|
|
Selling
and administrative expenses
|
|
|
(70.3
|
)
|
|
(5.9
|
)
|
|
(69.7
|
)
|
|
(6.7
|
)
|
|
(61.9
|
)
|
|
(6.9
|
)
|
Operating
income
|
|
|
259.5
|
|
|
21.9
|
|
|
219.9
|
|
|
21.1
|
|
|
181.2
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
25.9
|
|
|
2.2
|
|
|
19.2
|
|
|
1.8
|
|
|
16.4
|
|
|
1.8
|
|
Non-operating
expenses
|
|
|
(53.0
|
)
|
|
(4.5
|
)
|
|
(55.3
|
)
|
|
(5.3
|
)
|
|
(50.8
|
)
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
232.4
|
|
|
19.6
|
|
|
183.8
|
|
|
17.6
|
|
|
146.8
|
|
|
16.3
|
|
Income
tax
|
|
|
(48.6
|
)
|
|
(4.1
|
)
|
|
(37.9
|
)
|
|
(3.6
|
)
|
|
(32.5
|
)
|
|
(3.6
|
)
|
Minority
interest
|
|
|
(3.8
|
)
|
|
(0.3
|
)
|
|
(4.7
|
)
|
|
(0.5
|
)
|
|
(1.0
|
)
|
|
(0.1
|
)
|
Amortization
of negative goodwill
|
|
|
0.0
|
|
|
0.0
|
|
|
0.1
|
|
|
0.0
|
|
|
0.2
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
180.0
|
|
|
15.2
|
|
|
141.3
|
|
|
13.5
|
|
|
113.5
|
|
|
12.7
|
|
Results
of Operations - 2007 compared to 2006
During
2007, we generated total revenues of approximately US$1,187.5 million, which
is
approximately 13.9% higher than the US$1,042.9 million recorded for the year
ended December 31, 2006.
The
main
factors that explain the increase in revenues and the operational variations
in
the different product lines are the following:
Specialty
Plant Nutrition
Revenues
from sales of specialty plant nutrition products increased 15.4% to US$580.8
million in 2007 from US$503.1 million in 2006. Set forth below are sales
volume
data in the specified year by product category.
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sodium
nitrate
|
|
|
Th.
Ton
|
|
|
45.9
|
|
|
43.3
|
|
|
6
|
%
|
Potassium
nitrate and sodium potassium nitrate
|
|
|
Th.
Ton
|
|
|
695.3
|
|
|
615.0
|
|
|
13
|
%
|
Blended
and other specialty fertilizers
|
|
|
Th.
Ton
|
|
|
261.5
|
|
|
250.9
|
|
|
4
|
%
|
Other
non-SQM specialty plant nutrients
|
|
|
Th.
Ton
|
|
|
117.1
|
|
|
142.9
|
|
|
(18
|
)%
|
Potassium
sulfate
|
|
|
Th.
Ton
|
|
|
172.0
|
|
|
172.4
|
|
|
0
|
%
|
The
year-over-year growth in revenues was mainly the result of favorable pricing
conditions in this business segment, as well as increased sales volumes.
On
average, specialty plant nutrition prices increased 9% during the year, as
a
result of the tight supply scenario affecting global potassium-related markets,
combined with a demand that continues to grow. The general lack of potassium
in
the soil found in developing countries is strongly pushing demand for potash.
At
the same time, our specialty plant nutrients have benefited from changing
preferences on the part of consumers, who increasingly demand better-quality
agricultural products, and as a result, farmers strive to improve yields
in
order to meet the increased demand. Rising prices began to have a beneficial
effect on the Company’s results during the third quarter of 2007, and the upward
trend was even more noticeable in the fourth quarter.
Higher
prices in the Specialty Plant Nutrition segment were complemented by increased
sales volumes during the year. Demand for specialty plant nutrients in European
markets, which were affected by bad weather in 2006, recovered in 2007; as
a
result, the Company reported a year-over-year increase in sales volumes of
water
soluble potassium nitrate to Europe, and especially to Spain. During 2007
the
Company also recorded a substantial increase in volumes of potassium nitrate
sold to China. In addition, sales of potassium nitrate and sodium potassium
nitrate in Latin America were higher in 2007, due in large part to the strong
agriculture markets in Brazil. The decrease in sales volumes of other non-SQM
specialty plant nutrients was predominantly due to the sale of our trading
affiliate in Mexico during the third quarter of 2006.
Iodine
and Iodine Derivatives
Revenues
for iodine and iodine derivatives decreased 1.2% to US$215.1 million in 2007
from US$217.7 million in 2006. Set forth below are sales volume data in the
specified year.
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
Iodine
and derivatives
|
|
|
Th.
Ton
|
|
|
9.1
|
|
|
9.8
|
|
|
(7
|
)%
|
The
Company’s 2007 results in the Iodine and Iodine Derivatives segment for 2007
were driven by a combination of higher prices and lower volumes. Iodine prices
increased approximately 7% compared to 2006, as rising production costs were
reflected in the pricing. Further influencing prices was the growing
demand at the global level, which during 2007 was driven predominantly by
the
use of iodine in such applications as x-ray contrast media for diagnostic
imaging, biocides for paints and wood treatment products, and liquid crystal
displays (LCDs).
Demand
for iodine salts in LCD screens—iodine’s third-largest end market, where it is
used in the production of polarizing film—grew by close to 30% in 2007. In
particular, the LCD TV market has been expanding not only in terms of sales
volumes, but also in terms of growing screen sizes; this tendency should
continue in the future. Part of this growth in demand is being satisfied
by
iodine recycled in that same industry, as only a fraction of this product
remains in the polarizing film. The remaining iodine, which producers used
to
discard, is now increasingly being reprocessed, and as a result, recycled
iodine
has become essentially an additional “competitor” in this market.
Higher
pricing was offset by lower sales volumes in the year, as the Company decreased
its total volumes by approximately 7% compared to 2006. This decrease was
the result of an increasingly competitive market environment; other Chilean
producers increased their production capacity during the year, and there
were
also increases in production from recycling.
Lithium
and Lithium Derivatives
Revenues
for lithium and lithium derivatives increased 39.5% to US$179.8 million in
2007
from US$128.9 million in 2006. Set forth below are sales volume data in the
specified year.
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
Lithium
carbonate and derivatives
|
|
|
Th.
Ton
|
|
|
28.6
|
|
|
30.4
|
|
|
(6
|
)%
|
Year-over-year
revenue growth in this business line was driven by lithium prices, which
increased approximately 48% in 2007. As expected, sales volumes decreased
slightly compared to 2006, but this effect was outweighed by the substantial
price increase observed during the year.
The
favorable pricing conditions that have prevailed in the past couple of years
have prompted Chinese producers to increase their lithium capacity. As a
result
of this new production, tightness in lithium carbonate supply observed during
the first half of 2007 eased in the second half.
World
lithium demand continues to grow at rates of around 7% per year. As in recent
periods, the upward trend during 2007 was driven in large part by demand
for
lithium in rechargeable batteries, which market grew an estimated 20% during
the
year. Lithium-ion batteries—traditionally used in mobile phones, laptops,
digital cameras, and many other devices—are being utilized more and more in
cordless power tools, which are more lithium-intensive than some of the other
applications and therefore represent considerable growth potential.
During
2007, this business line also benefited from growth in the market for
lubricating greases, the primary end market for lithium hydroxide. In addition,
the Company recorded revenues from sales of butyllithium and lithium chloride
on
the order of US$10.7 million for the year.
Industrial
Chemicals
Revenues
for industrial chemicals increased 13.9% to US$81.2 million in 2007 from
US$71.3
million in 2006. Set forth below are sales volume data in the specified year
by
product category.
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
Industrial
nitrates
|
|
|
Th.
Ton
|
|
|
175.2
|
|
|
161.7
|
|
|
8
|
%
|
Boric
acid
|
|
|
Th.
Ton
|
|
|
9.2
|
|
|
9.9
|
|
|
(7
|
)%
|
Revenues
from sales of industrial chemicals increased in 2007 largely as a consequence
of
rising prices. Prices of industrial nitrates and prices of specialty plant
nutrients are indirectly related, and on average prices for this business
line
were approximately 6% higher than they were in 2006.
Growth
in
sales volumes in the Industrial Chemicals business segment was primarily
explained by sales in Latin America. Favorable conditions in the commodities
markets in recent periods have resulted in increased mining activity in this
region, which in turn has generated greater demand for explosives, in which
the
Company’s industrial-grade sodium nitrate is a key component. In addition, the
Company reported higher volumes of sodium nitrate sold in Europe during the
year, which is partly due to the use of this product as a medium for heat
storage in a solar energy project in Spain.
Potassium
Chloride and Other Commodity Fertilizers
Potassium
chloride
Revenues
from sales of potassium chloride increased 59.8% to US$51.3 million in 2007
from
US$32.1 million in 2006. Set forth below are sales volume data in the specified
year.
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
Potassium
chloride
|
|
|
Th.
Ton
|
|
|
179.0
|
|
|
126.4
|
|
|
42
|
%
|
The
substantial year-over-year increase in potassium chloride revenues was driven
by
prices, which rose nearly 13% in 2007, as well as sales volumes, which were
more
than 40% higher than sales volumes in 2006. Global potash prices have
experienced a sustained increase in recent periods, due to the combined effect
of tight supply and growing demand.
Other
commodity fertilizers
Revenues
from sales of other commodity fertilizers decreased from US$89.8 million
in 2006
to US$79.4 million in 2007, as a result of the sale of our trading affiliate
in
Mexico during the third quarter of 2006.
Production
Costs
During
2007, the Company continued to be affected by higher costs related to energy,
raw materials and the appreciation of the Chilean peso against the U.S. dollar,
affecting the Company’s peso-denominated expenses. The ongoing natural gas
shortages have forced us to use higher-cost alternative fuels, such as diesel
and fuel oil. Additionally, the price increases that have affected raw materials
and spare parts in recent years maintained their upward trend, and the Chilean
peso has continued to strengthen against the U.S. dollar. These factors had
a
significant impact during 2007.
Gross
Profit
As
a
result of the factors described above, gross profit increased 13.9% to US$329.8
million in 2007 from US$289.6 million in 2006.
Selling
and Administrative Expenses
Selling
and administrative expenses totaled US$70.3 million (5.9% of revenues) for
the
full year, compared to the US$69.7 million (6.7% of revenues) recorded during
full-year 2006.
Operating
Income
As
a
result of the factors described above, operating income increased 18.0% to
US$259.5 million in 2007 from US$219.9 million in 2006.
Non-Operating
Income and Expenses
The
Company recorded a non-operating loss of US$27.1 million for 2007 which is
lower
than the US$36.0 million loss recorded for full-year 2006.
Net
financial expenses totaled US$(10.6) million during 2007. This figure was
lower
than the US$(16.2) million recorded for 2006, primarily as a result of the
lower
levels of debt held by the Company during 2007.
Income
Taxes
In
2007,
income taxes were US$48.6 million, resulting in an effective consolidated
tax
rate of 20.9%, compared to income taxes of US$37.9 million and an effective
consolidated tax rate of 20.6% in 2006. In accordance with Chilean law, SQM
and
each of its Chilean subsidiaries compute and pay taxes on an individual basis,
not on a consolidated basis. We had tax loss carry-forwards of US$142.2 million
as of December 31, 2007, the majority of which have no expiration dates and
are
expected to be utilized in the future.
The
corporate income tax rate in Chile was 17% for 2007 and 2006. The Company’s
effective tax rate is higher than the Chilean rate because its foreign
operations are subject to higher tax rates.
The
28.2%
increase in income taxes is mainly due to the increase in our taxable
income.
For
a
more detailed analysis of the Company’s income and deferred taxes see Note 14 to
the Consolidated Financial Statements.
Results
of Operations - 2006 compared to 2005
During
2006, we generated total revenues of approximately US$1,042.9 million, which
was
approximately 16.4% higher than the US$896.0 million recorded for the year
ended
December 31, 2005.
The
main
factors that explain the increase in revenues and the operational variations
in
the different product lines were the following:
Specialty
Plant Nutrition
Revenues
from sales of specialty plant nutrition products increased 3.1% to US$503.1
million in 2006 from US$487.8 million in 2005. Set forth below are sales
volume
data in the specified year by product category.
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
Sodium
nitrate
|
|
|
Th.
Ton
|
|
|
43.3
|
|
|
63.3
|
|
|
(32 |
)% |
Potassium
nitrate and sodium potassium nitrate
|
|
|
Th.
Ton
|
|
|
615.0
|
|
|
690.2
|
|
|
(11 |
)% |
Blended
and other specialty fertilizers
|
|
|
Th.
Ton
|
|
|
250.9
|
|
|
217.5
|
|
|
15 |
% |
Other
non-SQM specialty plant nutrients
|
|
|
Th.
Ton
|
|
|
142.9
|
|
|
133.2
|
|
|
7 |
% |
Potassium
sulfate
|
|
|
Th.
Ton
|
|
|
172.4
|
|
|
178.6
|
|
|
(3 |
)% |
Lower
sales volumes obtained during 2006 were mainly explained by the
following:
|
§
|
Increased
production levels reached by other producers mainly affected our
potassium
nitrate and sodium potassium nitrate sales in the Brazilian market.
Our
sales of sodium potassium nitrate to the Brazilian market were
also
affected by a reduction in the planted hectares of some of our
target
crops. This reduction in the planted hectares is believed to have
been
caused in part by the strengthening of the Real against the US
dollar
observed during the first half of 2006, affecting the export volumes
of
local producers.
|
|
§
|
Spain,
an important market for our soluble plant nutrients, was affected
by one
of the most severe droughts of recent years. This situation generated
a
decrease of 6% in the sales volume for that market compared with
2005.
|
|
§
|
Lower
volume of sodium nitrate was sold to the Japanese market. This
effect was
caused by a delay in arrival of a vessel destined to Japan that
was
rescheduled for the first half of
2007.
|
The
lower
sales volume observed during this period were partially offset by better
price
conditions across most of our markets. Specialty plant nutrition revenues
were
therefore mainly driven by improved pricing conditions, increasing on average
5%
as compared with the previous year. The increase in prices responded mainly
to
the positive pricing conditions for all potassium-related
fertilizers.
Consistent
with the Company’s decision to focus more on its core businesses, during the
last part of 2006, SQM sold its stakes in the Italian company Impronta and
in
the Mexican company Fertilizantes Olmeca.
Regarding
our Chilean operation, during 2006 our subsidiary Soquimich Comercial had
revenues of US$141.2 million with a significant increase in margins related
to
the fertilizer trading activity.
Iodine
and Iodine Derivatives
Revenues
for iodine and iodine derivatives increased 46% to US$217.7 million in 2006
from
US$149.1 million in 2005. Set forth below are sales volume data in the specified
year.
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
Iodine
and derivatives
|
|
|
Th.
Ton
|
|
|
9.8
|
|
|
8.1
|
|
|
21
|
%
|
The
higher revenues reached in this business line were explained both by higher
volume and higher prices:
|
§
|
Higher
volume was mainly due to the acquisition of DSM’s iodine business and the
capacity increase in Nueva Victoria, both during first quarter
2006
|
|
§
|
The
most important applications of iodine and derivatives increasing
in demand
were iodophors and biocides, in the U.S.; LCD polarizing film in
Asia and
x-ray contrast media in Europe and
USA.
|
On
average, iodine prices increased by approximately 20% or close to US$3.50
per
kilogram as compared with 2005.
During
the early part of 2006, SQM acquired the iodine and iodine derivatives business
of the Dutch "DSM Group" for a base payment of US$72 million plus working
capital. The acquisition provided SQM with logistics, commercial and productive
synergies and reaffirmed SQM´s commitment with the development and strengthening
of its core businesses and with the iodine industry as part of its strategy
to
be a long-term reliable iodine supplier.
Lithium
and Lithium Derivatives
Revenues
for lithium and lithium derivatives increased 58.4% to US$128.9 million in
2006
from US$81.4 million in 2005. Set forth below are sales volume data in the
specified year.
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
Lithium
carbonate and derivatives
|
|
|
Th.
Ton
|
|
|
30.4
|
|
|
27.8
|
|
|
9
|
%
|
The
higher revenues recorded in this business line were mainly explained by better
price conditions. The strong demand observed during the last few years, with
a
growth of approximately 6% during 2006, positively affected pricing conditions.
The
higher sales volume observed during 2006 was mainly due to the increase in
consumption in markets such as batteries in Japan, Korea and China and glass
in
Europe. Another application with an important increase during this period
was
the continuous casting powder used in the steel industry in Asia.
As
the
lithium carbonate plant was working close to nameplate capacity, the increase
in
volume was limited by this fact and the use of inventories.
Regarding
lithium hydroxide, demand continued to increase, also generating improved
pricing conditions. During 2006 prices increased by more than 30% compared
to
the previous year.
Industrial
Chemicals
Revenues
for industrial chemicals increased 1.1% to US$71.3 million in 2006 from US$70.5
million in 2005. Set forth below are sales volume data in the specified year
by
product category.
|
|
|
|
2006
|
|
2005
(1)
|
|
%
Change
|
Industrial
nitrates
|
|
|
Th.
Ton
|
|
|
162
|
|
|
176.3
|
|
|
(8
|
)%
|
Boric
acid
|
|
|
Th.
Ton
|
|
|
10
|
|
|
6.3
|
|
|
59
|
%
|
|
(1) |
Figures
have been restated to reflect a reclassification affecting Industrial
Nitrates. Sodium Sulfate that used to be included under Industrial
Chemicals was relocated to Other Products. Sodium Sulfate revenues
reached
US$3.5 million during 2005.
|
Volume
of
industrial nitrates was lower than in 2005. Most of the end customers using
the
nitrates were located in mature industries, negatively affecting future
growth.
Partially
offsetting the volume effect, the increase in prices observed during 2006
allowed this business line to maintain its revenues.
Potassium
Chloride and Other Commodity Fertilizers
Potassium
chloride
Revenues
from sales of potassium chloride decreased 0.9% to US$32.1 million in 2006
from
US$32.4 million in 2005. Set forth below are sales volume data in the specified
year.
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
Potassium
chloride
|
|
|
Th.
Ton
|
|
|
126.4
|
|
|
128.7
|
|
|
(2
|
)%
|
Revenues
remained relatively constant due to the increase in average price, which was
able to offset the decrease in sales volume.
Other
commodity fertilizers
Sales
of
other commodity fertilizers increased to US$90.1 million in 2006 from US$75.0
million in 2005.
Production
Costs
Production
costs during 2006 were higher than in 2005, as they were affected by the
following factors:
|
§
|
Higher
energy costs. Oil, electricity and natural gas costs were higher
in 2006
compared to the previous year. This was exacerbated by shortages
of
natural gas caused by Argentinean export restrictions.
|
|
§
|
The
less favorable exchange rate scenario in Chile. The average appreciation
of the Chilean peso of 5.6% had a negative effect for our peso-denominated
costs.
|
|
§
|
Depreciation
costs increased by approximately US$ 20 million during
2006.
|
Gross
Profit
As
a
result of the factors described above, gross profit increased 19.1% to US$289.6
million in 2006 from US$243.1 million in 2005.
Selling
and Administrative Expenses
Selling
and Administrative Expenses were US$69.7 million (6.7% of revenues) during
the
year 2006 compared to the US$61.9 million (6.9% of revenues) recorded during
the
year 2005.
Operating
Income
As
a
result of the factors described above, operating income increased 21.4% to
US$219.9 million in 2006 from US$181.2 million in 2005.
Non-Operating
Income and Expenses
Non-operating
income for the year 2006 shows a US$36.1 million loss which compares to a
US$34.4 million loss for the same period of the previous year. The main
variations in the non-operating income were the following:
|
§
|
Net
financial expenses reached US$(16.2) million during 2006, higher
than the
US$(11.1) million reached during the year 2005. This increase in
financial
expenses was related to the increase in the financial debt of the
Company.
|
|
§
|
During
the year 2006, the Company recorded exchange losses of approximately
US$2.3 million, lower than the US$3.8 million during
2005.
|
Income
Taxes
In
2006,
income taxes were US$37.9 million, resulting in an effective consolidated tax
rate of 20.6%, compared to income taxes of US$32.5 million and an effective
consolidated tax rate of 22.1% in 2005. In accordance with Chilean law, SQM
and
each of its Chilean subsidiaries compute and pay taxes on an individual basis,
not on a consolidated basis. We had tax loss carry-forwards of US$171.2 million
as of December 31, 2006, the majority of which have no expiration dates and
are
expected to be utilized in the future.
The
corporate income tax rate in Chile was 17% for 2006 and 2005. The Company’s
effective tax rate is higher than the Chilean rate because its foreign
operations are subject to higher tax rates.
The
16.6%
increase in income taxes was mainly due to the increase in our taxable
income.
For
a
more detailed analysis of the Company’s income and deferred taxes see Note 14 to
the Consolidated Financial Statements.
Foreign
Exchange Rates and Inflation
We
transact a significant portion of our business in U.S. dollars, and the U.S.
dollar is the currency of the primary economic environment in which we operate
and is our functional currency for financial reporting purposes. A significant
portion of our operating costs is related to the Chilean peso, and therefore
an
increase or decrease in the exchange rate between the Chilean peso and the
U.S.
dollar affects our costs of production. Additionally, as an international
company operating in Chile and several other countries, we transact a portion
of
our business and have assets and liabilities in Chilean pesos and other
non-dollar currencies, such as the euro, the South African Rand and the Mexican
peso. As a result, fluctuations in the exchange rate of such currencies to
the
U.S. dollar affect our financial condition and results of
operations.
The
following is a summary of the aggregate net monetary assets and liabilities
that
are subject to foreign exchange gain or loss by currency at December 31, 2007
and 2006:
|
|
2007
|
|
2006
|
|
|
|
Th
US$
|
|
Th
US$
|
|
Chilean
pesos
|
|
|
36,975
|
|
|
(41,922
|
)
|
Brazilian
real
|
|
|
(1,281
|
)
|
|
(1,332
|
)
|
Euro
|
|
|
31,730
|
|
|
27,167
|
|
Japanese
yen
|
|
|
692
|
|
|
730
|
|
Mexican
pesos
|
|
|
(2,900
|
)
|
|
1,587
|
|
South
African rand
|
|
|
8,346
|
|
|
11,676
|
|
Dirhams
|
|
|
10,012
|
|
|
13,554
|
|
Other
currencies
|
|
|
8,584
|
|
|
7,854
|
|
|
|
|
|
|
|
|
|
Total,
net
|
|
|
92,158
|
|
|
19,314
|
|
We
monitor and attempt to maintain our non-dollar assets and liabilities position
in balance and make use of foreign exchange contracts and other hedging
instruments to try to minimize our exposure to the risks of changes in foreign
exchange rates. As of December 31, 2007, for this purpose we had open forward
exchange contracts and options to buy U.S. dollars and sell foreign currency
for
approximately UF 2.85 million (US$97.5 million), 9.5 million Euros (US$13.92
million), and 32 million South African Rands (US$ 4.70 million), as well as
forward exchange contracts to buy Chilean pesos and sell U.S. dollars for
approximately 38,161.15 million Chilean Pesos (US$76.8 million).
The
net
impact of price level adjustments to non-monetary assets and liabilities and
equity for those subsidiaries that maintain their accounting records in Chilean
pesos is presented in the Chilean GAAP financial statements as part of the
net
foreign exchange gains and losses and is affected by the level of inflation
in
Chile. Although other income statement accounts are not affected by monetary
correction adjustments, operating expenses that are denominated in UF or are
linked to inflation in some manner increase their U.S. dollar values in the
same
way inflation increases (assuming that the exchange rate remains
unchanged).
The
prospects and results of operations of SQM could be adversely affected by
changes in policies of the Chilean government, other political developments
in
or affecting Chile, and regulatory and legal changes or administrative practices
of Chilean authorities, over which we have no control.
U.S.
GAAP Reconciliation
This
discussion on our operating and financial results and condition presented above
is based on our primary financial statements prepared in accordance with Chilean
GAAP. Chilean GAAP differs significantly in certain aspects from U.S. GAAP.
The
principal differences between Chilean GAAP and U.S. GAAP as they relate to
our
Company are (i) the elimination of the effects of the technical appraisal of
property, plant and equipment undertaken in 1988, (ii) the effects of
elimination of monetary correction (price-level restatement) and conversion
of
financial statements of subsidiaries that keep their accounting records in
currencies other than U.S. dollars, (iii) the accounting for derivative
contracts, (iv) the accounting for staff severance indemnities, (v) treatment
of
goodwill, and (vi) the elimination of deferred tax complementary accounts.
For
further details of these differences between Chilean GAAP and U.S. GAAP, see
Note 29 to the Consolidated Financial Statements.
Net
income under U.S. GAAP for 2007, 2006, and 2005 was US$ 192.7 million, US$154.3
million and US$125.2 million, respectively, compared to that reported under
Chilean GAAP of US$ 180.0 million, US$141.3 million and US$113.5 million,
respectively.
Total
shareholders' equity under U.S. GAAP at December 31, 2007 and 2006 was
US$1,084.1 million and US$994.5 million, respectively, compared to that reported
under Chilean GAAP of US$1,182.4 million and US$1,085.9 million,
respectively.
5.B.
Liquidity
and Capital Resources
We
operate a capital-intensive business that requires significant investments
in
revenue-generating assets. Our growth strategy has included the purchase
of production facilities and equipment and has also entailed the improvement
and
expansion of existing facilities. Funds for capital expenditures and
working capital requirements have been obtained from net cash provided by
operating activities, corporate borrowing under credit facilities and issuance
of debt securities.
The
current ratio (current assets divided by current liabilities) increased
from 4.28 as of December 31, 2006 to 4.70 as of December
31, 2007, primarily due to increases in working capital – accounts
receivable and inventories – as a result of increases in the prices of our
products.
The
following table sets forth key information about our outstanding
debt:
On Balance Sheet Financial
Instruments
|
|
Interest Rate
|
|
Issue Date
|
|
Maturity Date
|
|
Amortizations
|
|
|
|
|
|
|
|
|
|
|
|
Bond –
US$200 million
|
|
6.125%
|
|
Apr.
5, 2006
|
|
Apr.
15, 2016
|
|
Bullet
|
|
Bond –
UF 2.85 million (1)
|
|
4.00%
|
|
Jan.
24, 2006
|
|
Dec.
1, 2026
|
|
Semiannual
partial
amortizations
|
|
Syndicated
loan – US$100 million
|
|
LIBOR
3M + 0.375%
|
|
Mar.
3, 2005
|
|
Feb.
25, 2010
|
|
Bullet
|
|
Syndicated
loan – US$ 80 million
|
|
LIBOR
6M + 0.30%
|
|
Nov.
28, 2006
|
|
Nov.
28, 2011
|
|
Bullet
|
|
|
(1) |
UF-denominated
bond fully hedged (originally issued for UF3 million; UF2.85 million
outstanding as of December 31, 2007), under Chilean GAAP, to US$
with a
cross currency swap. Approximately equivalent to US$102 million as
of
December 31, 2007. Fixed US$ interest rate of
5.84%.
|
As
of
December 31, 2007 under Chilean GAAP, we had total debt (short-term borrowings,
current portion of long-term bank debt and bonds payable and long-term
bank debt and obligations with the public) of US$498.1 million, as
compared to total debt of US$545.4 million as of December 31, 2006.
Of the total debt as of December 31, 2007, US$11.5 million was short-term debt
plus the current portion of long-term bank debt. All of our long-term debt
(including the current portion) as of December 31, 2007 was denominated in
U.S. dollars, with the exception of our UF 3 million local bond (UF 2.85 million
outstanding as of December 31, 2007), which was hedged with a cross currency
swap to the U.S. dollar.
The
financial covenants related to our debt instruments include: (i) limitation
on
the ratio of total liabilities to equity (including minority interest) on a
consolidated basis, (ii) limitation on the ratio of total liabilities to equity
(including minority interest) on an individual basis, (iii) minimum net worth,
(iv) limitation on net financial debt to EBITDA ratio on a consolidated basis,
and (v) limitation on interest indebtedness of operating subsidiaries. We
believe that the terms and conditions of our debt agreements are standard and
customary and that we are in compliance in all material respects with such
terms
and conditions.
The
following table sets forth the maturities of our long-term debt as of December
31, 2007:
Maturity(*)
|
|
Amount ( millions of US$)
|
|
2009
|
|
|
5.13
|
|
2010
|
|
|
105.13
|
|
2011
|
|
|
85.13
|
|
2012
|
|
|
5.13
|
|
2013
|
|
|
5.13
|
|
2014
and thereafter
|
|
|
266.71
|
|
Total
|
|
|
472.36
|
|
|
(*) |
Only
the capital has
been included.
For the UF 3 million bond, the amounts presented reflect the real
U.S.
dollar obligation resulting from the effects of the cross currency
swap
that fully hedges this bond to the U.S. dollar. For further information,
see Item 11. Quantitative and Qualitative Disclosures about Market
Risk.
|
As
of
December 31, 2007, we had US$164.2 million of cash and cash equivalents,
including marketable securities. In addition, as of December 31, 2007, we
had unused uncommitted credit lines amounting to approximately US$450 million
and unused committed 2-year credit lines amounting to approximately US$130
million.
Shareholders’
equity increased from US$1,085.9 million in 2006 to US$1,182.4 million in
2007. Our ratio of total liabilities (including minority interest) to
equity decreased from 0.72:1 as of December 31, 2006
to 0.68 :1 as of December 31, 2007, due to the increase in equity,
related to higher financial results in 2007.
Our
capital expenditures in 2007 amounted to US$185.0 million.
For
2008,
we expect total capital expenditures of approximately US$320 million. We
have currently budgeted capital expenditures of a total of US$680 million
during 2009 and 2010 that can be increased/decreased depending on market
conditions.
Our
other
major use of funds is the payment of dividends. Our current dividend
policy, as approved by shareholders, is to pay 65% of our net income for each
fiscal year in dividends. Under Chilean law, the minimum dividend payout
is 30% of net income for each fiscal year.
For
a
description of the items included in our capital expenditures in previous years
as well as future plans, see Item 4. Information on the Company—Capital
expenditure program.
We
evaluate from time to time our cash requirements to fund capital expenditures,
dividend payouts and increases in working capital. If we find that
resources coming from our internally generated cash flows (including
depreciation and retained earnings) will not be enough, we evaluate and choose
the best financial alternative available for the company. As debt
requirements also depend on the increase or decrease of accounts receivables
and
inventories, we cannot accurately determine the amount of debt we will require,
but we believe that cash flow generated by internal operations, cash balances
and available credit lines will enable us to meet our working capital, capital
expenditure and debt service requirements for 2008, 2009 and
2010.
Environmental
Projects
In
2007
we made disbursements amounting to US$7.8 million related to environmental,
safety and health projects. We have budgeted future disbursements for the year
2008 amounting to US$4.1 million related to environmental, safety and health
projects. This amount forms part of the capital expenditure program discussed
above. Regarding the María Elena Project as well as our other major
environmental projects see Item 4. Information on the Company—Environmental
Regulations.
5.C.
Research
and Development, Patents and Licenses, etc.
One
of
the main objectives of our Research and Development team consists of developing
new processes and products in order to maximize the returns obtained from the
resources that we exploit. The areas of research cover topics such as chemical
process design, phase chemistry, chemical analysis methodologies and physical
properties of finished products.
There
are
three units that perform this function: one reports to the VP of Nitrate and
Iodine Operations, another reports to the VP of Salar Operations, and the third
reports to the VP of Health, Safety, Environment and Quality.
Our
research and development policy emphasizes the following: (i) optimization
of
current processes in order to decrease costs and improve product quality through
the implementation of new technology, (ii) development of higher-margin products
from current products through vertical integration or different product
specifications.
Our
research and development activities have been instrumental in improving our
production processes and developing new value added products. As a result of
research and development activities, new methods of extraction, crystallization
and finishing have been developed. Technological advances in recent years have
enabled us to improve the physical quality of our prilled products, and to
reduce dust emissions and caking by applying specially-designed additives for
our products handled in bulk. In 2007, our new prilling and granulating plant
at
Coya Sur began operations, using a new fusion system that was developed by
SQM.
This plant delivers a final product with a larger-sized granule, and it also
enables the Company to be more efficient in its use of energy.
We
have
patented several production processes for nitrate, iodine, and lithium products.
These patents have been filed mainly in the U.S., Chile, and other countries
when necessary.
For
the
years ended December 31, 2007, 2006, and 2005 we spent approximately US$2.8
million, US$2.4 million, and US$2.4 million, respectively, on research and
development activities.
5.D.
Trend
Information
In
2007,
the prices of our specialty plant nutrition segment increased compared to 2006,
due to a strong upward trend in worldwide prices of potassium-based fertilizers.
Further price increases are expected for 2008, both for our specialty plant
nutrients and for the commodity fertilizers we sell. Sales volumes of potassium
nitrate and sodium potassium nitrate increased during 2007 with respect to
2006,
but we expect total sales volumes for this segment to decrease in
2008.
Lithium
prices also increased during 2007 with respect to 2006, due to a combination
of
strong growth in demand throughout the year and tight supply conditions in
the
beginning of the year. The favorable pricing conditions that have prevailed
in
the lithium market in the last couple of years have prompted Chinese producers
to increase their production capacity, somewhat easing tightness supply in
the
second half. We expect to see additional volumes from Chinese producers during
2008, and this may put downward pressure on lithium prices. Sales volumes in
2007 were slightly lower than they were in 2006, and we expect sales volumes
to
be similar in 2008 compared to 2007. For further information, see Item 3.D.
Risk
Factors - new production of lithium carbonate in China.
Iodine
prices increased in 2007 as compared to 2006, in line with the upward trend
of
recent years. For the year 2008 we expect iodine prices to remain relatively
stable. Sales volumes in 2007 were lower than they were in 2006, as the result
of an increasingly competitive market environment. We expect to recover sales
volumes in 2008.
We
expect
industrial-grade nitrates prices to increase during 2008, as they are linked
to
the prices of agricultural-grade nitrates.
At
this
stage, the Company cannot predict what the price trends will be for 2009
onwards.
During
2007, production costs were higher than in 2006, mainly due to the higher cost
of energy and raw materials, together with the increase in maintenance and
depreciation costs. Additionally, since a significant portion of our costs
is
related to the Chilean peso, production costs were negatively affected by the
appreciation of the Chilean peso. Considering the current energy market,
exchange rate expectations, and the upward trend in raw materials prices and
freight rates, we expect that 2008 production costs will be higher than in
2007.
5.E.
Off-Balance
Sheet Arrangements
We
have
not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, retained or contingent interests in transferred assets,
derivative instruments or other contingent arrangements that would expose us
to
material continuing risks, contingent liabilities, or any other obligation
arising out of a variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to us or that engages
in leasing, hedging or research and development services with
us.
5.F.
Tabular
Disclosure of Contractual Obligations
The
following table sets forth our material expected obligations and
commitments as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Than
|
|
1
- 3
|
|
3
- 5
|
|
More
Than
|
|
|
|
Total
|
|
1
year
|
|
years
|
|
Years
|
|
5
years
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Long-
and short-term debt
|
|
|
498,126
|
|
|
11,475
|
|
|
100,000
|
|
|
80,000
|
|
|
306,651
|
|
Capital
lease obligations
|
|
|
974
|
|
|
244
|
|
|
730
|
|
|
-
|
|
|
-
|
|
Operating
leases (*)
|
|
|
120,049
|
|
|
10,760
|
|
|
9,094
|
|
|
9,094
|
|
|
91,101
|
|
Purchase
commitments
|
|
|
27,488
|
|
|
27,488
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Staff
severance indemnities
|
|
|
20,679
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,679
|
|
Total
Contractual Obligations and Commitments
|
|
|
667,316
|
|
|
49,967
|
|
|
109,824
|
|
|
89,094
|
|
|
418,431
|
|
(*)
See Consolidated Financial Statements Note 29 II.e)
|
|
|
|
|
|
|
|
|
|
|
ITEM
6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
6.A.
Directors
and Senior Management
We
are
managed by our executive officers under the direction of our Board of Directors,
which, in accordance with the Company's By-laws, consists of eight directors,
seven of whom are elected by holders of Series A shares and one of whom is
elected by holders of Series B shares. The entire Board of Directors is
regularly elected every three years at our ordinary shareholders’ meeting.
Cumulative voting is allowed for the election of directors. The members of
the
Board of Directors as of December 31, 2007 were elected on April 29, 2005 and
their terms expired April 30, 2008, at the annual ordinary shareholders’
meeting. At that meeting a new Board was elected, and their terms will expire
in
2011. The Board of Directors may appoint replacements to fill any vacancies
that
occur during periods between elections. If a vacancy occurs, the entire Board
must be elected or re-elected at the next regularly scheduled meeting of
shareholders. Our Chief Executive Officer is appointed by the Board of Directors
and holds office at the discretion of the Board. The Chief Executive Officer
appoints our executive officers. There are regularly scheduled meetings of
the
Board of Directors once a month. Extraordinary meetings may be called by the
Chairman when requested by (i) the director elected by holders of the Series
B
shares, (ii) any other director with the assent of the Chairman or (iii) an
absolute majority of all directors. The Board has a Directors' Committee and
its
regulations are discussed below.
Our
directors as of May 31, 2008 are as follows:
Directors
|
|
|
|
|
Name
|
|
Position
|
|
Current position held since
|
Julio
Ponce L. (1)
|
|
Chairman
of the Board and Director
|
|
September
1987
|
|
|
Mr.
Ponce is a Forestry Engineer with a degree from the Universidad de
Chile.
He joined the Company in 1981. He is also Chairman of the Board of
the
following corporations: Sociedad de Inversiones Pampa Calichera S.A.,
Sociedad de Inversiones Oro Blanco S.A., Norte Grande S.A. and Soquimich
Comercial S.A. He is the brother of Luis Eugenio
Ponce.
|
|
|
|
|
|
|
|
Wayne
R. Brownlee
|
|
Vice
Chairman of the Board and Director
|
|
December
2001
|
|
|
Mr.
Brownlee is Executive Vice-President, Treasurer and Chief Financial
Officer of Potash Corporation of Saskatchewan, Inc. Mr. Brownlee
earned
degrees in Science and Business Administration from the University
of
Saskatchewan. He is on the Board of Great Western Brewing Company
as well
as PhilomBios, an agricultural biotechnology company. He became a
director
of SQM in December 2001.
|
|
|
|
|
|
|
|
Hernán
Büchi B.
|
|
Director
|
|
April
1993
|
|
|
Mr.
Büchi is a Civil Engineer with a degree from the Universidad de Chile.
He
served as Vice Chairman of SQM's Board from January 2000 to April
2002. He
is currently a Board member in Quiñenco S.A. Banco de Chile, S.A.C.I.
Falabella and Madeco S.A., among others. He is also Chairman of the
Board
of Universidad del Desarrollo.
|
|
|
José
María Eyzaguirre B.
|
|
Director
|
|
December
2001
|
|
|
Mr.
Eyzaguirre is a lawyer and is a partner of the Chilean law firm Claro
y
Cia. He obtained his law degree from the Universidad de Chile and
was admitted to the Chilean Bar in 1985. In 1987, he obtained a
Master's Degree from the New York University School of Law. He was
admitted to the New York Bar in 1988. He is also a member of the
board of
directors of Gasoducto del Pacífico S.A., a transandean gas pipeline,
Embotelladora Andina S.A., a bottler of The Coca Cola Company, and
Chairman of the Board of directors of Club de Golf Valle
Escondido.
|
|
|
|
|
|
|
|
Daniel
Yarur E.
|
|
Director
|
|
April
2003
|
|
|
Mr.
Yarur is an Information Engineer with a degree from the Universidad
de
Chile and holds an MSc in Finance at the London School of Economics
and an
AMP from Harvard Business School. He is a member of the Board of
Banco de
Crédito e Inversiones, Antofagasta P.L.C. (based in London), Antofagasta
Minerals, Invertec Pesquera Mar de Chiloé S.A., President Fundación
Chilena de Ajedrez, President Fondo de Inversiones Alekine. Mr Yarur
was
Chairman of the Chilean Securities and Exchange Commission from 1994
to
2000 and was also Chairman of the Council Organization of the Securities
Regulators of America. He is also a Professor in the Faculty of Economic
and Administrative Sciences, Universidad de Chile.
|
|
|
|
|
|
|
|
Wolf
von Appen
|
|
Director
|
|
May
2005
|
|
|
Mr.
Von Appen is an entrepreneur. He is currently a Board member of Sociedad
de Fomento Fabril and Vice president of Centro de Estudios
Publicos.
|
|
|
|
|
|
|
|
Eduardo
Novoa C.
|
|
Director
|
|
April
2008
|
|
|
Mr.
Novoa is an economist with a degree from the Universidad de Chile
and
holds a Master’s in Business Administration from the University of
Chicago. He has held positions in business development, corporate
level
strategic direction and asset management at a number of Chilean and
multinational companies, either as a Board member, Chief Development
Officer, Country Manager or CEO. Mr. Novoa currently provides strategic
advisory services, and he is also a member of the Board of Directors
of
Esval, as well as other private companies.
|
|
|
Kendrick
T. Wallace
|
|
Director
|
|
December
2001
|
|
|
Mr.
