UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the three month period ended on March 31, 2003.
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)
El Trovador 4285, 6th Floor, Santiago, Chile (562) 425-2000
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(Address and phone number of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
---------------- ----------------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No x .
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82
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On May 14, 2003, the Registrant filed with the Superintendencia de Valores y
Seguros of Chile (the "SVS") a report that included information as to the
Registrant's consolidated financial condition and results of operations for the
three-month period ended on March 31, 2003. Attached is a summary of such
consolidated financial information included in the summary and in the report
filed with the Superintendencia de Valores y Seguros of Chile. This financial
information was prepared on the basis of accounting principles generally
accepted in Chile and does not include a reconciliation of such information to
accounting principles generally accepted in the United States of America.
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THIS REPORT IS AN ENGLISH TRANSLATION OF, AND A CHILEAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES PRESENTATION OF, A THREE MONTH PERIOD ENDED MARCH 31, 2003
REPORT FILED WITH THE SUPERINTENDENCIA DE VALORES Y SEGUROS (SVS) IN CHILE, AND
UNLESS OTHERWISE INDICATED, FIGURES ARE IN US DOLLARS.
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Consolidated Financial Statements
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
As of March 31, 2003 and 2002
and for the years ended March 31, 2003 and 2002
(A translation of the original in Spanish- see note 2 (a))
Contents
Consolidated Financial Statements
Consolidated Balance Sheets .............................................. 2
Consolidated Statements of Income......................................... 4
Consolidated Statements of Cash Flows..................................... 5
Notes to the Consolidated Financial Statements ........................... 6
Ch$ - Chilean pesos
ThCh $ - Thousands of Chilean pesos
US$ - United States dollars
ThUS$ - Thousands of United States dollars
UF - 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.
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Consolidated Balance Sheets
(A translation of the original in Spanish- see note 2 (a))
As of March 31,
Note 2003 2002
---- ----
ThUS$ ThUS$
ASSETS
Current assets
Cash 19,035 4,721
Time deposits 11,832 3,712
Marketable securities 4 56,502 106,786
Accounts receivable, net 5 116,216 112,469
Other accounts receivable, net 5 10,349 11,122
Accounts receivable from related companies 6 31,868 39,881
Inventories, net 7 227,435 214,615
Recoverable taxes 12,018 14,525
Prepaid expenses 4,300 3,432
Deferred income taxes 14 -- 849
Other current assets 17,314 15,227
---------- ----------
Total current assets 506,869 527,339
---------- ----------
8 679,034 699,123
Property, plant and equipment, net
---------- ----------
Other Assets
Investments in related companies 9 72,297 77,955
Goodwill, net 10 12,192 13,228
Negative goodwill, net 10 (750) (1,163)
Intangible assets, net 4,920 4,083
Long-term accounts receivable, net 5 8,894 13,092
Long-term accounts receivable from related companies 6 424 825
Other long-term assets 11 49,313 55,967
---------- ----------
Total assets 1,333,193 1,390,449
========== ==========
The accompanying notes form an integral part of these
consolidated financial statements.
2
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Consolidated Balance Sheets
(A translation of the original in Spanish- see note 2 (a))
As of March 31,
Note 2003 2002
---- ----
ThUS$ ThUS$
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank debt 12 2,280 147,518
Current portion of long-term debt 12 17,751 1,652
Dividends payable 147 278
Accounts payable 45,817 38,032
Other accounts payable 2,482 1,141
Notes and accounts payable to related companies 6 12,369 8,044
Accrued liabilities 13 11,500 10,490
Withholdings 2,559 3,678
Income taxes 1,865 420
Deferred income taxes 14 2,291 --
Other current liabilities 1,865 1,193
---------- ----------
Total current liabilities 100,926 212,446
---------- ----------
Long-term liabilities
Long-term bank debt 12 324,000 292,000
Other accounts payable 2,820 3,817
Deferred income taxes 14 15,370 9,075
Staff severance indemnities 15 8,943 8,499
Other long-term liabilities -- 79
---------- ----------
Total long-term liabilities 351,133 313,470
---------- ----------
Minority interest 16 22,924 23,733
---------- ----------
Shareholders' equity
Paid-in capital 17 477,386 477,386
Other reserves 17 123,954 130,694
Retained earnings 17 256,870 232,720
---------- ----------
858,210 840,800
Total shareholders' equity
---------- ----------
Total liabilities and shareholders' equity 1,333,193 1,390,449
========== ==========
The accompanying notes form an integral part of these
consolidated financial statements.
3
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Consolidated Statements of Income
(A translation of the original in Spanish- see note 2 (a))
For the years ended
March 31,
Note 2003 2002
---- ----
ThUS$ ThUS$
Operating results
Sales 151,521 117,426
Cost of sales (121,792) (91,252)
---------- ----------
Gross margin 29,729 26,174
Selling and administrative expenses (10,940) (9,374)
---------- ----------
Operating income 18,789 16,800
---------- ----------
Non-operating results
Non-operating income 19 6,442 5,546
Non-operating expenses 19 (10,161) (10,633)
---------- ----------
Non-operating loss (3,719) (5,087)
---------- ----------
Income before income taxes 15,070 11,713
Income tax expense 14 (3,863) (1,772)
---------- ----------
Income before minority interest 11,207 9,941
Minority interest 16 (506) (484)
---------- ----------
Net income before extraordinary items and negative goodwill 10,701 9,457
Amortization of negative goodwill 103 103
---------- ----------
Net income for the year 10,804 9,560
========== ==========
The accompanying notes form an integral part of these
consolidated financial statements.
4
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Consolidated Statements of Cash Flows
(A translation of the original in Spanish- see note 2 (a))
Year Ended March 31
2003 2002
---- ----
ThUS$ ThUS$
Cash flows from operating activities
Net income for the year 10,804 9,560
Charges (credits) to income not representing cash flows
Depreciation expense 14,752 15,707
Amortization of intangible assets 71 47
Write-offs and accruals 6,864 1,803
Gain on equity investments in related companies (2,353) (1,543)
Loss on equity investments in related companies -- 152
Amortization of goodwill 245 283
Amortization of negative goodwill (103) (103)
Loss on sales of assets 8 (6)
Other credits to income not representing cash flows (2,864) (1,221)
Other charges to income not representing cash flows 8,860 3,995
Net changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (12,420) 476
Decrease (increase) in inventories 10,903 (5,240)
Increase in other assets (195) (861)
(Increase) decrease in accounts payable (2,057) 6,649
Increase in interest payable (4,892) (6,584)
Increase in net income taxes payable (1,104) (1,451)
Decrease in other accounts payable 1,272 217
Decrease in VAT and taxes payable 2,742 630
Minority interest 506 484
---------- ----------
Net cash provided from operating activities 31,039 22,994
---------- ----------
Cash flows from financing activities
Payment of dividends (311) (72)
Repayment of bank financing (2,126) (33,300)
---------- ----------
Net cash used in from financing activities (2,437) (33,372)
---------- ----------
Cash flows from investing activities
Sales of property, plant and equipment 49 4
Sales of investments 417 5,356
Other income 5,759 342
Additions to property, plant and equipment (8,552) (5,146)
Capitalized interest (790) (490)
Purchase of permanent investments (1,970) (4,848)
Other disbursements (1,331) --
---------- ----------
Net cash used in investing activities (6,418) (4,782)
---------- ----------
Effect of inflation on cash and cash equivalents (144) 92
---------- ----------
Net change in cash and cash equivalents 22,184 (15,160)
Beginning balance of cash and cash equivalents 65,204 121,536
---------- ----------
Ending balance of cash and cash equivalents 87,244 106,468
========== ==========
The accompanying notes form an integral part of these
consolidated financial statements.
