Israel Chemicals Ltd. Consolidated Financial Statements As ...iclgroupv2.s3.amazonaws.com/corporate/wp-content... · statements of income, statements of comprehensive income, the

Translation from the Hebrew. The binding version is the original Hebrew version.

Israel Chemicals Ltd.

Consolidated Financial

Statements

As at December 31, 2009


Consolidated Financial Statements as at December 31, 2009 Contents

Page

Auditors' Report 2 Consolidated Statements of Financial Position 3-4 Consolidated Statements of Income 5 Consolidated Statements of Comprehensive Income 6 Consolidated Statements of Changes in Equity 7-9 Consolidated Statements of Cash Flows 10 Notes to the Consolidated Financial Statements 11

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Somekh Chaikin, a partnership registered under the Israeli

Partnership Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.

Auditors' Report to the Shareholders of Israel Chemicals Ltd. We have audited the accompanying consolidated statements of financial position of Israel Chemicals Ltd. (the Company) as at December 31, 2009 and 2008 and the consolidated statements of income, statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows, for each of the three years, the last of which ended December 31, 2009. These financial statements are the responsibility of the Company's Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position as at December 31, 2009 and 2008 and consolidated results of operations, the consolidated changes in equity and the consolidated cash flows for each of the three years, the last of which ended December 31, 2009, in accordance with International Financial Reporting Standards (IFRS) and in accordance with the Securities Regulations (Annual Financial Statements) – 2010. Somekh Chaikin Certified Public Accountants (Isr.) March 23, 2010

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Israel Chemicals Limited Consolidated Statements of Financial Position as at December 31 2009 2008 Note US$ thousands US$ thousands Current assets Cash and cash equivalents 257,970 215,154 Short-term investments, deposits and loans 6 167,549 125,061 Trade receivables 7 969,620 1,054,387 Other receivables, including derivatives instruments 8, 17 118,538 143,273 Income taxes refundable 24,568 146,820 Inventories 9 1,233,250 1,278,004 Total current assets 2,771,495 2,962,699 Non-current assets Investments in associated companies 10 28,762 27,181 Long-term deposits and receivables 13 209,008 *168,913 Defined benefit plan 22 66,057 *38,393 Long-term derivative instruments 17, 28 16,739 7,334 Non current inventories 9 55,441 51,188 Deferred taxes, net 21 100,271 74,969 Property, plant and equipment 14 2,093,133 1,907,264 Intangible assets 15 566,683 521,438 Total non-current assets 3,136,094 2,796,680

Total assets 5,907,589 5,759,379 * Reclassified

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Israel Chemicals Limited 2009 2008 Note US$ thousands US$ thousands Current liabilities Credit from banks and others 18 103,951 411,533 Trade payables 19 469,798 448,154 Provisions 23 22,115 19,519 Other payables, including derivative instruments 17, 20 504,030 *637,998 Income taxes payable 69,723 46,438 Total current liabilities 1,169,617 1,563,642 Non-current liabilities Loans from banks and others 18 686,077 897,269 Debentures 18 503,794 125,000 Long-term derivative instruments 17, 28 14,228 11,784 Deferred taxes, net 23 101,785 111,214 Employee benefits 21 530,320 441,408 Provisions 22 106,919 *98,135 Total non-current liabilities 1,943,123 1,684,810 Total liabilities 3,112,740 3,248,452 Equity 25 Share capital 541,028 540,784 Share premium 84,059 81,546 Capital reserves 33,903 709 Retained earnings 2,374,883 2,073,483 Treasury shares (260,113) (253,569) Total equity attributable to the equity holders of the Company 2,773,760 2,442,953 Non-controlling interest 21,089 67,974 Total equity 2,794,849 2,510,927 Total liabilities and equity 5,907,589 5,759,379

Nir Gilad Akiva Mozes Avi Doitchman

Chairman of the Board of Chief Executive CFO Directors Officer

Approval date of the financial statements: March 23, 2010. The notes and the appendices are an integral part of these financial statements.

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Israel Chemicals Limited Consolidated Statements of Income for the Year Ended December 31 2009 2008 2007 Note US$ thousands US$ thousands US$ thousands Sales 27(A) 4,554,316 6,904,049 4,103,179Cost of sales 27(B) 2,717,786 3,448,774 2,545,043 Gross profit 1,836,530 3,455,275 1,558,136 Selling, transportation and marketing expenses 27(D) 558,125 761,485 599,868General and administrative expenses 27(E) 195,889 207,179 161,172Research and development expenses 27(C) 53,823 57,317 38,730Other expenses 27(G) 94,144 108,664 16,581Other income 27(G) )3,624( (14,859) )801( Operating income 938,173 2,335,489 742,586 Financing expenses 83,424 177,760 104,130Financing income )89,539( (55,676) )27,489( Financing (income) expenses, net 27(F) )6,115( 122,084 76,641 Share in income (losses) of associated companies, net of tax 10(B) )1,482( 13,804 3,969 Income before taxes on income 942,806 2,227,209 669,914 Taxes on income 21 168,492 233,241 119,730 Income for the year 774,314 1,993,968 550,184 Attributed to: Equity holders of the Company Non-controlling interest 770,420 2,004,238 553,440 3,894 (10,270) )3,256(Income for the year 774,314 1,993,968 550,184 U.S. dollar U.S. dollar U.S. dollar Earnings per share attributed to the holders of the Company: 29 Basic earnings per share 0.610 1.565 0.431 Fully diluted earnings per share 0.608 1.559 0.430 The notes and the appendices are an integral part of these financial statements.

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Israel Chemicals Limited

Consolidated Statements of Comprehensive Income for the Year Ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands Income for the year 774,314 1,993,968 550,184 Other comprehensive income Foreign currency translation differences for foreign operations 26,510 (86,172) 65,417 Change in fair value of financial assets available for sale 6,816 25 347 Net actuarial gains (losses) from defined benefit plans 368 (86,993) 20,633 Change in fair value of cash flow used for hedging (1,230) - - Income tax on other comprehensive income 81 21,155 378 Other comprehensive income (loss) for the year, net of tax 32,545 (151,985) 86,775 Total comprehensive income for the year 806,859 1,841,983 636,959 Attributable to: Equity holders of the Company 804,954 1,853,272 640,277 Non-controlling interest 1,905 (11,289) (3,318) Total comprehensive income for the year 806,859 1,841,983 636,959 The notes and the appendices are an integral part of these financial statements.

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Consolidated Statements of Changes in Equity Non- controlling Total Attributable to equity holders of the Company interest equity Translation Reserve reserve from from available Share Share foreign for sale Capital Treasury Retained capital premium operations assets reserve shares earnings Total US$ thousands

Balance as at January 1, 2009 540,784 81,546 )19,676( 264 20,121 )253,569( 2,073,483 2,442,953 67,974 2,510,927 Sale of options granted to employees 244 2,513 - - )2,757( - - - - - Acquisition of company shares - - - - - )6,544( - )6,544( - )6,544( Share-based payments - - - - 2,462 - - 2,462 - 2,462 Dividend to equity holders - - - - - - )549,037( )549,037( )2,488( )551,525( Tax benefit in respect of issuance of shares to employees - - - - 744 - - 744 - 744 Options of proportionately consolidated subsidiary issued to its employees - - - - - - - - 1,926 1,926 Investment of non-controlling interest in subsidiary company - - - - - - - - 30,000 30,000 Acquisition of non-controlling interest in subsidiary company - - - - - - 78,228 78,228 )78,228( - Comprehensive income for the year - - 28,499 5,156 )910( - 772,209 804,954 1,905 806,859 Balance as at December 31, 2009 541,028 84,059 8,823 5,420 19,660 )260,113( 2,374,883 2,773,760 21,089 2,794,849

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Balance as at January 1, 2008 540,779 81,396 65,477 251 13,227 )2,197( 1,101,564 1,800,497 66,421 1,866,918 Sale of options granted to employees 5 150 - - )25( - - 130 - 130 Acquisition of Company’s shares - - - - - )251,372( - )251,372( - )251,372( Share-based payments - - - - 5,948 - - 5,948 - 5,948 Dividend to equity holders - - - - - - )966,493( )966,493( - )966,493( Tax benefit in respect of issuance of shares to employees - - - - 971 - - 971 - 971 Issuance of non-controlling interest in subsidiary company - - - - - - - - 7,285 7,285 Non-controlling interest in initially consolidated company - - - - - - - - 4,021 4,021 Options of proportionately consolidated subsidiary issued to its employees - - - - - - - - 1,536 1,536 Comprehensive income for the year - - )85,153( 13 - - 1,938,412 1,853,272 )11,289( 1,841,983 Balance as at December 31, 2008 540,784 81,546 )19,676( 264 20,121 )253,569( 2,073,483 2,442,953 67,974 2,510,927

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Balance as at January 1, 2007 540,779 81,396 - - 2,127 )2,197( 1,072,150 1,694,255 )7,562( 1,686,693 Share-based payment - - - - 9,155 - - 9,155 - 9,155 Dividend to equity holders - - - - - - )545,135( )545,135( - )545,135( Tax benefit in respect of issuance of shares to employees - - - - 1,945 - - 1,945 - 1,945 Issue of non-controlling interest in subsidiary company - - - - - - - - 77,676 77,676 Acquisition of subsidiary shares from non-controlling interest - - - - - - - - )375( )375( Comprehensive income for the year - - 65,477 251 - - 574,549 640,277 )3,318( 636,959 Balance as at December 31, 2007 540,779 81,396 65,477 251 13,227 )2,197( 1,101,564 1,800,497 66,421 1,866,918

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Consolidated Statements of Cash Flows for the Year Ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Cash flows from operating activities Income for the year 774,314 1,993,968 550,184 Adjustments for: Depreciation and amortization 204,618 182,188 166,137 Impairment of fixed assets 27,043 47,428 - Interest expenses, net 20,368 56,212 64,782 Share in losses (income) of associated companies 1,482 (13,804) )3,969(Gain on sale of fixed assets )2,550( (1,471) )375(Loss (gain) on securities classified as held for trading and available-for-sale )150( 536 )3(Loss from issuance of shares of subsidiary company to non-controlling interests - 285 - Share based payment transactions 4,388 7,484 9,155 Revaluation of assets and liabilities denominated in foreign currency 17,455 (4,127) )2,490(Loss from investment in securities classified as held for sale - 17,319 - Income tax expense 168,492 233,241 119,730 1, 215,460 2,519,259 903,151 Change in inventory 62,796 (344,144) )109,977(Change in trade and other receivables 98,303 (152,298) )193,690(*Change in trade and other payables )100,893( 164,453 105,633*Change in provisions and employee benefits 63,479 47,464 47,006* 1,339,145 2,234,734 752,123 Income tax paid )111,893( (331,013) )117,553(Interest received 29,266 27,905 3,905Interest paid )56,828( (77,540) )67,768(Net cash provided by operating activities 1,199,690 1,854,086 570,707 Cash flows from investing activities Investment in long-term deposits )4,605( (4,108) )10,146(*Proceeds from sale of fixed assets 3,540 6,127 4,156Short-term loans and deposits, net )34,338( (40,675) 81,658Business combination less cash acquired )49,086( (92,436) )354,821(Acquisition of non-controlling interest - - )346(Dividend received from associated company 1,075 1,743 - Acquisition of fixed assets )346,443( (319,830) )189,077(Investment grants received 771 1,806 2,859Acquisition of intangible assets )19,556( (6,717) )19,190(Investment in securities available-for-sale - (32,345) - Proceeds from sale of long-term deposits 4,647 *5,937 5,226Net cash used in investing activities )443,995( (480,498) )479,681(

Cash flows from financing activities - 130 - Issue of debentures 402,629 - - Dividend paid to Company’s equity holders )549,037( )966,493( )545,135(Dividend paid to non-controlling interest )2,488( - - Loans received 24,166 610,393 673,537Repayment of loans )276,499( )595,069( )188,392(Acquisition by the Company of its own shares )6,544( )251,372( - Issue of non-controlling interest in subsidiary company 30,000 7,000 - Short-term credit from banks and others )335,931( )21,834( )24,896(Net cash used in financing activities )713,704( )1,217,245( )84,886(Net increase in cash and cash equivalents 41,991 156,343 6,140Cash and cash equivalents as at the beginning of the year 215,154 58,204 50,085Effect of exchange rate fluctuations on cash and cash equivalents 825 607 1,979Cash and cash equivalents as at the end of the year 257,970 215,154 58,204 * Reclassified The notes and the appendices are an integral part of these financial statements..

