SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
FORM 20-F
| o |
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF
1934
|
OR
| x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the fiscal year ended December 31, 2006
OR
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
OR
| o |
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 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
|
|
Page
|
|
|
iii
|
||
|
iii
|
||
|
vi
|
||
|
1
|
||
|
1
|
||
|
1
|
||
|
1
|
||
|
12
|
||
|
44
|
||
|
61
|
||
|
73
|
||
|
74
|
||
|
77
|
||
|
79
|
||
|
89
|
||
|
90
|
||
|
|
91
|
|
|
91
|
||
|
91
|
||
|
91
|
||
|
92
|
||
|
92
|
||
|
92
|
||
|
93
|
||
| 93 | ||
|
93
|
||
|
|
||
|
|
94
|
|
|
94
|
||
|
94
|
||
|
94
|
||
| 95 | ||
| F-1 | ||
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$"
are to
Chilean pesos, and references to "UF"
are to
Unidades
de Fomento.
The UF
is an inflation-indexed, peso-denominated unit that is linked to, and adjusted
daily to reflect changes in, the previous month's Chilean consumer price index.
As of June 15, 2007, UF 1.00 was equivalent to US$ 35.10 and Ch$
18,568.55.
The
Republic of Chile is governed by a democratic government, organized in twelve
regions plus the Metropolitan Region (surrounding and including Santiago, the
capital of Chile). Our production operations are concentrated in northern Chile,
specifically in the First Region, also named Tarapacá Region, and in the Second
Region, also named 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.
"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.
"Corfo"
Corporation of Promotion of Production (Corporación de Fomento de la
Producción), formed in 1939, a national organization in charge of promoting and
facilitating Chile's manufacturing productivity and commercial
development.
"cut-off
grade"
The
minimal assay value or chemical amount of some mineral component above which
results in economical exploitability.
"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 pads"
Padding
or filling of rocks from which will be extracted the soluble mineral by
irrigation with water.
"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 in
geological data and samples assays 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.
"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 the mine yields.
"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. It 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. It 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. It 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"*
Is
that part of a Mineral Resource for which tonnage, grade and mineral content
can
be estimated with a low level of confidence. It is inferred from geological
evidence and assumed but not verified geological and/or grade continuity. It
is
based on information gathered through appropriate techniques from locations
such
as outcrops, trenches, pits, workings and drill holes which 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. It 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.
|
"waste"
Rock or
mineral which is not economical for metallurgical treatment.
"waste-to-ore
ratio"
Relation or ratio between waste/ore.
"Weighted
Average Age"
In this
Annual Report means 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, 2006 divided
by the total gross book value of the Company's fixed assets at such facility
as
of December 31, 2006.
*
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).
SQM
will
provide without charge to each person to whom this Annual Report is delivered,
on the written or oral request of any such person, 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). 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) and e-mail (ir@sqm.com).
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.
|
Not
Applicable.
Not
Applicable.
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, 2006 and 2005 and for each of the three years
in the period ended December 31, 2006. The consolidated financial statements
as
of December 31, 2003 and 2002 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,
2006 and 2005 and for each of the three years in the period ended December
31,
2006 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, 2006, 2005 and 2004 and total shareholders' equity as of December 31, 2006
and 2005 to U.S. GAAP.
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Income
Statement Data
|
(in
millions of US$) (1)
|
|||||||||||||||
|
Chilean
GAAP
|
|
|
|
|
|
|||||||||||
|
Total
Revenues
|
1,042.9
|
896.0
|
788.5
|
691.8
|
553.8
|
|||||||||||
|
Operating
Income
|
219.9
|
181.2
|
124.1
|
87.3
|
82.7
|
|||||||||||
|
Non-operating
results, net
|
(36.1
|
)
|
(34.4
|
)
|
(17.6
|
)
|
(21.2
|
)
|
(30.0
|
)
|
||||||
|
Net
income
|
141.3
|
113.5
|
74.2
|
46.8
|
40.2
|
|||||||||||
|
Net
earnings per share (2)
|
0.54
|
0.43
|
0.28
|
0.18
|
0.15
|
|||||||||||
|
Net
earnings per ADS (2)
|
5.37
|
4.31
|
2.82
|
1.78
|
1.53
|
|||||||||||
|
Dividend
per share (3)(4)
|
0.349
|
0.279
|
0.182
|
0.088
|
0.076
|
|||||||||||
|
Weighted
average shares Outstanding (000s) (2)
|
263,197
|
263,197
|
263,197
|
263,197
|
263,197
|
|||||||||||
|
U.S.
GAAP
|
||||||||||||||||
|
Total
Revenues
|
1,042.9
|
896.0
|
788.5
|
691.8
|
553.8
|
|||||||||||
|
Operating
Income
|
205.5
|
163.9
|
114.6
|
76.7
|
87.0
|
|||||||||||
|
Non-operating
results, net (5)
|
(14.1
|
)
|
(6.1
|
)
|
(1.6
|
)
|
(4.3
|
)
|
(26.2
|
)
|
||||||
|
Equity
participation in income (loss) of related companies, net
|
2.0
|
2.6
|
1.8
|
2.2
|
1.1
|
|||||||||||
|
Effect
of change in accounting principles
|
—
|
—
|
—
|
—
|
0.5
|
|||||||||||
|
Net
income
|
154.3
|
125.2
|
86.8
|
57.8
|
46.9
|
|||||||||||
|
Basic
and diluted earnings per share
|
0.59
|
0.48
|
0.33
|
0.22
|
0.18
|
|||||||||||
|
Basic
and diluted earnings per ADS
|
5.86
|
4.76
|
3.30
|
2.19
|
1.78
|
|||||||||||
|
Weighted
average shares Outstanding (000s)(2)
|
263,197
|
263,197
|
263,197
|
263,197
|
263,197
|
|||||||||||
|
Year
ended December 31,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Balance
Sheet Data:
|
(In
millions of US$) (1)
|
|||||||||||||||
|
Chilean
GAAP:
|
|
|
|
|
|
|||||||||||
|
Total
assets
|
1,871.2
|
1,640.6
|
1,361.4
|
1,363.5
|
1,322.3
|
|||||||||||
|
Long-term
debt
|
480.7
|
100.0
|
200.0
|
260.0
|
324.0
|
|||||||||||
|
Total
shareholders' equity
|
1,085.9
|
1,020.4
|
948.6
|
890.0
|
849.7
|
|||||||||||
|
Capital
Stock
|
477.4
|
477.4
|
477.4
|
477.4
|
477.4
|
|||||||||||
|
U.S.
GAAP:
|
||||||||||||||||
|
Total
assets
|
1,846.0
|
1,609.0
|
1,318.5
|
1,319.4
|
1,274.6
|
|||||||||||
|
Long-term
debt
|
478.7
|
100.0
|
200.0
|
260.0
|
324.0
|
|||||||||||
|
Total
shareholders' equity
|
994.5
|
923.4
|
856.9
|
794.7
|
747.3
|
|||||||||||
|
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, 2006.
|
|
(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)
Dividends per share are calculated based on 263,197 thousand shares
for
the periods ended December 31, 2002, 2003, 2004, 2005 and
2006.
(4)
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.
(5)
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 is comprised of banks and other entities authorized by the
Chilean Central Bank. The Informal Exchange Market is comprised of 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.
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.
Since
1993, the Observed Exchange Rate and the Informal Exchange Rate have typically
been within less than 1% of one another.
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 2002 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
June
15, 2007, the Observed Exchange Rate was Ch$529.00 = US$1.00.
|
Observed
Exchange Rate (1)
|
|||||||||||
|
Ch$
per US$
|
|||||||||||
|
|
Year/Month
|
Low
(1)
|
|
High
(1)
|
|
Average
(2)(3)
|
|
Year/Month
End
|
|
||
|
|
2002
|
641.75
|
|
756.56
|
|
692.32
|
|
718.61
|
|
||
|
|
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
|
|
530.27
|
|
534.43
|
|
||
|
|
Jan-07
|
532.39
|
|
545.18
|
|
540.51
|
|
545.18
|
|
||
|
|
Feb-07
|
535.29
|
|
548.67
|
|
542.27
|
|
538.42
|
|
||
|
|
Mar-07
|
535.36
|
|
541.95
|
|
538.49
|
|
539.37
|
|
||
|
|
Abr-07
|
527.08
|
|
539.69
|
|
532.30
|
|
527.08
|
|||
|
May-07
|
517.64
|
527.52
|
522.02
|
527.52
|
|||||||
| Source: Central Bank of Chile |
|
| (1) |
Observedexchange
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 2006, approximately
37% of our sales were made to emerging market countries: (i) approximately
12%
in Central and South America, excluding Chile, specifically in countries such
as
Brazil, Argentina, Colombia and Peru; (ii) approximately 16% in Chile; and
(iii)
approximately 9% in Asia, excluding Japan. We expect to expand our sales in
these and other emerging markets in the future. The results 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, world iodine prices declined from approximately US$18.40 per
kilogram for large purchases in early 1990 to less than US$8.00 per kilogram
for
large purchases in June 1994. The price increased to approximately US$18.00
in
1999, and subsequently it began to decline, reaching approximately US$12.50
during early 2003. By late 2003 and during 2004 prices reversed the downward
trend and began to increase. The average price in 2005 reached approximately
US$19.00 per kilogram, and it has continued to increase to an average of
approximately US$22.80 per kilogram in 2006. We cannot assure you that this
trend will continue.
We
started production of lithium carbonate from the Atacama Salar brines in October
1996 and started selling lithium carbonate commercially in January 1997. Our
entrance into the market created an oversupply of lithium carbonate, resulting
in a drop in prices from over US$3,000 per ton before our entrance to less
than
US$2,000 per ton. Currently, prices are higher than US$5,000 per ton. We believe
the increase in prices is mainly due to the high growth in demand that has
not
been fully balanced by the supply of lithium carbonate. We cannot assure you
that this trend will continue.
We
expect
that prices for the products we manufacture will continue to be influenced,
among other things, by similar 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.
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 the amount of reserves that we exploit 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. Additionally, as
an
international company operating in Chile and several other countries, we
transact a portion of our business and have assets and liabilities in Chilean
pesos and other non-U.S. dollar currencies, such as the Euro, the South African
Rand and the Mexican Peso, among others. As a result, fluctuation in the
exchange rate of such foreign currencies to the U.S. dollar may affect our
business, financial condition and results of operations.
Sustained
high raw material and energy prices 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 11.7% in 2006). 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 cost 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
several of 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 financial condition or results of
operations.
Our
business is subject to many operational 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 those of our business.
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.
The
continuity of our natural gas supply is dependent on the Argentinean
authorities’ policies
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, local authorities decided
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 it
again in the future.
We
suffered partial shortages of natural gas during 2004, 2005 and 2006, and the
shortages have increased in the second quarter of 2007. We have experienced,
as
a result of the shortages, an inability to procure a significant portion of
our
normal supply of natural gas. Considering what has happened in the second
quarter of 2007 and the public statements made in Argentina, we believe further
cutbacks in the supply of natural gas are likely in the future. To mitigate
this, we have adopted measures intended to limit the effects of any further
decrease in the natural gas supply. Most of our industrial equipment that uses
natural gas can also operate on fuel oil and the remaining equipment can operate
on diesel. The costs of using fuel oil and diesel are significantly higher
than
natural gas.
The
extent to which we incur increased costs as a result of decreases in the natural
gas supply will depend on the volume of such a decrease and on the duration
of
the period during which natural gas supplies are restricted, and therefore,
we
cannot estimate the exact economic impact of future natural gas supply
reductions. However, further increases in prices of natural gas or a sustained
reduction in our natural gas supply could have an adverse effect on our
business, financial condition and results of operations. During 2006, purchases
of natural gas represented approximately 1.3% of our cost of sales.
Decline
in the supply of natural gas could negatively affect the supply of electricity
in the Northern Power Grid
The
natural gas supply crisis discussed above has placed the Northern Power Grid
(SING) under significant stress. This condition, if maintained, 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
natural gas supply continues to be uncertain, as discussed above, and oil prices
continue to increase, we are faced with potential revisions to our long-term
electricity supply agreements. We maintain contracts with two main utilities
in
Chile, Electroandina S.A. and Norgener S.A., and both have requested revision
of
the tariffs involved. As a result of these requests, we entered into arbitration
proceedings between us and Electroandina and Norgener. As of December 31, 2006
we were party to arbitration proceedings with Electroandina and Norgener. As
of
June, 2007 the arbitration proceeding with Norgener has finalized and the
arbitration with Electroandina continues its course. The new tariffs resulting
from the conclusions of negotiation will have a negative affect on our results
of operations.
During
2006, purchases of electricity represented approximately 2.7% 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, 68.2% 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 financial condition or results
of
operations.
The
Chilean Congress has amended the Labor Code. The new wording contemplates that
the work-owner shall be jointly liable for some benefits of the subcontractor’s
employees being hired for the performance of such work and thus increasing
the
owner’s responsibilities and costs.
Our
water supply could be affected by regulatory changes and/or natural
problems
Although
we have not experienced significant difficulties obtaining the necessary water
to conduct our operations, there can be no assurance that we will not have
problems in securing our water supply due to new environmental regulations
or
natural depletion of water resources. This could affect our operations,
negatively affecting our business, financial condition and 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
in the Company's financial condition or results of operations.
Potencial
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 in which they will become operational. However,
should these projects be developed during a short period of time, we believe
there could be negative impacts on prices that could have a significant impact
in the Company's 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 pursuant to judicial proceedings 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 Atacama Salar 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. We hold water rights 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 and
anticipated operational requirements. 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 these
concessions could have a material adverse impact on our business, financial
condition and results of operations.
The
following changes in Chilean law are also likely to affect our
operations:
The
Chilean Congress approved a modification to Chilean laws relating to water
rights (the “Water Code”). The changes to the Water Code include establishing
annual fee payments for owners of water rights that do not use the water
associated with them. This fee does not affect the holder’s right to use
aquifers. The criteria used to determine what rights or what part of such rights
would be subject to this annual fee relate to whether the resource is consumed
or re-injected into the stream after its use (defined as the water right’s
“consumptive condition”), whether the use of the resource is sporadic or
permanent (frequency of use) and the geographical location of the intake points
relative to an area’s overall water supply. The referred changes will not have a
material adverse effect on our business, financial condition and results of
operations. Nevertheless, as the Company maintains water rights that
are key to its business development, further changes to the Water Code could
have a material adverse impact on our business, financial condition and results
of operations.
On
May
18, 2005, the Chilean Congress approved Law No. 20,026, also known as the
“Royalty Law,” which established a royalty to be applied to mining activities
developed in Chile, levied on mining companies whose sales are equal to or
greater than the equivalent value of 12,000 metric tons of fine copper (MFT),
as
determined according to the London Metal Exchange Grade A copper cash quotation.
This new mining royalty, which has been applied from 2006 onwards, is levied
on
the “taxable operating income” (as this term is defined in Law No. 20,026) of
the mining company, at a rate that varies from 0.5% up to 5%, depending on
the
consolidated annual sales.
Law
No.20,017, published on June 16, 2005, modified the Water Code. 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. These changes
to the Water Code could have a material adverse impact on our business,
financial condition and results of operations, as it could affect the amount
of
water as to which, based on our rights, we should effectively
have access to.
If
similar changes are enacted in the future, they may have a material adverse
impact on our business, financial condition and results of
operation.
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 governmental 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 temporary or permanent closure of facilities and fines.
Chilean
environmental regulations have become increasingly stringent in recent years,
both in 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 “Business—Chilean Government Regulations” and
“Business—Environmental Regulations”), we are currently in compliance in all
material respects with applicable environmental regulations in Chile that we
are
aware of. 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 Atacama Salar we have obtained
approval for an environmental impact assessment study that allows to increase
brine and water extraction, subject to a rigorous environmental monitoring
system. The success of these investments is dependent on the observed values
of
the ecosystem variables being monitored over time. If the ecosystem shows a
detrimental behavior in future years, 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 the 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 said
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 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 ones, will not
materially impact our 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 shareholder’s 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, 2006, we had approximately 41% 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 our ADSs
value
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 or she 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 be constantly looking
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. Depending on our then current capital structure, 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 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.
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 Public Notary
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. 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 (“Corfo”), a
Chilean state-owned development corporation. 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.
Between
the years 1994 to 1999, we participated in the biggest non-metallic mining
project ever carried out in Chile, the development of the Atacama Salar project
in northern Chile. During this period, the project required an investment of
approximately US$300 million, which was used in the construction of a 500,000
ton capacity potassium chloride plant, a 22,000 ton capacity lithium carbonate
plant, a close to 200,000 ton capacity potassium sulfate plant and a close
to
10,000 ton capacity boric acid plant. The potassium chloride, lithium carbonate,
potassium sulfate and boric acid plants are currently in operation.
To
help
finance the above projects, we accessed the international capital markets by
issuing more ADRs on the New York Stock Exchange in 1995 (Series B ADR issuance)
and in 1999 (by issuing our Series A ADRs
on
the NYSE under the ticker symbol “SQM-A”).
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 business 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.
Capital
Expenditure Program
We
are
constantly reviewing different opportunities for improving our production
methods, increasing production capacity of existing products and developing
new
products and markets. Additionally, significant maintenance of capital
expenditures is required every year in order to sustain our production capacity.
We are focused on developing new products in response to identified customer
demand and products that can be derived as part of our existing production.
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 2004-2006 period were the following:
|
2006(4)
|
2005(3)
|
2004(2)
|
||||||||
|
(in
millions of US$)
|
||||||||||
|
Expenditures
(1)
|
290.5
|
198.1
|
|
91.4
|
||||||
|
(1)
|
In
these item, capital expenditures mean any investment aimed at sustaining,
improving or increasing production levels, including acquisitions
and
investment in related companies. These amounts will not match the
consolidated statements of cash flows, as the Company does not
consolidate
development stage companies.
|
|||||||||||
|
(2)
|
Includes
acquisition of PCS Yumbes (US$35 million). The Yumbes mine is not
currently being mined and some of the purchased facilities have
been
relocated to be used in other SQM facilities.
|
|||||||||||
|
(3)
|
Includes
acquisition of Kefco in Dubai (US$9.3 million)
|
|||||||||||
|
|
||||||||||||
|
(4)
|
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.
|
|||||||||||
We
have
developed a capital expenditure program calling for investments totaling
approximately US$630 million (not including acquisitions) between 2007-2009
of
which approximately US$230 million should be spent in 2007. The main purpose
of
our capital expenditure program is to increase production capacity of natural
nitrates by approximately 25% and lithium carbonate by more than
30%.
During
2006, the company had total capital expenditures of approximately US$177.3
million (not including the DSM iodine business acquisition) primarily relating
to:
·
María
Elena project including a new crushing facility
· a
granular and prilling facility located at Coya Sur
· a
new
drying facility for soluble potassium nitrate at Coya Sur
· completion
of the investment in the iodine facility and solar ponds at Nueva Victoria
;
and
· various
projects designed to maintain capacity, increase yields and lower
costs.
Additionally,
SQM bought the iodine business of DSM for approximately US$72.0 million (plus
working capital) in January 2006.
The
company has budgeted for 2007 total capital expenditures of approximately US$230
million, primarily relating to:
|
§
|
completion
of the María Elena project
|
|
§
|
investment
in a new potassium nitrate production facility at Coya
Sur
|
|
§
|
completion
of the granular and prilling facility located at Coya
Sur
|
|
§
|
revamping
of our railroad and rolling stock
|
|
§
|
investment
in the new solar ponds and wells at the Salar de
Atacama
|
|
§
|
investment
in the expansion of lithium carbonate
production
|
|
§
|
development
of new mining areas at Pedro de Valdivia; and various
projects designed to maintain capacity, increase yields and reduce
costs.
|
For
2008
and 2009, we estimate total capital expenditures of approximately US$400
million, primarily for (i) the increase in lithium carbonate production
capacity; (ii) the completion of the potassium nitrate production facility
at
Coya Sur; (iii) the upgrade of our railroad system to handle expanded capacity;
(iv) additional solar ponds and wells at the Salar de Atacama in order to
increase production; and (v) various projects designed to maintain capacity,
increase yields and lower costs, and to develop new NPK-soluble blending
facilities.
4.B.
Business
Overview
The
Company
We
believe we are the world’s largest integrated producers of potassium nitrate,
iodine and lithium carbonate. We also produce other specialty plant nutrition
products, iodine and lithium derivatives, and certain industrial chemicals,
including industrial nitrates. Our products are sold in over 100 countries
through our worldwide distribution network and we generate approximately 84%
of
our revenues from countries outside Chile. Our products are mainly derived
from
mineral deposits found in the first and second regions of northern Chile, 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 Atacama Salar, 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 Atacama Salar, we extract brines rich in potassium,
lithium and boron, and produce potassium chloride, potassium sulfate, lithium
solutions, boric acid and bischofite. We produce lithium carbonate and lithium
hydroxide at a plant near the city of Antofagasta, Chile, from the solutions
brought from the Atacama Salar. We market all of these products through an
established worldwide distribution network.
Our
products are divided into five main categories: specialty plant nutrition
products, iodine and derivatives, lithium and derivatives; industrial chemicals;
and other products. Specialty plant nutrition is comprised of specialty plant
nutrition products that 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 displays
(“LCDs”) screens, and 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. Other products include potassium chloride and
other commodity fertilizers that are bought from third parties and sold mostly
in Chile and Mexico.
For
the
year ended December 31, 2006, we had revenues of approximately US$1,042.9
million, operating income of approximately US$219.9 million and net income
of
approximately US$141.3 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 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™ (acquaculture).
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 nutrients 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 (in the case of potassium
sulfate), 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. However, other
uses,
such as adhesives and wastewater treatment also account for important sales
volumes and have good prospects for the future. Potassium nitrate, while also
used in the manufacture of specialty glass, is consumed primarily in cathode
ray
tubes for TV’s and computer monitors. In addition, potassium nitrate is an
important raw material for the production of frits for the ceramics and enamel
industries. Boric acid is used in the manufacture of frits for the ceramics
and
enamel industries, glass, and fiberglass. Potassium chloride is used as an
additive in oil drilling as well as in the production of
carragenine.
Other
Products:
We
produce and market granular potassium chloride, which is distributed through
our
subsidiary Soquimich Comercial S.A. in Chile. 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
2002-2006 period according to our product lines:
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Specialty
Plant Nutrition
|
48%
|
|
54%
|
|
54%
|
|
52%
|
|
51%
|
|
||||||
|
Iodine
and derivatives
|
21%
|
|
17%
|
|
14%
|
|
12%
|
|
15%
|
|
||||||
|
Lithium
and derivatives
|
12%
|
|
9%
|
|
8%
|
|
7%
|
|
7%
|
|
||||||
|
Industrial
Chemicals
|
7%
|
|
8%
|
|
9%
|
|
10%
|
|
11%
|
|
||||||
|
Other
Products
|
12%
|
|
12%
|
|
15%
|
|
19%
|
|
16%
|
|
||||||
|
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
in
order to increase our productivity;
|
|
(4)
|
maintain
leadership in our principal business areas - specialty plant nutrients,
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 exploit the advantages of our
products over commodity nitrates and ammonia-based nitrogen and potassium
chloride fertilizers; (ii) increase our sales of higher margin specialty plant
nutrition products based on 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) emphasize development of locally
produced new specialty nutrient blends and customized products intended to
meet
local specific customer needs in all of our principal markets; (v) focus
primarily on the soluble and foliar plant nutrient market 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 the 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 so as 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 so as 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 so as 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 business lines, 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, iodine and sodium sulfate.
• Atacama
Salar brines: contain potassium, lithium, sulfates 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 (including the
Iris operation, formerly the DSM Iodine business mine)
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 accomplished, including full
geological reconnaissance and 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. Following the production of drill holes, 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 plant. In the María Elena mine, trucks haul the ore and dump it
directly to a primary crushing installation, after which a 14 kilometer long
overland conveyor belt system delivers the ore to the processing plant.
The
ore
in Pedro de Valdivia and María Elena plants is crushed and leached to produce
concentrated solutions carrying the nitrate, iodine and sodium sulfate. The
crushing of the ore delivers two products, 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 processing.
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 valuable 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 proper 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, nearby 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.
Crystallized
sodium nitrate is processed further at Pedro de Valdivia and María Elena to
produce prilled sodium nitrate, which is transported to our port facilities
in
Tocopilla for shipping to customers and distributors worldwide. Our current
crystallized sodium nitrate production capacity at Pedro de Valdivia and María
Elena is approximately 770,000 metric tons per year. 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 plant. 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 rich
potassium nitrate solution 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 leach
pads
from which we extract rich iodine and nitrate solutions that are sent to iodine
plants for iodine extraction. After iodine has been extracted, the solutions
are
sent to solar evaporation ponds where the solutions are evaporated, where 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 more than 650,000
metric tons per year, including 260,000 metric tons per year of technical grade
potassium nitrate. We expect by the end of 2009 to increase that capacity by
approximately 250,000 metric tons per year.
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 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 will 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 plants have
qualified under the ISO-9002 program, providing third-party certification -
TÜV
Rheinland- of the quality management system and international quality control
standards that we have implemented.
Our
total
iodine production in 2006 was approximately 9.7 thousand metric tons:
approximately 2.5 thousand metric tons from Pedro de Valdivia, 1.3 thousand
metric tons from María Elena, 1.4 thousand metric tons from Pampa Blanca, 3.3
thousand metric tons from Nueva Victoria and 1.2 thousand metric tons from
Iris.
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.
As
we had
anticipated, the various projects oriented to significantly increase our iodine
production capacity, together with the recent DSM iodine business acquisition,
have allowed us to have, from the second quarter of 2006 onwards, an aggregate
production capacity approximately 11 thousand metric tons per year, which is
higher than our sales for 2006. This will allow us to have the capability to
respond to sudden changes in demand and the expected future demand growth.
During 2006 we recovered our operational inventories. Since June 2006, Iris
Iodine operations are halted.
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.
Atacama
Salar Brine Deposits
The
Atacama Salar, 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 Atacama Salar 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 provide us with substantial raw material cost
savings.
In
order
to produce potassium chloride, brines from the Atacama Salar are pumped to
solar
evaporation ponds. Evaporation of the brines results in a complex crystalized
mixture of salts of potassium chloride and sodium chloride, of which one portion
is harvested and stored and the other portion of which 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 Atacama Salar 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 2006 actual production was lower than in 2005
and
we expect that 2007 producion will be higher than in 2006.
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 Atacama Salar; (ii) sodium chloride, which is similar to
the
surface material of the Atacama Salar 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 lithium
chloride concentrated solution is transported by truck to a production facility
located near Antofagasta, approximately 250 kilometers from the Atacama Salar.
At the production facility, the solution is purified and treated with sodium
carbonate to produce lithium carbonate, which is dried then, if necessary,
compacted and finally packaged for shipment. Our lithium carbonate facility
production capacity 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 will be completed by second half 2008. Future production will
depend on the actual volumes and quality of the lithium solutions sent by the
Salar operations.
Lithium
Hydroxide
By
the
end of 2005 we completed the construction of a processing facility for producing
lithium hydroxide monohydrate. This facility, with a capacity of 6,000 metric
tons per year, is located at Salar del Carmen, adjacent to our existing lithium
carbonate operations. Raw material for this operation is lithium carbonate
which
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 dispatch to
customers.
Potassium
Sulfate and Boric Acid
Approximately
12 kilometers northeast of the potassium chloride facilities at the Atacama
Salar, we produce potassium sulfate and boric acid from the Salar brines. The
plant stands on an area of the Salar where higher sulfate and potassium
concentrations are found in the brine. 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. Boric acid is
produced in crystallized form by acidulation of the final concentrated brines,
dried and packaged for shipment at the same facility.
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 Atacama
Salar or returned to the evaporation ponds. The principal by-products of the
boric acid production process are remaining solutions that after treatment
with
sodium carbonate to neutralize acidity, are reinjected into the Atacama
Salar.
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 (since
2005) 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 by 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 based nitrogen and potassium fertilizers,
such as the before mentioned 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;
|
|
·
|
do
not release hydrogen after application, therefore 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
plant
nutrients per unit of nutrient
applied.
|
In
2006,
our revenues from specialty plant nutrients were approximately US$502.8 million,
representing approximately 48% of our total revenues for that year.
Specialty
Plant Nutrition: Market
The
target market for our specialty plant nutrients are high value crops such as
fruits, vegetables, and crops raised 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 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 forces
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, as opposed to ammonium form provided by urea, they are absorbed
faster by crops. Crops absorb nitrogen in nitric form; thus nitrogen in ammonium
form has to be converted into nitric form in the soil first. This is not an
immediate process (it takes time and needs special soil conditions) and 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, horticulture, 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, all of which are
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, USA,
Mexico, United Arab Emirates, Belgium, Holland, South Africa, Turkey and
Egypt.
The
following table shows our sales volume of specialty plant nutrient fertilizer
products and the revenues during the 2002-2006 period.
|
Sales
Volume
(in
metric tons)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Sodium
nitrate
|
55,000
|
63,300
|
58,900
|
62,500
|
59,500
|
|||||||||||
|
Potassium
nitrate and sodium potassium nitrate(1)
|
635,000
|
690,200
|
707,600
|
696,500
|
558,600
|
|||||||||||
|
Potassium
Sulfate
|
172,400
|
178,600
|
157,700
|
143,200
|
161,000
|
|||||||||||
|
Blended
and other specialty plant nutrients(2)
|
361,500
|
350,700
|
374,400
|
377,100
|
276,600
|
|||||||||||
|
Revenues
(in US$ millions)
|
502.8
|
487.8
|
426.8
|
362.8
|
281.4
|
|||||||||||
|
(1)
|
Includes re-sales of potassium nitrate purchased from PCS Yumbes. |
|
(2)
|
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
2006,
we sold our specialty plant nutrients to more than 100 countries. During the
same year, approximately 91% of the Company's specialty plant nutrients sales
in
2006 were exported: approximately 29% were sold to customers in Central and
South America, 22% to customers in North America, 19% to customers in Europe
and
21% to customers in other regions. Without considering any sales to related
parties, no single customer represented more than 4.3% of SQM's specialty plant
nutrients sales during 2006, and our 10 largest customers accounted in the
aggregate for approximately 24% of sales during that period.
|
Sales
Breakdown
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Central
and South America
|
29%
|
|
29%
|
|
29%
|
|
26%
|
|
30%
|
|
||||||
|
North
America
|
22%
|
|
22%
|
|
22%
|
|
18%
|
|
17%
|
|
||||||
|
Europe
|
19%
|
|
20%
|
|
19%
|
|
20%
|
|
15%
|
|
||||||
|
Others
|
21%
|
|
20%
|
|
20%
|
|
27%
|
|
27%
|
|
||||||
|
Chile
|
9%
|
|
9%
|
|
10%
|
|
9%
|
|
11%
|
|
||||||
We
sell
our specialty plant nutrition products outside Chile mainly through our own
worldwide network of representative offices and through our sales, technical
support and distribution affiliates.