5
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Notes to the Consolidated Financial Statements
(A translation of the original in Spanish- see note 2 (a))
Note 1 - Company Background
Sociedad Quimica y Minera de Chile S.A. (the "Company") was registered with the
Chilean Superintendency of Securities and Insurance ("SVS") on March 18, 1983.
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 U.S. dollars in accordance with accounting principles generally
accepted in Chile ("Chilean GAAP") and the regulations of the SVS. For
the convenience of the reader, the consolidated financial statements
and their accompanying notes have been translated from Spanish into
English. Certain accounting practices applied by the Company that
conform with Chilean GAAP may not conform with generally accepted
accounting principles in the United States ("US GAAP")
The consolidated financial statements include the accounts of Sociedad
Quimica y Minera de Chile S.A. (the "Parent Company") and subsidiaries
(companies in which the Parent Company holds a controlling
participation, generally equal to direct or indirect ownership of more
than 50%). The Parent Company and its subsidiaries are referred to as
the "Company".
The preparation of financial statements 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.
In accordance with regulations set forth by the SVS in its Circular No.
368 and Technical Bulletins Nos. 42 and 64 of the Chilean Association
of Accountants, the consolidated financial statements include the
following subsidiaries:
6
Note 2 - Summary of Significant Accounting Policies (continued)
a) Basis for the preparation of the consolidated financial statements
(continued)
Direct or indirect ownership
2003 2002
---- ----
Foreign subsidiaries: % %
Nitrate Corporation of Chile Limited (United Kingdom) 100.00 100.00
Soquimich SRL - Argentina 100.00 100.00
Nitratos Naturais do Chile Ltda. (Brazil) 100.00 100.00
SQM Europe NV (Belgium) 100.00 100.00
SQM North America Corp. (USA) 100.00 100.00
North American Trading Company (USA) 100.00 100.00
SQM Peru S.A. 100.00 100.00
SQM Corporation NV (Holland) 100.00 100.00
S.Q.I. Corporation NV (Holland) 100.00 100.00
Soquimich European Holding BV (Holland) 100.00 100.00
PTM - SQM Iberica S.A. (Spain) 100.00 100.00
SQMC Holding Corporation LLP (USA) 100.00 100.00
SQM Ecuador S.A. 100.00 100.00
Cape Fear Bulk LLC (USA) 51.00 51.00
SQM Colombia Ltda. 100.00 100.00
SQM Investment Corporation NV (Holland) 100.00 100.00
PSH Limited (Cayman Islands) 100.00 100.00
SQM Brasil Ltda. 100.00 99.99
Royal Seed Trading Corporation AVV (Aruba) 100.00 100.00
SQM Japan K.K. 100.00 100.00
SQM Oceania PTY Limited (Australia) 100.00 100.00
SQM France S.A. 100.00 100.00
Fertilizantes Naturales S.A. (Spain) 50.00 50.00
Rs Agro-Chemical Trading AVV (Aruba) 100.00 100.00
SQM Comercial de Mexico S.A. de C.V. 100.00 100.00
SQM Indonesia 80.00 80.00
SQM Virginia LLC (USA) 100.00 100.00
Agricolima S.A. De C.V. (Mexico) 100.00 100.00
SQM Venezuela S.A. 100.00 100.00
SQM Italia SRL (Italy) 95.00 -
Comercial Caiman Internacional S.A. (Cayman Islands) 100.00 -
Fertilizantes Olmega y SQM S.A. De C.V. (Mexico) 100.00 -
Mineag SQM Africa Limited 100.00 -
7
Note 2 - Summary of Significant Accounting Policies (continued)
a) Basis for the preparation of the consolidated financial statements
(continued)
Direct or indirect ownership
2003 2002
---- ----
% %
Domestic subsidiaries:
Servicios Integrales de Transitos y Transferencias S.A. 100.00 100.00
Cia. Industrial y Minera S.A. - 100.00
Soquimich Comercial S.A. 60.64 60.64
Sociedad Minera de Chile S.A. - 100.00
Energia y Servicios S.A. 100.00 100.00
Isapre Norte Grande Ltda. 100.00 100.00
Almacenes y Depositos Ltda. 100.00 100.00
SQM Quimicos S.A. - 99.99
Ajay SQM Chile S.A. 51.00 51.00
SQM Nitratos S.A. 99.99 100.00
Proinsa Ltda. 60.58 60.58
SQM Potasio S.A. 100.00 100.00
SQMC International Limitada 60.64 60.64
SQM Salar S.A. 100.00 100.00
SCM SQM Boratos - 100.00
All significant inter-company balances, transactions and unrealized
gains and losses arising from transactions between these companies have
been eliminated in consolidation.
As the Company exerts control over the subsidiary Fertilizantes
Naturales S.A. it has been included in the consolidation for the years
ended March 31, 2003 and 2002.
At March 31, 2003 and 2002, the subsidiary Lithium Specialties LLP were
in the development stage and therefore were not included in the
consolidation.
At March 31, 2002, the subsidiary SCM Antucoya were in the development
stage and therefore were not included in the consolidation.
8
Note 2 - Summary of Significant Accounting Policies (continued)
b) Period
These consolidated financial statements have been prepared as of March
31, 2003 and 2002 and for the years then ended.
c) Reporting currency and monetary correction
The financial statements of the Company are prepared in U.S. dollars.
As a significant portion of the Company's operations are transacted in
U.S. dollars, the U.S. dollar is considered the currency of the primary
economic environment in which the Company operates.
The Parent Company and those subsidiaries which maintain their
accounting records in U.S. dollars are not required, or permitted, to
restate the historical dollar amounts for the effects of inflation.
The financial statements of domestic subsidiaries, which 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 period. 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 periods -end constant
pesos based on the change in the consumer price index during the period
(0,5% and -0,4% in 2003 and 2002, 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-U.S. dollar denominated
monetary assets and liabilities exposed to the effects of inflation.
Prior period financial statements presented for comparative purposes
have not been restated to reflect the change in the purchasing power of
the Chilean pesos during the most recent year-end. In accordance with
Chilean GAAP, amounts expressed in U.S. dollars, including amounts
included in the consolidated financial statements as determined in
prior years from the translation of financial statements of those
Chilean subsidiaries which maintain their accounting records in Chilean
pesos, are not adjusted for price-level changes.
9
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 U.S. dollars at the observed exchange
rates determined by the Central Bank of Chile in effect at each year-end of
Ch$655,90 per US$1 at March 31, 2002 and Ch$731,56 per US$ at March 31, 2003.
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 U.S. dollars are translated from the
respective local currencies to U.S. dollars in accordance with
Technical Bulletin No. 64 of the Chilean Association of
Accountants ("BT 64") as follows:
a) 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 U.S. dollars at
the year-end exchange rate without eliminating the
effects of price-level restatement.
- Income statement accounts are translated to U.S. 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 U.S. 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. 368 of the SVS.
10
Note 2 - Summary of Significant Accounting Policies (continued)
b) The financial statements of those foreign subsidiaries that
keep their accounting records in currencies other than U.S.
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 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.
d) Foreign currency (continued)
Foreign exchange differences for the years ended March 31, 2003 and
2002 generated net earnings of ThUS$ 2,377 and ThUS$ 330, 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 U.S. dollars at the exchange rates per US dollar prevailing at
March 31, as follows:
2003 2002
---- ----
Brazilian Real 3.38 2.32
New Peruvian Sol 3.09 3.45
Colombian Peso 2,958.25 2,262.44
Argentine Peso 2.98 3.00
Japanese Yen 120.20 133.25
Sucre Ecuador 1.00 1.00
Euro 0.92 1.14
Mexican Peso 10.67 9.02
Indonesian Rupee 8,940 10,400
Australian Dollar 1.92 1.87
Pound Sterling 0.63 0.69
Ran 8.25 -
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.