Wallace is a lawyer who graduated from Harvard Law School. He is
now
Senior Vice President and General Counsel of Yara International ASA
in
Oslo, Norway. Prior to the spin-off of Yara International ASA from
Norsk
Hydro ASA, he was the chief legal counsel of Norsk Hydro ASA for
North and
South America in Tampa, Florida. Before that he was a partner in
the law
firm of Bryan Cave LLP in Kansas City, Missouri. Mr. Wallace is a
member
of the Board of Directors of Yara Brasil Ltda. in Brasil, OAO
Minudobreniya (Rossosh) in Russia and of a number of subsidiaries
of Yara
International ASA. He is also on the Board of Directors of Norte
Grande
S.A., Sociedad de Inversiones Oro Blanco S.A. and Sociedad de Inversiones
Pampa Calichera S.A.
|
|
|
|
|
|
|
|
Our
executive officers as of May 31, 2008 are as follows:
Executive
Officers
|
|
|
|
|
Name
|
|
Position
|
|
Current position held since
|
Patricio
Contesse G.
|
|
Chief
Executive Officer
|
|
March
1990
|
|
|
Mr.
Contesse is a Forestry Engineer with a degree from the Universidad
de
Chile. He joined the Company in 1981 as CEO, a position he held
until
1982, and again in 1988. In the past, he was CEO of Celco Limitada,
Schwager S.A. and Compañía de Aceros del Pacífico S.A. He has also served
as Operations Senior Executive Vice President of Codelco Chile,
President
of Codelco USA and Executive President of Codelco Chile. Mr. Contesse
is
also a member of the Board of Soquimich Comercial.
|
|
|
|
|
|
|
|
Patricio
de Solminihac T.
|
|
Chief
Operating Officer and
Executive
Vice President
|
|
January
2000
|
|
|
Mr.
de Solminihac is an Industrial Engineer with a degree from the
Pontificia
Universidad Católica de Chile and holds a Master in Business
Administration from the University of Chicago. He joined the Company
in
1988 as Business Development Vice President. In 1989, he became
General
Manager and later on he became Vice Chairman of the Board of SQM,
a
position he held from 1989 through January 2000. Mr. de Solminihac
was
Country Manager for Raychem Corporation. Currently he is a member
of the
Board of Empresas Melón S.A. and CEM. Mr. de Solminihac is also a member
of the Board of Soquimich Comercial.
|
|
|
|
|
|
|
|
Matías
Astaburuaga S.
|
|
General
Counsel and Senior Vice President
|
|
February
1989
|
|
|
Mr.
Astaburuaga is a lawyer with a degree from the Pontificia Universidad
Católica de Chile. He joined the Company in 1989. Before that, he was
Regional Counsel of The Coca Cola Export Corporation, Andean Region
and
Regional Counsel of American Life Insurance Company, Latin America
Region.
|
|
|
|
|
|
|
|
Ricardo
Ramos R. (2)
|
|
Chief
Financial Officer and
Business
Development Senior Vice President
|
|
November
1994
|
|
|
Mr.
Ramos is an Industrial Engineer with a degree from the Pontificia
Universidad Católica de Chile. He joined SQM in 1989. Mr.
Ramos is also a member of the Board of Soquimich
Comercial.
|
|
|
Jaime
San Martín L. (2)
|
|
Nueva
Victoria Operations Senior Vice President
|
|
March
2008
|
|
|
Mr.
San Martín is a Transportation Engineer with a degree from the Pontificia
Universidad Católica de Chile. He joined the Company in 1995 as Project
Manager. He became Metallic Mining Development Manager in 1997,
and
Development Manager in 1998, Business Development and Mining Property
Vice
President in 1999, Technical Senior Vice President in 2001, and
Senior
Vice President of Lithium Operations and Mining Affairs in January
2007.
|
|
|
|
|
|
|
|
Eugenio
Ponce L.
|
|
Corporate
Commercial Senior Vice President
|
|
March
1999
|
|
|
Mr.
Ponce is a Mechanical Engineer with a degree from the Universidad
Católica
de Valparaíso. In 1981, he joined the Company as a Sales Manager. He
became Commercial Manager in 1982, Commercial and Operations Manager
in
1988 and Chief Executive Officer of SQM Nitratos S.A. in 1991.
In the past
he was member of the Board of IANSA. Currently he is a member of
the board
of Soquimich Comercial and Vice Chairman of the Board of Pampa
Calichera.
He is Julio Ponce’s brother.
|
|
|
|
|
|
|
|
Mauricio
Cabello C. (2)
|
|
Nitrates-Iodine
Operations Senior Vice President
|
|
June
2005
|
|
|
Mr.
Cabello is a Mechanical Engineer with a degree from the Universidad
de
Santiago de Chile. He joined the Company in 2000 as Maintenance
Superintendent of SQM Salar. He became Maintenance Manager of SQM's
nitrates and iodine operations in 2002 and Production Manager of
SQM's nitrates and iodine operations in 2004. He previously worked in
various engineering-related positions in Pesquera San José S.A., Pesquera
Coloso S.A. and Cintac S.A.
|
|
|
|
|
|
|
|
Pauline
De Vidts S.
|
|
Safety,
Health & Environment Senior Vice President
|
|
June
2005
|
|
|
Mrs.
De Vidts is an Industrial Engineer with a degree from the Pontificia
Universidad Católica de Chile and holds a Ph.D. in Chemical Engineering
from Texas A&M University. She joined the Company in 1996 to work in
process development for the Salar de Atacama Operations, becoming
Development Manager for these operations in 1998, and in 2001,
she became
Corporate R&D and Environmental Issues Vice
President.
|
|
|
Juan Carlos Barrera P. (2)
|
|
Salar
and Lithium Operations Senior Vice President
|
|
January
2007
|
|
|
Mr.
Barrera is an Industrial Engineer with a degree from the Pontificia
Universidad Católica de Chile and holds a Master in Business
Administration degree from Tulane University and a Master in Business
Administration degree from Universidad de Chile. He joined the
Company in
1991 as an advisor in the Business Development area and has served
in many
positions since then. In 1995, he became Business Development Manager
of
SQM Nitratos S.A. In 1999, Corporate Quality Manager, in 2000 Corporate
Supply Chain Vicepresident and, in 2006, General Manger of Soquimich
Comercial S.A.
|
|
|
|
|
|
|
|
Daniel Jiménez Sch. (2)
|
|
Human
Resources and Corporate Affairs
Senior
Vice President
|
|
May
2007
|
|
|
Mr.
Jiménez is an Industrial Engineer with a degree from the Pontificia
Universidad Católica de Chile and holds a Masters in Business
Administration degree from Old Dominion University. He joined the
Company in 1991, holding several positions in the finance and sales
areas
at SQM’s headquarters and foreign subsidiaries in USA and Belgium,
countries he was based in for 8 years. In 2002, he became VP Sales
and
Marketing Iodine, Lithium and Industrial Chemicals.
|
|
|
|
(1) |
Mr. Julio
Ponce’s ownership interest in SQM is explained in Item 6.E. Share
Ownership.
|
|
(2) |
The
individual beneficially owns less than one percent of the Company’s
shares.
|
6.B.
Compensation
Directors
are paid a monthly fee (UF 300 to the Chairman and UF 50 to each of the
remaining seven Directors), which is independent of the number of Board sessions
held per month. In addition, the Directors receive additional compensation
(in
Chilean pesos) each year based on a profit-sharing program approved by the
shareholders. At the last annual general shareholders meeting of SQM,
shareholders defined the percentage of additional compensation to an amount
equal to 0.50% of the net income (after amortization of negative goodwill)
for the Chairman of the Board and of 0.50% of the net income (after amortization
of negative goodwill) for the remaining seven Directors, divided equally among
those Directors. Profit-sharing payments are paid in the year following the
fiscal year in respect of which they are earned.
During
2007, the total compensation paid to each of our directors who served on the
Board during the year was as follows (amounts in Chilean pesos):
|
|
SQM
S.A.
|
|
SQMC
|
|
TOTAL
|
|
Name
|
|
Meeting (Ch$)
|
|
Committee (Ch$)
|
|
Meeting (Ch$)
|
|
Committee (Ch$)
|
|
(Ch$)
|
|
Ponce Lerou, Julio
|
|
|
557,486,448
|
|
|
-
|
|
|
67,824,618
|
|
|
-
|
|
|
625,311,066
|
|
Büchi
Buc, Hernán
|
|
|
80,405,862
|
|
|
5,605,994
|
|
|
-
|
|
|
-
|
|
|
86,011,856
|
|
Brownlee,
Wayne R.
|
|
|
81,386,996
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
81,386,996
|
|
Eyzaguirre,
José María
|
|
|
82,305,947
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
82,305,947
|
|
Silva,
José Antonio (1)
|
|
|
80,467,889
|
|
|
11,301,818
|
|
|
-
|
|
|
-
|
|
|
91,769,707
|
|
Wallace,
Kendrick T.
|
|
|
81,386,996
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
81,386,996
|
|
Yarur,
Daniel
|
|
|
81,386,996
|
|
|
12,220,925
|
|
|
-
|
|
|
-
|
|
|
93,607,921
|
|
Von
Appen, Wolf
|
|
|
83,226,832
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83,226,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
873,752,786
|
|
|
29,128,737
|
|
|
67,824,618
|
|
|
-
|
|
|
1,225,007,321
|
|
(1)
Mr.
José Antonio Silva was a member of the Board until April 30, 2008.
For
the
year ended December 31, 2007, the aggregate compensation paid to our 95 main
executives based in Chile was approximately Ch$6,993.5 million. We do not
disclose to our shareholders or otherwise make available to the public
information as to the compensation of our individual executive
officers.
We
maintain incentive programs for our employees, based on individual performance,
company performance, and short- medium- and long-term indicators.
Additionally,
in
order to provide incentives to key Company executives and to retain such
executives, the Company maintains a long-term cash
bonus compensation plan for certain senior executives, which consists
of a long-term bonus linked to the Company's share price and is
payable between 2008 and 2011.
As
of
December 31, 2007, the Company had a provision related to all of the
incentive programs for a total of approximately US$13.5 million.
Regarding
the long-term bonus linked to the Company’s share price, as of December 31, 2007
the provision would have increased or decreased by approximately US$550 thousand
per each US$1 variation in the Series B share price. The amount of
actual cash bonuses payable under the long-term incentive program will vary
depending on the market share price of the Series B shares on the
date as of which the bonuses are paid.
We
do not
maintain any pension or retirement programs for the members of the Board or
our
officers in Chile.
6.C.
Board
Practices
Information
regarding the period of time each of SQM's current Board of Directors has served
in their respective office is provided in the discussion of each member of
the
board above in Item 6.A Directors and Senior Managers.
The
date
of expiration of the term of the current Board of Directors is April 2011.
The
contracts of our executive officers are indefinite.
The
members of the Board are remunerated in accordance with the information provided
above in Item 6.B. Compensation. There are no contracts between SQM, or any
of
its subsidiaries, and the members of the Board providing for benefits upon
termination of their term.
Directors'
Committee – Audit Committee
As
required by Chilean Law, we have a Comité
de Directores
(Directors' Committee) composed of three directors, which performs many of
the
functions of an Audit Committee.
As
of May
31, 2008, the Company’s Directors’ Committee was formed by SQM Directors; Mr.
Hernán Büchi B., Mr. Eduardo Novoa C. and Mr. Daniel Yarur E. This Committee
operates in accordance with article 50 bis of Law Nº18.046, which provides that
the Committee shall:
|
(a)
|
Examine
and issue an opinion regarding the external auditor's report including
financial statements prior to its final presentation for approval
at the
Ordinary Shareholders Meeting
|
|
(b)
|
Propose
to the Board of Directors the external auditors and the rating agencies
that will be presented to the Ordinary Shareholders
Meeting
|
|
(c)
|
Examine
and elaborate a report concerning the operations covered by articles
44
and 89 of Law Nº18.046
|
|
(d)
|
Examine
the remuneration and compensation plans of the senior
management
|
Pursuant
to the above, these were the main activities of our Directors' Committee during
2007:
|
a) |
Analysis
of un-audited financial reports.
|
|
b) |
Analysis
of audited financial reports.
|
|
c) |
Analysis
of reports submitted by external auditors, accounts’ inspectors and rating
agencies, and formulation of proposals to the Board of Directors
recommending external auditors, accounts’ inspectors and rating agencies
that could be designated by the respective Annual General Shareholders’
Meeting.
|
|
d) |
Analysis
of functions, objectives and working programs of the Internal Audit
Department.
|
|
e) |
Analysis
of the Company’s Senior Executives remuneration and compensation plans.
|
|
f) |
Analysis
of contracts with related persons, subsidiaries and related companies
in
Chile and abroad.
|
|
g) |
Analysis
of matters related to the "Sarbanes-Oxley Act" of the U.S.A., especially
regarding Section 404.
|
|
h) |
Analysis
of future investments.
|
In
accordance with the provisions of Article 44 of Law No. 18,046, during 2007
the
Directors Committee examined the following contracts between the Company and
third parties related to one or more of the members of the Board of
Directors:
During
its session held on April 23, 2007, the Directors Committee analyzed certain
sea
freight contracts between the “SQM Group” and the “Ultramar Group” and
recommended the implementation of the contracts.
During
its session held on April 23, 2007, the Directors Committee also analyzed
certain operations that SQM S.A. routinely carries out with “Yara” (purchase and
sale of products), the “Ultramar Group” (port and maritime transportation
services), Travel Security S.A. (airfare and lodging), and Banco BCI and Banco
de Chile (operations related to payment of suppliers and others). The Committee
recommended the approval of such operations.
Likewise,
during its session held on April 23, 2007, the Directors Committee of SQM also
analyzed information related to the different operations that SQM routinely
carries out with “Kowa” (sales agency) and that refer to Article 89 of Law No.
18.046, which requires transactions between the Company, or its subsidiaries
or
affiliates, and related parties to be carried out under market terms and
conditions.
On
April
30, 2008, the Annual General Shareholders Meeting of SQM agreed to pay a monthly
remuneration of UF50 to each member of the Directors Committee, regardless
of
the number of sessions held by the Committee during the period between May
2008
and April 2009, both months included. This remuneration is also independent
from
what the Committee members obtain as members of the Company’s Board of
Directors. At this same meeting, an operating budget for the Directors Committee
of UF1,800 was approved.
The
activities carried out by the Committee, as well as the expenses incurred by
it,
are to be disclosed at the General Shareholders Meeting. During 2007, the
Directors Committee did not incur any consulting expenses.
Article
50 bis states that the Committee should consist of three directors, of which
the
majority should preferably be independent from the controller (i.e. any person
or entity who “controls” the company for Chilean law purposes), if any, and that
their functions are remunerated.
Sociedad
de Inversiones Pampa Calichera S.A. and Kowa Company Ltd. executed on December
21, 2006, a “Joint Performance Agreement” that enables them to be considered as
the Controller Group of SQM, as that term is defined under Chilean law.
The
Joint
Performance Agreement in respect of Sociedad de Inversiones Pampa Calichera
S.A.
includes directly and indirectly Global Mining Investments Chile S.A.
Additionally,
the Joint Performance Agreement in respect of Kowa Company Ltd. includes
directly and indirectly Kochi S.A., Inversiones La Esperanza (Chile) Ltda.
and
Inversiones La Esperanza Delaware Corp.
As
of May
31, 2008, two of the three members of the Company’s Directors Committee are
independent from the Controller Group. This independence statement is defined
and required under Chilean law.
On
May
24, 2005, the Board of Directors approved the establishment of an audit
committee to comply with the requirements of the NYSE corporate governance
rules.
As
of May
31, 2008, the members of the audit committee are Hernán Büchi B., Eduardo Novoa
C. and Daniel Yarur E. Each of the three members meets the NYSE independence
requirements for audit committee members.
Under
the
NYSE corporate governance rules, the audit committee of a U.S. company must
perform the functions detailed in the NYSE Listed Company Manual Rules 303A.06
and 303A.07. Non-U.S. companies are required to comply with Rule 303A.06
beginning July 31, 2005, but are not at any time required to comply with Rule
303A.07.
Comparative
Summary of Differences in Corporate Governance Standards
The
following table provides a comparative summary of differences in corporate
governance practices followed by us under our home-country rules and those
applicable to U.S. domestic issuers pursuant to Section 303A of the New York
Stock Exchange (NYSE) Listed Company Manual.
Listed
Companies that are foreign private issuers, such as SQM, are permitted to follow
home country practices in lieu of the provisions of Section 303A, except such
companies are required to comply with the requirements of Section 303A.06,
303A.11 and 303A.12(b) and (c).
Section
|
|
NYSE
Standards
|
|
SQM
practices pursuant to Chilean regulations
|
303A.01
|
|
The
majority of the listed company directors must be
independent.
|
|
There
is no legal obligation to have a majority of independent directors
on the
Board.
|
|
|
|
|
|
303A.02
|
|
Independence
Test
|
|
A
Director is considered independent if he would have been elected
without
the vote of the controlling shareholder and related persons and
entities.
|
|
|
|
|
|
303A.03
|
|
Non-management
directors must meet at regularly scheduled executive sessions without
management.
|
|
These
meetings are not needed given that directors do not also serve as
executive officers.
|
|
|
|
|
|
303A.04
|
|
Listed
companies must have a nominating/corporate governance
committee composed
entirely of independent directors, and must have a written charter.
|
|
This
committee is not required as such in the Chilean regulations. Pursuant
to
Chilean regulations SQM has a Directors' Committee (see Board practices
above).
|
|
|
|
|
|
303A.05
|
|
Listed
companies must have a compensation committee composed entirely of
independent directors, and must have a written charter
|
|
This
committee is not required as such in the Chilean regulations. Pursuant
to
Chilean regulations SQM has a Director’s Committee (see Board practices
above) that is in charge of reviewing management’s
compensation.
|
|
|
|
|
|
303A.06
|
|
Listed
companies must have an audit committee.
|
|
This
committee is not required as such in the Chilean regulations. On
May 24,
2005, the Board of Directors approved the establishment of an audit
committee to comply with the requirements of the NYSE corporate governance
rules.
|
Section
|
|
NYSE Standards
|
|
SQM practices pursuant to Chilean regulations
|
303A.07
|
|
The
audit committe must have a minimum of three members. Each of them
must
satisfy requirements of independence and the committee must have
a written
charter.
|
|
Pursuant
to Section 303A.00, SQM is not required to comply with requirements
in
303A.07. Pursuant to Chilean Regulations SQM has a Director’ Committee
(see Board practices above) with certain requirements of
independence.
|
|
|
|
|
|
303A.08
|
|
Shareholders
must have the opportunity to vote on all equity-compensation plans
involving directors, executives, employees, or other service
providers.
|
|
SQM
does not have equity compensation plans. However,
as mentioned in Item 6.B Compensation, the Company does have a long-term
cash bonus compensation plan for certain senior executives, which
consists
of a long-term bonus linked to the Company’s share price. Directors
and executives may only acquire SQM shares by individual purchases.
The
purchaser must give notice of such purchases to the Company and the
Superintendence of Securities and Insurance.
|
|
|
|
|
|
303A.09
|
|
Listed
companies must adopt and disclose corporate governance
guidelines.
|
|
Chilean
law does not require that corporate governance guidelines be adopted.
Directors' responsibilities and access to management and independent
advisors are directly provided for by applicable law. Directors'
compensation is approved at the annual meeting of shareholders, pursuant
to applicable law.
|
|
|
|
|
|
303A.10
|
|
Listed
companies must adopt and disclose a code of business conduct and
ethics
for directors, officers and employees.
|
|
Not
required in the Chilean regulations. SQM has adopted and disclosed
a
Code
of Business Conduct and Ethics, available at the Company's website,
www.sqm.com.
|
|
|
|
|
|
303A.11
|
|
Listed
foreign private issuers must disclose any significant ways in which
their
corporate governance practices differ from those followed by domestic
companies under NYSE listed standards.
|
|
Pursuant
to 303A.11, this table sets forth a comparative summary of differences
in
corporate governance practices followed by SQM under Chilean regulations
and those applicable to U.S. domestic issuers pursuant to Section
303A.
|
|
|
|
|
|
303A.12
|
|
Each
listed company CEO must (a) certify to the NYSE each year that he
or she
is not aware of any violation by the company of NYSE corporate
governance listing
standards; (b) promptly notify the NYSE in writing after any executive
officer becomes aware of any material non-compliance with any applicable
provisions of Section 303A; and (c) must submit an executed Written
Affirmation annually to the NYSE.
|
|
Not
required in the Chilean regulations. The CEO must only comply with
Section
303A.12 (b) and (c).
|
6.D.
Employees
As
of
December 31, 2007, we had 3,746 permanent employees, of whom 231 were employed
outside of Chile. The average tenure of our full time employees is approximately
8.8 years.
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Permanent
employees
|
|
|
3,746
|
|
|
3,745
|
|
|
3,672
|
|
|
3,418
|
|
|
3,455
|
|
Employees
in Chile
|
|
|
3,515
|
|
|
3,415
|
|
|
3,350
|
|
|
3,138
|
|
|
3,154
|
|
Employees
outside of Chile
|
|
|
231
|
|
|
330
|
|
|
322
|
|
|
280
|
|
|
301
|
|
Of
our
permanent employees in Chile, 64% are represented by 31 labor unions, which
represent their members in collective negotiations with the Company.
Compensation for unionized personnel is established in accordance with the
relevant collective bargaining agreements. The terms of most such agreements
currently in effect are three years, and expiration dates of such agreements
vary from contract to contract. Under these agreements, employees receive a
salary according to a scale that depends upon job function, seniority and
productivity. Unionized employees also receive certain benefits provided for
by
law and certain benefits, which vary depending upon the terms of the collective
agreement, such as housing allowances and additional death and disability
benefits.
In
addition, the Company owns all of the equity of Institución de Salud Previsional
Norte Grande Limitada, (Isapre Norte Grande), which is a health maintenance
organization that provides medical services primarily to our employees and
Sociedad Prestadora de Servicios de Salud Cruz de Norte S.A., which is a
hospital in María Elena. We make specified contributions to Isapre Norte Grande
and to Sociedad Prestadora de Servicios de Salud Cruz de Norte in accordance
with Chilean laws and the provisions of our various collective bargaining
agreements but we are not otherwise responsible for its
liabilities.
Non-unionized
employees receive individually negotiated salaries, benefits provided for by
law
and certain additional benefits provided by us.
We
provide housing and other facilities and services for employees and their
families at the María Elena site.
We
do not
maintain any pension or retirement programs for our Chilean employees. Most
workers in Chile are subject to a national pension law, adopted in 1980, which
establishes a system of independent pension plans that are administered by
the
corresponding Sociedad Administradora de Fondos de Pensiones, (AFP). We have
no
liability for the performance of any of these pension plans or any pension
payments to be made to our employees. We however sponsor staff severance
indemnities plan for employees in our Chilean subsidiaries whereby we commit
to
provide a lump sum payment to each employee at the end of his/her employment,
whether due to death, termination, resignation or retirement.
We
have
experienced no strikes or significant work stoppages in the last 13 years and
consider the relationship with our employees to be good. In 2006, SQM commenced
negotiations with its unions with the objective of having all collective
bargaining agreements renegotiated for a new three-year period. This collective
bargaining process was completed successfully in 2007, and each union has a
collective bargaining agreement that lasts for three years. The first agreement
expires on September 30, 2009.
In
2006,
the Chilean Congress amended the Labor Code, and effective January 15, 2007,
certain changes were made, affecting companies that hire subcontractors to
provide certain services. This new law, known as the “Law on Subcontracting”,
established a new requirement that applies in the event of accidents in the
workplace. The law states that when a serious accident occurs, the company
must
halt work at the site where the accident took place until authorities from
the
National Geology and Mining Service inspect the site and prescribe the measures
the company must take to prevent future risks. Work may not be resumed until
the
company has taken the prescribed measures The period of time before work may
be
resumed may last for a number of hours, days, or longer. The effects of this
new
law could have a material adverse effect on our business, financial condition
or
results of operations.
6.E.
Share
Ownership
As
of May
31, 2008, SQM has been informed that the Canadian company Potash Corporation
of
Saskatchewan, Inc. (“PCS”) indirectly controls 100% of the stock of Inversiones
el Boldo Limitada and 100% of the stock of Inversiones RAC Limitada. Through
these companies, PCS controls 32.00% of the total share of SQM.
As
of May
31, 2008, SQM has also been informed -i- that Mr. Julio Ponce L. and related
persons control 100% of the total shares of Inversiones SQ S.A. -ii- that
Inversiones SQ S.A. controls 100% of the total shares of Inversiones SQYA S.A.
and -iii-that Inversiones SQYA S.A. currently, and indirectly, control 32.00%
of
the total shares of SQM. The above, considering -a- that Inversiones SQYA S.A.
controls 94.28% of the total shares of Norte Grande S.A., that Norte Grande
S.A.
controls 82.09% of the total shares of Sociedad de Inversiones Oro Blanco S.A.,
that Sociedad de Inversiones Oro Blanco S.A controls 79.86% of the total shares
of Sociedad de Inversiones Pampa Calichera S.A. and that Sociedad de Inversiones
Pampa Calichera S.A. and its subsidiary Global Mining Investments (Chile) Ltda.
ultimately control 32.00% of the total shares of SQM.
On
December 21, 2006, Sociedad de Inversiones Pampa Calichera S.A. and Kowa Company
Ltd. -the latter being owner, directly and indirectly, of 2.03% of the total
shares of SQM as of May 31, 2008 - executed a Joint Performance Agreement that
allows them to currently control 34.03% of the total shares of SQM. As a result
of this Agreement, the “group” led by Mr. Julio Ponce L. became the Controller
Group of SQM, as that term is defined under Chilean law.
The
following table shows the combined stakes that the Controller Group held in
SQM
as of:
|
|
% Beneficial ownership
|
|
May 31,
2008
|
|
|
34.03
|
%
|
December
31, 2007
|
|
|
34.03
|
%
|
December
31, 2006
|
|
|
32.28
|
%
|
As
of
December 31, 2007, Yara International ASA owned 49% of the shares of Inversiones
SQYA S.A., which in turn, indirectly owned 32.00% of the shares of SQM S.A.
On
April 21, 2008, Yara International ASA sold 100% of the shares it held in
Inversiones SQYA S.A. to Mr. Julio Ponce. As a result, as of May 31, 2008,
Mr.
Julio Ponce’s direct and indirect stake in SQM, through the company Sociedad de
Inversiones Pampa Calichera S.A., was 32.00%. The total stake held by the
Controller Group, including Sociedad de Inversiones Pampa Calichera S.A. and
Kowa Group, as of May 31, 208 was 34.03%.
No
other
director or executive officer owns more than 1% of each share class of the
Company as of May 31, 2008. See Item 6. Directors, Senior Management and
Employees—footnote (1). Individual ownership has not been publicly disclosed.
Directors and executive officers as a group own 0.003% of total shares.
We
do not
grant stock options or other arrangements involving the capital of SQM to
directors, managers or employees.
ITEM
7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A.
Major
Shareholders
The
following table sets forth certain information concerning beneficial ownership
of the Series A shares and Series B shares of SQM as of May 31, 2008 with
respect to each shareholder known by us to beneficially own more than 5% of
the
outstanding Series A shares or Series B shares. The following information is
derived from our records and reports filed by certain of the persons named
below
with the Superintendencia de Valores y Seguros (the Superintendency of
Securities and Insurance or SVS) and the Chilean Stock Exchange.
Shareholder
|
|
Number of
Series A
Shares Beneficially
Owned
|
|
%
Series A
Shares
|
|
Number of
Series B
Shares Beneficially
Owned
|
|
%
Series B
Shares
|
|
% Total
Shares
|
|
Sociedad de Inversiones Pampa Calichera S.A. (1) (2)
|
|
|
57,934,256
|
|
|
40.56
|
%
|
|
12,490,092
|
|
|
10.38
|
%
|
|
26.76
|
%
|
Inversiones
El Boldo Ltda. (3)
|
|
|
44,582,453
|
|
|
31.22
|
%
|
|
17,740,419
|
|
|
14.74
|
%
|
|
23.68
|
%
|
The
Bank of New York
|
|
|
53,850
|
|
|
0.04
|
%
|
|
45,265,853
|
|
|
37.56
|
%
|
|
17.20
|
%
|
Inversiones
RAC Chile Ltda. (3)
|
|
|
19,200,242
|
|
|
13.44
|
%
|
|
2,699,773
|
|
|
2.24
|
%
|
|
8.32
|
%
|
Inversiones
Global Mining (Chile ) Limitada. (1)
|
|
|
13,798,539
|
|
|
9.66
|
%
|
|
-
|
|
|
0.00
|
%
|
|
5.24
|
%
|
AFP
Habitat S.A. (4)
|
|
|
-
|
|
|
0.00
|
%
|
|
6,761,211
|
|
|
5.62
|
%
|
|
2.57
|
%
|
AFP
Provida S.A. (4)
|
|
|
-
|
|
|
0.00
|
%
|
|
6,421,524
|
|
|
5.33
|
%
|
|
2.44
|
%
|
AFP
Capital S.A. (4)
|
|
|
9,335
|
|
|
0.01
|
%
|
|
5,418,113
|
|
|
4.50
|
%
|
|
2.06
|
%
|
Kowa
Group (5)
|
|
|
5,292,450
|
|
|
3.71
|
%
|
|
50,000
|
|
|
0.04
|
%
|
|
2.03
|
%
|
Banco
de Chile por Cuenta de Terceros
|
|
|
-
|
|
|
0.00
|
%
|
|
5,270,961
|
|
|
4.38
|
%
|
|
2.00
|
%
|
(1) |
Mr.
Julio Ponce L., Chairman of the Board of SQM, and related persons
control
Inversiones SQ Holding S.A, which in turn, beneficially owns 100%
of
Inversiones SQYA S.A. Inversiones SQYA S.A. indirectly controls and
beneficially owns Sociedad de Inversiones Pampa Calichera S.A., which
in
turn owns 100% of Global Mining Investments (Chile) S.A. Therefore,
Mr.
Ponce and related persons beneficially own through the above entities
84,222,887 shares constituting 32.00% of the total shares of SQM.
The
stake held by Mr. Ponce and related parties as of December 31, 2007,
2006
and 2005 was, respectively, 32.00%, 30.26%, and 24.96% of the total
shares
of SQM.
|
(2) |
Pampa
Calichera is an open stock corporation whose shares are traded on
the
Santiago Stock Exchange. Originally, the shareholders of Pampa Calichera
were employees of SQM. Pampa Calichera was formed to hold the capital
stock of SQM contributed by such employees or later acquired in the
open
market. Approximately 36 of our employees are shareholders of Pampa
Calichera, either directly or
indirectly.
|
(3) |
Potash
Corporation of Saskatchewan Inc. owns 100% of Inversiones el Boldo
Limitada and 100% of Inversiones RAC Ltda., being therefore the beneficial
owner of 84,222,887 SQM's shares that represent 32.00% of SQM's total
shares. The stake held by Potash Corporation of Saskatchewan as of
December 31, 2007, 2006, and 2005 was, respectively, 32.00%, 24.99%,
and
24.99% of the total shares of SQM.
|
(4) |
AFPs
are legal entities that manage pension funds in
Chile.
|
(5) |
Kowa
Group represents the companies Kowa Co. Ltd, Kochi S.A., La Esperanza
Delaware Corporation and Inversiones La Esperanza (Chile)
Ltda.
|
As
of
December 31, 2007, Yara International ASA owned 49% of the shares of Inversiones
SQYA S.A., which in turn, indirectly owned 32.00% of the shares of SQM S.A.
On
April 21, 2008, Yara International ASA sold 100% of the shares it held in
Inversiones SQYA S.A. to Mr. Julio Ponce. As a result of this sale, as of
May
31, 2008, Mr. Julio Ponce owned 100% of the shares of Inversiones SQYA
S.A.
On
December 21, 2006, Sociedad de Inversiones Pampa Calichera S.A. and Kowa Company
Ltd. -the latter being owner, directly and indirectly, of 2.03% of the total
shares of SQM as of May 31, 2008 - executed a Joint Performance Agreement that
allows them to currently control 34.03% of the total shares of SQM. As a result
of this Agreement, the “group” led by Mr. Julio Ponce L. became the Controller
Group of SQM, as that term is defined under Chilean law.
Series
A
and Series B shares have the same economic rights (i.e. both Series are entitled
to share equally in any dividends declared on the outstanding stock) and voting
rights at any shareholders meeting, whether ordinary or extraordinary. One
share
equals one vote, with the sole exception of the election of the Board of
Directors, in which the Series A shareholders elect seven members and the Series
B shareholders elect one member. Additionally, Series B shares cannot exceed
50%
of our issued and outstanding stock, shareholders of at least 5% of this Series
may call an ordinary or extraordinary Shareholders´ Meeting and the director
elected by this Series may request an extraordinary Board of Directors Meeting
without the authorization of the Chairman of the Board of Directors. These
preferences will remain until 2043. Maximum individual voting power personally
and/or in representation of other shareholders per Series is 37.5% of the
subscribed shares of each Series with voting rights and 32% of the total
subscribed shares of the Company with voting rights. To calculate these
percentages, shares that belong to the voting shareholder’s related persons must
be added. In addition, the director elected by the Series B shares cannot vote
in the election of the Chairman of the Board of Directors after a tie vote
has
occurred in the prior voting process. There are currently 142,819,552 Series
A
shares and 120,376,972 Series B shares outstanding.
7.B.
Related
Party Transactions
Article
89 of Law No. 18,046, or the Chilean Corporations Act, requires that our
transactions with related parties be on a market basis or on terms similar
to
those customarily prevailing in the market. Directors and executive officers
of
companies that violate Article 89 are liable for losses resulting from such
violations. In addition, Article 44 of the Chilean Corporations Act provides
that any transaction in which a director has a personal interest or is acting
on
behalf of a third party may be implemented only after the same is approved
by
the Board of Directors under terms similar to those prevailing in the market.
Resolutions approving such transactions must be reported to the Company's
shareholders at the next shareholders' meeting. Violation of Article 44 may
result in administrative or criminal sanctions and civil liability may be sought
by the Company, shareholders or interested third parties that suffer losses
as a
result of such violations. We believe that we have complied with the
requirements of Article 89 and Article 44 in all transactions with related
parties.
Accounts
receivable from and payable to related companies are stated in U.S. dollars
and
accrue no interest. Transactions are made under terms and conditions that are
similar to those offered to unrelated third parties.
We
further believe that we could obtain from third parties all raw materials now
being provided by related parties. The provision of such raw materials by new
suppliers could initially entail additional expenses.
For
additional information concerning our transactions with affiliates and other
related parties, see Note 5 of the Consolidated Financial
Statements.
7.C.
Interests
of Experts and Counsel
Not
applicable
ITEM
8. FINANCIAL
INFORMATION
8.A.
Consolidated
Statements and Other Financial Information
8.A.1 See
Item
18. Consolidated Financial Statements for our consolidated financial
statements.
8.A.2 See
Item
18. Consolidated Financial Statements.
8.A.3 See
Item
18. Consolidated Financial Statements—Report of Independent Registered Public
Accounting Firm.
8.A.4 Not
applicable.
8.A.5 Not
applicable.
8.A.6
Export Sales
We
derive
most of our revenues from sales outside of Chile. The following is the
composition of the consolidated sales for the periods ending on December 31:
Th.
US$
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Foreign
sales
|
|
|
954,641
|
|
|
878,066
|
|
|
739,924
|
|
Total
sales
|
|
|
1,187,527
|
|
|
1,042,886
|
|
|
895,970
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of foreign sales
|
|
|
80.39
|
%
|
|
84.20
|
%
|
|
82.60
|
%
|
8.A.7
Legal Proceedings
In
September 2005, Electroandina S.A., one of our main electricity suppliers,
commenced an arbitration proceeding against us. The complaint sought the early
termination, partial amendment or temporary suspension of the electricity supply
agreement entered into between Electroandina and SQM on February 12, 1999,
and
the revision of the tariffs agreed to in such electricity supply agreement.
As
of December 2007, this proceeding had been settled, and the prices of energy
to
be paid by SQM were adjusted upwards, in line with increases in variable
generation costs.
The
Company is party to various other lawsuits arising in the ordinary course of
business. See Note 23 to the Consolidated Financial Statements for details
of
other pending legal proceedings. We believe it is unlikely that any losses
associated with such lawsuits will significantly affect the Company’s results of
operations, financial position, and cash flows.
8.A.8.
Dividend Policy
As
required by Chilean law and regulations, our dividend policy is decided upon
from time to time by our Board of Directors and is announced at the Annual
Ordinary Shareholders' Meeting, which is generally held in April of each year.
Shareholder approval of the dividend policy is not required. However, each
year
the Board must submit the declaration of the final dividend or dividends in
respect of the preceding year, consistent with the then-established dividend
policy to the Annual Ordinary Shareholders' Meeting for approval. As required
by
the Chilean Companies Act, unless otherwise decided by unanimous vote of the
holders of issued shares, we must distribute a cash dividend in an amount equal
to at least 30% of our consolidated net income for that year (determined on
a
Chilean GAAP basis), unless and except to the extent it has a deficit in
retained earnings.
The
Board
of Directors has followed a policy of paying a single dividend ranging from
50%
to 65% of our consolidated net income for the year (determined on a Chilean
GAAP
basis), and dividends for each year have been paid not later than May of the
following year. During 2008, at the Annual Ordinary Shareholders' Meeting held
on April 27, 2007, the shareholders approved a single dividend with respect
to
2007 of Ch$204.13794 (US$0.44459) per share, equal to 65% of the net income
before amortization of negative goodwill for that year. This dividend was paid
in full on May 12, 2008. The Board of Directors also reaffirmed for 2008 a
dividend policy that authorizes distribution of cash dividends in an amount
equal to 65% of our net income before amortization of negative goodwill for
the
year. The Board of Directors currently expects to recommend that such dividend
be paid in a single distribution in May 2009.
We
generally declare dividends in U.S. dollars (but may declare dividends in
Chilean Pesos) and pay such dividends in Chilean Pesos. When a dividend is
declared in U.S. dollars, the exchange rate to be used to convert the dividend
into Chilean Pesos is decided by the shareholders at the meeting that approves
the dividend, which has usually been the Observed Exchange Rate on the date
the
dividend is declared.
Although
the Board of Directors has no current plan to recommend a change in the dividend
policy, the amount and timing for payment of dividends is subject to revision
from time to time, depending upon our then-current level of sales, costs, cash
flow and capital requirements, as well as market conditions. Accordingly, there
can be no assurance as to the amount or timing of declaration or payment of
dividends in the future. Any change in dividend policy would ordinarily be
effective for dividends declared in the year following adoption of the change,
and a notice as to any such change of policy must be filed with Chilean
regulatory authorities and would be publicly available information.
Dividends
Each
Series A Share and Series B Share is entitled to share equally in any dividends
declared on the outstanding capital stock of SQM.
The
following table sets forth the U.S. dollar equivalent of dividends per share
and
per ADS paid in each of the years indicated, based on the Observed Exchange
Rate
for the date on which the dividend was declared.
Dividends
|
|
Per Share
|
|
Per ADS (1)
|
|
Declared for the
business year
|
|
Paid in
|
|
Ch$
|
|
US$
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
55.05
|
|
|
0.088
|
|
2004
|
|
|
2005
|
|
|
106.56
|
|
|
0.182
|
|
2005
|
|
|
2006
|
|
|
145.11
|
|
|
0.279
|
|
2006
|
|
|
2007
|
|
|
183.96
|
|
|
0.349
|
|
2007
|
|
|
2008
|
|
|
204.14
|
|
|
0.445
|
|
|
(1)
|
The
ratio of ordinary shares to Series A ADSs was 10:1 for all periods
reflected in the table. The Series A ADSs were delisted from the
New York
Stock Exchange on March 27, 2008. The ratio of ordinary shares to
Series B
ADSs changed from 10:1 to 1:1 on March 28, 2008. The calculation
in the
table for all periods is based on the ratio of
1:1.
|
Dividends
payable to holders of ADRs will be paid net of conversion expenses of the
Depositary and will be subject to Chilean withholding tax, currently imposed
at
the rate of 35% (subject to credits in certain cases).
As
a
general requirement, a shareholder who is not a resident of Chile must register
as a foreign investor under one of the foreign investment regimes contemplated
by Chilean law to have dividends, sale proceeds or other amounts with respect
to
its shares remitted outside Chile through the Formal Exchange Market. Under
the
Foreign Investment Contract, the Depositary, on behalf of ADR holders, will
be
granted access to the Formal Exchange Market to convert cash dividends from
Chilean Pesos to U.S. dollars and to pay such U.S. dollars to ADR holders
outside Chile net of taxes, and no separate registration of ADR holders is
required.
8.B.
Significant
Changes
No
significant change has occurred since the date of the financial statements
set
forth in Item 18.
ITEM
9. THE
OFFER AND LISTING
9.A
Offer and Listing Details
Price
History
The
table
below sets forth, for the periods indicated, the reported high and low closing
prices for our shares on the Santiago Stock Exchange and the high and low
closing prices of the ADSs as reported by the NYSE, as the two main exchanges
on
which our shares are traded. On March 27, 2008, the Company voluntarily delisted
its series A ADRs from the New York Stock Exchange. In addition, on March 28,
2008, a ratio change for the Company’s series B ADRs entered into effect,
modifying the ratio of ordinary shares to series B ADRs from the previous ratio
of 10:1 to a new ratio of 1:1.