Israel Chemicals Limited Notes to the Consolidated Financial Statements as at December 31, 2009

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Note 1 - General

A. The reporting entity Israel Chemicals Ltd. (hereinafter – “the Company”), is an Israeli-resident company that was incorporated in Israel and whose shares are traded on the Tel-Aviv Stock Exchange. The Company’s registered office is 23 Aranha St., Tel-Aviv, Israel. The Company and its subsidiaries and associated companies (hereinafter – “the Group”) constitute a multi-national group operating primarily in the fertilizers and specialty chemicals sectors, in three operating segments: fertilizers (including potash and phosphates), industrial products and performance products. In addition, the Group has activities in a number of other segments. The Company is a subsidiary of Israel Corporation Ltd. The Group’s activities are based principally on natural resources – potash, bromine, magnesium and salt produced from the Dead Sea and phosphate rock mined from the State’s southern region, all in accordance with concessions and licenses from the State of Israel. The activities are also based on potash and salt mines in the United Kingdom and Spain, as well as on lease agreements and licenses from the appropriate authorities in these countries. The Company is engaged in the extraction of these minerals and the sale thereof throughout the world, as well as in the development, manufacture and marketing of other products based primarily on these raw materials. The Company and some of the Group companies were declared a monopoly with respect to some of the products it manufactures and/or sells in Israel. ICL has a prominent status in the world markets for potash, bromine, clean phosphoric acid, special phosphates, flame retardants based on bromine and phosphorous and chemicals for prevention of the spreading of fires. Potash and phosphates are central source nutrients in the fertilizers’ area. The bromine serves for a wide variety of applications, primarily as a basic component of flame retardants. ICL’s products are used mainly in the areas of agriculture, electronics, food, fuel and gas exploration, water purification and desalination, detergents, paper, cosmetics, medicines, vehicles, aluminum and others. ICL has accumulated dozens of years of experience in most of its businesses. ICL has direct access to most of the raw materials required for its operations, at low costs and high quality, by virtue of an exclusive concession it received from the State of Israel to mine minerals from the Israeli side of the Dead Sea in exchange for payment of royalties to the State. The production costs of the potash and the bromine produced by ICL from the Dead Sea are low compared with the costs of other producers throughout the world that do not have access to the Dead Sea. The Group’s main production facilities are located in Israel, Germany, the United States, the Netherlands, Spain, the UK, China, Brazil and France. The Group has additional production facilities in Austria, Belgium, Turkey, Argentina and Australia. The Company’s overseas operations consist mainly of the production of products that are integrated with or based on the activities of the companies in Israel or in closely related fields. About 94% of the Group’s products are sold to customers outside of Israel.


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Note 1 - General (cont’d) B. State share The State of Israel holds a Special State Share in ICL and in some of its subsidiaries, entitling the State the right to safeguard its vital State interests (see Note 25(B)). C. Definitions

1. International Financial Reporting Standards (hereinafter – IFRS) – Standards and interpretations that were adopted by the International Accounting Standards Board (IASB) and which include international financial reporting standards and international accounting standards (IAS) along with the interpretations to these standards of the International Financial Reporting Interpretations Committee (IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.

2. Subsidiary - a company over which the Company has control and over the financial statements of which have been consolidated fully with the financial statements of the Company.

3. Proportionately consolidated company - a company or partnership under common control, none of the shareholders of which holds exclusive control, the financial statements of which have been consolidated with those of the Company by the proportionate consolidation method.

4. Associated company - a company, which is not a subsidiary or a proportionately consolidated company, over whose financial and operational policy the Company exerts significant influence, the investment in which is presented by the equity method. Significant influence is deemed to exist when the percentage holding in the said company is 20% or more, unless there are circumstances that contradict this assumption.

5. Investee company - a subsidiary, a proportionately consolidated company and an associated company.

6. Interested parties - as defined in paragraph 1 of the definition of “interested parties” in the Regulations, Clause 1 in the Stock Exchange Law, 1968.

7. Related party – as defined in paragraph 1 IAS 24, “Related Party Disclosures”.

8. CPI – the Consumer Price Index as published by the Central Bureau of Statistics.

9. Dollar – US Dollar. Note 2 - Basis of Preparation of the Financial Statements

A. Statement of compliance with International Financial Reporting Standards The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The Group adopted IFRSs for the first time in 2008, with the date of transition to IFRS being January 1, 2007 (hereinafter – “the date of transition”). The financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 2010. The consolidated financial statements were approved for publishing by the Group’s Board of Directors on March 23rd, 2010.


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Note 2 - Basis of Preparation of the Financial Statements (cont’d) B. Functional and presentation currency The dollar is the currency representing the main economic environment in which the Company operates and accordingly, the dollar constitutes the functional and presentation currency in these financial statements. Currencies other than the dollar constitute foreign currency. C. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments and financial instruments classified as available-for-sale that are stated at fair value. Deferred tax assets and liabilities are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Provisions are recognized according to the best possible estimate at the end of the reporting period of the outflow required for settling the present obligation. When the value of time is material, the future cash flows are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The amount recognized as a defined benefit liability is the present value of the defined benefit obligation at the end of the reporting period less any unrecognized past service costs and less the fair value at the end of the reporting period of plan assets that will directly serve to settle the obligation. D. Use of estimates and judgment In preparation of the financial statements in conformance with IFRS, Company management is required to use judgment when making estimates and assumptions that affect implementation of the policies and the amounts of assets, liabilities, income and expenses. It is clarified that the actual results are likely to be different from these estimates. At the time of formulating the accounting estimates used in preparation of the Company’s financial statements, Company Management is required to make assumptions regarding circumstances and events involving significant uncertainty. When using its judgment in determining the estimates, Company Management uses past experience, various facts, outside experts and reasonable assumptions in accordance with the circumstances appropriate to each estimate. The estimates and the assumptions used for preparing the financial statements are reviewed continuously. Changes in accounting estimates are recognized in the period during which the estimate was revised and in all affected future periods.


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Note 2 - Basis of Preparation of the Financial Statements (cont'd)

D. Use of estimates and judgment (cont’d)

Presented hereunder is information about critical estimates, made while implementing Group accounting policies which have a material impact on the financial statements:

1. Employee benefits

According to International Standard IAS 19, some of the employee benefit plans of the Group constitute defined benefit plans as defined in IAS 19. Such plans include principally, liabilities for pension and severance indemnities.

In computing the liability for pension, the Company uses various assessments. These assessments include, among other things, the interest rate for discounting the Company’s liability to pension, the return expected for the long-term on the assets of the pension fund, assessments regarding the long-term increase in wages and the assessment of the life expectancy of the group of employees entitled to a pension. The assessment of the interest rate for the purpose of discounting the Company’s liability for pension is based on the return on bonds of corporations operating in countries where an active market exists, and on the return on government bonds in countries where an active market for corporate bonds does not exist. The rate of return on long-term bonds changes according to market conditions. As a result the discount rate will also change and so will change the liability for pension. The assessment of the long-term return on the pension fund’s assets is based on the expected long-term return of the asset portfolio, in accordance with the composition of the assets of the pension fund. Changes in capital market conditions or in the composition of the asset portfolio of the pension fund may bring about a change in the assessment of the return on the assets of the fund and accordingly to a change in the pension fund. The assessment regarding the increase in wages is based on forecasts of the Company in accordance with past experience and existing labor agreements. Such assessments may not agree with the actual increase in wages. The life expectancy assessment is based on actuarial research published in the various countries. This research is updated every several years, and accordingly the life expectancy assessment may be updated.

The measurement of liabilities in respect of severance pay is based upon an actuarial assessment, which takes into account various assessments, among others, the future increase in employee wages and the rate of employee turnover. Measurement is made on the basis of discounting the expected future cash flows according to the interest rate of high ranking government bonds. Moreover, the deposited funds for severance pay are measured according to fair value. Changes in the assumptions used for the calculation of the liability for severance pay and the related plan assets for severance pay could increase or decrease the net liability for severance pay recognized.

2. Environmental and contingent liabilities

The Israel Chemicals Group produces fertilizers and chemical products and therefore is exposed in its ordinary course of business to obligations and commitments under environmental and related laws and regulations. The Israel Chemicals Group invests significant amounts in order to comply with the requirements of the law. The Company recognizes a liability in its records only when such liability is expected and may be measured. The assessment of a liability is based mostly on past experience, awareness of legal requirements concerning the areas of operation of the Company, as well as assessments regarding contingent claims existing against the Company based on opinions of legal advisors and other experts. As explained in Note 24 to the financial statements, several lawsuits are pending against the Company, the results of which may have an impact on the results of the Company.


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Note 2 - Basis of Preparation of the Financial Statements (cont'd) D. Use of estimates and judgment (cont'd) 2. Environmental and contingent liabilities (cont’d)

When assessing the possible outcomes of legal claims that were filed against the Company and its investee companies, the companies relied on the opinions of their legal counsel. The opinions of their legal counsel are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As the results of the claims will ultimately be determined by the courts, they may be different from such estimates.

3. Property, plant and equipment

Property, plant and equipment is depreciated by the straight-line method over the useful lives of the assets.

Based on experience gained by the Group, the amount of fully depreciated assets still being used in the manufacturing process is significant. In view of this, the Company has conducted an examination of the useful lives of assets by comparing it to the sector in which it operates, the level of maintenance of the plants and the functioning of the plants over the years. According to this examination, the outstanding balance of the depreciation period is shorter than the balance of the useful lives of the property, plant and equipment. On the basis of this evaluation, the Group has decided to change the assessment of the economic useful lives of the production plants. The change in the assessment is based on experience gained by the Group and not on changes in the assets or in the business environment. The previous evaluation of estimated useful lives of property, plant and equipment was performed in 2002. This assessment was based on the experience accumulated by the Group. In order to establish the remaining useful lives of property, plant and equipment the Company utilized opinions received (mostly internal opinions and one opinion from an independent valuer). The change in the assessment of the useful lives of the property, plant and equipment reflecting an extension of the depreciation period to 25 years, was made in the framework of the financial statements commencing with January 1, 2007.

The estimates, which rely on internal and external opinions, are based on the Company’s estimates. Changes in these estimates in the succeeding periods could increase or decrease the rate of depreciation of the facilities.

4. Impairment of assets

The Company examines at every balance sheet date whether there have been any events or changes in circumstances which would indicate impairment of one or more non-monetary assets. When there are indications of impairment, it examines whether the carrying amount of the investment can be recovered from the discounted cash flows anticipated to be derived from the asset, and if necessary, it records an impairment provision up to the amount of the recoverable value. Assessment of the impairment of goodwill and of other intangible assets having an indeterminable lifespan is performed once a year or when indicators for impairment exist.


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Note 2 - Basis of Preparation of the Financial Statements (cont'd) D. Use of estimates and judgment (cont'd) 4. Impairment of assets (cont’d)

The recoverable value of the assets is determined based on the higher of the net sale price of the asset and the present value of the future cash flows expected from the continued use of the asset, including the cash flows expected upon retiring the asset from service and its eventual sale (value in use). The future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The estimates regarding cash flows are based on past experience with respect to this asset or similar assets, and on the best possible assessments of the Company regarding the economic conditions that will exist during the remaining useful life of the asset. With respect to a provision for impairment for property, plant and equipment during the period of these financial statements, see Note 16B of the financial statements. The estimates of the cash flows are based on the Company’s forecasts. Since the actual cash flows could be different than the Company’s forecasts, the amount of the realizable value determined in the examination of impairment in value may change in the succeeding periods, such that a reduction of the value of the assets may be required in the future.