11
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.
f) Time Deposits
Time deposits are recorded at cost plus accrued interest.
g) Marketable securities
Marketable securities are recorded at the lower of cost plus accrued
interest or market value.
h) Allowance for doubtful accounts
The Company records an allowance for doubtful accounts based on
estimated probable losses.
i) Inventories and materials
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. All such 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 which the Company
estimates to have a turnover period of one year or more, which are
classified as other long-term assets.
j) Income taxes and deferred income taxes
Prior to 2000, income taxes were charged to results in the same period
in which the income and expenses were recorded and were calculated in
accordance with the enacted tax laws in Chile and the other
jurisdictions in which the Company operated.
12
Note 2 - Summary of Significant Accounting Policies (continued)
j) Income and deferred taxes (continued)
Under Chilean law, the Parent Company and its subsidiaries are required
to file separate tax declarations.
Beginning January 1, 2000, the Company records deferred income taxes in
accordance with Technical Bulletin Nos. 60, 68 and 71 of the Chilean
Association of Accountants, and with Circular No. 1466 issued on
January 27, 2000 by the SVS, recognizing the deferred tax effects of
temporary differences between the financial and tax values of assets
and liabilities, using the liability method.
The effect of the temporary differences at December 31, 1999 were
recorded in complementary asset and liability accounts, which are recognized in
the statement of operations over the estimated period in which they reverse.
k) Property, plant and equipment
Property, plant, equipment and property rights are recorded at cost,
except for certain assets that were restated according to a technical
appraisal in 1988. Depreciation expense has been calculated using the
straight-line method based upon the estimated useful lives of the
assets and is charged directly to expense.
Fixed assets acquired through financing 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 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. Other than minor filing fees, the property rights are
usually obtained without initial cost, and once obtained, are retained
perpetually by the Company as long as the annual fees are paid. Such
fees, which are paid annually in March, are recorded as prepaid assets
to be amortized over the following twelve months. Values attributable
to these original mining concessions are recorded in property, plant
and equipment and are being amortized on a straight-line basis over 50
years.
13
Note 2 - Summary of Significant Accounting Policies (continued)
l) 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. Accordingly, the Company's proportional
share in the net income or loss of each investee is recognized in the
non-operating income and expense classification in the consolidated
statements of income on an accrual basis, after eliminating any
unrealized profits from transactions with the related companies.
The translation adjustment to U.S. dollars of investments in domestic
subsidiaries, which maintain their accounting records and are
controlled in Chilean pesos is recognized in the other reserves
component of stockholders' equity. Direct and indirect investments in
foreign subsidiaries or affiliates are controlled in U.S. dollars.
m) Goodwill and negative goodwill
Goodwill is calculated as the excess of the purchase price of companies
acquired over their net book value, whereas negative goodwill occurs
when the net book value exceeds the purchase price of companies
acquired. Goodwill and negative goodwill resulting from equity method
investments are maintained in the same currency in which the investment
was made and are amortized based on the estimated period of investment
return, generally 20 and 10 years for goodwill and negative goodwill,
respectively.
n) Intangible assets
Intangible assets are stated at cost plus acquisition expenses and are
amortized over a period of up to a maximum of 40 years, in accordance
with Technical Bulletin No. 55 of the Chilean Association of
Accountants.
o) Mining development cost
Mining development costs are recorded in other long-term assets and are
amortized utilizing the unit of production basis.
p) Accrued employee severance
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 assuming an average employee tenure of 24 years and a
real annual discount rate of 9%.
14
Note 2 - Summary of Significant Accounting Policies (continued)
q) Vacations
The cost of employee vacations is recognized in the financial
statements on an accrual basis.
r) Dividends
Dividends are generally declared in U.S. 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 recorded at fair value with net losses recognized on the
accrual basis and gains recognized when realized.
t) Reclassifications
Certain reclassifications have been made in the 2002 and 2003 numbers
to conform to the current year presentation.
u) 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.
v) Computer software
In accordance with Circular No. 981 dated March 28, 1990 of the SVS,
computer systems acquired by the Company are recorded at cost.
w) Research and development expenses
Research and development cost are charged to the income statement in
the period in which they are incurred. Fixed assets which are acquired
for their use in research and development activities and are determined
to provide additional benefits to the Company are recorded under the
relevant item within property, plant and equipment.
15
Note 3 - Changes in Accounting Principles
There were no changes in the accounting principles used by the Company during
2003 and 2002.
Note 4 - Marketable Securities
As of March 31 marketable securities are detailed as follows:
2003 2002
---------- ----------
ThUS$ ThUS$
Mutual funds 56,502 97,502
Instruments fixed revenued -- 9,284
---------- ----------
Total 56,502 106,786
========== ==========
Note 5 - Short-term and long-term Accounts Receivable
a) Short term accounts receivable and other accounts receivable as of
March 31 are detailed as follows:
Between 90 days Total
Up to 90 days and 1 year 2003 Short-term (net)
2003 2002 2003 2002 Subtotal 2003 2002
---- ---- ---- ---- -------- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Trade accounts receivable 94,266 89,571 12,261 9,482 106,527 101,198 94,255
Allowance for doubtful accounts (5,329)
Notes receivable 15,621 17,084 1,584 755 17,205 15,018 18,214
Allowance for doubtful accounts (2,187)
------------ ----------
Accounts receivable, net 116,216 112,469
============ ==========
Other accounts receivable 9,477 3,039 1,660 2,073 11,137 10,349 11,122
Allowance for doubtful accounts (788)
------------ ----------
Other accounts receivable, net 10,349 11,122
============ ==========
16
Note 5 - Short-term and Long-term Accounts Receivable (continued)
Consolidated Short-term and Long-term Receivables - by Geographic Location
Europe, Africa and Asia and
Chile the Middle East Oceania
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
-------------------------------------------------------------------------------
Net short-term trade accounts receivable
Balance 16,493 20,204 29,721 20,405 2,666 3,223
% of total 16.30% 21.44% 29.37% 21.65% 2.63% 3.42%
Net short-term notes receivable
Balance 11,989 14,720 676 733 4 390
% of total 79.83% 80.82% 4.50% 4.02% 0.03% 2.14%
Net short-term other accounts receivable
Balance 5,563 8,381 805 1,058 65 4
% of total 53.75% 75.36% 7.78% 9.51% 0.63% 0.04%
-------------------------------------------------------------------------------
Subtotal short-term accounts receivable, net
Balance 34,045 43,305 31,202 22,196 2,735 3,617
% of total 26.90% 35.04% 24.65% 17.96% 2.16% 2.93%
Long-term accounts receivable, net
Balance 7,786 12,046 65 3 - -
% of total 87.54% 92.01% 0.73% 0.02% - -
-------------------------------------------------------------------------------
Total short and long-term accounts receivable, net
Balance 41,831 55,351 31,267 22,199 2,735 3,617
% of total 30.88% 40.50% 23.08% 16.24% 2.02% 2.65%
===============================================================================
USA, Mexico Latin America
and Canada and the Caribbean Total
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
-------------------------------------------------------------------------------
Net short-term trade accounts receivable
Balance 31,906 28,341 20,412 22,082 101,198 94,255
% of total 31.54% 30.06% 20.16% 23.43% 100% 100%
Net short-term notes receivable
Balance 741 775 1,608 1,596 15,018 18,214
% of total 4.94% 4.26% 10.70% 8.76% 100% 100%
Net short-term other accounts receivable
Balance 3,535 1,274 381 405 10,349 11,122
% of total 34.15% 11.45% 3.69% 3.64% 100% 100%
-------------------------------------------------------------------------------
Subtotal short-term accounts receivable, net
Balance 36,182 30,390 22,401 24,083 126,565 123,591
% of total 28.59% 24.58% 17.70% 19.49% 100% 100%
Long-term accounts receivable, net
Balance - 1,043 1,043 8,894 13,092
% of total - 11.73% 7.97% 100% 100%
-------------------------------------------------------------------------------
Total short and long-term accounts receivable, net
Balance 36,182 30,390 23,444 25,126 135,459 136,683
% of total 26.72% 22.23% 17.30% 18.38% 100% 100%
===============================================================================
17
Note 6 - 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 which are similar to those
offered to unrelated third parties.