(a) Last
5 years
|
|
Santiago
Stock Exchange
|
|
NYSE
|
|
|
|
Per
Share (1)
|
|
Per
ADS
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
A (2)
|
|
Series
B (3)
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
2003
|
|
|
3,050
|
|
|
1,630
|
|
|
2,995
|
|
|
1,580
|
|
|
47.10
|
|
|
22.00
|
|
|
4.62
|
|
|
3.97
|
|
2004
|
|
|
3,900
|
|
|
2,350
|
|
|
3,580
|
|
|
2,160
|
|
|
68.00
|
|
|
37.05
|
|
|
6.28
|
|
|
3.30
|
|
2005
|
|
|
7,000
|
|
|
3,600
|
|
|
7,170
|
|
|
3,269
|
|
|
129.40
|
|
|
66.80
|
|
|
13.34
|
|
|
5.75
|
|
2006
|
|
|
7,100
|
|
|
5,220
|
|
|
7,347
|
|
|
5,000
|
|
|
137.5
|
|
|
93.15
|
|
|
13.95
|
|
|
8.99
|
|
2007
|
|
|
12,100
|
|
|
7,100
|
|
|
9,985
|
|
|
6,800
|
|
|
234.80
|
|
|
135.00
|
|
|
20.04
|
|
|
12.50
|
|
(b) Last
10 quarters
|
|
Santiago
Stock Exchange
|
|
NYSE
|
|
|
|
Per
Share (1)
|
|
Per
ADS
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
A (2)
|
|
Series
B (3)
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
6,000
|
|
|
5,599
|
|
|
6,390
|
|
|
5,540
|
|
|
115.50
|
|
|
105.02
|
|
|
12.25
|
|
|
10.99
|
|
Second
quarter
|
|
|
5,950
|
|
|
5,220
|
|
|
6,001
|
|
|
5,000
|
|
|
109.01
|
|
|
93.15
|
|
|
11.63
|
|
|
8.99
|
|
Third
quarter
|
|
|
6,000
|
|
|
5,300
|
|
|
6,190
|
|
|
5,300
|
|
|
104.95
|
|
|
99.35
|
|
|
11.51
|
|
|
9.67
|
|
Fourth
quarter
|
|
|
7,100
|
|
|
6,000
|
|
|
7,347
|
|
|
6,240
|
|
|
137.50
|
|
|
105.20
|
|
|
13.95
|
|
|
11.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
7,600
|
|
|
7,100
|
|
|
7,830
|
|
|
6,800
|
|
|
142.95
|
|
|
136.95
|
|
|
14.60
|
|
|
12.50
|
|
Second
quarter
|
|
|
9,050
|
|
|
7,100
|
|
|
9,152
|
|
|
6,800
|
|
|
180.95
|
|
|
136.95
|
|
|
17.20
|
|
|
12.50
|
|
Third
quarter
|
|
|
12,100
|
|
|
9,050
|
|
|
9,160
|
|
|
7,650
|
|
|
228.75
|
|
|
175.10
|
|
|
17.62
|
|
|
14.10
|
|
Fourth
quarter
|
|
|
12,100
|
|
|
12,100
|
|
|
9,985
|
|
|
8,042
|
|
|
234.80
|
|
|
219.75
|
|
|
20.04
|
|
|
15.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
12,600
|
|
|
12,100
|
|
|
10,658
|
|
|
6,750
|
|
|
290.00
|
|
|
226.00
|
|
|
24.25
|
|
|
14.77
|
|
Second
quarter (through May 31)
|
|
|
17,000
|
|
|
12,600
|
|
|
17,688
|
|
|
10,500
|
|
|
-
|
|
|
-
|
|
|
36.91
|
|
|
23.98
|
|
|
|
Santiago
Stock Exchange
|
|
NYSE
|
|
|
|
Per
Share (1)
|
|
Per
ADS
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
A (2)
|
|
Series
B (3)
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
December
2007
|
|
|
12,100
|
|
|
12,100
|
|
|
9,319
|
|
|
8,042
|
|
|
223.75
|
|
|
219.75
|
|
|
18.75
|
|
|
15.93
|
|
January
2008
|
|
|
12,100
|
|
|
12,100
|
|
|
8,750
|
|
|
6,750
|
|
|
233.95
|
|
|
226.00
|
|
|
17.72
|
|
|
14.77
|
|
February
2008
|
|
|
12,100
|
|
|
12,100
|
|
|
9,200
|
|
|
7,749
|
|
|
290.00
|
|
|
230.51
|
|
|
20.05
|
|
|
16.18
|
|
March
2008
|
|
|
12,600
|
|
|
12,100
|
|
|
10,658
|
|
|
8,470
|
|
|
271.00
|
|
|
270.00
|
|
|
24.25
|
|
|
18.98
|
|
April
2008
|
|
|
16,000
|
|
|
12,600
|
|
|
14,052
|
|
|
10,500
|
|
|
-
|
|
|
-
|
|
|
30.90
|
|
|
23.98
|
|
May
2008
|
|
|
17,000
|
|
|
16,000
|
|
|
17,688
|
|
|
12,664
|
|
|
-
|
|
|
-
|
|
|
36.91
|
|
|
27.04
|
|
(1) |
Pesos
per share of Common Stock reflect nominal price at trade
date.
|
(2) |
Series
A shares started trading on the New York Stock Exchange on April
9,
1999.
|
(3) |
Series
B shares began trading on the New York Stock Exchange in September
1993.
Historical prices have been restated to reflect the change in the
ratio of
local shares to ADRs from 10:1 to 1:1, effective March 28,
2008.
|
As
of May
31, 2008, there were 5,385 Series A and 45,212,003 Series B ADSs (equivalent
to
53,850 Series A shares and 45,212,003 Series B shares, respectively) outstanding
held by 1 holder of record for Series A ADSs and 23 holders of record for the
Series B ADSs. As of May 31, such ADSs represented approximately 17.20% of
the
total number of issued and outstanding shares of our Company.
Although
the Series A ADSs were voluntarily delisted from the New York Stock
Exchange, there are still Series A ADSs outstanding. When the Company decided
to
delist the Series A ADSs and terminate the Series A ADR program, holders were
notified that they had 90 days to decide to sell their shareholding or exchange
their ADSs for the underlying local shares. After that 90-day period, the
Depositary Bank has one year (until June 2009) to attempt to sell the local
shares underlying the outstanding ADSs in the Chilean market.
9.B Plan
Of Distribution
Not
Applicable
9.C Markets
The
Series A shares and the Series B shares are currently traded on the Santiago
Stock Exchange, the Bolsa Electrónica de Chile Bolsa de Valores S.A., (the
Electronic Stock Exchange), and the Bolsa de Corredores Bolsa de Valores S.A.,
(the Valparaíso Stock Exchange). As of December 31, 2007, each series was also
traded on the New York Stock Exchange in the form of ADSs, where each ADS
represented 10 underlying shares of the corresponding series. On February 26,
2008, the Company’s Board of Directors voted to voluntarily delist the Series A
ADSs from the New York Stock Exchange, due to the low trading volume of those
shares. On the same date, the Board of Directors also approved a ratio change
for the Series B ADSs, modifying the previous ratio of 10 ordinary shares to
1
ADS to a new ratio of 1:1. The Series A ADSs were delisted on March 27, 2008,
and the Series B ratio change entered into effect on March 28, 2008. Prior
to
their delisting, the ADSs representing Series A shares traded on the NYSE
beginning on April 9, 1999. The ADSs representing Series B shares have
traded on the NYSE since September 21, 1993. The depositary bank for these
ADSs is the Bank of New York Mellon.
9.D Selling
Shareholders
Not
applicable
9.E Dilution
Not
applicable
9.F Expenses
Of The Issue
Not
applicable
ITEM
10. ADDITIONAL
INFORMATION
10.A.
Share
Capital
Not
applicable
10.B.
Memorandum
and Articles Of Association
SQM,
headquartered at El Trovador Nº 4285, Piso 6, Santiago, Chile, is an open stock
corporation (sociedad
anónima abierta)
organized under the laws of the Republic of Chile. The Company was constituted
by public deed issued on 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 Business Registry of Santiago, on page 4.537 Nº 1.992.
Corporate
purposes
Our
specific purposes, which appear in article 4 of our By-laws, are to:
(a)
perform
all kinds of chemical or mining activities and businesses and, among others,
those related to researching, prospecting, extracting, producing, working,
processing, purchasing, disposing of, and commercializing properties, as
applicable, of all metallic and non-metallic and fossil mining substances and
elements of any type or nature, to be obtained from them or from one or more
concessions or mining deposits, and in their natural or converted state, or
transformed into different raw materials or manufactured or partially
manufactured products, and of all rights and properties thereon; (b)
manufacture, produce, work, purchase, transfer ownership, import, export,
distribute, transport, and commercialize in any way, all kinds of fertilizers,
components, raw materials, chemical, mining, agricultural, and industrial
products, and their by-products; (c)
generate, produce, distribute, purchase, transfer ownership, and commercialize,
in any way, all kinds of electrical, thermal, or other type of power, and hydric
resources or water rights in general; (d)
request,
manifest, claim, constitute, explore, work, lease, transfer ownership, and
purchase, in any way, all kinds of mining concessions; (e)
purchase, transfer ownership, and administer, in any way, any kind of
telecommunications, railroads, ships, ports, and any means of transport, and
represent and manage shipping companies, common carriers by water, airlines,
and
carries in general; (f)
manufacture, produce, commercialize, maintain, repair, assemble, construct,
disassemble, purchase and transfer ownership, and in any way, any kind of
electromechanical structure, and substructure in general, components, parts,
spares, or parts of equipment, and machines, and execute, develop, advice,
and
commercialize, any kind of electromechanical or smelting activities;
(g)
purchase, transfer ownership, lease, and commercialize any kind of
agroindustrial and farm forestry activities, in any way; (h)
purchase, transfer ownership, lease, and commercialize, in any way, any kind
of
urban or rural real estates; (i)
render
any kind of health services and manage hospitals, private clinics, or similar
facilities; (j)
construct, maintain, purchase, transfer ownership, and manage, in any way,
any
kind of roads, tunnels, bridges, water supply systems, and other required
infrastructure works, without any limitation, regardless of whether they may
be
public or private, among others, to participate in bids and enter into any
kind
of contracts, and to be the legal owner of the applicable concessions; and
(k)
purchase, transfer ownership, and commercialize, in any way, any kind of
intangible properties such as stocks, bonds, debentures, financial assets,
commercial papers, shares or rights in corporations, and any kind of bearer
securities or instruments, and to administer such investments, acting always
within the Investment and Financing Policies approved by the applicable General
Shareholders Meeting. We may comply with the foregoing by acting ourselves
or
through or with other different legal entities or natural persons, within the
country or abroad, with properties of our own or owned by third parties, and
additionally, in the ways and territories, and with the aforementioned
properties and purposes, we may also construct and operate industrial or
agricultural facilities or installations; constitute, administer, purchase,
transfer ownership, dissolve, liquidate, transform, modify, or form part of
partnerships, institutions, foundations, corporations, or associations of any
kind or nature; perform all actions, enter into all contracts, and incur in
all
obligations convenient or necessary for the foregoing; perform any business
or
activity related to its properties, assets, or patrimony, or with that of its
affiliates, associated companies, or related companies, and render financial,
commercial, technical, legal, auditing, administrative, advisory, and other
pertinent services.
Directors
The
Company's By-laws, in articles 16 and 16 bis, essentially establish that the
transactions in which a Director has a material interest must comply with the
provisions set forth in articles 44 and 136 of Law Nº 18.046 and the applicable
regulations of such Law. Notwithstanding the above, the said operations must
be
approved by two thirds of the Board of Directors.
The
Board
of Directors duties are remunerated, as stated in article 17 of the Company's
By-laws, and the amount of that compensation is fixed yearly by the General
Ordinary Shareholders’ Meeting. Therefore, Directors can neither determine nor
modify their compensation.
Directors
cannot authorize Company loans on their behalf.
As
stated
in article 10 of the Company's By-laws, Directors can be reelected indefinitely;
thus, there is no age limit for their retirement.
As
stated
in article 9 of the Company's By-laws, the possession of shares is not a
necessary condition to become a Director of our Company.
Shares
Dividends
are annually distributed to the Series A and Series B shareholders of record
on
the fifth business day prior to the date for payment of the dividends. The
By-laws do not specify a time limit after which dividend entitlement elapses
but
Chilean regulations establish that after 5 years, unclaimed dividends are to
be
donated to the Fire Department.
Article
5
of the Company's By-laws establishes that Series B shares may in no case exceed
fifty percent of our issued, outstanding and paid shares. Series B shares have
a
restricted right to vote as they can only elect one Director of the Company,
regardless of their capital stock's share. Series B shares have the right to
call for an Ordinary or Extraordinary Shareholders’ Meeting when the
shareholders of at least 5% of the Series B issued shares request so and for
an
Extraordinary Board of Directors Meeting without the Chairman's authorization
when it is requested by the Director elected by the shareholders of the Series
B
shares. Series A shares have the option to exclude the Director elected by
Series B shareholders from the voting process in which the Chairman of the
Board
is to be elected, if there is a tie in the first voting process. However,
articles 31 and 31 bis establish that in General Shareholders’ Meetings each
shareholder will have a right to one vote for each share he owns or represents
and that no shareholder will have the right to vote for himself or on behalf
of
other shareholders of the same Series A or Series B shares representing more
than 37.5% of the outstanding shares with right to vote of each Series. In
calculating a single shareholder's ownership of Series A or B shares, the
shareholder's stock and those pertaining to third parties related to them are
to
be added.
Article
5
bis of the Company's By-laws establishes that no person may directly or by
means
of related third persons, state-owned companies, decentralized, autonomous,
municipal, or other institutions, concentrate more than 32% of our total shares
with right to vote.
Each
Series A share and Series B share is entitled to share equally in the Company's
profits, i.e., they have the same rights on any dividends declared on the
outstanding shares of SQM.
Our
By-laws do not contain any provision relating to: (i) redemption provisions,
(ii) sinking funds or (iii) liability to capital calls by the
Company.
As
established in Article 103 of Law 18.046, a company subject to the supervision
of the Chilean Securities and Exchange Commission may be liquidated in the
following cases:
|
(a) |
Expiration
of the duration term, if any, as established in its
By-laws;
|
|
(b) |
All
the shares end up in the possession of one
individual;
|
|
(c) |
By
agreement of an Extraordinary Shareholders
Meeting;
|
|
(d) |
By
abolition, pursuant to applicable laws, of the decree that authorized
its
existence;
|
|
(e) |
Any
other reason contemplated in its
By-laws.
|
Article
40 of the Company's By-laws states that in the event of liquidation, the
Shareholders’ Meeting will appoint a three-member receiver committee that will
have the authority to carry out the liquidation process. Any surplus will be
distributed equally among the shareholders.
The
only
way to change the rights of the holders of our shares is by modifying the
By-laws, which can only be carried out by an Extraordinary Shareholders’
Meeting, as set forth in article 28 of the Company By-laws.
Shareholders’
meetings
Article
29 of the Company's By-laws states that the call to a Shareholders’ Meeting,
either Ordinary or Extraordinary, will be by means of a highlighted public
notice that will be published at least three times, and on different days,
in
the newspaper of the legal address determined by the Shareholders’ Meeting, and
in the way and under the conditions indicated by the Regulations. Additionally,
a notice will be sent by mail to each shareholder at least fifteen days prior
to
the date of the Meeting, which shall include a reference of the matters to
be
addressed thereat. However, those meetings with the full attendance of the
shares with right to vote may be legally held, even if the foregoing formal
notice requirements are not met. Notice of any Shareholders’ Meeting shall be
delivered to the Chilean Securities Commission (SVS), at least fifteen days
in
advance of such meeting.
Any
holder of Series A and/or Series B shares registered in the Company's
shareholder registry on or before the fifth business day prior to the date
of
the meeting will have a right to participate at that meeting.
Foreign
shareholders
There
exists no restriction on ownership or share concentration, or limiting the
exercise of the related right to vote, by local or foreign shareholders other
than those discussed under Item 10.B. Memorandum and Articles of Association
-Shares above.
Change
in control
Our
Company By-laws provide that no shareholder may hold more than 32% of our
shares, unless the by-laws are modified at an extraordinary shareholders’
meeting. Moreover, on December 12, 2000, the government published the
Ley
de Oferta Pública de Acciones
(Public
Share Offering law) or (OPA law) that seeks to protect the interests of minority
shareholders of open stock corporations in transactions involving a change
in
control, by requiring that the potential new controller purchase the shares
owned by the remaining shareholders either in total or pro rata. The law applies
to those transactions in which the controlling party would receive a material
premium price compared with the price that would be received by the minority
shareholders.
There
are
three conditions that would make it mandatory to operate under the OPA
law:
|
(1)
|
When
an investor wants to take control of a company's
stock.
|
|
(2)
|
When
a controlling shareholder holds two-thirds of the company's stock.
If such
shareholder buys one more share, it will be mandatory to offer to
acquire
the rest of the outstanding stock within 30 days of surpassing that
threshold.
|
|
(3)
|
When
an investor wants to take control of a corporation, which, in turn,
controls an open stock corporation that represents 75% or more of
the
consolidated assets of the former
corporation.
|
Parties
interested in taking control of a company must (i) notify the company of such
intention in writing, and notify its controllers, the companies controlled
by
it, the SVS and the markets where its stocks are traded and (ii) publish a
highlighted public notice in two newspapers of national circulation at least
10
business days prior to the date of materialization of the OPA.
Disclosure
of share ownership
The
Company's By-laws do not provide for a minimum threshold at which share
ownership must be disclosed.
10.C.
Material
Contracts
The
following summarizes the terms and conditions of the main contracts to which
SQM
or any subsidiary is a party:
|
·
|
On
February 12, 1999, SQM S.A. entered into an Electrical Energy Supply
contract with Electroandina S.A. The term of this contract extends
through
February 12, 2009. SQM has two three-year renewal options. Early
termination of the contract is subject to payment of non-amortized
investments.
|
|
·
|
On
March 21, 1997, SQM Salar S.A. entered into an Electricity Supply
agreement with Norgener S.A. The term of this contract extends through
March 20, 2017, and early termination is subject to
penalties.
|
|
·
|
On
January 13, 1998, SQM Nitratos S.A. entered into an Electrical Energy
Supply agreement with Norgener S.A. The term of this contract extends
through January 31, 2013. Early termination of the contract is subject
to
payment of non-amortized
investments.
|
|
·
|
On
May 22, 2001, SQM S.A. entered into a Natural Gas Supply agreement
with
Distrinor S.A. The term of this contract extends through May 21,
2011.
Early termination of the contract is subject to payment of non-amortized
investments. SQM pays a fixed annual amount (amortization of investments),
and when we receive gas, we pay the corresponding amounts. However,
in
2007 we received practically no gas, and we expect this situation
to
continue during 2008.
|
During
2006 and 2007, both Norgener and Electroandina sought relief from the terms
of
their electricity supply agreements, arguing that certain unforeseen events
had
restricted the supply and increased the price of gas from Argentina. As of
December 2007, in the case of Norgener, an agreement was reached among the
parties, whereas in the case of Electroandina, an arbitrator determined the
resolution of the dispute. In both case the prices of energy to be paid by
SQM
were adjusted upwards, in line with increases in variable generation costs.
For
further information on the current energy supply situation in Chile, see Item
3.
D. Risk factors.
In
addition, the Company, during the normal course of business, has entered into
different contracts, some of which have been described herein, related to its
production, commercial and legal operations. We believe all of these contracts
are standard for this type of industry, and none of them is expected to have
a
material effect on the Company's results of operations.
10.D.
Exchange
Controls
The
Central Bank of Chile is responsible for, among other things, monetary policies
and exchange controls in Chile. Appropriate registration of a foreign investment
in Chile permits the investor access to the Formal Exchange Market. Foreign
investments can be registered with the Foreign Investment Committee under Decree
Law Nº600 of 1974 or can be registered with the Central Bank of Chile under the
Central Bank Act, Law Nº18840 of October 1989. The Central Bank Act is an
organic constitutional law requiring a "special majority" vote of the Chilean
Congress to be modified.
Our
1993,
1995 and 1998 capital increases were carried out under and subject to the then
current legal regulations, whose summary is hereafter included:
A
'Convención
Capítulo XXVI del Título I del Compendio de Normas de Cambios
Internacionales'
or
Compendium of Foreign Exchange Regulations of the Central Bank of Chile,
"Foreign Investment Contract" was entered into and among the Central Bank of
Chile, our Company and the Depositary, pursuant to Article 47 of the Central
Bank Act and to Chapter XXVI of the Compendium of Foreign Exchange Regulations
of the Central Bank of Chile, "Chapter XXVI", which addresses the issuance
of
ADSs by a Chilean company. Absent the Foreign Investment Contract, under
applicable Chilean exchange controls, investors would not be granted access
to
the Formal Exchange Market for the purposes of converting from Chilean Pesos
to
U.S. dollars and repatriating from Chile amounts received in respect to
deposited Series A or B shares or Series A or B shares withdrawn from deposit
on
surrender of ADRs (including amounts received as cash dividends and proceeds
from the sale in Chile of the underlying Series A and Series B shares and any
rights arising therefrom). The following is a summary of the material provisions
contained in the Foreign Investment Contract. This summary does not purport
to
be complete and is qualified in its entirety by reference to Chapter XXVI and
the Foreign Investment Contract.
Under
Chapter XXVI and the Foreign Investment Contract, the Central Bank of Chile
has
agreed to grant to the Depositary, on behalf of ADR holders, and to any investor
not residing or not domiciled in Chile who withdraws Series A or Series B shares
upon delivery of ADRs (such Series A and Series B shares being referred to
herein as "Withdrawn Shares") access to the Formal Exchange Market to convert
Chilean Pesos to U.S. dollars (and remit such U.S. dollars outside of Chile)
in
respect of Series A and Series B shares represented by ADSs or Withdrawn Shares,
including amounts received as (a) cash dividends, (b) proceeds from the sale
in
Chile of Withdrawn Shares, or from shares distributed because of the
liquidation, merger or consolidation of the Company, subject to receipt by
the
Central Bank of Chile of a certificate from the holder of such shares (or from
an institution authorized by the Central Bank of Chile) that such holder's
residence and domicile are outside Chile and a certificate from a Chilean stock
exchange (or from a brokerage or securities firm established in Chile) that
such
shares were sold on a Chilean Exchange, (c) proceeds from the sale in Chile
of
preemptive rights to subscribe for additional Series A and Series B shares,
(d)
proceeds from the liquidation, merger or consolidation of the Company and (e)
other distributions, including without limitation those resulting from any
recapitalization, as a result of holding Series A and Series B shares
represented by ADSs or Withdrawn Shares. Transferees of Withdrawn Shares will
not be entitled to any of the foregoing rights under Chapter XXVI unless the
Withdrawn Shares are redeposited with the Depositary. Investors receiving
Withdrawn Shares in exchange for ADRs will have the right to redeposit such
shares in exchange for ADRs, provided that the conditions to redeposit described
hereunder are satisfied.
Chapter
XXVI provided that access to the Formal Exchange Market in connection with
dividend payments will be conditioned upon certification by the Company to
the
Central Bank of Chile that a dividend payment has been made and any applicable
tax has been withheld. Chapter XXVI also provides that access to the Formal
Exchange Market in connection with the sale of Withdrawn Shares or distributions
thereon will be conditioned upon receipt by the Central Bank of Chile of
certification by the Depositary that such shares have been withdrawn in exchange
for ADRs and receipt of a waiver of the benefit of the Foreign Investment
Contract with respect thereto until such Withdrawn Shares are
redeposited.
Chapter
XXVI and the Foreign Investment Contract provided that a person who brings
certain types of foreign currency into Chile, including U.S. dollars, to
purchase Series A shares and/or Series B shares with the benefit of the Foreign
Investment Contract must convert it into Chilean Pesos on the same date and
has
5 banking business days within which to invest in Series A shares and/or Series
B shares in order to receive the benefits of the Foreign Investment Contract.
If
such person decides within such period not to acquire Series A shares and/or
Series B shares, he can access the Formal Exchange Market to reacquire foreign
currency, provided that the applicable request is presented to the Central
Bank
within 7 banking business days of the initial conversion into pesos. Series
A
shares and/or Series B shares acquired as described above may be deposited
for
ADSs and receive the benefits of the Foreign Investment Contract, subject to
receipt by the Central Bank of Chile of a certificate from the Depositary that
such deposit has been effected and that the related ADRs have been issued and
receipt by the Custodian of a declaration from the person making such deposit
waiving the benefits of the Foreign Investment Contract with respect to the
deposited Series A shares and/or Series B shares.
Access
to
the Formal Exchange Market under any of the circumstances described above is
not
automatic. Pursuant to Chapter XXVI, such access requires approval of the
Central Bank of Chile based on a request presented through a banking institution
established in Chile. The Foreign Investment Contract will provide that if
the
Central Bank of Chile has not acted on such request within seven banking days,
the request will be deemed approved.
Under
current Chilean law, foreign investments abiding by the Foreign Investment
Contract cannot be changed unilaterally by the Central Bank of Chile. No
assurance can be given, however, that additional Chilean restrictions applicable
to the holders of ADRs, the disposition of underlying Series A shares and/or
Series B shares or the repatriation of the proceeds from such disposition could
not be imposed in the future, nor can there be any assessment of the duration
or
impact of such restrictions if imposed.
As
of
April 19, 2001, Chapter XXVI of Title I of the Compendio
de Normas de Cambios Internacionales
of the
Central Bank of Chile was eliminated and new investments in ADR's by
non-residents of Chile, are now governed by Chapter XIV of the Compendio
de Normas de Cambios Internacionales
of the
Central Bank of Chile. This was made with the purpose of simplifying and
facilitating the flow of capital to and from Chile. According to the new
regulations, such investments must be carried out through Chile's Formal
Exchange Market and only reported to the Central Bank of Chile. Foreign
investments may still be registered with the Foreign Investment Committee under
Decree Law 600 of 1974, as amended, and obtain the benefits of the contract
executed under Decree Law 600.
The
Central Bank is also responsible for controlling incurrence of loan obligations
to be paid from Chile and by a Chilean borrower to banks and certain other
financial institutions outside Chile. The following is a summary of the relevant
portions of Chapter XIV regarding the incurrence of loan obligations and does
not purport to be complete and is qualified in its entirety by reference to
the
provisions of Chapter XIV.
The
Central Bank must be informed of any incurrence of loan obligations to be paid
from Chile and by a Chilean borrower to banks and certain other financial
institutions outside of Chile. As of December 31, 2007, we had one long-term
loan outstanding obtained in the international markets (through a Rule 144A
offering of US$200 million). Additionally Royal Seed Trading Corporation, a
wholly owned subsidiary, has two syndicated loans for an amount US$180.0 million
outstanding, which are fully guaranteed by us.
The
Central Bank has been informed about the guarantee given to Royal Seed.
Accordingly, any purchases of U.S. dollars in connection with payments on these
loans will occur with the Formal Exchange Market. There can be no assurance,
however, that restrictions applicable to payments in respect to the loans could
not be imposed in the future, nor can there be any assessment of the duration
or
impact of such restrictions if imposed.
10.E.
Taxation
Chilean
Tax Considerations
The
following describes the material Chilean income tax consequences of an
investment in the ADRs by an individual who is not domiciled or resident in
Chile or any legal entity that is not organized under the laws of Chile and
does
not have a permanent establishment located in Chile, a "foreign holder." This
discussion is based upon Chilean income tax laws presently in force, including
Ruling No. 324 (1990) of the Chilean Internal Revenue Service and other
applicable regulations and rulings. The discussion is not intended as tax advice
to any particular investor, which can be rendered only in light of that
investor's particular tax situation.
Under
Chilean law, provisions contained in statutes such as tax rates applicable
to
foreign investors, the computation of taxable income for Chilean purposes and
the manner in which Chilean taxes are imposed and collected may only be amended
by another statute. In addition, the Chilean tax authorities issue rulings
and
regulations of either general or specific application and interpret the
provisions of Chilean tax law. Chilean tax may not be assessed retroactively
against taxpayers who act in good faith relying on such rulings, regulations
and
interpretations, but Chilean tax authorities may change said rulings,
regulations and interpretations prospectively.
Cash
Dividends and Other Distributions
Cash
dividends paid by the Company with respect to the shares, including shares
represented by ADSs held by a U.S. holder will be subject to a 35% Chilean
withholding tax, which is withheld and paid by the Company, the "Withholding
Tax.” If the Company has paid corporate income tax, the "First Category Tax", on
the income from which the dividend is paid, a credit for the First Category
Tax
effectively reduces the rate of Withholding Tax. When a credit is available,
the
Withholding Tax is computed by applying the 35% rate to the pre-tax amount
needed to fund the dividend and then subtracting from the tentative withholding
tax so determined the amount of First Category Tax actually paid on the pre-tax
income. Under Chilean income tax law, dividends are assumed to have been paid
out of our oldest retained tax profits for purposes of determining the rate
at
which the First Category Tax was paid.
The
effective Withholding Tax rate, after giving effect to the credit for First
Category Tax, generally is:
(Withholding
Tax rate) - (First Category Tax effective rate)
1
-
(First Category Tax effective rate)
The
effective rate of Withholding Tax to be imposed on dividends paid by the Company
will vary depending upon the amount of the First Category Tax paid by the
Company on the earnings to which the dividends are attributed. The dividends
distributed by the Company corresponding to the business year 2007 were
dividends considered taxable, and the total tax retention rate was approximately
28%.
Dividend
distributions made in property (such as distribution of cash equivalents) would
be subject to the same Chilean tax rules as cash dividends. Stock dividends
are
not subject to Chilean taxation.
Capital
Gains
Gains
from the sale or other disposition by a foreign holder of ADR outside Chile
will
not be subject to Chilean taxation. The deposit and withdrawal of the shares
in
exchange for ADSs will not be subject to any Chilean taxes.
The
tax
basis of the shares received in exchange for ADSs (repatriation) will be the
acquisition value of the shares. The shares exchanged for ADSs are valued at
the
highest price at which they trade on the Chilean Stock Exchange on the date
of
the exchange or on either of the two business days preceding the exchange.
Consequently, the conversion of ADSs into the shares and the immediate sale
of
such shares at a price equal to or less than the highest price for Series A
shares or Series B shares on the Chilean Stock Exchange on such dates will
not
generate a gain subject to Chilean taxation.
Gain
recognized on a sale or exchange of shares (as distinguished from sales or
exchanges of ADSs representing such shares) will be subject to both the First
Category Tax and the Withholding Tax if either (i) the foreign holder has held
the shares for less than one year since exchanging the ADSs for the shares,
(ii)
the foreign holder acquired and disposed of the shares in the ordinary course
of
its business or as a regular trader of shares, or (iii) the foreign holder
and
the purchaser of the shares are related parties within the meaning of Chilean
tax law. The amount of the First Category Tax may be credited against the amount
of the Withholding Tax. In all other cases, gain on the disposition of the
shares will be subject only to a capital gains tax, which is assessed at the
same rate as the First Category Tax. Gain recognized in the transfer of common
shares that have a high presence in the stock exchange, however, is not subject
to capital gains tax in Chile, provided that the common shares are transferred
in a local exchange, in other authorized stock exchanges, or within the process
of a public tender of common shares governed by the Chilean Securities Market
Act. The common shares must also have been acquired either on a stock exchange,
within the referred process of a public tender of a common shares governed
by
the Chilean Securities Market Act, in an initial public offer of common shares
resulting from the formation of a corporation or a capital increase of the
same,
or in an exchange of convertible bonds. Common shares are considered to have
a
high presence in the stock exchange when they: a) are registered in the
Securities Registry b) are registered in a Chilean Stock Exchange, c) have
an
adjusted presence equal to or above 25%.
As
of
June 19, 2001 capital gains obtained in the sale of common shares that are
publicly traded in a stock exchange are also exempt from capital gains tax
in
Chile when the sale is made by "foreign institutional investors" such as mutual
funds and pension funds, provided that the sale is made in a stock exchange
or
in accordance with the provisions of the securities market law (law 18.045),
or
in any other form authorized by the SVS. To qualify as foreign institutional
investors, the referred entities must be formed outside of Chile, not have
domicile in Chile, and they must be an "investment fund" in according with
the
Chilean tax law.
The
exercise of preemptive rights relating to shares will not be subject to Chilean
taxation. Any gain on the sale or assignment of preemptive rights relating
to
shares will be subject to both the First Category Tax and the Withholding Tax
(the former being creditable against the latter).
Other
Chilean Taxes
No
Chilean inheritance, gift or succession taxes apply to the transfer or
disposition of the ADSs by a foreign holder, but such taxes generally will
apply
to the transfer at death or by gift of the shares by a foreign holder. No
Chilean stamp, issue, registration or similar taxes or duties apply to foreign
holders of ADSs or shares.
Withholding
Tax Certificates
Upon
request, the Company will provide to foreign holders appropriate documentation
evidencing the payment of Chilean withholding taxes.
United
States Tax Considerations
The
following discussion summarizes the principal U.S. federal income tax
consequences to beneficial owners arising from the acquisition, ownership and
disposition of the Series A shares and the Series B shares, together the
"shares" and the ADSs. The discussion which follows is based on the United
States Internal Revenue Code of 1986, as amended, the "Code", the Treasury
regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect and available on the date hereof,
and
is subject to any changes in these or other laws occurring after such date.
In
addition, the summary assumes that the depositary’s activities are clearly and
appropriately defined so as to ensure that the tax treatment of ADSs will be
identical to the tax treatment of the underlying shares.
For
purposes of this summary, the term "U.S. Holder" means a beneficial owner of
shares or ADSs that is, for U.S. federal income tax purposes, (a) an individual
who is a United States citizen or resident, (b) a corporation or partnership
created or organized under the laws of the United States or any political
subdivision thereof, or (c) an estate, the income of which is subject to U.S.
federal income tax regardless of the source, or (d) a trust (i) that validly
elects to be treated as a U.S. person for U.S. federal income tax purposes
or
(ii)(A) if a court within the U.S. is able to exercise primary supervision
over
the administration of the trust and (B) one or more U.S. persons have the
authority to control all substantial decisions of the trust.
The
term
"Non-U.S. Holder" means, for purposes of this discussion, a beneficial owner
of
shares or ADSs that is not a U.S. holder.
If
a
partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds shares or ADSs, the tax treatment of the partnership
and a partner in such partnership generally will depend on the status of the
partner and the activities of the partnership. Such a partner or partnership
should consult its own tax advisor as to its consequences.
The
discussion that follows is not intended as tax advice to any particular investor
and is limited to investors who will hold the shares or ADSs as "capital assets"
within the meaning of Section 1221 of the Code and whose functional currency
is
the United States dollar. The summary does not address the tax treatment of
U.S.
Holders and Non-U.S. Holders that may be subject to special U.S. federal income
tax rules, such as insurance companies, tax-exempt organizations, banks, U.S.
Holders who are subject to the alternative minimum tax, or U.S. Holders and
Non-U.S. Holders who are broker-dealers in securities, who hold the shares
or
ADSs as a hedge against currency risks, as a position in a "straddle" for tax
purposes, or as part of a conversion or other integrated transaction, or who
own
(directly, indirectly or by attribution) 10% or more of the total combined
voting power of all classes of the Company's capital stock entitled to vote
or
10% or more of the value of the outstanding capital stock of the
Company.
There
exist no reciprocal tax treaties between the Republic of Chile and the United
States.
The
discussion below does not address the effect of any United States state, local,
estate or gift tax law or foreign tax law on a U.S. Holder or Non-U.S. Holder
of
the shares or ADSs. U.S. HOLDERS AND NON-U.S. HOLDERS OF SHARES OR ADSs SHOULD
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE CONSEQUENCES UNDER ANY SUCH
LAW
OF INVESTING IN THE SHARES OR ADSs.
For
purposes of applying U.S. federal income tax law, any beneficial owner of an
ADS
generally will be treated as the owner of the underlying shares represented
thereby.
TO
ENSURE
COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, INVESTORS ARE ADVISED
THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS FORM 20-F IS NOT
INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY INVESTORS
FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH INVESTORS
UNDER THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED; (B) SUCH DISCUSSION
IS
INCLUDED BY THE COMPANY IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN
THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS
ADDRESSED HEREIN; AND (C) INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
Cash
Dividends and Other Distributions
The
U.S.
Treasury Department has expressed concern that depositaries for ADRs, or other
intermediaries between the holders of shares of an issuer and the issuer, may
be
taking actions that are inconsistent with the claiming of U.S. foreign tax
credits by U.S. holders of such receipts or shares. Accordingly, the analysis
regarding the availability of a U.S. foreign tax credit for Chilean taxes and
sourcing rules described below could be affected by future actions that may
be
taken by the U.S. Treasury Department.
The
following discussion of cash dividends and other distributions is subject to
the
discussion below under “Passive Foreign Investment Company Considerations”. The
gross amount of a distribution with respect to shares or ADSs generally will
be
treated as a taxable dividend to the extent of the Company's current and
accumulated earnings and profits, computed in accordance with U.S. federal
income tax principles. A dividend distribution will be so included in gross
income when received by (or otherwise made available to) (i) the U.S. Holder
in
the case of the shares or (ii) the depositary in the case of the ADSs, and
in
either case will be characterized as ordinary income for U.S. federal income
tax
purposes. Distributions in excess of the Company's current and accumulated
earnings and profits will be applied against and will reduce the U.S. Holder's
tax basis in the shares or ADSs and, to the extent distributions exceed such
tax
basis, the excess will be treated as gain from a sale or exchange of such shares
or ADSs. U.S. Holders that are corporations will not be allowed a deduction
for
dividends received in respect of distributions on the shares or the ADSs. For
example, if the gross amount of a distribution with respect to the shares or
ADSs exceeds the Company's current and accumulated earnings and profits by
US$10.00, such excess will generally not be subject to a U.S. tax to the extent
the U.S. Holder's tax basis in the shares or ADSs equals or exceeds US$10.00.
The Company does not maintain calculations of its earnings and profits under
U.S. federal income tax principles. Accordingly, U.S. Holders should assume
that
any cash distribution made by us will be treated as a dividend for U.S. federal
income tax purposes.
If
a
dividend distribution is paid in Chilean pesos, the amount includable in income
will generally be the U.S. dollar value, on the date of receipt by the U.S.
Holder in the case of the shares or by the depositary in the case of the ADSs,
of the peso amount distributed, regardless of whether the payment is actually
converted into U.S. dollars. The amount of any distribution of property other
than cash will be fair market value of such property on the date of
distribution. Any gain or loss resulting from currency exchange rate
fluctuations during the period from the date the dividend is includable in
the
income of the U.S. Holder to the date the pesos are converted into U.S. dollars
will be treated as ordinary income or loss.
A
dividend distribution will be treated as foreign source income and will
generally be classified as "passive category income" or in the case of certain
U.S. Holders “general category income" for U.S. foreign tax credit purposes. If
Chilean withholding taxes are imposed on a dividend, U.S. Holders will be
treated as having actually received the amount of such taxes (net of any credit
for the First Category Tax) and as having paid such amount to the Chilean taxing
authorities. As a result, the amount of dividend income included in gross income
by a U.S. Holder will be greater than the amount of cash actually received
by
the U.S. Holder with respect to such dividend income. A U.S. Holder may be
able,
subject to certain generally applicable limitations, to claim a foreign tax
credit or a deduction for Chilean withholding taxes (net of any credit for
the
First Category Tax) imposed on dividend payments. The rules relating to the
determination of the U.S. foreign tax credit are complex, and the calculation
of
U.S. foreign tax credits and, in the case of a U.S. Holder that elects to deduct
foreign taxes, the availability of deductions, involve the application of rules
that depend on a U.S. Holder's particular circumstances. U.S. Holders should,
therefore, consult their own tax advisors regarding the application of the
U.S.
foreign tax credit rules to dividend income on the shares or
ADSs.
Subject
to the discussion below under “Information reporting and Backup Withholding”, if
you are a Non-U.S.
Holder, you generally will not be subject to U.S. federal income or withholding
tax on dividends received by you on your shares or ADSs, unless you conduct
a
trade or business in the United States and such income is effectively connected
with that trade or business.
Capital
Gains
A
U.S.
Holder will generally recognize gain or loss on the sale, redemption or other
disposition of the shares or ADSs in an amount equal to the difference between
the amount realized on the sale or exchange and the U.S. Holder's adjusted
basis
in such shares or ADSs. Thus, if the U.S. Holder sells the shares for US$40.00
and such U.S. Holder's tax basis in such shares is US$30.00, such U.S. Holder
will generally recognize a gain of US$10.00 for U.S. federal income tax
purposes. Gain or loss upon the sale of the shares or ADSs will be capital
gain
or loss if the shares or ADSs are capital assets in the hands of the U.S.
Holder. Capital gains on the sale of capital assets held for one year or less
are subject to U.S. federal income tax at ordinary income tax rates. Net capital
gains derived with respect to capital assets held for more than one year are
eligible for reduced rates of taxation. Subject to the discussion below under
“Passive Foreign Investment Company Considerations”, gain or loss realized by a
U.S. Holder on the sale or exchange of shares or ADSs will be U.S.-source
income. In addition, certain limitations exist on the deductibility of capital
losses by both corporate and individual taxpayers. Any tax imposed by Chile
directly on the gain from such a sale would generally be eligible for the U.S.
foreign tax credit; however, because the gain would generally be U.S.-source,
a
U.S. Holder might not be able to use the credit otherwise available. U.S.