In
November 2001, we signed an agreement with Yara International ASA (“Yara”, ex
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 in the marketing
of
their own products.
We
also
signed a joint venture agreement (JVA) with Yara and Israel Chemicals Limited
at
the end of 2001. Under this JVA, 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 Holland. With this
JVA, 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.
We
maintain stocks of our specialty plant nutrients in the main markets of the
Americas, Europe, 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 higher value-added crops that allow 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
urea, triple super phosphate (TSP) and diammonium phosphate (DAP). 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 joint sales of fertilizers represented
approximately 36% of total fertilizer sales in Chile during 2006, of which
no
single customer represented more than 4% of total fertilizer sales revenues,
and
of which the 10 largest customers in total represented less than 12% of
revenues.
Revenues
generated by Soquimich Comercial represented 13.6% of the Company's 2006
consolidated revenues. Soquimich Comercial's consolidated revenues were
approximately US$142 million, US$144 million and US$140 million in 2006, 2005
and 2004, 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 Trans Resources International
Inc., with its subsidiary Haifa Chemicals Ltd. in Israel. We estimate that
sales
of potassium nitrate by Trans Resources International and Haifa Chemicals
accounted for approximately 36% of total world sales during the year
2006.
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. We
believe that ACF production will be lower than S.C.M. Virginia.
Arab
Potash, a Jordanian producer, produces potassium nitrate in a plant
located close to the Port of Aqaba, Jordan.
The
principal means of competition in the sale of potassium nitrate are product
quality, customer service, location, logistic and agronomic expertise and
price.
In
the
potassium sulfate market, we have several competitors of which the most
important are Kali und Salz 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.
We estimate that once we reach full production of potassium sulfate, we will
account for approximately 6% of total world sales.
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 2006, our revenues
from iodine and iodine derivatives amounted to approximately US$217.7 million,
representing approximately 21% of our total revenues in that year. We estimate
that our sales accounted for approximately 33% of world iodine sales by volume
in 2006. In January 2006, we acquired the iodine business of DSM, which
represented approximately 8% of worldwide iodine production in
2005.
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, pigment and ink dyes.
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 mid 1990s, as a joint venture between SQM and Ajay
Chemical, a U.S.-based company. ASG has currently production plants in USA,
Chile and France and is the world's leading inorganic and organic iodine
derivatives producer. In 2006, approximately 33% 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. In January 2006, SQM
acquired the iodine and iodine derivatives business of DSM Group. The
transaction included DSM’s iodine and iodine derivatives facilities located in
the first region of Chile and the mining reserves located in the first and
second region of Chile. Additionally, SQM acquired DSM’s iodine and iodine
derivatives commercial operation in Europe. The agreement involved a base
payment of US$ 72 million plus all the cash, accounts receivable and final
product inventories minus total liabilities. With a production capacity of
approximately 2.0 thousand metric tons, DSM reached an 8% global market share
in
2005.
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 2002-2006 period:
|
Sales
Volume
(in
thousand metric tons)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Iodine
and iodine derivatives
|
9.8
|
8.1
|
7.7
|
6.6
|
6.4
|
|||||||||||
|
Revenues
(in US$ millions)
|
217.7
|
149.1
|
110.5
|
84.6
|
84.1
|
|||||||||||
Iodine:
Marketing and Customers
In
2006,
we sold our iodine products to around 400 customers in more than 70 countries.
During the same year, most of our iodine production was exported: approximately
34% was sold to customers in Europe, 40 % to customers in North America, 5%
to
customers in Central and South America and 21% 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 2006, and our
ten
largest customers accounted in the aggregate for approximately 39% of
sales.
|
Sales
Breakdown
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Europe
|
34%
|
|
30%
|
|
27%
|
|
34%
|
|
36%
|
|
||||||
|
North
America
|
40%
|
|
37%
|
|
38%
|
|
40%
|
|
41%
|
|
||||||
|
Central
and South America
|
5%
|
|
13%
|
|
13%
|
|
6%
|
|
13%
|
|
||||||
|
Others
|
21%
|
|
20%
|
|
22%
|
|
20%
|
|
10%
|
|
||||||
We
sell
iodine through our own worldwide network of representative offices and through
our sales, support and distribution affiliates. We maintain stocks 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. Long-term contracts generally specify annual minimum and
maximum purchase commitments, and prices which vary according to prevailing
market prices and in some cases with price caps.
Iodine:
Competition
SQM
and
several producers in Chile, Japan and the USA 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.
We
estimate that eight Japanese iodine producers accounted for approximately 24%
of
world iodine sales in the year 2006. We estimate that the largest Japanese
producer, Ise Chemicals Ltd., accounted for approximately 10% of the world
iodine sales.
We
estimate that iodine producers in the United States (one of which is owned
by
Ise Chemicals) accounted for approximately 6% of world iodine sales in the
year
2006, while four Chilean companies, including SQM iodine business, accounted
for
approximately 57% of such sales (33% by SQM and 24% by the other Chilean
producers).
Additionally,
iodine recycling, mainly related to LCD consumption has increased over the
past
few years and currently represents approximately 8% of world iodine
sales.
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$22 per kilogram
in
2006.
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, some of whom either have or can acquire additional production
capacity.
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 as
coloring processes and for use as 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 2006, our revenues from
lithium sales amounted to approximately US$128.9 million, representing
approximately 12% of our total revenues. We estimate that our sales accounted
for approximately 36% 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 Atacama Salar. The technologies we use,
together with the high concentrations of lithium we obtain from the Atacama
Salar, 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 butyl lithium in its own plant located in Pasadena, Texas. This product
is sold principally in the U.S. market. Shipments to overseas markets started
during the second quarter of 2006.
The
following table sets forth our total sales and revenues from lithium carbonate
and derivatives in the 2002-2006 period:
|
Sales
Volume
(in
thousand metric tons)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Lithium
carbonate and derivatives
|
30.4
|
27.8
|
31.2
|
27.4
|
22.3
|
|||||||||||
|
Revenues
(in US$ millions)
|
128.9
|
81.4
|
62.6
|
49.7
|
37.3
|
|||||||||||
Lithium:
Marketing and Customers
In
2006,
we sold our lithium products to approximately 270 customers in approximately
50
countries. Virtually all of our lithium products were sold overseas:
approximately 32% to customers in Europe, 24% to customers in North America,
36%
to customers in Asia and Oceania and 8% to customers in other regions. No single
customer accounted for more than 11% of the Company's sales in 2006, and our
ten
largest customers accounted in the aggregate for approximately 47% of
sales.
|
Sales
Breakdown
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Europe
|
32%
|
|
33%
|
|
32%
|
|
31%
|
|
40%
|
|
||||||
|
North
America
|
24%
|
|
25%
|
|
26%
|
|
29%
|
|
37%
|
|
||||||
|
Asia
and Oceania
|
36%
|
|
31%
|
|
37%
|
|
37%
|
|
21%
|
|
||||||
|
Others
|
8%
|
|
11%
|
|
5%
|
|
3%
|
|
2%
|
|
||||||
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”). We estimate that they together sold approximately 43%
of lithium in the lithium chemicals market (excluding lithium minerals) in
2006.
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
83,000 metric tons in 2006.
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 2006, our revenues
from industrial chemicals were approximately US$71.3 million, representing
approximately 7% of our total revenues for that year.
Industrial
Chemicals: Market
Industrial
sodium nitrate and potassium nitrate are used in a wide range of industrial
applications, including the production of glass, ceramics, explosives, charcoal
briquettes and various chemical processes and metal treatments. Boric acid
is
mainly used in the glass, ceramics, fiberglass, enamels and as a raw material
in
the fabrication of screens for LCDs.
We
estimate that our sales of industrial sodium nitrate (excluding production
in
China and India, which is consumed internally) and potassium nitrate in 2006
accounted for 54%, and 30%, respectively, of worldwide sales in that
period.
Industrial
Chemicals: Our Products
We
produce technical potassium nitrate and three grades of industrial sodium
nitrate in crystallized and prilled form. We market our refined grade sodium
nitrate under the brand name "Niterox." We produce boric acid in crystalline
form.
The
following table sets forth our sales volumes of industrial chemicals and total
revenues in the 2002-2006 period:
|
Sales
Volume (*)
(in
metric tons)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Industrial
nitrates
|
162,000
|
176,300
|
192,800
|
193,200
|
187,300
|
|||||||||||
|
Boric
Acid
|
9,700
|
6,300
|
6,120
|
10,700
|
11,300
|
|||||||||||
|
Revenues
(in US$ millions)
|
71.3
|
70.5
|
68.8
|
66.7
|
62.3
|
|||||||||||
| (*) |
We
halted our sodium sulfate production at the beginning of 2006 to
prioritize the production of nitrates. We do not expect to produce
sodium
sulfate again in the short term. As a result of this change, we have
ceased to include sodium sulfate in this business line, and we have
reclassified its volumes and revenes to the "Others"
segment.
|
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 2006. Approximately
41% of our sales of industrial chemicals were made to customers in North
America, 29% to customers in Europe, 17% to customers in Central and South
America and 13% to customers in Asia, Oceania and other regions. No single
customer accounted for more than 7% of the Company's sales of industrial
chemicals in 2006, and our ten largest customers accounted in the aggregate
for
approximately 36% of such sales.
|
Sales
Breakdown
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
North
America
|
41%
|
|
42%
|
|
38%
|
|
39%
|
|
31%
|
|
||||||
|
Europe
|
29%
|
|
28%
|
|
23%
|
|
25%
|
|
17%
|
|
||||||
|
Central
and South America
|
17%
|
|
17%
|
|
24%
|
|
12%
|
|
24%
|
|
||||||
|
Others
|
13%
|
|
13%
|
|
15%
|
|
24%
|
|
28%
|
|
||||||
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 we accounted for approximately 54% of world production of
industrial sodium nitrate in 2006 (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 46% of total production
and
produce sodium nitrate as a by-product of other production processes. In the
refined grade sodium nitrate market, 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 28% market share in the industrial sector. We estimate
our market share at approximately 30% for 2006.
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 Atacama
Salar.
Other
important raw materials are sodium carbonate (in lithium carbonate production
and for neutralization of iodine solutions), anti-caking and anti-dust agents
(in the production of nitrates), kerosene (in the iodine production), ammonium
nitrate (in the preparation of the anfo that is used as explosives in the mining
operations), diesel (mainly in mining equipment and as replacement of natural
gas), natural gas (in heat generation and heating processes), fuel oil (as
replacement of natural gas), electricity acquired from electric utilities and
woven bags for packaging our final products. Our raw material costs (excluding
caliche ore and salar brines and including energy) represented approximately
11.7% of our cost of sales in 2006.
Most
of
our raw materials, especially energy-related raw materials, have experienced
significant price increases in the last year.
In
1998
we entered into a long-term (fifteen years) electricity supply agreement with
Norgener, a major Chilean electricity producer. During 1999, we entered into
a
long-term (ten years) electricity supply agreement with Electroandina S.A.,
also
a major Chilean electricity producer. Since April 2000, the Company has been
connected to the Sistema Interconectado del Norte Grande, (SING), which is
our
current electricity supplier and is the supplier for most cities and industrial
facilities in northern Chile. As of December 31, 2006 we were party to
arbitration proceedings with Electroandina and Norgener. As of June, 2007 the
arbitration proceeding with Norgener has finalized and the arbitration with
Electroandina continues its course. 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 is
sufficient to satisfy the requirements for the facilities that are connected
to
a gas supply. Nonetheless, we are currently facing important shortages in the
supply of natural gas derived from export restrictions imposed by the
Argentinean government. For a discussion of risks related to natural gas supply
see Item 3. Key Information—Risk Factors.
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. 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 Atacama
Salar 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
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 Atacama Salar 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 operational 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
Atacama Salar. The agreement sets yearly quotas for the tonnage of lithium
authorized to be sold for each year of the Atacama Salar, as determined by
the
agreement.
The
following recent changes in Chilean law are likely to affect our
operations:
The
Chilean Congress recently approved modifications to the Water Code. The changes
to the Water Code include establishing annual fee payments for owners of water
rights that do not use the water associated with them. This fee does not affect
the holder’s right to use aquifers. The criteria used to determine what rights
or what part of such rights would be subject to this annual fee relate to
whether the resource is consumed or re-injected into the stream after its use
(defined as the water right’s “consumptive condition”), whether the use of the
resource is sporadic or permanent (frequency of use) and the geographical
location of the intake points relative to an area’s overall water
supply.
On
May
18, 2005, the Chilean Congress approved Law No. 20,026, also known as the
“Royalty II Law,” which established a royalty to be applied to mining activities
developed in Chile, levied on mining companies whose sales are equal to or
greater than the equivalent value of 12,000 metric tons of fine copper (MFT),
as
determined according to the London Metal Exchange Grade A copper cash quotation.
This new mining royalty, which has been applied from 2006 onwards, is levied
on
the “taxable operating income” (as this term is defined in Law No. 20,026) of
the mining company, at a rate that varies from 0.5% up to 5% depending on the
consolidated annual sales.
There
are
currently no material legal or administrative proceedings pending against the
Company with respect to any regulatory matter, except as discussed under
“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.
Environmental
Regulations
Our
operations in Chile are subject to both national and local regulations related
to the environment’s protection. The fundamental environmental laws in Chile are
the Health Code and the Chilean Environmental Framework Law.
The
Chilean Environmental Framework Law created CONAMA, which is the governmental
agency in charge of supervising the due compliance with the Chilean
Environmental Framework Law. Under the Chilean 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 evaluates environmental impact studies submitted for its approval and
also 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 temporary or permanent closure of facilities and
fines.
Chilean
environmental regulations have become increasingly stringent in recent years,
both in respect of the approval of new projects and in connection with the
implementation and development of projects already approved. This trend is
likely to continue and, furthermore, recently implemented environmental
regulations in Chile 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 may also be
subject to political considerations that are beyond our control.
On
August
10, 1993, the Ministry of Health published in the Official Gazette a
determination pursuant to applicable air quality standard regulations stating
that atmospheric particulate levels at our production facilities in María Elena
and Pedro de Valdivia exceeded quality standards for breathable air 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 Nº164/2000.
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 Nº384, published in the Official Gazette on May
16, 2000, initiated a revision and reformulation of the plan. The new plan
was
published by Decree N°37/2004 on March 2004, and it demands to reduce 80% of the
emissions for atmospheric particulate material in two years. We designed a
new
project that modifies the milling and screening systems used in the processing
of the caliche ore at María Elena facilities, which should allow for the
necessary reduction of particulate material emissions. An environmental impact
study for the project was presented to the Environment Commission and it was
approved through Resolution Nº270 in October 2005. Upon issuing the approval for
the environmental impact study, the Environmental Commission issued Decree
N°53975, which authorizes this project as the one through which we will comply
with the emission reductions asked for in Decree N° 37/2004. The project
finished construction in April 2007 and is estimated to be in full operation
by
July 2007.
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 impact. 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 material
restrictions on our operations. We are both committed to 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.
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, 2007. 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 Atacama Salar 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
domestically the Company’s specialty plant nutrition products 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 affiliates 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 (el Norte Grande),
referred to collectively as the "Caliche Ore Mines" are discussed first. Second,
are the company's mining interests within the Atacama Desert in the eastern
region of el Norte Grande (the "Atacama Salar Brines") are then
discussed.
DESCRIPTION
OF THE CALICHE ORE MINES
As
of
December 31 2006, we held exploration rights or exploitation rights to mineral
resources representing approximately 1,799,441 hectares. We have also submitted
applications for exploration and exploitation rights for more than 728,874
additional hectares. As part of these rights, we have six mines covering an
area
of approximately 388,000
hectares. Of these six mines, four are being exploited and two are without
current operations. Additionally, at the beginning of 2006 we incorporated
the
Iris mine as described below.
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 area currently being mined is located
approximately 25 kilometers west of the Pedro de Valdivia production facilities.
Our mining facilities at Pedro de Valdivia have a Weighted Average Age of
approximately 9.4 years. Electricity, diesel and natural gas, and fuel oil
are
the primary source 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 utilized are mainly electricity, diesel, natural gas and fuel
oil.
The Weighted Average Age of the Company's mining facilities at María Elena is
approximately 11.7 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. Beginning
in
1987, the output from Pampa Blanca was derived from old waste ore deposits.
In
1997 we began mining new caliche ore deposits at Pampa Blanca. Ore from this
mine is transported by truck to nearby heap leaching pads where it is used
to
produce iodine and nitrate salts. Various companies conducted mining operations
at the site in the late 1920s. The Weighted Average Age of the ore recovery
facilities at Pampa Blanca is approximately 12.5 years. The power source
utilized is mostly electricity, produced by mobile diesel
generators.
Nueva
Victoria
At
the
end of 2002, we restarted our caliche ore operations in Nueva Victoria. This
site 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 4.3 years. The power
source utilized is mostly electricity, obtained from the SING.
Mapocho—Inactive
The
Mapocho mine is located 67 kilometers northeast of Iquique in the First Region
and is accessible by highway. During its years of operation, Mapocho was mined
for caliche ore. Production started in 1996 from old waste deposits and then
shifted to new caliche ore deposits in 1997. The ore in Mapocho was transported
by truck to heap leaching pads and then used to produce iodine. We shut down
the
plant and dismantled it in 1999. This mine represents a future extension of
Nueva Victoria mining operations
Soronal—Stand
By
We
have
proven and probable reserves at Soronal, which is located 35 kilometers to
the
north of Nueva Victoria and is accessible by highway. This area has not been
exploited yet, but represents a future extension of Nueva Victoria mining
operations.
Iris—Stand
By
Formerly
the mine used by DSM, it is not currently in operation. This mine was in
operation during the first half of 2006 and was not exploited during the rest
of
the year. This area has not been further explored by us since its acquisition
at
the beginning of 2006, therefore we have not carried out an estimation of proven
or probable reserves. This mine represents a future extension of Nueva Victoria
mining operations, or a continuity of operations of the Iris iodine
operations.
Description
of the Atacama Salar Brines
Atacama
Salar Brines
We
hold
rights to exploit the mineral resources in an area covering approximately
197,000 hectares of land in the Atacama Salar in northern Chile, and have
applied for additional rights covering approximately 194,700 hectares. The
Weighted Average Age of our mining facilities at Atacama Salar is approximately
7.7 years. The main source of power used by the operation is
electricity.
Additional
Mining Operations Leased in the Atacama Salar 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 Atacama Salar 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
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 Atacama Salar brines. In the years
2006, 2005 and 2004, royalty payments amounted to approximately US$ 9.2 million,
US$ 6.8 million, and US$4.9 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 Atacama Salar. Under the terms of the Atacama
Salar
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 Atacama Salar.
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
79% of our total mining concessions are held pursuant to Exploitation
Concessions and 21% pursuant to Exploration Concessions, not including areas
within the Atacama Salar 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 60% have been already granted pursuant to applicable
Chilean law, and approximately 40% 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$5.9 million in the year 2006.
The
following table sets forth our exploitation and exploration concessions as
of
December 31, 2006:
|
Exploitation
Concessions (*)
|
Exploration
Concessions (*)
|
||||||||||||||||||
|
Mines
|
Total
number
|
Hectares
|
Total
number
|
hectares
|
Total
number
|
hectares
|
|||||||||||||
|
Pedro
de Valdivia
|
708
|
|
93,207
|
2
|
100
|
710
|
93,307
|
||||||||||||
|
Maria
Elena
|
658
|
125,879
|
38
|
2,838
|
696
|
128,717
|
|||||||||||||
|
Pampa
Blanca
|
516
|
96,718
|
2
|
30
|
518
|
96,748
|
|||||||||||||
|
Nueva
Victoria
|
71
|
8,366
|
15
|
2,829
|
86
|
11,195
|
|||||||||||||
|
Mapocho
|
61
|
8,240
|
11
|
366
|
72
|
8,606
|
|||||||||||||
|
Soronal
|
311
|
42,580
|
49
|
6,883
|
360
|
49,463
|
|||||||||||||
|
Atacama
Salar
|
132
|
197,483
|
669
|
194,700
|
801
|
392,183
|
|||||||||||||
|
Sub
total mines
|
2,457
|
572,473
|
786
|
207,746
|
3,243
|
780,219
|
|||||||||||||
|
Other
caliche areas
|
6,648
|
1,743,225
|
1,228
|
397,054
|
7,876
|
2,140,279
|
|||||||||||||
|
Salars
and other areas
|
123
|
31,053
|
111
|
30,300
|
234
|
61,353
|
|||||||||||||
|
Sub
total other areas
|
6,771
|
1,774,278
|
1,339
|
427,354
|
8,110
|
2,201,632
|
|||||||||||||
|
Total
|
9,228
|
2,346,751
|
2,125
|
635,100
|
11,353
|
2,981,851
|
|||||||||||||
(*)
We have included in this table both granted concessions and concessions in
the
process of being granted
Extraction
Yields
The
following table sets forth certain operating data relating to each of our mines
(1):
|
(Values
in thousands unless otherwise stated)
|
2004
|
2005
|
2006
|
|
Pedro
de Valdivia
|
|||
|
|
|||
|
Metric
tons of ore mined
|
12,029
|
12,362
|
11,652
|
|
Average
grade Nitrate (% by weight)
|
7.2
|
7.2
|
7.4
|
|
Iodine
(parts per million (ppm))
|
378
|
402
|
399
|
|
Metric
tons of Crystallized Nitrate Produced
|
458
|
476
|
454
|
|
Metric
tons of Iodine Produced
|
2.3
|
2.6
|
2.5
|
|
|
|||
|
María
Elena (1)
|
|||
|
|
|||
|
Metric
tons of ore mined
|
5,835
|
5,917
|
5,682
|
|
Average
grade Nitrate (% by weight)
|
8.6
|
8.0
|
7.5
|
|
Iodine
(ppm)
|
485
|
428
|
399
|
|
Metric
tons of Crystallized Nitrate Produced
|
480
|
479
|
504
|
|
Metric
tons of Iodine Produced
|
1.5
|
1.4
|
1.3
|
|
|
|||
|
Pampa
Blanca
|
|||
|
|
|||
|
Metric
tons of ore recovered
|
4,976
|
5,309
|
4,832
|
|
Iodine
(ppm)
|
560
|
520
|
530
|
|
Metric
tons of Iodine Produced
|
1.4
|
1.5
|
1.4
|
|
|
|||
|
Nueva
Victoria
|
|||
|
|
|||
|
Metric
tons of ore recovered
|
6,776
|
7,140
|
12,024
|
|
Iodine
(ppm)
|
505
|
504
|
501
|
|
Metric
tons of Iodine Produced
|
2.0
|
2.2
|
3.4
|
|
|
|||
|
Iris
|
|||
|
Metric
tons of ore recovered
|
—
|
—
|
2,611
|
|
Iodine
(ppm)
|
—
|
—
|
440
|
|
Metric
tons of Iodine Produced
|
—
|
—
|
1.2
|
|
|
|||
|
SQM
Salar
|
|||
|
|
|||
|
Metric
tons of Lithium Carbonate Produced
|
27
|
27
|
29
|
|
Metric
tons of Potash Produced
|
638
|
632
|
539
|
|
Metric
tons of Potassium Sulfate Produced
|
178
|
162
|
170
|
|
Metric
tons of Boric Acid
|
9
|
9
|
8
|
| · |
(1)
Includes production at Coya Sur from treatment of fines and nitrates
from
pile treatment at Pampa Blanca, María Elena and Pedro de
Valdivia.
|
Reserves
Caliche
ore
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. Several drill-hole spacing
have
been used for recognizing mining resources. Normally, we start with 400 x 400
meters and then we reduce spacing to 200x200 meters and 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 to 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 evaluation and the application of operational
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
considered indicated resources and then, adjusting for technical, economic
and
legal aspects, as probable reserves. The degree of certainty of probable
reserves, although lower than that of proven reserves, is high enough to assume
continuity between points of observation. These probable reserves are obtained
by evaluation of polygons and have an uncertainty or error margin greater than
that of proven reserves.
The
updated estimates of our proven reserves of caliche ore at each of our mines,
as
of December 31 2006, are as follows:
|
Mine
|
Proven
Reserves
(millions
of metric tons)
|
Nitrate
Average Grade
(percentage
by weight)
|
Iodine
Average Grade
(parts
per million)
|
|||||||
|
Pedro
de Valdivia
|
158.7
|
7.1%
|
|
371
|
||||||
|
María
Elena
|
136.6
|
7.2%
|
|
416
|
||||||
|
Pampa
Blanca
|
78.1
|
6.2%
|
|
546
|
||||||
|
Nueva
Victoria
|
93.9
|
4.1%
|
|
460
|
||||||
|
Mapocho
|
4.6
|
5.3%
|
|
436
|
||||||
|
Soronal
|
158.9
|
7.1%
|
|
405
|
||||||
In
addition, the updated estimates of our probable reserves of caliche ore at
each
of our principal mines as of December 31 2006, are the following:
|
Mine
|
Probable
Reserves
(millions
of metric tons)
|
Nitrate
Average Grade
(percentage
by weight)
|
Iodine
Average Grade
(parts
per million)
|
|||||||
|
Pedro
de Valdivia
|
133.5
|
6.8%
|
|
435
|
||||||
|
María
Elena
|
97.6
|
7.3%
|
|
380
|
||||||
|
Pampa
Blanca
|
429.4
|
6.0%
|
|
524
|
||||||
|
Nueva
Victoria
|
71.7
|
3.7%
|
|
440
|
||||||
|
Soronal
|
59.1
|
7.6%
|
|
362
|
||||||
The
proven and probable reserves shown above are the result of exploration and
evaluation in approximately 15.2% 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
84.8% 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. Additionally, these reserves do not include
the
Iris as we have not carried out an estimation of proven or probable reserves
since its acquisition at the beginning of 2006.
Proven
and probable reserves are determined using extensive drilling, sampling and
mine
modeling which attempts to account for restrictions for cut-off grades, ore
type, dilution, waste-to-ore-ratio and ore depth from which economic feasibility
has been determined. Nonetheless, metric tons of nitrates and iodine contained
in the proven and probable caliche ore reserves are shown before exploitation
losses and prior to any losses from metallurgical treatment.
Considering
the normal lower degree of certainty in probable reserves compared to proven
reserves, and in accordance with caliche ore continuity, sampling and reserves
calculations, it is possible to transform the values calculated as probable
reserves in order to show them at similar basis of proven reserves. The
transforming factors depend on the different geologic conditions and continuity
recognized mine by mine, but on average are higher than 60%.
Additionally,
proven and probable reserves could be affected by mining exploitation methods
which result in differences between reserves estimates that are available for
exploitation in the mining plan and 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%. Additionally, the
average global metallurgical recoveries of processes for nitrate and iodine
contained in the recovered material varies between 55% to 65%.
Exploration
Program.
We
maintain a permanent 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 2006,
we
continued a basic reconnaissance program on the new mining properties including
a geological mapping of the surface and spaced drill-holes campaign covering
approximately 42,171 hectares. Additionally, we conducted general explorations
based on a closer grid pattern drill-holes in a total area of approximately
1,154 hectares and, in addition, carried out in-depth sampling of approximately
1,936 hectares (761 hectares at Pedro de Valdivia, 341 hectares at María Elena,
710 hectares Nueva Victoria and 119 hectares at Pampa Blanca). The exploration
and development program in 2007 calls for a basic reconnaissance program over
a
total area of 34,221 hectares, general exploration over a total area of about
1,836 hectares and, in addition, in-depth sampling of approximately 1,813
hectares.
Reserves
and Concessions for the Atacama Salar Brines
Reserves
for the Atacama Salar Brines
Our
in-house staff of hydro-geologists and mining engineers prepares our estimates
of potassium, sulfate, lithium and boron reserves at the Atacama Salar. 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
(millions
of metric tons)
|
Probable
Reserves
(millions
of metric tons)
|
||||||
|
Potassium
(K+)
|
39.9
|
5.1
|
|||||
|
Sulfate
(SO42–)
|
36.1
|
1.3
|
|||||
|
Lithium
(Li+)
|
2.1
|
1.3
|
|||||
|
Boron
(B3+)
|
1.2
|
0.1
|
|||||
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 considers
process restrictions from which economic feasibility has been determined to
produce commercial products like potassium chloride, potassium sulfate, lithium
carbonate and boric acid. 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 brine composition, which changes in time,
and
the process applied to produce the desired commercial products. Ponds and
metallurgical recoveries for potassium vary from 47% to 68% while for sulfate
vary from 27% to 44%. The recoveries for lithium vary from 28% to 32% and for
boron is approximately 29%.
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.
The
map
below shows the location of SQM's principal mining operations and land
concessions.
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, 2006:
|
Location
|
Type
of Facility
|
Approximate
Size (1)
(Hectares)
|
|
Pedro
de Valdivia
|
Nitrate,
sulfate and iodine production
|
126
|
|
María
Elena
|
Nitrate,
sulfate and iodine production
|
110
|
|
Coya
Sur
|
Nitrate,
sulfate and iodine production
|
232
|
|
Pampa
Blanca
|
Concentrated
nitrate salts and iodine production
|
86
|
|
Nueva
Victoria
|
Iodine
production
|
11
|
|
Atacama
Salar(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 Atacama Salar 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, 2006, the
gross
book value of the property and associated plant and equipment at the Pedro
de
Valdivia, María Elena, Coya Sur, Pampa Blanca, Nueva Victoria, Atacama Salar,
Salar del Carmen and Tocopilla was approximately US$188.93 million, US$322.04
million, US$156.04 million, US$17.05 million, US$166.21 million, US$374.45
million, US$94.29 million and US$61.79 million, respectively.
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
Weighted Average Age of our production facilities at Pedro de Valdivia, María
Elena, Coya Sur, Nueva Victoria, Atacama Salar and Salar del Carmen is
approximately 10.39 years, 10.20 years, 9.32 years, 4.51 years, 8.30 years
and
7.96 years, respectively. The Weighted Average Age of our iodine facilities
at
Pampa Blanca is approximately 12.53 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 13.29 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 totaling
approximately US$630 million. 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 material 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
finished product plants of Lithium Carbonate and Lithium Hydroxide. The
Tocopilla Port Terminal, which we own, is the main facility for storage and
shipment of our products. In January 2006, the company acquired, a new facility
in Iris, near Nueva Victoria, containing nitrates and iodine ores as well as
iodine and iodine derivatives finished product plants.
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 going
to Coya Sur is used as 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, already bagged at the Salar
de Atacama, by a contracted trucking company.
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 in the premises and are subsequently
transported by truck to Tocopilla Port Terminal or to the Antofagasta Terminal
for shipment in charter vessel 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, Iris 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
Atacama Salar. 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 another port, 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.
A
fuel
oil storage facility at Tocopilla, owned by SQM, was closed and dismantled
during February 2006, as a part of a rationalization plan for the terminal.
The
space is destined as bag storage and a new container loading
facility.
Not
applicable
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, 2006 and 2005, and for
the
three years in the period ended December 31, 2006.