5. Business combinations

The Company is required to allocate the cost of acquiring companies and operations in business combinations on the basis of the estimated fair value of the assets and liabilities acquired. The Company uses the valuations of external independent valuers for establishing fair value. The valuations include assessments and estimates of Management concerning expected cash flow forecasts from the acquired business, and models for calculating the fair value of the acquired items and their depreciation period. Management’s estimate has an impact on the depreciation and amortization in the statement of income. Management's estimates of forecast cash flow and useful lives of the acquired assets might differ from the actual results.

6. Taxes on Income The Company and the companies in the Group are assessed, for income tax purposes, in many jurisdictions and Management is thus required to exercise considerable judgement in determining the aggregate provision for taxes and the allocation of income. Deferred taxes are computed according to tax rates expected to apply when the timing differences are realized, as stated in Note 3R. The tax rates expected to apply upon the realization of the timing differences applying to approved enterprises in Israel entitled to tax benefits is based on forecasts of future income earned by such approved enterprises in proportion to the total income of the Company. Changes in these assessments may lead to significant changes in the book value of these tax assets, tax liabilities and the results of operations.


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Note 2 - Basis of Preparation of the Financial Statements (cont'd) D. Use of estimates and judgment (cont'd)

7. Inventories

Inventory is measured in the financial statements at the lower of cost and net realizable value. The net realizable value is an estimate of the selling price during the ordinary course of business, less the estimate of the cost of completion and the estimate of the costs needed for effecting the sale. The selling price is estimated on the basis of the selling price expected at the time of realization of the inventory; a decrease in the expected selling price could cause a decrease in the book value of the inventory and the results of operations accordingly. Raw materials are written down to realizable value only when the finished products in which they are included are expected to be sold at prices below cost. The realizable value of raw materials is based on the realizable values of the finished goods in which they are included. In cases where the replacement value of raw materials serves as the best available evidence for realizable value, the measurement of realizable value is based on the replacement price. A decline in the expected replacement value could give rise to a decline in the value of the inventory of raw materials in the books and the results of operations, respectively.

E. Changes in accounting policies

(1) Presentation of financial statements

As from January 1, 2009 the Group implements revised IAS 1, Presentation of Financial Statements (hereinafter – the Standard). The Standard allows the presentation of one statement of comprehensive income (a combined statement of income and of other comprehensive income) or two statements – a statement of income and a separate statement of comprehensive income.

The Group has chosen to present income and expense items and components of other comprehensive income in two separate statements – a statement of income followed by a statement of comprehensive income. Furthermore, the Group presents a statement of changes in equity immediately after the statement of comprehensive income instead of in the notes. The statement includes changes in equity resulting from transactions with shareholders in their capacity as owners (such as dividends, transactions with controlling shareholders, issuance of shares and/or options, etc.). The Standard is applied on a retrospective basis. Since the change only impacts the presentation of the financial statements, there is no impact on the Company’s results of operations.

(2) Business Combinations

IAS 27 Consolidated and Separate Financial Statements 2008 and IFRS 3 (Revised 2008) Business Combinations (hereinafter – “the Standards”). Pursuant to the said Standards, business combinations are measured using the acquisition method. The cost of the business combination is measured as the fair value of the assets transferred, the liabilities assumed for the benefit of the prior shareholders and the equity instruments issued by the Group in exchange for obtaining control over the acquired entity. Transaction costs are recorded in the statement of income as incurred. Contingent consideration created in a business combination, that constitutes a financial liability as defined in IAS 32, is initially measured at fair value, where changes in the fair value in succeeding periods are recorded in the statement of income. Treatment of acquisitions of additional shares or sale of part of the existing shares without the Company ceasing to consolidate the financial statements of the companies with respect to which the transactions were executed, is made in such a manner that all the differences deriving from the transactions, as stated, are recorded directly to the shareholders’ equity.

Commencing from the financial statements for 2009, the Company has made early adoption of this Standard.


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Note 3 - Significant Accounting Policies

The accounting policies in accordance with IFRS have been implemented by the companies in the Group, except those described in changes in accounting policies in Note 2E as the basis for preparation of the financial statements. A. Operating cycle The normal operating cycle of the Company is longer than one year. As a result, current assets and current liabilities include items the realization of which is intended and anticipated to take place over the normal operating cycle of the Company. B. Basis for Consolidation 1. Subsidiary companies

Subsidiary companies are entities that are controlled by the Group. Control exists when the Group has the ability to determine the financial and operational policy of the entity in order to derive benefit from its activities. The financial statements of the subsidiary companies are included in the consolidated financial statements from the date control was acquired until the date control ceases to exist.

2. Associated companies

Associated companies are entities regarding which the Group has significant influence over their financial and operational policy, however control has not been obtained. Associated companies are accounted for using the equity method of accounting. The consolidated financial statements include the Group’s share in the revenues and expenses of associated companies after making the adjustments necessary to conform their accounting policies to that of the Group from the date the significant influence exists and up to the date the said significant influence no longer exists. Where the Group’s share in the losses exceeds the value of the Group’s rights in associated companies, the book value of such rights (including any long-term investment) is written down to zero and the Group does not recognize additional losses, unless the Group is committed to support the associated company or if the Group paid amounts for it.

3. Jointly controlled entities treated in accordance with the proportionate consolidation method

Jointly controlled entities are entities with respect to which the Group has joint control over their activities, which is obtained by means of a contractual arrangement requiring the joint consent of the other investors in connection with strategic, financial and operational decisions. Jointly controlled entities are treated in accordance with the proportionate consolidation method from the date on which the joint control is obtained and up to the time such joint control no longer exists. The consolidated financial statements include the Group’s proportionate share in the assets, liabilities, revenues and expenses of the proportionately consolidated companies based on the rates of the holdings in those companies.


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Note 3 - Significant Accounting Policies (cont'd) B. Basis for Consolidation (cont'd)

4. Intercompany balances and transactions eliminated on consolidation

Intercompany balances within the Group and unrealized income and expenses deriving from intercompany transactions are eliminated in preparation of the consolidated financial statements. Unrealized income deriving from transactions with associated companies was eliminated against the investment based on the Group’s rights in these investments.

5. Non-controlling interests

The non-controlling interests represent the net interest in the assets of subsidiaries that are allocated to rights not owned by the Company, whether directly or indirectly through subsidiaries and regarding which the Company has not agreed to additional conditions with the holders of those rights that would cause the total Group to be contractually obligated with respect to those rights that meet the definition of a financial equity obligation. The non-controlling interest is presented in the consolidated balance sheet in the equity section, separate from the equity attributable to the Company’s shareholders. The non-controlling interests in the Group’s results are presented in the consolidated statement of income as an allocation of the total income or loss for the period between the non-controlling interests and the Company’s shareholders.

C. Foreign Currency

1. Transactions in foreign currency

Transactions in foreign currency are translated into the Group’s functional currency based on the exchange rate in effect on the dates of the transactions. Monetary assets and liabilities denominated in foreign currency on the report date are translated into the Group’s functional currency based on the exchange rate in effect on that date. Exchange rate differences in respect of monetary items is the difference between the net book value in the functional currency at the beginning of the period plus the payments during the period and the net book value in foreign currency translated based on the rate of exchange at the end of the period. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency based on the exchange rate in effect on the date the fair value was determined. Exchange rate differences deriving from re-translation are recognized in the statement of income, except for the differences deriving from re-translation of the non-monetary equity instruments classified as “available for sale” which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

2. Foreign activities

The assets and liabilities of foreign activities, including goodwill and adjustments to fair value created upon acquisition, were translated into dollars according to the rates of exchange in effect on the balance sheet date. Income and expenses of foreign activities were translated into dollars according to the rates of exchange that were in effect on the transaction dates.


20

Note 3 - Significant Accounting Policies (cont’d) C. Foreign Currency (cont'd) 2. Foreign activities (cont'd)

Under the provisions of IFRS 1, the Group chose to zero out the accumulated translation differences as of January 1, 2007, the date of transition to IFRS, against the retained earnings for all of its foreign activities. When a foreign activity is realized, in whole or in part, the appropriate amount in the translation reserve is transferred to the income statement. Gains and losses from translation differences deriving from loans received from or granted to foreign activities, the settlement of which is not planned and is not expected to take place in the foreseeable future, are included as part of the net investment in the foreign activities and are recorded directly to equity in a reserve for translation of foreign activities.

D. Financial Instruments 1. Non-derivative financial instruments

Non-derivative financial instruments include investments in shares and debt instruments, trade and other receivables, cash and cash equivalents, loans and credit received, and trade and other payables. The initial recognition of non-derivative financial instruments is according to fair value, with the addition of, for instruments not presented at fair value through the statement of income, all related direct transaction costs. A financial instrument is recognized when the Group accepts the contractual obligations of the instrument. Financial assets are eliminated when the contractual rights of the Group to the cash flows deriving from the financial assets expire, or when the Group transfers the financial assets to others without retaining control or effectively transfers all of the risks and rewards deriving from the asset. Acquisitions and sales of financial assets made in the usual manner (regular way purchase or sale) are recognized on the trade date, that is, on the date the Group undertook to buy or sell the asset. Financial liabilities are eliminated when the Group’s obligation as described in the contract expires or when it is paid or cancelled. A financial asset and a financial liability are offset and the amounts are presented on a net basis in the statement of financial position where the Group has a currently enforceable legal right to offset the amounts recognized and the intention is to settle the asset and liability on a net basis or to realize the asset and settle the liability concurrently. Cash and cash equivalents Cash includes cash balances that are available for immediate use and deposits at call. Cash equivalents include short-term investments having high liquidity that can be easily converted into known amounts of cash and that are subject to an insignificant risk in connection with changes in value.


21

Note 3 - Significant Accounting Policies (cont’d) D. Financial Instruments (cont'd) 1. Non-derivative financial instruments (cont'd)

Financial assets available for sale

After the initial recognition, these investments are measured based on fair value, where the changes therein, except for losses from impairment and gains or losses from changes in the exchange rate, are recorded directly in comprehensive income and presented in reserve for assets available for sale. A dividend received in respect of financial assets available for sale is recorded in the statement of income at the time of eligibility for the payment. When the investment is eliminated, the gains or losses accumulated in equity are transferred to the statement of income.

Loans and receivables

The loans and debit balances are non-derivative financial instruments having fixed payments or payments that can be fixed that are not traded on an active market. After the initial recognition, the loans and debit balances are measured based on amortized cost using the effective interest rate method while taking into account transaction costs and net of a provision for impairment.

2. Derivative financial instruments

The Group holds derivative financial instruments for the purpose of economic hedging against foreign currency risks and interest risks. The Company also holds derivative financial instruments for hedging exposure to changes in cash flow from debentures which were issued, for accounting purposes.

Derivatives are initially recognized according to fair value and the attributable transaction costs are charged to profit and loss as incurred. After the initial recognition, the derivatives are remeasured at fair value, where the changes in the fair value are recorded in the statement of income.

Cash flow hedges

On initial designation of the accounting hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent.


22

Note 3 - Significant Accounting Policies (cont’d) D. Financial Instruments (cont'd) 2. Derivative financial instruments (cont'd)

For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss. Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income directly in a hedging reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. The amount recognized in the hedging reserve is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the statement of income as the hedged item.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized through other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction occurs or is no longer expected to occur. If the forecasted transaction is no longer expected to occur, then the cumulative gain or loss previously recognized in the hedging reserve is recognized immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognized in the hedging reserve is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in the hedging reserve is transferred to profit or loss in the same period that the hedged item affects profit or loss.

Economic hedge that does not meet the conditions of an accounting hedge Changes in the fair value of derivatives that do not meet the conditions of an accounting hedge in accordance with IFRS, after the date of the initial recognition thereof, are recorded in the statement of income as financing income or expenses.