a) Amounts included in balances with related parties as of March 31, 2003
and 2002 are as follows:
----------------------------------------------------------------------------------------------------------------------------------
Short-term Long-term
2003 2002 2003 2002
---- ---- ---- ----
Accounts receivable ThUS$ ThUS$ ThUS$ ThUS$
----------------------------------------------------------------------------------------------------------------------------------
Ajay Europe S.A.R.L. 6,408 3,364 - -
SQM Italia S.R.L. - 6,171 - -
Nutrisi Holding N.V. 2,443 706 - -
Generale de Nutrition Vegetale S.A. 169 162 - -
Fertilizantes Olmeca S.A. - 3,336 - -
Mineag SQM Africa Limited - 3,768 - -
Abu Dhabi Fertilizer Ind. WLL 4,602 4,047 - -
NU3 N.V. 2,913 3,786 - -
Doktor Tarsa -SQM Turkey 360 873 - -
Comercial Caiman Internacional S.A. - 3,932 - -
SQM Venezuela S.A. - - - -
SQM Lithium Specialties Limited 1,486 943 - -
Empresas Melon S.A. - - 424 825
Sales de Magnesio S.A. 17 25 - -
Ajay North America LLC 243 355 - -
Norsk Hydro ASA 30 33 - -
Hydro Agri Int.-France 858 59 - -
Hydro Asia Trade 711 1,732 - -
Hydro Agri France S.A. 1,258 590 - -
Hydro Poland SP 246 65 - -
Hydro Agri Benelux B.V 899 552 - -
Hydro Agri Hellas S.A. 112 414 - -
Hydro Agri Australia Ltd. 203 75 - -
Hydro Agri UK Ltd.. 206 358 - -
Hydro Agri GMBH & CO KG 200 73 - -
Hydro Agri AB 63 16 - -
Hydro Agri Colombia 1,037 - - -
PCS Yumbes - 2,424 - -
Hydro Agri Venezuela 517 - - -
NU3 B.V. 804 555 - -
Hydro Agri Argentina 91 - - -
Adubo Trevo S.A. 1,401 48 - -
SQM China 75 - - -
Hydro Plant Nutr. OSLO 92 93 - -
Hydro Agri Benelux - 531 - -
Hydro Agri Int-France-Issoudun 25 30 - -
Hydro Agri Int-France-Nanterre - 5 - -
Hydro Czech Republic - 8 - -
Hydro Fertilizantes Ltda. - 348 - -
Hydro Agricola Internacional - 404 - -
Hydro Agri Europe 12 - - -
Impronta SRI 4,337 - - -
Nutrichem Benelux 28 - - -
Rotem Amferet Negev Ltd. 22 - - -
---------- --------- --------- ----------
Total 31,868 39,881 424 825
========== ========= ========= ==========
18
Note 6 - Balances and Transactions with Related Parties (continued)
a) Amounts included in balances with related parties as of March 31, 2003
and 2002, continued:
Short-term
2003 2002
---- ----
ThUS$ ThUS$
Accounts payable
Ajay Europe S.A.R.L 966 385
Adm. y Servicios Santiago S.A. de C.V 104 104
Mineag SQM Africa Limited - 43
Abu Dhabi Fertilizar Ind. WLL 90 54
NU3 N.V 1,233 1,776
SCM Antucoya - 100
Rotem Amfert Negev Limited 1,372 1,380
Hydro Agri Porsgrunn 7 285
Hydro Agricola internacional 1 -
Hydro Agri North America 122 65
Hydro Agri Mexico de S.A de C.V 10 3,714
Hydro Agri Int - France 454 19
Hydro Agri France 7 -
NU3 B.V 224 60
Hydro Fertilizante Ltda 1,380 -
FNC Italy S.R.L - 10
Hydro Agri Benelux - 49
PCS Yumbes 6,399 -
---------- ----------
Total 12,369 8,044
========== ==========
There were no outstanding long-term accounts payable with related
parties as of March 31, 2003 and 2002
19
Note 6 - Balances and Transactions with Related Parties (continued)
b) During 2003 and 2002, principal transactions with related parties were as
follows:
Amount of Impact on income
Company Relationship Type of transaction Transaction (charge) credit
------- ------------ ------------------- ------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$
SQM Italia SRL Indirect Sales of products - 623 - 228
Fertilizantes Olmeca S.A. de C.V. Indirect Sales of products - 172 - 17
NU3 N.V. (Belgica) Indirect Sales of products 980 294 297 34
Doktor Tarsa Indirect Sales of products 366 697 115 (13)
Mineag SQM Africa Ltd. Indirect Sales of products - 2,386 - 391
Abu Dhabi Fertilizer WLL Indirect Sales of products 1,068 - 203 -
Nutrisi Holding N.V. Indirect Sales of products - 895 - 135
Ajay Europe S.A.R.L. Indirect Sales of products 2,232 1,937 637 421
Sales de Magnesio Ltda. Indirect Sales of products 30 21 13 16
NU3 B.V. Shareholder Sales of products 1,084 - 291 -
Adubo Trevo S.A. Shareholder Sales of products 863 73 301 10
PCS Yumbes SCM Shareholder Sales of products 133 3,405 68 1,719
Purchases of products 4,307 - 1,182 -
20
Note 6 - Balances and Transactions with Related Parties (continued)
Amount of Impact on income
Company Relationship Type of transaction Transaction (charge) credit
------- ------------ ------------------- ------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$
Hydro Agri (U.K) Ltd. Shareholder Sales of product 227 356 53 49
Hydro Asia trade Pte Ltd. Shareholder Sales of product 1,479 1,952 348 271
Hydro Agri France S.A. Shareholder Sales of product 1,568 1,067 391 148
Hydro Agri Internacional Shareholder Sales of product - 1,447 - 201
Hydro Agri Hellas S.A. Shareholder Sales of product 91 944 26 131
Hydro Agri Benelux B.V. Shareholder Sales of product 1,905 2,109 365 293
Hydro Agri AB Sweden Shareholder Sales of product 263 8 80 1
Hydro Agri Czech Republic SRO Shareholder Sales of product - 16 - 2
Hydro Planta Nutrition, Cis Reg. Shareholder Sales of product 242 - 99 -
Hydro Agri Nutri Oslo Shareholder Sales of product 92 - 37 -
Hydro Agri Australia Ltd. Shareholder Sales of product 247 - 62 -
Hydro Agri Espana S.A. Shareholder Sales of product 735 - 177 -
Hydro Agri Norge Shareholder Sales of product 11 - 3 -
Hydro Agri Argentina Shareholder Sales of product 99 - 18 -
Hydro Agri Colombia Ltda Shareholder Sales of product 833 - 197 -
Hydro Agri GMBH & CO KG Shareholder Sales of products 252 142 72 20
Norsk Hydro Asa y Filiales Shareholder Sales of products - 119 - 17
Brasil Hydro Fertilizantes Ltda. Shareholder Sales of products - 170 - 24
Note 7 - Inventories
Inventories are summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Finished products 120,224 117,080
Work in process 94,776 86,338
Supplies 12,435 11,197
------- -------
Total 227,435 214,615
======= =======
21
Note 8 - Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Land
Land 13,452 13,453
Mining Concessions 36,373 29,613
--------- ---------
49,825 43,066
--------- ---------
Buildings and infrastructure
Buildings 156,890 157,029
Installations 281,393 279,605
Construction-in-progress 40,744 23,148
Other 915 922
--------- ---------
479,942 460,704
--------- ---------
Machinery and Equipment
Machinery 385,509 382,139
Equipment 100,895 96,773
Project-in-progress 14.523 14.734
Other 14,431 10,472
--------- ---------
515,358 504,118
--------- ---------
Other fixed assets
Tools 8,287 7,746
Furniture and office equipment 18,444 18,467
Project-in-progress 17,280 18,909
Other 630 498
--------- ---------
44,641 45,620
--------- ---------
22
Note 8 - Property, Plant and Equipment (continued)
2003 2002
---- ----
ThUS$ ThUS$
Amounts relating to technical revaluation of fixed assets
Land 8,651 8,651
Buildings and infrastructure 40,610 40,627
Machinery and equipment 12,127 12,126
Other assets 53 53
----------- -----------
61,441 61,457
----------- -----------
Total property, plant and equipment 1,151,207 1,114,965
----------- -----------
Less: Accumulated depreciation
Buildings and infrastructure (166,624) (143,584)
Machinery and equipment (248,814) (218,297)
Other fixed assets (24,970) (23,934)
Technical appraisal (31,765) (30,027)
----------- -----------
Total accumulated depreciation (472,173) (415,842)
----------- -----------
Net property, plant and equipment 679,034 699,123
=========== ===========
2003 2002
Depreciation for the year ended March 31: ThUS$ ThUS$
Buildings and infrastructure 6,131 6,333
Machinery and equipment 7,811 8,507
Other fixed assets 374 427
Technical revaluation 436 440
----------- -----------
Total depreciation 14,752 15,707
=========== ===========
The Company has capitalized assets obtained through leasing, which are included
in other fixed assets and are as follows:
2003 2002
ThUS$ ThUS$
Administrative office buildings 2,081 1,988
Accumulated depreciation (387) (340)
----------- -----------
Total assets in leasing 1,694 1,648
=========== ===========
23
Note 9 - Investments in and Receivables from Related Parties
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 their foreign investments as net investment
hedges.