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
tax asset valuation allowance
Our
Company and each of its subsidiaries compute and pay 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 asset 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
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, 2006, 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, 2006, 2005 and 2004 and of total
shareholders' equity as of December 31, 2006, 2005 and 2004. 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 four product lines:
|
·
|
Specialty
plant nutrition: production and commercialization of fertilizers
with
unique characteristics.
|
|
·
|
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.
|
Additionally
we sell other products, including imported commodity fertilizers that we
distribute mainly in Chile and Mexico and potassium chloride, which complement
our product portfolio.
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 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 three 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,
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
US$
|
%
|
US$
|
%
|
US$
|
%
|
||||||||||||||
|
Specialty
plant nutrition
|
502.8
|
48
|
487.8
|
54
|
426.8
|
54
|
|||||||||||||
|
Iodine
and derivatives
|
217.7
|
21
|
149.1
|
17
|
110.5
|
14
|
|||||||||||||
|
Lithium
and derivatives
|
128.9
|
12
|
81.4
|
9
|
62.6
|
8
|
|||||||||||||
|
Industrial
chemicals
|
71.3
|
7
|
70.5
|
8
|
68.8
|
9
|
|||||||||||||
|
Other
products(1)
|
122.2
|
12
|
107.2
|
12
|
119.8
|
15
|
|||||||||||||
|
Total
|
1,042.9
|
100
|
896.0
|
100
|
788.5
|
100
|
|||||||||||||
|
(1)
|
Primarily imported fertilizers distributed in Chile and Mexico 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,
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
US$
|
%
|
US$
|
%
|
US$
|
%
|
||||||||||||||
|
Total
revenues
|
1,042.9
|
100.0
|
896.0
|
100.0
|
788.5
|
100.0
|
|||||||||||||
|
Cost
of goods sold
|
(753.3)
|
|
(72.2)
|
|
(652.9)
|
|
(72.9)
|
|
(608.7)
|
|
(77.2)
|
|
|||||||
|
Gross
margin
|
289.6
|
27.8
|
243.1
|
27.1
|
179.8
|
22.8
|
|||||||||||||
|
Selling
and administrative expenses
|
(69.7)
|
|
(6.7)
|
|
(61.9)
|
|
(6.9)
|
|
(55.7)
|
|
(7.1)
|
|
|||||||
|
Operating
income
|
219.9
|
21.1
|
181.2
|
20.2
|
124.1
|
15.7
|
|||||||||||||
|
|
|||||||||||||||||||
|
Non-operating
income
|
19.2
|
1.8
|
16.4
|
1.8
|
20.8
|
2.7
|
|||||||||||||
|
Non-operating
expenses
|
(55.3)
|
|
(5.3)
|
|
(50.8)
|
|
(5.7)
|
|
(38.4)
|
|
(4.9)
|
|
|||||||
|
Income
before income taxes
|
183.8
|
17.6
|
146.8
|
16.3
|
106.5
|
13.5
|
|||||||||||||
|
Income
tax
|
(37.9)
|
|
(3.6)
|
|
(32.5)
|
|
(3.6)
|
|
(27.3)
|
|
(3.5)
|
|
|||||||
|
Minority
interest
|
(4.7)
|
|
(0.5)
|
|
(1.0)
|
|
(0.1)
|
|
(5.1)
|
|
(0.6)
|
|
|||||||
|
Amortization
of negative goodwill
|
0.1
|
0.0
|
0.2
|
0.0
|
0.2
|
0.0
|
|||||||||||||
|
Net
income
|
141.3
|
13.5
|
113.5
|
12.7
|
74.2
|
9.4
|
|||||||||||||
Results
of Operations - 2006 compared to 2005
During
2006, we generated total revenues of approximately US$1,042.9 million, which
is
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 are the following:
Specialty
Plant Nutrition
Revenues
from sales of specialty plant nutrition products increased 3.1% to US$502.8
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
|
55.0
|
|
63.3
|
-13
|
%
|
|
|
Potassium
nitrate and sodium potassium nitrate
|
Th.
Ton
|
635.0
|
|
690.2
|
-8
|
%
|
|
|
Blended
and other specialty fertilizers
|
Th.
Ton
|
219.2
|
|
217.5
|
0
|
.8%
|
|
|
Other
non-SQM Specialty plant nutrients
|
Th.
Ton
|
142.3
|
133.2
|
7
|
%
|
||
|
Potassium
sulfate
|
Th.
Ton
|
172.4
|
|
178.6
|
-3
|
%
|
|
Lower
sales volume obtained during 2006 are 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 responds 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. Sales of specialty plant nutrients
in
those countries will be centralized in SQM Italy and SQM Mexico,
respectively.
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 by product category.
|
|
2006
|
2005
|
%
Change
|
||||||||||
|
|
|
|
|
||||||||||
|
Iodine
and derivatives
|
Th.
Ton
|
9.8
|
8.1
|
21%
|
|
||||||||
The
higher revenues reached in this business line are 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
are iodophors and biocides, in USA; 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. Considering the positive price scenario that
prevailed during the fourth quarter 2006, we expect that average prices for
2007
should be higher than in 2006.
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 by product category.
|
|
2006
|
2005
|
%
Change
|
||||||||||
|
|
|
|
|
||||||||||
|
Lithium
carbonate and derivatives
|
Th.
Ton
|
30.4
|
27.8
|
9%
|
|
||||||||
The
higher revenues recorded in this business line are 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
and we expect that a positive scenario is likely to repeat in 2007.
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 is working close to nameplate capacity, the increase
in
volume was limited by this fact and the use of inventories. Subsequently, SQM
is
expecting to finish the 10,000 mtpa expansion of its lithium carbonate
production capacity by second half 2008.
Regarding
lithium hydroxide, demand continues 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 are located in mature industries, negatively affecting future
growth.
Partially
offsetting the volume effect, the increase in prices observed during 2006 has
allowed this business line to maintain its revenues.
Other
Products
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 by product category.
|
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.
|
SQM
is
focused on implementing several cost-reduction initiatives mainly oriented
to
energy savings and production yield improvements
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 is 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
16.6%
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 - 2005 compared to 2004
During
2005, we generated total revenues of approximately US$896.0 million, which
is
approximately 14% higher than the US$788.5 million recorded for the year ended
December 31, 2004.
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 14.3% to US$487.8
million in 2005 from US$426.8 million in 2004. Set forth below are sales volume
data in the specified year by product category.
|
|
2005
|
2004
|
%
Change
|
||||||||||
|
|
|
|
|
||||||||||
|
Sodium
nitrate
|
Th.
Ton
|
63.3
|
58.9
|
8%
|
|
||||||||
|
Potassium
nitrate and sodium potassium nitrate
|
Th.
Ton
|
690.2
|
707.6
|
-3%
|
|
||||||||
|
Blended
and other specialty fertilizers
|
Th.
Ton
|
217.5
|
243.3
|
-11%
|
|
||||||||
|
Other
non-SQM Specialty plant nutrients (1)
|
Th.
Ton
|
133.2
|
131.1
|
2%
|
|
||||||||
|
Potassium
sulfate
|
Th.
Ton
|
178.6
|
157.7
|
13%
|
|
||||||||
|
(1)
Includes
resale of purchased products.
|
The
14.3%
increase in specialty plant nutrition product revenue was mainly driven by
improved pricing conditions. The increase in prices resulted from two main
factors: increased demand and the favorable pricing conditions for
potassium-related fertilizers.
Potassium
nitrate and sodium potassium nitrate sales volumes were slightly lower than
in
the previous year with a different product mix increasing soluble potassium
nitrate sales volume, consistent with our strategy of focusing on more
profitable markets.
The
lower
sales volume of blended fertilizers was mainly related to the lower sales in
the
Chilean market.
Demand
for specialty plant nutrition products continues to be strong, but our sales
volume is constrained by current production capacity. SQM expects to increase
its nitrate production capacity between 20% and 30% from the second half of
2007
onwards.
Iodine
and iodine derivatives
Revenues
for iodine and iodine derivatives increased 34.9% to US$149.1 million in 2005
from US$110.5 million in 2004. Set forth below are sales volume data in the
specified year by product category.
|
|
2005
|
2004
|
%
Change
|
||||||||||
|
|
|
|
|
||||||||||
|
Iodine
and derivatives
|
Th.
Ton
|
8.1
|
7.7
|
5%
|
|
||||||||
The
increase in revenue is due primarily to higher prices related to growing demand
combined with the high capacity utilization rates in the industry, which put
an
upward pressure on prices.
The
applications of iodine and iodine derivatives that contributed to a significant
portion of the growth in demand are: x-ray contrast media, the utilization
of
iodine in the production of polarizing film, which is an important component
in
LCD screens and iodo-fluoride compounds used in the synthetic fiber
industry.
During
2005, SQM increased its sales volume in proportion to the market’s growth, which
allowed SQM to preserve its market share of approximately 30%.
On
average, prices for iodine increased by approximately US$4.00 per kilogram
as
compared to the previous year. Considering the tight supply situation, we
believe that these positive pricing trends will continue during
2006.
In
January 2006, SQM acquired the iodine and iodine derivatives business of the
Dutch company DSM N.V., or DSM. The transaction included the iodine and iodine
derivatives facilities and the mining reserves located in northern Chile.
Additionally, SQM acquired DSM’s iodine and iodine derivatives commercial
operations in Europe. Currently, DSM’s iodine production capacity is higher than
2,000 metric tons per year.
This
acquisition will provide SQM with logistics, commercial and productive synergies
and reflects SQM’s commitment to the development and strengthening of its core
businesses and its strategy to be a long-term reliable iodine
supplier.
The
agreement involved a base payment of US$72.0 million plus all the cash, accounts
receivable and final product inventories minus the total liabilities of the
Chilean and Dutch companies involved in the transaction.
Lithium
and lithium derivatives
Revenues
for lithium and lithium derivatives increased 29.9% to US$81.4 million in 2005
from US$62.6 million in 2004. Set forth below are sales volume data in the
specified year by product category.
|
|
2005
|
2004
|
%
Change
|
||||||||||
|
|
|
|
|
||||||||||
|
Lithium
carbonate and derivatives
|
Th.
Ton
|
27.8
|
31.2
|
-11%
|
|
||||||||
The
increase in revenues in this business line was mainly due to better price
conditions. The strong demand during the last few years, with a growth of
approximately 5% during 2005, positively affected pricing conditions and we
expect this trend to continue.
During
2005 the most important applications driving market growth were batteries,
greases and frits. Regarding lithium-ion batteries, during 2004 certain
producers overstocked, leading to a lower demand at the beginning of 2005.
This
situation was reversed by the end of the first half of 2005.
The
lower
sales volume during 2005 was due to production capacity constraints. Current
production capacity is approximately 28,500 metric tons per year. SQM expects
to
increase its lithium carbonate production capacity from 2008
onwards.
Demand
continued to increase for lithium hydroxide. Our new lithium hydroxide plant
has
a total capacity to satisfy approximately 50% of that market.
Industrial
Chemicals
Revenues
for industrial chemicals increased 2.5% to US$70.5 million in 2005 from US$68.8
million in 2004. Set forth below are sales volume data in the specified year
by
product category.
|
|
2005
(1)
|
2004
(1)
|
%
Change
|
||||||||||
|
|
|
||||||||||||
|
Industrial
nitrates
|
Th.
Ton
|
176.3
|
192.9
|
-9%
|
|
||||||||
|
Boric
acid
|
Th.
Ton
|
6.3
|
6.1
|
3%
|
|
||||||||
|
(1)
|
2005
and 2004 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 in 2005 and US$4.3 million in
2004
|
The
slight increase in revenues from sales of industrial chemicals was mainly due
to
a continued increase in prices for most of our industrial products, which more
than offset lower sales volume during this period.
Industrial
nitrates saw a reduction in sales volume in 2005, mainly due to lower demand
for
potassium nitrate from the CRT industry (TV screens). In spite of a 9% decrease
in volume, the increased price for industrial nitrates led to higher revenues
in
this product line.
Other
Products
Potassium
chloride
Revenues
from sales of potassium chloride decreased 12.9% to US$32.4 million in 2005
from
US$37.2 million in 2004. Set forth below are sales volume data in the specified
year by product category.
|
2005
|
2004
|
%
Change
|
|||||||||||
|
|
|||||||||||||
|
Potassium
Chloride
|
Th.
Ton
|
128.7
|
211.9
|
-39%
|
|
||||||||
Lower
revenues from potassium chloride are mainly due to the acquisition of PCS Yumbes
S.C.M. (today, SQM Industrial S.A.) at the end of 2004, which led to a decrease
in third party sales of potassium chloride and an increase in internal
consumption for the production of potassium nitrate.
We
plan
to continue using potassium chloride internally for the production of potassium
nitrate.
Other
commodity fertilizers
Sales
of
other commodity fertilizers decreased to US$75.0 million in 2005 from US$82.6
million in 2004.
The
2005
results of SQM’s subsidiary in charge of the trading of special plant nutrients
and commodity fertilizer in Chile were negatively affected by lower sales
volumes and lower margins than in 2004. The continuous rains that affected
the
fertilizer season in Chile and the high inventory of commodity fertilizers
put a
downward pressure, significantly affecting its trading margins.
Production
Costs
Production
costs during 2005 were higher than 2004, mainly in iodine and nitrate
production. The main factors that affected the production costs were the
following:
•
higher
energy and raw materials costs;
•
less
favorable exchange rates; and
•
maintenance
and depreciation cost increase.
Gross
Profit
As
a
result of the factors described above, gross profit increased 35.2% to US$243.1
million in 2005 from US$179.8 million in 2004.
Selling
and Administrative Expenses
Selling
and administrative expenses increased to US$61.9 million (6.9% of revenues)
during 2005 compared to US$55.7 million (7.1% of revenues) recorded during
2004.
Operating
Income
As
a
result of the factors described above, operating income increased 46% to
US$181.2 million in 2005 from US$124.1 million in 2004.
Non-Operating
Income and Expenses
For
2005,
net non-operating expenses amounted to US$34.4 million, compared to US$17.6
million during 2004. The main changes in non-operating income and expenses
were
due to the following:
•
During
2004, SQM sold its 14.05% stake in Empresas Melón S.A., or Empresas Melón, at a
public auction carried out in the Santiago Stock Exchange on August 18, 2004.
The transaction resulted in a before-tax profit of approximately US$8.2
million.
•
The
income derived from the investments in related companies decreased to US$2.6
million in the year 2005 from US$4.5 million during 2004 (including Empresas
Melón).
•
During
2005 there were exchange losses of approximately US$3.8 million compared to
approximately US$0.5 million during 2004. This was due to the Chilean peso
exchange rate and the Euro exchange rate.
•
Other
losses were approximately US$4.0 million greater in 2005 than those of 2004,
including write-off of investments, amortization of goodwill and
others.
Income
Taxes
In
2005,
income taxes were US$32.5 million, resulting in an effective consolidated tax
rate of 22.1%, compared to income taxes of US$27.3 million and an effective
consolidated tax rate of 25.6% in 2004. 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$232.6 million
as of December 31, 2005, the majority of which have no expiration dates and
are
expected to be utilized in the future.
The
corporate income tax rate in Chile was 17% for 2005 and 2004.
The
19.1%
increase in income taxes is mainly due to the increase in our taxable
income.
For
a
more detailed analysis of the Company’s income and deferred taxes see Note 14 to
the Consolidated Financial Statements.
Foreign
Exchange Rates - Inflation
We
transact a significant portion of our business in U.S. dollars, and the U.S.
dollar is the currency of the primary economic environment in which we operate
and our functional currency for financial statement reporting purposes. A
significant portion of our operating costs is related to the Chilean peso,
therefore an increase or decrease in the exchange rate between the Chilean
peso
and the U.S. dollar affects our costs of production. Additionally, as an
international company operating in Chile and several other countries, we
transact a portion of our business and have assets and liabilities in Chilean
pesos and other non-dollar currencies, such as the Euro, the South African
Rand
and the Mexican Peso. As a result, fluctuations in the exchange rate of such
local currencies to the U.S. dollar affect our financial condition and results
of operations.
The
following is a summary of the aggregate net monetary assets and liabilities
that
are subject to foreign exchange gain or loss by currency at December 31, 2006
and 2005:
|
2006
|
2005
|
||||||
|
|
Th
US$
|
Th
US$
|
|||||
|
Chilean
pesos
|
(41,922)
|
|
53,167
|
||||
|
Brazilian
real
|
(1,332)
|
|
(941)
|
|
|||
|
Euro
|
27,167
|
19,373
|
|||||
|
Japanese
yen
|
730
|
6,333
|
|||||
|
Mexican
pesos
|
1,587
|
8,101
|
|
||||
|
South
African rand
|
11,676
|
7,529
|
|||||
|
Dirhams
|
13,554
|
11,543
|
|||||
|
Other
currencies
|
7,854
|
3,282
|
|||||
|
Net
Total
|
19,314
|
108,387
|
|||||
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, 2006, for this purpose we had open forward
exchange contracts and options to buy U.S. dollars and sell foreign currency
for
approximately UF 3 million (US$ 102 million), 13 million Euros (US$17.12
million), 50 million South African Rands (US$ 7.15 million) and 20 million
Mexican Pesos (US$ 1.89 million), and forward exchange contracts to buy Chilean
pesos and sell U.S. dollars for approximately 5,323.9 million Chilean Pesos
(US$
10 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 reappraisal 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 2006, 2005, and 2004 was US$ 154.3 million, US$125.2
million and US$86.8 million, respectively, compared to that reported under
Chilean GAAP of US$ 141.3 million, US$113.5 million and US$74.2 million,
respectively.
Total
shareholders' equity under U.S. GAAP at December 31, 2006 and 2005 was US$
994.5
million and US$923.4 million, respectively, compared to that reported under
Chilean GAAP of US$ 1,085.9 million and US$1,020.4 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 1.7 as of December 31, 2005 to 4.28 as of
December 31, 2006 , primarily due to the payment, in September 2006, of the
US$200 million rule 144-A bond that was classified as a current liability at
the
end of 2005. This bond was replaced by another of similar tenor with maturity
on
April 2016.
As
of
December 31, 2006 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$545.4
million, as compared to total debt of US$389.9 million as of December 31,
2005. Of the total debt as of December 31, 2006, US$64.7 million was
short-term debt plus the current portion of long-term bank debt. Most of
our long-term debt (including the current portion) as of December 31, 2006
was denominated in U.S. dollars, with the exception of our UF 3 million local
bond, issued on January 24, 2006, which was hedged with a cross currency swap
to
the U.S. dollar. The following table sets forth the maturities of our
long-term debt as of December 31, 2006:
|
Maturity(*)
|
Amount
( millions of US$)
|
|
2008
|
5.15
|
|
2009
|
5.15
|
|
2010
|
105.15
|
|
2011
|
85.15
|
|
2012
|
5.15
|
|
2013
and thereafter
|
272.05
|
|
Total
|
477.8
|
| (*) |
Only
the capital has been considered
|
In November 2006,
our wholly-owned Aruban subsidiary, Royal Seed Trading Corporation A.V.V.,
entered into a loan agreement with several local and international
banks. The 5-year loan is for US$80 million and bears interest at an
annual rate of Libor + 0.3 %. SQM is guarantor of the borrower’s
obligations under the loan agreement. The financial covenants include: (i)
minimum net worth, (ii) limitation on net financial debt to EBITDA ratio on
a
consolidated basis, and (iii) limitation on interest indebtedness of operating
subsidiaries.
In
April
2006 we issued 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 amortization during April, 2016. This amount was used by SQM
to
refinance indebtedness that matured in September 2006.
In
January 2006 we issued a Chilean bond at a re-offer yield of 4.18% in UF, for
a
nominal amount of UF3 million (approximately US$102.6 million), due 2026,
amortizing on a semi-annual basis from year 2 onwards. The principal and
interest payable on the bond are fully hedged in U.S. dollars for both principal
and interest (approximately 5.8%). The financial covenants include: (i)
limitation on the ratio of total liabilities to equity (including minority
interest) on a consolidated basis, and (ii) limitation on the ratio of total
liabilities to equity (including minority interest) on an individual
basis.
We
believe that the terms and conditions of our debt agreements are standard and
customary and that we are in compliance in all material respects with such
terms
and conditions.
As
of
December 31, 2006, we had US$183.9 million of cash and cash equivalents,
including marketable securities. In addition, as of December 31, 2006, we
had unused uncommitted credit lines amounting to approximately US$464 million
and unused committed 3-year credit lines amounting to approximately US$100
million.
Shareholders’
equity increased from US$1,020.4 million in 2005 to US$1,085.9
million in 2006 . Our ratio of total liabilities to equity (including
minority interest) increased from 0.37:1 as of December 31,
2005 to 0.42 :1 as of December 31, 2006 due to the
increase in our consolidated debt.
Our
capital expenditures in 2006, defined as net cash used in investing activities,
amounted to US$290.5 million (including the acquisition of DSM’s iodine business
for US$ 72 million plus working capital described in “Business-Capital
Expenditure Program”).
For
2007,
we expect total capital expenditures of approximately US$230 million. We
have currently budgeted capital expenditures of a total of US$400 million
for 2008 and 2009 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 adopted by the shareholders’ meeting, 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 2007, 2008 and
2009 .
Pension
Plan
Our
wholly owned 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. Assumptions used in determining the actuarial present
value of the projected benefit obligation as of December 31 are as
follows:
|
2006
|
2005
|
||||||
|
Weighted-average
discount rate
|
7.0%
|
|
7.5%
|
|
|||
|
Rate
of increase in compensation levels
|
0.0%
|
|
0.0%
|
|
|||
|
Cost
of living
|
2.5%
|
|
2.5%
|
|
|||
|
Long-term
rate of return on plan assets
|
8.5%
|
|
8.5%
|
|
|||
For
further discussion see Note 29 Differences between Chilean and United States
Generally Accepted Accounting Principles—II.m) Post retirement obligations and
staff severance indemnities.
Environmental
Projects
In
2006
we made disbursements amounting to US$6.8 million related to environmental
projects. We have budgeted future disbursements amounting to US$5.2 million
related to environmental 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 and Environment.
Our
research and development activities are conducted principally at our
Antofagasta Research and Development Center. The staff involved adds up to
51
people, including 8 Ph.Ds and 4 MScs in the fields of engineering and chemistry,
conducting research on various projects. 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 and finishing
have been developed, including methods for heap leaching nitrates and a method
to produce mono-granular blends of fertilizers that permit the incorporation
of
different nutrients (including micro-nutrients) into one grain. In recent years,
we have been able to improve the physical quality of our prilled products,
and
we have been successful at lowering dust emission and caking by applying
especially designed additives for our products handled in bulk .
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, 2006, 2005, and 2004 we spent approximately US$2.4
million, US$2.4 million, and US$1.8 million, respectively, on research and
development activities.
5.D.
Trend
Information
In
2006,
iodine prices continued to increase following the positive trend of the previous
years. We expect this trend to continue during 2007 due to sustained growth
in
demand accompanied by the relative equilibrium between production and demand.
We
expect
the increased demand for lithium carbonate observed in the past years to
continue. Demand is mostly driven by lithium batteries. Further price increases
are forecasted during 2007. However, we are limited in our ability to increase
our sales volume due to the Company’s production capacity
constraint.
Potassium
nitrate and sodium potassium nitrate sales volumes decreased during 2006
compared with 2005. We expect 2007 will deliver higher sales volumes with higher
average prices compared to 2006.
At
this
stage, the Company cannot predict what the price trends will be for 2008
onwards.
During
2006, production costs were higher than 2005, 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 and
exchange rate expectations, we expect that 2007 production costs will be higher
than in 2006.
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,
2006:
|
|
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
|
545,442
|
64,718
|
—
|
180,000
|
300,724
|
|||||||||||
|
Capital
lease obligations
|
1,045
|
196
|
443
|
406
|
—
|
|||||||||||
|
Operating
leases (*)
|
109,349
|
6,816
|
8,916
|
8,916
|
84,701
|
|||||||||||
|
Purchase
commitments
|
38,415
|
38,415
|
—
|
—
|
—
|
|||||||||||
|
Staff
severance indemnities
|
17,472
|
—
|
—
|
—
|
17,472
|
|||||||||||
|
Total
Contractual Obligations and Commitments
|
711,723
|
110,145
|
9,359
|
189,322
|
402,897
|
|||||||||||
|
(*)
See Consolidated Financial Statements note 29 II.e)
|
||||||||||||||||
6.A.
Directors
and Senior Management
We
are
managed by our executive officers under the direction of our Board, which,
in
accordance with the Company's By-laws, consists of eight directors who are
elected at the annual ordinary shareholders' meeting. The Board consists of
seven members elected by shareholders of the Series A shares, and one member
elected by shareholders of the 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 current members
of the Board of Directors were elected on April 29, 2005 and their terms expire
in 2008. 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 June 15, 2007 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
|
May
2002
|
||
|
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. (2)
|
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.
|
||||
|
José
Antonio Silva B.
|
Director
|
December
2001
|
||
|
Mr.
Silva is a lawyer with a degree from the Pontificia Universidad Católica
de Chile and holds a Master's Degree in law from Harvard Law School.
Currently, he is Senior Partner of the Chilean law firm Silva, Rencoret,
Schultz & Lehuedé Abogados. He is also a substitute member of the
board of directors of HQI Transelec Chile S.A. and Embotelladora
Andina
S.A.
|
|
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 December 31, 2006 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 Enginee with a degree r 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.
|
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)
|
Lithium
Operations and Mining Affairs Senior Vice President
|
January
2007
|
||
|
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 and Technical Senior Vice President in
2001.
|
||||
|
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 brother of Julio Ponce.
|
||||
|
Camila
Merino C.
|
Human
Resources and Administration
Senior
Vice President
|
March
2001
|
||
|
Mrs.
Merino is an Industrial Engineer with a degree from the Pontificia
Universidad Católica de Chile and holds a Master in Business
Administration degree from the Sloan School of Management at MIT.
She
joined the Company in 1991, and after a two-year period at MIT, she
re-joined the Company in 1998 as Nitrates Operations Manager. In
the same
year she became Finance and Administration Manager of SQM Nitratos
S.A.
and later on, in 1999, Corporate Services Manager. She left the Company
at
the end of April 2007
|
||||
|
Mauricio
Cabello C.
|
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
Nitratos- Yodo in 2002 and Production Manager of SQM Nitratos-Yodo
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 this operations in 1998, and in 2001, she
became
Corporate R&D and Environmental Issues Vice President until
2005.
|
During
January 2007, the Company was restructured. The position of Salar Operations
Vice President was split in to two positions: Lithium Operations and Mining
Affairs Vice Precident reporting to Mr. Jaime San Martin, and the Salar
Operations Vice Precident reporting to Mr. Juan Carlos Barrera.
During
May 2007, Mrs. Camila Merino left the Company, and was replaced in her position
as Human Resources and Administration Senior Vice President by Mr. Daniel
Jimenez.
|
Juan
Carlos Barrera P. (2)
|
Salar
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.
|
Human
Resources and Administration
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. In the last annual general shareholders meeting of SQM, they
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
2006, the total compensation paid to each of our directors under the foregoing
was as follows:
|
Total
per subsidiaries Ch$
|
Annual
Total Ch$
|
|||||
|
SQM
S.A.
|
SQMC
|
|||||
|
Name
|
Meeting
|
Committee
|
Meeting
|
Committee
|
||
|
|
|
|
||||
|
Ponce
Lerou, Julio
|
425,547,389
|
—
|
65,431,746
|
—
|
490,979,135
|
|
|
Büchi
Buc, Hernán
|
64,552,485
|
3,678,762
|
—
|
—
|
68,231,247
|
|
|
Brownlee,
Wayne R,
|
64,552,485
|
—
|
—
|
—
|
64,552,485
|
|
|
Eyzaguirre,
José María
|
63,628,710
|
—
|
—
|
—
|
63,628,710
|
|
|
Silva,
José Antonio
|
63,654,098
|
9,090,088
|
—
|
—
|
72,744,186
|
|
|
Wallace,
Kendrick T,
|
64,552,485
|
—
|
—
|
—
|
64,552,485
|
|
|
Yarur,
Daniel
|
64,552,485
|
9,988,475
|
—
|
—
|
74,540,960
|
|
|
Von
Appen Wolf
|
62,712,649
|
—
|
—
|
—
|
62,712,649
|
|
|
|
|
|
|
|
|
|
|
Total
|
873,752,786
|
22,757,325
|
65,431,746
|
—
|
961,941,857
|
|
For
the
year ended December 31, 2006, the aggregate compensation paid to our 93 main
executives based in Chile was approximately Ch$7,137.8 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
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 2008.
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 exist 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
December 31, 2006, the Company’s Directors Committee was formed by SQM
Directors; Mr. Hernán Büchi B., Mr. Jose Antonio Silva B. 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
2006:
| 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 people, 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.
|
| i) |
Approval
of the minutes of previous meetings
|
The
Directors Committee examined the following records in connection with operations
related to section 44 of law N° 18.046.:
In
the
April 24, 2006 session, the Directors Committee analyzed the selling of all
of
SQM’s rights over the Italian company Impronta SRL to the Yara Group (an
important indirect shareholder of SQM), and recommended the implementation
of
the agreement.
In
the
September 26, 2006 session, the Committee analyzed the selling of all of SQM’s
rights over the Mexican company Fertilizantes Olmeca y SQM S.A. de C.V. to
the
Yara Group (an important indirect shareholder of SQM S.A.), and recommended
the
implementation of the agreement.
In
the
December 18, 2006 session, the Committee analyzed certain Sea Freight Contracts
between the “group SQM” and the “group Ultramar" (linked to Mr. Wolf von Appen,
Director of SQM), and recommended the implementation of the
agreements.
In
the
April 24, 2006 session, the Committee examined the operations referring to
the
section 89 of law N°18.046.
On
April
28, 2006, the Annual General Shareholders Meeting of SQM agreed to pay a monthly
remuneration of 50UF to each member of the Directors Committee, regardless
of
the number of sessions held by the Committee during the period between May
2006
and April 2007, both months included. This remuneration is also independent
from
what the Committee members obtain as members of the Company’s Board of
Directors. In this same meeting, an operational budget for the Directors
Committee of UF 1,800 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 2006, the
Directors Committee did not incur in 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., subscribed 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.
This
Agreement, in respect of Sociedad de Inversiones Pampa Calichera S.A., includes
directly and indirectly Global Mining Investments Chile S.A. and Inversiones
SQYA. S.A.
Additionally,
the 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.
Considering
the above and the effective shareholder structure as of December 31, 2006,
the
Company has a Controller Group. 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.
The
members of the audit committee are Hernán Büchi B., José Antonio Silva B. 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.
|
|
Section
|
NYSE
Standards
|
SQM
practices pursuant to Chilean regulations
|
|
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.
|
|
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. 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; (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, 2006, we had 3,745 permanent employees, of whom 330 were employed
outside of Chile. The average tenure of our full time employees is approximately
8.6 years.