Embedded derivatives The Company has embedded derivatives that are components of a hybrid instrument which also includes the host contract which is not a derivative. Embedded derivatives are separated from the host contract and are treated separately if: a) there is no close relationship between the economic characteristics and risks of the host contract and of the embedded derivatives, at a separate instrument having the same terms as the embedded derivative b) a separate instrument having the same terms as the embedded derivative would have met the definition of a derivative and c) the integrated instrument is not measured at fair value through the statement of income. Changes in fair value of separated embedded derivatives are recorded immediately in the statement of income as financing income or expenses.

3. CPI-linked assets and liabilities not measured at fair value

The value of index-linked financial assets and liabilities, which are not measured based on fair value, are revalued every period in accordance with the actual rate of increase in the CPI.


23

Note 3 - Significant Accounting Policies (cont’d) E. Property, plant and equipment

1. Recognition and measurement

Property, plant and equipment are presented at cost after deducting the related amounts of investment grants and less accumulated depreciation and provision for impairment. The cost includes expenses that can be directly attributed to the purchase of the asset. The cost of assets that were constructed independently includes the cost of the materials and direct salary costs, as well as any additional costs that are directly attributable to bringing the asset to the required position and condition so that it will be able to function as management intended, as well as costs to dismantle and remove the items and to restore its location. The cost of purchased software, which is an inseparable part of operating the related equipment, is recognized as part of the cost of said equipment. Spare parts for facilities are valued at cost determined based on the moving average method, after recording a write-down in respect of obsolescence. The portion designated for current consumption is presented in the inventory category under non current assets.

Where significant parts of an item of property, plant and equipment (including costs of major periodic inspections) have different life expectancies, they are treated as separate items (significant components) of such items. Changes in a commitment to dismantle and remove items and to restore their location, except for changes stemming from the passage of time, are added to or deducted from the cost of the asset in the period in which they occur. The amount to be deducted from the cost of the asset may not exceed its book value and the balance, if any, is to be recognized immediately in the statement of income. Gains and losses on disposal of a property, plant or equipment item are determined by comparing the proceeds from disposal with the carrying amount of the asset, and are recognized net within “other income” or “other expenses”, as relevant, in the income statement.

2. Subsequent costs (costs incurred after the initial recognition date)

The cost of replacing part of an item of property, plant and equipment is recognized as part of the book value of the item if it is expected that the future economic benefit inherent in the item will flow to the Group and that its cost can be measured in a reliable manner. The book value of the part that was replaced is eliminated. Routine maintenance costs are charged to the statement of income as incurred.

3. Depreciation

Depreciation is charged to the statement of income according to the straight-line method over the estimated useful life of each component of the property, plant and equipment items. Leased assets are depreciated over the shorter of the lease period or the useful life of the asset. Owned land is not depreciated.


24

Note 3 - Significant Accounting Policies (cont’d) E. Property, plant and equipment (cont’d)

3. Depreciation (cont’d)

The estimated useful life for the current period and comparative periods is as follows: In Years

Land development, roads and structures 10–30 Facilities, machinery and equipment 8–25 Dams and ponds 6–25 Heavy mechanical equipment, train cars and tanks 5–10 Office furniture and equipment, motor vehicles, computer equipment and other 3–20

F. Intangible Assets 1. Goodwill

Goodwill is created as a result of acquisition of subsidiaries (including minority interests), associated companies (including acquisitions of additional rights in the associated companies) or proportionately consolidated companies. Acquisition of non-controlling interest are transactions with equity holders and goodwill is not recognized on such acquisition.

Acquisitions before January 1, 2007 Regarding business combination transactions, associated companies’ acquisitions, proportionately consolidated companies’ acquisitions and non-controlling interest acquisitions that occurred before January 1, 2007, the goodwill reflects the amount recognized by the Group, in accordance with generally accepted accounting principles in Israel. For these acquisitions, the classification and accounting treatment were not adjusted to IFRS. Acquisitions after January 1, 2007

Regarding acquisitions after January 1, 2007, the goodwill reflects the excess of the acquisition cost over the Group’s rights in the net fair value of the identified assets, liabilities and contingent liabilities of the acquired entity. Where such difference is negative (negative goodwill) it is recognized immediately in the statement of income. Subsequent measurement

Goodwill is measured according to cost after deduction of accumulated losses from impairment. Goodwill in respect of investments in associated companies is included in the book value of the investment.

2. Research and development

Costs related to research activities undertaken for the purpose of acquiring knowledge and new scientific or technological understandings are charged to the statement of income as incurred.

Development activities relate to a plan for the production of products or new processes or significant improvement of products. Costs of development activities are recognized as an intangible asset only if: it is feasible to reliably measure the development costs; it is technically and commercially feasible to implement the product or process; future economic benefit is expected from the product and the Group has intentions and sufficient resources to complete development of the asset and then use or sell it.


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Note 3 - Significant Accounting Policies (cont’d) F. Intangible Assets (cont’d)

2. Research and development (cont’d)

The costs recognized as an intangible asset include the cost of materials, direct payroll and overhead expenses, which may be directly attributed to the preparation of the asset for its intended use. Other costs in respect of development activities are charged to the income statement as incurred. Capitalized development costs are measured at cost less accumulated amortization and impairment.

3. Other intangible assets

Other intangible assets purchased by the Group, with a defined useful life, are measured according to cost less amortization and accumulated losses from impairment.

Intangible assets with indefinite useful lives are measured according to cost less accumulated losses from impairment.

4. Subsequent costs

Subsequent costs are recognized as an intangible asset only when they increase the future economic benefit inherent in the asset for which they were incurred. All other costs, including costs relating to goodwill or trademarks developed independently, are charged to the statement of income as incurred.

5. Amortization

Amortization is recorded in the statement of income according to the straight-line method from the date the assets are available for sale, over the estimated useful economic life of the intangible assets, except for customer relationships and geological surveys, which are amortized according to the rate of consumption of the economic benefits expected from the asset on the basis of cash flow forecasts, and except for goodwill and intangible assets having an indefinite lifespan, which are not amortized on a methodical basis. The estimated useful life for the current period and comparative periods is as follows:

In Years Concessions – over the balance of the concession granted to the companies Software costs 3–10Trademarks 5–30Customer relationships 15–25Agreements with suppliers 5Patents 7–20Non-compete agreement 5Deferred expenses in respect of geological surveys are amortized over the useful life based on a geological estimate of the amount of the material that will be produced from the mining site.

The estimates regarding the amortization method and useful life are reviewed, at a minimum, at the end of every reporting year.

The Group periodically examines the estimated useful life of an intangible asset that is not amortized in order to determine if events and circumstances continue to support the determination that the intangible asset has an indefinite life.


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Note 3 - Significant Accounting Policies (cont’d) G. Leased Assets

Leases, where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and, except for investment property, the leased assets are not recognized on the Group’s statement of financial position. H. Inventories

Inventory is measured at the lower of cost and net realizable value. The cost of the inventory includes the costs of purchasing the inventory and bringing it to its present location and condition. In the case of work in process and finished goods, the cost includes the proportionate part of the manufacturing overhead based on normal capacity. Net realization value is the estimated selling price in the ordinary course of business, after deduction of the estimated cost of completion and the estimated costs required to execute the sale.

The cost of the inventory of raw and auxiliary materials, maintenance materials, finished goods and goods in process, is determined mainly according to the “moving average” method. Some of the raw materials, finished goods and goods in process are in bulk. The quantities are based on estimates (which are made, for the most part, by outside experts who measure the volume and density of the inventory). Inventory the sale of which is expected to take place in a period of more than 12 months from the balance sheet date is presented as non-current inventory, as part of non-current assets. I. Capitalization of Borrowing Costs Borrowing costs are capitalized to qualifying assets, as defined in International Accounting Standard 23 “Borrowing Costs”, during the period required for completion and establishment until the time when they are ready for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets or to the same part thereof that was not financed by specific borrowing using an interest rate that is the weighted-average of the cost rates in respect of those same credit sources that were not capitalized specifically. Other borrowing costs are charged to the statement of income as incurred. J. Impairment 1. Financial assets

An impairment of a financial asset is examined when there is objective evidence that one or more events have occurred that may have had a negative impact on the estimate of the future cash flows from the asset. Objective evidence that financial assets are impaired can include default by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security.


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Note 3 - Significant Accounting Policies (cont’d) J. Impairment (cont’d) 1. Financial assets (cont’d)

As part of the examination of impairment of “available for sale” financial assets that constitute equity instruments, the Company also examines the difference between the fair value of the asset and its original cost, while taking into account the volatility of the of the instrument and the period of time the asset’s fair value is lower than its original cost.

The loss from impairment in the value of a financial asset measured according to depreciated cost is calculated as the difference between the book value of the asset and the present value of the estimated future cash flows, discounted using the original effective interest rate. A loss from impairment of a financial asset classified as available for sale is calculated based on the asset’s present fair value.

For material financial assets, the need to reduce the value of the asset is examined for each asset individually.

Losses from impairment in value, except for losses relating to a financial asset classified as available for sale, are recorded on the statement of income. The cumulative loss relating to a financial asset classified as available for sale that was previously recorded in equity, is transferred to the statement of income when there is a significant or continuing decline in the fair value below the original cost. An impairment will generally be considered significant if it exceeds 20% of the original cost and an impairment that extends over a period of more than 9 months will be considered a significant continuing decline. The Group examines evidence of impairment for payables and loans on a specific basis.

2. Non-financial assets

The book value of the Group’s non-financial assets, other than inventory and deferred tax assets is examined for each reporting period in order to determine if there are signs indicating an impairment in value. If such signs exist, the estimated recoverable amount of the asset is calculated. The Group conducts an annual examination of the recoverable amount for goodwill and intangible assets with indefinite useful lives or that are not available for use or more frequently if there are indications of impairment.

The recoverable amount of an asset or a cash-generating unit is the higher of its value in use or the net selling price (fair value minus selling costs). When determining the value in use the Group discounted the anticipated future cash flows according to the pre-tax discount rate that reflects the market evaluations regarding the time value of money and the specific risks attributed to the asset. For purposes of testing impairment in value, the assets are grouped together into the smallest group of assets that yields cash flows from continuing use, which is essentially independent of the other assets and other groups (“cash-generating unit”). Goodwill purchased in the context of business combinations is allocated for the purpose of examining impairment in value to cash-generating units that are expected to yield benefits from the synergy of the combination.


28

Note 3 - Significant Accounting Policies (cont’d) J. Impairment (cont’d) 2. Non-financial assets (cont’d)

Losses from impairment of value are recognized when the book value of the assets or of the cash-generating unit to which the asset belongs exceeds the recoverable value and are recorded to profit and loss. Losses from impairment of value that were recognized for cash-generating units are first allocated to reducing the book value of the goodwill attributed to these units and afterwards to reducing the book value of the other assets in the cash-generating unit, proportionately.

A loss from impairment in value of goodwill is not cancelled. Regarding other assets, losses from impairments of value that were recognized in previous periods are re-examined in each reporting period in order to determine if there are signs indicating that the losses have decreased or no longer exist. A loss from impairment of value is cancelled if there is a change in the estimates used to determine the recoverable value, only if the book value of the asset, after cancellation of the loss from impairment of value, does not exceed the book value, after deduction of depreciation or amortization, that would have been determined if the loss from impairment of value had not been recognized.

K. Employee Benefits The Group has several post-employment benefit plans. The plans are funded primarily by deposits with insurance companies or funds managed by a trustee, and they are classified as defined contribution plans and as defined benefit plans. 1. Defined contribution plans

The Group’s obligation to make deposits in a defined contribution plan is recorded as an expense to profit and loss at the time the obligation to make the deposit arises.

2. Defined benefit plans

The Group’s net obligation, regarding defined benefit plans for post-employment benefits, is calculated for each plan separately by estimating the future amount of the benefit to which an employee will be entitled as compensation for his services during the current and past periods. The benefit is presented according to present value after deducting the fair value of the plan assets. The discount rate for the Group companies operating in countries having a market wherein there is a high level of trading in corporate bonds is in accordance with the yield on the corporate bonds. The discount rate for the Group companies operating in countries not having a market wherein there is a high level of trading in corporate bonds, including Israel, as stated above, is in accordance with the yield on government bonds – the currency and redemption date of which are similar to the terms binding the Group. The calculations are performed by a licensed actuary using the “predicted eligibility unit” method. When on the basis of the calculations an asset is created for the Group, the asset is recognized up to the net present value of the available economic benefits in the form of a refund from the plan or by a reduction in future deposits to the plan. An economic benefit in the form of a refund from the plan or a reduction in future deposits will be considered available when it can be realized in the lifetime of the plan, after settlement of the obligation.