Holders should consult their own tax advisors regarding the foreign tax credit
implications of the sale, redemption or other disposition of a share or
ADS.
Subject
to the discussion below under “Information Reporting and Backup Withholding”, a
Non-U.S. Holder of ADSs or shares will not be subject to United States income
or
withholding tax on gain from the sale or other disposition of ADSs or shares
unless, in general (i) such gain is effectively connected with the conduct
of a
trade or business within the United States or (ii) the Non-U.S. Holder is an
individual who is present in the United States for at least 183 days during
the
taxable year of the disposition
and
certain other conditions are met.
Passive
Foreign Investment Company Considerations
A
Non-U.S. corporation will be classified as a “passive foreign investment
company”, or a PFIC, for U.S. federal income tax purposes in any taxable year in
which, after apply certain look-through rules, either (i) at least 75% of its
gross income is “passive income” or (ii) at least 50% of the average value of
its gross assets is attributable to assets that produce “passive income” or are
held for the production of passive income. Passive income for this purpose
generally includes dividends, interest, royalties, rents and gains from the
sale
of stock (including gains from the sale of stock of certain subsidiaries),
partnership interest, securities or commodities.
Based
on
certain estimates of our gross income and gross assets and the nature of our
business, the Company believes that it was not classified as a PFIC in 2007.
The
Company’s status in future years will depend on its assets and activities in
those years. If the Company were a PFIC, a U.S. Holder of shares or ADSs
generally would be subject to imputed interest charges and other disadvantageous
tax treatment (including the denial of taxation at the lower rates applicable
to
long-term capital gains with respect to any gain from the sale or exchange
of
shares or ADSs).
Information
Reporting and Backup Withholding
Payments
of dividends on the shares or ADSs and the proceeds of sale or other disposition
of the shares or ADSs within the United States by certain non-corporate holders
may be subject to U.S. information reporting and backup withholding. A U.S.
Holder generally will be subject to U.S. information reporting and backup
withholding at a rate of 28% unless the recipient of such payment supplies
an
accurate taxpayer identification number, as well as certain other information,
or otherwise establishes an exemption, in the manner prescribed by United States
law and applicable regulations. U.S. information reporting and backup
withholding of U.S. federal income tax at a rate of 28% may also apply to
Non-U.S. Holders that are not "exempt recipients" and that fail to provide
certain information as may be required by United States law and applicable
regulations. Any amount withheld under U.S. backup withholding is not an
additional tax and is generally allowable as a credit against the U.S. Holder's
federal income tax liability upon furnishing the required information to the
IRS.
HOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES TO THEIR PARTICULAR
CIRCUMSTANCES.
10.F.
Dividends
and Paying Agents
Not
applicable
10.G.
Statement
by Experts
Not
applicable
10.H.
Documents
on Display
Documents
referred to in this form 20-F are available to the public at:
http://www.sec.gov/edgar/searchedgar/companysearch.html,
CIK:
909037.
10.I.
Subsidiary
Information
See
Item
4.C. Organizational Structure.
ITEM
11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
explained elsewhere in this Annual Report, we transact our businesses in more
than 100 countries, thereby rendering our market risk dependent upon the
fluctuations of foreign currencies and local and international interest rates.
These fluctuations may generate losses in the value of financial instruments
taken in the normal course of business.
We,
from
time to time and depending upon then current market conditions, review and
re-establish our financial policies to protect our operations. Management is
authorized by our Board of Directors to engage in certain derivative contracts
such as forwards and swaps to specifically hedge the fluctuations in interest
rates and in currencies other than the U.S. dollar.
Derivative
instruments used by us are transaction-specific so that a specific debt
instrument or contract determines the amount, maturity and other terms of the
hedge. We do not use derivative instruments for speculative purposes.
Interest
Rate Risk.
As of
December 31, 2007, we had approximately 37% of our financial debt priced at
Libor, and therefore significant increases in the rate could impact our
financial condition. We also maintain the majority of our short-term financial
debt priced at Libor plus a spread for which we do not have any kind of
derivative contract.
|
|
Expected
Maturity Date
|
|
|
|
|
|
On
Balance Sheet
Financial
Instruments
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
and thereafter
|
|
Total
|
|
Fair
Value
|
|
(in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate (US$)
|
|
|
23,094
|
|
|
22,775
|
|
|
22,471
|
|
|
22,167
|
|
|
367,446
|
|
|
457,953
|
|
|
313,845
|
|
200m
US$ bond - Int. rate: 6.125%
|
|
|
12,250
|
|
|
12,250
|
|
|
12,250
|
|
|
12,250
|
|
|
255,125
|
|
|
304,125
|
|
|
211,668
|
|
3m
UF bond swapped to US$ at 5.84% (1)
|
|
|
10,844
|
|
|
10,525
|
|
|
10,221
|
|
|
9,917
|
|
|
112,321
|
|
|
153,828
|
|
|
102,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate (US$)
|
|
|
7,436
|
|
|
7,540
|
|
|
104,570
|
|
|
84,096
|
|
|
-
|
|
|
203,643
|
|
|
179,665
|
|
100m
US$ loan – Avg. Int.: 4.083%
|
|
|
4,052
|
|
|
4,230
|
|
|
100,954
|
|
|
-
|
|
|
-
|
|
|
109,236
|
|
|
99,692
|
|
80m
US$ loan – Avg. Int.: 4.441%
|
|
|
3,384
|
|
|
3,310
|
|
|
3,616
|
|
|
84,096
|
|
|
-
|
|
|
94,407
|
|
|
79,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,531
|
|
|
30,315
|
|
|
127,041
|
|
|
106,263
|
|
|
367,446
|
|
|
661,596
|
|
|
493,510
|
|
(1)
UF-bond fully hedged, under Chilean GAAP, to US$ with a Cross Currency Swap
(CCS). Cash flows expressed in their nominal currency are presented
below:
|
|
Expected
Maturity Date
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
and thereafter
|
|
Total
|
|
Fair
Value
|
|
3M
UF Bond - Int. rate 4.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SQM
pays bondholders (UF)
|
|
|
261,398
|
|
|
255,456
|
|
|
249,515
|
|
|
243,574
|
|
|
2,940,665
|
|
|
3,950,607
|
|
|
2,985,272
|
|
Cross
Currency Swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS
UF Int. rate 4.00% - SQM receives (UF)
|
|
|
-261,398
|
|
|
-255,456
|
|
|
-249,515
|
|
|
-243,574
|
|
|
-2,940,665
|
|
|
-3,950,607
|
|
|
-2,985,272
|
|
CCS
US$ Int. rate 5.84% - SQM pays (US$)
|
|
|
10,844
|
|
|
10,525
|
|
|
10,221
|
|
|
9,917
|
|
|
112,321
|
|
|
153,828
|
|
|
102,177
|
|
Exchange
Rate Risk.
Although
the U.S. dollar is the primary currency in which we transact our businesses,
our
operations throughout the world expose us to exchange rate variations for
non-U.S. dollar currencies. Therefore, fluctuations in the exchange rate of
such
local currencies may affect our financial condition and results of operations.
To lessen these effects, we maintain derivative contracts to protect the net
difference between our principal assets and liabilities for currencies other
than the U.S. dollar. These contracts are renewed periodically depending on
the
amount covered in each currency. Aside from this, we do not hedge potential
future income and expenses in currencies other than the U.S. dollar with the
exception of the euro and Chilean peso. We estimate annual sales in euros and
expenses in Chilean pesos and secure the exchange difference with derivative
contracts.
As
of
December 31, 2007 and 2006 we had the following net monetary assets and
liabilities that are subject to foreign exchange gain or loss
fluctuation:
|
|
2007
|
|
2006
|
|
|
|
Th
US$
|
|
Th
US$
|
|
Chilean
pesos
|
|
|
36,975
|
|
|
(41,922
|
)
|
Brazilian
real
|
|
|
(1,281
|
)
|
|
(1,332
|
)
|
Euro
|
|
|
31,730
|
|
|
27,167
|
|
Japanese
yen
|
|
|
692
|
|
|
730
|
|
Mexican
pesos
|
|
|
(2,900
|
)
|
|
1,587
|
|
South
African rand
|
|
|
8,346
|
|
|
11,676
|
|
Dirhams
|
|
|
10,012
|
|
|
13,554
|
|
Other
currencies
|
|
|
8,584
|
|
|
7,854
|
|
|
|
|
|
|
|
|
|
Total,
net
|
|
|
92,158
|
|
|
19,314
|
|
As
of
December 31, 2007, we had open forward exchange contracts and options to buy
U.S. dollars and sell foreign currency for approximately UF 2.85 million
(US$97.5 million), 9.5 million euros (US$13.92 million), and 32 million South
African Rands (US$4.70 million), and forward exchange contracts to buy Chilean
pesos and sell U.S. dollars for approximately 38,161.15 million Chilean pesos
(US$76.8 million).
ITEM
12. DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
Not
applicable
PART
II
ITEM
13. DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
Not
applicable
ITEM
14. MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not
applicable.
ITEM
15. CONTROLS
AND PROCEDURES
(a) Disclosure
Control and Procedures
Under
the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures, pursuant to Exchange Act Rules 13(a)-15(b), as of the end of the
period covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective in providing reasonable
assurance that material information is made known to management and that
financial and non-financial information is properly recorded, processed,
summarized and reported.
The
procedures associated to our internal controls are designed to provide
reasonable assurance that our transactions are properly authorized, assets
are
safeguarded against unauthorized or improper use, and transactions are properly
recorded and reported. However, through the same design and evaluation period
of
the disclosure controls and procedures, the Company's management, including
the
Company's Chief Executive Officer and Chief Financial Officer, recognized that
there are inherent limitations to the effectiveness of any internal control
system regardless of how well designed and operated. In such a way they can
provide only reasonable assurance of achieving the desired control objectives
and no evaluation can provide absolute assurance that all control issues or
instances of fraud, if any, within the Company have been detected.
There
were no significant changes in our internal controls over financial reporting
that occurred during the period covered by this Annual Report that have
materially affected, or are likely to materially affect our internal control
over financial reporting.
(b) Management’s
Annual Report on Internal Control Over Financial
Reporting
SQM
Management is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the financial statements for
external purposes in accordance with generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial reporting may
not
necessarily prevent or detect some misstatements. It can only provide reasonable
assurance regarding financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness for future periods are subject
to
the risk that controls may become inadequate because of changes in conditions
or
because the degree of compliance with the polices or procedures may deteriorate
over time.
Management
assessed the effectiveness of its internal control over financial reporting
for
the year ended December 31, 2007. The assessment was based on criteria
established in the framework “Internal Controls — Integrated Framework” issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the assessment, SQM management has concluded that as of
December 31, 2007, the Company’s internal control over financial reporting
was effective.
(c) Attestation
Report of the Registered Public Accounting Firm
Ernst
& Young Ltda., the independent registered public accounting firm that has
audited our Consolidated Financial Statements, has also issued an attestation
report on the Company’s internal control over financial reporting as of
December 31, 2007. This attestation report appears on pages F-2 and F-3
under Item 18 Financial Statements.
(d) Changes
in internal control
There
were no changes in the Company’s internal control over financial reporting that
occurred during 2007 that have materially affected, or are reasonably likely
to
materially affect, the Company’s internal control over financial reporting.
ITEM
16. [Reserved]
ITEM
16A. AUDIT
COMMITTEE FINANCIAL EXPERT
On
June
17, 2008, the Board of Directors determined that the Company does not have
an
audit committee financial expert within the meaning of the regulations adopted
under Sarbanes-Oxley Act of 2002.
Pursuant
to Chilean regulations, the Company has a Directors' Committee whose main duties
are similar to those of an audit committee. Each of the members of the
Directors' Committee is a member of the audit committee. See 6.C. Board
Practices.
Our
Board
believes that the members of the Directors' Committee have the necessary
expertise and experience to perform the functions of the Directors' Committee
pursuant to Chilean regulations.
ITEM
16B. CODE
OF ETHICS
We
have
adopted a Code of Business Conduct that applies to the Chief Executive Officer,
the Chief Financial Officer and the Internal Auditor, as well as, to all our
officers and employees. Our Code adheres to the definition set forth in Item
16B
of Form 20-F under the Exchange Act.
No
waivers have been granted therefrom to the officers mentioned
above.
The
full
text of the code is available on our website at http://www.sqm.com in
the
Investor Relations section under “Corporate Governance Framework”.
Amendments
to, or waivers from one or more provisions of the code will be disclosed on
our
website.
ITEM
16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
table
sets forth the amount of fees billed for each of the last two fiscal years
by
our independent auditors, Ernst & Young, in relation to audit services,
audit-related services, tax and other services provided to us (in thousands
of
U.S. dollars).
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Audit fees
|
|
|
1,061.6
|
|
|
859.5
|
|
Audit-related
fees
|
|
|
41.2
|
|
|
-
|
|
Tax
fees
|
|
|
78.1
|
|
|
202.5
|
|
Other
fees
|
|
|
114.3
|
|
|
84.00
|
|
Total
fees
|
|
|
1,295.1
|
|
|
1,146.0
|
|
Audit
fees in the above table are the aggregate fees billed by Ernst & Young in
connection with the audit of our annual Consolidated Financial Statements,
as
well as the review of other statutory filings.
Audit-related
fees in the above table are fees billed by Ernst & Young for assurance and
related services that are reasonably related to the performance of the audit
or
review of our financial statements and are not reported under "Audit
Fees."
Tax
fees
in the above table are fees billed by Ernst & Young for tax advice and tax
planning services.
Directors'
Committee Pre-Approval Policies and Procedures
Chilean
law states that public companies are subject to "pre-approval" requirements
under which all audit and non-audit services provided by the independent auditor
must be pre-approved by the Directors’ Committee. Our Directors’ Committee
approves all audit, audit-related, tax and other services provided by Ernst
& Young.
Any
services provided by Ernst & Young that are not specifically included within
the scope of the audit must be pre-approved by the Directors’ Committee prior to
any engagement.
ITEM
16D. EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not
applicable
ITEM
16E. PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
Not
applicable
PART
III
ITEM
17. FINANCIAL
STATEMENTS
Not
applicable
ITEM
18. FINANCIAL
STATEMENTS
See
Item
19(a) for a list of all financial statements filed as part of this Form 20-F
annual report.
ITEM
19. EXHIBITS
(a)
Index to Financial Statements
Report
of Independent Registered
Public Accounting Firm
|
F-1
|
|
|
Report
of Independent Registered
Public Accounting Firm on the internal control over financial
reporting as
of December 31, 2007
|
F-2
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Audited
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
F-4
|
|
|
Audited
Consolidated Statements of Income for each of the three years
in the
period ended December 31, 2007, 2006 and 2005
|
F-6
|
|
|
Audited
Consolidated Statements of Cash Flows for each of the three
years in the
period ended December 31, 2007, 2006 and 2005
|
F-7
|
|
|
Notes
to the Audited Consolidated Financial Statements
|
F-9
|
|
|
Supplementary
Schedules*
|
|
|
*All
other schedules have been omitted because they are not applicable
or the
required information is shown in the consolidated financial statements
or
notes thereto.
|
(b)
Exhibits
Exhibit
No.
|
|
Exhibit
|
1.1
|
|
By-laws
(Estatutos) of the Company**
|
8.1
|
|
Significant
subsidiaries of the Company
|
12.1
|
|
Section
302 Chief Executive Officer Certification
|
12.2
|
|
Section
302 Chief Financial Officer Certification
|
13.1
|
|
Section
906 Chief Executive Officer Certification
|
13.2
|
|
Section
906 Chief Financial Officer
Certification
|
**
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
year ended December 31, 2004 filed with the Securities and Exchange Commission
on June 30, 2005.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing
on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
SOCIEDAD
QUIMICA Y MINERA DE CHILE S.A.
(CHEMICAL
AND MINING COMPANY OF CHILE INC.)
/s/
Ricardo Ramos
Ricardo
Ramos R.
Chief
Financial Officer and
Business
Development Senior Vice President
Date:
June 27, 2008
Consolidated
Financial Statements
SOCIEDAD
QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIES
As
of
December 31, 2007 and 2006
and
for
each of the three years in the period ended December 31, 2007
Contents
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Report
of Independent Registered Public Accounting Firm on the internal
control
over financial reporting as of December 31, 2007
|
F-2
|
|
|
Consolidated
Financial Statements:
|
|
Audited
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
F-4
|
Audited
Consolidated Statements of Income for each of the three years in
the
period ended December
31, 2007
|
F-6
|
Audited
Consolidated Statements of Cash Flows for each of the three years
in the
period ended December 31, 2007
|
F-7
|
Notes
to the Audited Consolidated Financial Statements
|
F-9
|
|
-
|
United
States dollars
|
ThUS$
|
-
|
Thousands
of United States dollars
|
Ch$
|
-
|
Chilean
pesos
|
ThCh$
|
-
|
Thousands
of Chilean pesos
|
|
-
|
Thousands
of Euros
|
UF
|
-
|
or
Unidad de Fomento. The UF is an inflation-indexed, Chilean
peso-denominated monetary unit. The UF rate is set daily in advance,
based
on the change in the Consumer Price Index of the previous
month.
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of
Sociedad
Química y Minera de Chile S.A.:
We
have
audited the accompanying consolidated balance sheets of Sociedad Química y
Minera de Chile S.A. and subsidiaries (“the Company”) as of December 31, 2007
and 2006, and the related consolidated statements of income and cash flows
for
each of the three years in the period ended December 31, 2007. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sociedad Química y
Minera de Chile S.A. and subsidiaries at December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years
in
the period ended December 31, 2007 in conformity with accounting principles
generally accepted in Chile, which differ in certain respects from accounting
principles generally accepted in the United States of America (see Note 29 to
the consolidated financial statements).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 25,
2008,
except for internal control over financial reporting related to Notes 28 and
29
of the 2007 consolidated financial statements as to which the date is June
20,
2008, expressed an unqualified opinion thereon.
ERNST
& YOUNG LTDA.
Santiago,
Chile
February
25, 2008
(Except
for Notes 28 and 29 for which the date is June 20, 2008)
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of
Sociedad
Química y Minera de Chile S.A.:
We
have
audited Sociedad Química y Minera de Chile S.A.’s internal control over
financial reporting as of December 31, 2007, based on criteria established
in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Sociedad Química y
Minera de Chile S.A.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, Sociedad Química y Minera de Chile S.A. maintained, in all material
respects, effective internal control over financial reporting as of December
31,
2007, based on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Sociedad
Química y Minera de Chile S.A. and subsidiaries as of December 31, 2007 and
2006, and the related consolidated statements of income and cash flows for
each
of the three years in the period ended December 31, 2007 and our report dated
February 25, 2008, except as to Notes 28 and 29 as to which the date is June
20,
2008 expressed an unqualified opinion thereon.
ERNST
& YOUNG LTDA.
[sig]
Santiago,
Chile
February
25, 2008
(Except
for internal control over financial reporting related to Notes 28 and 29 of
the
2007 consolidated financial statements as to which the date is June 20,
2008)
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Audited
Consolidated Balance Sheets
(Expressed
in thousands of US dollars, except as stated)
|
|
|
|
As
of December 31,
|
|
ASSETS
|
|
Note
|
|
2007
|
|
2006
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
164,212
|
|
|
183,943
|
|
Trade
accounts receivable, net
|
|
|
4
|
|
|
224,444
|
|
|
177,406
|
|
Other
accounts receivable, net
|
|
|
4
|
|
|
6,249
|
|
|
4,857
|
|
Accounts
receivable from related companies
|
|
|
5
|
|
|
61,042
|
|
|
65,640
|
|
Inventories,
net
|
|
|
6
|
|
|
387,768
|
|
|
365,499
|
|
Recoverable
taxes
|
|
|
|
|
|
31,322
|
|
|
32,830
|
|
Prepaid
expenses
|
|
|
|
|
|
4,197
|
|
|
3,885
|
|
Other
current assets
|
|
|
|
|
|
24,720
|
|
|
11,815
|
|
Total
current assets
|
|
|
|
|
|
903,954
|
|
|
845,875
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
7
|
|
|
983,449
|
|
|
916,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
Investments
in related companies
|
|
|
8
|
|
|
23,935
|
|
|
18,329
|
|
Goodwill,
net
|
|
|
9
|
|
|
34,236
|
|
|
36,331
|
|
Negative
goodwill, net
|
|
|
9
|
|
|
(1,291
|
)
|
|
(1,928
|
)
|
Intangible
assets, net
|
|
|
|
|
|
3,814
|
|
|
4,523
|
|
Long-term
accounts receivable, net
|
|
|
4
|
|
|
604
|
|
|
388
|
|
Long-term
accounts receivable from related companies
|
|
|
5
|
|
|
2,000
|
|
|
2,000
|
|
Other
long-term assets
|
|
|
10
|
|
|
35,618
|
|
|
48,756
|
|
Total
other assets
|
|
|
|
|
|
98,916
|
|
|
108,399
|
|
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Audited
Consolidated Balance Sheets
(Expressed
in thousands of US dollars, except as stated)
|
|
|
|
As
of December 31,
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
Note
|
|
2007
|
|
2006
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Short-term
bank debt
|
|
|
11
|
|
|
1,806
|
|
|
58,350
|
|
Current
portion of long-term bank debt
|
|
|
11
|
|
|
801
|
|
|
828
|
|
Current
portion of bonds payable
|
|
|
12
|
|
|
8,868
|
|
|
5,540
|
|
Dividends
payable
|
|
|
|
|
|
531
|
|
|
264
|
|
Accounts
payable
|
|
|
|
|
|
99,030
|
|
|
80,810
|
|
Notes
and accounts payable to related companies
|
|
|
5
|
|
|
6,880
|
|
|
5,807
|
|
Accrued
liabilities
|
|
|
13
|
|
|
22,314
|
|
|
16,404
|
|
Withholdings
|
|
|
|
|
|
22,931
|
|
|
11,386
|
|
Income
taxes
|
|
|
|
|
|
9,514
|
|
|
8,722
|
|
Deferred
income
|
|
|
|
|
|
10,858
|
|
|
4,065
|
|
Deferred
income taxes
|
|
|
14
|
|
|
6,214
|
|
|
4,088
|
|
Other
current liabilities
|
|
|
|
|
|
2,675
|
|
|
1,378
|
|
Total
current liabilities
|
|
|
|
|
|
192,422
|
|
|
197,642
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank debt
|
|
|
11
|
|
|
180,000
|
|
|
180,000
|
|
Bonds
payable
|
|
|
12
|
|
|
306,651
|
|
|
300,724
|
|
Deferred
income taxes
|
|
|
14
|
|
|
55,409
|
|
|
47,361
|
|
Long-term
accrued liabilities
|
|
|
15
|
|
|
22,671
|
|
|
19,464
|
|
Other
long-term liabilities
|
|
|
|
|
|
731
|
|
|
849
|
|
Total
long-term liabilities
|
|
|
|
|
|
565,462
|
|
|
548,398
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
16
|
|
|
45,999
|
|
|
39,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
23
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
|
|
Paid-in
capital
|
|
|
17
|
|
|
477,386
|
|
|
477,386
|
|
Other
reserves
|
|
|
17
|
|
|
163,442
|
|
|
155,190
|
|
Retained
earnings
|
|
|
17
|
|
|
541,608
|
|
|
453,373
|
|
Total
Shareholders' equity
|
|
|
|
|
|
1,182,436
|
|
|
1,085,949
|
|
Total
Liabilities and Shareholders' equity
|
|
|
|
|
|
1,986,319
|
|
|
1,871,202
|
|
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Audited
Consolidated Statements of Income
(Expressed
in thousands of US dollars, except as stated)
|
|
|
|
For
the years ended December 31,
|
|
|
|
Note
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
1,187,527
|
|
|
1,042,886
|
|
|
895,970
|
|
Cost
of sales
|
|
|
|
|
|
(857,765
|
)
|
|
(753,336
|
)
|
|
(652,901
|
)
|
Gross
margin
|
|
|
|
|
|
329,762
|
|
|
289,550
|
|
|
243,069
|
|
Selling
and administrative expenses
|
|
|
|
|
|
(70,273
|
)
|
|
(69,662
|
)
|
|
(61,878
|
)
|
Operating
income
|
|
|
|
|
|
259,489
|
|
|
219,888
|
|
|
181,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
19
|
|
|
25,948
|
|
|
19,293
|
|
|
16,433
|
|
Non-operating
expenses
|
|
|
19
|
|
|
(53,032
|
)
|
|
(55,341
|
)
|
|
(50,755
|
)
|
Non-operating
loss
|
|
|
|
|
|
(27,084
|
)
|
|
(36,048
|
)
|
|
(34,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes, minority interest and amortization of negative
goodwill
|
|
|
|
|
|
232,405
|
|
|
183,840
|
|
|
146,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
14
|
|
|
(48,592
|
)
|
|
(37,916
|
)
|
|
(32,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before minority interest and amortization of negative
goodwill
|
|
|
|
|
|
183,813
|
|
|
145,924
|
|
|
114,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
16
|
|
|
(3,792
|
)
|
|
(4,715
|
)
|
|
(1,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before amortization of negative goodwill
|
|
|
|
|
|
180,021
|
|
|
141,209
|
|
|
113,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of negative goodwill
|
|
|
9
|
|
|
-
|
|
|
68
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
|
|
|
180,021
|
|
|
141,277
|
|
|
113,506
|
|
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Audited
Consolidated Statements of Cash Flows
(Expressed
in thousands of US dollars, except as stated)
|
|
|
For
the years ended December 31
|
|
|
|
Note
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
180,021
|
|
|
141,277
|
|
|
113,506
|
|
Charges
(credits) to income not representing cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
7
|
|
|
97,826
|
|
|
90,354
|
|
|
70,054
|
|
Amortization
of intangible assets
|
|
|
|
|
|
712
|
|
|
915
|
|
|
498
|
|
Write-offs
and accruals
|
|
|
|
|
|
34,063
|
|
|
16,512
|
|
|
17,034
|
|
Equity
participation in net income of unconsolidated investees
|
|
|
|
|
|
(3,643
|
)
|
|
(2,314
|
)
|
|
(3,073
|
)
|
Equity
participation in net losses of unconsolidated investees
|
|
|
|
|
|
77
|
|
|
362
|
|
|
477
|
|
Amortization
of goodwill
|
|
|
9
|
|
|
2,252
|
|
|
2,229
|
|
|
2,070
|
|
Amortization
of negative goodwill
|
|
|
9
|
|
|
-
|
|
|
(68
|
)
|
|
(203
|
)
|
Loss
(gain) on sales of assets
|
|
|
|
|
|
87
|
|
|
(809
|
)
|
|
216
|
|
Gains
on sale of investment
|
|
|
|
|
|
(1,316
|
)
|
|
(732
|
)
|
|
-
|
|
Other
credits to income not representing gash flows
|
|
|
22
|
|
|
(1,745
|
)
|
|
(2,762
|
)
|
|
(10,109
|
)
|
Other
charges to income not representing cash flows
|
|
|
22
|
|
|
108,075
|
|
|
82,333
|
|
|
87,689
|
|
Foreign
currency exchange and price-level restatement, net
|
|
|
|
|
|
(2,212
|
)
|
|
2,263
|
|
|
3,804
|
|
Net
changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
|
|
(25,830
|
)
|
|
(240
|
)
|
|
(15,838
|
)
|
Inventories
|
|
|
|
|
|
(34,983
|
)
|
|
(46,730
|
)
|
|
(58,807
|
)
|
Other
assets
|
|
|
|
|
|
(6,437
|
)
|
|
7,917
|
|
|
(10,783
|
)
|
Accounts
payable
|
|
|
|
|
|
(4,000
|
)
|
|
(23,359
|
)
|
|
(6,520
|
)
|
Interest
payable
|
|
|
|
|
|
582
|
|
|
2,968
|
|
|
349
|
|
Net
income taxes payable
|
|
|
|
|
|
(23,541
|
)
|
|
(49,515
|
)
|
|
(25,620
|
)
|
Other
accounts payable
|
|
|
|
|
|
(2,760
|
)
|
|
(10,840
|
)
|
|
(10,517
|
)
|
VAT
and taxes payable
|
|
|
|
|
|
(9,726
|
)
|
|
6,724
|
|
|
(3,282
|
)
|
Minority
interest
|
|
|
16
|
|
|
3,792
|
|
|
4,715
|
|
|
1,039
|
|
Net
cash provided by operating activities
|
|
|
|
|
|
311,294
|
|
|
221,200
|
|
|
151,984
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from bank loans
|
|
|
|
|
|
-
|
|
|
259,257
|
|
|
185,000
|
|
Proceeds
from issuance of bonds
|
|
|
|
|
|
-
|
|
|
299,833
|
|
|
-
|
|
Payments
of dividends
|
|
|
|
|
|
(94,910
|
)
|
|
(74,566
|
)
|
|
(51,732
|
)
|
Repayment
of bank loans
|
|
|
|
|
|
(57,089
|
)
|
|
(406,282
|
)
|
|
(6,000
|
)
|
Payment
of bonds
|
|
|
|
|
|
(5,131
|
)
|
|
-
|
|
|
-
|
|
Payment
of expenses for the issuance and placement of bonds
payable
|
|
|
|
|
|
-
|
|
|
(6,629
|
)
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
|
|
|
(157,130
|
)
|
|
71,613
|
|
|
127,268
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of property, plant and equipment
|
|
|
|
|
|
2,498
|
|
|
10,289
|
|
|
2,546
|
|
Sales
of investments in related companies
|
|
|
|
|
|
1,478
|
|
|
5,790
|
|
|
-
|
|
Other
investing income
|
|
|
|
|
|
399
|
|
|
500
|
|
|
1,345
|
|
Additions
to property, plant and equipment
|
|
|
|
|
|
(165,640
|
)
|
|
(175,788
|
)
|
|
(185,603
|
)
|
Capitalized
interest
|
|
|
|
|
|
(12,388
|
)
|
|
(10,948
|
)
|
|
(5,140
|
)
|
Purchase
of permanent investments, net of cash acquired of ThUS$ 0, ThUS$
24,311,
836 and 242 respectively
|
|
|
|
|
|
-
|
|
|
(88,885
|
)
|
|
(12,026
|
)
|
Other
disbursements
|
|
|
|
|
|
(513
|
)
|
|
(504
|
)
|
|
(668
|
)
|
Net
cash used in investing activities
|
|
|
|
|
|
(174,166
|
)
|
|
(259,546
|
)
|
|
(199,546
|
)
|
Effect
of inflation on cash and cash equivalents
|
|
|
|
|
|
271
|
|
|
2,720
|
|
|
1,497
|
|
Net
change in cash and cash equivalents
|
|
|
|
|
|
(19,731
|
)
|
|
35,987
|
|
|
81,203
|
|
Beginning
balance of cash and cash equivalents
|
|
|
|
|
|
183,943
|
|
|
147,956
|
|
|
66,753
|
|
Ending
balance of cash and cash equivalents
|
|
|
2e)
|
|
|
164,212
|
|
|
183,943
|
|
|
147,956
|
|
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Audited
Consolidated Statements of Cash Flows
(Expressed
in thousands of US dollars, except as stated)
|
|
For
the years ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
33,441
|
|
|
37,884
|
|
|
20,315
|
|
Income
taxes paid
|
|
|
43,666
|
|
|
49,515
|
|
|
22,330
|
|
Capital
lease obligation
|
|
|
315
|
|
|
274
|
|
|
204
|
|
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
1 – Company Background
Sociedad
Química y Minera de Chile S.A. (the “Company”) was registered with the Chilean
Superintendency of Securities and Insurance (Superintendencia
de Valores y Seguros
- “SVS”)
on March 18, 1983. The Company is regulated by the SVS as well as by the United
States Securities and Exchange Commission (“SEC”) since issuing American
Depositary Receipts (“ADRs”) in December 1995.
References
herein to “Parent Company” are to Sociedad Química y Minera de Chile S.A. and
references herein to the “Company” or “SQM” are to Sociedad Química y Minera de
Chile S.A. together with its consolidated subsidiaries and the companies in
which Sociedad Química y Minera de Chile S.A. holds significant equity
interest.
The
Company is an integrated producer and distributor of specialty fertilizers,
iodine, lithium and other industrial chemicals. The Company extracts natural
resources and develops them into products, which it then distributes to more
than 100 countries.
Note
2 – Summary of Significant Accounting Policies
a) Basis
for the preparation of the consolidated financial
statements
The
accompanying consolidated financial statements have been prepared in US dollars
in accordance with accounting principles generally accepted in Chile (“Chilean
GAAP”) and the regulations of the SVS. Certain accounting practices applied by
the Company that conform with Chilean GAAP do not conform with accounting
principles generally accepted in the United States (“US GAAP”) or International
Financial Reporting Standards (“IFRS”).
The
consolidated financial statements include the accounts of Sociedad Química y
Minera de Chile S.A. and all majority-owned subsidiaries (companies in which
the
Parent Company holds a controlling participation, generally equal to direct
or
indirect ownership of more than 50%). All significant inter-company transactions
and balances have been eliminated in the consolidation.
The
preparation of financial statements in conformity with Chilean GAAP requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, disclosures of contingent assets and liabilities as
of
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies (continued)
a) Basis
for the preparation of the consolidated financial statements
(continued)
The
majority-owned subsidiaries of SQM S.A. as of December 31, 2007, 2006 and 2005
are as follows:
|
|
Direct
or indirect ownership
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Foreign
subsidiaries:
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Nitrate
Corp. of Chile Limited (United Kingdom)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Soquimich
SRL (Argentina)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Nitratos
Naturais do Chile Ltda. (Brazil)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Europe NV (Belgium)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
North America Corp. (USA)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
North
American Trading Company (USA)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Perú S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Corporation NV (Dutch Antilles)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
S.Q.I.
Corporation NV (Dutch Antilles)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Soquimich
European Holding BV (Holland)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
PTM
- SQM Ibérica S.A. (Spain)
|
|
|
-
|
|
|
100.00
|
|
|
100.00
|
|
SQMC
Holding Corporation LLP (USA)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Ecuador S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Cape
Fear Bulk LLC (USA)
|
|
|
-
|
|
|
51.00
|
|
|
51.00
|
|
SQM
Investment Corporation NV (Dutch Antilles)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Brasil Ltda.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Royal
Seed Trading Corporation AVV (Aruba)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Japan K.K.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Oceanía PTY Limited (Australia)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
France S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
RS
Agro-Chemical Trading AVV (Aruba)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Comercial de México S.A. de C.V.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Indonesia
|
|
|
80.00
|
|
|
80.00
|
|
|
80.00
|
|
SQM
Virginia LLC (USA)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Agricolima
S.A. de C.V. (Mexico)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Venezuela S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Italia SRL (Italy)
|
|
|
100.00
|
|
|
100.00
|
|
|
95.00
|
|
Comercial
Caiman Internacional S.A. (Cayman Islands)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Africa PTY (South Africa)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Fertilizantes
Olmeca y SQM S.A. de C.V. (Mexico)
|
|
|
-
|
|
|
-
|
|
|
100.00
|
|
Administración
y Servicios Santiago S.A. de C.V. (Mexico)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Lithium Specialties LLC (USA)
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Nitratos México S.A. de C.V. (Mexico)
|
|
|
51.00
|
|
|
51.00
|
|
|
51.00
|
|
Fertilizantes
Naturales S.A. (Spain)
|
|
|
66.67
|
|
|
66.67
|
|
|
50.00
|
|
Iodine
Minera B.V. (Holland)Fertilizantes
Naturales S.A. (Spain) (1)
|
|
|
100.00
|
|
|
100.00
|
|
|
-
|
|
SQM
Dubai – Fzco (United Arab Emirates).
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies
(continued)
a) Basis
for the preparation of the consolidated financial statements
(continued)
|
|
Direct
or indirect ownership
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Domestic
subsidiaries:
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Servicios
Integrales de Tránsitos y Transferencias S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Soquimich
Comercial S.A.
|
|
|
60.64
|
|
|
60.64
|
|
|
60.64
|
|
Isapre
Norte Grande Limitada
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Almacenes
y Depósitos Limitada
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Ajay
SQM Chile S.A.
|
|
|
51.00
|
|
|
51.00
|
|
|
51.00
|
|
SQM
Nitratos S.A.
|
|
|
99.99
|
|
|
99.99
|
|
|
99.99
|
|
Proinsa
Limitada
|
|
|
60.58
|
|
|
60.58
|
|
|
60.58
|
|
SQM
Potasio S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQMC
International Limitada
|
|
|
60.64
|
|
|
60.64
|
|
|
60.64
|
|
SQM
Salar S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
SQM
Industrial S.A
|
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
Minera
Nueva Victoria S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
-
|
|
Exploraciones
Mineras S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
-
|
|
Sociedad
Prestadora de Servicios de Salud Cruz del Norte S.A.
|
|
|
100.00
|
|
|
100.00
|
|
|
-
|
|
Comercial
Hydro S.A.
|
|
|
60.64
|
|
|
60.64
|
|
|
60.64
|
|
All
significant inter-company balances, transactions and unrealized gains and losses
arising from transactions between these companies have been eliminated in
consolidation.
b) Period
presented
These
consolidated financial statements have been prepared as of December 31, 2007
and
2006 and for each of the three years in the period ended December 31, 2007.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies (continued)
c) Reporting
currency and price-level restatement
The
financial statements of the Company are prepared in US dollars since a
significant portion of the Company’s operations are transacted in that currency.
The US dollar is considered the currency of the primary economic environment
in
which the Company operates.
Under
Chilean GAAP, the Parent Company and those subsidiaries which maintain their
accounting records in US dollars are not required, or permitted, to restate
the
historical dollar amounts for the effects of inflation in Chile.
In
accordance with Chilean GAAP the financial statements of domestic subsidiaries
that maintain their accounting records in Chilean pesos have been restated
to
reflect the effects of variations in the purchasing power of Chilean pesos
during the year. For this purpose, and in accordance with Chilean regulations,
non-monetary assets and liabilities, equity and income statement accounts have
been restated in terms of year-end constant pesos based on the change in the
consumer price index during the year (7.4% and 2.1% in 2007 and 2006,
respectively). The resulting net charge or credit to income arises as a result
of the gain or loss in purchasing power from the holding of non-US dollar
denominated monetary assets and liabilities exposed to the effects of
inflation.
Index-linked
assets and liabilities
Assets
and liabilities that are denominated in index-linked units of account are stated
at the year-end values of the respective units of account. The principal
index-linked unit used in Chile is the Unidad
de Fomento
(“UF”),
which is adjusted daily to reflect the changes in Chile’s CPI. Values for the UF
are as follows (US dollar per UF):
|
|
US$
|
|
|
|
|
|
December
31, 2005
|
|
|
35.07
|
|
December
31, 2006
|
|
|
34.44
|
|
December
31, 2007
|
|
|
39.49
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies
(continued)
|
i)
|
Foreign
currency transactions
|
Monetary
assets and liabilities denominated in Chilean pesos and other currencies have
been translated to US dollars at the observed exchange rates determined by
the
Central Bank of Chile as of each year-end. The observed exchange rates of
Chilean pesos were Ch$ 496.89 per US$1 at December 31, 2007 and Ch$ 532.39
per
US$1 at December 31, 2006.
|
ii)
|
Translation
of non-U.S. dollar financial
statements
|
In
accordance with Chilean GAAP, the financial statements of foreign and domestic
subsidiaries that do not maintain their accounting records in US dollars are
translated from the respective local currencies to U.S. dollars in accordance
with Technical Bulletin No. 64 and No. 72 of the Chilean Association of
Accountants (“BT 64 and BT 72”) as follows:
·
Domestic
subsidiaries
For
those
subsidiaries and affiliates located in Chile which keep their accounting records
in price-level adjusted Chilean pesos:
|
-
|
Balance
sheet accounts are translated to US dollars at the year-end exchange
rate
without eliminating the effects of price-level restatement. The assets
and
liabilities were translated into US dollars at the exchange rates
as of
the respective balance sheet dates of Ch$ 496.89 and Ch$ 532.39 per
US$ 1
as of December 31, 2007 and 2006,
respectively.
|
|
-
|
Income
statement accounts are translated to US dollars at the average exchange
rate each month. The monetary correction account on the income statement,
which is generated by the inclusion of price-level restatement on
the
non-monetary assets and liabilities and shareholders’ equity, is
translated to US dollars at the average exchange rate for each
month.
|
|
-
|
Translation
gains and losses, as well as effects of the price-level restatement
are
included as an adjustment in shareholders’ equity, in conformity with
Circular No. 1697 of the SVS.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies
(continued)
d) |
Foreign
currency (continued)
|
The
financial statements of those foreign subsidiaries that keep their accounting
records in currencies other than the US dollar have been translated as
follows:
|
-
|
Monetary
assets and liabilities are translated at year-end exchange rates
between
the US dollar and the local
currency.
|
|
-
|
All
non-monetary assets and liabilities and shareholders’ equity are
translated at historical exchange rates between the US dollar and
the
local currency.
|
|
-
|
Income
and expense accounts, except
for such accounts that are calculated using historical rates (e.g.
depreciation and amortization)
are translated at average exchange rates between the US dollar and
the
local currency each month.
|
|
-
|
Any
exchange differences are included in the results of operations for
the
period.
|
Foreign
exchange differences for the years ended December 31, 2007, 2006 and 2005
generated net gains (losses) of ThUS$ 2,212, ThUS$ (2,263) and ThUS$ (3,804)
respectively, which have been recorded in the consolidated statements of income
in each respective period.