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Permanent
employees
|
3,745
|
3,672
|
3,418
|
3,455
|
3,050
|
|||||||||||
|
Employees
in Chile
|
3,415
|
3,350
|
3,138
|
3,154
|
2,869
|
|||||||||||
|
Employees
outside of Chile
|
330
|
322
|
280
|
301
|
181
|
Of
our
permanent employees in Chile, 68.2% 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 twelve years
and consider the relationship with our employees to be good. As of July 2006,
the process of anticipated negotiations with unions has begun with the objective
to have all agreements renegotiated for a new three year period before the
end
of 2007. Up to April 2007, negotiations with unions representing 30% of the
company’s unionized employees have concluded.
As
of
October 16th,
2006, a
new employment law for contractors and subcontractors came in force. The law
basically prohibits the hiring of labor through third parties, increases the
liabilities of the contracting party with respect to labor and pension
obligations, hygiene and safety of its contractors.
6.E.
Share
Ownership
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. During the month
of
December of 2006, Inversiones el Boldo Limitada carried out a Public Tender
for
SQM shares, that concluded during January of year 2007 and that allowed PCS,
together with other transactions made in the stock market, to increase its
indirect stake in SQM to 31.62% of the total shares.
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. with
Yara International ASA control, respectively, 51% and 49% of the total shares
of
Inversiones SQYA S.A. and -iii-that Inversiones SQYA S.A. currently, and
indirectly, control 30.26% of the total shares of SQM. The above, considering
-a- that Inversiones SQYA S.A. controls 90% of the total shares of Norte Grande
S.A., that Norte Grande S.A. controls 78.35% of the total shares of Sociedad
de
Inversiones Oro Blanco S.A., that Sociedad de Inversiones Oro Blanco S.A
controls 68.57% of the total shares of Sociedad de Inversiones Pampa Calichera
S.A. and that Sociedad de Inversiones Pampa Calichera S.A. ultimately controls
30.26% of the total shares of SQM.
Sociedad
de Inversiones Pampa Calichera S.A. and Kowa Company Ltd. -the latter, owner,
directly and indirectly, of a 2.03% of the total shares of SQM- subscribed
during december 21, 2006 a Joint Performance Agreement that allows them to
currently control 32.28% of the total shares of SQM. As a result of this
Agreement, the “group” led by Mr. Julio Ponce L. becomes the Controller Group of
SQM, as that term is defined under Chilean law.
The
following table shows the combined stakes that Mr. Julio Ponce and Yara
International ASA have held in SQM as of:
|
%
Beneficial ownership
|
|
|
June
15, 2007 (1)
|
32.28%
|
|
December
31, 2006 (1)
|
37.28%
|
|
December
31, 2005
|
24.96%
|
|
December
31, 2004
|
22.63%
|
|
(1)
Includes the Agreement with Kowa
group
|
No
other
director or executive officer owns more than 1% of each share class of the
Company as of May 31, 2007. 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 0.022% of total shares
We
do not
grant stock options or other arrangement involving the capital of SQM to
directors, managers or employees.
7.A.
Major
Shareholders
Taking
into account the ownership structure of the stockholders, the Company does
not
have a controlling entity. The following table sets forth certain information
concerning beneficial ownership of the Series A shares and Series B shares
of
SQM as of June 15, 2007 with respect to each shareholder known by us to
beneficially own more than 5% of the outstanding Series A shares or Series
B
shares and with respect to all of our directors and executives officers as
a
group. 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%
|
13,778,252
|
11.45%
|
27.25%
|
|
Inversiones
El Boldo Ltda. (3)
|
43,861,795
|
30.71%
|
17,450,015
|
14.50%
|
23.30%
|
|
The
Bank of New York
|
88,020
|
0.06%
|
34,319,480
|
28.51%
|
13.07%
|
|
Inversiones
RAC Chile Ltda. (3)
|
19,200,242
|
13.44%
|
2,699,773
|
2.24%
|
8.32%
|
|
A.F.P.
Habitat S.A. (4)
|
—
|
0.00%
|
8,426,384
|
7.00%
|
3.20%
|
|
A.F.P.
Provida S.A. (4)
|
—
|
0.00%
|
8,425,266
|
7.00%
|
3.20%
|
|
Global
Mining Investments (Chile ) S.A.
|
7,916,514
|
5.54%
|
—
|
0.00%
|
3.01%
|
|
Larrain
Vial S.A.
|
5,432,608
|
3.80%
|
1,255,015
|
1.04%
|
2.54%
|
|
Kowa
Group (5)
|
5,292,450
|
3.71%
|
50,000
|
0.04%
|
2.03%
|
|
A.F.P.
Cuprum S.A. (4)
|
—
|
0.00%
|
4,847,441
|
4.03%
|
1.84%
|
| (1) |
Mr.
Julio Ponce L., Chairman of the Board of SQM, and related persons
control
Inversiones SQ Holding S.A, which in turn, together with Yara
International ASA beneficially own 51% and 49%, respectively, 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
79,629,022 Shares constituting 30.25% of the total shares of SQM.
This
stake resulted from successive purchases carried out in the Santiago
Stock
Exchange during the last part of 2006 and the first months of 2007.
The
stake held by Mr. Ponce and related parties as of December 31, 2006,
2005,
and 2004 was, respectively, 30.26%, 24.96%,and 22.63% 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 46 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 83,211,825 SQM's shares that represent 31.62% of SQM's total
shares. This stake resulted from successive purchases carried out
in the
Santiago Stock Exchange during the last part of 2006 and the first
months
of 2007. The stake held by Potash Corporation of Saskatchewan as
of
December 31, 2006, 2005, and 2004 was respectively 24.99%, 24.99%
and
24.99%, of the total shares of SQM.
|
| (4) |
A.F.P.s
are legal entities that manage pension funds and are the registered
holders of Series A shares and Series B shares acquired with pension
funds
resources.
|
| (5) |
Kowa
Group represents the companies Kowa Co. Ltd, Kochi S.A., La Esperanza
Delaware Corporation and Inversiones La Esperanza (Chile)
Ltda.
|
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
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.6Export
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$
|
2006
|
2005
|
2004
|
|||||||
|
Foreign
sales
|
878,066
|
739,924
|
629,671
|
|||||||
|
Total
sales
|
1,042,886
|
895,970
|
788,516
|
|||||||
|
%
of foreign sales
|
84.20%
|
|
82.60%
|
|
79.90%
|
|
||||
8.A.7Legal
Proceedings
In
September 2005, Electroandina S.A., one of our main electricity suppliers,
commenced an arbitration proceeding against us. The complaint mainly seeks
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. The basis of Electroandina’s claim is that certain unforeseen events
have restricted the supply of and increased the price of gas from
Argentina.
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. Dividends
are
not price-level adjusted between the end of the preceding year and the date
of
the declaration of the final dividend. 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 2007, and considering our capacity to deliver increasing
cash flows, at the Annual Ordinary Shareholders' Meeting held on April 27,
2007,
the shareholders approved a single dividend with respect to 2006 of US$0.34874
per share, equal to 65% of the net income, before amortization of negative
goodwill for that year, which was paid in full on May 10, 2007. The Board of
Directors also reaffirmed for 2007 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 2008.
We
generally declare dividends in U.S. dollars (but may declare dividends in
Chilean Pesos), and pay such dividends in Chilean Pesos. If 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
|
Per
Share
|
Per
ADS
|
|
|
Declared
for the
business
year
|
Paid
on
|
Ch$
|
Ch$
|
US$
|
US$
|
|
2002
|
2003
|
53.31
|
533.1
|
0.076
|
0.76
|
|
2003
|
2004
|
55.05
|
550.5
|
0.088
|
0.88
|
|
2004
|
2005
|
106.56
|
1,065.6
|
0.182
|
1.82
|
|
2005
|
2006
|
145.11
|
1,451.1
|
0.279
|
2.79
|
|
2006
|
2007
|
183.96
|
1,839.6
|
0.349
|
3.49
|
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.
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.
(a) Last
5 years
|
Santiago
Stock Exchange
|
NYSE
|
||||||||||||||||||||||||
|
Per
Share (2)
|
Per
ADS
|
||||||||||||||||||||||||
|
Series
A
|
|
Series
B (1)
|
|
Series
A (3)
|
|
Series
B (1)
|
|
||||||||||||||||||
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
||||||||
|
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
Ch$
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|||||||||
|
2002
|
3,000
|
1,620
|
1,660
|
1,305
|
44.75
|
23.00
|
24.44
|
18.41
|
|||||||||||||||||
|
2003
|
3,050
|
1,630
|
2,995
|
1,580
|
47.10
|
22.00
|
46.26
|
21.60
|
|||||||||||||||||
|
2004
|
3,900
|
2,350
|
3,580
|
2,160
|
68.00
|
37.05
|
62.75
|
32.98
|
|||||||||||||||||
|
2005
|
7,000
|
3,600
|
7,170
|
3,269
|
129.40
|
66.80
|
133.37
|
57.50
|
|||||||||||||||||
|
2006
|
7,100
|
5,220
|
7,346
|
5,000
|
137.5
|
93.15
|
139.54
|
89.92
|
|||||||||||||||||
(b) Last
10 quarters
|
Santiago
Stock Exchange
|
NYSE
|
||||||||||||||||||||||||
|
Per
Share (2)
|
Per
ADS
|
||||||||||||||||||||||||
|
Series
A
|
Series
B (1)
|
Series
A (3)
|
Series
B (1)
|
||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||||||
|
Ch$
|
Ch$
|
Ch$
|
Ch$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||||||
|
2005
|
|||||||||||||||||||||||||
|
First
quarter
|
4,900
|
3,600
|
4,760
|
3,269
|
83.50
|
66.80
|
80.55
|
57.50
|
|||||||||||||||||
|
Second
quarter
|
6,010
|
4,900
|
5,900
|
4,597
|
103.00
|
84.95
|
101.75
|
78.98
|
|||||||||||||||||
|
Third
quarter
|
7,000
|
6,000
|
7,170
|
5,889
|
127.25
|
101.50
|
128.38
|
101.45
|
|||||||||||||||||
|
Fourth
quarter
|
6,800
|
5,600
|
6,989
|
5,382
|
129.40
|
103.18
|
133.37
|
104.23
|
|||||||||||||||||
|
2006
|
|||||||||||||||||||||||||
|
First
quarter
|
6,000
|
5,599
|
6,390
|
5,540
|
115.50
|
105.02
|
122.53
|
109.88
|
|||||||||||||||||
|
Second
quarter
|
5,950
|
5,220
|
6,000
|
5,000
|
109.01
|
93.15
|
116.25
|
89.92
|
|||||||||||||||||
|
Third
quarter
|
6,000
|
5,300
|
6,190
|
5,300
|
104.95
|
99.35
|
115.10
|
96.72
|
|||||||||||||||||
|
Fourth
quarter
|
7,100
|
6,000
|
7,346
|
6,240
|
137.5
|
105.2
|
139.54
|
116.73
|
|||||||||||||||||
|
2007
|
|||||||||||||||||||||||||
|
First
quarter
|
7,600
|
7,100
|
7,830
|
6,800
|
142.95
|
136.95
|
146.00
|
124.95
|
|||||||||||||||||
|
Second
quarter (through May 31)
|
8,900
|
7,555
|
8,660
|
7,810
|
167.75
|
150.00
|
166.23
|
145.50
|
|||||||||||||||||
|
(c)
|
Last
6 months
|
|
Santiago
Stock Exchange
|
NYSE
|
||||||||||||||||||||||||
|
Per
Share (2)
|
Per
ADS
|
||||||||||||||||||||||||
|
Series
A
|
Series
B (1)
|
Series
A (3)
|
Series
B (1)
|
||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||||||
|
Ch$
|
Ch$
|
Ch$
|
Ch$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||||||
|
December
2006
|
7,100
|
7,000
|
7,346
|
6,950
|
137.50
|
135.50
|
139.54
|
131.30
|
|||||||||||||||||
|
January
2007
|
7,150
|
7,100
|
7,320
|
6,800
|
—
|
—
|
135.67
|
124.95
|
|||||||||||||||||
|
February
2007
|
7,310
|
7,150
|
7,755
|
7,250
|
142.95
|
139.45
|
145.26
|
132.05
|
|||||||||||||||||
|
March
2007
|
7,600
|
7,300
|
7,830
|
6,921
|
139.45
|
136.95
|
146.00
|
127.81
|
|||||||||||||||||
|
April
2007
|
8,700
|
7,555
|
8,506
|
7,810
|
161.70
|
150.00
|
162.48
|
145.50
|
|||||||||||||||||
|
May
2007
|
8,900
|
8,700
|
8,660
|
8,100
|
167.75
|
155.65
|
166.23
|
154.95
|
|||||||||||||||||
(1)
Series
B
shares began trading on the New York Stock Exchange in September
1993.
(2)
Pesos
per
share of Common Stock reflect nominal price at trade date.
(3)
Series
A
shares started trading on the New York Stock Exchange on April 9,
1999.
As
of
June 15, 2007, there were 8,802 Series A and 3,431,948 Series B ADSs (equivalent
to 88,020 Series A shares and 34,319,480 Series B shares respectively)
outstanding held by 3 holders of record for Series A ADSs and 10 holders of
record for the Series B ADSs. As of June 15, such ADSs represented approximately
13.07% of the total number of issued and outstanding shares of our
Company.
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). Each series also is traded on the New York
Stock Exchange in the form of ADSs, each representing 10 Series B and 10 Series
A shares respectively. The Bank of New York (the Depositary) is the Depositary
of both Series. The ADSs representing Series A shares have traded on the NYSE
since April 9, 1999; the ADSs representing Series B shares have traded on
the NYSE since September 21, 1993.
9.D Selling
Shareholders
Not
applicable
9.E Dilution
Not
applicable
9.F Expenses
Of The Issue
Not
applicable
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’ Meetings,
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
As
mentioned elsewhere in this document, we connected our production facilities
in
the north of Chile to the SING power grid with the purpose of reducing our
power
generation related costs. As a result, we entered into five long-term supply
contracts with two electric power companies: Electroandina S.A. and Norgener
S.A. Our heat generation and in fusion processes have been modified in order
to
allow the use of either natural gas or fuel oil to secure operations through
periods of gas shortages We believe that the terms and conditions of the natural
gas and fuel oil contracts are standard for the industry.
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 runs through
February 12, 2009, allowing two three year renewals at SQM’s option and
the anticipated termination 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 runs through
July 31, 2017, and anticipated termination is subject to fines for
income un-received .
|
|
·
|
On
January 13, 1998, SQM Nitratos S.A. entered into an Electrical Energy
Supply agreement with Norgener S.A. The term of this contract runs
through
January 31, 2013 and the anticipated termination 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 runs through May 21, 2011
and the
anticipated termination is subject to payment of non amortized
investments.
|
The
arbitration proceeding with Norgener has finalized, the arbitration with
Electroandina continues its course and we face risks regarding the continuity
of
natural gas supply. For further information see Item 3. D. Risk
factors.
In
addition, our 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. All of these contracts are standard
for this type of industry, none of which are 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, 2006, 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.
In
April
2006 we informed the Central Bank about the issuance of a new Rule 144A bond
for
an amount of US$200 million. Additionally, the Central Bank has been informed
about the guarantee given to Royal Seed. Accordingly, all 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 2006 were
dividends considered taxable, and the total tax retention rate was approximately
27%.
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 in 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 material 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 on the date hereof, and is subject
to
any changes in these or other laws occurring after such date. In addition,
the
summary is based in part on representations of the depositary and assumes that
each obligation provided for in or otherwise contemplated by the Deposit
Agreement or any other related document will be performed in accordance with
its
terms.
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
(other than a partnership that is not treated as a U.S. person under any
applicable Treasury regulations and certain partnerships that have one or more
partners who are not U.S. persons) created or organized under the laws of the
United States or any political subdivision thereof, or (c) an estate or trust
that is subject to United States federal income tax on a net basis with respect
to its worldwide income. The term "Non-U.S. Holder" means a beneficial owner
of
shares or ADSs that is, for U.S. federal income tax purposes, a (a) nonresident
alien individual, (b) foreign corporation, or (c) nonresident alien fiduciary
of
a foreign estate or trust.
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
will be treated as the owner of the underlying shares represented
thereby.
Cash
Dividends and Other Distributions
The
gross
amount of a distribution with respect to shares or ADSs (other than
distributions in redemption or liquidation) 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.
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. 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 income" or "financial services 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.
Non-U.S.
Holders generally will not be subject to U.S. tax on a distribution with respect
to shares or ADSs unless such Non-U.S. Holder has certain connections to the
United States.
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. 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.
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.
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 30% 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 law. U.S.
information reporting and backup withholding of U.S. federal income tax at
a
rate of 30% 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.
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, 2006, we had approximately 41% 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
|
2007
|
2008
|
2009
|
2010
|
2011
and thereafter
|
Total
|
Fair
Value
|
|
|
(in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Fixed
Rate (US$)
|
22,786
|
22,527
|
22,239
|
21,965
|
385,627
|
475,144
|
308,781
|
|
|
200m
US$ bond - Avge. Int.: 6.125%
|
12,250
|
12,250
|
12,250
|
12,250
|
267,375
|
316,375
|
204,612
|
|
|
100m
UF bond - Avge. Int.: 5.26% (1)
|
10,536
|
10,277
|
9,989
|
9,715
|
118,252
|
158,769
|
104,169
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate (US$)
|
10,362
|
10,335
|
10,271
|
105,986
|
84,826
|
221,780
|
182,723
|
|
|
100m
US$ loan - Avge. Int.: 5.735%
|
5,788
|
5,799
|
5,735
|
101,450
|
—
|
118,772
|
101,430
|
|
|
80m
US$ loan - Avge. Int.: 5.67%
|
4,574
|
4,536
|
4,536
|
4,536
|
84,826
|
103,008
|
81,293
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
33,148
|
32,862
|
32,510
|
127,951
|
470,453
|
696,924
|
491,504
|
|
|
(1)
UF-bond fully hedged, under Chilean GAAP to US$ with a Cross Currency
Swap. Resulting in a fixed US$ rate of
5.26%
|
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 Euro and
expenses in Chilean Peso and secure the exchange difference with derivative
contracts.
As
of
December 31, 2006 and 2005 we had the following net monetary assets and
liabilities that are subject to foreign exchange gain or loss
fluctuation:
|
2006
|
2005
|
|
|
|
Th
US$
|
Th
US$
|
|
Chilean
pesos
|
(41,922)
|
53,167
|
|
Brazilian
real
|
(1,332)
|
(941)
|
|
Euro
|
27,167
|
19,373
|
|
Japanese
yen
|
730
|
6,333
|
|
Mexican
pesos
|
1,587
|
8,101
|
|
South
African rand
|
11,676
|
7,529
|
|
Dirhams
|
13,554
|
11,543
|
|
Other
currencies
|
7,854
|
3,282
|
|
Total,
net
|
19,314
|
108,387
|
As
of
December 31, 2006, for this purpose we had open forward exchange contracts
and
options to buy U.S. dollars and sell foreign currency for approximately UF
3
million (US$ 102 million), 13 million Euros (US$17.12 million), 50 million
South
African Rands (US$ 7.15 million) and 20 million Mexican Pesos (US$ 1.89
million), and forward exchange contracts to buy Chilean pesos and sell U.S.
dollars for approximately 5,323.9 million Chilean Pesos (US$ 10
million)
Not
applicable
Not
applicable
Not
applicable.
| (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, 2006. 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, 2006, the Company’s internal control over financial reporting
was effective.
| (c) |
Attestation
Report of the Registered Public Accounting
Firm
|
Our
management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2006 has been audited by Ernst &
Young Ltda, Chile, an independent registered public accounting firm, as stated
in their report, which is included under Item 18 Financial Statements on pages
F-2 and F-3.
| (d) |
Changes
in internal control
|
There
were no changes in the Company’s internal control over financial reporting that
occurred during 2006 that have materially affected, or are reasonably likely
to
materially affect, the Company’s internal control over financial reporting.
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. On
June
21, 2005, 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.
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 20F 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.
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,
|
|||||||
|
2006
|
2005
|
||||||
|
Audit
fees
|
859.5
|
555.2
|
|||||
|
Audit-related
fees
|
—
|
—
|
|||||
|
Tax
fees
|
202.5
|
168.9
|
|||||
|
Other
fees
|
84.0
|
—
|
|||||
|
Total
fees
|
1,146.0
|
724.1
|
|||||
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.
Not
applicable
Not
applicable
Not
applicable
See
Item
19(a) for a list of all financial statements filed as part of this Form 20-F
annual report.
| (a) |
Index
to Financial Statements
|
|
Report
of Independent Registered
Public Accounting Firm
|
F-1
|
|||
|
Consolidated
Financial Statements
|
F-2
|
|||
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-2
|
|||
|
Consolidated
Statements of Income for each of the three years in the period
ended
December 31, 2006, 2005 and 2004
|
F-4
|
|||
|
Consolidated
Statements of Cash Flows for each of the three years in the period
ended
December 31, 2006, 2005 and 2004
|
F-5
|
|||
|
Notes
to the Consolidated Financial Statements
|
F-6
|
|
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
|
|
By-laws
(Estatutos) of the Company**
|
|
|
Significant
subsidiaries of the Company
|
|
|
Section
302 Chief Executive Officer Certification
|
|
|
Section
302 Chief Financial Officer Certification
|
|
|
Section
906 Chief Executive Officer Certification
|
|
|
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.
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 29, 2007
SOCIEDAD
QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIES
As
of
December 31, 2006 and 2005
and
for
each of the three years in the period ended December 31, 2006
|
Contents
|
|
|
F-1
|
|
|
F-2
|
|
|
Consolidated
Financial Statements:
|
|
|
F-4
|
|
|
F-6
|
|
|
F-7
|
|
|
F-9
|
|
| US$ |
- United
States dollars
|
| ThUS$ |
- Thousands
of United States dollars
|
| Ch$ |
- Chilean
pesos
|
| ThCh$ |
- Thousands
of Chilean pesos
|
| ThEuro |
- 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, 2006
and 2005, and the related consolidated statements of income and cash flows
for
each of the three years in the period ended December 31, 2006. 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, 2006 and 2005, and
the
results of their operations and their cash flows for each of the three
years in
the period ended December 31, 2006 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 effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006, 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 June 28, 2007, expressed an unqualified opinion thereon.
|
ERNST
& YOUNG LTDA.
|
 |
Santiago,
Chile
June
28,
2007
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 management’s assessment, included in the accompanying Form 20-F on
internal control over financial reporting, that Sociedad Química y Minera de
Chile S.A. and subsidiaries (the “Company”) maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria).
The
Company’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. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, management’s assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on the COSO criteria. Also, in our opinion,
the
Company maintained, in all material respects, effective internal control
over
financial reporting as of December 31, 2006, based on the COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2006, 2005 and 2004 consolidated financial
statements of Sociedad Química y Minera de Chile S.A. and our report dated June
28, 2007 expressed an unqualified opinion thereon.
|
ERNST
& YOUNG LTDA.
|
|
Santiago,
Chile
June
28,
2007
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
|
As
of December 31,
|
||||||||||
|
ASSETS
|
Note
|
2006
|
2005
|
|||||||
|
ThUS$
|
ThUS$
|
|||||||||
|
Current
assets
|
||||||||||
|
Cash
and cash equivalents
|
183,943
|
147,956
|
||||||||
|
Trade
accounts receivable, net
|
4
|
177,406
|
155,836
|
|||||||
|
Other
accounts receivable, net
|
4
|
4,857
|
9,737
|
|||||||
|
Accounts
receivable from related companies
|
5
|
65,640
|
56,459
|
|||||||
|
Inventories,
net
|
6
|
365,499
|
327,232
|
|||||||
|
Recoverable
taxes
|
32,830
|
31,212
|
||||||||
|
Prepaid
expenses
|
3,885
|
3,189
|
||||||||
|
Deferred
income taxes
|
14
|
—
|
2,528
|
|||||||
|
Other
current assets
|
11,815
|
8,634
|
||||||||
|
Total
current assets
|
845,875
|
742,783
|
||||||||
|
Property,
plant and equipment, net
|
7
|
916,928
|
794,647
|
|||||||
|
Other
Assets
|
||||||||||
|
Investments
in related companies
|
8
|
18,329
|
20,676
|
|||||||
|
Goodwill,
net
|
9
|
36,331
|
27,209
|
|||||||
|
Negative
goodwill, net
|
9
|
(1,928
|
)
|
(68
|
)
|
|||||
|
Intangible
assets, net
|
4,523
|
4,783
|
||||||||
|
Long-term
accounts receivable, net
|
4
|
388
|
379
|
|||||||
|
Long-term
accounts receivable from related companies
|
5
|
2,000
|
2,000
|
|||||||
|
Other
long-term assets
|
10
|
48,756
|
48,159
|
|||||||
|
Total
other assets
|
108,399
|
103,138
|
||||||||
|
Total
assets
|
1,871,202
|
1,640,568
|
||||||||
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 thousand of US dollars, except as stated)
|
As
of December 31,
|
||||||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
Note
|
2006
|
2005
|
|||||||
|
ThUS$
|
ThUS$
|
|||||||||
|
Current
liabilities
|
||||||||||
|
Short-term
bank debt
|
11
|
58,350
|
85,022
|
|||||||
|
Current
portion of long-term bank debt
|
11
|
828
|
204,880
|
|||||||
|
Current
portion of bonds payable
|
12
|
5,540
|
—
|
|||||||
|
Dividends
payable
|
264
|
229
|
||||||||
|
Accounts
payable
|
80,810
|
70,292
|
||||||||
|
Notes
and accounts payable to related companies
|
5
|
5,807
|
7,662
|
|||||||
|
Accrued
liabilities
|
13
|
16,404
|
23,750
|
|||||||
|
Withholdings
|
11,386
|
13,092
|
||||||||
|
Income
taxes
|
8,722
|
20,675
|
||||||||
|
Deferred
income taxes
|
14
|
4,088
|
—
|
|||||||
|
Deferred
income
|
4,065
|
1,262
|
||||||||
|
Other
current liabilities
|
1,378
|
1,404
|
||||||||
|
Total
current liabilities
|
197,642
|
428,268
|
||||||||
|
Long-term
liabilities
|
||||||||||
|
Long-term
bank debt
|
11
|
180,000
|
100,000
|
|||||||
|
Bonds
payable
|
12
|
300,724
|
—
|
|||||||
|
Deferred
income taxes
|
14
|
47,361
|
38,895
|
|||||||
|
Long-term
accrued liabilities
|
15
|
19,464
|
16,415
|
|||||||
|
Other
long-term liabilities
|
849
|
1,065
|
||||||||
|
Total
long-term liabilities
|
548,398
|
156,375
|
||||||||
|
Minority
interest
|
16
|
39,213
|
35,509
|
|||||||
|
Commitments
and contingencies
|
22
|
—
|
—
|
|||||||
|
Shareholders'
equity
|
||||||||||
|
Paid-in
capital
|
17
|
477,386
|
477,386
|
|||||||
|
Other
reserves
|
17
|
155,190
|
157,287
|
|||||||
|
Retained
earnings
|
17
|
453,373
|
385,743
|
|||||||
|
Total
Shareholders' equity
|
1,085,949
|
1,020,416
|
||||||||
|
Total
Liabilities and Shareholders' equity
|
1,871,202
|
1,640,568
|
||||||||
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
|
For
the years ended December 31,
|
|||||||||||||
|
Note
|
2006
|
2005
|
2004
|
||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||||||
|
Operating
income
|
|||||||||||||
|
Sales
|
1,042,886
|
895,970
|
788,516
|
||||||||||
|
Cost
of sales
|
(753,336
|
)
|
(652,901
|
)
|
(608,744
|
)
|
|||||||
|
Gross
margin
|
289,550
|
243,069
|
179,772
|
||||||||||
|
Selling
and administrative expenses
|
(69,662
|
)
|
(61,878
|
)
|
(55,705
|
)
|
|||||||
|
Operating
income
|
219,888
|
181,191
|
124,067
|
||||||||||
|
Non-operating
income and expense
|
|||||||||||||
|
Non-operating
income
|
19
|
19,293
|
16,433
|
20,829
|
|||||||||
|
Non-operating
expenses
|
19
|
(55,341
|
)
|
(50,755
|
)
|
(38,420
|
)
|
||||||
|
Non-operating
loss
|
(36,048
|
)
|
(34,322
|
)
|
(17,591
|
)
|
|||||||
|
Income
before income taxes, minority interest and amortization of negative
goodwill
|
183,840
|
146,869
|
106,476
|
||||||||||
|
Income
tax expense
|
14
|
(37,916
|
)
|
(32,527
|
)
|
(27,308
|
)
|
||||||
|
Income
before minority interest and amortization of negative
goodwill
|
145,924
|
114,342
|
79,168
|
||||||||||
|
Minority
interest
|
16
|
(4,715
|
)
|
(1,039
|
)
|
(5,139
|
)
|
||||||
|
Income
before amortization of negative goodwill
|
141,209
|
113,303
|
74,029
|
||||||||||
|
Amortization
of negative goodwill
|
9
|
68
|
203
|
203
|
|||||||||
|
Net
income for the year
|
141,277
|
113,506
|
74,232
|
||||||||||
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
(Expressed
in thousands of US dollars, except as stated)
|
For
the years ended December 31
|
|||||||||||||
|
|
Note
|
2006
|
2005
|
2004
|
|||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||||||
|
Cash
flows from operating activities
|
|||||||||||||
|
Net
income
|
141,277
|
113,506
|
74,232
|
||||||||||
|
Charges
(credits) to income not representing cash flows
|
|||||||||||||
|
Depreciation
expense
|
7
|
90,354
|
70,054
|
62,690
|
|||||||||
|
Amortization
of intangible assets
|
915
|
498
|
173
|
||||||||||
|
Write-offs
and accruals
|
16,512
|
17,034
|
23,584
|
||||||||||
|
Equity
participation in net income of unconsolidated investees
|
(2,314
|
)
|
(3,073
|
)
|
(4,897
|
)
|
|||||||
|
Equity
participation in net losses of unconsolidated
investees inininvesteesinves
|
362
|
477
|
387
|
||||||||||
|
Amortization
of goodwill
|
9
|
2,229
|
2,070
|
1,073
|
|||||||||
|
Amortization
of negative goodwill
|
9
|
(68
|
)
|
(203
|
)
|
(203
|
)
|
||||||
|
(Gain)
loss on sales of assets
|
(809
|
)
|
216
|
283
|
|||||||||
|
Gains
on sale of investment
|
(732
|
)
|
—
|
(8,820
|
)
|
||||||||
|
Other
credits to income not representing cash flows
|
22
|
(2,762
|
)
|
(10,109
|
)
|
(1,919
|
)
|
||||||
|
Other
charges to income not representing cash flows
|
22
|
82,333
|
87,689
|
59,092
|
|||||||||
|
Foreign
currency exchange and price-level restatement, net
|
2,263
|
3,804
|
475
|
||||||||||
|
Net
changes in operating assets and liabilities:
|
|||||||||||||
|
Accounts
receivable
|
(240
|
)
|
(15,838
|
)
|
(9,447
|
)
|
|||||||
|
Inventories
|
(46,730
|
)
|
(58,807
|
)
|
(40,665
|
)
|
|||||||
|
Other
assets
|
7,917
|
(10,783
|
)
|
(770
|
)
|
||||||||
|
Accounts
payable
|
(23,359
|
)
|
(6,520
|
)
|
(6,829
|
)
|
|||||||
|
Interest
payable
|
2,968
|
349
|
(38
|
)
|
|||||||||
|
Net
income taxes payable
|
(49,515
|
)
|
(25,620
|
)
|
1,284
|
||||||||
|
Other
accounts payable
|
(10,840
|
)
|
(10,517
|
)
|
(2,935
|
)
|
|||||||
|
VAT
and taxes payable
|
6,724
|
(3,282
|
)
|
137
|
|||||||||
|
Minority
interest
|
16
|
4,715
|
1,039
|
5,139
|
|||||||||
|
Net
cash provided by operating activities
|
221,200
|
151,984
|
152,026
|
||||||||||
|
Cash
flows from financing activities
|
|||||||||||||
|
Proceeds
from bank financing
|
259,257
|
185,000
|
83,307
|
||||||||||
|
Proceeds
from issuance of bonds
|
299,833
|
—
|
—
|
||||||||||
|
Payments
of dividends
|
(74,566
|
)
|
(51,732
|
)
|
(25,706
|
)
|
|||||||
|
Repayment
of bank financing
|
(406,282
|
)
|
(6,000
|
)
|
(192,696
|
)
|
|||||||
|
Payment
of expenses for the issuance and placement of bonds
payable
|
(6,629
|
)
|
—
|
—
|
|||||||||
|
Net
cash provided by (used in) financing activities
|
71,613
|
127,268
|
(135,095
|
)
|
|||||||||
|
Cash
flows from investing activities
|
|||||||||||||
|
Sales
of property, plant and equipment
|
10,289
|
2,546
|
741
|
||||||||||
|
Sales
of investments in related companies
|
5,790
|
—
|
—
|
||||||||||
|
Sales
of permanent investments
|
—
|
—
|
69,337
|
||||||||||
|
Sales
other investments
|
—
|
—
|
210
|
||||||||||
|
Other
investing income
|
500
|
1,345
|
877
|
||||||||||
|
Additions
to property, plant and equipment
|
(175,788
|
)
|
(185,603
|
)
|
(51,758
|
)
|
|||||||
|
Capitalized
interest
|
(10,948
|
)
|
(5,140
|
)
|
(1,708
|
)
|
|||||||
|
Purchase
of permanent investments, net of cash acquired of
ThUS$
24,311, 836 and 242 respectively
|
(64,574
|
)
|
(12,026
|
)
|
(37,079
|
)
|
|||||||
|
Investments
in financial instruments
|
—
|
(2
|
)
|
(13
|
)
|
||||||||
|
Other
disbursements
|
(504
|
)
|
(666
|
)
|
—
|
||||||||
|
Net
cash used in investing activities
|
(259,546
|
)
|
(199,546
|
)
|
(19,393
|
)
|
|||||||
|
Effect
of inflation on cash and cash equivalents
|
2,720
|
1,497
|
(58
|
)
|
|||||||||
|
Net
change in cash and cash equivalents
|
35,987
|
81,203
|
(2,520
|
)
|
|||||||||
|
Beginning
balance of cash and cash equivalents
|
147,956
|
66,753
|
69,273
|
||||||||||
|
Ending
balance of cash and cash equivalents
|
2
e)
|
|
183,943
|
147,956
|
66,753
|
||||||||
The
accompanying notes 1 to 29 form an integral part of these consolidated financial
statements.