29

Note 3 - Significant Accounting Policies (cont’d)

K. Employee Benefits (cont’d)

2. Defined benefit plans (cont’d) When there is an obligation, as part of a minimal deposit requirement, to pay in additional amounts in respect of services provided in the past, the Company recognizes an additional liability (an increase in the net liability or a decrease in the net asset), provided that such amounts are not available as an economic benefit in the form of a refund from the plan or by a reduction in future deposits to the plan. Where there is an improvement in the benefits granted by the plan to the employees, the portion of the increased benefits relating to the employees’ past services is recorded on the statement of income based on the straight-line method over the average period up to the vesting of the benefits. If the benefits vest immediately, the expense is recorded on the statement of income immediately. The movement in the net liability in respect of a defined benefit plan recognized in every accounting period in the statement of income is comprised of the following: (i) Current service costs – the increase in the liability present value deriving from

employees’ service in the current period;

(ii) Current interest costs – is the increase in the liability present value deriving from the passage of time;

(iii) Anticipated yield of the Fund’s assets;

(iv) Exchange rate differences;

(v) Past service costs – the change in the present value of a liability in the current period as a result of a change in benefits following the termination of a transaction attributed to prior periods; and

(vi) Write-down as a result of a reduction in benefits. The difference, as at the balance sheet date, between the liability, net for the beginning of the period and the addition of the movement in profit and loss as detailed above, and the actuarial liability less the fair value of the fund assets at the end of the period, reflects the balance of the actuarial income or expenses recorded directly in equity.

3. Other long-term employee benefits

Some of the Company’s employees are entitled to other long-term benefits that do not relate to the post-retirement benefit plan. In cases where the amount of the benefit is the same for every employee, without taking into account the years of service, the cost of the benefit is recognized when the benefit is taken. Employee benefits in respect of sick leave (redemption in cash of unutilized sick leave upon retirement) are measured in accordance with the actuarial evaluation method and the actuarial profits or losses are reflected in the income statement as incurred.


30

Note 3 - Significant Accounting Policies (cont’d)

K. Employee Benefits (cont’d) 4. Early retirement pay

Early retirement pay is recognized as an expense when the Group is clearly obligated to pay it, without any reasonable chance of cancellation, in respect of termination of employees before they reach the customary age of retirement according to a formal, detailed plan. The benefits given to employees upon voluntary retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be accepted and it is possible to reliably estimate the number of employees that will accept the proposal.

5. Short-term benefits

Obligations for short-term employee benefits are measured on a non-discounted basis, and the expense is recorded at the time the said service is provided. A provision for short-term employee benefits in respect of cash bonuses is recognized when the Group has a current legal or implied obligation to pay the said amount for services provided by the employee in the past and it is possible to reliably estimate the amount.

6. Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service and non-market performance conditions, is adjusted to reflect the number of awards that are expected to vest. For share-based payment awards with non-vesting conditions or with market performance vesting conditions, the grant date fair value of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognized an expense in respect of the awards whether or not the conditions have been met.

L. Provisions A provision is recognized when the Group has a present legal or implied obligation as the result of an event that occurred in the past, when it can be reliably estimated and when it is expected that a flow of economic benefits will be required in order to settle the obligation. The provision is made based on an estimate of the anticipated payments to settle the liability. In addition, in rare cases where it is not possible to estimate the outcome of the claim, no provision is recorded in the financial statements. 1. Warranty

A provision for warranty is recognized when the products or services, in respect of which the warranty is provided, are sold or performed. The provision is based on historical data and on a weighting of all possible expenses according to their probability of occurrence.


31

Note 3 - Significant Accounting Policies (cont'd)

L. Provisions (cont’d)

2. Restructuring A provision for restructuring is recognized when the Group approves a formal detailed plan for restructuring and such restructuring has effectively begun or where a notification in respect thereof has been given to the employees. The provision includes the direct costs deriving from restructuring, necessarily involved in the restructuring and which are not attributed to the continued operations of the Group.

3. Provision for environmental costs The Group recognizes a provision for an existing obligation that has occurred in respect of a current cost for operation and maintenance of facilities for prevention of environmental pollution and anticipated provisions for costs relating to environmental restoration stemming from current or past activities. Costs for preventing environmental pollution that increase the life expectancy or efficiency or decrease or prevent the environmental pollution, are recorded as a provision and are capitalized to the cost of the property, plant and equipment and are depreciated according to the usual depreciation rates used by the Group.

4. Legal claims

A provision for legal claims is recognized when the Group has an express or implied legal obligation as a result of an event that occurred in the past, if it is more likely than not that the Group will be required to use its economic resources to settle the obligation and it can be reasonably estimated. Where the time value is significant, the provision is measured based on its present value.

M. Revenue Recognition 1. Sale of goods

Revenue from the sale of goods is measured according to the fair value of the consideration received or to be received, after deducting returns, discounts, commercial discounts and quantity discounts. In cases where the credit period is short and constitutes the accepted credit period allowed in the sector, the future payment is not discounted. The Group recognizes the revenue when the significant risks and rewards from ownership of the merchandise are transferred to the buyer, receipt of the consideration is expected, it is possible to reliably estimate the chance that the goods will be returned and the costs that were incurred or will be incurred for the transaction can be reliably estimated, when the management has no ongoing involvement in the goods and the revenue can be reliably estimated.

Transfer of the risks and rewards changes in accordance with the specific conditions of the sale contract.


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Note 3 - Significant Accounting Policies (cont'd) M. Revenue Recognition (cont’d) 2. Construction contracts

Revenues and expenses from construction contracts are recorded in the statement of income, in proportion to the percentage of completion of the contract, where it is possible to reliably estimate its results. Revenues from a construction contract include the original amount included in the contract plus amounts relating to changes in the work order, claims and incentives, provided income is expected and it can be reliably measured. The stage of completion of the contract is determined based on the percentage of contract costs incurred in respect of the work performed from total estimated costs. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognized immediately in the statement of income.

3. Concession arrangements

Income derived from providing operating services or income derived from providing other services is recognized in the period in which these services have been provided by the Group. Where the Group provides more than one type of service in accordance with a concession agreement, the consideration received is allocated proportionally, in accordance with the fair value of the services provided. As part of concession agreements for provision of services with governmental entities for construction and operation of water desalination facilities in exchange for fixed and variable payments, the Group recognizes a financial asset in the financial statements from the date of commencement of construction of the facilities. The financial asset reflects the unconditional payments to be received in the future from the government and it bears interest that is determined based on the customer’s risk-free interest rate plus a premium reflecting the appropriate risk. The facility’s operating and maintenance costs are recorded on the statement of income as incurred. The operating revenues were calculated based on the amount of the expenses recorded on the statement of income plus a fixed margin.

N. Treasury stock Where the share capital recognized as equity has been reacquired by the Group, the amount of the consideration paid therefore, including direct expenses and net of the tax effect is deducted from equity. The reacquired shares are classified as treasury stock and stated as a deduction from equity. When treasury stock is sold or reissued, the proceeds received are recognized as an addition to equity and the surplus or deficit resulting from the transaction is reflected in the share premium line item.


33

Note 3 - Significant Accounting Policies (cont'd) O. Payment of Lease Fees Payments under an operating lease are recorded in the statement of income using the straight-line method over the term of the lease period. P. Resource Exploration Costs and Evaluation Costs incurred in respect of the exploration for resources and the valuation thereof are recognized as an intangible asset, the costs are presented at cost and a provision for impairment. The cost includes, among other things, costs of performing studies, drilling costs and operations in connection with evaluating the technical feasibility of the commercial capability of production of the resources. Q. Financing Income and Expenses Financing income includes income from interest on amounts invested (including financial assets available for sale), gains from foreign currency and gains from derivative financial instruments recognized in the statement of income. Interest income is recognized as accrued, using the effective interest method. Financing expenses include interest on loans received, changes in the time value of provisions, dividends paid on preferred shares classified as a liability, securitization transaction costs, losses from impairment of value of financial assets available for sale, losses from derivative financial instruments, changes due to the passage of time in liabilities in respect of defined benefit plans for employees less income derived from expected return on assets of a defined benefit plan for employees. Borrowing costs, which are not capitalized, are recorded in the income statement using the effective interest method. Gains and losses from exchange rate differences are reported on a net basis. R. Taxes on Income Taxes on income include current and deferred taxes. Taxes on income are recorded in the income statement unless the tax originated in a transaction or event that is recognized directly in equity. In these cases, taxes on income are charged to equity. The current tax is the amount of tax that is expected to be paid on the taxable income for the year, which is calculated according to the tax rates in effect according to the law that was finally legislated or effectively legislated as at the balance sheet date, and includes changes in tax payments attributed to prior years.


34

Note 3 - Significant Accounting Policies (cont'd) R. Taxes on Income (cont'd) Recognition of deferred taxes is according to the balance sheet approach, relating to temporary differences between the book values of the assets and liabilities for purposes of financial reporting and their value for tax purposes. The Company does not recognize deferred taxes for the following temporary differences: initial recognition of goodwill, initial recognition of assets and liabilities for transactions that do not constitute a business combination and do not impact the accounting income and the income for tax purposes, as well as differences deriving from investments in subsidiary and associated companies, if it is not expected that they will reverse in the foreseeable future. The deferred taxes are measured according to the tax rates that are expected to apply to the temporary differences at the time they are realized, on the basis of the law that was finally legislated or effectively legislated as at the balance sheet date. The Company offsets deferred tax assets and liabilities if there is an enforceable legal right to offset current tax assets and liabilities and they are attributed to the same taxable income and are taxed by the same tax authority for the same assessed company or different companies that intend to settle current tax assets and liabilities on a net basis or if the tax assets and liabilities are settled concurrently. A deferred tax asset is recognized in the books when it is expected that in the future there will be taxable income against which the temporary differences can be utilized. Deferred tax assets are examined at each balance sheet date and, if it is not expected that the related tax benefits will be realized, they are written down. The Group could become liable for additional taxes in a case of distribution of intercompany dividends between the Group companies. These additional taxes were not included in the financial statements in light of the policy of the Group companies not to cause distribution of a dividend that involves additional taxes to the recipient company in the foreseeable future. In cases where the associated company is expected to distribute a dividend involving additional tax, the Company records a reserve for taxes in respect of the said additional tax it is expected to incur due to distribution of the dividend. Deferred tax in respect of intra-company transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying company. S. Earnings per share The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or loss allocable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings per share are determined by adjusting the income or loss allocable to ordinary equity holders and the weighted-average number of ordinary shares outstanding for the effect of all potentially dilutive ordinary shares including options for shares granted to employees.


35

Note 3 - Significant Accounting Policies (cont'd) T. Segment Information An operating segment is a component of the Group that meets three conditions as follows: 1. It engages in business activities from which it may earn revenues and incur expenses, including

revenues and expenses that relate to transactions with any of the Group’s other components; 2. Its operating results are reviewed regularly by the Group’s chief operating decision maker to

make decisions about resources to be allocated to the segment and assess its performance, and 3. Discrete financial information is available in its respect. Unallocated items of revenue and expense include financing income and expenses on investments, loans and credit, administrative and general costs attributed to the Company’s headquarters and taxes. Segment results, assets and liabilities include items that are directly attributable to the segment and items that can reasonably be attributed to it. Items that were not allocated consist primarily of investments and the income attributed to them; loans and credit and related expenses; corporate assets (especially the Company’s headquarters); administrative and general expenses; as well as tax assets and liabilities and expenses for taxes on income. Capital expenses of the segment are the total costs that were incurred during the period for purchasing property, plant and equipment and intangible assets. U. Transactions with a Controlling Interest Assets and liabilities with respect to which a transaction is executed with a controlling interest are measured at fair value on the transaction date due to the fact that the transaction is an equity transaction. V. Reclassification The Company has reclassified items of assets and liabilities in the balance sheet as of December 31, 2008, as well as income and expense components in the income statement for the year ended on that date in immaterial amounts. W. Sale of financial assets Sale of financial assets is recognized as a sale where control over the financial asset is transferred in full to an unrelated third party and all the risks and rewards inherent in the asset are transferred to an unrelated third party.