b) Transactions performed during the year 2003
On January 27, 2003, SQM Comercial de Mexico S.A. de C.V. and SQM Nitratos
S.A. acquired 8,750 shares of the related company Fertilizantes Olmeca y SQM
S.A. de C.V. which represented 50% of its ownership. Consequently,
Fertilizantes Olmeca y SQM S.A. de C.V. became a subsidiary of SQM S.A. This
transaction gave rise to goodwill for the amount of ThUS$279.
Subsequently, SQM Nitratos S.A. acquired from SQM Comercial de Mexico S.A.
de C.V. 8,749 shares in Fertilizantes Olmeca y SQM S.A. de C.V. This
transaction gave rise to no goodwill or negative goodwill.
On January 31, 2003, SQM S.A. acquired shares owned by SQM Nitratos S.A. in
Sociedad Contractual Minera Antucoya for an amount of ThUS$ 100. This gave
rise to the ownership of all the shares of SCM Antucoya in just one
shareholder. Consequently, this transaction resulted in the legal and
immediate liquidation of SCM Antucoya and the acquisition by SQM S.A. of all
this company's equity, assets and liabilities.
On March 30, 2003, Fertilizantes Olmeca y SQM S.A. de C.V. increased its
capital by ThUS$2,000 through the issuance of 431,200 share, which were
subscribed in full by SQM Nitratos S.A. As a result, SQM Nitratos S.A. has
ownership interest of 78.29% and SQM Comercial de Mexico has ownership
interest of 21.71%.
On March 30, 2003, Soquimich European Holding acquired 50% of the ownership
interest of Mineag SQM Africa Ltd. from Ravlin Investment Limited for an
amount of ThUS$990. This transaction gave rise to goodwill of ThUS$705.
Consequently, Mineag SQM Africa Ltd. became a subsidiary of SQM S.A.
c) Transactions performed during the year 2002.
On March 21, 2002, SQM North America Corporation acquired ownership interest
of 50% of the related company SQM Venezuela S.A. for ThUS$ 250, which added
to the ownership interest maintained by SQM Nitratos S.A. in the
aforementioned company, results in SQM Venezuela S.A. being a 100% indirect
subsidiary of SQM S.A. This transaction gave rise to goodwill of ThUS$ 166.
24
Note 9 - Investments in and Receivables from Related Companies (continued)
d) Detail of investments in related companies
-------------------------------------------------------------------------------------------------------------------------
Tax Country of Controlling Number of Ownership Equity of
Registration interest companies
----------------- ------------------
Number Company origin currency shares 2003 2002 2003 2002
---- ---- ---- ----
% % ThUS$ ThUS$
-------------------------------------------------------------------------------------------------------------------------
93390000-2 Empresas Melon S.A.. Chile - 653,748,837 14.05 14.05 267,085 274,039
0-E SQM Lithium Specialties USA US$ - 100.00 100.00 24,813 22,121
Limited*
0-E Ajay North America LLC USA US$ - 49.00 49.00 13,881 14,394
77093830-9 SCM Antucoya* Chile - 490 100.00 100.00 - 6,650
0-E Abu Dhabi Fertilizer
Industries WL UAE US$ 1,961 37.00 37.00 3,136 3,675
0-E Fertilizantes Olmeca y
SQM S.A. de C.V. Mexico Mex. $ 183,000 100.00 50.00 - 1,818
0-E Nutrisi Holding N.V. Belgium US$ - 50.00 50.00 1,820 1,054
0-E Doktor Tarsa Turkey US$ - 50.00 50.00 440 471
0-E Mineag SQM Africa Limited South US$ - 100.00 50.00 - 641
Africa
0-E SQM Italy S.R.L. Italy US$ - 95.00 25.00 - 477
0-E Ajay Europe S.A.R.L. France US$ 36,700 50.00 50.00 650 135
77557430-5 Sales de Magnesio Ltda. Chile - - 50.00 50.00 216 126
81767200-0 Asoc. Garantizadora Chile - - 3.31 3.31 696 777
Pensiones
O-E Rui Xin Packaging
Materials Sanhe Co.Ltd China US$ - 25.00 - 480 -
O-E Impronta SRL Italia Euros - 50.00 - 582 -
Total
-------------------------------------------------------------------------------------- ------------------------
Tax Book value of Net income (loss) Equity participation
Registration investment in net income (loss)
------------------- --------------------- ------------------------
Number Company 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
------------------------------------------------------------------------------------------------------------------
93390000-2 Empresas Melon S.A.. 37,525 38,502 9,599 10,386 1,349 1,459
0-E SQM Lithium Specialties
Limited* 24,813 22,121 (1,099) - - - -
0-E Ajay North America LLC 6,802 7,053 549 154 269 75
77093830-9 SCM Antucoya* - 6,650 - - - -
0-E Abu Dhabi Fertilizer
Industries WL 1,160 1,360 - - - -
0-E Fertilizantes Olmeca y
SQM S.A. de C.V. - 909 - (199) - (100)
0-E Nutrisi Holding N.V. 910 527 654 (104) 327 (52)
0-E Doktor Tarsa 220 236 12 - 6 -
0-E Mineag SQM Africa Limited - 321 - - - -
0-E SQM Italy S.R.L. - 119 - - - -
0-E Ajay Europe S.A.R.L. 325 68 - - - -
77557430-5 Sales de Magnesio Ltda. 108 63 24 16 12 8
81767200-0 Asoc. Garantizadora 23 26 - - - -
Pensiones
O-E Rui Xin Packaging
Materials Sanhe Co.Ltd 120 - - - - -
O-E Impronta SRL 291 - 794 - 397 -
-------------------
Total 72,297 77,955
===================
* In development stage
25
Note 10 - Goodwill and Negative Goodwill
Goodwill and negative goodwill and the related amortization is summarized as
follows:
a) Goodwill
Tax March 31, 2003 March 31, 2002
Registration Amount amortized Goodwill Amount amortized Goodwill
Number Company during the period balance during the period balance
ThUS$ ThUS$ ThUS$ ThUS$
0-E PTM - SQM Iberica S.A. 5 75 5 95
0-E Doktor Tarsa 16 134 5 387
79768170-9 Soquimich Comercial S.A. 38 385 38 535
78208790-8 SCM SQM Boratos - - 4 61
93390000-2 Empresas Melon S.A. 119 7,250 129 8,635
79626800-K SQM Salar S.A. 11 115 11 158
0-E SQM Mexico S.A. de C.V. 14 1,045 14 1,101
96864750-4 SQM Potassium S.A. 36 1,987 36 2,132
0-E SQM Venezuela S.A. - - 41 124
0-E Comercial Caiman Internacional S.A. 6 217 - -
0-E Mineag SQM Africa Limited - 705 - -
0-E Fertilizantes Olmeca - 279 - -
--------------- ------------- ------------ -----------
Total 245 12,192 283 13,228
=============== ============= ============ ===========
b) Negative Goodwill
March 31, 2003 March 31, 2002
Tax Negative Negative
Registration Amount amortized Goodwill Amount amortized goodwill
Number Company during the period Balance during the period balance
ThUS$ ThUS$ ThUS$ ThUS$
79626800-k SQM Salar S.A. 52 123 52 333
96575300-1 Minera Mapocho S.A. 51 627 51 830
------------ ---------- ----------- ------------
Total 103 750 103 1,163
============ ========== =========== ============
26
Note 11 - Other Long-term Assets
Other long-term assets are summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Engine and equipment spare-parts, net 23,472 29,955