Audited
Consolidated Statements of Cash Flows
(Expressed
in thousands of US dollars, except as stated)
|
For
the years ended December 31
|
||||||||||
|
|
2006
|
2005
|
2004
|
|||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Supplemental
cash flow information:
|
||||||||||
|
Interest
paid
|
37,884
|
20,315
|
18,986
|
|||||||
|
Income
taxes paid
|
49,515
|
22,330
|
2,466
|
|||||||
|
Capital
lease obligation
|
274
|
204
|
222
|
|||||||
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
(Expressed
in thousands 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
interests.
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 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 generally
accepted accounting principles 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 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 the SQM S.A. as of December 31, 2006, 2005 and
2004 are as follows:
|
Direct
or indirect ownership
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
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
|
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
|
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
|
95.00
|
95.00
|
|||||||
|
Comercial
Caiman Internacional S.A. (Cayman Islands)
|
100.00
|
100.00
|
100.00
|
|||||||
|
Mineag
SQM Africa Limited (South Africa)
|
100.00
|
100.00
|
100.00
|
|||||||
|
Fertilizantes
Olmeca y SQM S.A. de C.V. (Mexico)
|
—
|
100.00
|
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) (1)
|
66.67
|
—
|
50.00
|
|||||||
|
Iodine
Minera B.V. (Holland)Fertilizantes
Naturales S.A. (Spain) (1)
|
100.00
|
—
|
—
|
|||||||
|
SQM
Dubai - Fzco (United Arab Emirates).
|
100.00
|
100.00
|
—
|
|||||||
|
(1)
|
Up
to December 31, 2004 the Company exerted control over Fertilizantes
Naturales S.A. and that entity was included in the consolidation
for the
year ended December 31, 2004. Beginning January 1, 2005, the Company
lost
the control over this entity and therefore it has been excluded from
consolidation for the year ended December 31, 2005. During 2006 the
Company acquired additional participation in the entity and included
it in
the consolidation for the year ended December 31, 2006.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
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
|
—
|
—
|
|||||||
|
Exploraciones
Mineras S.A.
|
100.00
|
—
|
—
|
|||||||
|
Sociedad
Prestadora de Servicios de Salud Cruz del Norte S.A.
|
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, 2006
and
2005 and for each of the three years in the period ended December 31, 2006.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 a significant
portion of the Company’s operations are transacted in US dollars. 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 (2.1% and 3.6% in 2006 and 2005,
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, 2004
|
31.07
|
|||
|
December
31, 2005
|
35.07
|
|||
|
December
31, 2006
|
34.44
|
|||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
| d) |
Foreign
currency
|
|
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$ 532.39 per US$1 at December 31, 2006 and Ch$ 512.50
per
US$1 at December 31, 2005.
|
ii)
|
Translation
of non-U.S. dollar financial
statements
|
In
accordance with Chilean GAAP, the financial statements of foreign and domestic
subsidiaries that do not maintain their accounting records in US dollars are
translated from the respective local currencies to U.S. dollars in accordance
with Technical Bulletin No. 64 and No. 72 of the Chilean Association of
Accountants (“BT 64 and BT 72”) as follows:
| · |
Domestic
subsidiaries
|
For
those
subsidiaries and affiliates located in Chile which keep their accounting records
in price-level adjusted Chilean pesos:
|
-
|
Balance
sheet accounts are translated to US dollars at the year-end exchange
rate
without eliminating the effects of price-level restatement. The assets
and
liabilities were translated into US dollars at the exchange rates
as of
the respective balance sheet dates of Ch$ 532.39 and Ch$ 512.50 per
US$ 1
as of December 31, 2006 and 2005,
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 the price-level restatement to the balance
sheet mentioned above, 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 US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
| d) |
Foreign
currency (continued)
|
| · |
Foreign
subsidiaries
|
The
financial statements of those foreign subsidiaries that keep their accounting
records in currencies other than the US dollar have been translated at
historical exchange rates 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.
|
|
-
|
Any
exchange differences are included in the results of operations for
the
period.
|
Foreign
exchange differences for the period ended December 31, 2006, 2005 and 2004
generated net loss of ThUS$ (2,263), ThUS$ (3,804) and ThUS$ (475) respectively,
which have been charged to 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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
US$
|
US$
|
US$
|
||||||||
|
Brazilian
Real
|
2.14
|
2.34
|
2.65
|
|||||||
|
New
Peruvian Sol
|
3.19
|
3.34
|
3.47
|
|||||||
|
Argentine
Peso
|
3.06
|
3.03
|
2.98
|
|||||||
|
Japanese
Yen
|
119.11
|
118.07
|
104.21
|
|||||||
|
Euro
|
0.76
|
0.85
|
0.73
|
|||||||
|
Mexican
Peso
|
10.88
|
10.71
|
11.22
|
|||||||
|
Indonesian
Rupee
|
9,830.04
|
9,290.00
|
9,289.97
|
|||||||
|
Australian
Dollar
|
1.27
|
1.36
|
1.28
|
|||||||
|
Pound
Sterling
|
0.51
|
0.52
|
0.52
|
|||||||
|
Ecuadorian
Sucre
|
1.00
|
1.00
|
1.00
|
|||||||
|
South
African Rand
|
6.99
|
6.33
|
5.80
|
|||||||
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 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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Cash
|
20,915
|
13,273
|
18,559
|
|||||||
|
Time
deposits
|
32,707
|
1,483
|
15,854
|
|||||||
|
Mutual
funds
|
130,321
|
132,303
|
30,797
|
|||||||
|
Repurchase
agreements
|
—
|
897
|
1,543
|
|||||||
|
Total
|
183,943
|
147,956
|
66,753
|
|||||||
| f) |
Time
deposits
|
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 unsalable 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 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 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 assets and are amortized on a straight-line basis over the following
twelve months. Values attributable to mining concessions 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 the 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 (cumulative translation adjustment). Direct and indirect investments
in
foreign subsidiaries or affiliates are controlled in US dollars.
Investments
in which the Company has less than 20% participation, however, has the capacity
to exert significant influence over the investment, because SQM’s nominee form
part 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 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 changes 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.
| 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 caption 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 assets 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 worked
based on average employee tenure of 24 years and a real annual discount rate
of
8% (9% in 2004).
| p) |
Vacations
|
The
cost
of employee vacations is recognized in the financial statements on an accrual
basis.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
2 - Summary of Significant Accounting Policies (continued)
| 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
|
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.
| v) |
Research
and development expenses
|
Research
and development cost 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 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 mine closure and
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 relate to the recognition of documented sales, the delivery of which
occurs subsequent to the closing date of the financial statements.
Note
3 - Changes in Accounting Estimates
During
the year ended December 31, 2005, the Company changed the discount rate used
for
the determination of staff severance indemnities provision from 9% applied
in
the year ended December 31, 2004 to 8%. This change gave rise to a higher charge
to income for the year ended December 31, 2005 of ThUS$ 678.
During
the year ended December 31, 2005, the subsidiary SQM Industrial S.A. (formerly
PCS Yumbes SCM, that was acquired in December 2004) changed the method of
depreciation of certain assets from the unit of production to the straight-line
method based on the estimated remaining technical useful lives of the different
classes of assets.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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)
|
|||||||||||||||||
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
||||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||||
|
Short-term
|
|||||||||||||||||||
|
Trade
accounts receivable
|
95,111
|
105,618
|
41,743
|
12,570
|
136,854
|
118,188
|
|||||||||||||
|
Allowance
for doubtful accounts
|
(7,419
|
)
|
(7,737
|
)
|
|||||||||||||||
|
Notes
receivable
|
50,859
|
34,950
|
354
|
13,894
|
51,213
|
48,844
|
|||||||||||||
|
Allowance
for doubtful accounts
|
(3,242
|
)
|
(3,459
|
)
|
|||||||||||||||
|
Accounts
receivable, net
|
177,406
|
155,836
|
|||||||||||||||||
|
Other
accounts receivable
|
5,582
|
9,454
|
407
|
999
|
5,989
|
10,453
|
|||||||||||||
|
Allowance
for doubtful accounts
|
(1,132
|
)
|
(716
|
)
|
|||||||||||||||
|
Other
accounts receivable, net
|
4,857
|
9,737
|
|||||||||||||||||
|
Total
short-term receivable
|
182,263
|
165,573
|
|||||||||||||||||
|
Long-term
receivables
|
388
|
379
|
|||||||||||||||||
|
b)
|
Changes
in the allowance for doubtful accounts for the years ended December
31 are
as follows:
|
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
At
January 1,
|
11,912
|
10,891
|
9,985
|
|||||||
|
Charged
to expenses
|
1,598
|
1,741
|
3,537
|
|||||||
|
Deductions
(release)
|
(542
|
)
|
(1,097
|
)
|
(2,937
|
)
|
||||
|
Exchange
rate differences
|
(177
|
)
|
377
|
306
|
||||||
|
Business
disposals and other
|
(998
|
)
|
—
|
—
|
||||||
|
At
December 31,
|
11,793
|
11,912
|
10,891
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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:
|
|
Europe,
Africa and
|
Asia
and
|
USA,
Mexico
|
Latin
America
|
|||||||||||||||
|
Chile
|
the
Middle East
|
Oceania
|
and
Canada
|
and
the Caribbean
|
Total
|
|||||||||||||
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
|||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||
|
Net
short-term trade accounts receivable
|
||||||||||||||||||
|
Balance
|
42,375
|
35,860
|
43,402
|
26,345
|
4,575
|
7,069
|
28,730
|
27,433
|
10,353
|
13,744
|
129,435
|
110,451
|
||||||
|
%
of total
|
32.74%
|
32.47%
|
33.53%
|
23.85%
|
3.53%
|
6.40%
|
22.20%
|
24.84%
|
8.00%
|
12.44%
|
100.00%
|
100.00%
|
||||||
|
Net
short-term notes receivable
|
||||||||||||||||||
|
Balance
|
41,270
|
38,016
|
2,093
|
2,826
|
340
|
563
|
994
|
357
|
3,274
|
3,623
|
47,971
|
45,385
|
||||||
|
%
of total
|
86.03%
|
83.76%
|
4.36%
|
6.23%
|
0.71%
|
1.24%
|
2.08%
|
0.79%
|
6.82%
|
7.98%
|
100.00%
|
100.00%
|
||||||
|
Net
short-term other accounts receivable
|
||||||||||||||||||
|
Balance
|
2,815
|
4,631
|
585
|
1,504
|
9
|
11
|
1,277
|
3,064
|
171
|
527
|
4,857
|
9,737
|
||||||
|
%
of total
|
57.96%
|
47.56%
|
12.04%
|
15.45%
|
0.19%
|
0.11%
|
26.29%
|
31.47%
|
3.52%
|
5.41%
|
100.00%
|
100.00%
|
||||||
|
Subtotal
short-term accounts receivable, net
|
||||||||||||||||||
|
Balance
|
86,460
|
78,507
|
46,080
|
30,675
|
4,924
|
7,643
|
31,001
|
30,854
|
13,798
|
17,894
|
182,263
|
165,573
|
||||||
|
%
of total
|
47.44%
|
47.42%
|
25.28%
|
18.53%
|
2.70%
|
4.62%
|
17.01%
|
18.62%
|
7.57%
|
10.81%
|
100.00%
|
100.00%
|
||||||
|
Long-term
accounts receivable, net
|
||||||||||||||||||
|
Balance
|
368
|
322
|
-
|
-
|
-
|
42
|
-
|
-
|
20
|
15
|
388
|
379
|
||||||
|
%
of total
|
94.85%
|
84.96%
|
-
|
-
|
-
|
11.08%
|
-
|
-
|
5.15%
|
3.96%
|
100.00%
|
100.00%
|
||||||
|
Total
short and long-term accounts receivable, net
|
||||||||||||||||||
|
Balance
|
86,828
|
78,829
|
46,080
|
30,675
|
4,924
|
7,685
|
31,001
|
30,854
|
13,818
|
17,909
|
182,651
|
165,952
|
||||||
|
%
of total
|
47.54%
|
47.50%
|
25.23%
|
18,48%
|
2.70%
|
4.63%
|
16.96%
|
18.60%
|
7.57%
|
10.79%
|
100.00%
|
100.00%
|
||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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, 2006 and 2005
are
as follows:
|
Short-term
|
Long-term
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||
|
Accounts
receivable
|
|||||||||||||
|
Doktor
Tarsa
|
8,446
|
12,688
|
—
|
—
|
|||||||||
|
Fertilizantes
Naturales S.A.
|
—
|
5,887
|
—
|
—
|
|||||||||
|
Nutrisi
Holding N.V.
|
1,603
|
1,432
|
—
|
—
|
|||||||||
|
Generale
de Nutrition Vegetale S.A.
|
—
|
132
|
—
|
—
|
|||||||||
|
Ajay
Europe S.A.R.L.
|
8,617
|
1,948
|
—
|
—
|
|||||||||
|
Ajay
North America LLC
|
3,271
|
2,420
|
—
|
—
|
|||||||||
|
Abu
Dhabi Fertilizer Ind. WLL
|
3,732
|
3,354
|
2,000
|
2,000
|
|||||||||
|
Impronta
SRL
|
1,094
|
5,042
|
—
|
—
|
|||||||||
|
NU3
B.V.
|
413
|
467
|
—
|
—
|
|||||||||
|
Sales
de Magnesio S.A.
|
86
|
72
|
—
|
—
|
|||||||||
|
SQM
Agro India
|
113
|
—
|
—
|
—
|
|||||||||
|
Misr
Specialty Fertilizers
|
462
|
—
|
—
|
—
|
|||||||||
|
Socieded
de Inversiones Pampa Calichera Ltda.
|
8
|
4
|
—
|
—
|
|||||||||
|
Sac
S.A.
|
—
|
4
|
—
|
—
|
|||||||||
|
Kowa
(Japan)
|
8,609
|
—
|
—
|
—
|
|||||||||
|
PCS
Sales Inc
|
10
|
—
|
—
|
—
|
|||||||||
|
Yara
AB
|
2
|
—
|
—
|
—
|
|||||||||
|
Yara
Benelux B.V
|
78
|
222
|
—
|
—
|
|||||||||
|
Yara
Hellas S.A.
|
310
|
116
|
—
|
—
|
|||||||||
|
Yara
International Australia PTY.
|
642
|
670
|
—
|
—
|
|||||||||
|
Yara
Poland Sp. z o.o.
|
85
|
103
|
—
|
—
|
|||||||||
|
Yara
UK Ltd.
|
285
|
132
|
—
|
—
|
|||||||||
|
Yara
CZECH Republic
|
2
|
—
|
—
|
—
|
|||||||||
|
Yara
GMBH & CO KG
|
95
|
148
|
—
|
—
|
|||||||||
|
Yara
Iberian S.A.
|
1,317
|
1,958
|
—
|
—
|
|||||||||
|
Yara
Argentina S.A.
|
125
|
43
|
—
|
—
|
|||||||||
|
Yara
Colombia Ltda.
|
2,938
|
1,480
|
|||||||||||
|
Adubo
Trevo S.A. (Yara)
|
252
|
16
|
—
|
—
|
|||||||||
|
Yara
North America LLC
|
6,331
|
7,727
|
—
|
—
|
|||||||||
|
Yara
Fertilizantes Ltda (Brasil)
|
715
|
—
|
—
|
—
|
|||||||||
|
Yara
France BU Latin America
|
1,794
|
—
|
—
|
—
|
|||||||||
|
Yara
France BU Africa
|
1,030
|
1,025
|
—
|
—
|
|||||||||
|
Yara
Internacional ASA
|
7,884
|
7,098
|
—
|
—
|
|||||||||
|
Yara
International Asia Trade Pte Ltd
|
1,227
|
1,359
|
—
|
—
|
|||||||||
|
Yara
East Africa Limited
|
504
|
681
|
—
|
—
|
|||||||||
|
Yara
Fertilizers (Philippines)
|
—
|
60
|
—
|
—
|
|||||||||
|
Yara
Fertilizers (New Zealand)
|
157
|
171
|
—
|
—
|
|||||||||
|
FOS
(Yara)
|
3,365
|
—
|
—
|
—
|
|||||||||
|
Yara
Phosyn Ltda
|
38
|
—
|
—
|
—
|
|||||||||
|
Total
|
65,640
|
56,459
|
2,000
|
2,000
|
|||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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, 2006
and
2005, continued:
|
|
Short-term
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Accounts
payable
|
|||||||
|
NU3
N.V
|
847
|
813
|
|||||
|
Charlee
SQM Thailand Co.
|
182
|
88
|
|||||
|
SQM
East Med Turkey
|
15
|
—
|
|||||
|
Yara
AB
|
—
|
1
|
|||||
|
Yara
France S.A.
|
—
|
191
|
|||||
|
Yara
Fertilizantes Ltda. (Brazil)
|
—
|
575
|
|||||
|
Yara
France BU Latin America
|
—
|
1,502
|
|||||
|
Yara
Business Support
|
4,363
|
4,130
|
|||||
|
Yara
Nederland B.V.
|
400
|
—
|
|||||
|
Yara
Int. Wholesale Sudafrica (South Africa)
|
—
|
362
|
|||||
|
Total
|
5,807
|
7,662
|
|||||
There
were no outstanding long-term accounts payable with related parties as of
December 31, 2006 and 2005.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
5 - Balances and Transactions with Related Parties
(continued)
| a) |
During
the years ended December 31, 2006, 2005 and 2004 principal commercial
transactions with related parties were as follows
(1):
|
|
Amount
of
Transaction
|
Impact
in income
(charge)
credit
|
||||||||||||||||||||||||
|
Company
|
Relationship
|
Type
of Transaction
|
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||||||||||
|
NU3
N.V.
|
Investee
|
Sales
of products
|
6,079
|
5,018
|
5,036
|
2,008
|
1,892
|
1,521
|
|||||||||||||||||
|
Doktor
Tarsa
|
Investee
|
Sales
of products
|
8,868
|
14,977
|
6,718
|
2,409
|
3,872
|
1,416
|
|||||||||||||||||
|
Abu
Dhabi Fertilizer WLL
|
Investee
|
Sales
of products
|
3,551
|
3,834
|
3,932
|
992
|
1,222
|
1,126
|
|||||||||||||||||
|
Impronta
SRL
|
Investee
|
Sales
of products
|
4,887
|
4,471
|
4,282
|
1,566
|
1,613
|
970
|
|||||||||||||||||
|
Ajay
Europe S.A.R.L.
|
Investee
|
Sales
of products
|
16,931
|
8,017
|
5,964
|
6,424
|
4,743
|
2,937
|
|||||||||||||||||
|
NU3
B.V.
|
Investee
|
Sales
of products
|
7,212
|
6,035
|
5,904
|
2,488
|
2,846
|
2,276
|
|||||||||||||||||
|
Fertilizantes
Naturales S.A. (2)
|
Investee
|
Sales
of products
|
—
|
19,916
|
—
|
—
|
6,663
|
—
|
|||||||||||||||||
|
Ajay
North America LLC
|
Investee
|
Sales
of products
|
16,215
|
12,401
|
8,519
|
7,605
|
7,031
|
4,009
|
|||||||||||||||||
|
Sales
de Magnesio Ltda.
|
Investee
|
Sales
of products
|
—
|
—
|
333
|
—
|
—
|
152
|
|||||||||||||||||
|
Yara
UK Ltd.
|
Shareholder
|
Sales
of products
|
1,388
|
1,276
|
1,060
|
403
|
485
|
315
|
|||||||||||||||||
|
Yara
International Asia Trade Pte Ltd.
|
Shareholder
|
Sales
of products
|
6,703
|
6,782
|
6,035
|
2,061
|
1,984
|
1,284
|
|||||||||||||||||
|
Yara
France BU Africa .
|
Shareholder
|
Sales
of products
|
2,826
|
8,748
|
917
|
661
|
2,640
|
253
|
|||||||||||||||||
|
Yara
Benelux B.V.
|
Shareholder
|
Sales
of products
|
7,081
|
6,698
|
5,593
|
1,554
|
2,385
|
1,345
|
|||||||||||||||||
|
Yara
AB Sweden
|
Shareholder
|
Sales
of products
|
—
|
808
|
705
|
—
|
284
|
184
|
|||||||||||||||||
|
Yara
International Australia Pty Ltd.
|
Shareholder
|
Sales
of products
|
2,688
|
2,853
|
2,530
|
787
|
999
|
682
|
|||||||||||||||||
|
Yara
Iberian S.A.
|
Shareholder
|
Sales
of products
|
8,277
|
8,900
|
6,665
|
2,767
|
3,060
|
1,638
|
|||||||||||||||||
|
Yara
Colombia Ltda.
|
Shareholder
|
Sales
of products
|
6,285
|
5,004
|
3,537
|
1,982
|
1,543
|
777
|
|||||||||||||||||
|
Yara
Poland Sp. z o.o.
|
Shareholder
|
Sales
of products
|
1,752
|
1,623
|
1,525
|
593
|
703
|
512
|
|||||||||||||||||
|
Yara
GMBH & Co Kg
|
Shareholder
|
Sales
of products
|
1,741
|
1,603
|
1,381
|
548
|
635
|
417
|
|||||||||||||||||
|
Yara
France
|
Shareholder
|
Sales
of products
|
7,246
|
7,622
|
7,755
|
2,091
|
2,458
|
1,908
|
|||||||||||||||||
|
Yara
Fertilizers Brazil
|
Shareholder
|
Sales
of products
|
8,489
|
—
|
—
|
3,631
|
—
|
—
|
|||||||||||||||||
|
Yara
France S.A.
|
Shareholder
|
Sales
of products
|
—
|
209
|
1,729
|
—
|
73
|
478
|
|||||||||||||||||
|
Yara
Hellas S.A.
|
Shareholder
|
Sales
of products
|
1,892
|
1,448
|
1,022
|
530
|
473
|
252
|
|||||||||||||||||
|
Yara
France BU Latin America
|
Shareholder
|
Sales
of products
|
2,014
|
1,192
|
2,296
|
595
|
288
|
680
|
|||||||||||||||||
|
Yara
Argentina S.A.
|
Shareholder
|
Sales
of products
|
10,912
|
9,441
|
7,724
|
3,151
|
2,658
|
1,629
|
|||||||||||||||||
|
Adubo
Trevo S.A.
|
Shareholder
|
Sales
of products
|
1,573
|
3,991
|
5,564
|
560
|
1,746
|
1,512
|
|||||||||||||||||
|
PCS
Yumbes SCM (3)
|
Shareholder
|
Sales
of products
|
—
|
—
|
7,221
|
—
|
—
|
3,414
|
|||||||||||||||||
|
Yara
Internacional ASA
|
Shareholder
|
Sales
of products
|
32,296
|
8,250
|
340
|
7,997
|
2,120
|
120
|
|||||||||||||||||
|
Yara
North America
|
Shareholder
|
Sales
of products
|
45,407
|
43,386
|
40,491
|
12,422
|
13,137
|
8,317
|
|||||||||||||||||
|
Yara
International Wholesale
|
Shareholder
|
Sales
of products
|
—
|
20,013
|
—
|
—
|
5,733
|
—
|
|||||||||||||||||
|
Yara
Business Support
|
Shareholder
|
Services
|
4,364
|
4,129
|
2,761
|
(4,364
|
)
|
(4,129
|
)
|
(2,761
|
)
|
||||||||||||||
|
Yara
East Africa
|
Shareholder
|
Sales
of products
|
1,255
|
1,311
|
—
|
344
|
474
|
—
|
|||||||||||||||||
|
Kowa
(Japan)
|
Shareholder
|
Sales
of products
|
8,019
|
—
|
—
|
3,671
|
—
|
—
|
|||||||||||||||||
| (1) |
Transactions
with related parties involving acquisitions and disposals of
participations in other entities are discussed in Note 8.
|
| (2) |
As
explained in Note 2a) up to December 31, 2004 the Company exerted
control
over Fertilizantes Naturales S.A. and that entity was included in
the
consolidation for the year ended December 31, 2004. Beginning January
1,
2005, the Company lost the control over this entity and therefore
it has
been excluded from consolidation for the year ended December 31,
2005.
During 2006 the Company acquired additional participation in the
entity
and included it in the consolidation for the year ended December
31,
2006.
|
| (3) |
On
December 23, 2004, SQM acquired 100% participation in PCS Yumbes
SCM
(currently SQM Industrial S.A.) (see Note 8) and consequently that
entity
ceased to be related party and instead is included in consolidated
financial statements of SQM.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
6 - Inventories
Net
inventories are summarized as follows:
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Finished
products
|
209,112
|
207,195
|
|||||
|
Work
in process
|
136,734
|
102,187
|
|||||
|
Supplies
|
19,653
|
17,850
|
|||||
|
Total
|
365,499
|
327,232
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
7 - Property, Plant and Equipment
Property,
plant and equipment are summarized as follows:
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Land
|
|||||||
|
Land
|
81,153
|
20,003
|
|||||
|
Mining
concessions
|
30,793
|
44,784
|
|||||
|
Subtotal
|
111,946
|
64,787
|
|||||
|
Buildings
and infrastructure
|
|||||||
|
Buildings
|
155,542
|
174,843
|
|||||
|
Installations
|
263,175
|
173,326
|
|||||
|
Ponds
|
120,568
|
114,192
|
|||||
|
Construction-in-progress
|
159,516
|
136,225
|
|||||
|
Railroad
|
23,166
|
23,148
|
|||||
|
Other
|
53,374
|
39,801
|
|||||
|
Subtotal
|
775,341
|
661,535
|
|||||
|
Machinery
and Equipment
|
|||||||
|
Machinery
|
495,426
|
445,683
|
|||||
|
Equipment
|
114,101
|
121,086
|
|||||
|
Project-in-progress
|
5,236
|
9,832
|
|||||
|
Other
|
18,893
|
17,809
|
|||||
|
Subtotal
|
633,656
|
594,410
|
|||||
|
Other
fixed assets
|
|||||||
|
Tools
|
8,937
|
8,804
|
|||||
|
Furniture
and office equipment
|
29,958
|
12,315
|
|||||
|
Project-in-progress
|
15,708
|
14,180
|
|||||
|
Other
|
10,925
|
7,653
|
|||||
|
Subtotal
|
65,528
|
42,952
|
|||||
|
Amounts
related to technical appraisal
|
|||||||
|
Land
|
7,839
|
7,839
|
|||||
|
Buildings
and infrastructure
|
41,439
|
41,439
|
|||||
|
Machinery
and equipment
|
12,048
|
12,091
|
|||||
|
Other
assets
|
53
|
53
|
|||||
|
Subtotal
|
61,379
|
61,422
|
|||||
|
Total
property, plant and equipment (cost)
|
1,647,850
|
1,425,106
|
|||||
|
Less:
Accumulated depreciation
|
|||||||
|
Buildings
and infrastructure
|
(308,192
|
)
|
(257,063
|
)
|
|||
|
Machinery
and equipment
|
(358,008
|
)
|
(319,388
|
)
|
|||
|
Other
fixed assets
|
(27,746
|
)
|
(18,466
|
)
|
|||
|
Technical
appraisal
|
(36,976
|
)
|
(35,542
|
)
|
|||
|
Total
accumulated depreciation
|
(730,922
|
)
|
(630,459
|
)
|
|||
|
Net
property, plant and equipment
|
916,928
|
794,647
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
7 - Property, Plant and Equipment (continued)
Depreciation
expense for the years ended December 31, 2006, 2005 and 2004 was as
follows:
|
For
the year ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Buildings
and infrastructure
|
(41,259
|
)
|
(30,286
|
)
|
(26,547
|
)
|
||||
|
Machinery
and equipment
|
(43,290
|
)
|
(37,108
|
)
|
(33,552
|
)
|
||||
|
Other
property, plant and equipment
|
(4,328
|
)
|
(1,462
|
)
|
(1,300
|
)
|
||||
|
Technical
appraisal
|
(1,477
|
)
|
(1,198
|
)
|
(1,291
|
)
|
||||
|
Total
depreciation
|
(90,354
|
)
|
(70,054
|
)
|
(62,690
|
)
|
||||
The
Company has capitalized assets obtained through leasing, which are included
in
other fixed assets and are as follows:
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Administrative
office buildings
|
1,988
|
1,988
|
|||||
|
Leased
vehicles
|
—
|
98
|
|||||
|
Accumulated
depreciation
|
(489
|
)
|
(525
|
)
|
|||
|
Total
assets in leasing
|
1,499
|
1,561
|
|||||
The
administrative office buildings were acquired for 230 installments of UF 663.75
each and an annual, contractually established interest rate of
8.5%.