The
monetary assets and liabilities of foreign subsidiaries were translated into
US
dollars at the exchange rates per US dollar prevailing at December 31, as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
US$
|
|
US$
|
|
US$
|
|
Brazilian
Real
|
|
|
1.77
|
|
|
2.14
|
|
|
2.34
|
|
New
Peruvian Sol
|
|
|
2.99
|
|
|
3.19
|
|
|
3.43
|
|
Argentine
Peso
|
|
|
3.15
|
|
|
3.06
|
|
|
3.03
|
|
Japanese
Yen
|
|
|
114.15
|
|
|
119.11
|
|
|
118.07
|
|
Euro
|
|
|
0.87
|
|
|
0.76
|
|
|
0.85
|
|
Mexican
Peso
|
|
|
10.90
|
|
|
10.88
|
|
|
10.71
|
|
Indonesian
Rupee
|
|
|
9,830.04
|
|
|
9,830.04
|
|
|
9,290.00
|
|
Australian
Dollar
|
|
|
1.15
|
|
|
1.27
|
|
|
1.36
|
|
Pound
Sterling
|
|
|
0.51
|
|
|
0.51
|
|
|
0.52
|
|
Ecuadorian
Sucre
|
|
|
1.00
|
|
|
1.00
|
|
|
1.00
|
|
South
African Rand
|
|
|
6.81
|
|
|
6.99
|
|
|
6.33
|
|
The
Company uses the “observed exchange rate”, which is the rate determined daily by
the Chilean Central Bank based on the average exchange rates at which bankers
conduct authorized transactions.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 – Summary of Significant Accounting Policies
(continued)
e) |
Cash
and cash equivalents
|
The
Company considers all highly liquid investments with a remaining maturity of
less than 90 days as of the closing date of the financial statements to be
cash
equivalents.
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
18,236
|
|
|
20,915
|
|
|
13,273
|
|
Time
deposits
|
|
|
85,523
|
|
|
32,707
|
|
|
1,483
|
|
Mutual
funds
|
|
|
60,453
|
|
|
130,321
|
|
|
132,303
|
|
Repurchase
agreements
|
|
|
-
|
|
|
-
|
|
|
897
|
|
Total
|
|
|
164,212
|
|
|
183,943
|
|
|
147,956
|
|
Time
deposits are recorded at cost plus accrued interest and UF indexation
adjustments, as applicable.
g) |
Allowance
for doubtful accounts
|
The
Company records an allowance for doubtful accounts based on estimated
probability of unrecoverability of accounts receivable determined on the basis
of a case-by-case analysis of the situations of customers.
This
allowance is presented as a deduction from Trade accounts receivable, Notes
receivable and Other accounts receivable.
h) |
Inventories
and materials
|
Inventories
of finished products and work in process are valued at average production cost.
Raw materials and goods for resale acquired from third parties are stated at
average acquisition cost and materials-in-transit are valued at cost. These
values do not exceed net realizable values.
Inventories
of non-critical spare parts and supplies are classified as other current assets,
except for those items for which the Company estimates a turnover period in
excess of one year, which are classified as other long-term assets.
Inventories
are stated net of allowances for obsolete and unsaleable items determined based
on technical studies of inventory conditions and usefulness.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
i) Income
taxes and deferred income taxes
Current
income tax provisions are recognized on the basis of respective enacted tax
laws
and regulations in each jurisdiction where the Company operates.
The
Company records deferred income taxes in accordance with Technical Bulletin
No.
60 (“BT 60”) and complementary technical bulletins thereto issued by the Chilean
Association of Accountants, and with SVS Circulars No. 1466 and No. 1560,
recognizing, using the liability method, the deferred tax effects of temporary
differences between the financial and tax values of assets and liabilities.
As a
transitional provision at the date of adoption of BT 60, a contra asset or
liability has been recorded offsetting the effects of the deferred tax assets
and liabilities not recorded prior to January 1, 2000. Such contra asset or
liability must be amortized to income over the estimated average reversal
periods corresponding to the underlying temporary differences to which the
deferred tax asset or liability relates calculated using the tax rates that
will
be in effect at the time of reversal.
Deferred
tax assets are further reduced by a valuation allowance, if based on the weight
of available evidence it is more-likely-than-not that some portion of the
deferred tax assets will not be realized.
j) Property,
plant and equipment
Property,
plant, equipment and property rights are recorded at acquisition cost,
considering in general an average residual value of 5%, except for certain
assets that were restated in accordance with a technical appraisal in 1988.
The
depreciation of property, plant and equipment has been calculated using a
straight-line method, based on the estimated useful lives of the assets that
for
major classes of the property, plant and equipment are as
follows:
|
|
Estimated
years
of
useful
life
|
|
|
|
|
|
Mining
Concessions
|
|
|
7 –
13
|
|
Building
and infrastructure
|
|
|
3
– 80
|
|
Machinery
and equipment
|
|
|
3
– 35
|
|
Other
|
|
|
2
– 30
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
j) Property,
plant and equipment (continued)
Property,
plant and equipment acquired through financial lease agreements are accounted
for at the present value of the minimum lease payments plus the purchase option
based on the interest rate included in each contract. The Company does not
legally own these assets and therefore cannot freely dispose of
them.
In
conformity with Technical Bulletin No. 31 and 33 of the Chilean Association
of
Accountants, the Company capitalizes interest cost associated with the financing
of new assets during the construction period of such assets.
Maintenance
costs of plant and equipment are charged to expenses as incurred.
The
Company obtains property rights and mining concessions from the Chilean state.
The property rights are usually obtained without initial cost (other than minor
filing fees) and once obtained, are retained by the Company as long as the
annual fees are paid. Such fees, which are paid annually in March, are recorded
as prepaid expenses and are amortized on a straight-line basis over the
following twelve months. Values attributable to mining concessions acquired
from
parties other than the Chilean state are recorded in property, plant and
equipment.
k) Investments
in related companies
Investments
in related companies over which the Company has significant influence, are
included in other assets and are recorded using the equity method of accounting,
in accordance with SVS Circulars No. 368 and 1697 and Technical Bulletins No.
64
and 72 issued by the Chilean Association of Accountants. Accordingly, the
Company’s proportional equity share in the net income or net loss of each
investee is recognized in non-operating income and expenses in the consolidated
statements of income on an accrual basis, after eliminating any unrealized
profits from transactions with related companies.
The
translation adjustment resulting from conversions of investments in domestic
subsidiaries that maintain their accounting records and are controlled in
Chilean pesos to US dollars is recognized in other reserves within shareholders’
equity (other comprehensive income). Direct and indirect investments in foreign
subsidiaries or affiliates are controlled in US dollars.
Investments
in which the Company has less than 20% participation, and the capacity to exert
significant influence over the investment, because SQM has appointed a member
of
its Board of Directors, have been valued using the equity
method.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
l) Goodwill
and negative goodwill
Until
December 31, 2003, goodwill was calculated as the excess of the purchase price
of acquired companies over book value of their net assets, whereas negative
goodwill arose when the net assets acquired exceeded the purchase price.
Beginning January 1, 2004, the Company adopted Technical Bulletin No. 72 of
the
Chilean Association of Accountants that changed the basis for accounting for
goodwill and negative goodwill, introducing the fair value of the acquired
net
assets as the basis to be compared with purchase price in a business combination
in order to determine goodwill or negative goodwill.
Goodwill
and negative goodwill resulting from acquisitions of equity method investments
are controlled in the same currency in which the investment to which it relates
is measured.
Both
goodwill and negative goodwill are amortized based on the estimated period
of
investment return, which is generally 20 and 10 years for goodwill and negative
goodwill, respectively. Negative goodwill recognized on the acquisition of
Minera Nueva Victoria S.A. relates to the mining concessions held by this
company. This negative goodwill will be amortized in the same period as the
underlying concessions once the Company starts to extract minerals from the
Minera Nueva Victoria’s deposits.
m) Intangible
assets
Intangible
assets are stated at cost plus acquisition expenses and are amortized over
a
maximum period of 40 years, in accordance with Technical Bulletin No. 55 of
the
Chilean Association of Accountants.
n) Mining
development cost
Mine
exploration costs and stripping costs to maintain production of mineral
resources extracted from operating mines are considered variable production
costs and are included in the cost of inventory produced during the period.
Mine
development costs at new mines, and major development costs at operating mines
outside existing areas under extraction that are expected to benefit future
production are capitalized under Other long-term assets and amortized using
a
units-of-production method over the associated proven and probable reserves
estimations. The Company determines its proven and probable reserves based
on
drilling, brine sampling and geo-statistic reservoir modeling in order to
estimate mineral volumes and composition.
All
other
mine exploration costs, including expenses related to low grade mineral
resources rendering the reserves not economically exploitable, are charged
to
the results of operations in the period in which they are incurred.
o) Staff
severance indemnities
The
Company calculates the liability for staff severance indemnities based on the
present value of the accrued benefits for the actual years of service based
on
average employee tenure of 24 years and a real annual discount rate of
8%.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
p) Vacations
The
cost
of employee vacations is recognized in the financial statements on an accrual
basis.
q) Reverse
repurchase agreements
These
operations are registered in Other current assets at the amount of the purchase.
Interest is recognized on an accrual basis in accordance with SVS Circular
No.
768.
r)
Dividends
Dividends
are generally declared in US dollars but are paid in Chilean pesos.
s) Derivative
Contracts
The
Company maintains derivative contracts to hedge against movements in foreign
currencies, which are recorded in conformity with Technical Bulletin No. 57
of
the Chilean Association of Accountants. Such contracts are generally recorded
at
fair value with net gain or losses recognized in results.
t) Revenue
recognition
Revenue
is recognized on the date goods are physically delivered or when they are
considered delivered according to the terms of the contract.
u) Computer
software
Cost
related to computational systems developed internally using the Company’s
personnel and materials are charged to income during the year in which the
expenses are incurred. In accordance with Circular No. 981 issued by the SVS,
computer systems acquired by the Company are recorded at cost and amortized
over
their estimated useful lives.
v) Research
and development expenses
Research
and development costs are charged to the income statement in the period in
which
they are incurred. Property, plant and equipment that are acquired for use
in
research and development activities and determined to provide additional
benefits to the Company are recorded in property, plant and equipment.
w)
Bonds
payable
Bonds
are
stated at the principal amount plus interest accrued. The difference between
the
carrying value and the placement value is capitalized and amortized over the
period up to maturity of the bonds. Expenses incurred in the issuance and
placement of the bonds as well as discounts and premiums are deferred and
amortized using the straight-line method over the period of the bond. The
deferred expenses are classified to Other long-term assets, while a portion
to
be amortized within one year is presented within Other current assets. The
amortization charge is presented in interest expense.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
x) Provisions
for mine closure costs
The
Company recognizes provisions to cover costs associated with closure of mining
facilities and mitigation of environmental damage according to the best
estimation of the required expenses. The amount determined is presented under
Accrued expenses in Long-term liabilities.
y) Deferred
income
Deferred
income relates to the recognition of documented sales, the delivery of which
occurs subsequent to the balance sheet date.
z)
Employee Benefits
Employee
benefits - other than staff severance indemnities - that are set forth under
specific contracts are recognized in the financial statements on an accrual
basis.
Note
3 - Changes in Accounting Estimates
During
the period ended December 31, 2007, there were no changes in the application
of
generally accepted accounting principles in Chile compared to the prior year
that could significantly affect the interpretation of these consolidated
financial statements.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
4 - Short-Term and Long-Term Accounts Receivable
a)
|
Short-term
and long-term accounts receivable and other accounts receivable as
of
December 31 are detailed as
follows:
|
|
|
|
|
Between 90 days
|
|
Total
|
|
|
|
Up to 90 days
|
|
And 1 year
|
|
Short-term (net)
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Short-term
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
118,229
|
|
|
95,111
|
|
|
52,444
|
|
|
41,743
|
|
|
170,673
|
|
|
136,854
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,203
|
)
|
|
(7,419
|
)
|
Notes
receivable
|
|
|
43,784
|
|
|
50,859
|
|
|
19,459
|
|
|
354
|
|
|
63,243
|
|
|
51,213
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,269
|
)
|
|
(3,242
|
)
|
Total
trade accounts receivable and notes receivable,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,444
|
|
|
177,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
accounts receivable
|
|
|
7,355
|
|
|
5,582
|
|
|
71
|
|
|
407
|
|
|
7,426
|
|
|
5,989
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,177
|
)
|
|
(1,132
|
)
|
Other
accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,249
|
|
|
4,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604
|
|
|
388
|
|
b)
|
Changes
in the allowance for doubtful accounts for the years ended December
31 are
as follows:
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
At
January 1,
|
|
|
11,793
|
|
|
11,912
|
|
|
10,891
|
|
Charged
to expenses
|
|
|
466
|
|
|
1,598
|
|
|
1,741
|
|
Deductions
(release)
|
|
|
(2,235
|
)
|
|
(542
|
)
|
|
(1,097
|
)
|
Exchange
rate differences
|
|
|
512
|
|
|
(177
|
)
|
|
377
|
|
Business
disposals and other
|
|
|
113
|
|
|
(998
|
)
|
|
-
|
|
At
December 31,
|
|
|
10,649
|
|
|
11,793
|
|
|
11,912
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
4 - Short-Term and Long-Term Accounts Receivable
(continued)
c)
|
Consolidated
short-term and long-term receivables by geographic location of
customer are as follows:
|
|
|
Chile
|
|
Africa
and Middle East
|
|
Asia and
Oceania and Other
|
|
North America, Mexico
and Canada
|
|
Latin America
and the Caribbean
|
|
Total
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
short-term trade accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
60,999
|
|
|
42,375
|
|
|
50,389
|
|
|
43,402
|
|
|
9,352
|
|
|
4,575
|
|
|
28,134
|
|
|
28,730
|
|
|
15,596
|
|
|
10,353
|
|
|
164,470
|
|
|
129,435
|
|
%
of
total
|
|
|
37.08
|
%
|
|
32.74
|
%
|
|
30.64
|
%
|
|
33.53
|
%
|
|
5.69
|
%
|
|
3.53
|
%
|
|
17.11
|
%
|
|
22.20
|
%
|
|
9.48
|
%
|
|
8.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
short-term notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
53,713
|
|
|
41,270
|
|
|
429
|
|
|
2,093
|
|
|
490
|
|
|
340
|
|
|
392
|
|
|
994
|
|
|
4,950
|
|
|
3,274
|
|
|
59,974
|
|
|
47,971
|
|
%
of
total
|
|
|
89.56
|
%
|
|
86.03
|
%
|
|
0.72
|
%
|
|
4.36
|
%
|
|
0.82
|
%
|
|
0.71
|
%
|
|
0.65
|
%
|
|
2.08
|
%
|
|
8.25
|
%
|
|
6.82
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
short-term other accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
3,376
|
|
|
2,815
|
|
|
1,609
|
|
|
585
|
|
|
159
|
|
|
9
|
|
|
457
|
|
|
1,277
|
|
|
648
|
|
|
171
|
|
|
6,249
|
|
|
4,857
|
|
%
of
total
|
|
|
54.03
|
%
|
|
57.96
|
%
|
|
25.75
|
%
|
|
12.04
|
%
|
|
2.54
|
%
|
|
0.19
|
%
|
|
7.31
|
%
|
|
26.29
|
%
|
|
10.37
|
%
|
|
3.52
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
short-term accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
118,088
|
|
|
86,460
|
|
|
52,427
|
|
|
46,080
|
|
|
10,001
|
|
|
4,924
|
|
|
28,983
|
|
|
31,001
|
|
|
21,194
|
|
|
13,798
|
|
|
230,693
|
|
|
182,263
|
|
%
of
total
|
|
|
51.18
|
%
|
|
47.44
|
%
|
|
22.73
|
%
|
|
25.28
|
%
|
|
4.34
|
%
|
|
2.70
|
%
|
|
12.56
|
%
|
|
17.01
|
%
|
|
9.19
|
%
|
|
7.57
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
604
|
|
|
368
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20
|
|
|
604
|
|
|
388
|
|
%
of
total
|
|
|
100.00
|
%
|
|
94.85
|
%
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5.15
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
short and long-term accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
118,692
|
|
|
86,828
|
|
|
52,427
|
|
|
46,080
|
|
|
10,001
|
|
|
4,924
|
|
|
28,983
|
|
|
31,001
|
|
|
21,194
|
|
|
13,818
|
|
|
231,297
|
|
|
182,651
|
|
%
of
total
|
|
|
51.31
|
%
|
|
47.54
|
%
|
|
22.67
|
%
|
|
25.23
|
%
|
|
4.32
|
%
|
|
2.70
|
%
|
|
12.54
|
%
|
|
16.96
|
%
|
|
9.16
|
%
|
|
7.57
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
5 - Balances and Transactions with Related Parties
Accounts
receivable from and payable to related companies are stated in US dollars and
accrue no interest.
Transactions
are made under terms and conditions that are similar to those offered to
unrelated third parties.
a)
|
Amounts
included in balances with related parties as of December 31, 2007
and 2006
are as follows:
|
|
|
Short-term
|
|
Long-term
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
Doktor
Tarsa
|
|
|
4,349
|
|
|
8,446
|
|
|
-
|
|
|
-
|
|
Nutrisi
Holding N.V.
|
|
|
1,800
|
|
|
1,603
|
|
|
-
|
|
|
-
|
|
Ajay
Europe S.A.R.L.
|
|
|
6,838
|
|
|
8,617
|
|
|
-
|
|
|
-
|
|
Ajay
North America LLC
|
|
|
2,706
|
|
|
3,271
|
|
|
-
|
|
|
-
|
|
Abu
Dhabi Fertilizer Ind. WLL
|
|
|
3,622
|
|
|
3,732
|
|
|
2,000
|
|
|
2,000
|
|
Impronta
SRL
|
|
|
-
|
|
|
1,094
|
|
|
-
|
|
|
-
|
|
NU3
B.V.
|
|
|
720
|
|
|
413
|
|
|
-
|
|
|
-
|
|
Sales
de Magnesio Ltda.
|
|
|
104
|
|
|
86
|
|
|
-
|
|
|
-
|
|
SQM
Agro India
|
|
|
364
|
|
|
113
|
|
|
-
|
|
|
-
|
|
Misr
Specialty Fertilizers
|
|
|
616
|
|
|
462
|
|
|
-
|
|
|
-
|
|
Sociedad
de Inversiones Pampa Calichera S.A.
|
|
|
8
|
|
|
8
|
|
|
-
|
|
|
-
|
|
Inversiones
PCS Chile S.A.
|
|
|
17
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Kowa
(Japan)
|
|
|
14,465
|
|
|
8,609
|
|
|
-
|
|
|
-
|
|
SQM
East Med Turkey
|
|
|
160
|
|
|
-
|
|
|
-
|
|
|
-
|
|
PCS
Sales Inc
|
|
|
-
|
|
|
10
|
|
|
-
|
|
|
-
|
|
Yara
AB.
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
-
|
|
Yara
Benelux B.V.
|
|
|
715
|
|
|
78
|
|
|
-
|
|
|
-
|
|
Yara
Hellas S.A.
|
|
|
228
|
|
|
310
|
|
|
-
|
|
|
-
|
|
Yara
International Australia PTY.
|
|
|
536
|
|
|
642
|
|
|
-
|
|
|
-
|
|
Yara
Poland Sp. z o.o.
|
|
|
-
|
|
|
85
|
|
|
-
|
|
|
-
|
|
Yara
UK Ltd.
|
|
|
159
|
|
|
285
|
|
|
-
|
|
|
-
|
|
Yara
CZECH Republic
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
-
|
|
Yara
GMBH & CO KG
|
|
|
102
|
|
|
95
|
|
|
-
|
|
|
-
|
|
Yara
Norge AS.
|
|
|
35
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
Iberian S.A.
|
|
|
2,351
|
|
|
1,317
|
|
|
-
|
|
|
-
|
|
Yara
Argentina S.A.
|
|
|
892
|
|
|
125
|
|
|
-
|
|
|
-
|
|
Yara
Colombia Ltda.
|
|
|
101
|
|
|
2,938
|
|
|
|
|
|
|
|
AduboS
Trevo S.A. (Yara)
|
|
|
252
|
|
|
252
|
|
|
-
|
|
|
-
|
|
Yara
North America LLC
|
|
|
3,274
|
|
|
6,331
|
|
|
-
|
|
|
-
|
|
Yara
Fertilizantes Ltda (Brasil)
|
|
|
-
|
|
|
715
|
|
|
-
|
|
|
-
|
|
Yara
France BU Latin America
|
|
|
2,144
|
|
|
1,794
|
|
|
-
|
|
|
-
|
|
Yara
France BU Africa
|
|
|
2,372
|
|
|
1,030
|
|
|
-
|
|
|
-
|
|
Yara
France S.A.
|
|
|
594
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
S.A. PTY LTD Sudáfrica
|
|
|
4,967
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
Western Cape Sudafrica
|
|
|
1,773
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
Internacional ASA
|
|
|
-
|
|
|
7,884
|
|
|
-
|
|
|
-
|
|
Yara
International Asia Trade Pte Ltd.
|
|
|
223
|
|
|
1,227
|
|
|
-
|
|
|
-
|
|
Yara
International Asia Trade Pte Ltd.
|
|
|
2,586
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
East Africa Limited
|
|
|
478
|
|
|
504
|
|
|
-
|
|
|
-
|
|
Yara
Italia SPA
|
|
|
1,204
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Yara
Fertilizers (New Zealand)
|
|
|
124
|
|
|
157
|
|
|
-
|
|
|
-
|
|
Yara
México S.A. de C.V.
|
|
|
163
|
|
|
3,365
|
|
|
-
|
|
|
-
|
|
Yara
Phosyn Ltda.
|
|
|
-
|
|
|
38
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
61,042
|
|
|
65,640
|
|
|
2,000
|
|
|
2,000
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
5 - Balances and Transactions with Related Parties
(continued)
a)
|
Amounts
included in balances with related parties as of December 31, 2007
and
2006, continued:
|
|
|
Short-term
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Accounts
payable
|
|
|
|
|
|
NU3
N.V.
|
|
|
1,877
|
|
|
847
|
|
Charlee
SQM Thailand Co.
|
|
|
110
|
|
|
182
|
|
SQM
East Med Turkey
|
|
|
-
|
|
|
15
|
|
Yara
International ASA
|
|
|
4,458
|
|
|
-
|
|
Yara
AB.
|
|
|
4
|
|
|
-
|
|
Yara
Fertilizantes Ltda. (Brazil)
|
|
|
31
|
|
|
-
|
|
Yara
Business Support
|
|
|
-
|
|
|
4,363
|
|
Yara
Nederland B.V.
|
|
|
400
|
|
|
400
|
|
Total
|
|
|
6,880
|
|
|
5,807
|
|
There
were no outstanding long-term accounts payable with related parties as of
December 31, 2007 and 2006.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
5 - Balances and Transactions with Related Parties
(continued)
b)
|
During
the years ended December 31, 2007, 2006 and 2005 principal commercial
transactions with related parties were as follows
(1):
|
|
|
|
|
|
|
Amount of
|
|
Impact in income
|
|
|
|
|
|
|
|
Transaction
|
|
(charge) credit
|
|
Company
|
|
Relationship
|
|
Type of Transaction
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NU3
N.V.
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
6,545
|
|
|
6,079
|
|
|
5,018
|
|
|
2,026
|
|
|
2,008
|
|
|
1,892
|
|
Doktor
Tarsa Tarim Sanayi AS
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
7,577
|
|
|
8,868
|
|
|
14,977
|
|
|
2,159
|
|
|
2,409
|
|
|
3,872
|
|
Abu
Dhabi Fertilizer WLL
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
5,434
|
|
|
3,551
|
|
|
3,834
|
|
|
1,123
|
|
|
992
|
|
|
1,222
|
|
|
|
|
|
|
|
Financial
income
|
|
|
117
|
|
|
-
|
|
|
-
|
|
|
117
|
|
|
-
|
|
|
-
|
|
Impronta
SRL
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
-
|
|
|
4,887
|
|
|
4,471
|
|
|
-
|
|
|
1,566
|
|
|
1,613
|
|
Ajay
Europe S.A.R.L.
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
24,965
|
|
|
16,931
|
|
|
8,017
|
|
|
9,250
|
|
|
6,424
|
|
|
4,743
|
|
|
|
|
|
|
|
Financial
income
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
10
|
|
|
-
|
|
|
-
|
|
NU3
B.V.
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
9,025
|
|
|
7,212
|
|
|
6,035
|
|
|
2,791
|
|
|
2,488
|
|
|
2,846
|
|
Fertilizantes
Naturales S.A.
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
-
|
|
|
-
|
|
|
19,916
|
|
|
-
|
|
|
-
|
|
|
6,663
|
|
Ajay
North America LLC
|
|
|
Investee
|
|
|
Sales
of products
|
|
|
17,281
|
|
|
16,215
|
|
|
12,401
|
|
|
8,060
|
|
|
7,605
|
|
|
7,031
|
|
Yara
Italia SPA
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
4,153
|
|
|
-
|
|
|
-
|
|
|
1,066
|
|
|
-
|
|
|
-
|
|
Yara
International Asia Trade Pte Ltd.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
10,344
|
|
|
6,703
|
|
|
6,782
|
|
|
2,384
|
|
|
2,061
|
|
|
1,984
|
|
Yara
France BU Africa.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
5,637
|
|
|
2,826
|
|
|
8,748
|
|
|
1,483
|
|
|
661
|
|
|
2,640
|
|
Yara
Benelux B.V.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
7,064
|
|
|
7,081
|
|
|
6,698
|
|
|
1,478
|
|
|
1,554
|
|
|
2,385
|
|
Yara
AB Sweden
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
-
|
|
|
808
|
|
|
-
|
|
|
-
|
|
|
284
|
|
Yara
International Australia Pty Ltd.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
2,655
|
|
|
2,688
|
|
|
2,853
|
|
|
742
|
|
|
787
|
|
|
999
|
|
Yara
Iberian S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
9,940
|
|
|
8,277
|
|
|
8,900
|
|
|
2,745
|
|
|
2,767
|
|
|
3,060
|
|
Yara
Colombia Ltda.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
5,712
|
|
|
6,285
|
|
|
5,004
|
|
|
1,836
|
|
|
1,982
|
|
|
1,543
|
|
Yara
Poland SP
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
2,233
|
|
|
1,752
|
|
|
1,623
|
|
|
690
|
|
|
593
|
|
|
703
|
|
Yara
GMBH & Co Kg
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
2,056
|
|
|
1,741
|
|
|
1,603
|
|
|
553
|
|
|
548
|
|
|
635
|
|
Yara
France
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
8,400
|
|
|
7,246
|
|
|
7,622
|
|
|
2,107
|
|
|
2,091
|
|
|
2,458
|
|
Yara
Fertilizers Brazil
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
11,957
|
|
|
8,489
|
|
|
-
|
|
|
4,307
|
|
|
3,631
|
|
|
-
|
|
|
|
|
|
|
|
Services
|
|
|
142
|
|
|
-
|
|
|
-
|
|
|
142
|
|
|
-
|
|
|
-
|
|
Yara
France S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
-
|
|
|
209
|
|
|
-
|
|
|
-
|
|
|
73
|
|
Yara
Hellas S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
1,846
|
|
|
1,892
|
|
|
1,448
|
|
|
457
|
|
|
530
|
|
|
473
|
|
Yara
France BU Latin America
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
30
|
|
|
2,014
|
|
|
1,192
|
|
|
30
|
|
|
595
|
|
|
288
|
|
Yara
Argentina S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
1,950
|
|
|
10,912
|
|
|
9,441
|
|
|
492
|
|
|
3,151
|
|
|
2,658
|
|
Adubos
Trevo S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
1,573
|
|
|
3,991
|
|
|
-
|
|
|
560
|
|
|
1,746
|
|
Yara
Internacional ASA
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
33,764
|
|
|
32,296
|
|
|
8,250
|
|
|
9,366
|
|
|
7,997
|
|
|
2,120
|
|
|
|
|
|
|
|
Services
|
|
|
494
|
|
|
-
|
|
|
-
|
|
|
140
|
|
|
-
|
|
|
-
|
|
Yara
North America
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
54,570
|
|
|
45,407
|
|
|
43,386
|
|
|
12,574
|
|
|
12,422
|
|
|
13,137
|
|
Yara
International Wholesale
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
-
|
|
|
20,013
|
|
|
-
|
|
|
-
|
|
|
5,733
|
|
Yara
Business Support
|
|
|
Shareholder
|
|
|
Services
|
|
|
4,317
|
|
|
4,364
|
|
|
4,129
|
|
|
(4,317
|
)
|
|
(4,364
|
)
|
|
(4,129
|
)
|
Yara
East Africa
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
1,255
|
|
|
1,311
|
|
|
-
|
|
|
344
|
|
|
474
|
|
Yara
France S.A.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
10,082
|
|
|
-
|
|
|
-
|
|
|
2,642
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Services
|
|
|
481
|
|
|
-
|
|
|
-
|
|
|
481
|
|
|
-
|
|
|
-
|
|
Yara
Mexico S.A. de C.V.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
5,019
|
|
|
-
|
|
|
-
|
|
|
1,200
|
|
|
-
|
|
|
-
|
|
Kowa
Company Ltd.(Japan)
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
84,701
|
|
|
8,019
|
|
|
-
|
|
|
50,770
|
|
|
3,671
|
|
|
-
|
|
Yara
UK Ltd.
|
|
|
Shareholder
|
|
|
Sales
of products
|
|
|
-
|
|
|
1,388
|
|
|
1,276
|
|
|
-
|
|
|
403
|
|
|
485
|
|
(1) |
Transactions
with related parties involving acquisitions and disposals of
participations in other entities are discussed in Note 8.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
6 - Inventories
Net
inventories are summarized as follows:
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Finished
products
|
|
|
218,073
|
|
|
209,112
|
|
Work
in process
|
|
|
145,209
|
|
|
136,734
|
|
Supplies
|
|
|
24,486
|
|
|
19,653
|
|
Total
|
|
|
387,768
|
|
|
365,499
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
7 - Property, Plant and Equipment
Property,
plant and equipment are summarized as follows:
|
|
As of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Land
|
|
|
|
|
|
Land
|
|
|
82,727
|
|
|
81,153
|
|
Mining
concessions
|
|
|
30,086
|
|
|
30,793
|
|
Subtotal
|
|
|
112,813
|
|
|
111,946
|
|
|
|
|
|
|
|
|
|
Buildings
and Infrastructure
|
|
|
|
|
|
|
|
Buildings
|
|
|
163,603
|
|
|
155,542
|
|
Installations
|
|
|
282,759
|
|
|
263,175
|
|
Ponds
|
|
|
162,385
|
|
|
120,568
|
|
Railroad
|
|
|
23,166
|
|
|
23,166
|
|
Construction-in-progress
|
|
|
165,648
|
|
|
159,516
|
|
Other
|
|
|
44,266
|
|
|
53,374
|
|
Subtotal
|
|
|
841,827
|
|
|
775,341
|
|
|
|
|
|
|
|
|
|
Machinery
and Equipment
|
|
|
|
|
|
|
|
Machinery
|
|
|
556,466
|
|
|
495,426
|
|
Equipment
|
|
|
131,898
|
|
|
114,101
|
|
Project-in-progress
|
|
|
23,060
|
|
|
5,236
|
|
Other
|
|
|
19,729
|
|
|
18,893
|
|
Subtotal
|
|
|
731,153
|
|
|
633,656
|
|
|
|
|
|
|
|
|
|
Other
Fixed Assets
|
|
|
|
|
|
|
|
Tools
|
|
|
9,390
|
|
|
8,937
|
|
Furniture
and office equipment
|
|
|
15,100
|
|
|
29,958
|
|
Project-in-progress
|
|
|
11,275
|
|
|
15,708
|
|
Other
|
|
|
14,264
|
|
|
10,925
|
|
Subtotal
|
|
|
50,029
|
|
|
65,528
|
|
|
|
|
|
|
|
|
|
Amounts
related to technical appraisal
|
|
|
|
|
|
|
|
Land
|
|
|
7,839
|
|
|
7,839
|
|
Buildings
and infrastructure
|
|
|
41,439
|
|
|
41,439
|
|
Machinery
and equipment
|
|
|
12,048
|
|
|
12,048
|
|
Other
assets
|
|
|
53
|
|
|
53
|
|
Subtotal
|
|
|
61,379
|
|
|
61,379
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment (cost)
|
|
|
1,797,201
|
|
|
1,647,850
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
|
|
Buildings
and infrastructure
|
|
|
(339,623
|
)
|
|
(308,192
|
)
|
Machinery
and equipment
|
|
|
(404,573
|
)
|
|
(358,008
|
)
|
Other
fixed assets
|
|
|
(31,441
|
)
|
|
(27,746
|
)
|
Technical
appraisal
|
|
|
(38,115
|
)
|
|
(36,976
|
)
|
Total
accumulated depreciation
|
|
|
(813,752
|
)
|
|
(730,922
|
)
|
|
|
|
|
|
|
|
|
Net
property, plant and equipment
|
|
|
983,449
|
|
|
916,928
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
7 - Property, Plant and Equipment (continued)
Depreciation
expense for the years ended December 31, 2007, 2006 and 2005 was as
follows:
|
|
For the year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Buildings
and infrastructure
|
|
|
(44,135
|
)
|
|
(41,259
|
)
|
|
(30,286
|
)
|
Machinery
and equipment
|
|
|
(46,210
|
)
|
|
(43,290
|
)
|
|
(37,108
|
)
|
Other
property, plant and equipment
|
|
|
(6,342
|
)
|
|
(4,328
|
)
|
|
(1,462
|
)
|
Technical
appraisal
|
|
|
(1,139
|
)
|
|
(1,477
|
)
|
|
(1,198
|
)
|
Total
depreciation
|
|
|
(97,826
|
)
|
|
(90,354
|
)
|
|
(70,054
|
)
|
The
Company has capitalized assets obtained through leasing, which are included
in
other fixed assets and are as follows:
|
|
As of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Administrative
office buildings
|
|
|
1,988
|
|
|
1,988
|
|
Accumulated
depreciation
|
|
|
(521
|
)
|
|
(489
|
)
|
Total
assets in leasing
|
|
|
1,467
|
|
|
1,499
|
|
The
administrative office buildings were acquired for 230 installments of UF 663.75
each and an annual, contractually established interest rate of
8.5%.
Note
8 - Investments in Related Companies
a) Information
on foreign investments
There
are
no plans for the foreign investments to pay dividends, as it is the Company’s
policy to reinvest those earnings.
The
Company has not designated any instruments as net investment hedges of its
foreign investments.
b)
Significant
events and transactions involving related parties and investments in the years
2005-2007
|
· |
On
December 7, 2007, SQM North America Corp. sold to Nautilus International
Holding Corporation all the rights which SQM North America Corp had
in
Cape Fear Bulk LLC. for ThUS$ 1,478, thereby generating a gain from
the
sale of investments of ThUS$ 1,316.
|
|
· |
On
January 12, 2007, the subsidiary PTM SQM Ibérica S.A. was liquidated and
extinguished. This operation gave rise to a loss of ThUS$ 41 in the
subsidiary Soquimich European Holding
B.V.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
8 - Investments in Related Companies (continued)
b)
Significant
events and transactions involving related parties and investments in the years
2005-2007 (continued)
|
· |
On
October 27, 2006, SQM Comercial de México S.A. de C.V. and SQM Industrial
S.A. sold all the shares (100%) they had in Fertilizantes Olmeca
y SQM
S.A. de C.V. to Yara Nederland B.V. and Yara Holdings Netherlands
B.V.
(both being part of Yara Group, party related to SQM) for a sum of
ThUS$
4,888. The sale generated gain of ThUS$
1,040.
|
|
· |
On
September 14, 2006, Soquimich European Holding B.V. (SEH) sold to
Yara
Italia SPA (being part of Yara Group, party related to SQM) its entire
participation (50% of rights) in Impronta SRL for a sum of ThUS$
902. The
transaction generated loss of ThUS$
308.
|
|
· |
On
May 9, 2006, SQM Industrial S.A. and SQM Potasio S.A. provided funding
to
Prestadora de Servicios de Salud Cruz del Norte S.A. The entity’s paid-in
capital amounts to ThCh$ 50,000 (approx. ThUS$ 97 when the entity
was
formed) divided into 5,000 shares with no par value, no privileges
or
preferences, which are paid in full upon
subscription.
|
|
· |
On
January 24, 2006, Soquimich European Holding B.V. and Nutrisi Holding
N.V.
acquired 334 and 666 shares, respectively of Fertilizantes Naturales
S.A.
(“Fenasa”) for ThEuro 75,100 (approx. ThUS$ 91 in the moment of the
transaction) thereby increasing total SQM Group ownership of Fenasa
to
66.67%.
|
Up
to
December 31, 2004, the financial statements of Fenasa in which SQM had at that
time 50% participation were included in consolidation given that the Company
maintained the control over that entity (managed its financial and operating
policies) based on its ability to appoint the General Manager. Beginning January
2005, the Company lost its ability to control Fenasa and consequently it was
excluded from consolidation. The Company accounted for its investment in Fenasa
for the year ended December 31, 2005 using the equity method. Following the
acquisition of a stake that gave rights to more than 50% in 2006, Fenasa was
again included in the consolidation as of December 31, 2006 and
2007.
|
· |
On
January 19, 2006 Sociedad Química y Minera de Chile S.A. and some of its
subsidiaries have acquired from DSM Group based in the Netherlands
(third
party), the total amount of shares of three companies that participate
in
the markets of the production and commercialization of iodine and
iodine
derivatives in Chile (DSM Minera S.A. and Exploraciones Mineras S.A.)
and
abroad (DSM Minera B.V. based in Netherlands). The purchase price
paid in
cash for Chilean operations was ThUS$ 100,067 and for DSM Minera
B.V. was
ThUS$ 13,840 in cash.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
8 - Investments in Related Companies (continued)
b)
Significant
events and transactions involving related parties and investments in the years
2005-2007 (continued)
The
Company accounted for the investment applying the purchase method in accordance
with Technical Bulletin No. 72 issued by the Chilean Association of Accountants
and rules established in Circular No. 1697 issued by the SVS. Accordingly the
Company recorded acquired assets and assumed liabilities at their fair values.
The transactions generated negative goodwill of ThUS$ 1,291 related to Chilean
entities acquired and goodwill amounting to ThUS$ 11,373 related to acquisition
of operations in Netherlands. Goodwill is going to be amortized over a period
of
20 years, while negative goodwill is going to be amortized over the estimated
period of returns generated by mining concessions acquired.
After
the
acquisition DSM Minera S.A. changed its name to Minera Nueva Victoria S.A.
and
DSM Minera B.V. changed its name to Iodine Minera B.V.
|
· |
At
the First General Extraordinary Shareholders’ Meeting of SQM Industrial
S.A. held on January 9, 2006, its shareholders approved the merger
of SQM
Procesos S.A. into SQM Industrial S.A. through the dissolution of
SQM
Procesos S.A. and its incorporation into SQM Industrial S.A., which
in
effect acquires all assets and liabilities of SQM Procesos
S.A.
|
|
· |
In
September 2005, the subsidiary Soquimich European Holding B.V. and
Charlee
Industries Co, Ltd. (third party) incorporated Charlee SQM (Thailand)
Co.
Ltd. Soquimich European Holding B.V. contributed ThUS$ 800 for 40%
participation in Charlee SQM (Thailand) Co. Ltd. This operation did
not
generate any negative goodwill or
goodwill.
|
|
· |
On
August 9, 2005, SQM Nitratos S.A. and SQM S.A. acquired from third
party
99 and 1 shares, respectively of Kemira Emirates Fertilizers Company
(Kefco) for ThUS$ 9,282 paid in cash at the date of the acquisition.
Acquired shares represent in total 100% of the capital of that entity.
In
accordance with the provisions of Technical Bulletin No. 72 issued
by the
Chilean Association of Accountants and Circular No. 1697 issued by
the
SVS, the preliminary valuation of Kefco’s identifiable assets and
liabilities as of July 31, 2005 was performed. Such valuation indicated
that those fair values do not significantly differ from assets’ and
liabilities’ carrying amounts at that date. Goodwill determined on the
acquisition amounted to ThUS$2,058 is amortized over a period of
20 years.
Subsequent to the acquisition Kefco changed its name to SQM Dubai
-
Fzco.
|
|
· |
In
April 2005, the subsidiary SQM Corporation N.V. acquired additional
13%
participation in its investee Abu Dhabi Fertilizers Industries WLL
for a
sum of ThUS$484 reaching total stake in that entity of 50%. In accordance
with Technical Bulletin No. 72 issued by the Chilean Association
of
Accountants and Circular No. 1697 issued by the SVS the Company valued
this investment in consideration of the book value of equity of Abu
Dhabi
Fertilizers Industries WLL as of December 31, 2004, which did not
significantly differ from its fair value at that date. This operation
gave
rise to no goodwill or negative
goodwill.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
8 - Investments in Related Companies (continued)
b)
Significant
events and transactions involving related parties and investments in the years
2005-2007 (continued)
|
· |
In
March 2005, the subsidiary Soquimich European Holding B.V. made a
capital
increase of ThUS$ 411 in its investee Misr Specialty Fertilizers.