36

Note 3 - Significant Accounting Policies (cont'd) X. New Standards and Interpretations not yet Adopted

In the framework of the 2009 Improvements to IFRS project, in April 2009 the IASB published and approved 15 amendments to various IFRS on a wide range of accounting issues. The amendments shall apply to periods beginning on or after January 1, 2010 and permit early adoption, subject to the specific conditions of each amendment.

Presented hereunder are the amendments that may be relevant to the Group and are expected to have an effect on the financial statements:

1. Amendment to IAS 17, Leases – Classification of leases of land and buildings (hereinafter – the Amendment) – In accordance with the Amendment, a lease of land does not have to be classified as an operating lease in every case that ownership is not expected to pass to the lessee at the end of the lease period. In accordance with the amended standard, a land lease is to be examined according to the regular criteria for classifying a lease as a finance lease or as an operating lease.

The Amendment also provides that when a lease includes both a land component and a buildings component, the classification of each component should be based on the criteria of the standard, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.

The Amendment applies to financial statements for annual periods beginning on or after January 1, 2010. The Amendment is to be implemented retrospectively, which means that the classification of land leases is to be examined on the basis of the information that was available on the date of the lease agreement, and that in the event of reclassification of the lease, the provisions of IAS 17 are to be implemented retrospectively as from the date of the lease agreement. Nevertheless, if the entity does not have the information necessary to apply the Amendment retrospectively, it should use the information available on the adoption date of the Amendment and recognize the asset and liability related to a land lease that was classified as a result of the Amendment as a finance lease according to their fair value as at that date. Any difference between the fair value of the asset and the fair value of the liability shall be recognized in retained earnings.

In the Company’s estimation, the Amendment is not expected to have a significant impact on the financial position and the results of operations.

2. IFRS 9 Financial Instruments.

In November 2009 the IASB published the international accounting standard IFRS 9 Financial Instruments (hereinafter – “the standard”). This standard is the first part of a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter – IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets. In accordance with the Standard, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entity’s business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other financial assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above.


37

Note 3 - Significant Accounting Policies (cont'd) X. New Standards and Interpretations not yet Adopted (cont’d) 2. (cont’d)

In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date.

The Standard removes financial liabilities from its scope.

The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012 it is not required to restate prior periods. The Company is examining the anticipated impacts of the Standard on its financial statements.

Y. Balances in foreign currency and linked balances Balances in or linked to foreign currency are included in the financial statements at the representative exchange rate on balance sheet date. Balances linked to the consumer price index (hereinafter – the “CPI”) are included on the basis of the index relating to each linked asset or liability. Data regarding the representative exchange rates and the CPI are as follows:

Exchange Exchange rate rate of the of the US dollar US dollar CPI relative to relative (Points) the Shekel to the Euro

December 31, 2009 110.6 3.775 0.694December 31, 2008 106.4 3.802 0.718December 31, 2007 102.5 3.846 0.680 Changes during the year ended: December 31, 2009 3.9% (0.7%) (3.3%)December 31, 2008 3.8% (1.1%) 5.6%December 31, 2007 3.4% (9.0%) (10.5%)


38

Note 4 - Determination of Fair Values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. A. Property, plant and equipment The fair value of property, plant and equipment recognized in a business combination is based on a cost model or on a market value model. According to the cost model, the fair value of the property, plant and equipment is based on the depreciated replacement value of the item measured. According to the market value model, the fair value is based on the selling price determined in sale transactions of similar assets, while performing adjustments applicable to the sold asset items and the asset item acquired through a business combination. B. Intangible assets The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that would be required to be paid if the patent or trademark was not owned. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. Intangible assets received as consideration for providing construction services in a service concession arrangement are measured at fair value upon initial recognition, estimated by reference to the fair value of the construction services provided. When the Group receives an intangible asset and a financial asset as consideration for providing construction services in a service concession arrangement, the Group estimates the fair value of intangible assets as the difference between the fair value of the construction services provided and the fair value of the financial asset received (see also reference to determination of fair value of trade and other receivables). The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. C. Inventories The fair value of inventories acquired in a business combination is determined as follows:

(1) Finished goods inventories – on the basis of the estimated selling price of the products in the

ordinary course of business, less the estimated costs for completion and sale as well as a reasonable margin in respect of the efforts required for completion and sale of the inventories.

(2) Inventory of work-in-progress – determined on the basis of estimates described in Section 1

above, less costs required for its completion.

(3) Inventory raw materials – based on replacement value.


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Note 4 - Determination of Fair Values (cont’d)

D. Investments in securities The fair value of financial assets classified as available-for-sale and as held-for-trading are determined based on their market price at date of the report. E. Derivatives The fair value of forward contracts on foreign currency is determined by using trading software based on their market price. The market price is determined by averaging the exchange rate and the appropriate interest coefficient for the period of the transaction and the relevant currency index. The fair value of currency options is determined by using trading software based on the Black and Scholes model, taking into account the intrinsic value, standard deviation and the interest rates. The fair value of interest rate swap contracts is determined by using trading software based on market price determined by discounting the estimated amount of future cash flows on the basis of terms and length of period to maturity of each contract, while using market interest rates of similar instruments at date of measurement. Future contracts on energy prices are presented at their fair value, determined by using trading software that quotes the prices of products on an ongoing basis. The reasonableness of the market price is examined by comparing it to quotations by banks. For further information regarding the fair value hierarchy see Note 28(G) regarding financial instruments. F. Liabilities in respect of debentures Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. G. Share-based payment transactions The fair value of employee share options and of share appreciation rights is measured using the Black-Scholes model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate (based on government debentures). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.


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Note 5 - Operating Segments A. General:

1. Information on business segments:

The Group is a multi-national enterprise, which operates mainly in the fields of fertilizers and specialty chemicals, in three reporting segments - fertilizers, performance products and industrial products. The segments are described below:

ICL Fertilizers - ICL Fertilizers mines and processes potash, mines and processes phosphate rock, and produces agricultural phosphoric acid, phosphate fertilizers, compound fertilizers, based mainly on potash and phosphate, and specialty fertilizers. ICL Fertilizers markets these products worldwide, mainly to Europe, Brazil, India, China and Israel. This segment is comprised of two sub-segments: potash and phosphate. ICL Fertilizers extracts potash from the Dead Sea and mines potash from subterranean mines in the UK and in Spain. ICL Fertilizers mines phosphate rock from open-air mines in the Negev, and also produces sulphuric and phosphoric acid in Israel and fertilizers in Israel, the Netherlands and Germany. The activity of Mifalei Tovala Ltd., which engages in the transportation of cargo, mainly of ICL companies in Israel, is included in the ICL Fertilizers segment.

ICL Industrial Products - ICL Industrial Products produces bromine out of a solution that is created as a by-product of the potash production process in Sdom, as well as bromine-based compounds. ICL Industrial Products uses most of the bromine it produces for self-production of bromine compounds on production sites in Israel, the Netherlands and China. In addition, ICL Industrial Products extracts salt, magnesia and chlorine from Dead Sea brine, and produces chlorine based products in Israel and the United States. In addition, ICL Industrial Products engages in the production and marketing of flame retardants and additional phosphorus based products.

ICL Performance Products - ICL Performance Products processes some of the agricultural phosphoric acid produced by ICL Fertilizers, using it to produce downstream products with high added value. These products include phosphoric acid (food grade and technical grade), phosphate salts, food additives, and hygiene products for the food industry. ICL Performance Products also produces specialty products, based on aluminum compounds, and other raw materials. Production is mostly carried out at production sites in Europe, (particularly in Germany) and the United States, as well as in Israel, China, and other countries.

In addition to the segments described above, Israel Chemicals has other operations, including the desalination of water (through a proportionately consolidated company) and the production and marketing of pure magnesium as well as magnesium alloys.

2. Segment assets and liabilities

Segment assets include all the operating assets used by a segment and consist principally of cash and cash equivalents, trade and other receivables, inventories and property, plant and equipment and intangible assets, net of allowances and provisions. Most such assets can be directly attributed to individual segments. Segment liabilities include all the operating liabilities and consist principally of trade payables and wages, which are scheduled for current payment, for employee benefits and liabilities.

3. Inter-segment transfers

Segment revenues, segment expenses and segment results include transfers between business segments and between geographical segments. Such transfers are accounted for at normal market prices charged to external customers for similar goods. Those transfers are eliminated on consolidation.


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Note 5 - Operating Segments (cont'd)

B. Operating segment data: Fertilizers Industrial Performance Other Potash Phosphate Eliminations Total products products operations Eliminations Consolidated US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

2009: 1,264,567 689,174 - 1,953,741 1,003,982 1,293,539 303,054 - 4,554,316 Sales to external customers 164,465 98,537 )70,136( 192,866 11,099 34,505 35,895 )274,365( - Inter-segment sales 1,429,032 787,711 )70,136( 2,146,607 1,015,081 1,328,044 338,949 )274,365( 4,554,316

Total revenues 708,071 11,473 3,579 723,123 20,851 162,746 29,294 936,014

Operating income (loss) 2,159 Unallocated income (loss) 938,173 Operating income

)83,424( Financing expenses 89,539 Financing income )1,482( Share in income of associated companies 942,806 Income for the year before tax

Other data: Segment assets 1,904,870 893,906 )75,195( 2,723,581 1,441,332 876,876 228,695 144,587 5,415,071 Unallocated assets 492,518 Consolidated total assets 5,907,589

Segment liabilities 463,865 339,227 )50,526( 752,566 387,632 306,315 137,031 )70,699( 1,512,845 Unallocated liabilities

Consolidated total liabilities 1,599,895 3,112,740

Capital expenditures

179,317 65,459 - 244,776 106,298 59,848 13,514 - 424,436 Unallocated capital expenditures 4,402 Total capital expenditures 428,838

Depreciation and amortization 70,831 38,112 - 108,943 49,080 67,278 5,832 - 231,133 Unallocated depreciation and amortization 528 Total depreciation and amortization 231,661


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B. Operating segment data (cont'd): Fertilizers Industrial Performance Other Potash Phosphate Eliminations Total products products operations Eliminations Consolidated US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

2008: Sales to external customers 2,428,799 1,485,246 - 3,914,045 1,246,000 1,479,973 264,031 - 6,904,049 Inter-segment sales 271,214 195,698 (129,238) 337,674 8,164 63,506 62,547 (471,891) -

Total revenues 2,700,013 1,680,944 (129,238) 4,251,719 1,254,164 1,543,479 326,578 (471,891) 6,904,049

Operating income (loss) 1,573,517 470,951 (25,908) 2,018,560 104,921 254,168 (48,517) 2,329,132 Unallocated income (loss) 6,357 Operating income 2,335,489 Financing expenses, net (177,760) Financing income 55,676 Share in income of associated companies 13,804 Income for the year before tax 2,227,209

Other data: Segment assets** 1,765,837 961,149 (112,271) 2,614,715 1,424,684 868,614 189,331 154,859 5,252,203 Unallocated assets 507,176 Consolidated total assets 5,759,379

Segment liabilities 501,080 336,739 (84,023) 753,796 335,351 265,681 168,414 (67,210) 1,456,032 Unallocated liabilities 1,792,420 Consolidated total liabilities 3,248,452

Capital expenditures 133,065 57,946 - 191,011 118,551 119,714 10,107 - 439,383 Unallocated capital expenditures 4,124 Total capital expenditures 443,507 Depreciation and amortization * 59,977 33,228 - 93,205 40,053 38,850 56,274 - 228,382 Unallocated depreciation and amortization 1,234 Total depreciation and amortization 229,616 * Depreciation and amortization include impairment of property, plant and equipment. (See Note 16(B)). ** Reclassified