The
vehicles were acquired for 36 installments of ThUS$ 98 each.
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.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 2004-2006
|
| · |
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. funded Prestadora
de
Servicios de Salud Cruz del Norte S.A. The entity’s paid-in capital
amounts to ThCh$ 50,000 (approx. ThUS$ 97 in the moment of foundation
of
this entity) 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”) in 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 ability to appoint General Manager. Beginning January 2005,
the Company lost its ability control Fenasa and consequently it has been
excluded from consolidation. The Company accounted for its investment in that
entity for the year ended December 31, 2005 using equity method. Following
the
acquisition of stake that give right to more than 50% in 2006, Fenasa was again
included in the consolidation as of December 31, 2006.
| · |
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 certain 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 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 2004-2006 (continued)
|
The
Company accounted for the investment applying 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$ 1,928 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.
Net
assets acquired in their respective fair values as of December 31, 2006 are
as
follows:
|
DSM
|
Exploraciones
|
DSM
|
||||||||
|
Description
|
Minera
S.A.
|
Mineras
S.A.
|
Minera
B.V.
|
|||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Current
assets
|
66,951
|
400
|
4,581
|
|||||||
|
Property,
plant and equipment
|
23,327
|
31,567
|
—
|
|||||||
|
Other
assets
|
7,220
|
—
|
—
|
|||||||
|
Current
liabilities
|
4,516
|
7,126
|
1,153
|
|||||||
|
Long-term
liabilities
|
5,718
|
—
|
—
|
|||||||
|
Equity
|
112,105
|
—
|
3,428
|
|||||||
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.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 2004-2006 (continued)
|
| · |
On
August 9, 2005, SQM Nitratos S.A. and SQM S.A. acquired from third
party
99 and 1 shares, respectively of Kemira Emirates Fertilizar Company
- Fzco
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 identifiable assets and liabilities
of
Kemira Emirates Fertilizar Company - Fzco 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
Kemira Emirates Fertilizar Company - Fzco 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 $484 reaching total stake in that entity of 50%. In accordance
with Technical Bulletin No. 72 issued by the Chilean Association
of
Accountants and Circular No. 1697 issued by the SVS the Company valued
this investment in consideration of the book value of equity of Abu
Dhabi
Fertilizers Industries WLL as of December 31, 2004, which did not
significantly differ from its fair value at that date. This operation
gave
rise to no goodwill or negative
goodwill.
|
| · |
In
March 2005, the subsidiary Soquimich European Holding B.V. made a
capital
increase of ThUS$ 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.
|
| · |
On
December 23, 2004, SQM S.A. and SQM Nitratos S.A. acquired from
subsidiaries of Potash Corp of Saskatchewan Inc., being party related
to
SQM, 43,733,165 and 2,000 shares, respectively (equivalent to 99.9954%
and
0.0046% participation, respectively), of PCS Yumbes SCM for ThUS$
39,707.
Subsequent to the acquisition (in December 2005) PCS Yumbes SCM changed
its name to SQM Industrial S.A.
|
| · |
In
January, April and October 2004, the subsidiary Soquimich European
Holding
B.V. made a capital contributions totaling to ThUS$ 1,425 to its
investee
Misr Specialty Fertilizers. In accordance with BT 72 of the Chilean
Association of Accountants and SVS Circular No. 1697, the investment
in
Misr Specialty Fertilizers was valued using the book value of net
assets
as of the dates of contributions, which did not differ significantly
from
the fair value determined as of those dates.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 2004-2006 (continued)
|
| · |
At
the shareholders’ meeting of Empresas Melón S.A. (SQM’s investee at that
time) held on February 25, 2004, the shareholders agreed its spin-off
in 2
companies, Empresas Melón S.A. and Inmobiliaria San Patricio S.A. As a
result, SQM S.A. maintained its ownership of 14.05% in Empresas Melón S.A.
and received the same ownership percentage in the new entity. On
August
13, 2004, SQM S.A. transferred all 653,748,837 shares held in Inmobiliaria
San Patricio S.A. to Blue Circle South American Holding S.A. This
transfer
was performed in accordance with the contract for acquiring shares
of
Empresas Melón in 1998.
|
| · |
On
August 18, 2004, 653,748,837 shares of Empresas Melón S.A. representing
all the shares held at the time by the Company (14.05% participation)
were
sold in a public auction on the Santiago Stock Exchange for ThUS$
69,337.
The proceeds were received in cash and a gain on sale of ThUS$ 8,179
was
recorded in income (includes also effect of the transfer of shares
in
Inmobiliaria San Patricio S.A. to Blue Circle South American Holding
S.A.).
|
| · |
On
November 18, 2004, the subsidiary Soquimich European Holding B.V.
contributed ThUS$ 268 to a joint venture with SQM Eastmed
Turkey.
|
| 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 forms part
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 US dollars, except as stated)
Note
8 - Investments in Related Companies (continued)
| d) |
Detail
of investments in related companies
|
|
Company
|
Currency
|
Ownership
interest
as
of December 31,
|
Equity
of
investment
as
of
December 31,
|
Net
income (loss)
for
the year ended
|
Carrying
value as of
December
31,
|
Equity
participation
in
net income (loss) for
the
year December 31,
|
||||||||||||||||||||||||||||||||||||||||
|
of
origin
|
2006
|
2005
|
2004
|
2006
|
2005
|
2006
|
2005
|
2004
|
2006
|
2005
|
2006
|
2005
|
2004
|
|||||||||||||||||||||||||||||||||
|
%
|
%
|
%
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||||||||||||||||||||||||
|
Ajay
North America LLC
|
USA
|
|
US$
|
49.00
|
49.00
|
49.00
|
11,282
|
13,372
|
291
|
2,810
|
940
|
3,998
|
6,271
|
142
|
1,377
|
461
|
||||||||||||||||||||||||||||||
|
Nutrisi
Holding N.V.
|
Belgium
|
|
US$
|
50.00
|
50.00
|
50.00
|
8,290
|
6,658
|
846
|
1,609
|
1,480
|
4,025
|
3,329
|
425
|
805
|
724
|
||||||||||||||||||||||||||||||
|
Doktor
Tarsa
|
Turkey
|
Euros
|
50.00
|
50.00
|
50.00
|
5,813
|
4,876
|
1,291
|
429
|
590
|
2,906
|
2,438
|
646
|
214
|
295
|
|||||||||||||||||||||||||||||||
|
Ajay
Europe S.A.R.L.
|
France
|
|
US$
|
50.00
|
50.00
|
50.00
|
6,561
|
5,086
|
993
|
1,063
|
140
|
1,915
|
2,258
|
497
|
532
|
70
|
||||||||||||||||||||||||||||||
|
Misr
Specialty Fertilizers
|
Egypt
|
|
US$
|
47.49
|
47.49
|
47.49
|
4,361
|
4,504
|
(446
|
)
|
(708
|
)
|
(789
|
)
|
2,071
|
2,139
|
(212
|
)
|
(336
|
)
|
(375
|
)
|
||||||||||||||||||||||||
|
Abu
Dhabi Fertilizer Industries WLL
Industries WLL
|
UAE
|
|
US$
|
50.00
|
50.00
|
37.00
|
3,886
|
3,520
|
366
|
13
|
84
|
1,943
|
1,760
|
183
|
6
|
31
|
||||||||||||||||||||||||||||||
|
Impronta
SRL
|
Italia
|
Euros
|
—
|
50.00
|
50.00
|
—
|
1,778
|
—
|
(281
|
)
|
342
|
—
|
889
|
141
|
(141
|
)
|
171
|
|||||||||||||||||||||||||||||
|
Sales
de Magnesio Ltda.
|
Chile
|
|
Ch$
|
50.00
|
50.00
|
50.00
|
946
|
844
|
428
|
259
|
480
|
473
|
422
|
214
|
130
|
240
|
||||||||||||||||||||||||||||||
|
SQM
Eastmed Turkey
|
Turkey
|
Euros
|
50.00
|
50.00
|
50.00
|
184
|
464
|
(210
|
)
|
—
|
—
|
92
|
232
|
(105
|
)
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Empresas
Melón SA
|
Chile
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
2,905
|
|||||||||||||||||||||||||||||||
|
Asociación
Garantizadora de Pensiones
|
Chile
|
|
Ch$
|
3.31
|
3.31
|
3.31
|
874
|
908
|
—
|
—
|
—
|
29
|
30
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||
|
Charlee
SQM Thailand Co. Ltd.
|
Thailand
|
|
US$
|
40.00
|
40.00
|
—
|
2,167
|
2,000
|
167
|
—
|
—
|
867
|
800
|
67
|
—
|
—
|
||||||||||||||||||||||||||||||
|
Fertilizantes
Naturales S.A.(1).
|
Spain
|
Euros
|
—
|
50.00
|
—
|
—
|
430
|
—
|
37
|
—
|
—
|
108
|
—
|
9
|
—
|
|||||||||||||||||||||||||||||||
|
Inmobiliaria
San Patricio S.A..
|
Chile
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(12
|
)
|
||||||||||||||||||||||||||||||
|
Agro
India Ltda.
|
India
|
|
US$
|
49.00
|
—
|
—
|
19
|
—
|
(94
|
)
|
—
|
—
|
10
|
—
|
(46
|
)
|
—
|
—
|
||||||||||||||||||||||||||||
|
Rui
Xin Packaging Materials Sanhe Co.Ltd
|
China
|
|
US$
|
25.00
|
25.00
|
25.00
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||
|
Total
|
18,329
|
20,676
|
1,952
|
2,596
|
4,510
|
|||||||||||||||||||||||||||||||||||||||||
| (1) |
Up
to December 2004, the Company exerted control over Fertilizantes
Naturales
S.A. and therefore that entity was included in the consolidation
for the
year ended December 31, 2004. Beginning January 1, 2005, the Company
lost
the control over this entity and therefore it has excluded from
consolidation for the year ended December 31, 2005. During 2006 the
Company acquired additional participation in the entity and included
it in
the consolidation for the year ended December 31,
2006.
|
Sociedad
Química y Minera de Chile S.A. and
Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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
|
2006
|
2005
|
2004
|
2006
|
2005
|
|||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||
|
SQM
Potassium S.A.
|
144
|
144
|
144
|
1,447
|
1,591
|
|||||||||||
|
Comercial
Hydro S.A.
|
174
|
176
|
140
|
1,153
|
1,294
|
|||||||||||
|
SQM
Industrial S.A.
|
1,154
|
1,072
|
—
|
20,029
|
21,183
|
|||||||||||
|
Soquimich
Comercial S.A.
|
—
|
122
|
150
|
—
|
—
|
|||||||||||
|
SQM
Salar S.A.
|
—
|
40
|
43
|
—
|
—
|
|||||||||||
|
Doktor
Tarsa
|
—
|
18
|
76
|
—
|
—
|
|||||||||||
|
SQM
México S.A. de C.V.
|
56
|
56
|
56
|
835
|
891
|
|||||||||||
|
Comercial
Caiman Internacional S.A.
|
23
|
23
|
23
|
131
|
154
|
|||||||||||
|
Fertilizantes
Olmeca S.A. de C.V.
|
56
|
56
|
56
|
—
|
111
|
|||||||||||
|
Saftnits
Pty Ltd.
|
—
|
290
|
61
|
—
|
—
|
|||||||||||
|
SQM
Dubai - FZCO
|
101
|
73
|
—
|
1,884
|
1,985
|
|||||||||||
|
Empresas
Melón S.A.
|
—
|
—
|
324
|
—
|
—
|
|||||||||||
|
Iodine
Minera B.V.
|
521
|
—
|
—
|
10,852
|
—
|
|||||||||||
|
Total
|
2,229
|
2,070
|
1,073
|
36,331
|
27,209
|
|||||||||||
| b) |
Negative
Goodwill
|
|
Amortization
for the year ended December 31,
|
Net
Balance as of December 31,
|
|||||||||||||||
|
Company
|
2006
|
2005
|
2004
|
2006
|
2005
|
|||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||
| Minera Mapocho S.A. | 68 | 203 | 203 | — | 68 | |||||||||||
| Minera Nueva Victoria S.A. | — | — | — | 1,928 | — | |||||||||||
|
Total
|
68 | 203 | 203 | 1,928 | 68 | |||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
10 - Other Long-term Assets
Other
long-term assets are summarized as follows:
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Engine
and equipment spare-parts, net
|
13,222
|
19,289
|
|||||
|
Mine
development costs
|
26,545
|
24,282
|
|||||
|
Prepaid
pension cost
|
—
|
1,133
|
|||||
|
Salar-Baquedano
road (1)
|
1,290
|
1,410
|
|||||
|
Cost
of issuance and placement of bonds
|
5,737
|
—
|
|||||
|
Deferred
loan issuance costs
|
521
|
323
|
|||||
|
Others
|
1,441
|
1,722
|
|||||
|
Total
|
48,756
|
48,159
|
|||||
| (1) |
Amortized
on a straight line basis over a period of 30-
years.
|
Note
11 - Bank Debt
| a) |
Short-term
bank debt is detailed as follows:
|
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Bank
or financial institution
|
ThUS$
|
ThUS$
|
|||||
|
Banco
de Credito e Inversiones
|
30,022
|
65,017
|
|||||
|
Banco
Santander Santiago
|
—
|
20,005
|
|||||
|
Corpbanca
|
15,216
|
—
|
|||||
|
BBVA
Banco Bilbao Vizcaya Argentaria
|
10,475
|
—
|
|||||
|
Fortis
Bank
|
1,150
|
—
|
|||||
|
CAM
Caja Ahorros Mediterraneo
|
633
|
—
|
|||||
|
Banesto
|
369
|
—
|
|||||
|
Deutshe
Bank España S.A.
|
256
|
—
|
|||||
|
Caixa
Penedes de España
|
185
|
—
|
|||||
|
HSBC
Bank Middle East Ltd
|
44
|
—
|
|||||
|
Total
|
58,350
|
85,022
|
|||||
|
Annual
average interest rate
|
5.32
|
%
|
4.65
|
%
|
|||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
11 - Bank Debt (continued)
| b) |
Long-term
bank debt is detailed as follows:
|
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Bank
or financial institution
|
ThUS$
|
ThUS$
|
|||||
|
Union
Bank of Switzerland (1)
|
—
|
204,577
|
|||||
|
BBVA
Banco Bilbao Vizcaya Argentaria (2)
|
100,412
|
100,303
|
|||||
|
ING
Bank (3)
|
80,416
|
—
|
|||||
|
Total
|
180,828
|
304,880
|
|||||
|
Less:
Current portion
|
(828
|
)
|
(204,880
|
)
|
|||
|
Long-term
debt
|
180,000
|
100,000
|
|||||
| (1) |
U.S.
dollar-denominated loan without guarantee, interest rate of 7.7%
per
annum, paid semi-annually. The principal was due on December 15,
2006.
|
| (2) |
U.S.
dollar-denominated loan without guarantee, interest rate of Libor
+ 0.325%
per annum, quarterly payment. The principal is due on March 3,
2010.
|
| (3) |
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,
|
|||||||
|
2006
|
2005
|
||||||
|
Years
to maturity
|
ThUS$
|
ThUS$
|
|||||
|
Current
portion
|
828
|
204,880
|
|||||
|
1
to 2 years
|
—
|
—
|
|||||
|
2
to 3 years
|
—
|
—
|
|||||
|
3
to 5 years
|
180,000
|
100,000
|
|||||
|
Total
|
180,828
|
304,880
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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, 2006, the short-term portion of the bonds payable represents
accrued interest of ThUS$ 5,540. The long-term portion represents bonds
payable.
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, 2006
|
Balance
as of Dec 31, 2005
|
|||||||||||||||||||
|
ThUS$
|
ThUS$
|
|||||||||||||||||||||||||||
|
Current
portion of long-term bonds payable:
|
||||||||||||||||||||||||||||
|
446
|
C
|
75,000
|
UF
|
4.00
|
%
|
Jun
1, 2007
|
Semi-annual
|
Semi-annual
|
2,920
|
—
|
||||||||||||||||||
|
184
|
Single
|
—
|
ThUS$
|
6.125
|
%
|
Oct
15, 2006
|
Semi-annual
|
Semi-annual
|
2,620
|
—
|
||||||||||||||||||
|
Total
|
5,540
|
—
|
||||||||||||||||||||||||||
|
Long-term
bonds payable:
|
||||||||||||||||||||||||||||
|
446
|
C
|
2,925,000
|
UF
|
4.00
|
%
|
Dec
1, 2026
|
Semi-annual
|
Semi-annual
|
100,724
|
—
|
||||||||||||||||||
|
184
|
Single
|
200,000
|
ThUS$
|
6.125
|
%
|
Apr
15, 2016
|
Semi-annual
|
Semi-annual
|
200,000
|
—
|
||||||||||||||||||
|
Total
|
300,724
|
—
|
||||||||||||||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
13 - Accrued Liabilities
As
of
December 31, 2006 and 2005, current accrued liabilities are summarized as
follows:
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Accrued
royalty payments Corfo
|
2,358
|
1,855
|
|||||
|
Provision
for employee compensation and legal costs
|
504
|
7,145
|
|||||
|
Taxes
and monthly income tax installment payments
|
3,309
|
2,909
|
|||||
|
Vacation
accrual
|
8,478
|
8,126
|
|||||
|
Accrued
employee benefits
|
—
|
186
|
|||||
|
Marketing
expenses
|
109
|
246
|
|||||
|
Other
accruals
|
1,646
|
3,283
|
|||||
|
Total
|
16,404
|
23,750
|
|||||
Note
14 - Current and Deferred Income Taxes
| a) |
Refundable
dividend tax credits
|
At
December 31, 2006 and 2005 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,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Accumulated
tax basis retained earnings with tax credit
|
278,515
|
206,777
|
|||||
|
Accumulated
tax basis retained earnings without tax credit
|
97,140
|
93,732
|
|||||
|
Tax
loss carry-forwards (1)
|
171,249
|
232,644
|
|||||
|
Credit
for shareholders (2)
|
56,759
|
42,046
|
|||||
| (1) |
Tax
losses in Chile can be carried forward
indefinitely.
|
| (2) |
Corresponds
to credit to income taxes that have shareholders 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 US dollars, except as stated)
Note
14 - Income and Deferred Taxes (continued)
| b) |
Deferred
taxes
|
The
deferred taxes as of December 31, 2006 and 2005 represented a net liability
of
ThUS$ 51,449 and ThUS$ 36,367, respectively, and consisted of:
|
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 exchange insurance
|
—
|
—
|
182
|
—
|
|||||||||
|
Deferred
revenue
|
144
|
—
|
—
|
—
|
|||||||||
|
Provision
for energy tariff difference
|
765
|
—
|
—
|
—
|
|||||||||
|
Accrued
interest
|
159
|
—
|
—
|
—
|
|||||||||
|
Provision
capital expenditure
|
610
|
—
|
—
|
—
|
|||||||||
|
Shrinks
of 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
|
|||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
14 - Income and Deferred Taxes (continued)
| b) |
Deferred
taxes (continued)
|
|
As
of December 31, 2005
|
Deferred
tax asset
|
Deferred
tax liability
|
|||||||||||
|
Short-term
|
Long-term
|
Short-term
|
Long-term
|
||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||
|
Temporary
differences
|
|||||||||||||
|
Allowance
for doubtful accounts
|
1,345
|
620
|
—
|
—
|
|||||||||
|
Vacation
accrual
|
1,322
|
—
|
—
|
—
|
|||||||||
|
Unrealized
gain on sale of products
|
15,053
|
—
|
—
|
—
|
|||||||||
|
Provision
for obsolescence
|
—
|
2,075
|
—
|
—
|
|||||||||
|
Production
expenses
|
—
|
—
|
18,123
|
—
|
|||||||||
|
Accelerated
depreciation
|
—
|
—
|
—
|
58,031
|
|||||||||
|
Exploration
expenses
|
—
|
—
|
—
|
5,375
|
|||||||||
|
Capitalized
interest
|
—
|
—
|
—
|
6,040
|
|||||||||
|
Staff
severance indemnities
|
—
|
—
|
—
|
2,448
|
|||||||||
|
Fair
value accumulated depreciation
|
—
|
2,535
|
—
|
—
|
|||||||||
|
Capitalized
expenses
|
—
|
—
|
—
|
147
|
|||||||||
|
Tax
loss carry-forwards
|
—
|
40,624
|
—
|
—
|
|||||||||
|
Accrued
interest
|
149
|
—
|
—
|
—
|
|||||||||
|
Provision
legal expenses
|
595
|
—
|
—
|
—
|
|||||||||
|
Provision
capital expenditure
|
85
|
—
|
—
|
—
|
|||||||||
|
Shrinks
of inventories
|
—
|
2,134
|
|||||||||||
|
Other
|
782
|
1,700
|
—
|
182
|
|||||||||
|
Total
gross deferred taxes
|
19,331
|
49,688
|
18,123
|
72,223
|
|||||||||
|
Total
complementary accounts
|
—
|
(4,692
|
)
|
(1,508
|
)
|
(23,850
|
)
|
||||||
|
Valuation
allowance
|
(188
|
)
|
(35,518
|
)
|
—
|
—
|
|||||||
|
Total
deferred taxes
|
19,143
|
9,478
|
16,615
|
48,373
|
|||||||||
|
Deferred
tax asset/liability, net
|
2,528
|
—
|
—
|
38,895
|
|||||||||
c) Income
tax expense is summarized as follows:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Provision
for current income tax
|
(24,797
|
)
|
(37,428
|
)
|
(14,435
|
)
|
||||
|
Effect
of deferred tax assets and liabilities
|
(13,447
|
)
|
10,844
|
(6,613
|
)
|
|||||
|
Adjustment
for tax expense (previous year)
|
238
|
(945
|
)
|
(144
|
)
|
|||||
|
Effect
of amortization of complementary accounts
|
(4,021
|
)
|
(3,084
|
)
|
(6,022
|
)
|
||||
|
Effect
on deferred tax assets and liabilities due to changes in valuation
allowance
|
4,420
|
(1,350
|
)
|
—
|
||||||
|
Other
tax charges and credits
|
(309
|
)
|
(564
|
)
|
(94
|
)
|
||||
|
Total
income tax expense
|
(37,916
|
)
|
(32,527
|
)
|
(27,308
|
)
|
||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
15 - Long-term Accrued Liabilities
| a) |
Long-term
accrued liabilities are composed as
follows:
|
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Staff
severance indemnities
|
17,472
|
16,415
|
|||||
|
Provision
for closure of mining sites
|
1,992
|
—
|
|||||
|
Total
|
19,464
|
16,415
|
|||||
| b) |
Staff
severance indemnities
|
Changes
in the balance of staff severance indemnities for the years ended December
31,
2006, 2005 and 2004 are summarized as follows:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Opening
balance
|
16,415
|
11,875
|
10,127
|
|||||||
|
Increases
in obligation
|
3,253
|
5,193
|
3,301
|
|||||||
|
Benefits
paid
|
(1,546
|
)
|
(3,379
|
)
|
(2,245
|
)
|
||||
|
Foreign
currency translation
|
(640
|
)
|
1,000
|
692
|
||||||
|
Other
changes
|
(10
|
)
|
1,726
|
—
|
||||||
|
Total
|
17,472
|
16,415
|
11,875
|
|||||||
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,
|
|||||||||||||||
|
2006
|
2005
|
2006
|
2005
|
2004
|
||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||
|
Soquimich
Comercial S.A.
|
35,138
|
32,234
|
(3,500
|
)
|
(84
|
)
|
(4,442
|
)
|
||||||||
|
Ajay
SQM Chile S.A.
|
3,717
|
3,200
|
(912
|
)
|
(827
|
)
|
(488
|
)
|
||||||||
|
Cape
Fear Bulk LLC
|
219
|
93
|
(248
|
)
|
(118
|
)
|
(144
|
)
|
||||||||
|
SQM
Italia S.R.L
|
—
|
23
|
—
|
(3
|
)
|
2
|
||||||||||
|
SQM
Nitratos México S.A. de C.V.
|
45
|
(39
|
)
|
(84
|
)
|
(7
|
)
|
(37
|
)
|
|||||||
|
Fertilizantes
Naturales S.A.
|
120
|
—
|
2
|
—
|
(32
|
)
|
||||||||||
|
SQM
Indonesia S.A.
|
(31
|
)
|
(2
|
)
|
29
|
—
|
2
|
|||||||||
|
SQM
Potasio S.A.
|
5
|
—
|
(2
|
)
|
—
|
—
|
||||||||||
|
Total
|
39,213
|
35,509
|
(4,715
|
)
|
(1,039
|
)
|
(5,139
|
)
|
||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
17 - Shareholders’ Equity
| a) |
Changes
in shareholders’ equity in the years ended December 31, 2006, 2005 and
2004 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, 2004
|
263,196,524
|
477,386
|
141,420
|
(6,519
|
)
|
230,932
|
46,753
|
889,972
|
||||||||||||||
|
Transfer
of the 2003 net income to retained earnings
|
—
|
—
|
—
|
—
|
46,753
|
(46,753
|
)
|
—
|
||||||||||||||
|
Declared
dividends 2004
|
—
|
—
|
—
|
—
|
(23,192
|
)
|
—
|
(23,192
|
)
|
|||||||||||||
|
Accumulated
deficit from subsidiaries in development stage
|
—
|
—
|
—
|
(1,851
|
)
|
—
|
—
|
(1,851
|
)
|
|||||||||||||
|
Other
comprehensive income
|
—
|
—
|
9,467
|
—
|
—
|
—
|
9,467
|
|||||||||||||||
|
Net
income for the year
|
—
|
—
|
—
|
—
|
—
|
74,232
|
74,232
|
|||||||||||||||
|
Balance
as of December 31, 2004
|
263,196,524
|
477,386
|
150,887
|
(8,370
|
)
|
254,493
|
74,232
|
948,628
|
||||||||||||||
|
Balance
as of January 1, 2005
|
263,196,524
|
477,386
|
150,887
|
(8,370
|
)
|
254,493
|
74,232
|
948,628
|
||||||||||||||
|
Transfer
of the 2004 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
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
|
)
|
—
|
||||||||||||||
|
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
|
(8,370
|
)
|
320,466
|
141,277
|
1,085,949
|
||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
17 - Shareholders’ Equity (continued)
| b) |
The
composition of other comprehensive (loss)/income and accumulated
other
comprehensive (loss)/income is as
follows:
|
|
Other
comprehensive income (loss)
For
the year ended December 31,
|
Accumulated
other comprehensive income
As
of December 31,
|
|||||||||||||||
|
Description
|
2006
|
2005
|
2004
|
2006
|
2005
|
|||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||
|
Technical
appraisal
|
—
|
—
|
—
|
151,345
|
151,345
|
|||||||||||
|
Changes
in other comprehensive income related to investments:
|
||||||||||||||||
|
Soquimich
Comercial S.A. (1)
|
(871
|
)
|
5,522
|
3,242
|
5,398
|
6,268
|
||||||||||
|
Isapre
Norte Grande Limitada (1).
|
—
|
—
|
14
|
(83
|
)
|
(83
|
)
|
|||||||||
|
Inversiones
Augusta S.A. (1)
|
—
|
—
|
—
|
(761
|
)
|
(761
|
)
|
|||||||||
|
SQM
Ecuador S.A. (2)
|
—
|
—
|
—
|
(271
|
)
|
(271
|
)
|
|||||||||
|
Almacenes
y Depósitos Limitada (1)
|
—
|
78
|
34
|
22
|
22
|
|||||||||||
|
Asociación
Garantizadora de Pensiones (1)
|
(1
|
)
|
2
|
2
|
(12
|
)
|
(11
|
)
|
||||||||
|
Empresas
Melón S.A. (1)
|
—
|
—
|
6,190
|
—
|
—
|
|||||||||||
|
Sales
de Magnesio Ltda. (1)
|
(7
|
)
|
7
|
—
|
52
|
59
|
||||||||||
|
SQM
North America Corp. (3)
|
(1,218
|
)
|
792
|
(15
|
)
|
(1,218
|
)
|
—
|
||||||||
|
Other
entities (1)
|
—
|
(1
|
)
|
—
|
718
|
719
|
||||||||||
|
Total
|
(2,097
|
)
|
6,400
|
9,467
|
155,190
|
157,287
|
||||||||||
|
(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 pensions plan of the subsidiary
SQM North America Corp.