Nitrate deposit development costs 3,869 4,216
Mineral development costs 14,144 11,458
Pension plan 1,223 2,691
Construction of Salar-Baquedano road 1,860 1,980
Deferred loan issuance costs 3,569 4,660
Other 1,176 1,007
-------- ---------
Total 49,313 55,967
======== =========
Note 12 - Bank Debt
a) Short-term bank debt is detailed as follows:
2003 2002
---- ----
ThUS$ ThUS$
Bank or financial institution
Banco Santiago - 10,344
Banco Estado - 13,357
Ing Bank - 120,314
Other banks 2,280 3,503
-------- ---------
Total 2,280 147,518
======== =========
Annual average interest rate - 3.02%
27
Note 12 - Bank Debt (continued)
b) Long-term bank debt is detailed as follows:
2003 2002
---- ----
ThUS$ ThUS$
Bank or financial institution
Union Bank of Switzerland (1) 200,648 200,685
ING Bank (2) 60,380 -
Bank of America (3) 80,723 80,912
Corpbanca - 12,055
--------- ---------
Total 341,751 293,652
--------- ---------
Less: Current portion (17,751) (1,652)
--------- ---------
Long-term portion 324,000 292,000
========= ========
(1) U.S. dollar-denominated loan without guarantee, interest rate of 7.7% per
annum, paid semi-annually. The principal is due on September 15, 2006.
(2) U.S. dollar-denominated loan without guarantee, interest rate of 2.4% per
annum, paid semi-annually. The principal is due on December 26, 2006.
(3) U.S. dollar-denominated loan without guarantee, interest rate of 2.582% per
annum, paid semi-annually. The principal is divided into five equal
semi-annual partial installments, beginning in November 2003 with the final
installment ending in November 2005.
c) The maturity of long-term debt is as follows:
2003 2002
---- -----
ThUS$ ThUS$
Years to maturity
Current portion 17,751 1,652
1 to 2 years 32,000 28,000
2 to 3 years 62,000 32,000
4 to 5 years 230,000 232,000
--------- ---------
Total 341,751 293,652
========= =========
28
Note 13 - Accrued Liabilities
As of March 31, 2003 and 2002, accrued liabilities are summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Provision for royalties 895 752
Quarterly bonus 815 545
Suppliers 535 1,078
Commissions on consignment goods 451 42
Taxes and monthly income tax installment payments 460 432
Vacation accrual 3,960 4,591
Accrued employee benefits 228 74
Legal expenses 800 -
Other accruals 2,756 2,976
Marketing expenses 600 -
-------- --------
Total current liabilities 11,500 10,490
======== ========
Note 14 - Income and Deferred Taxes
a) At March 31, 2003 and 2002 the Company has the following consolidated
balances for retained tax earnings, income not subject to taxes, tax loss
carry-forwards and credit for shareholders:
2003 2002
---- ----
ThUS$ ThUS$
Accumulated tax basis retained earnings
with tax credit 17,479 20,414
Accumulated tax basis retained earnings
with no tax credit - 4,227
Income not subject to taxes - 2,776
Tax loss carry-forwards (1) 104,634 135,926
Credit for shareholders 371 3,670
(1) Income tax losses in Chile can be carried forward indefinitely
29
Note 14 - Income and Deferred Taxes (continued)
The deferred taxes as of March 31, 2003 and 2002 represented a net liability
of ThUS$ 17,661 and ThUS$ 8,226, respectively, and consisted of:
2003 Deferred tax asset Deferred tax liability
Short-term Long-term Short-term Long-term
---------- --------- ---------- ---------
ThUS$ ThUS$ ThUS$ ThUS$
Temporary differences
Allowance for doubtful accounts 967 201 - -
Vacation accrual 700 - - -
Unrealized gain on sale of products 4,790 - - -
Provision for obsolescence - 1,861 - -
Production expenses - - 14,163 -
Accelerated depreciation - - - 59,438
Exploration expenses - - - 4,024
Capitalized interest - - - 6,450
Staff severance indemnities - - - 1,701
Accrued expenses - - - 426
Capitalized expenses - - - 774
Tax loss carry-forwards - 19,876 - -
Losses from derivative transactions - - 19 -
Other 479 788 1 229
------------------------------------------------------------------------------------------------------
Total gross deferred taxes 6,936 22,726 14,183 73,042
Total complementary accounts (2) (719) (4,958) (35,727)
Valuation allowance - (62) - -
--------------------------------------------------------------------------------------------------------
Total deferred taxes 6,934 21,945 9,225 37,315
--------------------------------------------------------------------------------------------------------
30
Note 14 - Income and Deferred Taxes (continued)
2002 Deferred tax asset Deferred tax liability
Short-term Long-term Short-term Long-term
---------- --------- ---------- ---------
ThUS$ ThUS$ ThUS$ ThUS$
Temporary differences
Allowance for doubtful accounts 277 1,022 - -
Vacation accrual 736 - - -
Unrealized gain on sale of products 6,259 - 62 -
Other unrealized gains 257 591 - -
Provision for obsolescence - 682 - -
Production expenses - - 10,157 -
Accelerated depreciation - - - 57,398
Exploration expenses - - - 4,547
Capitalized interest - - - 6,610
Staff severance indemnities - - - 2,621
Accrued expenses - - 400 -
Capitalized expenses - - - 1,026
Tax loss carry-forwards - 25,012 - -
Other 307 - 54 223
---------------------------------------------------------------------------------------------------------
Total gross deferred taxes 7,836 27,307 10,673 72,425
Total complementary accounts (35) (4,881) (3,721) (40,924)
-----------------------------------------------------------------------------------------------------------
Total deferred taxes 7,801 22,426 6,952 31,501
-----------------------------------------------------------------------------------------------------------
31
Note 14 - Income and Deferred Taxes (continued)
c) Income tax expense is summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Provision for current income tax (1,583) (916)
Effect of deferred tax assets and liabilities (1,614) (1,591)
Effect of amortization of complementary accounts (728) 739
Other tax charges and credits 62 (4)
---------- ---------
Total income tax expense (3,863) (1,772)
========== =========
Note 15 - Staff Severance Indemnities
Staff severance indemnities are summarized as follows:
2003 2002
---- ----
ThUS$ ThUS$
Opening balance 9,143 8,326
Increases in obligation 1,193 397
Payments (1,267) (212)
Exchange difference (126) (12)
------- -------
Balance as of March 31 8,943 8,499
======= =======
32
Note 16 - Minority Interest
Minority interest is summarized as follows:
Equity Net Income/(Loss)
2003 2002 2003 2002
---- ---- ---- ----
ThUS$ ThUS$ ThUS$ ThUS$
Soquimich Comercial S.A. 19,433 20,425 (169) (390)
Ajay SQM Chile S.A. 3,103 3,035 (93) (53)