In
accordance with Technical Bulletin No. 72 issued by the Chilean
Association of Accountants and the regulations in Circular No. 1697
issued
by the SVS, the valuation was performed in consideration of the book
value
of the equity of Misr Specialty Fertilizers as of December 31, 2004,
which
did not differ significantly from its fair value determined at that
date.
This operation gave rise to no goodwill or negative
goodwill.
|
c) Investments
with less than 20% participation
Investments
in which the Company has less than 20% participation and the capacity to exert
significant influence or control over the investment, because
SQM has appointed a member of its Board of Directors, have been valued
using the equity method.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
8 - Investments in Related Companies (continued)
d) Detail
of
investments in related companies
|
|
|
|
Currency
|
|
Ownership
interest
as
of December 31,
|
|
investment
as
of
December 31,
|
|
Net
income (loss)
for
the year ended
|
|
Carrying
value as of December 31,
|
|
in
net income (loss) for
the
year December 31,
|
|
Company |
|
|
|
of
origin
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
%
|
|
%
|
|
%
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ajay
North America LLC
|
|
|
USA
|
|
|
US
|
|
$
|
49.00
|
|
|
49.00
|
|
|
49.00
|
|
|
11,966
|
|
|
11,282
|
|
|
1,284
|
|
|
291
|
|
|
2,810
|
|
|
4,657
|
|
|
3,998
|
|
|
629
|
|
|
142
|
|
|
1,377
|
|
Nutrisi
Holding N.V.
|
|
|
Belgium
|
|
|
Euros
|
|
|
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
10,429
|
|
|
8,290
|
|
|
1,163
|
|
|
846
|
|
|
1,609
|
|
|
5,092
|
|
|
4,025
|
|
|
581
|
|
|
425
|
|
|
805
|
|
Doktor
Tarsa Tarim Sanayi AS
|
|
|
Turkey
|
|
|
Euros
|
|
|
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
8,472
|
|
|
5,813
|
|
|
2,027
|
|
|
1,291
|
|
|
429
|
|
|
4,236
|
|
|
2,906
|
|
|
1,014
|
|
|
645
|
|
|
214
|
|
Ajay
Europe S.A.R.L.
|
|
|
France
|
|
|
Euros
|
|
|
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
9,467
|
|
|
6,561
|
|
|
1,474
|
|
|
993
|
|
|
1,063
|
|
|
3,703
|
|
|
1,915
|
|
|
737
|
|
|
497
|
|
|
532
|
|
Misr
Specialty Fertilizers
|
|
|
Egypt
|
|
|
US
|
|
$
|
47.49
|
|
|
47.49
|
|
|
47.49
|
|
|
4,529
|
|
|
4,361
|
|
|
(140
|
)
|
|
(446
|
)
|
|
(708
|
)
|
|
2,151
|
|
|
2,071
|
|
|
(67
|
)
|
|
(212
|
)
|
|
(336
|
)
|
Abu
Dhabi Fertilizer Industries WLL Industries WLL
|
|
|
UAE
|
|
|
US
|
|
$ |
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
4,713
|
|
|
3,886
|
|
|
794
|
|
|
366
|
|
|
13
|
|
|
2,356
|
|
|
1,943
|
|
|
397
|
|
|
183
|
|
|
6
|
|
Impronta
SRL
|
|
|
Italia
|
|
|
Euros
|
|
|
-
|
|
|
-
|
|
|
50.00
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(281
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
141
|
|
|
(141
|
)
|
Sales
de Magnesio Ltda.
|
|
|
Chile
|
|
|
Ch
|
|
$
|
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
1,290
|
|
|
946
|
|
|
509
|
|
|
428
|
|
|
259
|
|
|
645
|
|
|
473
|
|
|
254
|
|
|
214
|
|
|
130
|
|
SQM
Eastmed Turkey
|
|
|
Turkey
|
|
|
Euros
|
|
|
50.00
|
|
|
50.00
|
|
|
50.00
|
|
|
196
|
|
|
184
|
|
|
(7
|
)
|
|
(210
|
)
|
|
-
|
|
|
98
|
|
|
92
|
|
|
(4
|
)
|
|
(105
|
)
|
|
-
|
|
Asociación
Garantizadora de Pensiones
|
|
|
Chile
|
|
|
Ch
|
|
$
|
3.31
|
|
|
3.31
|
|
|
3.31
|
|
|
728
|
|
|
874
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
|
29
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Charlee
SQM Thailand Co. Ltd.
|
|
|
Thailand
|
|
|
US
|
|
$
|
40.00
|
|
|
40.00
|
|
|
40.00
|
|
|
2,401
|
|
|
2,167
|
|
|
77
|
|
|
167
|
|
|
-
|
|
|
960
|
|
|
867
|
|
|
31
|
|
|
67
|
|
|
-
|
|
Fertilizantes
Naturales S.A. (1).
|
|
|
Spain
|
|
|
Euros
|
|
|
66.67
|
|
|
66.67
|
|
|
50.00
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9
|
|
Agro
India Ltda.
|
|
|
India
|
|
|
US
|
|
$
|
49.00
|
|
|
49.00
|
|
|
-
|
|
|
27
|
|
|
19
|
|
|
(13
|
)
|
|
(94
|
)
|
|
-
|
|
|
13
|
|
|
10
|
|
|
(6
|
)
|
|
(45
|
)
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,935
|
|
|
18,329
|
|
|
3,566
|
|
|
1,952
|
|
|
2,596
|
|
(1) |
For
the year ended December 31, 2005 the Company accounted for its 50%
investment in Fertilizantes Naturales S.A. using the equity method.
During
2006 the Company acquired additional participation in the entity
and,
having control, included it in the consolidation for the years ended
December 31, 2006 and 2007 (see Note
2a).
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
9 - Goodwill and Negative Goodwill
Goodwill,
negative goodwill and the related amortization is summarized as
follows:
a)
Goodwill
|
|
Amortization
for the year ended
December
31,
|
|
Net
Balance as of
December
31,
|
|
Company
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SQM
Potassium S.A.
|
|
|
145
|
|
|
144
|
|
|
144
|
|
|
1,302
|
|
|
1,447
|
|
Comercial
Hydro S.A.
|
|
|
245
|
|
|
174
|
|
|
176
|
|
|
1,065
|
|
|
1,153
|
|
SQM
Industrial S.A.
|
|
|
1,113
|
|
|
1,154
|
|
|
1,072
|
|
|
18,916
|
|
|
20,029
|
|
Soquimich
Comercial S.A.
|
|
|
-
|
|
|
-
|
|
|
122
|
|
|
-
|
|
|
-
|
|
SQM
Salar S.A.
|
|
|
-
|
|
|
-
|
|
|
40
|
|
|
-
|
|
|
-
|
|
Doktor
Tarsa
|
|
|
-
|
|
|
-
|
|
|
18
|
|
|
-
|
|
|
-
|
|
SQM
México S.A. de C.V.
|
|
|
56
|
|
|
56
|
|
|
56
|
|
|
779
|
|
|
835
|
|
Comercial
Caiman Internacional S.A.
|
|
|
23
|
|
|
23
|
|
|
23
|
|
|
108
|
|
|
131
|
|
Fertilizantes
Olmeca S.A. de C.V.
|
|
|
-
|
|
|
56
|
|
|
56
|
|
|
-
|
|
|
-
|
|
Saftnits
Pty Ltd.
|
|
|
-
|
|
|
-
|
|
|
290
|
|
|
-
|
|
|
-
|
|
SQM
Dubai – FZCO
|
|
|
101
|
|
|
101
|
|
|
73
|
|
|
1,783
|
|
|
1,884
|
|
Iodine
Minera B.V.
|
|
|
569
|
|
|
521
|
|
|
-
|
|
|
10,283
|
|
|
10,852
|
|
Total
|
|
|
2,252
|
|
|
2,229
|
|
|
2,070
|
|
|
34,236
|
|
|
36,331
|
|
b) Negative
Goodwill
|
|
Amortization for the year ended
December 31,
|
|
Net Balance as of
December 31,
|
|
Company
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minera
Mapocho S.A.
|
|
|
-
|
|
|
68
|
|
|
203
|
|
|
-
|
|
|
-
|
|
Minera
Nueva Victoria S.A.
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,291
|
|
|
1,928
|
|
Total
|
|
|
-
|
|
|
68
|
|
|
203
|
|
|
1,291
|
|
|
1,928
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
10 - Other Long-Term Assets
Other
long-term assets are summarized as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Engine
and equipment spare-parts, net
|
|
|
2,987
|
|
|
13,222
|
|
Mine
development costs
|
|
|
23,944
|
|
|
26,545
|
|
Construction
of Salar-Baquedano road
|
|
|
1,170
|
|
|
1,290
|
|
Deferred
debt issuance costs
|
|
|
342
|
|
|
521
|
|
Cost
of issuance and placement of bonds
|
|
|
4,864
|
|
|
5,737
|
|
Other
|
|
|
2,311
|
|
|
1,441
|
|
Total
|
|
|
35,618
|
|
|
48,756
|
|
Note
11 - Bank Debt
a) Short-term
bank debt is detailed as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Bank
or financial institution
|
|
|
|
|
|
Banco
de Credito e Inversiones
|
|
|
-
|
|
|
30,022
|
|
Corpbanca
|
|
|
-
|
|
|
15,216
|
|
BBVA
Banco Bilbao Vizcaya Argentaria
|
|
|
180
|
|
|
10,475
|
|
Fortis
Bank
|
|
|
685
|
|
|
1,150
|
|
CAM
Caja Ahorros Mediterraneo
|
|
|
-
|
|
|
633
|
|
Banesto
|
|
|
432
|
|
|
369
|
|
Deutsche
Bank España S.A.
|
|
|
345
|
|
|
256
|
|
Caixa
Penedes de España
|
|
|
131
|
|
|
185
|
|
HSBC
Bank Middle East Ltd
|
|
|
33
|
|
|
44
|
|
Total
|
|
|
1,806
|
|
|
58,350
|
|
|
|
|
|
|
|
|
|
Annual
average interest rate
|
|
|
4.31
|
%
|
|
5.32
|
%
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
11 - Bank Debt (continued)
b) |
Long-term
bank debt is detailed as follows:
|
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
Bank
or financial institution
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
BBVA
Banco Bilbao Vizcaya Argentaria (1)
|
|
|
100,433
|
|
|
100,412
|
|
ING
Bank (2)
|
|
|
80,368
|
|
|
80,416
|
|
Total
|
|
|
180,801
|
|
|
180,828
|
|
|
|
|
|
|
|
|
|
Less:
Current portion
|
|
|
(801
|
)
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
180,000
|
|
|
180,000
|
|
|
(1) |
U.S.
dollar-denominated loan without guarantee, interest rate of Libor
+ 0.375%
per annum, quarterly payment. The principal is due on February 25,
2010.
|
|
(2) |
U.S.
dollar-denominated loan without guarantee, interest rate of Libor
+ 0.300%
per annum, semi-annually payment. The principal is due on November
28,
2011.
|
c) Maturity
of the long-term bank debt is as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
Years
to maturity
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Current
portion
|
|
|
801
|
|
|
828
|
|
1
to 2 years
|
|
|
-
|
|
|
-
|
|
2
to 3 years
|
|
|
100,000
|
|
|
-
|
|
3
to 5 years
|
|
|
80,000
|
|
|
180,000
|
|
Total
|
|
|
180,801
|
|
|
180,828
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
12 - Bonds Payable
On
January 25, 2006, the Company issued on the Chilean market Series C bonds for
an
amount of UF 3,000,000 (approx. ThUS$ 103,973 at the moment of issuance) at
an
annual interest rate of 4.00%.
On
April
5, 2006, SQM placed in the US market a bond, of US$ 200 million with an annual
interest rate of 6.125%. The interest will be paid semi-annually and the capital
will be paid in a single payment in April 2016.
As
of
December 31, 2007 and 2006, the short-term portion includes ThUS$ 8,868 and
ThUS$ 5,540, respectively, related to short-term principal plus accrued interest
at those dates. The long-term portion includes ThUS$ 306,651 as of December
31,
2007 and ThUS$ 300,724 as of December 31, 2006, related to outstanding
principals of the Series C UF bonds and Single Series US$ bond.
Detail
of
the bonds payable is presented in the table below:
Number
of
registration
of
the
instrument
|
|
Series
|
|
Nominal
Amount
|
|
Currency
or
indexation
unit
|
|
Interest Rate
|
|
Matures on
|
|
Payment
of
interest
|
|
Repayment
of principal
|
|
Balance as
of Dec 31, 2007
|
|
Balance as
of Dec 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ThUS$
|
|
Current
portion of long-term bonds payable:
|
|
446..
|
|
|
C
|
|
|
150,000
|
|
|
UF
|
|
|
4.00
|
%
|
Jun 1, 2008
|
|
Semi-annual
|
|
Semi-annual
|
|
|
6,291
|
|
|
2,920
|
|
184.
|
|
|
Single
|
|
|
-
|
|
|
ThUS$
|
|
|
6.125
|
%
|
Apr 15, 2008
|
|
Semi-annual
|
|
Bullet
|
|
|
2,577
|
|
|
2,620
|
|
Total
|
|
8,868
|
|
|
5,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bonds payable:
|
446..
|
|
|
C
|
|
|
2,700,000
|
|
|
UF
|
|
|
4.00
|
%
|
Dec 1, 2026
|
|
Semi-annual
|
|
Semi-annual
|
|
|
106,651
|
|
|
100,724
|
|
184.
|
|
|
Single
|
|
|
200,000
|
|
|
ThUS$
|
|
|
6.125
|
%
|
Apr 15, 2016
|
|
Semi-annual
|
|
Bullet |
|
|
200,000
|
|
|
200,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306,651
|
|
|
300,724
|
|
Sociedad Química y Minera de Chile
S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
13 - Accrued Liabilities
As
of
December 31, 2007 and 2006, current accrued liabilities are summarized as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Accrued
royalty payments to Corfo
|
|
|
3,643
|
|
|
2,358
|
|
Provision
for employee compensation and legal costs
|
|
|
925
|
|
|
504
|
|
Taxes
and monthly income tax installment payments
|
|
|
3,496
|
|
|
3,309
|
|
Vacation
accrual
|
|
|
11,919
|
|
|
8,478
|
|
Marketing
expenses
|
|
|
107
|
|
|
109
|
|
Audit
fees
|
|
|
400
|
|
|
576
|
|
Other
accruals
|
|
|
1,824
|
|
|
1,070
|
|
Total
|
|
|
22,314
|
|
|
16,404
|
|
Note
14 - Current and Deferred Income Taxes
a) Refundable
dividend tax credits
At
December 31, 2007 and 2006 the Company has the following consolidated balances
for retained tax earnings, income not subject to taxes, tax loss carry-forwards
and credit for shareholders:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Accumulated
tax basis retained earnings with tax credit
|
|
|
381,272
|
|
|
278,515
|
|
Accumulated
tax basis retained earnings without tax credit
|
|
|
56,332
|
|
|
97,140
|
|
Tax
loss carry-forwards (1)
|
|
|
142,236
|
|
|
171,249
|
|
Credit
for shareholders (2)
|
|
|
77,904
|
|
|
56,759
|
|
(1) |
Tax
losses
in Chile can be carried forward
indefinitely.
|
(2)
|
Corresponds
to credit to income taxes that shareholders have in relation to
distribution of dividends.
|
The
Company has recognized deferred income tax assets for tax loss carry-forwards
and the related valuation allowance, where applicable, in accordance with
Technical Bulletin No. 60 issued by the Chilean Association of
Accountants.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
14 - Current and Deferred Income Taxes (continued)
b)
Deferred
taxes
The
deferred taxes as of December 31, 2007 and 2006 represented a net liability
of
ThUS$ 61,623 and ThUS$ 51,449, respectively, and consisted of:
As
of December 31, 2007
|
|
Deferred
tax asset
|
|
Deferred
tax liability
|
|
|
|
Short-term
|
|
Long-term
|
|
Short-term
|
|
Long-term
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Temporary
differences
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
1,335
|
|
|
605
|
|
|
-
|
|
|
-
|
|
Vacation
accrual
|
|
|
1,872
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Unrealized
gain on sale of products
|
|
|
17,521
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
for obsolescence of non-current assets
|
|
|
-
|
|
|
3,779
|
|
|
-
|
|
|
-
|
|
Production
expenses
|
|
|
-
|
|
|
-
|
|
|
20,535
|
|
|
-
|
|
Accelerated
depreciation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
62,190
|
|
Exploration
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,327
|
|
Capitalized
interest
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,384
|
|
Staff
severance indemnities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,733
|
|
Fair
value of fixed assets
|
|
|
-
|
|
|
2,119
|
|
|
-
|
|
|
-
|
|
Leased
assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12
|
|
Capitalized
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
929
|
|
Tax
loss carry-forwards
|
|
|
-
|
|
|
25,883
|
|
|
-
|
|
|
-
|
|
Accrued
gain from swap contract
|
|
|
-
|
|
|
-
|
|
|
2,545
|
|
|
-
|
|
Deferred
revenue
|
|
|
188
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
for energy tariff difference
|
|
|
2,175
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accrued
interest
|
|
|
233
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Allowances
for obsolete inventories
|
|
|
-
|
|
|
5,382
|
|
|
|
|
|
|
|
Other
|
|
|
1,215
|
|
|
45
|
|
|
140
|
|
|
596
|
|
Total
gross deferred taxes
|
|
|
24,539
|
|
|
37,813
|
|
|
23,220
|
|
|
78,171
|
|
Total
complementary accounts
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,633
|
)
|
Valuation
allowance
|
|
|
(7,533
|
)
|
|
(30,684
|
)
|
|
-
|
|
|
-
|
|
Total
deferred taxes
|
|
|
17,006
|
|
|
7,129
|
|
|
23,220
|
|
|
62,538
|
|
Deferred
tax asset/liability, net
|
|
|
-
|
|
|
-
|
|
|
6,214
|
|
|
55,409
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
14 - Current and Deferred Income Taxes (continued)
b) Deferred
taxes (continued)
As
of December 31, 2006
|
|
Deferred
tax asset
|
|
Deferred
tax liability
|
|
|
|
Short-term
|
|
Long-term
|
|
Short-term
|
|
Long-term
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Temporary
differences
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
1,814
|
|
|
594
|
|
|
-
|
|
|
-
|
|
Vacation
accrual
|
|
|
1,411
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Unrealized
gain on sale of products
|
|
|
13,308
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
for obsolescence of non-current assets
|
|
|
-
|
|
|
2,283
|
|
|
-
|
|
|
-
|
|
Production
expenses
|
|
|
-
|
|
|
-
|
|
|
18,613
|
|
|
-
|
|
Accumulated
depreciation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
61,046
|
|
Exploration
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,712
|
|
Capitalized
interest
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,052
|
|
Staff
severance indemnities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,796
|
|
Fair
value of fixed assets
|
|
|
-
|
|
|
841
|
|
|
-
|
|
|
-
|
|
Provision
for claim expense
|
|
|
-
|
|
|
88
|
|
|
-
|
|
|
-
|
|
Capitalized
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,055
|
|
Tax
loss carry-forwards
|
|
|
-
|
|
|
31,969
|
|
|
-
|
|
|
-
|
|
Accrued
gain from swap contract
|
|
|
-
|
|
|
-
|
|
|
182
|
|
|
-
|
|
Deferred
revenue
|
|
|
144
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
for energy tariff difference
|
|
|
765
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accrued
interest
|
|
|
159
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision
capital expenditure
|
|
|
610
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Allowances
for obsolete inventories
|
|
|
-
|
|
|
3,786
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
481
|
|
|
169
|
|
|
-
|
|
|
497
|
|
Total
gross deferred taxes
|
|
|
18,692
|
|
|
39,730
|
|
|
18,795
|
|
|
76,158
|
|
Total
complementary accounts
|
|
|
-
|
|
|
-
|
|
|
(566
|
)
|
|
(20,551
|
)
|
Valuation
allowance
|
|
|
(4,551
|
)
|
|
(31,484
|
)
|
|
-
|
|
|
-
|
|
Total
deferred taxes
|
|
|
14,141
|
|
|
8,246
|
|
|
18,229
|
|
|
55,607
|
|
Deferred tax asset/liability, net
|
|
|
-
|
|
|
-
|
|
|
4,088
|
|
|
47,361
|
|
c) Income
tax expense is summarized as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Provision
for current income taxes
|
|
|
(38,218
|
)
|
|
(24,797
|
)
|
|
(37,428
|
)
|
Effect
of deferred tax assets and liabilities
|
|
|
(2,833
|
)
|
|
(13,447
|
)
|
|
10,844
|
|
Adjustment
for tax expense (previous year)
|
|
|
132
|
|
|
238
|
|
|
(945
|
)
|
Effect
of amortization of complementary accounts
|
|
|
(5,508
|
)
|
|
(4,021
|
)
|
|
(3,084
|
)
|
Effect
on deferred tax assets and liabilities due to changes in valuation
allowance
|
|
|
(2,182
|
)
|
|
4,420
|
|
|
(1,350
|
)
|
Other
tax charges and credits
|
|
|
17
|
|
|
(309
|
)
|
|
(564
|
)
|
Total
income tax expense
|
|
|
(48,592
|
)
|
|
(37,916
|
)
|
|
(32,527
|
)
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
15 - Long-Term Accrued Liabilities
a) |
Long-term
accrued liabilities are composed as
follows:
|
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Staff
severance indemnities
|
|
|
20,679
|
|
|
17,472
|
|
Closure
of mining sites and environmental expenses
|
|
|
1,992
|
|
|
1,992
|
|
Total
|
|
|
22,671
|
|
|
19,464
|
|
b) |
Staff
severance indemnities
|
Changes
in the balance of staff severance indemnities for the years ended December
31,
2007, 2006 and 2005 are summarized as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
|
17,472
|
|
|
16,415
|
|
|
11,875
|
|
Increases
in obligation
|
|
|
4,190
|
|
|
3,253
|
|
|
5,193
|
|
Benefits
paid
|
|
|
(2,245
|
)
|
|
(1,546
|
)
|
|
(3,379
|
)
|
Foreign
currency translation
|
|
|
1,336
|
|
|
(640
|
)
|
|
1,000
|
|
Other
changes
|
|
|
(74
|
)
|
|
(10
|
)
|
|
1,726
|
|
Total
|
|
|
20,679
|
|
|
17,472
|
|
|
16,415
|
|
Note
16 - Minority Interest
Minority
shareholders’ participation in the Shareholders’ equity and results of the
Company’s subsidiaries as of each year-end is as follows:
|
|
Participation in equity as
of December 31,
|
|
Participation in (income) loss for
the years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Soquimich
Comercial S.A.
|
|
|
42,347
|
|
|
35,138
|
|
|
(3,886
|
)
|
|
(3,500
|
)
|
|
(84
|
)
|
Ajay
SQM Chile S.A.
|
|
|
3,541
|
|
|
3,717
|
|
|
166
|
|
|
(912
|
)
|
|
(827
|
)
|
Cape
Fear Bulk LLC
|
|
|
-
|
|
|
219
|
|
|
(99
|
)
|
|
(248
|
)
|
|
(118
|
)
|
SQM
Italia S.R.L
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
SQM
Nitratos México S.A. de C.V.
|
|
|
13
|
|
|
45
|
|
|
31
|
|
|
(84
|
)
|
|
(7
|
)
|
Fertilizantes
Naturales S.A.
|
|
|
123
|
|
|
120
|
|
|
-
|
|
|
2
|
|
|
-
|
|
SQM
Indonesia S.A.
|
|
|
(30
|
)
|
|
(31
|
)
|
|
(1
|
)
|
|
29
|
|
|
-
|
|
SQM
Potasio S.A..
|
|
|
5
|
|
|
5
|
|
|
(3
|
)
|
|
(2
|
)
|
|
-
|
|
Total
|
|
|
45,999
|
|
|
39,213
|
|
|
(3,792
|
)
|
|
(4,715
|
)
|
|
(1,039
|
)
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
17 - Shareholders’ Equity
a) Changes
in shareholders’ equity in the years ended December 31, 2007, 2006 and 2005 were
as follows:
|
|
|
|
|
|
Other
|
|
Accumulated
deficit of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
subsidiaries in
|
|
|
|
|
|
|
|
|
|
Number
|
|
Paid-in
|
|
comprehensive
|
|
development
|
|
Retained
|
|
Net
|
|
|
|
|
|
of
shares
|
|
capital
|
|
income
|
|
stage
|
|
earnings
|
|
income
|
|
Total
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Balance
as of January 1, 2005
|
|
|
263,196,524
|
|
|
477,386
|
|
|
150,887
|
|
|
(8,370
|
)
|
|
254,493
|
|
|
74,232
|
|
|
948,628
|
|
Transfer
of the 2003 net income to retained earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
74,232
|
|
|
(74,232
|
)
|
|
-
|
|
Declared
dividends 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(48,118
|
)
|
|
-
|
|
|
(48,118
|
)
|
Other
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
6,400
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,400
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113,506
|
|
|
113,506
|
|
Balance
as of December 31, 2005
|
|
|
263,196,524
|
|
|
477,386
|
|
|
157,287
|
|
|
(8,370
|
)
|
|
280,607
|
|
|
113,506
|
|
|
1,020,416
|
|
Balance
as of January 1, 2006
|
|
|
263,196,524
|
|
|
477,386
|
|
|
157,287
|
|
|
(8,370
|
)
|
|
280,607
|
|
|
113,506
|
|
|
1,020,416
|
|
Transfer
of the 2005 net income to retained earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113,506
|
|
|
(113,506
|
)
|
|
-
|
|
Transfer
of the accumulated deficit from subsidiaries in development stage
to
retained earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,370
|
|
|
(8,370
|
)
|
|
-
|
|
|
-
|
|
Declared
dividends 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(73,647
|
)
|
|
-
|
|
|
(73,647
|
)
|
Other
comprehensive loss
|
|
|
-
|
|
|
-
|
|
|
(2,097
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,097
|
)
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
141,277
|
|
|
141,277
|
|
Balance
as of December 31, 2006
|
|
|
263,196,524
|
|
|
477,386
|
|
|
155,190
|
|
|
-
|
|
|
312,096
|
|
|
141,277
|
|
|
1,085,949
|
|
Balance
January 1,2007
|
|
|
263,196,524
|
|
|
477,386
|
|
|
155,190
|
|
|
-
|
|
|
312,096
|
|
|
141,277
|
|
|
1,085,949
|
|
Transfer
of the 2006 net income to retained earnings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
141,277
|
|
|
(141,277
|
)
|
|
-
|
|
Declared
dividends 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(91,786
|
)
|
|
-
|
|
|
(91,786
|
)
|
Other
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
8,252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,252
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
180,021
|
|
|
180,021
|
|
Balance
as of December 31, 2007
|
|
|
263,196,524
|
|
|
477,386
|
|
|
163,442
|
|
|
-
|
|
|
361,587
|
|
|
180,021
|
|
|
1,182,436
|
|
Note
17 - Shareholders’ Equity (continued)
b)
The
composition of other comprehensive income (loss) and accumulated other
comprehensive income is as follows:
|
|
Other comprehensive income (loss)
For the year ended December 31,
|
|
Accumulated other
comprehensive income
As of December 31,
|
|
Description
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical
appraisal
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
151,345
|
|
|
151,345
|
|
Changes
in other comprehensive income related to investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Soquimich
Comercial S.A. (1)
|
|
|
7,888
|
|
|
(871
|
)
|
|
5,522
|
|
|
13,286
|
|
|
5,398
|
|
Isapre
Norte Grande Limitada (1)
|
|
|
39
|
|
|
-
|
|
|
-
|
|
|
(44
|
)
|
|
(83
|
)
|
Inversiones
Augusta S.A. (1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(761
|
)
|
|
(761
|
)
|
SQM
Ecuador S.A. (2)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(271
|
)
|
|
(271
|
)
|
Almacenes
y Depósitos Limitada (1)
|
|
|
66
|
|
|
-
|
|
|
78
|
|
|
88
|
|
|
22
|
|
Asociación
Garantizadora de Pensiones (1)
|
|
|
(5
|
)
|
|
(1
|
)
|
|
2
|
|
|
(17
|
)
|
|
(12
|
)
|
Sales
de Magnesio Ltda. (1)
|
|
|
59
|
|
|
(7
|
)
|
|
7
|
|
|
111
|
|
|
52
|
|
Sociedad
de Servicios de Salud
|
|
|
14
|
|
|
-
|
|
|
-
|
|
|
14
|
|
|
-
|
|
SQM
North America Corp. (3)
|
|
|
(141
|
)
|
|
(1,218
|
)
|
|
792
|
|
|
(1,359
|
)
|
|
(1,218
|
)
|
SQM
Dubai Fzco. (1)
|
|
|
(11
|
)
|
|
-
|
|
|
-
|
|
|
(11
|
)
|
|
-
|
|
Ajay
Europe SARL (1)
|
|
|
343
|
|
|
-
|
|
|
-
|
|
|
343
|
|
|
-
|
|
Other
entities (1)
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
718
|
|
|
718
|
|
Total
|
|
|
8,252
|
|
|
(2,097
|
)
|
|
6,400
|
|
|
163,442
|
|
|
155,190
|
|
|
(1)
|
Corresponds
to translation adjustments and price-level restatements.
|
|
(2)
|
Corresponds
to the translation adjustment produced by the application of a law
enacted
by the Ecuadorian Government
|
|
(3)
|
Relates
to valuation differences generated in the pension plan of the subsidiary
SQM North America Corp.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
17 - Shareholders’ Equity (continued)
Capital
consists of 263,196,524 fully authorized, subscribed and paid shares with no
par
value, divided into 142,819,552 Series A shares and 120,376,972 Series B shares.
The preferential voting rights of each series are as follows:
Series
A:
|
|
If
the election of the president of the Company results in a tied 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.
|
Note
18 – Derivative Instruments
Derivative
instruments are recorded at their fair value at year-end. Changes in fair value
are recognized in income with the corresponding asset or liability recorded
in
Other current assets or liabilities. Losses from options relate to fees paid
by
the Company to enter into such contracts. As of December 31, 2007 and 2006
the
Company’s derivative instruments are as follows:
Type of
derivative
|
|
Notional or
covered
amount
|
|
Expiration
|
|
Risk type
|
|
Position
Purchase/Sale
(P/S)
|
|
(Liability)Asset
amount
|
|
Income
(loss) effect
|
|
|
|
ThUS$
|
|
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
dollar option
|
|
|
13,916
|
|
|
1st quarter of 2008
|
|
|
Exchange rate
|
|
|
P
|
|
|
(130
|
)
|
|
(130
|
)
|
US dollar fwd.
|
|
|
4,696
|
|
|
1st quarter of 2008
|
|
|
Exchange rate
|
|
|
P
|
|
|
(1
|
)
|
|
(1
|
)
|
Swap
|
|
|
102,630
|
|
|
1st quarter of 2026
|
|
|
Interest rate
|
|
|
P
|
|
|
14,968
|
|
|
14,968
|
|
US dollar PUT
|
|
|
368
|
|
|
1st quarter of 2008
|
|
|
Exchange rate
|
|
|
P
|
|
|
(368
|
)
|
|
(368
|
)
|
|
|
|
121,610
|
|
|
|
|
|
|
|
|
|
|
|
14,469
|
|
|
14,469
|
|
Type of
derivative
|
|
Notional or
covered
amount
|
|
Expiration
|
|
Risk type
|
|
Position
Purchase/Sale
(P/S)
|
|
(Liability)Asset
amount
|
|
Income
(loss) effect
|
|
|
|
ThUS$
|
|
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
dollar option
|
|
|
6,436
|
|
|
1st quarter of 2007
|
|
|
Exchange rate
|
|
|
P
|
|
|
(150
|
)
|
|
-
|
|
US dollar fwd.
|
|
|
7,079
|
|
|
1st quarter of 2007
|
|
|
Exchange rate
|
|
|
P
|
|
|
(69
|
)
|
|
-
|
|
US dollar fwd.
|
|
|
10,000
|
|
|
1st quarter of 2007
|
|
|
Exchange rate
|
|
|
P
|
|
|
100
|
|
|
-
|
|
Swap
|
|
|
102,630
|
|
|
1st quarter of 2026
|
|
|
Interest rate
|
|
|
P
|
|
|
5,398
|
|
|
564
|
|
|
|
|
126,145
|
|
|
|
|
|
|
|
|
|
|
|
5,279
|
|
|
564
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
19- Non-Operating Income and Expenses
Amounts
included in non-operating income and expenses are summarized as
follows:
|
|
For
the year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
9,347
|
|
|
11,410
|
|
|
5,530
|
|
Equity
participation in net income of unconsolidated investees
|
|
|
3,643
|
|
|
2,314
|
|
|
3,073
|
|
Insurance
recoveries
|
|
|
275
|
|
|
307
|
|
|
213
|
|
Write-off
of liabilities
|
|
|
-
|
|
|
-
|
|
|
2,204
|
|
Reversal
of allowance for doubtful accounts
|
|
|
229
|
|
|
238
|
|
|
-
|
|
Sale
of mining concessions
|
|
|
399
|
|
|
499
|
|
|
298
|
|
Sale
of materials and services
|
|
|
369
|
|
|
75
|
|
|
438
|
|
Sale
of Antucoya project
|
|
|
-
|
|
|
753
|
|
|
-
|
|
Gain
on sale of investments in related companies
|
|
|
1,316
|
|
|
732
|
|
|
-
|
|
Rental
of property, plant and equipment
|
|
|
958
|
|
|
1,023
|
|
|
1,015
|
|
Compensation
obtained from third parties
|
|
|
-
|
|
|
-
|
|
|
737
|
|
Sale
of cross currency swap
|
|
|
4,000
|
|
|
-
|
|
|
-
|
|
Net
foreign currency exchange gains and price-level restatement
|
|
|
2,212
|
|
|
-
|
|
|
-
|
|
Recovery
of provisioned accounts receivable
|
|
|
1,384
|
|
|
-
|
|
|
-
|
|
Payment
discounts obtained from suppliers
|
|
|
458
|
|
|
690
|
|
|
1,026
|
|
Fines
collected from third parties
|
|
|
192
|
|
|
159
|
|
|
-
|
|
Other
income
|
|
|
1,166
|
|
|
1,093
|
|
|
1,899
|
|
Total
|
|
|
25,948
|
|
|
19,293
|
|
|
16,433
|
|
b) |
Non-operating
expenses
|
|
|
For
the year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
19,949
|
|
|
27,593
|
|
|
16,663
|
|
Net
foreign currency exchange loss and price-level restatement and
price-level restatement
|
|
|
-
|
|
|
2,263
|
|
|
3,804
|
|
Non-capitalized
exploration project expenses and provisions for damages and liquidation
of
assets
|
|
|
16,528
|
|
|
11,387
|
|
|
13,489
|
|
Equity
participation in net losses of unconsolidated investees
|
|
|
77
|
|
|
362
|
|
|
477
|
|
Amortization
of goodwill
|
|
|
2,252
|
|
|
2,229
|
|
|
2,070
|
|
Work
disruption expenses
|
|
|
844
|
|
|
2,534
|
|
|
584
|
|
Increase
in provision for employee compensation and legal costs
|
|
|
-
|
|
|
-
|
|
|
7,986
|
|
Change
of discount rate for staff severance indemnities provision
|
|
|
-
|
|
|
-
|
|
|
678
|
|
Allowances
for materials, spare parts and supplies
|
|
|
4,925
|
|
|
2,685
|
|
|
1,188
|
|
Allowance
for doubtful accounts
|
|
|
-
|
|
|
129
|
|
|
151
|
|
Non-recoverable
taxes
|
|
|
669
|
|
|
508
|
|
|
647
|
|
Consulting
services
|
|
|
-
|
|
|
-
|
|
|
314
|
|
Suppliers’
compensations services
|
|
|
1,575
|
|
|
-
|
|
|
-
|
|
Donations
|
|
|
-
|
|
|
-
|
|
|
896
|
|
Provision
for legal expenses and litigations
|
|
|
523
|
|
|
1,010
|
|
|
-
|
|
Accrued
expenses related to energy tariff adjustments
|
|
|
2,066
|
|
|
2,500
|
|
|
-
|
|
Other
expenses
|
|
|
3,624
|
|
|
2,141
|
|
|
1,808
|
|
Total
|
|
|
53,032
|
|
|
55,341
|
|
|
50,755
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
20 – Price-Level Restatement
Amounts
charged or credited to income relating to price-level restatement are summarized
as follows:
|
|
(Charge) to income for the year ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Inventories
|
|
|
1,450
|
|
|
(40
|
)
|
|
(130
|
)
|
Property,
plant and equipment
|
|
|
517
|
|
|
142
|
|
|
239
|
|
Other
assets
|
|
|
558
|
|
|
184
|
|
|
324
|
|
Other
liabilities
|
|
|
119
|
|
|
-
|
|
|
199
|
|
Shareholders’
equity
|
|
|
(7,016
|
)
|
|
(1,734
|
)
|
|
(2,846
|
)
|
Subtotal
price-level restatement
|
|
|
(4,372
|
)
|
|
(1,448
|
)
|
|
(2,214
|
)
|
Net
adjustment of assets and liabilities denominated in UF
|
|
|
(484
|
)
|
|
141
|
|
|
(641
|
)
|
Net
price-level restatement
|
|
|
(4,856
|
)
|
|
(1,307
|
)
|
|
(2,855
|
)
|
Note
21 – Assets and Liabilities Denominated in Foreign
Currency
|
|
As of
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
Assets
|
|
|
|
|
|
Chilean
pesos
|
|
|
198,254
|
|
|
100,614
|
|
US
dollars
|
|
|
1,637,379
|
|
|
1,636,721
|
|
Euros
|
|
|
44,809
|
|
|
37,092
|
|
Japanese
Yen
|
|
|
971
|
|
|
975
|
|
Brazilian
Real
|
|
|
400
|
|
|
330
|
|
Mexican
pesos
|
|
|
1,705
|
|
|
4,783
|
|
UF
|
|
|
73,354
|
|
|
55,108
|
|
South
African Rand
|
|
|
9,366
|
|
|
13,374
|
|
Dirhams
|
|
|
10,942
|
|
|
14,225
|
|
Other
currencies
|
|
|
9,139
|
|
|
7,980
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Chilean
pesos
|
|
|
98,456
|
|
|
75,190
|
|
US
dollars
|
|
|
63,415
|
|
|
101,549
|
|
Euros
|
|
|
13,079
|
|
|
9,925
|
|
Japanese
Yen
|
|
|
92
|
|
|
93
|
|
Brazilian
Real
|
|
|
1,681
|
|
|
1,662
|
|
Mexican
pesos
|
|
|
4,605
|
|
|
3,196
|
|
UF
|
|
|
8,599
|
|
|
3,541
|
|
South
African Rand
|
|
|
1,020
|
|
|
1,698
|
|
Dirhams
|
|
|
930
|
|
|
671
|
|
Other
currencies
|
|
|
545
|
|
|
117
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
Chilean
pesos
|
|
|
20,196
|
|
|
17,340
|
|
US
dollars
|
|
|
437,687
|
|
|
429,324
|
|
Japanese
Yen
|
|
|
187
|
|
|
152
|
|
UF
|
|
|
107,382
|
|
|
101,573
|
|
Other
currencies
|
|
|
10
|
|
|
9
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
22 - Cash Flow Statement
a)
Amounts
included in other credits to income not representing cash flows are as
follows:
|
|
For
the year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Description
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes benefit for tax loss
|
|
|
-
|
|
|
-
|
|
|
(5,602
|
)
|
Adjustment
of provision included in other financial income
|
|
|
(229
|
)
|
|
(238
|
)
|
|
(2,203
|
)
|
Adjustment
of investees’ equity
|
|
|
-
|
|
|
-
|
|
|
(1,143
|
)
|
Discounts
obtained from suppliers
|
|
|
(458
|
)
|
|
(690
|
)
|
|
(598
|
)
|
Reversal
of the provision for damages caused by heavy rains
|
|
|
-
|
|
|
(1,000
|
)
|
|
-
|
|
Other
minor credits to income not representing cash flows
|
|
|
(1,058
|
)
|
|
(834
|
)
|
|
(563
|
)
|
Total
|
|
|
(1,745
|
)
|
|
(2,762
|
)
|
|
(10,109
|
)
|
b)Amounts
included in other charges to income not representing cash flows are as
follows:
|
|
For
the year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Description
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Provision
for Corfo royalty payments
|
|
|
3,643
|
|
|
2,358
|
|
|
1,855
|
|
Deferred
income taxes benefit for tax loss
|
|
|
10,174
|
|
|
8,500
|
|
|
-
|
|
Provision
for legal expenses for GNV lawsuit and other legal expense
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
Provision
for marketing expenses
|
|
|
4,317
|
|
|
4,364
|
|
|
4,130
|
|
Provision
for employee incentive plans
|
|
|
13,495
|
|
|
3,160
|
|
|
8,215
|
|
Adjustment
of provision for severance indemnities
|
|
|
4,736
|
|
|
3,882
|
|
|
8,199
|
|
Provision
for income taxes
|
|
|
38,218
|
|
|
28,204
|
|
|
38,427
|
|
Adjustment
of provision for vacation
|
|
|
8,300
|
|
|
5,333
|
|
|
4,447
|
|
Non-capitalizable
exploration project expense and provisions for damages and liquidation
assets
|
|
|
8,806
|
|
|
11,825
|
|
|
12,156
|
|
Accrued
expenses related to energy tariff adjustments
|
|
|
4,023
|
|
|
4,500
|
|
|
-
|
|
Amortization
of prepaid insurance expenses
|
|
|
7,553
|
|
|
3,189
|
|
|
1,838
|
|
Remuneration
of Board of Directors
|
|
|
1,820
|
|
|
1,800
|
|
|
1,557
|
|
Provision
for mine closure
|
|
|
-
|
|
|
1,000
|
|
|
-
|
|
Adjustment
and other expenses of inventories
|
|
|
-
|
|
|
1,297
|
|
|
-
|
|
Other
charges to income not representing cash flows
|
|
|
2,990
|
|
|
2,921
|
|
|
1,865
|
|
Total
|
|
|
108,075
|
|
|
82,333
|
|
|
87,689
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
23 – Commitments and Contingencies
a)
Material
lawsuits or other legal actions of which the Company is party to
1.