|
| c) |
Paid-in
capital
|
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 a
director elected by Series B
shareholders.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
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, 2006 and the
Company’s derivative instruments are as follows:
|
2006
|
Notional
or
Notional
or
|
Position
|
Accounts
affected
|
||||||||||||||||
|
Type
of
|
covered
|
Purchase/Sale
|
(Liability)
Asset
|
Income
|
|||||||||||||||
|
derivative
|
amount
|
Expiration
|
Risk
type
|
(P/S)
|
amount
|
(loss)
effect
|
|||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||||||||||||
|
Currency
option
|
6,436
|
1st
quarter of 2007
|
Exchange
rate
|
P
|
(150
|
)
|
-
|
||||||||||||
|
US
dollar forward
|
7,079
|
1st
quarter of 2007
|
Exchange
rate
|
P
|
(69
|
)
|
-
|
||||||||||||
|
US
dollar forward
|
10,000
|
1st
quarter of 2007
|
Exchange
rate
|
P
|
100
|
-
|
|||||||||||||
|
Swap
|
102,630
|
1st
quarter of 2007
|
Interest
rate
|
P
|
5,398
|
564
|
|||||||||||||
|
126,145
|
5,279
|
564
|
|||||||||||||||||
|
2005
|
Notional
or
Notional
or
|
Position
|
Accounts
affected
|
||||||||||||||||
|
Type
of
|
covered
|
Purchase/Sale
|
(Liability)Asset
|
Income
|
|||||||||||||||
|
derivative
|
amount
|
Expiration
|
Risk
type
|
(P/S)
|
amount
|
(loss)
effect
|
|||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||||||||||||
|
Currency
option
|
31,279
|
1st
quarter of 2006
|
Exchange
rate
|
P
|
62
|
62
|
|||||||||||||
|
Currency
option
|
5,747
|
1st
quarter of 2006
|
Exchange
rate
|
P
|
(49
|
)
|
(49
|
)
|
|||||||||||
|
US
dollar forward
|
7,726
|
1st
quarter of 2006
|
Exchange
rate
|
P
|
(176
|
)
|
(176
|
)
|
|||||||||||
|
44,752
|
(163
|
)
|
(163
|
)
|
|||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
19- Non-Operating Income and Expenses
Amounts
included in non-operating income and expenses are summarized as
follows:
| a) |
Non-operating
income
|
|
For
the year ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Interest
income
|
11,410
|
5,530
|
3,650
|
|||||||
|
Equity
participation in net income of unconsolidated investees
|
2,314
|
3,073
|
4,897
|
|||||||
|
Insurance
recoveries
|
307
|
213
|
546
|
|||||||
|
Write-off
of liabilities
|
—
|
2,204
|
388
|
|||||||
|
Reversal
of allowance for doubtful accounts
|
238
|
—
|
—
|
|||||||
|
Sale
of mining concessions
|
499
|
298
|
635
|
|||||||
|
Sale
of materials and services
|
75
|
438
|
190
|
|||||||
|
Sale
of Antucoya project
|
753
|
—
|
—
|
|||||||
|
Gain
on sale of investments in related companies
inversiones empresas relac. Companies
|
732
|
—
|
8,179
|
|||||||
|
Rental
of property, plant and equipment
|
1,023
|
1,015
|
774
|
|||||||
|
Compensation
obtained from third parties
|
—
|
737
|
—
|
|||||||
|
Payment
discounts obtained from suppliers
|
690
|
1,026
|
452
|
|||||||
|
Fines
collected from third parties
|
159
|
—
|
—
|
|||||||
|
Other
income
|
1,093
|
1,899
|
1,118
|
|||||||
|
Total
|
19,293
|
16,433
|
20,829
|
|||||||
| b) |
Non-operating
expenses
|
|
For
the year ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Interest
expense
|
27,593
|
16,663
|
18,782
|
|||||||
|
Net
foreign currency exchange loss and price-level restatement and
price-level restatement
|
2,263
|
3,804
|
475
|
|||||||
|
Non-capitalized
exploration project expenses and provisions for damages and liquidation
of
assets
|
11,387
|
13,489
|
9,262
|
|||||||
|
Equity
participation in net losses of unconsolidated investees
|
362
|
477
|
387
|
|||||||
|
Amortization
of goodwill
|
2,229
|
2,070
|
1,073
|
|||||||
|
Work
disruption expenses
|
2,534
|
584
|
568
|
|||||||
|
Increase
in provision for employee compensation and legal costs
|
—
|
7,986
|
533
|
|||||||
|
Change
of discount rate for staff severance indemnities provision
|
—
|
678
|
—
|
|||||||
|
Allowances
for materials, spare parts and supplies
|
2,685
|
1,188
|
1,628
|
|||||||
|
Allowance
for doubtful accounts
|
129
|
151
|
2,500
|
|||||||
|
Non-recoverable
taxes
|
508
|
647
|
531
|
|||||||
|
Consulting
services
|
—
|
314
|
175
|
|||||||
|
Donations
|
—
|
896
|
533
|
|||||||
|
Penalties
|
—
|
238
|
161
|
|||||||
|
Provision
for legal expenses and litigations
|
1,010
|
—
|
—
|
|||||||
|
Accrued
expenses related to energy tariff adjustments
|
2,500
|
—
|
—
|
|||||||
|
Other
expenses
|
2,141
|
1,570
|
1,812
|
|||||||
|
Total
|
55,341
|
50,755
|
38,420
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Property,
plant and equipment
|
142
|
239
|
173
|
|||||||
|
Other
assets
|
144
|
194
|
(419
|
)
|
||||||
|
Other
liabilities
|
—
|
199
|
110
|
|||||||
|
Shareholders’
equity
|
(1,734
|
)
|
(2,846
|
)
|
(1,577
|
)
|
||||
|
Subtotal
price-level restatement
|
(1,448
|
)
|
(2,214
|
)
|
(1,713
|
)
|
||||
|
Net
adjustment of assets and liabilities denominated in UF
|
141
|
(641
|
)
|
—
|
||||||
|
Net
price-level restatement
|
(1,307
|
)
|
(2,855
|
)
|
(1,713
|
)
|
||||
Note
21 - Assets and Liabilities Denominated in Foreign
Currency
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Assets
|
ThUS$
|
ThUS$
|
|||||
|
Chilean
pesos
|
100,614
|
81,583
|
|||||
|
US
dollars
|
1,636,721
|
1,433,629
|
|||||
|
Euros
|
37,092
|
24,742
|
|||||
|
Japanese
Yen
|
975
|
6,466
|
|||||
|
Brazilian
Real
|
330
|
304
|
|||||
|
Mexican
pesos
|
4,783
|
11,331
|
|||||
|
UF
|
55,108
|
57,906
|
|||||
|
South
African Rand
|
13,374
|
9,321
|
|||||
|
Dirhams
|
14,225
|
11,954
|
|||||
|
Other
currencies
|
7,980
|
3,332
|
|||||
|
Current
liabilities
|
|||||||
|
Chilean
pesos
|
75,190
|
65,355
|
|||||
|
US
dollars
|
101,549
|
347,141
|
|||||
|
Euros
|
9,925
|
5,369
|
|||||
|
Japanese
Yen
|
93
|
133
|
|||||
|
Brazilian
Real
|
1,662
|
1,245
|
|||||
|
Mexican
pesos
|
3,196
|
3,230
|
|||||
|
UF
|
3,541
|
3,544
|
|||||
|
South
African Rand
|
1,698
|
1,792
|
|||||
|
Dirhams
|
671
|
411
|
|||||
|
Other
currencies
|
117
|
48
|
|||||
|
Long-term
liabilities
|
|||||||
|
Chilean
pesos
|
17,340
|
16,358
|
|||||
|
US
dollars
|
429,324
|
138,950
|
|||||
|
Japanese
Yen
|
152
|
—
|
|||||
|
UF
|
101,573
|
1,065
|
|||||
|
Other
currencies
|
9
|
2
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Description
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||
|
Deferred
income taxes benefit for tax loss
|
—
|
(5,602
|
)
|
—
|
||||||
|
Adjustment
of provision included in other financial income
|
(238
|
)
|
(2,203
|
)
|
(389
|
)
|
||||
|
Adjustment
of investees’ equity
|
—
|
(1,143
|
)
|
(413
|
)
|
|||||
|
Discounts
obtained from suppliers
|
(690
|
)
|
(598
|
)
|
(482
|
)
|
||||
|
Reversal
of the provision for damages caused by heavy rains
|
(1,000
|
)
|
—
|
—
|
||||||
|
Other
minor credits to income not representing cash flows
|
(834
|
)
|
(563
|
)
|
(635
|
)
|
||||
|
Total
|
(2,762
|
)
|
(10,109
|
)
|
(1,919
|
)
|
||||
| b) |
Amounts
included in other charges to income not representing cash flows are
as
follows:
|
|
For
the year ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Description
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||
|
Provision
for Corfo royalty payments
|
2,358
|
1,855
|
1,360
|
|||||||
|
Deferred
income taxes benefit for tax loss
|
8,500
|
—
|
12,635
|
|||||||
|
Provision
for legal expenses for GNV lawsuit and other legal
expenses
|
—
|
5,000
|
873
|
|||||||
|
Provision
for marketing expenses
|
4,364
|
4,130
|
2,761
|
|||||||
|
Provision
for employee incentive plans
|
3,160
|
8,215
|
3,942
|
|||||||
|
Adjustment
of provision for severance indemnities
|
3,882
|
8,199
|
5,389
|
|||||||
|
Provision
for income taxes
|
28,204
|
38,427
|
13,938
|
|||||||
|
Adjustment
of provision for vacation
|
5,333
|
4,447
|
3,501
|
|||||||
|
Refund
of 10% custom duties pursuant lo Law 18480
|
—
|
—
|
672
|
|||||||
|
Non-capitalizable
exploration project expense and provisions for damages and liquidation
assets
|
11,825
|
12,156
|
7,664
|
|||||||
|
Accrued
expenses related to energy tariff adjustments
|
4,500
|
—
|
—
|
|||||||
|
Amortization
of prepaid insurance expenses
|
3,189
|
1,838
|
2,246
|
|||||||
|
Remuneration
of Board of Directors
|
1,800
|
1,557
|
1,316
|
|||||||
|
Provision
for mine closure
|
1,000
|
—
|
—
|
|||||||
|
Adjustment
and other expenses of inventories
|
1,297
|
—
|
—
|
|||||||
|
Other
charges to income not representing cash flows
|
2,920
|
1,865
|
2,795
|
|||||||
|
Total
|
82,333
|
87,689
|
59,092
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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.
|
| Defendants |
:
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.
|
| Defendants |
:
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.
|
| Defendants |
:
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 |
:
Compañía Salitre y Yodo Soledad
S.A.
|
| Defendants |
:
Sociedad Química y Minera de Chile
S.A.
|
| Date of lawsuit |
:
November 1999
|
| Court |
:
Civil Court of Pozo Almonte
|
| Cause |
:
Partial annulment of mining property, Paz IV 1 to
30
|
| Instance |
:
Evidence provided
|
| Nominal amount |
:
ThUS$ 193
|
| 5. Plaintiff |
:
Miguel Negrete Ubeda
|
| Defendants |
:
Marco Antonio Ortiz Castillo y SQM Nitratos S.A. and its insurers
|
| Date of lawsuit |
:
May 2004
|
| Court |
:
First Civil Court of Antofagasta
|
| Cause |
:
Work accident
|
| Instance |
:
First instance sentence. The appeal is
pending.
|
| Nominal amount |
:
ThUS$ 150
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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)
|
| 6. Plaintiff |
:
Gabriela Véliz Huanchicay
|
| Defendants |
:
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 |
:
Observations to the evidence
|
| Nominal amount |
:
ThUS$ 1,350
|
| 7. Plaintiff |
:
Electroandina S.A.
|
| Defendants |
:
Sociedad Química y Minera de Chile
S.A.
|
| Date of lawsuit |
:
September 2005
|
| Court |
:
Court of arbitration
|
| Cause |
:
Early termination or partial modification or temporary suspension
of the
Electrical Supply Agreement entered on February
12, 1999 by virtue
of supposedly unforeseen events that would result in an increase
in
the cost of or restricted the supply of natural gas from
Argentina
|
| Instance |
:
Evidentiary stage
|
| Nominal amount |
:
The amount has not been determined
yet
|
| 8. Plaintiff |
:
Juana Muraña Quispe
|
| Defendants |
:
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
|
| 9. Plaintiff |
:
Norgener S.A.
|
| Defendant |
:
Sociedad Química y Minera de Chile
S.A.
|
| Date of lawsuit |
:
April 2006
|
| Court |
:
Arbitration Court
|
| Cause |
:
Modification of the price of energy sold and of the indexation
system indicated
in the Electrical Energy Supply Agreement entered on January 13,
1998, by
Virtue
of that indicated, in the plaintiff’s opinion, in this
agreement.
|
| Instance |
:
Rejoinder
|
| Nominal amount |
:
Amount not determined.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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)
|
| 10. 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
|
| 11. Plaintiff |
:
Empresa de Servicios de Montaje
Ltda.
|
| Defendant |
:
SQM S.A.
|
| Date of lawsuit |
:
May 2006
|
| Court |
:
4th Civil Court of Antofagasta
|
| Cause |
:
Divergences related to the agreement for the improvement of compressors
and of assembly of capacitors in Pedro
de Valdivia crystallization
plant and compensation for damage.
|
| Instance |
:
Response
|
| Nominal amount |
:
ThUS$ 270
|
| 12. Plaintiff |
:
ESAOL Limitada
|
| Defendant |
:
Sociedad Química y Minera de Chile
S.A.
|
| Date of lawsuit |
:
September 2006
|
| Court |
:
Arbitration Court of Antofagasta
|
| Cause |
:
Fees allegedly owed for urban cleaning services at Maria Elena
plant.
|
| Instance |
:
Order for appearance, filing of
commitment
|
| Nominal amount |
:
ThUS$ 170
|
| 13. Plaintiff |
:
Sociedad de Servicios Tacora
Limitada
|
| Defendants |
:
SQM Nitratos S.A.
|
| Date of lawsuit |
:
December 2006
|
| Court |
:
25th Civil Court of Antofagasta
|
| 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
have not received their salary pay and contributions for transportation
and machinery services rendered indirectly to SQM Nitratos
S.A.
|
| Instance |
:
Response
|
| Nominal amount |
:
ThUS$ 266
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 has accrued provisions that are adequate to cover any
probable risk and therefore management believes the litigation will not have
a
material effect on the consolidated financial statements.
| c) |
Commitments
|
The
subsidiary SQM Salar S.A. maintains an agreement with a government agency
(Corfo), whereby it must make annual royalty payments until 2030 determined
on
the basis of the Company’s annual sales. This royalty is being paid since 1996,
when the Company entered into the agreement with Corfo. Amounts paid in the
years 2006, 2005 and 2004 were ThUS$ 9,193, ThUS$ 6,752 and ThUS$
4,910.
| 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$984,522.00, (ii) the net financial debt to EBITDA
ratio should not be greater than 3:1, and (iii) the ratio between financial
debt
of operating subsidiaries and the consolidated current assets should not be
greater than 0.3:1.
Note
24 - Guarantees
| a) |
Guarantees
given
|
As
of
December 31, 2006 and 2005 the Company has the following indirect guarantees
outstanding:
|
Debtor
|
Balances
outstanding
|
||||||||||||
|
Beneficiary
|
Name
|
Relationship
|
2006
|
2005
|
|||||||||
|
ThUS$
|
ThUS$
|
||||||||||||
|
BBVA
Banco Bilbao Vizcaya Argentaria
|
Royal
Seed Trading Corp. A.V.V.
|
Subsidiary
|
100,412
|
100,303
|
|||||||||
|
ING
Bank
|
Royal
Seed Trading Corp. A.V.V.
|
Subsidiary
|
80,416
|
—
|
|||||||||
| b) |
Guarantees
received
|
Tattersall
Comercial S.A. has made several guarantees of up to ThUS$ 1,000 to assure
compliance of its obligations related to commercial mandate agreement for the
distribution and sale of fertilizers with Soquimich Comercial
S.A.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
25 - Sanctions
During
the years ended December 31, 2006, 2005 and 2004, the SVS did not apply
sanctions to the Company, its directors or managers.
Note
26 - Environmental Projects
Disbursements
incurred by the Company as of December 31, 2006 relating to its investments
in
production processes and compliance with regulations related to industrial
processes and facilities are as follows:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Project
|
||||||||||
|
Environmental
department
|
748
|
596
|
544
|
|||||||
|
Risk
and security management
|
—
|
424
|
—
|
|||||||
|
Improvements
in María Elena Camp - streets
|
296
|
—
|
—
|
|||||||
|
Dust
emission control
|
823
|
962
|
—
|
|||||||
|
Light
normalization
|
919
|
378
|
—
|
|||||||
|
Improvement
of mining operations
|
—
|
220
|
—
|
|||||||
|
Environmental
studies - Region I of Chile project
|
605
|
—
|
—
|
|||||||
|
María
Elena archeology
|
870
|
—
|
—
|
|||||||
|
Normalization
of lighting at FFCC yard, PV Mill
|
123
|
—
|
—
|
|||||||
|
Equipment
washing system
|
184
|
—
|
—
|
|||||||
|
The
Environment MOP/SOP 2
|
142
|
—
|
—
|
|||||||
|
Boratos
sewage treatment plant
|
—
|
—
|
281
|
|||||||
|
Tocopilla
project
|
—
|
—
|
615
|
|||||||
|
Engineering
and building of Maria Elena piles
|
—
|
—
|
2,667
|
|||||||
|
Treatment
plant MOP
|
—
|
—
|
208
|
|||||||
|
Construction
of facilities for workers
|
279
|
—
|
—
|
|||||||
|
Atacama
salt deposit hydrological model
|
176
|
—
|
—
|
|||||||
|
Environmental
commitments in Region I of Chile
|
152
|
—
|
—
|
|||||||
|
Elimination
of PCB equipment
|
304
|
—
|
—
|
|||||||
|
Others
|
1,221
|
811
|
1,242
|
|||||||
|
Total
|
6,842
|
3,391
|
5,557
|
|||||||
Protecting
the environment, both in regards to the Company’s productive processes and the
manufactured goods, is a constant concern for SQM.
SQM
is
currently implementing an Environmental Management System, which is based on
the
ISO 14000 standard, with which the Company will improve its environmental
performance. The implementation program stipulates that all the operations
maintained by the Company in Regions I and II of Chile, will have a fully
implemented Environmental Management System by late 2007.
Processes
where sodium nitrate is used as a raw material are carried out in geographical
areas such as the desert with favorable weather conditions for drying solid
materials and evaporating liquids used in solar energy. The extraction of
minerals in open pit mines, given their low waste-to-mineral ratio, gives rise
to waste deposits that have little impact on the environment. The extraction
process and ore crushing produce particles that are consistent with the industry
of operation.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
26 - Environmental Projects (continued)
On
August
10, 1993, the Ministry of Health published a resolution under the Sanitary
Code
that established that the levels of breathable particles present at María Elena
Plant exceeded the level allowed for air quality and, consequently, affected
the
nearby city of María Elena. Particles mainly come from dust that results from
processing the sodium nitrate, particularly at the crushing process prior to
leaching. The Company has implemented a series of measures that have shown
notable improvement in air quality at María Elena. A new decontamination plan
for this area, released on March 13, 2004, was intended to meet air quality
standards by April 1, 2006. On December 31, 2004, the Company submitted a
proposal entitled “Technological Change at María Elena”, which intends to reduce
particle emission, to the government’s Environmental Impact Evaluation System.
The project will commence its activities during 2007.
Ore
treatment operations, as they are controlled processes, produce solid residual
materials that are the non-soluble by product and a certain degree of
moisture.
SQM
entered into a contract with the National Forestry Corporation (CONAF) aimed
at
researching the activities of flamingo groups that live in the Atacama Salt
Mine
lagoons. Such research includes a population count of the birds and wildlife,
breeding research, additional behavior research and the climate phenomena of
the
area.
Consistent
with the Company’s ongoing commitment with the environmental authorities, the
Company actively participates in the Joint Monitoring Research project for
the
Atacama Salt Mine watershed along with other mining companies that make use
of
the water resources that supply the Atacama Salt Mine. To perform this study,
SQM has involved diverse scientists from prestigious research institutions
such
as Dictuc of Pontificia Universidad Católica, the University of Nevada, Cornell
University and the University of Binghamton in New York.
SQM
togheter with other mining companies participate also actively in the Joint
Study of Monitoring of the Atacama Saltpeter Deposit Basin.
Note
27 - Significant Events
|
·
|
On
January 17, 2006, the Company informed the SVS that Mr. Bernard Descazeaux
Aribit resigned from his position of General Manager of Soquimich
Comercial S.A. and assumed responsibility for the operations of SQM
S.A.
in Mexico and Central America. The Board of Directors accepted his
resignation. At the Ordinary Board of Directors’ Meeting held on January
16, 2006, the Directors accepted the appointment of Mr. Juan Carlos
Barrera Pacheco as new General Manager of Soquimich Comercial S.A.
The
changes were effective beginning on March 1,
2006.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
27 - Significant Events (continued)
|
·
|
On
January 19, 2006 the Company informed SVS that it acquired, on the
same
date from DSM Group based in the Netherlands, the total amount of
shares
of certain 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) (see also Note 8b).
|
|
·
|
On
January 24, 2006, Sociedad Química y Minera de Chile S.A has placed in the
Chilean market an unguaranteed bond for the nominal amount of UF
3 million
with a term of 21 years and an annual interest rate of 4.18% to refinance
liabilities and fund investment projects for the year
2006.
|
|
·
|
On
March 29, 2006, the Company informed the SVS that Sociedad Química y
Minera de Chile S.A. is negotiating the possible placement abroad
of a new
bond issuance for an approximate amount of US$ 200 million that will
be
repayable in a single installment at the expiration of the ten-years
period and which will be used to pay liabilities for the same sum
which
expire in September 2006. On April 15, 2006, SQM communicated to
the SVS
that it 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 amortization in April 2016.
|
|
·
|
On
March 29, 2006, the Company informed the SVS that the Board of Directors
of Sociedad Química y Minera de Chile (SQM), at its meeting held on April
28, 2006, unanimously agreed to propose the payment of a final dividend
of
US$ 0.27981 per share.
|
|
·
|
On
September 15, 2006, the Company informed the SVS that Soquimich European
Holdings B.V. (SEH), a subsidiary of Sociedad Química y Minera de Chile
S.A. and Yara Italia S.P.A., a subsidiary of Yara International ASA,
the
entity that forms part of the Controlling Group of SQM, have entered
in
Italy into Right Transfer Agreement through which SEH has sold to
Yara all
its rights (50% participation) in the Italian company Impronta
SRL.
|
|
·
|
On
October 30, 2006, the Company informed the SVS that SQM Comercial
de
México S.A. de C.V. (SQMM) and SQM Industrial S.A. (SQMI), both
subsidiaries of Sociedad Química y Minera de Chile S.A. and Yara Nederland
B.V. (YN) and Yara Holdings Netherlands B.V. (YH), both subsidiaries
of
Yara International ASA, the entity that forms part of the Controlling
Group of SQM, have entered on October 27, 2006 in Mexico into Share
Purchase and Sale Agreement through which SQMM and SQMI sold to YN
and to
YH all the shares (in total 100%) which SQMM and SQMI had in Fertilizantes
Olmeca y SQM S.A. de C.V.
|
|
·
|
On
November 28, 2006, the Company informed the SVS that Royal Seed Trading
Corp. A.V.V., a subsidiary of Sociedad Química y Minera de Chile S.A. and
the banks ING Bank N.V., Curacao Branch, Banco Bilbao Vizcaya Argentaria
S.A., BNP Paribas and Santander Overseas Bank Inc., entered on November
22, 2006 into a 5 year loan agreement for a sum of ThUS$ 80,000 with
the
initial annual interest rate of Libor + 0.3% that may vary depending
on
the possible future changes in the classification of the guarantor’s
(Sociedad Química y Minera de Chile S.A.) external debt, with no actual
guarantees and with semi-annual payments of
interest.
|
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
28 - Subsequent Events
Management
is not aware of any other significant subsequent events that have occurred
after
December 31, 2006 and 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 n) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 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.
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 relates 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 n) 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 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 n) below.
| d) |
Investment
in Empresas Melón S.A.
|
During
1998, the Company purchased a 14.05% participation in Empresas Melón S.A.,
(“Melón”) cement manufacturing company. Pursuant to a shareholders agreement,
until August of 2004 the Company exerted significant influence over Melón and
thus it accounted for this investment for both Chilean GAAP and US GAAP under
the equity method. As mentioned in Note 8 this investment was sold during 2004.
Significant adjustments between Chilean GAAP and US GAAP relating to the
investment in Melón are described below.
| d-1) |
Purchase
accounting adjustments
|
At
the
time of acquisition of participation in Melón, under Chilean GAAP, the Company
recorded goodwill on the transaction, calculated as the difference between
the
purchase price and the proportionate share in the net assets acquired at their
book values. Such goodwill was being amortized over a period of 20 years.
Under
US
GAAP, the Company calculated goodwill as the difference between the purchase
price and the proportionate participation in the fair values of the assets
acquired and liabilities assumed. As a result proportionate share in the Melón’s
net assets measured at fair values exceeded acquisition cost. In accordance
with
US GAAP such difference was allocated to property, plant and equipment acquired,
reducing the accounting base, and consequently the depreciation of those assets.
The
effects of reversing goodwill and its related amortization recorded under
Chilean GAAP and the recognition of the new basis of assets and liabilities
and
subsequent depreciation are set forth in paragraph I n) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| d) |
Investment
in Empresas Melón S.A.
(continued)
|
|
d-2)
|
Accounting
for participation in Melón on US GAAP
basis
|
Within
the period in which SQM exerted significant influence over Melón it recognized
its participation of income (loss) and net assets of that entity using equity
method. For the purposes of the Company’s US GAAP reconciliation US GAAP
information of Melón was prepared. The principle differences between Chilean
GAAP and US GAAP in Melón related to deferred taxes and the elimination of
price-level restatement.
In
addition under US GAAP the financial statements of Melón were converted into
dollars in accordance with SFAS 52 as described in paragraph c) above. The
effect of recognizing income and net assets under the equity method under US
GAAP and after conversion to US dollars in accordance with SFAS 52 is set forth
in paragraph I n) below.
|
d-3)
|
Sale
of investment in Melón on US GAAP
basis
|
As
discussed above in 2004 the Company sold its participation in Melón. As a result
of differences in purchase accounting and subsequent measuring of income from
the investment as discussed in points d-1) and d-2) above value of investment
sold was different for Chilean GAAP and for US GAAP. Consequently adjustment
to
the result of the sale of participation in Melón is included in the
reconciliation to US GAAP in paragraph I n) below.
| e) |
Consolidation
of subsidiaries in the development
stage
|
Under
Chilean GAAP subsidiaries in the development stage are not consolidated and
their results from operations are not included in the consolidated income
statement. For purposes of US GAAP, these subsidiaries must be consolidated
and
their results should be recorded in the income statement. Until June 30, 2004,
SQM Lithium Specialties LLP was the development stage company. The effects
of
recognizing its net loss for the year ended December 31, 2004 is set forth
in
paragraph I n) below.
|
f)
|
Minimum
Dividend
|
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 o) 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 US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
|
g)
|
Loans
to Employees
|
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$ 253 and ThUS$ 288 at December 31, 2006 and 2005,
respectively, has been treated as a reduction of shareholders' equity under
paragraph I n) below.
|
h)
|
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 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 SFAS 87 is set forth under paragraph I n) below. Additional
disclosure requirements are presented in paragraph II m) below.
|
i)
|
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 US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
|
i)
|
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 one of such contracts during 2006 in order
to
hedge its risk exposure related to bonds denominated in UF. Under Chilean GAAP
the swap was designated as a hedging instrument and the change in the fair
value
of the contract was deferred on the balance sheet. 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
contract was included 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 n) below.
In
addition the Company entered during 2006 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 n) below.
|
j)
|
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 n) below.
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
|
k)
|
Negative
goodwill
|
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 Victoria (former DSM Minera
SCM). 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.