Cape Fear Bulk LLC 133 131 (29) (87)
SQM Indonesia - 8 - -
SQM Italia S.R.L 13 - 5 -
Fenasa 242 134 (14) 46
Mineag SQM Africa - - (206) -
-------- -------- ------ ------
Total 22,924 23,733 (506) (484)
======== ======== ====== ======
33
Note 17 - Shareholders' Equity
a) Changes to shareholders' equity consisted of:
Accumulated
deficit
of subsidiaries
in
Paid-in Other development Retained Net
Number capital reserves stage earnings income Total
of shares ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
----------------------------------------------------------------------------------------------------------------------
Balance January 1, 2002 263,196,524 477,386 131,066 (2,223) 195,366 30,102 831,697
Transfer 2000 net income
to retained earnings - - - - 30,102 (30,102) -
Declared dividends 2002 - - - - - - -
Accumulated deficit from
subsidiaries in development
stage (1) - - - (85) - - (85)
Other comprehensive income (2) - - (372) - - - (372)
Net income for the year - - - - - 9,560 9,560
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Balance March 31, 2002 263,196,524 477,386 130,694 (2,308) 225,468 9,560 840,800
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Balance January 1, 2003 263,196,524 477,386 125,111 (3,661) 210,624 40,202 849,662
Transfer 2002 net income
to retained earnings - - - - 40,202 (40,202) -
Declared dividends 2003 - - - - - - -
Accumulated deficit from
subsidiaries in development
stage (1) - - - (1,099) - - (1,099)
Other comprehensive income (2) - - (1,157) - - - (1,157)
Net income for the year - - - - - 10,804 10,804
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Balance March 31, 2003 263,196,524 477,386 123,954 (4,760) 250,826 10,804 858,210
----------------------------------------------------------------------------------------------------------------------
(1) The subsidiaries in development stage are SQM Lithium Specialties Limited
and SCM Antucoya.
(2) Other comprehensive income includes translation adjustments, and in 2003
other comprehensive income also includes the effect of the recognition of an
additional liability for the Company's under-funded pension as of March 31,
2003.
34
Note 17 - Shareholders' Equity (continued)
b) The composition of other comprehensive income as of March 31, 2003 is as
follows:
For the period
ended March 31, As of March 31,
2003 2003
-------------- -------------
Detail ThUS$ ThUS$
Technical appraisal - 151,345
Changes to other comprehensive
income from equity method investments:
Soquimich Comercial S.A. (1) (392) (9,309)
Isapre Norte Grande Ltda. (1) (5) (103)
Inversiones Augusta S.A. (1) - (761)
SQM Ecuador S.A. (1) - (270)
Almacenes y Depositos Ltda. (1) (4) (95)
Asociacion Garantizadora de Pensiones (1) (1) (17)
Empresas Melon S.A. (1) (614) (16,249)
Sales de Magnesio Ltda. (1) - (17)
SQM North America Corp. (2) (141) (1,288)
Other Companies (1) - 718
------- ------------
Total other comprehensive income (1,157) 123,954
======= ============
(1) Corresponds to translation adjustment and monetary correction
(2) Corresponds to the effect of the recognition of an additional
liability for the Company's under-funded pension as of March 31,
2003.
c) 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.
35
Note 18 - Derivatives Instruments
Derivative instruments are recorded at their fair value at year-end. Changes in
fair value are recognized in income with the liability recorded in other current
liabilities. Losses from options relate to fees paid by the Company to enter
into such contracts. As of March 31, 2003 the Company's derivative instruments
are as follows:
Accounts affected
Notional or Position Income
Type of Covered Expiration Description of purchase/ Liability (loss)
derivative Amount the contract type sale amount recorded
US dollar Forward 3,000 2nd quarter of 2003 Exchange rate P 114 114
US dollar Put Option 19,775 2nd quarter of 2003 Exchange rate P - (20)
US dollar Put Option 10,390 2nd quarter of 2003 Exchange rate P - (60)
US dollar Put Option 3,700 2nd quarter of 2003 Exchange rate P - -
US dollar Put Option 4,800 2nd quarter of 2003 Exchange rate P - -
US dollar Put Option 3,800 2nd quarter of 2003 Exchange rate P - -
US dollar Put Option 4,000 3rd quarter of 2003 Exchange rate P - -
US dollar Put Option 2,300 3rd quarter of 2003 Exchange rate P - -
US dollar Put Option 720 3rd quarter of 2003 Exchange rate P - -
--------- ----- ------
52,485 114 34
========= ===== ======
36
Note 19 - Non-Operating Income and Expenses
Amounts included in non-operating income and expenses are summarized as follows:
a) Non-operating income
2003 2002
------- -------
ThUS$ ThUS$
Interest income 630 1,443
Reversal of allowance for doubtful accounts 256 -
Insurance recoveries 85 1,535
Net foreign exchange 2,377 330
Sales of materials and services 214 279
Equity participation in net
income of unconsolidated
subsidiaries 2,353 1,543
Other income 527 416
------- --------
Total 6,442 5,546
======= ========
b) Non-operating expenses
2003 2002
-------- -------
ThUS$ ThUS$
Write-off of property, plant, and equipment 1,765 456
Interest expense 5,801 7,825
Equity participation in net losses of
unconsolidated subsidiaries - 152
Amortization of goodwill 245 283
Legal expenses 800 -
Project relating to commercial effectiveness - 1,004
Other expenses 1,550 913
-------- -------
Total 10,161 10,633
======== =======
37
Note 20 - Price-level Restatement
Amounts charged or credit to income relating to price-level restatement are
summarized as follows:
(Charge) credit to
income from operations
2003 2002
---- ----
ThUS$ ThUS$
Property, plant and equipment 22 (19)
Other assets and liabilities 39 (68)
Shareholders' equity (239) 204
-------- ------
Subtotal price-level restatement (178) 117
-------- ------
Net readjustment of assets and
liabilities denominated in UF 2 -
-------- ------
Net price-level restatement (176) 117
======== ======
Note 21 - Assets and Liabilities Denominated in Foreign Currency
2003 2002
---- ----
Assets ThUS$ ThUS$
Total assets
Chilean pesos (271) 962
Euros 1,448 49
Japanese Yen (2) -
Brazilian Real 207 85
Mexican pesos (5) (12)
Other currencies 209 (595)
Current liabilities
Chilean pesos 946 (209)
Euros - (118)
Brazilian Real (75) -
Other currencies 53 46
Long-term liabilities
Chilean pesos 133 5
Euros (90) -
38
Note 22 - Commitments and Contingencies
I. Contingencies:
(a) The Company did not record the potential insurance
reimbursement for damages incurred in the potassium sulfate
wells in the Atacama salt deposit.