|
Plaintiff
|
:
Compañía
Salitre y Yodo Soledad S.A.
|
|
Defendant
|
:
Sociedad
Química y Minera de Chile S.A.
|
|
Date
of lawsuit
|
:
December
1994
|
|
Court
|
:
Civil
Court of Pozo Almonte
|
|
Cause
|
:
Partial
annulment of mining property, Cesard 1 to 29
|
|
Instance
|
:
Evidence
provided
|
|
Nominal
amount
|
:
ThUS$
211
|
|
|
|
|
|
|
|
|
2.
|
Plaintiff
|
:
Compañía
Productora de Yodo y Sales S.A.
|
|
Defendant
|
:
SQM
Químicos S.A.
|
|
Date
of lawsuit
|
:
November
1999
|
|
Court
|
:
Civil
Court of Pozo Almonte
|
|
Cause
|
:
Partial
annulment of mining property, Paz II 1 to 25
|
|
Instance
|
:
Evidence
provided
|
|
Nominal
amount
|
:
ThUS$
162
|
|
|
|
|
|
|
|
|
3.
|
Plaintiff
|
:
Compañía
Productora de Yodo y Sales S.A.
|
|
Defendant
|
:
SQM
Químicos S.A.
|
|
Date
of lawsuit
|
:
November
1999
|
|
Court
|
:
Civil
Court of Pozo Almonte
|
|
Cause
|
:
Partial
annulment of mining property, Paz III 1 to 25
|
|
Instance
|
:
Evidence
provided
|
|
Nominal
amount
|
:
ThUS$
204
|
|
|
|
|
|
|
|
|
4.
|
Plaintiff
|
:
Gabriela
Véliz Huanchicay
|
|
Defendant
|
:
Gilberto
Mercado Barreda and subsidiary and jointly and severally SQM Nitratos
S.A.
and its insurers
|
|
Date
of lawsuit
|
:
August
2005
|
|
Court
|
:
4th
Civil Court of Santiago
|
|
Cause
|
:
Work
accident
|
|
Instance
|
:
The
Court awarded a judgment of ThCh$ 250. The defendants filed an appeal
against this verdict.
|
|
Nominal
amount
|
:
ThUS$
481
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
23 – Commitments and Contingencies (continued)
a)
Material
lawsuits or other legal actions of which the Company is party to
(continued)
5.
|
Plaintiff
|
:
Juana
Muraña Quispe
|
|
Defendant
|
:
Intro
Ingenieria Limitada and subsidiary and jointly and severally SQM
S.A. and
its insurers
|
|
Date
of lawsuit
|
:
October
2005
|
|
Court
|
:
25th
Civil Court of Santiago
|
|
Cause
|
:
Work
accident
|
|
Instance
|
:
Evidentiary
stage
|
|
Nominal
amount
|
:
ThUS$
1,500
|
|
|
|
|
|
|
|
|
6.
|
Plaintiff
|
:
Marina
Arnéz Valencia
|
|
Defendant
|
:
SQM
S.A. and its insurance companies
|
|
Date
of lawsuit
|
:
April
2006
|
|
Court
|
:
2nd
Civil Court of Santiago
|
|
Cause
|
:
Work
accident
|
|
Instance
|
:
Conciliation
audience
|
|
Nominal
amount
|
:
ThUS$
500
|
|
|
|
|
|
|
|
|
7.
|
Plaintiff
|
:
Sociedad
de Servicios Tacora Limitada
|
|
Defendant
|
:
SQM
Nitratos S.A.
|
|
Date
of lawsuit
|
:
December
2006
|
|
Court
|
:
25th
Civil Court of Santiago
|
|
Cause
|
:
Collection
of securities which SQM Nitratos S.A., by virtue of a mandate conferred
in
its favor, used to pay the plaintiff’s employees who had not received
their salaries and contributions for transportation and machinery
services
rendered indirectly to SQM Nitratos S.A.
|
|
Instance
|
:
Response
|
|
Nominal
amount
|
:
ThUS$
266
|
|
|
|
|
|
|
|
|
8.
|
Plaintiff
|
:
Marineer
Zona Franca S.A.
|
|
Defendant
|
:
Minera
Nueva Victoria S.A.
|
|
Date
of lawsuit
|
:
August
2007
|
|
Court
|
:
Arbitration
Court of Santiago
|
|
Cause
|
:
Damages
for alleged unilateral and early termination of mineral transport
contract
|
|
Instance
|
:
Evidentiary
stage
|
|
Nominal
amount
|
:
ThUS$
1,400
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
23 – Commitments and Contingencies (continued)
b) Other
lawsuits
The
Company and its subsidiaries are involved in various litigation in the ordinary
course of business, including those described in a) above. Based on the advice
of counsel, the Company concluded that there is no need to accrue any provisions
as of December 31, 2007 to cover risk of losses as management believes the
litigations will not result in material losses for the Company.
c) Commitments
Subsidiary
SQM Salar S.A. has signed a rental contract with Corfo which establishes that
this subsidiary, will pay to Corfo, for the exploitation of certain mining
properties owned by Corfo and for the products resulting from such exploitation,
the annual rent stated in the aforementioned contract, the amount of which
is
calculated on the basis of the sales of each type of product. The contract
is in
force until 2030 and rent payments began in 1996. Cost recorded in income for
the year ended December 31, 2007 was ThUS$13,865 (ThUS$ 9,193 in 2006).
d) Debt
covenants
Bank
debt
of SQM S.A. and its subsidiaries has no restrictions or terms other than those
that might usually be found in identical debt in the financial markets, such
as
maximum indebtedness and minimum equity among others. Specifically the loan
covenants in force are the following: (i) shareholders’ equity of SQM S.A.
should not be lower than ThUS$ 984,522, (ii) the net financial debt to EBITDA
ratio should not be greater than 3:1, and (iii) the ratio between financial
debt
of operating subsidiaries and the consolidated current assets should not be
greater than 0.3:1.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
24 – Guarantees
a)
Guarantees
given
As
of
December 31, 2007 and 2006 the Company has the following indirect guarantees
outstanding:
|
|
Debtor
|
|
Balances
outstanding
|
|
Beneficiary
|
|
Name
|
|
Relationship
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
BBVA
Banco Bilbao Vizcaya Argentaria
|
|
Royal Seed Trading Corp. A.V.V.
|
|
Consolidated
Subsidiary
|
|
|
100,433
|
|
|
100,412
|
|
ING
Capital LLC
|
|
Royal
Seed Trading Corp. A.V.V.
|
|
Consolidated
Subsidiary
|
|
|
80,368
|
|
|
80,416
|
|
b)
Guarantees
received
The
main
pledges provided to guarantee to Soquimich Comercial S.A. fulfillment of the
obligations in the commercial mandate agreements for distribution and sale
of
fertilizers are as follows:
|
|
ThUS$
|
|
|
|
|
|
Llanos
y Wammes Soc. Com. Ltda.
|
|
|
2,013
|
|
|
|
|
3,422
|
|
Tattersall
S.A.
|
|
|
1,158
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
25 - Sanctions
During
the years ended December 31, 2007, 2006 and 2005, the SVS did not apply
sanctions to the Company, its directors or managers.
Note
26 – Environmental Projects
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.
SQM
is
currently operating under an Environmental Management System (EMS) based on
the
ISO 14000 standard, which has allowed strengthening its environmental
performance through the effective application of the Company’s Sustainable
Development Policy.
Disbursements
made by the Company and its subsidiaries as of December 31, 2007 related to
investments in production processes, verification and control of compliance
with
ordinances and laws relative to industrial processes and facilities amount
to
ThUS$ 10,180 and are detailed as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Project
|
|
|
|
|
|
|
|
Environmental
department
|
|
|
1,040
|
|
|
748
|
|
|
596
|
|
Risk
and security management
|
|
|
-
|
|
|
-
|
|
|
424
|
|
Improvements
in María Elena Camp – streets
|
|
|
436
|
|
|
296
|
|
|
-
|
|
Dust
emission control
|
|
|
76
|
|
|
823
|
|
|
962
|
|
Light
normalization
|
|
|
921
|
|
|
919
|
|
|
378
|
|
Improvement
of mining operations
|
|
|
-
|
|
|
-
|
|
|
220
|
|
Environmental
studies – Region I of Chile project
|
|
|
-
|
|
|
605
|
|
|
-
|
|
María
Elena environmental studies
|
|
|
1,007
|
|
|
870
|
|
|
-
|
|
Normalization
of lighting at FFCC yard, PV Mill
|
|
|
164
|
|
|
123
|
|
|
-
|
|
Equipment
washing system
|
|
|
-
|
|
|
184
|
|
|
-
|
|
The
Environment MOP/SOP 2
|
|
|
294
|
|
|
142
|
|
|
-
|
|
Construction
of facilities for workers
|
|
|
292
|
|
|
279
|
|
|
-
|
|
Atacama
salt deposit hydrological model
|
|
|
-
|
|
|
176
|
|
|
-
|
|
Environmental
commitments in Region I of Chile
|
|
|
169
|
|
|
152
|
|
|
-
|
|
Waste
pools R&R Lithium C. Plant
|
|
|
2,073
|
|
|
-
|
|
|
-
|
|
Salar
(Salt deposit) environmental follow-up plan
|
|
|
2,272
|
|
|
-
|
|
|
-
|
|
Handling
of household and industrial waste
|
|
|
917
|
|
|
25
|
|
|
-
|
|
Environmental
evaluation
|
|
|
194
|
|
|
21
|
|
|
-
|
|
Elimination
of PCB equipment
|
|
|
-
|
|
|
304
|
|
|
-
|
|
Others
|
|
|
325
|
|
|
1,175
|
|
|
811
|
|
Total
|
|
|
10,180
|
|
|
6,842
|
|
|
3,391
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
26 – Environmental Projects (continued)
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. During the extraction process and subsequent crushing
of
ore, particle emissions occur, which is normal for this type of operation.
On
August
10, 1994, the Ministry of Health published a resolution under the Sanitary
Code
that established that the levels of breathable particles present at the María
Elena facility exceeded the level allowed for air quality and, consequently,
affected the nearby city of María Elena. These particles mainly come from the
dust that results from caliche processing, particularly during the crushing
processes prior to leaching. Within the framework of a decontamination plan
for
this city and in accordance with its Sustainable Development Policy, the Company
has implemented a series of measures that have shown notable improvement in
air
quality at María Elena. In October 2005, the company obtained approval from the
environmental authorities for a project entitled “Technological Change at María
Elena”. The operation of this project will facilitate the reduction of particle
emissions, as required by the new environmental standard, which is estimated
to
go into effect during the second half of 2008. The Company is requesting from
CONAMA, the environmental authority, certain adjustments to the particle
emissions reduction timeline that is currently considered in the decontamination
plan, in order to allow consistency with the degree of completion of the
“Technological Change at María Elena” project.
In
addition, for all its operations, the Company carries out environmental
follow-up and monitoring plans based on specialized scientiӿc studies, and it
also provides an annual training program in environmental matters to both its
direct employees and its contractors’ employees. Within this context, SQM
entered into a contract with the National Forestry Corporation (CONAF) aimed
at
researching the activities of flamingo groups that live in the Salar de Atacama
lagoons. Such research includes a population count of the birds, as well as
breeding research. Environmental monitoring activities carried out by the
Company at the Salar de Atacama and other systems in which it operates are
supported by a number of studies that have integrated diverse scientific efforts
from prestigious research centers, including Dictuc from Pontificia Universidad
Católica and the School of Agricultural Science of Universidad de
Chile.
Furthermore,
the Company is performing 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 María Elena and the Nueva
Victoria plant. 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 surrounding community, as well as
to
participate in community 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, and development, and in order to do so, it
acts
both individually and in conjunction with both private and public
entities.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
27 – Significant Events
On
March
21, 2007, the Company informed the Superintendency of Securities and Insurance
(SVS) that the Board of Directors of Sociedad Química y Minera de Chile S.A. at
its meeting held on March 20, 2007, unanimously agreed to propose the payment
of
a dividend for a sum of US$ 0.34874 per share to those shareholders of SQM
who
were registered with the Shareholders’ Registry during the fifth business day
prior to the date of payment of this dividend.
Note
28 – Subsequent Events
Management
is not aware of any significant subsequent events that have occurred after
December 31, 2007 that may affect the Company’s financial position or the
interpretation of these financial statements.
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles
Accounting
principles generally accepted in Chile vary in certain important respects from
accounting principles generally accepted in the United States. Such differences
involve certain methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP.
The
principal differences Between Chilean GAAP and US GAAP are described below
together with explanations, where appropriate, of the method used in the
determination of the adjustments that affect net income and total shareholders’
equity. References below to “SFAS” are to Statements of Financial Accounting
Standards issued by the Financial Accounting Standards Board of the United
States of America.
The
preparation of financial statements in conformity with Chilean GAAP, along
with
the reconciliation to US GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
I. Differences
in measurement methods
The
principal methods applied in the preparation of the accompanying financial
statements, which have resulted in amounts that differ from those that would
have otherwise been determined under US GAAP, are as follows:
a) Revaluation
of property, plant and equipment
As
described in Note 2j), certain property, plant and equipment are reported in
the
financial statements at amounts determined in accordance with a technical
appraisal performed in 1988. US GAAP does not allow the revaluation of property,
plant and equipment. The effects of the reversal of this revaluation, as well
as
of the related accumulated depreciation and depreciation charge for each year
are set-forth under paragraph I l) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
b) Deferred
income taxes
On
January 1, 2000 the Company began applying Technical Bulletin No. 60 (“BT 60”),
and related amendments, of the Chilean Association of Accountants concerning
deferred income taxes. These regulations require the recognition of deferred
income taxes for all temporary differences arising after January 1, 2000, using
the liability method. Prior to implementation of BT 60 and related amendments,
no deferred income taxes were recorded under Chilean GAAP if the related timing
differences were expected to be offset in the year that they were projected
to
reverse by new timing differences of a similar nature. In order to mitigate
the
effects of not recording deferred income taxes under the prior deferred income
tax accounting standard, BT 60 provided for a period of transition whereby
a
transitional provision, a contra asset or liability (referred to as
“complementary”) was recorded, offsetting the effects of the deferred tax assets
and liabilities not recorded prior to January 1, 2000. Such contra-assets or
liabilities are amortized to income over the estimated average reversal periods
corresponding to the underlying temporary differences to which the deferred
tax
asset or liability relates.
For
US
GAAP purposes, the Company applies SFAS 109 Accounting for Income Taxes, whereby
income taxes are also recognized using the same asset and liability approach
with deferred income tax assets and liabilities established for temporary
differences between the financial reporting basis and tax basis of the Company’s
assets and liabilities based on enacted tax rates.
The
primary differences between Chilean GAAP and US GAAP relate to the reversal
of
complementary accounts and their amortization recorded in accordance with the
transition provisions of BT 60 as well as to the recognition of the deferred
income tax effect of US GAAP adjustments, the effect of which is set-forth
under
paragraph I l) below. Additional disclosures required under SFAS 109 are set
forth under paragraph II b) below.
c)
Translation
of foreign currency financial statements and price-level
restatement
In
accordance with Chilean GAAP, the financial statements of subsidiaries which
do
not maintain their accounting records in US dollars, are translated from local
currency to US dollars as described in Note 2d).
For
the
purposes of reconciling to US GAAP, the Company applies SFAS 52 Foreign Currency
Translation (“SFAS 52”), which requires a functional currency translation
approach. Under SFAS 52 the Company has determined that the US dollar is the
functional currency of all domestic and foreign subsidiaries. Accordingly,
financial statements of subsidiaries, which do not maintain their accounting
records in US dollars, are remeasured into US dollars, after the elimination
of
price-level adjustments, if any, as follows:
(i)
Balance
sheet accounts:
|
·
|
Monetary
assets and liabilities are translated at the year-end exchange rate;
and
|
|
·
|
Non-monetary
assets and liabilities and shareholders' equity are translated at
historical exchange rates.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
c)
|
Translation
of foreign currency financial statements and price-level restatement
(continued)
|
(ii)
Income
statement accounts:
|
·
|
Depreciation
and amortization expense and other accounts derived from non-monetary
assets and liabilities are translated at historical rates;
and
|
|
·
|
All
other accounts are translated at monthly-average exchange rates,
which
approximate the actual rates of exchange at the date the transactions
occurred.
|
Remeasurement
gains and losses are included in the determination of net income for the
period.
As
described in the Note 2c) under Chilean GAAP financial statements of domestic
subsidiaries that maintain their records in Chilean pesos include effects of
the
inflation (price-level restatement) in Chile. Under US GAAP Chile does not
meet
definition of highly inflationary economy and consequently effects of inflation
accounting needs to be reversed.
The
effect of eliminating price-level restatement and the effects of translation
of
financial statements of subsidiaries that maintain their records in currencies
other than US dollar are included in paragraph I l) below.
As
required by the Chilean Companies Act, unless otherwise decided by the unanimous
vote of the holders of issued and subscribed shares, an open stock corporation
must distribute a cash dividend in an amount equal to at least 30% of the
company’s net income before amortization of negative goodwill for each year as
determined in accordance with Chilean GAAP, unless and except to the extent
the
Company has unabsorbed prior year losses. Since the payment of the 30% dividend
out of each year’s income is a legal requirement in Chile, a provision has been
made in the accompanying US GAAP reconciliation in paragraph I l) below to
recognize the corresponding decrease in net equity at December 31 for each
year
for the difference between 30% of net income and interim dividends paid during
the year.
Net
income related to the amortization of negative goodwill can only be distributed
as an additional dividend by the approval of the shareholders, and accordingly,
is not included in the calculation of the minimum dividend to be
distributed.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
During
1989, 1995 and 2000, the Company loaned, in the aggregate, ThUS$ 1,452, ThUS$
8,224 and ThUS$ 6,435, respectively, at market interest rates, to certain
employees for the purpose of acquiring shares of the Company in the open market.
In accordance with US GAAP, the remaining unpaid balance of such loans,
amounting to ThUS$ 127 and ThUS$ 253 at December 31, 2007 and 2006,
respectively, has been treated as a reduction of shareholders' equity under
paragraph I l) below.
f) |
Staff
severance
indemnities
|
The
Company has negotiated certain collective bargaining agreements with employees
for staff severance indemnities. Under Chilean GAAP the liability has been
recorded at the present value of the accrued benefits which are calculated
by
applying a real discount rate to the benefit accrued over the estimated average
remaining service period.
Under
US
GAAP, termination indemnity employee benefits are accounted for in accordance
with SFAS 87 and SFAS 158 consistent with that of a defined benefit pension
plan, measuring the liability by projecting the future expected severance
payments using an assumed salary progression rate, net of inflation adjustments,
mortality and turnover assumptions, and discounting the resulting amounts to
their present value using real interest rates. The effect of accounting for
the
indemnities in accordance with US GAAP is set forth under paragraph I l) below.
g)
|
Derivatives
and hedging
|
In
June
1998, the Financial Accounting Standards Board issued SFAS 133 Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
133”). SFAS 133 requires that all of a company’s derivative instruments be
recorded in the balance sheet at fair value and that changes in a derivative
instrument's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related results
on
the hedged item in the income statement, to the extent effective, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
The
Company enters into forward exchange and currency option contracts principally
to mitigate the risk associated with maintaining certain accounts receivable
in
foreign currencies. The purpose of the Company's foreign currency-hedging
activities is to protect the Company from the risk that cash flows will be
adversely affected by changes in exchange rates resulting from the collection
of
receivables from international customers. The effects of changes in fair value
of forward contracts and options are recorded both under Chilean GAAP and US
GAAP in income.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
g)
|
Derivatives
and hedging (continued)
|
The
Company periodically uses interest rate and currency swap agreements to manage
interest rate risk on its floating rate debt as well as foreign currency risk
exposure. The Company entered into such contracts during 2006 and 2007 in order
to hedge its risk exposure related to bonds denominated in UF. Under Chilean
GAAP the swaps were designated as hedging instruments. Under US GAAP the Company
did not meet the strict documentation and effectiveness testing requirements
to
qualify for hedge accounting. Consequently change in the fair value of the
swap
contracts were recorded in income under US GAAP. The effect of this difference
on the net income and shareholders’ equity of the Company is included in
paragraph I l) below.
In
addition the Company entered during 2006 and 2007 into some forward contracts
to
hedge its exposure to fluctuations between US dollars and Chilean pesos
associated with purchases of certain property, plant and equipment on the
Chilean market. Under Chilean GAAP, the Company recorded this forward contract
at fair value and the related unrealized losses were capitalized as additional
cost of property, plant and equipment. For US GAAP purposes, the Company did
not
apply hedge accounting and in consequence, the unrealized loss on the forward
contract has been recorded in current earnings. The effect of this difference
is
included in paragraph I l) below.
h)
|
Business
combinations and goodwill
|
Under
Chilean GAAP, goodwill is amortized over the estimated period of return of
the
investment made. Impairment tests are only performed if there is an evidence
of
impairment. No impairment has been recognized for any of the periods presented
under either Chilean GAAP or US GAAP.
For
US
GAAP purposes, the Company adopted SFAS 142 Goodwill and Other Intangible Assets
(“SFAS 142”), as of January 1, 2002, and did not amortize goodwill related to
acquisitions made after June 30, 2001.
The
Company has performed the required annual impairment test, which did not result
in any impairment.
The
effect of reversing the amortization of goodwill under Chilean GAAP is set
forth
under paragraph I l) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
Under
Chilean GAAP until December 31, 2003, negative goodwill was calculated as the
excess of the net assets acquired in a business combination over the respective
acquisition cost. Beginning January 1, 2004, the Company adopted Technical
Bulletin No. 72 of the Chilean Association of Accountants that changes the
basis
for accounting for negative goodwill, introducing the fair value of the acquired
net assets as the basis to be compared with purchase price in order to determine
goodwill or negative goodwill.
Negative
goodwill recognized under Chilean GAAP was generated on the acquisitions of
SQM
Salar S.A., Minera Mapocho S.A. and Minera Nueva S.A. Under Chilean GAAP, such
negative goodwill was capitalized as a credit to the balance sheet and is being
amortized over a period of 10 years or over the period in which related mining
concessions are amortized.
Under
US
GAAP, prior to the adoption of SFAS 142, negative goodwill was considered as
a
reduction of the long-term assets of the acquired company, and if a credit
remained after reducing those assets to zero, negative goodwill was recorded
and
amortized over the period of expected benefit. The effects of reversing goodwill
recorded and its related amortization, the recognition of the new basis of
assets and liabilities and subsequent depreciation and writing off the remaining
balance of negative goodwill are set-forth in paragraph I l) below as
follows:
|
i-1: |
The
reversal of negative goodwill amortization recorded under Chilean
GAAP;
|
|
i-2: |
The
effects of reducing depreciation expense, due to the allocation of
the
excess purchase price to property, plant and
equipment.
|
In
accordance with Chilean GAAP, only those legal entities that have financial
expenses may capitalize interests on debt related to property, plant, equipment
under construction and other projects. Prior to 2003 the Company did not
capitalize interest to acquisition cost of property, plant and equipment.
Under
US
GAAP, the capitalization of interest on qualifying assets under construction
is
required, regardless of whether interest is associated with debt directly
related to a project. The accounting differences between Chilean and US GAAP
for
capitalization of interest costs prior to 2003 and the related depreciation
expense are included in the reconciliation to US GAAP under paragraph I l)
below.
The
effects on the minority interest of the US GAAP adjustments in subsidiaries
that
are not wholly-owned by the Company have been reflected in Minority interest
and
are included in paragraph I l) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
I.
l) Effects
of conforming to US GAAP
The
adjustments to reported net income required to conform to US GAAP are as
follows:
|
|
For
the years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Net
income in accordance with Chilean GAAP
|
|
|
180,021
|
|
|
141,277
|
|
|
113,506
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation
of property, plant and equipment (paragraph a)
|
|
|
4,288
|
|
|
4,174
|
|
|
2,132
|
|
Deferred
income taxes (paragraph b)
|
|
|
5,483
|
|
|
4,021
|
|
|
2,236
|
|
Translation
of foreign currency financial statements (paragraph c)
|
|
|
9,507
|
|
|
(576
|
)
|
|
8,994
|
|
Staff
severance indemnities (paragraph f)
|
|
|
(1,406
|
)
|
|
(484
|
)
|
|
(836
|
)
|
Derivatives
(paragraph g)
|
|
|
(4,821
|
)
|
|
4,432
|
|
|
1,483
|
|
Goodwill
(paragraph h)
|
|
|
2,252
|
|
|
1,950
|
|
|
1,718
|
|
Negative
goodwill (paragraph i)
|
|
|
|
|
|
|
|
|
|
|
i-1:
Reversal of negative goodwill amortization
|
|
|
-
|
|
|
(68
|
)
|
|
(203
|
)
|
i-2:
Depreciation of property, plant and equipment
|
|
|
113
|
|
|
113
|
|
|
113
|
|
Capitalized
interest (paragraph j)
|
|
|
(91
|
)
|
|
(91
|
)
|
|
(91
|
)
|
Minority
interest (paragraph k)
|
|
|
(3,752
|
)
|
|
172
|
|
|
(3,576
|
)
|
Deferred
income tax effect of the above US GAAP adjustments (paragraph
b)
|
|
|
1,074
|
|
|
(656
|
)
|
|
(272
|
)
|
Net
income under US GAAP
|
|
|
192,668
|
|
|
154,264
|
|
|
125,204
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
(141
|
)
|
|
-
|
|
|
792
|
|
Translation
adjustment
|
|
|
356
|
|
|
(24
|
)
|
|
-
|
|
Total
comprehensive income under US GAAP
|
|
|
192,883
|
|
|
154,240
|
|
|
125,996
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
l) Effects
of conforming to US GAAP (continued)
The
adjustments required to conform shareholders' equity amounts under Chilean
GAAP
to US GAAP are as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Shareholders’
equity in accordance with Chilean GAAP
|
|
|
1,182,436
|
|
|
1,085,949
|
|
Revaluation
of property, plant and equipment: (paragraph a)
|
|
|
|
|
|
|
|
a-1:
Property, plant and equipment
|
|
|
(133,309
|
)
|
|
(133,309
|
)
|
a-2:
Accumulated depreciation
|
|
|
107,731
|
|
|
103,444
|
|
Deferred
income taxes (paragraph b)
|
|
|
(17,144
|
)
|
|
(22,627
|
)
|
Translation
of foreign currency financial statements (paragraph c)
|
|
|
|
|
|
|
|
c-1:
Property, plant and equipment
|
|
|
(3,745
|
)
|
|
(2,160
|
)
|
c-2:
Accumulated depreciation
|
|
|
1,797
|
|
|
1,104
|
|
c-3:
Inventory
|
|
|
(3,035
|
)
|
|
(364
|
)
|
c-4:
Goodwill, net
|
|
|
(302
|
)
|
|
(335
|
)
|
c-5:
Other assets
|
|
|
(103
|
)
|
|
-
|
|
Minimum
dividend (paragraph d)
|
|
|
(54,006
|
)
|
|
(42,383
|
)
|
Employer
loans used to purchase shares (paragraph e)
|
|
|
(127
|
)
|
|
(253
|
)
|
Staff
severance indemnities (paragraph f)
|
|
|
(6,816
|
)
|
|
(5,409
|
)
|
Derivatives
(paragraph g)
|
|
|
(389
|
)
|
|
4,432
|
|
Goodwill
(paragraph h)
|
|
|
8,015
|
|
|
5,763
|
|
Negative
goodwill: (paragraph i)
|
|
|
|
|
|
|
|
i-1:
Property, plant and equipment
|
|
|
(4,447
|
)
|
|
(5,084
|
)
|
i-1:
Accumulated depreciation of property, plant and equipment
|
|
|
2,023
|
|
|
1,910
|
|
i-2:
Negative goodwill
|
|
|
4,447
|
|
|
5,084
|
|
i-2:
Accumulated amortization of negative goodwill
|
|
|
(3,156
|
)
|
|
(3,156
|
)
|
Capitalized
interest (paragraph j)
|
|
|
|
|
|
|
|
j-1:
Property, plant and equipment
|
|
|
1,643
|
|
|
1,643
|
|
j-2:
Amortization of capitalized interest
|
|
|
(365
|
)
|
|
(274
|
)
|
Effect
of minority interest on US GAAP adjustments (paragraph k)
|
|
|
1,966
|
|
|
614
|
|
Deferred
income tax effect of the above US GAAP adjustments (paragraph
b)
|
|
|
1,007
|
|
|
(67
|
)
|
Shareholders'
equity in accordance with US GAAP
|
|
|
1,084,121
|
|
|
994,522
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
l) Effects
of conforming to US GAAP, continued
The
changes in the Shareholders’ equity accounts determined under US GAAP are
summarized as follows:
|
|
ThUS$
|
|
|
|
|
|
|
Balance
at January 1, 2005
|
|
|
856,871
|
|
|
|
|
|
|
Reversal
of accrued minimum dividend at December 31, 2003
|
|
|
22,270
|
|
Distribution
of final 2003 dividend
|
|
|
(48,118
|
)
|
Accrued
minimum dividend at December 31, 2005
|
|
|
(34,053
|
)
|
Employer
loans used to purchase shares
|
|
|
476
|
|
Other
comprehensive income
|
|
|
792
|
|
Net
income for the year
|
|
|
125,204
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
923,442
|
|
Reversal
of accrued minimum dividend at December 31, 2005
|
|
|
34,053
|
|
Distribution
of final 2005 dividend
|
|
|
(73,647
|
)
|
Accrued
minimum dividend at December 31, 2006
|
|
|
(42,383
|
)
|
Employer
loans used to purchase shares
|
|
|
35
|
|
Other
comprehensive income
|
|
|
(1,242
|
)
|
Net
income for the year
|
|
|
154,264
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
994,522
|
|
Reversal
of accrued minimum dividend at December 31, 2006
|
|
|
42,383
|
|
Distribution
of final 2006 dividend
|
|
|
(91,787
|
)
|
Accrued
minimum dividend at December 31, 2007
|
|
|
(54,006
|
)
|
Employer
loans used to purchase shares
|
|
|
126
|
|
Other
comprehensive loss
|
|
|
215
|
|
Net
income for the year
|
|
|
192,668
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
1,084,121
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
II. Additional
Disclosure Requirements
The
following disclosures are not generally required or recommended for presentation
in the financial statements under Chilean GAAP, but are required under US
GAAP:
a) Earnings
per share
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(Expressed
in US dollars)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share under Chilean GAAP
|
|
|
0.68
|
|
|
0.54
|
|
|
0.43
|
|
Basic
and diluted earnings per share under US GAAP
|
|
|
0.73
|
|
|
0.59
|
|
|
0.48
|
|
Dividends
declared per share (1)
|
|
|
0.44
|
|
|
0.35
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding (thousands)
|
|
|
263,197
|
|
|
263,197
|
|
|
263,197
|
|
(1)
Represents dividends declared and paid in accordance with Chilean
GAAP.
The
earnings per share data shown above is determined by dividing net income for
both Chilean GAAP and US GAAP purposes by the weighted average number of shares
of common stock outstanding during each year. For the years presented the
Company did not have convertible securities outstanding.
b) Income
taxes
The
provision for income taxes differs from the amount of income taxes determined
by
applying the applicable Chilean statutory income tax rate to pretax accounting
income on a US GAAP basis as a result of the following differences:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
pretax income under US GAAP
|
|
|
242,247
|
|
|
193,358
|
|
|
160,382
|
|
Statutory
tax rate
|
|
|
17
|
%
|
|
17
|
%
|
|
17
|
%
|
Theoretical
tax at statutory rate
|
|
|
41,182
|
|
|
32,871
|
|
|
27,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible
items
|
|
|
(1,433
|
)
|
|
5,853
|
|
|
892
|
|
Difference
in tax rates in foreign jurisdictions
|
|
|
105
|
|
|
247
|
|
|
1,056
|
|
Valuation
allowance
|
|
|
2,182
|
|
|
(4,420
|
)
|
|
1,350
|
|
Total
income tax under US GAAP
|
|
|
42,036
|
|
|
34,551
|
|
|
30,563
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
b) Income
taxes (continued)
Deferred
tax assets (liabilities) are summarized as follows at December 31 under US
GAAP.:
|
|
2007
|
|
2006
|
|
|
|
|
ThUS$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Assets
|
|
|
|
|
|
|
|
Allowance
for doubtful debts
|
|
|
1,940
|
|
|
2,408
|
|
Vacation
accrual
|
|
|
1,872
|
|
|
1,411
|
|
Unrealized
gains on sales of products
|
|
|
17,521
|
|
|
13,308
|
|
Provision
for obsolescence
|
|
|
3,779
|
|
|
2,283
|
|
Tax
loss carryforwards (1)
|
|
|
25,883
|
|
|
31,969
|
|
Fair
value acquisition adjustments
|
|
|
2,119
|
|
|
841
|
|
Other
|
|
|
9,238
|
|
|
6,202
|
|
Gross
deferred tax assets
|
|
|
62,352
|
|
|
58,422
|
|
Valuation
allowance
|
|
|
(38,217
|
)
|
|
(36,035
|
)
|
Total
deferred tax assets
|
|
|
24,135
|
|
|
22,387
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Liabilities
|
|
|
|
|
|
|
|
Production
expenses
|
|
|
(20,535
|
)
|
|
(18,613
|
)
|
Accelerated
depreciation
|
|
|
(62,190
|
)
|
|
(61,046
|
)
|
Staff
severance indemnities
|
|
|
(574
|
)
|
|
(876
|
)
|
Exploration
expenses
|
|
|
(4,327
|
)
|
|
(4,712
|
)
|
Capitalized
interest
|
|
|
(8,601
|
)
|
|
(7,284
|
)
|
Gain
from derivative transactions
|
|
|
(2,478
|
)
|
|
(935
|
)
|
Other
|
|
|
(1,679
|
)
|
|
(1,552
|
)
|
Total
deferred tax liabilities
|
|
|
(100,384
|
)
|
|
(95,018
|
)
|
|
(1)
|
The
Company’s tax loss carryforwards were primarily generated from losses
incurred in Chile. In accordance with current laws, in Chile tax
losses
may be carried forward indefinitely. In other countries tax losses
usually
expire. For the years ended December 31, 2007, 2006 and 2005 the
Company
realized benefits from the use of tax loss carry forwards amounting
to
ThUS$ 6,477, ThUS$ 9,037 and ThUS$ 3,541, respectively.
|
Tax
loss
carryforwards relate to the following countries as of December 31:
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Chile
|
|
|
22,625
|
|
|
29,180
|
|
Other
countries
|
|
|
3,258
|
|
|
2,789
|
|
Total
|
|
|
25,883
|
|
|
31,969
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
b) Income
taxes (continued)
The
classification of the net deferred tax assets and liabilities detailed above
is
as follows:
|
|
2007
|
|
2006
|
|
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Short-term
|
|
|
(6,148
|
)
|
|
(5,406
|
)
|
Long-term
|
|
|
(70,101
|
)
|
|
(67,225
|
)
|
Net
deferred tax liabilities
|
|
|
(76,249
|
)
|
|
(72,631
|
)
|
The
provision for income taxes in accordance with US GAAP is as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense under Chilean GAAP
|
|
|
48,592
|
|
|
37,916
|
|
|
32,527
|
|
Additional
deferred taxes under US GAAP
|
|
|
(1,048
|
)
|
|
656
|
|
|
272
|
|
Reversal
of complementary accounts
|
|
|
(5,508
|
)
|
|
(4,021
|
)
|
|
(2,236
|
)
|
Total
tax provision US GAAP
|
|
|
42,036
|
|
|
34,551
|
|
|
30,563
|
|
US
GAAP
income (loss) before taxes related to Chile and foreign operations for the
years
ended December 31, is as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
246,251
|
|
|
215,036
|
|
|
134,411
|
|
Foreign
|
|
|
(4,004
|
)
|
|
(21,678
|
)
|
|
25,971
|
|
Total
|
|
|
242,247
|
|
|
193,358
|
|
|
160,382
|
|
The
portion of current and deferred taxes that related to Chile and foreign
operations for the years ended December 31 in accordance with US GAAP is as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Deferred
|
|
Current
|
|
Total
|
|
Deferred
|
|
Current
|
|
Total
|
|
Deferred
|
|
Current
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
3,554
|
|
|
36,010
|
|
|
39,564
|
|
|
9,469
|
|
|
22,263
|
|
|
31,732
|
|
|
(5,777
|
)
|
|
33,537
|
|
|
27,760
|
|
Foreign
|
|
|
264
|
|
|
2,208
|
|
|
2,472
|
|
|
285
|
|
|
2,534
|
|
|
2,819
|
|
|
(1,088
|
)
|
|
3,891
|
|
|
2,803
|
|
Total
|
|
|
3,818
|
|
|
38,218
|
|
|
42,036
|
|
|
9,754
|
|
|
24,797
|
|
|
34,551
|
|
|
(6,865
|
)
|
|
37,428
|
|
|
30,563
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
c) Other
comprehensive income
In
accordance with SFAS No. 130 Reporting
Comprehensive Income,
the
Company reports a measure of all changes in shareholders’ equity that result
from transactions and other economic events of the period other than
transactions with owners (“comprehensive income”). Comprehensive income is the
total net income and other non-owner equity transactions that result in changes
in net equity.
The
following represents accumulated other comprehensive income balances, net of
tax, as of December 31, 2005, 2006 and 2007:
|
|
Year
ended December 31, 2005
|
|
|
|
Before-tax amount
|
|
Tax (expense) or benefit
|
|
Net-of-tax amount
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
(1,274
|
)
|
|
482
|
|
|
(792
|
)
|
Translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minimum
pension liability adjustment
|
|
|
1,274
|
|
|
(482
|
)
|
|
792
|
|
Net
change
|
|
|
1,274
|
|
|
(482
|
)
|
|
792
|
|
Ending
balance
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
Before-tax amount
|
|
Tax (expense) or benefit
|
|
Net-of-tax amount
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Translation
adjustment
|
|
|
(24
|
)
|
|
-
|
|
|
(24
|
)
|
Minimum
pension liability adjustment
|
|
|
(1,218
|
)
|
|
-
|
|
|
(1,218
|
)
|
Net
change
|
|
|
(1,242
|
)
|
|
-
|
|
|
(1,242
|
)
|
Ending
balance
|
|
|
(1,242
|
)
|
|
-
|
|
|
(1,242
|
)
|
|
|
Year
ended December 31, 2007
|
|
|
|
Before-tax amount
|
|
Tax (expense) or benefit
|
|
Net-of-tax amount
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
|
(1,242
|
)
|
|
-
|
|
|
(1,242
|
)
|
Translation
adjustment
|
|
|
356
|
|
|
-
|
|
|
356
|
|
Minimum
pension liability adjustment
|
|
|
(141
|
)
|
|
-
|
|
|
(141
|
)
|
Net
change
|
|
|
215
|
|
|
-
|
|
|
215
|
|
Ending
balance
|
|
|
1,027
|
|
|
-
|
|
|
1,027
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
d) Credit
agreements
The
Company had renewable credit lines for short-term US-dollar borrowings with
various Chilean and foreign banks totaling, in the aggregate, US$580 million
and
US$ 622 million as of December 31, 2007 and 2006, respectively. There were
US$
580 million and US$ 564 million available as of December 31, 2007 and 2006,
respectively. Of the US$ 580 million available as of December 31, 2007, the
Company had US$ 130 million under two committed credit line agreements with
local banks, for which the Company paid commitment fees.
e) Lease
commitments
The
Company leases office facilities by way of a capital lease payable in
installments through 2011, with a bargain purchase option at the end of the
lease.