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. However, in the period of
adoption, SFAS 141, Business
Combinations
requires
that unamortized negative goodwill be written off and the resulting gain be
recognized as an effect of a change in accounting principle. 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 n)
below
as follows:
| k-1: |
The
reversal of negative goodwill amortization recorded under Chilean
GAAP.
|
| k-2: |
The
effects of reducing depreciation expense, due to the allocation of
the
excess purchase price to property, plant and
equipment;
|
|
l)
|
Capitalized
interest
|
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 n)
below.
|
m)
|
Minority
interest
|
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 n) below.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| n) |
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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Net
income in accordance with Chilean GAAP
|
141,277
|
113,506
|
74,232
|
|||||||
|
Revaluation
of property, plant and equipment (paragraph a)
|
4,174
|
2,132
|
4,367
|
|||||||
|
Deferred
income taxes (paragraph b)
|
4,021
|
2,236
|
6,022
|
|||||||
|
Translation
of foreign currency financial statements (paragraph c)
|
(576
|
)
|
8,994
|
5,318
|
||||||
|
Purchase
accounting adjustments - Empresas Melón S.A. (paragraph
d-1)
|
—
|
—
|
(34
|
)
|
||||||
|
Accounting
for participation in Melón on US GAAP basis (paragraph
d-2)
|
—
|
—
|
(467
|
)
|
||||||
|
Cost
of sale of Empresas Melón S.A. on US
GAAP basis (paragraph d-3)
|
—
|
—
|
2,336
|
|||||||
|
Consolidation
of subsidiaries in the development stage (paragraph e)
|
—
|
—
|
(1,851
|
)
|
||||||
|
Staff
severance indemnities (paragraph h)
|
(484
|
)
|
(836
|
)
|
(618
|
)
|
||||
|
Derivatives
(paragraph i)
|
4,432
|
1,483
|
(1,483
|
)
|
||||||
|
Goodwill
(paragraph j)
|
1,950
|
1,718
|
749
|
|||||||
|
Negative
goodwill (paragraph k)
|
||||||||||
|
k-1:
Reversal of negative goodwill amortization
|
(68
|
)
|
(203
|
)
|
(213
|
)
|
||||
|
k-2:
Depreciation of property, plant and equipment
|
113
|
113
|
123
|
|||||||
|
Capitalized
interest (paragraph l)
|
(91
|
)
|
(91
|
)
|
(91
|
)
|
||||
|
Minority
interest (paragraph m)
|
172
|
(3,576
|
)
|
(2,115
|
)
|
|||||
|
Deferred
income tax effect of the above US GAAP adjustments (paragraph
b)
|
(656
|
)
|
(272
|
)
|
551
|
|||||
|
Net
income under US GAAP
|
154,264
|
125,204
|
86,826
|
|||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||
|
Minimum
pension liability adjustment
|
—
|
792
|
(15
|
)
|
||||||
|
Translation
adjustment
|
(24
|
)
|
—
|
6,460
|
||||||
|
Total
comprehensive income under US GAAP
|
154,240
|
125,996
|
93,271
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| n) |
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,
|
|||||||
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Shareholders’
equity in accordance with Chilean GAAP
|
1,085,949
|
1,020,416
|
|||||
|
Revaluation
of property, plant and equipment: (paragraph a)
|
|||||||
|
a-1:
Property, plant and equipment
|
(133,309
|
)
|
(133,768
|
)
|
|||
|
a-2:
Accumulated depreciation
|
103,444
|
99,729
|
|||||
|
Deferred
income taxes (paragraph b)
|
(22,627
|
)
|
(26,648
|
)
|
|||
|
Translation
of foreign currency financial statements (paragraph c)
|
|||||||
|
c-1:
Property, plant and equipment
|
(2,160
|
)
|
(2,377
|
)
|
|||
|
c-2:
Accumulated depreciation
|
1,104
|
921
|
|||||
|
c-3:
Inventory
|
(364
|
)
|
(728
|
)
|
|||
|
c-4:
Goodwill, net
|
(335
|
)
|
(408
|
)
|
|||
|
Minimum
dividend (paragraph f)
|
(42,383
|
)
|
(34,053
|
)
|
|||
|
Employer
loans used to purchase shares (paragraph g)
|
(253
|
)
|
(288
|
)
|
|||
|
Staff
severance indemnities (paragraph h)
|
(5,409
|
)
|
(4,926
|
)
|
|||
|
Derivatives
(paragraph i)
|
4,432
|
-
|
|||||
|
Goodwill
(paragraph j)
|
5,763
|
3,813
|
|||||
|
Negative
goodwill: (paragraph k)
|
|||||||
|
k-1:
Property, plant and equipment
|
(5,084
|
)
|
(3,156
|
)
|
|||
|
k-1:
Accumulated depreciation of property, plant and equipment
|
1,910
|
1,796
|
|||||
|
k-2:
Negative goodwill
|
5,084
|
3,156
|
|||||
|
k-2:
Accumulated amortization of negative goodwill
|
(3,156
|
)
|
(3,088
|
)
|
|||
|
Capitalized
interest (paragraph l)
|
|||||||
|
l-1:
Property, plant and equipment
|
1,643
|
1,643
|
|||||
|
l-2:
Amortization of capitalized interest
|
(274
|
)
|
(182
|
)
|
|||
|
Effect
of minority interest on US GAAP adjustments (paragraph n)
|
614
|
1,001
|
|||||
|
Deferred
income tax effect of the above US GAAP adjustments (paragraph
b)
|
(67
|
)
|
589
|
||||
|
Shareholders'
equity in accordance with US GAAP
|
994,522
|
923,442
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| o) |
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, 2004
|
794,698
|
|||
|
Reversal
of accrued minimum dividend at December 31, 2003
|
14,026
|
|||
|
Distribution
of final 2003 dividend
|
(23,192
|
)
|
||
|
Accrued
minimum dividend at December 31, 2004
|
(22,270
|
)
|
||
|
Employer
loans used to purchase shares
|
338
|
|||
|
Other
comprehensive income
|
6,445
|
|||
|
Net
income for the year
|
86,826
|
|||
|
Balance
at December 31, 2004
|
856,871
|
|||
|
Reversal
of accrued minimum dividend at December 31, 2004
|
22,270
|
|||
|
Distribution
of final 2004 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 loss
|
(1,242
|
)
|
||
|
Net
income for the year
|
154,264
|
|||
|
Balance
at December 31, 2006
|
994,522
|
|||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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
|
The
following disclosure of earnings per share information is not generally required
for presentation in financial statements under Chilean accounting principles
but
is required under US GAAP:
|
2006
|
2005
|
2004
|
||||||||
|
(Expressed
in US dollars)
|
||||||||||
|
Basic
and diluted earnings per share under Chilean GAAP
|
0.54
|
0.43
|
0.28
|
|||||||
|
Basic
and diluted earnings per share under US GAAP
|
0.59
|
0.48
|
0.33
|
|||||||
|
Dividends
declared per share (1)
|
0.35
|
0.28
|
0.18
|
|||||||
|
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 tax 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:
|
2006
ThUS$
|
2005
ThUS$
|
2004
ThUS$
|
||||||||
|
Consolidated
pretax income under US GAAP
|
193,358
|
160,382
|
114,815
|
|||||||
|
Statutory
tax rate
|
17
|
%
|
17
|
%
|
17
|
%
|
||||
|
Theoretical
tax at statutory rate
|
32,871
|
27,265
|
19,519
|
|||||||
|
Non-deductible
items
|
5,853
|
892
|
91
|
|||||||
|
Difference
in tax rates in foreign jurisdictions
|
247
|
1,056
|
553
|
|||||||
|
Valuation
allowance
|
(4,420
|
)
|
1,350
|
572
|
||||||
|
Total
income tax under US GAAP
|
34,551
|
30,563
|
20,735
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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.:
|
2006
ThUS$
|
2005
ThUS$
|
||||||
|
Deferred
Tax Assets
|
|||||||
|
Allowance
for doubtful debts
|
2,408
|
1,965
|
|||||
|
Vacation
accrual
|
1,411
|
1,322
|
|||||
|
Unrealized
gains on sales of products
|
13,308
|
15,053
|
|||||
|
Provision
for obsolescence
|
2,283
|
2,075
|
|||||
|
Losses
from derivative transactions
|
—
|
||||||
|
Tax
loss carryforwards (1)
|
31,969
|
40,624
|
|||||
|
Fair
value acquisition adjustments
|
841
|
2,535
|
|||||
|
Other
|
6,202
|
5,445
|
|||||
|
Gross
deferred tax assets
|
58,422
|
69,019
|
|||||
|
Valuation
allowance
|
(36,035
|
)
|
(35,706
|
)
|
|||
|
Total
deferred tax assets
|
22,387
|
33,313
|
|||||
|
Deferred
Tax Liabilities
|
|||||||
|
Production
expenses
|
(18,613
|
)
|
(18,123
|
)
|
|||
|
Accelerated
depreciation
|
(61,046
|
)
|
(58,031
|
)
|
|||
|
Staff
severance indemnities
|
(876
|
)
|
(1,611
|
)
|
|||
|
Exploration
expenses
|
(4,712
|
)
|
(5,375
|
)
|
|||
|
Capitalized
interest
|
(7,284
|
)
|
(6,288
|
)
|
|||
|
Gain
from derivative transactions
|
(935
|
)
|
—
|
||||
|
Other
|
(1,552
|
)
|
(329
|
)
|
|||
|
Total
deferred tax liabilities
|
(95,018
|
)
|
(89,757
|
)
|
|||
|
(1)
|
The
Company’s tax loss carryforwards were primarily generated from losses
incurred in Chile and Mexico. In accordance with current laws, in
Chile
tax losses may be carried forward indefinitely and in Mexico they
expire
after 10 years. For the years ended December 31, 2006, 2005 and 2004
the
Company realized benefits from the use of tax loss carry forwards
amounting to ThUS$ 9,037, ThUS$ 3,541 and ThUS$ 9,324, respectively.
|
Tax
loss
carryforwards relate to the following countries as of December 31:
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Chile
|
29,180
|
38,385
|
|||||
|
Other
|
2,789
|
2,239
|
|||||
|
Total
|
31,969
|
40,624
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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:
|
2006
|
2005
|
||||||
|
ThUS$
|
ThUS$
|
||||||
|
Short-term
|
(5,406
|
)
|
1,020
|
||||
|
Long-term
|
(67,225
|
)
|
(57,464
|
)
|
|||
|
Net
deferred tax liabilities
|
(72,631
|
)
|
(56,444
|
)
|
|||
The
provision for income taxes in accordance with US GAAP is as
follows:
|
2006
ThUS$
|
2005
ThUS$
|
2004
ThUS$
|
||||||||
|
Income
tax expense under Chilean GAAP (Note 13)
|
37,916
|
32,527
|
27,308
|
|||||||
|
Additional
deferred tax under US GAAP
|
656
|
272
|
(551
|
)
|
||||||
|
Reversal
of complementary accounts
|
(4,021
|
)
|
(2,236
|
)
|
(6,022
|
)
|
||||
|
Total
tax provision US GAAP
|
34,551
|
30,563
|
20,735
|
|||||||
US
GAAP
before tax income related to Chile and foreign operations for the years ended
December 31 is as follows:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Chile
|
215,036
|
134,411
|
113,683
|
|||||||
|
Foreign
|
(21,678
|
)
|
25,971
|
1,132
|
||||||
|
Total
|
193,358
|
160,382
|
114,815
|
|||||||
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:
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||
|
Deferred
|
Current
|
Total
|
Deferred
|
Current
|
Total
|
Deferred
|
Current
|
Total
|
||||||||||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||||||||||
|
Chile
|
9,469
|
22,263
|
31,732
|
(5,777
|
)
|
33,537
|
27,760
|
5,045
|
14,001
|
19,046
|
||||||||||||||||||
|
Foreign
|
285
|
2,534
|
2,819
|
(1,088
|
)
|
3,891
|
2,803
|
1,255
|
434
|
1,689
|
||||||||||||||||||
|
Total
|
9,754
|
24,797
|
34,551
|
(6,865
|
)
|
37,428
|
30,563
|
6,300
|
14,435
|
20,735
|
||||||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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, 2004, 2005 and 2006:
|
Year
ended December 31, 2004
|
||||||||||
|
Before-tax
amount
|
Tax
(expense)
or
benefit
|
Net-of-tax
amount
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Beginning
balance
|
(7,710
|
)
|
473
|
(7,237
|
)
|
|||||
|
Translation
adjustment
|
6,460
|
—
|
6,460
|
|||||||
|
Minimum
pension liability adjustment
|
(24
|
)
|
9
|
(15
|
)
|
|||||
|
Net
change
|
6,436
|
9
|
6,445
|
|||||||
|
Ending
balance
|
(1,274
|
)
|
482
|
(792
|
)
|
|||||
|
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
|
)
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| d) |
Credit
Agreements
|
The
Company has renewable lines of credit arrangements for short-term US dollar
borrowings with various Chilean and foreign banks totaling, in the aggregate
to
US$ 622 million and US$ 554 million at December 31, 2006 and 2005, respectively.
There was US$ 564 million and US$ 469 million available as of December 31,
2006
and 2005, respectively. The Company pays no commitment fees on such credit
lines
and the average rate was LIBOR plus 0.40%.
| 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$
|
|||
|
2007
|
274
|
|||
|
2008
|
274
|
|||
|
2009
|
274
|
|||
|
2010
|
275
|
|||
|
2011
|
160
|
|||
|
Thereafter
|
—
|
|||
|
Total
future minimum lease payments
|
1,257
|
|||
|
Interest
|
(212
|
)
|
||
|
Present
value of net minimum lease payments
|
1,045
|
|||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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
specified rates in the agreement. Based on the agreement the Company paid ThUS$
9,193, ThUS$ 6,752 and ThUS$ 4,910 in 2006, 2005 and 2004 respectively,
including the minimum annual rental, which was ThUS$ 4,547, ThUS$ 4,172 and
ThUS$ 3,477 for 2006, 2005 and 2004, respectively. Future estimated minimum
annual rentals are as follows:
|
Minimum
|
||||
|
annual
|
||||
|
rentals
|
||||
|
Year
ended December 31,
|
ThUS$
|
|||
|
2007
|
4,458
|
|||
|
2008
|
4,458
|
|||
|
2009
|
4,458
|
|||
|
2010
|
4,458
|
|||
|
2011
|
4,458
|
|||
|
Thereafter
|
84,701
|
|||
|
Total
|
106,991
|
|||
As
of
December 31, 2006, SQM Salar S.A. has accrued for the royalty fee payment of
ThUS$ 2,358 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 US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| g) |
Foreign
exchange gain and losses
|
For
US
GAAP presentation purposes, the net foreign exchange gains and losses on
transactions in foreign currencies and UF amounted to ThUS$ (2,839), ThUS$
5,391
and ThUS$ 3,000 in 2006, 2005 and 2004, respectively.
|
h)
|
Advertising
and Research and development
costs
|
Advertising
costs are expensed as incurred and amounted to ThUS$ 1,699, ThUS$ 1,389 and
ThUS$ 1,719 for the years ended December 31, 2006, 2005 and 2004,
respectively.
Research
and development costs are expensed as incurred and amounted to ThUS$ 2,429,
ThUS$ 2,480 and ThUS$ 1,803 for the years ended December 31, 2006, 2005 and
2004.
| 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, 2005 and 2006 are
summarized as follows:
|
ThUS$
|
||||
|
Balance
at 31, 2004
|
17,756
|
|||
|
Reassessment
of PCS Yumbes goodwill
|
9,621
|
|||
|
Goodwill
on acquisition of SQM Dubai - Fzco
|
2,058
|
|||
|
Impairment
of Safnits investment
|
(386
|
)
|
||
|
Translation
adjustment
|
54
|
|||
|
Balance
at December 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
|
|||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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.
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Non-operating
income under Chilean GAAP
|
19,293
|
16,433
|
20,829
|
|||||||
|
Less:
|
||||||||||
|
Sale
of mining concessions
|
1,252
|
298
|
635
|
|||||||
|
Sale
of material and services
|
75
|
438
|
190
|
|||||||
|
Insurance
recoveries
|
307
|
213
|
546
|
|||||||
|
Write-off
of liabilities
|
238
|
2,204
|
388
|
|||||||
|
Payment
discount obtained from suppliers
|
690
|
1,026
|
452
|
|||||||
|
Rental
of property, plant and equipment
|
1,023
|
1,015
|
774
|
|||||||
|
Compensation
obtained from third parties
|
1
|
737
|
—
|
|||||||
|
Other
income
|
1,251
|
1,899
|
1,118
|
|||||||
|
Non-operating
income as classified under US GAAP, but calculated in accordance
with
Chilean GAAP
|
14,456
|
8,603
|
16,726
|
|||||||
|
Non-operating
expenses under Chilean GAAP
|
55,341
|
50,755
|
38,420
|
|||||||
|
Less:
|
||||||||||
|
Sales
of material and services
|
630
|
—
|
—
|
|||||||
|
Work
disruption expenses
|
1,534
|
584
|
568
|
|||||||
|
Increase
in allowance for doubtful debts
|
129
|
151
|
2,500
|
|||||||
|
Non-capitalizable
exploration project expenses
|
12,087
|
13,489
|
9,262
|
|||||||
|
Unrecoverable
taxes
|
542
|
647
|
531
|
|||||||
|
Provision
for compensation and legal costs
|
1,010
|
7,986
|
533
|
|||||||
|
Change
of discount rate for staff severance indemnities provision
|
—
|
678
|
—
|
|||||||
|
Allowances
for materials, spare parts and supplies
|
2,055
|
1,188
|
1,628
|
|||||||
|
Consulting
services
|
281
|
314
|
175
|
|||||||
|
Donations
|
458
|
896
|
533
|
|||||||
|
Penalties
|
2,500
|
238
|
161
|
|||||||
|
Other
expenses
|
1,668
|
1,570
|
1,812
|
|||||||
|
Non-operating
expense as classified under US GAAP, but calculated in accordance
with
Chilean GAAP
|
32,447
|
23,014
|
20,717
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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:
|
1.
|
As
of December 31,
|
||||||
|
2.
|
2006
|
2005
|
|||||
|
Assets
|
ThUS$
|
ThUS$
|
|||||
|
Current
assets
|
849,958
|
743,692
|
|||||
|
Property,
plant and equipment
|
1,507,568
|
1,287,448
|
|||||
|
Accumulated
depreciation
|
(623,768
|
)
|
(528,195
|
)
|
|||
|
Property
plant and equipment, net
|
883,800
|
759,253
|
|||||
|
Goodwill
|
40,249
|
29,103
|
|||||
|
Other
assets
|
72,019
|
76,947
|
|||||
|
Total
assets
|
1,846,026
|
1,608,995
|
|||||
|
Liabilities
and shareholders’ equity
|
|||||||
|
Current
liabilities
|
241,210
|
464,852
|
|||||
|
Long-term
liabilities
|
571,695
|
186,193
|
|||||
|
Minority
interest
|
38,599
|
34,508
|
|||||
|
Shareholders’
equity
|
994,522
|
923,442
|
|||||
|
Total
liabilities and shareholders’ equity
|
1,846,026
|
1,608,995
|
|||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Operating
income
|
ThUS$
|
ThUS$
|
ThUS$
|
|||||||
|
Sales
|
1,042,886
|
895,970
|
788,516
|
|||||||
|
Cost
of sales
|
(767,679
|
)
|
(670,213
|
)
|
(618,211
|
)
|
||||
|
Gross
margin
|
275,207
|
225,757
|
170,305
|
|||||||
|
Selling
and administrative expense
|
(69,662
|
)
|
(61,878
|
)
|
(55,705
|
)
|
||||
|
Operating
income
|
205,545
|
163,879
|
114,600
|
|||||||
|
Non-operating
income and expense, net
|
(14,139
|
)
|
(6,093
|
)
|
(1,620
|
)
|
||||
|
Income
taxes
|
(34,551
|
)
|
(30,563
|
)
|
(20,735
|
)
|
||||
|
Minority
interest
|
(4,543
|
)
|
(4,615
|
)
|
(7,254
|
)
|
||||
|
Equity
participation in income (loss) of related companies, net
|
1,952
|
2,596
|
1,835
|
|||||||
|
Net
income
|
154,264
|
125,204
|
86,826
|
|||||||
|
Other
comprehensive income (loss), net of tax:
|
||||||||||
|
Minimum
pension liability adjustment
|
—
|
792
|
(15
|
)
|
||||||
|
Translation
adjustment
|
(24
|
)
|
—
|
6,460
|
||||||
|
Deferred
gain from sale of swap
|
—
|
—
|
—
|
|||||||
|
Total
comprehensive income under US GAAP
|
154,240
|
125,996
|
93,271
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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 Others. 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,
2006, 2005 and 2004
|
|
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
sales:
|
||||||||||||||||||||||
|
Specialty
plant nutrition
|
114,144
|
114,838
|
203,172
|
201,906
|
78,545
|
(209,762
|
)
|
502,843
|
||||||||||||||
|
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
|
||||||||||||||
|
Others
(2)
|
301,673
|
9,064
|
9,686
|
69,459
|
8,155
|
(275,903
|
)
|
122,134
|
||||||||||||||
|
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
|
)
|
—
|
||||||||||||||
|
Others
(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
|
136,966
|
131,149
|
43,135
|
502,843
|
||||||||||||||||
|
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
|
||||||||||||||||
|
Others
(2)
|
72,192
|
7,160
|
9,686
|
33,096
|
—
|
122,134
|
||||||||||||||||
|
Total
|
164,820
|
128,541
|
323,249
|
308,215
|
118,061
|
1,042,886
|
||||||||||||||||
| (1) |
In
all tables in the segment information this region 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 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,
2006, 2005 and 2004 (continued)
|
|
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$
|
||||||||||||||||
|
Total
sales:
|
||||||||||||||||||||||
|
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
|
||||||||||||||
|
Others
|
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
|
)
|
—
|
||||||||||||||
|
Others
|
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
|
|||||||||||||||
|
Others
|
61,427
|
6,456
|
6,519
|
32,801
|
17
|
—
|
107,220
|
|||||||||||||||
|
Total
|
156,086
|
128,187
|
258,296
|
270,007
|
83,394
|
—
|
895,970
|
|||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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,
2006, 2005 and 2004 (continued)
|
|
Year
ended December 31, 2004
|
Chile
|
Latin
America and Caribbean
|
Europe
|
North
America
|
Asia
and
other
|
Eliminations
|
Total
|
|||||||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||||||||
|
Total
sales:
|
||||||||||||||||||||||
|
Specialty
plant nutrition
|
131,090
|
95,162
|
258,149
|
171,130
|
17,929
|
(244,723
|
)
|
428,737
|
||||||||||||||
|
Iodine
and derivatives
|
58,479
|
6,505
|
69,705
|
80,398
|
42,460
|
(147,052
|
)
|
110,495
|
||||||||||||||
|
Lithium
and derivatives
|
736
|
397
|
50,245
|
26,124
|
32,699
|
(47,579
|
)
|
62,622
|
||||||||||||||
|
Industrial
chemicals
|
2,238
|
13,351
|
82,806
|
77,997
|
309
|
(109,851
|
)
|
66,850
|
||||||||||||||
|
Others
|
168,596
|
6,882
|
12,968
|
53,716
|
102
|
(122,452
|
)
|
119,812
|
||||||||||||||
|
Total
|
361,139
|
122,297
|
473,873
|
409,365
|
93,499
|
(671,657
|
)
|
788,516
|
||||||||||||||
|
Transfers
between geographic areas:
|
||||||||||||||||||||||
|
Specialty
plant nutrition
|
50,672
|
6,091
|
129,098
|
58,488
|
374
|
(244,723
|
)
|
—
|
||||||||||||||
|
Iodine
and derivatives
|
57,851
|
47
|
31,842
|
36,918
|
20,394
|
(147,052
|
)
|
—
|
||||||||||||||
|
Lithium
and derivatives
|
303
|
—
|
24,209
|
7,336
|
15,731
|
(47,579
|
)
|
—
|
||||||||||||||
|
Industrial
chemicals
|
1,450
|
3,436
|
54,690
|
50,098
|
177
|
(109,851
|
)
|
—
|
||||||||||||||
|
Others
|
92,017
|
1,657
|
5,746
|
23,019
|
13
|
(122,452
|
)
|
—
|
||||||||||||||
|
Total
|
202,293
|
11,231
|
245,585
|
175,859
|
36,689
|
(671,657
|
)
|
—
|
||||||||||||||
|
Sales
to unaffiliated customers:
|
||||||||||||||||||||||
|
Specialty
plant nutrition
|
80,418
|
89,071
|
129,051
|
112,642
|
17,555
|
—
|
428,737
|
|||||||||||||||
|
Iodine
and derivatives
|
628
|
6,458
|
37,863
|
43,480
|
22,066
|
—
|
110,495
|
|||||||||||||||
|
Lithium
and derivatives
|
433
|
397
|
26,036
|
18,788
|
16,968
|
—
|
62,622
|
|||||||||||||||
|
Industrial
chemicals
|
788
|
9,915
|
28,116
|
27,899
|
132
|
—
|
66,850
|
|||||||||||||||
|
Others
|
76,579
|
5,225
|
7,222
|
30,697
|
89
|
—
|
119,812
|
|||||||||||||||
|
Total
|
158,846
|
111,066
|
228,288
|
233,506
|
56,810
|
—
|
788,516
|
|||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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, 2006,
2005
and 2004:
|
|
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 assetslong
|
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
|
|||||||||||||||
|
(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, 2006, 2005
and
2004:
|
|
Location:
|
Products:
|
|
|
Pedro
de Valdivia
|
Nitrate,
sulfate and iodine production
|
|
|
María
Elena
|
Nitrate,
sulfate and iodine production
|
|
|
Coya
Sur
|
Nitrate,
sulfate 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, Boron
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
hold 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 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, 2006,
2005
and 2004:
|
|
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
|
—
|
—
|
24,641
|
7,289
|
—
|
33,407
|
|||||||||||||||
|
Sub-total
production facilities
|
615,647
|
—
|
—
|
24,641
|
7,289
|
—
|
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 assetslong
|
2,350,436
|
71,795
|
23,610
|
86,916
|
7,526
|
(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 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, 2006,
2005
and 2004:
|
|
As
of and for the year ended December 31, 2004
|
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
|
45,320
|
—
|
—
|
—
|
—
|
—
|
45,320
|
|||||||||||||||
|
María
Elena
|
101,420
|
—
|
—
|
—
|
—
|
—
|
101,420
|
|||||||||||||||
|
Coya
Sur
|
46,210
|
—
|
—
|
—
|
—
|
—
|
46,210
|
|||||||||||||||
|
Pampa
Blanca
|
1,480
|
—
|
—
|
—
|
—
|
—
|
1,480
|
|||||||||||||||
|
Nueva
Victoria
|
25,330
|
—
|
—
|
—
|
—
|
—
|
25,330
|
|||||||||||||||
|
Salar
de Atacama
|
244,450
|
—
|
—
|
—
|
—
|
—
|
244,450
|
|||||||||||||||
|
Salar
del Carmen
|
39,130
|
—
|
—
|
—
|
—
|
—
|
39,130
|
|||||||||||||||
|
Others
|
2,038
|
—
|
—
|
26,318
|
—
|
—
|
28,356
|
|||||||||||||||
|
Sub-total
production facilities
|
505,378
|
—
|
—
|
26,318
|
—
|
—
|
531,696
|
|||||||||||||||
|
Port
facility
|
21,146
|
—
|
—
|
—
|
—
|
—
|
21,146
|
|||||||||||||||
|
Other
property, plant and equipment
|
126,683
|
—
|
—
|
—
|
—
|
—
|
126,683
|
|||||||||||||||
|
Assets
of commercial locations
|
6,372
|
5,849
|
1,433
|
9,650
|
228
|
(7,140
|
)
|
16,392
|
||||||||||||||
|
Investments
in related companies
|
897,291
|
9,515
|
9,941
|
58,032
|
—
|
(958,792
|
)
|
15,987
|
||||||||||||||
|
Goodwill(3)
|
16,952
|
177
|
341
|
—
|
—
|
—
|
17,470
|
|||||||||||||||
|
Other
non-current assets(3)
|
913,464
|
—
|
—
|
1,940
|
—
|
(858,856
|
)
|
56,548
|
||||||||||||||
|
Total
long-lived assetslong
|
2,487,286
|
15,541
|
11,715
|
95,940
|
228
|
(1,824,788
|
)
|
785,922
|
||||||||||||||
|
Expenditures
on long-lived assets
|
87,309
|
132
|
2,488
|
616
|
13
|
—
|
90,558
|
|||||||||||||||
|
Export
by region
|
—
|
102,266
|
171,861
|
142,970
|
43,124
|
—
|
460,221
|
|||||||||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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’ Chilean GAAP
carrying amount and estimated fair value:
|
As
of December 31,
|
|||||||||||||
|
2006
|
2005
|
||||||||||||
|
US
GAAP
Carrying
Amount
|
Estimated
Fair
Value
|
US
GAAP
Carrying
Amount
|
Estimated
Fair
Value
|
||||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||||
|
Assets:
|
|||||||||||||
|
Cash
and cash equivalents
|
183,943
|
183,943
|
147,956
|
147,956
|
|||||||||
|
Short-term
accounts receivable
|
247,650
|
247,650
|
222,032
|
222,032
|
|||||||||
|
Long-term
accounts receivable
|
2,388
|
2,388
|
2,379
|
2,379
|
|||||||||
|
Derivative
instruments
|
5,498
|
5,498
|
—
|
—
|
|||||||||
|
Liabilities:
|
|||||||||||||
|
Short-term
bank debt
|
58,350
|
58,350
|
85,022
|
85,022
|
|||||||||
|
Short-term
notes and accounts payable
|
87,164
|
87,164
|
78,990
|
78,990
|
|||||||||
|
Derivative
instruments
|
219
|
219
|
163
|
163
|
|||||||||
|
Current
and long-term portions of long-term bank debt
|
484,981
|
495,761
|
304,881
|
304,835
|
|||||||||
|
Long-term
other accounts payable
|
849
|
849
|
1,065
|
1,065
|
|||||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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$1.3 million for the year ended December 31, 2002.
Assumptions
used in determining the actuarial present value of the projected benefit
obligation as of December 31 are as follows:
|
2006
|
2005
|
||||||
|
Weighted-average
discount rate
|
7.0%
|
|
7.5%
|
|
|||
|
Rate
of increase in compensation levels
|
0.0%
|
|
0.0%
|
|
|||
|
Long-term
rate of return on plan assets
|
8.5%
|
|
8.5%
|
|
|||
The
long-term rate of return on assets was determined based upon past investment
experience and the expectation for future experience.
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| m) |
Post-retirement
obligations and staff severance indemnities
(continued)
|
The
following table sets forth the plan’s funded status and amounts recognized in
the consolidated balance sheet as of December 31:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Change
in benefit obligation:
|
||||||||||
|
Benefit
obligation at beginning of year
|
5,184
|
5,080
|
4,831
|
|||||||
|
Service
cost
|
17
|
16
|
15
|
|||||||
|
Interest
cost
|
381
|
369
|
362
|
|||||||
|
Actuarial
loss
|
359
|
(37
|
)
|
115
|
||||||
|
Benefits
paid
|
(245
|
)
|
(244
|
)
|
(243
|
)
|
||||
|
Benefit
obligation at end of the year
|
5,696
|
5,184
|
5,080
|
|||||||
|
Change
in plan assets:
|
||||||||||
|
Fair
value of plan assets at beginning of year
|
5,223
|
4,967
|
4,713
|
|||||||
|
Employer
contributions
|
18
|
—
|
82
|
|||||||
|
Actual
return (loss) on plan assets
|
625
|
500
|
414
|
|||||||
|
Benefits
paid
|
(245
|
)
|
(244
|
)
|
(243
|
)
|
||||
|
Fair
value of plan assets at end of year
|
5,621
|
5,223
|
4,966
|
|||||||
|
Funded
status
|
(75
|
)
|
39
|
(114
|
)
|
|||||
|
Unrecognized
transitional asset
|
—
|
—
|
||||||||
|
Unrecognized
net actuarial loss
|
1,133
|
1,133
|
1,165
|
|||||||
|
Adjustment
to recognize minimum pension liability
|
(1,208
|
)
|
(1,094
|
)
|
(1,279
|
)
|
||||
|
Accrued
pension (liability)/ prepaid pension cost
|
(75
|
)
|
39
|
(114
|
)
|
|||||
Net
periodic pension expense was comprised of the following components for the
years
ended December 31, 2004, 2005 and 2006:
|
2006
|
2005
|
2004
|
||||||||
|
ThUS$
|
ThUS$
|
ThUS$
|
||||||||
|
Service
cost or benefits earned during the period
|
17
|
16
|
15
|
|||||||
|
Interest
cost on benefit obligation
|
381
|
369
|
362
|
|||||||
|
Actual
return on plan assets
|
(625
|
)
|
(500
|
)
|
(414
|
)
|
||||
|
Amortization
of unrecognized transitional asset
|
—
|
—
|
—
|
|||||||
|
Other
|
236
|
147
|
91
|
|||||||
|
Net
periodic pension expense
|
9
|
32
|
54
|
|||||||
Sociedad
Química y Minera de Chile S.A. and Subsidiaries
Notes
to the Audited Consolidated Financial Statements
(Expressed
in thousands 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:
|
2006
|
2005
|
||||||
|
Growth
securities
|
53
|
%
|
68
|
%
|
|||
|
Treasury
securities
|
—
|
1
|
%
|
||||
|
International
securities
|
21
|
%
|
15
|
%
|
|||
|
Growth
& income securities
|
25
|
%
|
15
|
%
|
|||
|
Money
market funds
|
1
|
%
|
1
|
%
|
|||
|
Total
|
100
|
%
|
100
|
%
|
|||
The
transition liability (asset) re-established on January 1, 1992 is being
amortized in level amounts over 11.66 years. As of January 1, 2003, the
transition asset has been fully amortized.
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, 2006 the pension plan benefits expected to be paid in the future
are as follows:
|
ThUS$
|
||||
|
2007
|
253
|
|||
|
2008
|
274
|
|||
|
2009
|
340
|
|||
|
2010
|
356
|
|||
|
2011
|
396
|
|||
|
Years
2012-2015
|
2,504
|
|||
| 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 US dollars, except as stated)
Note
29 - Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)
| o) |
Restricted
assets
|
The
amount of consolidated retained earnings that represents undistributed earnings
of 50% or less investees accounted for by the equity method amounts to ThUS$
1,494, as of December 31, 2006.
| p) |
Recently
issued accounting
pronouncements
|
FIN
48 “Accounting for Uncertainty in Income Taxes”
In
July
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting
for Uncertainty in Income Taxes”.
FIN 48
is an interpretation of SFAS No. 109, “Accounting
for Income Taxes,”
and
seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes. FIN 48 clarifies
the
accounting for income taxes by prescribing a minimum threshold a tax position
is
required to meet before being recognized in the financial statements. In
addition, FIN 48 provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods and requires expanded disclosure
with respect to the uncertainty in income taxes. FIN 48 is effective as of
the
beginning of our 2007 fiscal year. The cumulative effect, if any, of applying
FIN 48 is to be reported as an adjustment to the opening balance of retained
earnings in the year of adoption. Management is currently evaluating the effect
of this interpretation on the Company’s results of operations and financial
condition.
F-85