(b) Material lawsuits or other legal actions of which the Company
is party to:
1. Plaintiff : SQM Salar S.A.
Defendants : ACE Seguros S.A. (formerly - Cigna Compania de
Seguros (Chile) S.A.) and Chubb de Chile
Compania de Seguros Generales S.A.
Date of lawsuit : April 2002
Matter : Arbitration
Status : Collection of compensation for insured claim
Instance : Evidence verification
Nominative value : ThUS$ 36,316
2. Plaintiffs : Du Guano de Poisson Angibaud S.A. and Generale
de Nutrition Vegetale SAS
Defendants : Soquimich European Holdings B.V., NU3 N.V.
and SQM France S.A.
Date of lawsuit : March 2003
Court : Court of Arbitration in France
Matter : Termination of the company relationship and
liquidation of the company Generale de
Nutrition Vegetale SAS
Status : The lawsuit is being contested
Nominative value : ThEuro$ 30,295
39
Note 22 - Commitments and Contingencies (continued)
I. Contingencies (continued):
(c) Models for the Production of the Maria Elena site
The Company is currently reviewing the "Models for the Production of
the Maria Elena site" which may be implemented as a result of the
Decontamination Plan (see note 25). The different alternatives for
production and technology development for the Maria Elena site, which
are a part of the above-mentioned "Production Models" do not
proactively generate significant changes in the present ore reserves or
forecasted sales volumes. These options include possibilities to use
new production methods and are related to the "leaching piles" and
implementing a mixed system, which would be comprised with the use of
the aforementioned technology and the current production methods.
Advantages and disadvantages of the different options relate to the
extension of the transition periods of new technology, the investments
that will be required, production costs, changes in technologies and in
productive processes and the effects on certain of the Company's assets
and their value. The possible effects on the valuation of assets are
not yet determinable.
(d) Other
The Company and its subsidiaries are involved in litigation in the
ordinary course of business. Based on the advice of counsel, management
believes the litigation will not have a material effect on the
consolidated financial statements.
II. Commitments:
(a) The subsidiary SQM Salar S.A. maintains an agreement with a
government agency, whereby the Company must make annual payments until
2030 based on the Company's annual sales. This amount, which has been
paid since the beginning of the agreement in 1996, amounted to
ThUS$3,411 in 2003 (ThUS$ 3,169 in 2002).
(b) The Company has certain indirect guarantees, which relate to
agreements with no remaining payments pending. These guarantees are
still in effect and approved by the Company's Board of Directors;
however, they have not been used by the subsidiaries.
40
Note 23 - Third Party Guarantees
As of March 31, 2003 and 2002 the Company has the following indirect guarantees
outstanding:
Debtor Balances outstanding
---------------------------------------------- --------------------------------
Beneficiary Name Relationship 03/31/2003 03/31/2002
ThUS$ ThUS$
ING Bank -Phelps Dodge
Corporation SQM Potasio S.A. Subsidiary 2,694 3,483
Bank of America N.A. RS Agro-Chemical Trading A.V.V. Subsidiary 80,723 80,912
Note 24 - Sanctions
During 2003 and 2002, the SVS did not apply sanctions to the Company, its
directors or managers.
Note 25 - Environmental Projects
Disbursements incurred by the Company as of March 31, 2003 relating to its
investments in production processes and compliance with regulations related to
industrial processes and facilities are as follows:
Future
2003 Disbursements
---- -------------
ThUS$ ThUS$
Project
Environmental protection department 93 376
Engineering & construction of Maria Elena stockpiles - 653
Tocopilla money exchange 32 13
Renewal of water network against fire 3 36
Technology change in Maria Elena - 500
Tocopilla dust collection 57 15
Environmental impact evaluations 25 -
Plant for the treatment of wastewater, Ministry of Public Works 140 39
Extension of carbonate plant 139 400
Borate plant emission control - 100
Dry plants aspiration system - 85
Modification of fire network - 85
41
Note 25 - Environmental Projects (continued)
Protecting the environment is a constant concern for SQM, regarding both the
Company's productive processes and the manufactured goods.
Some of the Company's products are certified ISO 9000 compliant and the Company
has planned to become ISO 14,000 certified in the long term. This will further
the Company's commitment to the protection of the environment.
As part of the conversion project to natural gas, the supplier will in turn make
an investment of US$ 5,500 million to be paid by the Company on a monthly basis
for the duration of the contract (10 years).
Technological processes are intended to be environmentally friendly in order to
reduce residual materials and improve technical conditions to ensure an
effective protection to the environment. A good example of this is ongoing
conversion of oil to natural gas used in the Company's plants.
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 the
drying of solid materials and the evaporation of liquids used in solar energy.
The extraction of minerals in open pit mines, given their low waste-to-mineral
ratio, gives rise to sites that have little impact on the environment. The
extraction process and ore crushing produce particles that are consistent with
the industry of operation.
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 Maria Elena Plant exceeded the level allowed for the quality of air and,
which affected the nearby city of Maria Elena. Particles mainly come from dust
that results from processing the sodium nitrate, particularly at the crushing
process prior to leaching. The decontamination plan presented by the Company to
reduce the level of particles was approved with certain modifications by means
of Decree No. 164. As a result of the investments and processes implemented
according to the approved plan, the Company has substantially reduced the levels
of particles in the air. Resolution No. 384, made public on May 16, 2003,
authorized the review and a new draw up of the decontamination plan for the city
of Maria Elena. The Supreme Decree containing the final Decontamination Plan
should be made public within early 2003. It is not possible to assure that
within such period the Company will be free from warnings, fines or even
eventual temporary closing of the crushing plant in Maria Elena. The Company is
continuously researching techniques, processes and systems relating to the
processing of sodium nitrate that could even further reduce the level of
particles in the city of Maria Elena.
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.
42
Productive operations based on brine, are carried out at the Atacama Salt Mine
and almost 95% of the energy used is solar energy and the remaining 5% comes
from natural gas, electricity and fossil fuels. Residual brine left after the
production processes are again injected to the Atacama Salt Mine in order to
minimize the possible environmental impact.
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
watershed.
Note 26 - Subsequent Events
On April 28, 2003, Soquimich Comercial S.A. acquired from Norsk Hydro ASA
819,999 shares of Norsk Hydro Chile S.A. and SQM Comercial Internacional Ltda.,
a subsidiary of SQMC, acquired the remaining share. Consequently, SQMC became
the owner and controller of 100% of the ownership interest of Norsk Hydro Chile
S.A.
At the General Ordinary Shareholders' Meeting held on April 30, 2003, the
majority of the shareholders agreed to the following:
a) Approve the distribution and payment of a final dividend for a total of
Ch$53.30808 per share. This dividend will be paid in one single
installment beginning on May 12, 2003 and will be charged to net income
for the year 2002.
43
b) Approve the payment of UF 50 (fifty UF) in favor of each member of the
Board of Directors regardless of the number of meetings held or not
held in the respective month, as well as the establishment of an annual
budget for expenses to be incurred for the running and operation of
this Board and its advisors for UF 1,800 (one thousand and eighty UF).
c) Appoint Mr. Wayne R. Brownlee, Mr. Hernan Buchi B., Mr. Jose Maria
Eyzaguirre B., Mr. Avi Milstein, Mr. Julio Ponce L., Mr. Jose Antonio
Silva B., Mr. Kendrick T. Wallace and Mr. Daniel Yarur E. As the new
directors of SQM S.A., as well as the approval of the fees that will be
paid to these directors during the next twelve months.
Except as mentioned in the preceding paragraph, the Company's management is not
aware of any other significant events which have occurred between March 31, 2003
and the date of these financial statements, which may affect these consolidated
financial statements.
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.
Conf: /s/ Ricardo Ramos
----------------------------------
Ricardo Ramos
Chief Financial Officer
Date: June 23, 2003.
45