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B. Operating segment data (cont'd): Fertilizers Industrial Performance Other Potash Phosphate Eliminations Total products products operations Eliminations Consolidated US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

2007: Sales to external customers 1,228,259 731,689 - 1,959,948 919,263 1,078,300 145,668 - 4,103,179 Inter-segment sales 158,183 81,565 )51,033( 188,715 6,368 23,763 21,619 )240,465( - Total revenues 1,386,442 813,254 )51,033( 2,148,663 925,631 1,102,063 167,287 )240,465( 4,103,179

Operating income (loss) 405,628 122,963 )1,177( 527,414 142,195 91,079 )16,981( 743,707 Unallocated income (loss)

)1,121( Operating income 742,586

Financing expenses )104,130( Financing income 27,489 Share in income of associated companies 3,969 Income for the year before tax 669,914 Other data: Segment assets* 1,376,897 782,522 )52,796( 2,106,623 1,327,556 716,925 201,707 119,718 4,472,529 Unallocated assets

217,414 Consolidated total assets 4,689,943 Segment liabilities 392,281 284,634 )50,556( 626,359 295,798 244,960 101,143 )74,639( 1,193,621 Inter-segment unallocated liabilities

1,629,404 Consolidated total liabilities 2,823,025

Capital expenditures* 77,076 29,477 - 106,553 352,709 37,387 8,265 - 504,914 Unallocated capital expenditures

742 Total capital expenditures 505,656

Depreciation and amortization * 54,040 32,650 - 86,690 34,013 35,830 8,161 - 164,694 Unallocated depreciation and amortization 1,443 Total depreciation and amortization 166,137 * Reclassified


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C. Information on geographical segments:

Following is data regarding the distribution of the Group’s sales by geographical market (based on customer location):

For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Europe 1,426,005 2,420,466 1,532,557 Asia 1,148,418 1,633,084 868,899 North America 1,013,064 1,152,113 802,442 South America 542,557 971,211 514,737 Other 140,928 292,131 140,028

In Israel 4,270,972 6,469,005 3,858,663

283,344 435,044 244,516 4,554,316 6,904,049 4,103,179

Following is data regarding the distribution of the Group's sales by geographical market (based on asset location):


Israel 2,306,660 4,244,509 2,237,426Europe 1,610,360 2,470,515 1,526,331United States 875,340 998,959 698,633Other 314,700 381,261 268,009

5,107,060 8,095,244 4,730,399Transfers - mainly from Israel )552,744( (1,191,195) )627,220(

4,554,316 6,904,049 4,103,179

Following is data regarding the operating income by geographical market location:


Israel 577,864 1,656,608 556,116Europe 151,961 506,867 125,766United States 121,781 144,099 37,321Other 86,567 27,915 23,383

938,173 2,335,489 742,586


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C. Information on geographical segments (cont’d) Following is data reflecting the carrying value of segment assets and additions to property, plant and equipment and intangible assets by geographical area in which the assets are located:

Additions to property, plant and Carrying value of segment assets equipment, and intangible assets December 31 For the year ended December 31 2009 2008 2007 2009 2008 2007 US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Israel 3,132,047 3,131,205 2,537,508 225,552 148,675 51,634Europe 1,563,570 1,430,754 1,155,192 176,604 114,770 250,394United States 746,767 823,129 683,811 17,498 26,652 196,054Other 153,268 168,464 184,469 4,782 149,286 6,832Eliminations )180,581( (301,349) )88,451( - - -

5,415,071 5,252,203 4,472,529 424,436 439,383 504,914

Following are data for depreciation and amortization by geographical area:

Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Depreciation and amortization: Israel 95,000 134,321 87,456Europe 71,888 64,671 53,320United States 57,938 25,078 21,276Other 6,835 5,546 4,085

231,661 229,616 166,137 Note 6 - Short-Term Investments, Deposits and Loans December 31 December 31 2009 2008 US$ thousands US$ thousands

Available-for-sale securities 22,352 17,494 Held-for-trading securities 3,705 3,398 Deposits in banks and financial institutions and short-term loans 133,643 98,119 Current maturities of long-term deposits and receivables 7,849 6,050 167,549 125,061


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Note 7 - Trade Receivables December 31 December 31 2009 2008 US$ thousands US$ thousands

Trade - open accounts: Outside Israel 915,544 964,690 Domestic (Israel) 58,798 95,811 974,342 1,060,501 Less – allowance for doubtful debts 4,722 6,114 969,620 1,054,387

Note 8 - Other Receivables and Debit Balances, Including Derivative Instruments December 31 December 31 2009 2008 US$ thousands US$ thousands

Government institutions in Israel 13,675 11,352 Governmental institutions outside Israel 10,021 16,542 Prepaid expenses 22,529 27,843 Income to be received from insurance 3,836 6,503 Advances to suppliers 3,200 4,496 Derivative instruments 20,803 14,825 Other 44,474 61,712

118,538 143,273

Note 9 - Inventories December 31 December 31 2009 2008 US$ thousands US$ thousands

Finished products 787,188 780,281 Work in progress 258,991 233,435 Raw materials and supplies 149,613 223,067 Spare parts and maintenance supplies 92,899 92,409 1,288,691 1,329,192 Less – non-current inventory (presented in non-current assets) 55,441 51,188 1,233,250 1,278,004 The inventory as at December 31, 2008 includes a provision for impairment of inventories in the amount of US$164 million, in order to state the inventories at their realizable value, which is lower than cost. This provision has been charged to the cost of sales line item in 2008.


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Note 10 - Investment in Investee Companies

A. Composition of investment in associated companies December 31 December 31 2009 2008 US$ thousands US$ thousands

Shares: Cost of shares, including undistributed earnings up to December 31, 1991* 5,358 5,358 Share in earnings, accumulated since January 1, 1992 less dividends received 18,297 21,005 Differences from translation of financial statements of investees 3,372 (946) 27,027 25,417

Capital notes and long-term loans 1,735 1,764

28,762 27,181 * Includes goodwill: Original amounts 3,348 3,348

Amount after accumulated amortization 1,674 1,674 B. Movement during the year in investments in associated companies

US$ thousands Balance as at beginning of the year 27,181 Changes during the year: Decrease in capital notes and long-term loans (29)Share in losses )1,482(Dividend )1,226(Translation differences 4,318 Balance as at year end 28,762


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Note 10 - Investment in Investee Companies (cont’d) C. Condensed data with respect to investee companies accounted for based on the equity method and proportionate consolidation method of

accounting Set forth below is Condensed data with respect to investee companies accounted for based on the equity method and proportionate consolidation method of accounting, without adjustment of the ownership rates held by the Group.

December 31, 2009 US$ thousands Current Non-current Total Current Non-current Total Profit assets assets assets liabilities liabilities liabilities Revenues Expenses (loss)

Associated companies 63,117 32,994 96,111 27,669 69,933 97,602 129,977 139,998 )10,021( Jointly controlled entities 262,410 362,062 624,472 143,664 282,514 426,178 406,554 323,562 82,992

December 31, 2008 US$ thousands Current Non-current Total Current Non-current Total assets assets assets liabilities liabilities liabilities Revenues Expenses Income

Associated companies 65,697 29,978 95,675 40,127 40,816 80,943 215,828 191,390 24,438 Jointly controlled entities 277,078 270,383 547,461 173,677 265,328 439,005 353,980 323,999 29,981


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Note 10 - Investment in Investee Companies (cont’d) D. Consolidated companies

Additional details regarding consolidated companies and proportionately consolidated companies held directly by the Company

Investment

Equity Amounts given by the Company amounts in the

Country Holding to the Subsidiary Subsidiary

Loans Guarantees

US$ thousands

2009

Dead Sea Works Ltd. Israel 100% - - 2,152,709Dead Sea Bromine Company Ltd. Israel 100% - 517,390 268,835Rotem Amfert Negev Ltd. Israel 100% 440,000 - 586,435Dead Sea Periclase Ltd. Israel 100% - - 48,143Mifalei Tovala Ltd. Israel 100% - - 32,189Rotem Amfert Negev B.V., The Netherlands The Netherlands 32.60%* - - 27,611I.D.E. Technologies Ltd. Israel 50% - 19,552 75,870ICL Financing and Issuing Ltd. Israel 100% - - 4“Ferson” Chemicals Ltd. Israel 100% - - 1,637ICL Fine Chemicals Ltd. Israel 100% - - )91(Dead Sea Magnesium Ltd. Israel 100% - - 14,265ICL Finance B.V. The Netherlands 100% - - 83,004ICL Finance Inc., USA U.S.A. 100% - - 28,364Twincap Forsakrings AB Sweden 100% - - 5,740Hy-Yield Bromine Inc. USA 80% - - 11,575

2008 Dead Sea Works Ltd. Israel 100% - - 1,823,729 Dead Sea Bromine Company Ltd. Israel 100% 130,000 517,390 350,042 Rotem Amfert Negev Ltd. Israel 100% 440,000 - 674,457 Dead Sea Periclase Ltd. Israel 100% - - 47,189 Mifalei Tovala Ltd. Israel 100% - - 30,250 Rotem Amfert Negev B.V., The Netherlands The Netherlands 32.60%* - - 44,787 I.D.E. Technologies Ltd. Israel 50% 9,136 25,787 37,298 ICL Financing and Issuing Ltd. Israel 100% - - 38 “Ferson” Chemicals Ltd. Israel 100% - - 1,692 ICL Fine Chemicals Ltd. Israel 100% - - )90(Dead Sea Magnesium Ltd. Israel 65% (46,983)ICL Finance B.V. The Netherlands 100% - - 77,623 ICL Finance Inc., USA U.S.A. 100% - - 27,977 Twincap Forsakrings A.B. Sweden, U.S.A. 100% - - 6,719 * The balance of the holding is by a subsidiary


50

Note 11 - Business Combinations

A. In August 2007, a subsidiary acquired all of the ownership rights in Supresta LLC (hereafter – “Supresta”), a company registered in Delaware in the United States, which is engaged in the manufacture and marketing of flame retardants as well as additional products on the basis of phosphorus. The purchase consideration, including transaction costs, after adjustments in respect of changes in working capital, amounted to $361.5 million which has been allocated as follows: $67.5 million for working capital, $120 million was for intangible assets, $83 million for property, plant and equipment and $4 million for long-term liabilities. The balance amounting to $95 million has been attributed to goodwill.

The statements of income and the statements of cash flows were consolidated for the first time as from August 14, 2007.

B. On January 28, 2008 the Group acquired the principal assets and operations of a business unit of the German group Henkel that engages in water treatment for a cash payment of € 56 million (about $85 million). The acquired business sells products, services and equipment for water treatment, mainly to industry in Germany, France, Spain, Italy and Turkey. The consolidated financial statements include the results of operations of the business unit as from the date of its acquisition. The purchase price was allocated mainly to intangible assets (principally a patent and customer relationships) in the amount of $46 million and to goodwill in the amount of $33 million.

C. On July 1, 2009, a compromise agreement was signed between ICL and Volkswagen AG (hereinafter – “Volkswagen”), which held 35% of the share capital of the subsidiary Dead Sea Magnesium Ltd. (hereinafter – “Magnesium”), the highlights of which are as follows: 1. Volkswagen will transfer the amount of about $30 million to Magnesium. 2. All of Volkswagen’s shares in Magnesium will be transferred to ICL for no

consideration. Concurrent with Volkswagen’s investment, as stated, ICL will invest in Magnesium the amount of about $56 million. In light of the Company’s early adoption of IFRS 3 (Revised 2008) and IAS 27 (R) in July 2009, as stated in Note 2E(2), acquisition of the shares of Magnesium was accounted for as a capital transaction. The impact of the said transaction is an increase in the capital attributed to the holders of the Company’s equity rights, in the third quarter of 2009, by the amount of about $78 million.