Minimum
lease payments under the capital lease are recorded in Other accounts payable
and are as follows:
|
|
Minimum
|
|
|
|
lease
|
|
|
|
payments
|
|
Year
ended December 31,
|
|
ThUS$
|
|
|
|
|
|
2008
|
|
|
315
|
|
2009
|
|
|
315
|
|
2010
|
|
|
314
|
|
2011
|
|
|
183
|
|
Total
future minimum lease payments
|
|
|
1,127
|
|
Interest
|
|
|
(153
|
)
|
Present
value of net minimum lease payments
|
|
|
974
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
e) Lease
commitments (continued)
SQM
Salar
S.A., a consolidated subsidiary of the Company, entered into a contract with
a
government agency (Corfo) for the rental of land for the purpose of exploration
and exploitation of certain minerals. Rental payments are stated in US dollars
and are determined based on actual mineral sales through 2030 in accordance
with
rates specified in the agreement. Based on the agreement the Company paid ThUS$
13,959, ThUS$ 9,193 and ThUS$ 6,752 in 2007, 2006 and 2005 respectively,
including the minimum annual rental, which was ThUS$ 4,759, ThUS$ 4,547 and
ThUS$ 4,172 for 2007, 2006 and 2005, respectively. Future estimated minimum
annual rentals are as follows:
|
|
Minimum
|
|
|
|
annual
|
|
|
|
rentals
|
|
Year
ended December 31,
|
|
ThUS$
|
|
|
|
|
|
2008
|
|
|
5,061
|
|
2009
|
|
|
5,061
|
|
2010
|
|
|
5,061
|
|
2011
|
|
|
5,061
|
|
2012
|
|
|
5,061
|
|
Thereafter
|
|
|
91,101
|
|
Total
|
|
|
116,406
|
|
As
of
December 31, 2007, SQM Salar S.A. has accrued for the royalty fee payment of
ThUS$ 3,643 related to the rental agreement maintained with Corfo.
f) Concentration
of credit risk
Financial
instruments, which potentially subject the Company to significant concentrations
of credit risk, consist principally of cash, investments and trade accounts
receivable.
The
Company maintains cash and cash equivalents, marketable securities, and certain
other financial instruments with various financial institutions. These financial
institutions are located in Chile and other parts of the world, and the
Company’s policy is designed to limit exposure to any one institution. The
Company performs periodic evaluations of the relative credit standing of these
financial institutions as part of the Company's investment
strategy.
Concentrations
of credit risk with respect to trade accounts receivable are limited because
of
the large number of entities comprising the Company's customer base and their
dispersion around the world. The Company’s policy is to require collateral (such
as letters of credit, guarantee clause or others) and/or maintain credit
insurance for certain accounts as deemed necessary by
management.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
g) Foreign
exchange gains and losses
For
US
GAAP presentation purposes, the net foreign exchange gains and losses on
transactions in foreign currencies and UF amounted to ThUS$ 10,885, ThUS$
(2,839) and ThUS$ 5,391 in 2007, 2006 and 2005, respectively.
h)
Advertising
and research and development costs
Advertising
costs are expensed as incurred and amounted to ThUS$ 1,670, ThUS$ 1,699 and
ThUS$ 1,389 for the years ended December 31, 2007, 2006 and 2005,
respectively.
Research
and development costs are expensed as incurred and amounted to ThUS$ 2,843,
ThUS$ 2,429 and ThUS$ 2,480 for the years ended December 31, 2007, 2006 and
2005.
i) Business
combinations and goodwill
As
described in paragraph I j) above the Company adopted SFAS 142 as of January
1,
2002, SFAS 142 applies to all goodwill and identified intangible assets acquired
in a business combination.
Changes
in goodwill under US GAAP in the years ended December 31, 2006 and 2007 are
summarized as follows:
|
|
ThUS$
|
|
|
|
|
|
Balance
at 31, 2005
|
|
|
29,103
|
|
Goodwill
on acquisition of DSM business
|
|
|
11,373
|
|
Sale
of Fertilizantes Olmeca
|
|
|
(279
|
)
|
Translation
adjustment
|
|
|
52
|
|
Balance
at December 31, 2006
|
|
|
40,249
|
|
Translation
adjustment
|
|
|
86
|
|
Balance
at December 31, 2007
|
|
|
40,335
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
j)
|
Reclassification
differences between Chilean GAAP and US
GAAP
|
|
(i)
|
Non-operating
income and expense under US GAAP calculated in accordance with Chilean
GAAP
|
The
following reclassifications are required to conform to the presentation of
Chilean GAAP income statement information to that required under US GAAP. The
reclassification amounts are determined in accordance with Chilean
GAAP.
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Non-operating
income under Chilean GAAP
|
|
|
25,948
|
|
|
19,293
|
|
|
16,433
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Sale
of mining concessions
|
|
|
399
|
|
|
1,252
|
|
|
298
|
|
Sale
of material and services
|
|
|
369
|
|
|
75
|
|
|
438
|
|
Insurance
recoveries
|
|
|
275
|
|
|
307
|
|
|
213
|
|
Write-off
of liabilities
|
|
|
335
|
|
|
238
|
|
|
2,204
|
|
Payment
discount obtained from suppliers
|
|
|
458
|
|
|
690
|
|
|
1,026
|
|
Rental
of property, plant and equipment
|
|
|
958
|
|
|
1,023
|
|
|
1,015
|
|
Compensation
obtained from third parties
|
|
|
524
|
|
|
1
|
|
|
737
|
|
Other
income
|
|
|
2,013
|
|
|
1,251
|
|
|
1,899
|
|
Non-operating
income as classified under US GAAP, but calculated in accordance
with
Chilean GAAP
|
|
|
20,617
|
|
|
14,456
|
|
|
8,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
expenses under Chilean GAAP
|
|
|
53,032
|
|
|
55,341
|
|
|
50,755
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Sales
of material and services
|
|
|
-
|
|
|
630
|
|
|
-
|
|
Work
disruption expenses
|
|
|
844
|
|
|
1,534
|
|
|
584
|
|
Increase
in allowance for doubtful debts
|
|
|
-
|
|
|
129
|
|
|
151
|
|
Non-capitalizable
exploration project expenses
|
|
|
16,528
|
|
|
12,087
|
|
|
13,489
|
|
Non-recoverable
taxes
|
|
|
669
|
|
|
542
|
|
|
647
|
|
Provision
for legal expenses and litigations
|
|
|
523
|
|
|
1,010
|
|
|
7,986
|
|
Change
of discount rate for staff severance indemnities provision
|
|
|
-
|
|
|
-
|
|
|
678
|
|
Allowances
for materials, spare parts and supplies
|
|
|
4,925
|
|
|
2,055
|
|
|
1,188
|
|
Consulting
services
|
|
|
-
|
|
|
281
|
|
|
314
|
|
Donations
|
|
|
-
|
|
|
458
|
|
|
896
|
|
Penalties
|
|
|
-
|
|
|
-
|
|
|
238
|
|
Suppliers’
compensations
|
|
|
1,575
|
|
|
-
|
|
|
-
|
|
Accrued
expenses related to energy tariff adjustments
|
|
|
2,066
|
|
|
2,500
|
|
|
-
|
|
Other
expenses
|
|
|
3,624
|
|
|
1,668
|
|
|
1,570
|
|
Non-operating
expense as classified under US GAAP, but calculated in accordance
with
Chilean GAAP
|
|
|
22,278
|
|
|
32,447
|
|
|
23,014
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
j)
Reclassification
differences between Chilean GAAP and US GAAP (continued)
(ii)
Condensed financial statements under US GAAP
The
following are summarized balance sheets of the Company using a US GAAP
presentation and amounts determined in accordance with US GAAP:
|
|
As
of December 31,
|
|
b)
|
|
2007
|
|
2006
|
|
Assets
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
Current
assets
|
|
|
900,593
|
|
|
849,958
|
|
Property,
plant and equipment
|
|
|
1,655,970
|
|
|
1,507,568
|
|
Accumulated
depreciation
|
|
|
(701,582
|
)
|
|
(623,768
|
)
|
Property
plant and equipment, net
|
|
|
954,388
|
|
|
883,800
|
|
Goodwill
|
|
|
40,335
|
|
|
40,249
|
|
Other
assets
|
|
|
64,301
|
|
|
72,019
|
|
Total
assets
|
|
|
1,959,617
|
|
|
1,846,026
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
246,163
|
|
|
241,210
|
|
Long-term
liabilities
|
|
|
585,300
|
|
|
571,695
|
|
Minority
interest
|
|
|
44,033
|
|
|
38,599
|
|
Shareholders’
equity
|
|
|
1,084,121
|
|
|
994,522
|
|
Total
liabilities and shareholders’ equity
|
|
|
1,959,617
|
|
|
1,846,026
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
j)
Reclassification
differences between Chilean GAAP and US GAAP (continued)
The
condensed consolidated statements of income for the years ended December 31
under US GAAP and classified in accordance with US GAAP are presented as
follows:
|
|
For
the years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Operating
income
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1,187,527
|
|
|
1,042,886
|
|
|
895,970
|
|
Cost
of sales
|
|
|
(880,272
|
)
|
|
(767,679
|
)
|
|
(670,213
|
)
|
Gross
margin
|
|
|
307,255
|
|
|
275,207
|
|
|
225,757
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expense
|
|
|
(70,273
|
)
|
|
(69,662
|
)
|
|
(61,878
|
)
|
Operating
income
|
|
|
236,982
|
|
|
205,545
|
|
|
163,879
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
1,699
|
|
|
(14,139
|
)
|
|
(6,093
|
)
|
Income
taxes
|
|
|
(42,036
|
)
|
|
(34,551
|
)
|
|
(30,563
|
)
|
Minority
interest
|
|
|
(7,544
|
)
|
|
(4,543
|
)
|
|
(4,615
|
)
|
Equity
participation in income of related companies, net
|
|
|
3,567
|
|
|
1,952
|
|
|
2,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
192,668
|
|
|
154,264
|
|
|
125,204
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
(141
|
)
|
|
-
|
|
|
792
|
|
Translation
adjustment
|
|
|
356
|
|
|
(24
|
)
|
|
-
|
|
Deferred
gain from sale of swap
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
comprehensive income under US GAAP
|
|
|
192,883
|
|
|
154,240
|
|
|
125,996
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
k) Industry
segment and geographic area information
The
Company provides disclosures in accordance with SFAS 131, Disclosures
About Segments of an Enterprise and Related Information
(“SFAS
131”), which establishes standards for reporting information about operating
segments in annual financial statements as well as related disclosures about
products and services and geographic areas. Operating segments are defined
as
components of an enterprise about which separate financial statement information
available is evaluated regularly by the chief operating decision maker in making
decisions about allocating resources and assessing performance. In accordance
with SFAS 131, the Company has five segments, which are split into geographical
areas: Chile, Latin America and Caribbean except Chile, Europe, USA, and Asia
and other. In addition, the Company evaluates also its performance by the
following group of products: Specialty Plant Nutrition, Iodine and Derivatives,
Lithium and Derivatives, Industrial Chemicals and Potassium Chloride and Other
Commodity Fertilizers. The accounting policies of each segment are the same
as
those described in the “Summary of Significant Accounting Policies” (Note 2).
The following segment information is presented in accordance with US GAAP
reporting requirements; however, the amounts have been determined in accordance
with Chilean GAAP.
(i)
|
Sales
by product type and by geographic area for the years ended December
31,
2007, 2006 and 2005
|
Year
ended December 31, 2007
|
|
Chile
|
|
Latin America
and Caribbean (1)
|
|
Europe
|
|
North America
|
|
Asia
and other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Total
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
157,148
|
|
|
127,274
|
|
|
240,982
|
|
|
192,830
|
|
|
84,509
|
|
|
(221,982
|
)
|
|
580,761
|
|
Iodine
and derivatives
|
|
|
167,189
|
|
|
7,584
|
|
|
144,977
|
|
|
157,530
|
|
|
63,353
|
|
|
(325,530
|
)
|
|
215,103
|
|
Lithium
and derivatives
|
|
|
631
|
|
|
2,621
|
|
|
152,993
|
|
|
66,708
|
|
|
72,651
|
|
|
(115,814
|
)
|
|
179,790
|
|
Industrial
chemicals
|
|
|
3,027
|
|
|
14,695
|
|
|
95,282
|
|
|
88,266
|
|
|
19,801
|
|
|
(139,881
|
)
|
|
81,190
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
334,008
|
|
|
13,457
|
|
|
(5,519
|
)
|
|
3,645
|
|
|
12,549
|
|
|
(227,457
|
)
|
|
130,683
|
|
Total
|
|
|
662,003
|
|
|
165,631
|
|
|
628,715
|
|
|
508,979
|
|
|
252,863
|
|
|
(1,030,664
|
)
|
|
1,187,527
|
|
Transfers
between geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
33,102
|
|
|
13,174
|
|
|
95,014
|
|
|
62,424
|
|
|
18,268
|
|
|
(221,982
|
)
|
|
-
|
|
Iodine
and derivatives
|
|
|
166,244
|
|
|
-
|
|
|
59,011
|
|
|
78,736
|
|
|
21,539
|
|
|
(325,530
|
)
|
|
-
|
|
Lithium
and derivatives
|
|
|
260
|
|
|
-
|
|
|
69,409
|
|
|
28,228
|
|
|
17,917
|
|
|
(115,814
|
)
|
|
-
|
|
Industrial
chemicals
|
|
|
1,322
|
|
|
2,776
|
|
|
58,897
|
|
|
61,298
|
|
|
15,588
|
|
|
(139,881
|
)
|
|
-
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
228,189
|
|
|
2,334
|
|
|
(14,456
|
)
|
|
2,314
|
|
|
9,076
|
|
|
(227,457
|
)
|
|
-
|
|
Total
|
|
|
429,117
|
|
|
18,284
|
|
|
267,875
|
|
|
233,000
|
|
|
82,388
|
|
|
(1,030,664
|
)
|
|
-
|
|
Sales
to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
124,046
|
|
|
114,100
|
|
|
145,968
|
|
|
130,406
|
|
|
66,241
|
|
|
-
|
|
|
580,761
|
|
Iodine
and derivatives
|
|
|
945
|
|
|
7,584
|
|
|
85,966
|
|
|
78,794
|
|
|
41,814
|
|
|
-
|
|
|
215,103
|
|
Lithium
and derivatives
|
|
|
371
|
|
|
2,621
|
|
|
83,584
|
|
|
38,480
|
|
|
54,734
|
|
|
-
|
|
|
179,790
|
|
Industrial
chemicals
|
|
|
1,705
|
|
|
11,919
|
|
|
36,385
|
|
|
26,968
|
|
|
4,213
|
|
|
-
|
|
|
81,190
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
105,819
|
|
|
11,123
|
|
|
8,937
|
|
|
1,331
|
|
|
3,473
|
|
|
-
|
|
|
130,683
|
|
Total
|
|
|
232,886
|
|
|
147,347
|
|
|
360,840
|
|
|
275,979
|
|
|
170,475
|
|
|
-
|
|
|
1,187,527
|
|
(1)
Excludes Chile.
(2)
Includes revenues from imported fertilizers distributed in Chile and Mexico
and
potassium chloride.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
k) Industry
segment and geographic area information (continued)
(i) Sales
by
product type and by geographic area for the years ended December 31, 2007,
2006
and 2005 (continued)
Year ended December 31, 2006
|
|
Chile
|
|
Latin America and Caribbean (1)
|
|
Europe
|
|
North America
|
|
Asia
and other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Total
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
114,144
|
|
|
114,838
|
|
|
203,445
|
|
|
201,906
|
|
|
78,545
|
|
|
(209,762
|
)
|
|
503,116
|
|
Iodine
and derivatives
|
|
|
165,814
|
|
|
6,965
|
|
|
159,783
|
|
|
155,992
|
|
|
68,651
|
|
|
(339,468
|
)
|
|
217,737
|
|
Lithium
and derivatives
|
|
|
46
|
|
|
1,422
|
|
|
95,342
|
|
|
49,651
|
|
|
83,786
|
|
|
(101,359
|
)
|
|
128,888
|
|
Industrial
chemicals
|
|
|
3,675
|
|
|
12,795
|
|
|
57,361
|
|
|
83,616
|
|
|
11,555
|
|
|
(97,718
|
)
|
|
71,284
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
301,673
|
|
|
9,064
|
|
|
9,414
|
|
|
69,459
|
|
|
8,155
|
|
|
(275,903
|
)
|
|
121,862
|
|
Total
|
|
|
585,352
|
|
|
145,084
|
|
|
525,344
|
|
|
560,624
|
|
|
250,692
|
|
|
(1,024,210
|
)
|
|
1,042,886
|
|
Transfers
between geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
25,902
|
|
|
11,487
|
|
|
66,206
|
|
|
70,757
|
|
|
35,410
|
|
|
(209,762
|
)
|
|
-
|
|
Iodine
and derivatives
|
|
|
163,943
|
|
|
-
|
|
|
66,927
|
|
|
74,934
|
|
|
33,664
|
|
|
(339,468
|
)
|
|
-
|
|
Lithium
and derivatives
|
|
|
-
|
|
|
8
|
|
|
39,339
|
|
|
17,771
|
|
|
44,241
|
|
|
(101,359
|
)
|
|
-
|
|
Industrial
chemicals
|
|
|
1,206
|
|
|
3,144
|
|
|
29,623
|
|
|
52,584
|
|
|
11,161
|
|
|
(97,718
|
)
|
|
-
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
229,481
|
|
|
1,904
|
|
|
-
|
|
|
36,363
|
|
|
8,155
|
|
|
(275,903
|
)
|
|
-
|
|
Total
|
|
|
420,532
|
|
|
16,543
|
|
|
202,095
|
|
|
252,409
|
|
|
132,631
|
|
|
(1,024,210
|
)
|
|
-
|
|
Sales
to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
88,242
|
|
|
103,351
|
|
|
137,239
|
|
|
131,149
|
|
|
43,135
|
|
|
-
|
|
|
503,116
|
|
Iodine
and derivatives
|
|
|
1,871
|
|
|
6,965
|
|
|
92,856
|
|
|
81,058
|
|
|
34,987
|
|
|
-
|
|
|
217,737
|
|
Lithium
and derivatives
|
|
|
46
|
|
|
1,414
|
|
|
56,003
|
|
|
31,880
|
|
|
39,545
|
|
|
-
|
|
|
128,888
|
|
Industrial
chemicals
|
|
|
2,469
|
|
|
9,651
|
|
|
27,738
|
|
|
31,032
|
|
|
394
|
|
|
-
|
|
|
71,284
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
72,192
|
|
|
7,160
|
|
|
9,414
|
|
|
33,096
|
|
|
-
|
|
|
-
|
|
|
121,862
|
|
Total
|
|
|
164,820
|
|
|
128,541
|
|
|
323,249
|
|
|
308,215
|
|
|
118,061
|
|
|
-
|
|
|
1,042,886
|
|
(1)
Excludes Chile.
(2)
Includes revenues from imported fertilizers distributed in Chile and Mexico
and
potassium chloride.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
k) Industry
segment and geographic area information (continued)
(i) Sales
by
product type and by geographic area for the years ended December 31, 2007,
2006
and 2005 (continued)
Year ended December 31, 2005
|
|
Chile
|
|
Latin America and Caribbean (1)
|
|
Europe
|
|
North America
|
|
Asia
and other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Total
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
135,864
|
|
|
114,055
|
|
|
267,572
|
|
|
194,050
|
|
|
55,468
|
|
|
(279,205
|
)
|
|
487,804
|
|
Iodine
and derivatives
|
|
|
84,220
|
|
|
8,114
|
|
|
115,634
|
|
|
115,032
|
|
|
43,615
|
|
|
(217,511
|
)
|
|
149,104
|
|
Lithium
and derivatives
|
|
|
379
|
|
|
1,213
|
|
|
72,271
|
|
|
37,917
|
|
|
21,128
|
|
|
(51,548
|
)
|
|
81,360
|
|
Industrial
chemicals
|
|
|
6,627
|
|
|
12,245
|
|
|
79,612
|
|
|
88,545
|
|
|
1,526
|
|
|
(118,073
|
)
|
|
70,482
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
207,321
|
|
|
8,164
|
|
|
10,336
|
|
|
59,177
|
|
|
46
|
|
|
(177,824
|
)
|
|
107,220
|
|
Total
|
|
|
434,411
|
|
|
143,791
|
|
|
545,425
|
|
|
494,721
|
|
|
121,783
|
|
|
(844,161
|
)
|
|
895,970
|
|
Transfers
between geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
47,722
|
|
|
9,155
|
|
|
131,279
|
|
|
72,551
|
|
|
18,498
|
|
|
(279,205
|
)
|
|
-
|
|
Iodine
and derivatives
|
|
|
82,766
|
|
|
460
|
|
|
60,481
|
|
|
56,318
|
|
|
17,486
|
|
|
(217,511
|
)
|
|
-
|
|
Lithium
and derivatives
|
|
|
12
|
|
|
52
|
|
|
38,180
|
|
|
12,132
|
|
|
1,172
|
|
|
(51,548
|
)
|
|
-
|
|
Industrial
chemicals
|
|
|
1,931
|
|
|
4,229
|
|
|
53,372
|
|
|
57,337
|
|
|
1,204
|
|
|
(118,073
|
)
|
|
-
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
145,894
|
|
|
1,708
|
|
|
3,817
|
|
|
26,376
|
|
|
29
|
|
|
(177,824
|
)
|
|
-
|
|
Total
|
|
|
278,325
|
|
|
15,604
|
|
|
287,129
|
|
|
224,714
|
|
|
38,389
|
|
|
(844,161
|
)
|
|
-
|
|
Sales
to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
plant nutrition
|
|
|
88,142
|
|
|
104,900
|
|
|
136,293
|
|
|
121,499
|
|
|
36,970
|
|
|
-
|
|
|
487,804
|
|
Iodine
and derivatives
|
|
|
1,454
|
|
|
7,654
|
|
|
55,153
|
|
|
58,714
|
|
|
26,129
|
|
|
-
|
|
|
149,104
|
|
Lithium
and derivatives
|
|
|
367
|
|
|
1,161
|
|
|
34,091
|
|
|
25,785
|
|
|
19,956
|
|
|
-
|
|
|
81,360
|
|
Industrial
chemicals
|
|
|
4,696
|
|
|
8,016
|
|
|
26,240
|
|
|
31,208
|
|
|
322
|
|
|
-
|
|
|
70,482
|
|
Potassium
chloride and other commodity fertilizers (2)
|
|
|
61,427
|
|
|
6,456
|
|
|
6,519
|
|
|
32,801
|
|
|
17
|
|
|
-
|
|
|
107,220
|
|
Total
|
|
|
156,086
|
|
|
128,187
|
|
|
258,296
|
|
|
270,007
|
|
|
83,394
|
|
|
-
|
|
|
895,970
|
|
(1)
Excludes Chile.
(2)
Includes revenues from imported fertilizers distributed in Chile and Mexico
and
potassium chloride.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
k) Industry
segment and geographic area information (continued)
(ii)
|
Other
segment information as of and for the years ended December 31, 2007,
2006
and 2005:
|
As
of and for the year ended December 31, 2007
|
|
Chile
|
|
Latin
America
and
Caribbean
|
|
Europe
|
|
North
America
|
|
Asia
and
other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Production
facilities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro
de Valdivia
|
|
|
74,036
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
74,036
|
|
María
Elena
|
|
|
156,484
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
156,484
|
|
Coya
Sur
|
|
|
106,771
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,771
|
|
Pampa
Blanca
|
|
|
4,069
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,069
|
|
Nueva
Victoria
|
|
|
104,758
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
104,758
|
|
Salar
de Atacama
|
|
|
250,577
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,577
|
|
Salar
del Carmen
|
|
|
43,997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
43,997
|
|
Others
|
|
|
6,822
|
|
|
-
|
|
|
-
|
|
|
21,440
|
|
|
5,970
|
|
|
(4,865
|
)
|
|
29,367
|
|
Sub-total
production facilities
|
|
|
747,514
|
|
|
-
|
|
|
-
|
|
|
21,440
|
|
|
5,970
|
|
|
(4,865
|
)
|
|
770,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port
facility (1)
|
|
|
39,038
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,038
|
|
Other
property, plant and equipment
|
|
|
155,065
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,839
|
|
|
162,904
|
|
Assets
of commercial locations
|
|
|
7,615
|
|
|
1,450
|
|
|
2,813
|
|
|
2,867
|
|
|
566
|
|
|
(1,174
|
)
|
|
14,137
|
|
Investments
in related companies
|
|
|
1,221,498
|
|
|
15,659
|
|
|
24,035
|
|
|
36,450
|
|
|
-
|
|
|
(1,273,707
|
)
|
|
23,935
|
|
Goodwill(3)
|
|
|
23,844
|
|
|
108
|
|
|
10,284
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34,236
|
|
Other
non-current assets (2)(3)
|
|
|
353,743
|
|
|
-
|
|
|
6
|
|
|
1,675
|
|
|
-
|
|
|
(317,369
|
)
|
|
38,055
|
|
Total
long-lived assets long
|
|
|
2,548,317
|
|
|
17,217
|
|
|
37,138
|
|
|
62,432
|
|
|
6,536
|
|
|
(1,589,276
|
)
|
|
1,082,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
on long-lived assets
|
|
|
175,910
|
|
|
57
|
|
|
205
|
|
|
1,838
|
|
|
18
|
|
|
-
|
|
|
178,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export
by region
|
|
|
-
|
|
|
139,242
|
|
|
241,097
|
|
|
217,116
|
|
|
189,897
|
|
|
-
|
|
|
787,352
|
|
(1)
|
The
Company’s principal production facilities are located near its mines and
extraction facilities in northern Chile. The following table sets
forth
the principal production facilities as of December 31, 2007, 2006
and
2005:
|
Location:
|
|
Products:
|
Pedro
de Valdivia
|
|
Nitrate
and iodine production
|
María
Elena
|
|
Nitrate
and iodine production
|
Coya
Sur
|
|
Nitrate
and iodine production
|
Pampa
Blanca
|
|
Concentrated
nitrate salts and iodine production
|
Nueva
Victoria
|
|
Iodine
production
|
Salar
de Atacama
|
|
Potassium
chloride, lithium chloride, potassium sulfate and boric
acid
|
Salar
del Carmen
|
|
Lithium
carbonate and lithium hydroxide production
|
Tocopilla
|
|
Port
facilities
|
(2)
|
In
all tables in the segment disclosure this category includes principally
assets that may not be assigned to production facilities and investments
held by holding entities within the
group.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
k) |
Industry
segment and geographic area information
(continued)
|
(ii)
|
Other
segment information as of and for the years ended December 31, 2007,
2006
and 2005:
|
As
of and for the year ended
December
31, 2006
|
|
Chile
|
|
Latin
America
and
Caribbean
|
|
Europe
|
|
North
America
|
|
Asia
and other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Production
facilities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro
de Valdivia
|
|
|
75,280
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75,280
|
|
María
Elena
|
|
|
147,080
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
147,080
|
|
Coya
Sur
|
|
|
93,320
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,320
|
|
Pampa
Blanca
|
|
|
3,410
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,410
|
|
Nueva
Victoria
|
|
|
112,880
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
112,880
|
|
Salar
de Atacama
|
|
|
239,640
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
239,640
|
|
Salar
del Carmen
|
|
|
48,110
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,110
|
|
Others
|
|
|
4,169
|
|
|
-
|
|
|
-
|
|
|
23,035
|
|
|
6,707
|
|
|
-
|
|
|
33,911
|
|
Sub-total
production facilities
|
|
|
723,889
|
|
|
-
|
|
|
-
|
|
|
23,035
|
|
|
6,707
|
|
|
-
|
|
|
753,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port
facility (1)
|
|
|
21,692
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,692
|
|
Other
property, plant and equipment
|
|
|
130,250
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
130,250
|
|
Assets
of commercial locations
|
|
|
6,614
|
|
|
64,282
|
|
|
3,115
|
|
|
2,413
|
|
|
555
|
|
|
(62,627
|
)
|
|
14,352
|
|
Investments
in related companies
|
|
|
835,915
|
|
|
15,603
|
|
|
18,962
|
|
|
48,202
|
|
|
-
|
|
|
(900,353
|
)
|
|
18,329
|
|
Goodwill(3)
|
|
|
25,348
|
|
|
131
|
|
|
10,852
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,331
|
|
Other
non-current assets (2)(3)
|
|
|
876,655
|
|
|
-
|
|
|
53,669
|
|
|
1,751
|
|
|
-
|
|
|
(881,333
|
)
|
|
50,742
|
|
Total
long-lived assets
|
|
|
2,620,363
|
|
|
80,016
|
|
|
86,598
|
|
|
75,401
|
|
|
7,262
|
|
|
(1,844,313
|
)
|
|
1,025,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
on long-lived assets
|
|
|
284,639
|
|
|
90
|
|
|
14,083
|
|
|
802
|
|
|
318
|
|
|
-
|
|
|
299,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export
by region
|
|
|
-
|
|
|
122,394
|
|
|
183,873
|
|
|
187,781
|
|
|
133,016
|
|
|
-
|
|
|
627,064
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
k) |
Industry
segment and geographic area information
(continued)
|
(ii)
|
Other
segment information as of and for the years ended December 31, 2007,
2006
and 2005:
|
As
of and for the year ended
December
31, 2005
|
|
Chile
|
|
Latin
America
and
Caribbean
|
|
Europe
|
|
North
America
|
|
Asia
and other
|
|
Eliminations
|
|
Total
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Production
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro
de Valdivia
|
|
|
73,910
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73,910
|
|
María
Elena
|
|
|
103,260
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
103,260
|
|
Coya
Sur
|
|
|
60,220
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,220
|
|
Pampa
Blanca
|
|
|
180
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
180
|
|
Nueva
Victoria
|
|
|
92,380
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
92,380
|
|
Salar
de Atacama
|
|
|
243,140
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
243,140
|
|
Salar
del Carmen
|
|
|
41,080
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,080
|
|
Others
|
|
|
1,477
|
|
|
-
|
|
|
7,289
|
|
|
24,641
|
|
|
-
|
|
|
-
|
|
|
33,407
|
|
Sub-total
production facilities
|
|
|
615,647
|
|
|
-
|
|
|
7,289
|
|
|
24,641
|
|
|
-
|
|
|
-
|
|
|
647,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port
facility
|
|
|
19,776
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,776
|
|
Other
property, plant and equipment
|
|
|
112,759
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
112,759
|
|
Assets
of commercial locations
|
|
|
6,842
|
|
|
47,379
|
|
|
3,613
|
|
|
6,519
|
|
|
237
|
|
|
(1,852
|
)
|
|
62,738
|
|
Investments
in related companies
|
|
|
684,214
|
|
|
24,122
|
|
|
19,991
|
|
|
53,949
|
|
|
-
|
|
|
(761,600
|
)
|
|
20,676
|
|
Goodwill(3)
|
|
|
27,055
|
|
|
154
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,209
|
|
Other
non-current assets(3)
|
|
|
884,143
|
|
|
140
|
|
|
6
|
|
|
1,807
|
|
|
-
|
|
|
(879,046
|
)
|
|
7,050
|
|
Total
long-lived assets long
|
|
|
2,350,436
|
|
|
71,795
|
|
|
30,899
|
|
|
86,916
|
|
|
237
|
|
|
(1,642,498
|
)
|
|
897,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
on long-lived assets
|
|
|
199,242
|
|
|
102
|
|
|
2,159
|
|
|
1,268
|
|
|
-
|
|
|
-
|
|
|
202,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export
by region
|
|
|
-
|
|
|
116,427
|
|
|
243,964
|
|
|
172,060
|
|
|
51,908
|
|
|
-
|
|
|
584,359
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
l) |
Estimated
fair value of financial instruments and derivative financial
instruments
|
The
accompanying tables provide disclosure of the estimated fair value of financial
instruments owned by the Company. Various limitations are inherent in the
presentation, including the following:
-
|
The
data excludes non-financial assets and liabilities, such as property,
plant and equipment, and goodwill.
|
-
|
While
the data represents management’s best estimates, the data is subjective
and involves significant estimates regarding current economic and
market
conditions and risk
characteristics,
|
The
methodologies and assumptions used depend on the terms and risk characteristics
of the various instruments and include the following:
-
|
Cash
and time deposits approximate fair value because of the short-term
maturity of these instruments.
|
-
|
Marketable
securities with a readily determinable market value are recorded
at fair
value,
|
-
|
Current
liabilities that are contracted at variable interest rates, are considered
to have a fair value equal to book
value.
|
-
|
For
interest-bearing liabilities with an original contractual maturity
of
greater than one year, the fair values are calculated by discounting
contractual cash flows at current market origination rates with similar
terms.
|
-
|
For
forward contracts and swap agreements, fair value is determined using
quoted market prices of financial instruments with similar
characteristics.
|
The
following is a detail of the Company’s financial instruments’ US GAAP carrying
amount and estimated fair value:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
US
GAAP
Carrying
Amount
|
|
Estimated
Fair Value
|
|
US
GAAP
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
164,212
|
|
|
164,212
|
|
|
183,943
|
|
|
183,943
|
|
Short-term
accounts receivable
|
|
|
291,607
|
|
|
291,607
|
|
|
247,650
|
|
|
247,650
|
|
Long-term
accounts receivable
|
|
|
2,604
|
|
|
2,604
|
|
|
2,388
|
|
|
2,388
|
|
Derivative
instruments
|
|
|
14,968
|
|
|
14,968
|
|
|
5,498
|
|
|
5,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
bank debt
|
|
|
1,806
|
|
|
1,806
|
|
|
58,350
|
|
|
58,350
|
|
Short-term
notes and accounts payable
|
|
|
107,730
|
|
|
107,730
|
|
|
87,164
|
|
|
87,164
|
|
Derivative
instruments
|
|
|
499
|
|
|
499
|
|
|
219
|
|
|
219
|
|
Current
and long-term portions of long-term bank debt
|
|
|
494,451
|
|
|
493,510
|
|
|
484,981
|
|
|
495,761
|
|
Long-term
other accounts payable
|
|
|
730
|
|
|
730
|
|
|
849
|
|
|
849
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
m) |
Post-retirement
obligations and staff severance
indemnities
|
The
Company’s subsidiary SQM North America Corporation has a defined benefit,
noncontributory pension plan covering substantially all employees who qualify
as
to age and length of service. Plan benefits are based on years of service and
the employee’s highest five-year average compensation during the last ten years
of employment. The plan’s assets consist primarily of equity mutual funds and
group annuity contracts.
In
September 2002, the Board of Directors of SQM North America Corporation voted
to
suspend the plan and as a result after December 31, 2002, participants do not
earn additional benefits for future services. Such action resulted in a
curtailment loss (equal to the amount of unrecognized prior service cost) of
approximately US$1.3 million for the year ended December 31, 2002.
Assumptions
used in determining the actuarial present value of the projected benefit
obligation as of December 31 are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
6.5
|
%
|
|
7.0
|
%
|
Rate
of increase in compensation levels
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Long-term
rate of return on plan assets
|
|
|
8.5
|
%
|
|
8.5
|
%
|
The
long-term rate of return on assets was determined based upon past investment
experience and the expectation for future experience.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
m) |
Post-retirement
obligations and staff severance indemnities
(continued)
|
The
following table sets forth the plan’s funded status and amounts recognized in
the consolidated balance sheet as of December 31:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
|
5,696
|
|
|
5,184
|
|
|
5,080
|
|
Service
cost
|
|
|
1
|
|
|
17
|
|
|
16
|
|
Interest
cost
|
|
|
391
|
|
|
381
|
|
|
369
|
|
Actuarial
loss
|
|
|
405
|
|
|
359
|
|
|
(37
|
)
|
Benefits
paid
|
|
|
(248
|
)
|
|
(245
|
)
|
|
(244
|
)
|
Benefit
obligation at end of the year
|
|
|
6,245
|
|
|
5,696
|
|
|
5,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
|
5,621
|
|
|
5,223
|
|
|
4,967
|
|
Employer
contributions
|
|
|
69
|
|
|
18
|
|
|
-
|
|
Actual
return (loss) on plan assets
|
|
|
699
|
|
|
625
|
|
|
500
|
|
Benefits
paid
|
|
|
(248
|
)
|
|
(245
|
)
|
|
(244
|
)
|
Fair
value of plan assets at end of year
|
|
|
6,141
|
|
|
5,621
|
|
|
5,223
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
|
(104
|
)
|
|
(75
|
)
|
|
39
|
|
Items
not yet recognized as components of net periodic pension
costs:
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss at the beginning of the period
|
|
|
(1,218
|
)
|
|
(1,094
|
)
|
|
1,133
|
|
Amortization
during the period
|
|
|
35
|
|
|
44
|
|
|
- |
|
Estimated
net gain loss occurring during the period
|
|
|
(176
|
)
|
|
(168
|
)
|
|
- |
|
Adjustment
to recognize minimum pension liability
|
|
|
(1,359
|
)
|
|
(1,218
|
)
|
|
(1,094
|
)
|
Accrued
pension (liability)/ prepaid pension cost
|
|
|
(104
|
)
|
|
(75
|
)
|
|
39
|
|
Net
periodic pension expense was comprised of the following components for the
years
ended December 31, 2005, 2006 and 2007:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
ThUS$
|
|
ThUS$
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Service
cost or benefits earned during the period
|
|
|
1
|
|
|
17
|
|
|
16
|
|
Interest
cost on benefit obligation
|
|
|
391
|
|
|
381
|
|
|
369
|
|
Actual
return on plan assets
|
|
|
(699
|
)
|
|
(625
|
)
|
|
(500
|
)
|
Amortization
of loss from prior periods
|
|
|
35
|
|
|
44
|
|
|
-
|
|
Net
gain during the period
|
|
|
229
|
|
|
192
|
|
|
147
|
|
Net
periodic pension expense
|
|
|
(43
|
)
|
|
9
|
|
|
32
|
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
m) |
Post-retirement
obligations and staff severance indemnities
(continued)
|
The
plan’s asset allocations by asset category as of December 31 are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Growth
securities
|
|
|
55
|
%
|
|
53
|
%
|
International
securities
|
|
|
22
|
%
|
|
21
|
%
|
Growth
& income securities
|
|
|
12
|
%
|
|
25
|
%
|
Treasury
securities
|
|
|
9
|
%
|
|
-
|
|
Money
market funds
|
|
|
2
|
%
|
|
1
|
%
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
The
excess of the unrecognized (gain) or loss (if any) over the larger of 10% of
the
projected benefit obligation or 10% of the market related value of assets is
amortized in level amounts over 12-48 years.
All
unrecognized prior service costs have been considered fully amortized as a
result of the December 31, 2002 curtailment brought about as the result of
the
December 31, 2002 cessation of benefit accruals.
As
of
December 31, 2007 the pension plan benefits expected to be paid in the future
are as follows:
|
|
ThUS$
|
|
|
|
|
|
2008
|
|
|
274
|
|
2009
|
|
|
340
|
|
2010
|
|
|
356
|
|
2011
|
|
|
396
|
|
2012
|
|
|
427
|
|
Years
2012-2015
|
|
|
2,679
|
|
n) |
Cash
and cash equivalents
|
Under
Chilean GAAP cash and cash equivalents are considered to be all highly liquid
investments with a remaining maturity of less than 90 days as of the closing
date of the financial statements, whereas, US GAAP considers cash and cash
equivalents to be all highly liquid investments with an original maturity date
of less than 90 days. The difference between the balance under US GAAP and
Chilean GAAP of cash and cash equivalents is not material for the periods
presented.
Under
US
GAAP, the cash movements of subsidiaries in the development stage would be
included in the consolidated statement of cash flows, as described in paragraph
I e). The effect on the consolidated statement of cash flows is not material
for
the periods presented.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
The
amount of consolidated retained earnings that represents undistributed earnings
of 50% or less investees accounted for by the equity method amounts to ThUS$
2,550, as of December 31, 2007.
p) |
Recent
US GAAP accounting
pronouncements
|
Fair
Value Measurement
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement". SFAS
No.
157 which standardizes the measurement of fair value for companies who are
required to use a fair value measure for recognition or disclosure purposes.
The
FASB defines fair value as "the price that would be received to sell an asset
or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date." SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 for
financial assets and financial liabilities and November 15, 2008 for
non-financial assets and non-financial-liabilities and interim periods within
those fiscal years. The Company is currently evaluating the impact, if any,
of
the adoption of SFAS No. 157.
The
Fair Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Options for
Financial Assets and Financial Liabilities". SFAS No. 159 permits an entity,
on
a contract-by-contract basis, to make an irrevocable election to account for
certain types of financial instruments and warranty and insurance contracts
at
fair value, rather than historical cost, with changes in the fair value, whether
realized or unrealized, recognized in earnings. SFAS No. 159 is effective as
of
the beginning of the entity’s first fiscal year that begins after November 15,
2007. The Company is evaluating the impact, if any, of the adoption of SFAS
No.
159.
Derivative
Instruments and Hedging Activities
In
March
2008, the Financial Accounting Standards Board (FASB) issued FASB Statement
No.
161, Disclosures about Derivative Instruments and Hedging Activities. The new
standard is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors
to
better understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued
for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company is evaluating the impact, if any, of the
adoption of SFAS No. 161.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands of US dollars, except as stated)
Note
29 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)
p) |
Recent
US GAAP accounting pronouncements
(continued)
|
Business
Combinations
In
December 2007, FASB issued SFAS No. 141 (revised 2007), "Business Combinations"
("SFAS No. 141(R)"). The objective of SFAS No. 141 (R) is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination and its effects. To accomplish that, this Statement establishes
principles and requirements for how the acquirer (1) recognizes and measures
in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (2) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase and (3) determines what information to disclose to enable
users
of the financial statements to evaluate the nature and financial effects of
the
business combination. SFAS No. 141(R) shall be applied prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008.
Noncontrolling
Interest in Consolidated Financial Statements
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements". SFAS No. 160 amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements", to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and
for
the deconsolidation of a subsidiary. According to SFAS No. 160, "a
noncontrolling interest, sometimes called a minority interest, is the portion
of
equity in a subsidiary not attributable, directly or indirectly, to a parent".
The objective of SFAS No. 160 is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides
in
its consolidated financial statements. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company is evaluating the impact, if any, of the adoption
of SFAS No. 160.