D. In the reported period the Company acquired a number of companies and activities amounting to $49 million. The impact on the consolidated financial statements is not significant.


51

Note 12 - Investment in Other Company

The investment in shares of “Mekoroth” Israel National Water Company Ltd. (hereinafter – "Mekoroth"), held by Rotem and additional companies in the Group is presented at token value. The Company is unable to estimate the fair value of its holding in shares of Mekoroth.

The shares in Mekoroth were allotted to Rotem in respect of investments made by the companies in the past in water infrastructures. The companies have joined a claim against Mekoroth, which was recognized in part as a class action. The class action includes, among other things, the companies' claim for allotment of additional shares of Mekoroth in respect of its investments the companies made in water infrastructures and its claim that the State make a tender offer for the acquisition of both its present holding and its claim holdings in Mekoroth as well as a request for relief by means of a pecuniary refund in the event that the claim for the share allotment is rejected.

On January 28, 2004, the District Court issued a ruling, which rejected the application for the allotment of additional shares in Mekoroth, yet the Court recognized the Company’s right to initiate a class action for the remedial refund of amounts paid by the Company. The parties have appealed the District Court’s decision to the Supreme Court. In February 2009, the Government decided to approve the issue of shares in Mekoroth and the State and Mekoroth gave notice of this to the Court. In August 2009, the parties submitted notification to the Court whereby the parties are continuing their efforts to reach a compromise. The parties received an extension up to April 2010 in order to exhaust the efforts between them.

Note 13 - Long-Term Deposits and Receivables

A. Composition December 31 December 31 2009 2008 US$ thousands US$ thousands

Deposits in banks 11,533 6,595 Long-term financial asset (1) 172,790 *133,214 184,323 139,809 Less – current maturities 7,849 6,050 176,474 133,759 Other receivables 32,534 *35,154

209,008 168,913 * Reclassified (1) A financial asset arising from the construction of desalination plants. The asset

is to be paid over the period of the desalination franchise in accordance with the consideration to be received in respect of the plant. See Note 3(M)(3).


52

Note 13 - Long-Term Deposits and Receivables (cont'd)

B. Long-term bank deposits and receivables classified by currency and interest rates

Weighted average interest rate as at December 31 December 31 December 31 2009 2009 2008 % US$ thousands US$ thousands

In Israeli currency 2.1 169,392 127,426 In foreign currency : Swiss francs 5. 9 8,342 11,926 US dollar 1.4 6,341 220 Other 2.5 248 237 184,323 139,809 C. The deposits and receivables (net of current maturities) mature in the following years

after each balance sheet date as follows:

December 31 December 31 2009 2008 US$ thousands US$ thousands

Second year 13,760 8,437 Third year 10,805 10,201 Fourth year 10,525 3,474 Fifth year 16,136 1,623 Sixth year and thereafter 125,248 * 110,024 176,474 133,759 * Reclassified


53

Note 14 – Property, Plant and Equipment

A. Composition

Furniture, Heavy office mechanical equipment, Land, land Installations, equipment, vehicles, development, machinery Dikes and railroad computer roads and and evaporating cars and equipment Plants under Spare parts for buildings equipment ponds tanks and other construction (5) installations - Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Cost (1) Balance as at January 1, 2009 513,479 3,669,285 510,551 117,153 191,464 176,718 11,376 5,190,026 Additions 29,720 219,081 62,722 2,463 12,062 34,632 289 360,969 Additions in respect of business combinations 6,154 3,262 - - 573 - - 9,989 Disposals )2,660( )13,833( - )4,265( )2,349( - - )23,107( Translation differences of financial statements 7,751 29,232 6,363 69 2,325 4,292 - 50,032 Balance as at December 31, 2009 554,444 3,907,027 579,636 115,420 204,075 215,642 11,665 5,587,909 Accumulated depreciation (1) Balance as at January 1, 2009 295,588 2,423,798 320,966 95,373 147,037 - - 3,282,762 Additions 15,427 129,110 17,937 3,104 11,005 - - 176,583 Disposals )4,672( )10,245( - )3,507( )1,574( - - )19,998( Translation differences of financial statements 4,696 18,413 3,751 3 1,523 - - 28,386 Impairment (2) 7,628 19,356 - - 59 - - 27,043 Balance as at December 31, 2009 318,667 2,580,432 342,654 94,973 158,050 - - 3,494,776 Depreciated balance as at December 31, 2009 235,777 1,326,595 236,982 20,447 46,025 215,642 11,665 2,093,133


54

Note 14 – Property, Plant and Equipment (cont’d)

A. Composition (cont’d)

Furniture, Heavy office mechanical equipment, Land, land Installations, equipment, vehicles, development, machinery Dikes and railroad computer roads and and evaporating cars and equipment Plants under Spare parts for buildings equipment ponds tanks and other construction (5) installations - Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Cost (1) Balance as at January 1, 2008 506,477 3,525,685 460,100 114,538 184,820 121,291 11,249 4,924,160 Additions 15,942 190,294 59,544 4,442 15,758 63,527 127 349,634 Additions in respect of business combinations 3,902 7,220 - - 1,275 91 - 12,488 Disposals (1,488) (3,532) - (1,721) (7,573) - - (14,314) Translation differences of financial statements (11,354) (50,382) (9,093) (106) (2,816) (8,191) - (81,942) Balance as at December 31, 2008 513,479 3,669,285 510,551 117,153 191,464 176,718 11,376 5,190,026 Accumulated depreciation (1) Balance as at January 1, 2008 289,052 2,275,990 311,279 93,567 150,279 - - 3,120,167 Additions 14,150 131,411 15,260 3,362 3,462 - - 167,645 Disposals (717) (2,525) - (1,506) (4,910) - - (9,658) Translation differences of financial statements (6,897) (28,506) (5,573) (50) (1,794) - - (42,820) Impairment (2) - 47,428 - - - - - 47,428 Balance as at December 31, 2008 295,588 2,423,798 320,966 95,373 147,037 - - 3,282,762 Depreciated balance as at December 31, 2008 217,891 1,245,487 189,585 21,780 44,427 176,718 11,376 1,907,264


55

Note 14 – Property, Plant and Equipment (cont’d)

A. Composition (cont'd) 1. The property, plant and equipment include assets that have been fully depreciated and which are

still in use. The original cost of those assets as of December 31, 2009 is about $ 1,896 million. 2. See Note 16(B). 3. Investment grants

Property, plant and equipment are net of investment grants, as follows (see Note 26(C)):


Amount of the grants 924,098 920,849 Less – accumulated depreciation 635,744 617,921 288,354 302,928

4. As to expenses capitalized, see Note 27(B) and 27(F).

5. Plants under construction – the changes represent purchases during the year, net of transfers to

property, plant and equipment, net.


56

Note 15 - Intangible Assets

A. Composition

Intangible assets acquired Intangible assets internally developed Others Total Exploration Concessions and and mining Technology Customer evaluation Technology/ Development Goodwill rights (1) Trademarks patents relationships assets patents costs US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Cost Balance as at January 1, 2009 196,542 160,447 51,483 33,382 122,163 8,725 236 6,939 68,535 648,452 Additions 54 - 1,075 - - 13,113 15 - 5,353 19,610 Additions in respect of business combinations 12,236 - 7,109 1,553 20,446 - 107 - 3,715 45,166 Translation differences 980 2,209 5,839 237 2,026 457 1 141 2,980 14,870 Balance as at December 31, 2009 209,812 162,656 65,506 35,172 144,635 22,295 359 7,080 80,583 728,098 Amortization and impairment losses Balance as at January 1, 2009 23,760 28,856 5,746 6,041 10,207 2,903 24 4,956 44,521 127,014 Translation differences 599 47 1,735 )11( 171 - )1( 141 5,228 7,909 Amortization for the year 5 3,250 672 2,360 9,108 373 35 250 10,439 26,492 Balance as at December 31, 2009 24,364 32,153 8,153 8,390 19,486 3,276 58 5,347 60,188 161,415 Amortized balance as at December 31, 2009 185,448 130,503 57,353 26,782 125,149 19,019 301 1,733 20,395 566,683


57

Note 15 - Intangible Assets (cont'd)

A. Composition (cont’d)

Intangible assets acquired Intangible assets internally developed Others Total Exploration Concessions and and mining Technology Customer evaluation Technology/ Development Goodwill rights (1) Trademarks patents relationships assets patents costs US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Cost Balance as at January 1, 2008 175,424 164,029 41,763 34,846 96,691 5,777 238 5,478 69,698 593,944 Additions - - - - - 2,999 - 616 3,102 6,717 Additions in respect of business combinations 32,538 - 11,348 1,684 31,615 - - 905 349 78,439 Translation differences (8,016) (3,582) (1,628) (3,148) (6,143) (51) (2) (60) (4,614) (27,244) Adjustments to goodwill from recognition of deferred tax assets following business combinations (3,404) - - - - - - - - (3,404) Balance as at December 31, 2008 196,542 160,447 51,483 33,382 122,163 8,725 236 6,939 68,535 648,452 Amortization and impairment losses

Balance as at January 1, 2008 24,657 25,678 4,643 4,380 4,133 2,475 - 4,276 45,069 115,311

Translation differences (897) (65) 527 (283) (651) - - (171) (1,300) (2,840) Amortization for the year - 3,243 576 1,944 6,725 428 24 851 752 14,543

Balance as at December 31, 2008 23,760 28,856 5,746 6,041 10,207 2,903 24 4,956 44,521 127,014

Amortized balance as at December 31, 2008 172,782 131,591 45,737 27,341 111,956 5,822 212 1,983 24,014 521,438

(1) A subsidiary company in Spain has mining rights for the future development of new mines to mine potash, in the amount of $63 million. Part of these rights expire in 2037 and the

remainder in 2067. Development of the new mines has not yet commenced and accordingly amortization of these mining rights has not yet begun.


58

Note 15 - Intangible Assets (cont'd)

B. Total book value of intangible assets having defined useful lives and those having indefinite useful lives are as follows:


Intangible assets having a defined useful life 346,098 313,396 Intangible assets having an indefinite useful life 220,585 208,042

566,683 521,438 Note 16 - Impairment Testing for Property, Plant and Equipment and Cash-Generating

Units Containing Goodwill

A. Impairment testing for cash generating units containing goodwill and intangible assets with an indefinite useful life

For the purpose of impairment testing, goodwill and intangible assets with an indefinite useful life are allocated to the cash-generating units which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.

The aggregate carrying amounts of goodwill and intangible assets with an indefinite useful life allocated to each unit are as follows: December 31 December 31 2009 2008 US$ thousands US$ thousands

Goodwill ICL Fertilizers, Spain 4,625 4,474 ICL Industrial Products, Europe 42,130 36,626 ICL Industrial Products, United States 56,826 56,826 ICL Performance Products, United States 9,371 9,018 ICL Fertilizers, Israel 20,120 20,120 Industrial Products, Israel 3,708 3,708 ICL Performance Products, Europe 42,753 36,095 ICL Performance Products, South America 5,915 5,915 185,448 172,782

Trademarks ICL Industrial Products, United States 13,000 13,000 ICL Industrial Products, Europe 9,505 9,179 ICL Performance Products, United States 12,632 13,081 35,137 35,260 220,585 208,042


59

Note 16 - Impairment Testing for Property, Plant and Equipment and Cash-Generating Units Containing Goodwill (cont’d)

A. Impairment testing for cash generating units containing goodwill and intangible assets

with an indefinite useful life (cont’d)

Value in use was determined by discounting the future cash flows generated from the continuing operation of the cash-generating unit and was based on the following key assumptions:

Period of Discount Growth rate Long-term projected rate (2-5 years) growth rate cash flows ICL Industrial Products, United States 9.3% 8.1% 2% 5 yearsICL Industrial Products, Europe 10.0% 6.1% 2% 5 yearsICL Performance Products, United States 9.6% (1.6%) 2% 5 yearsICL Performance Products, Europe 10% 8.6% 0% 5 years The recoverable value of the above mentioned units is based on their value in use. The value in use of the units examined has been determined by internal valuation by the Company. It has been determined with respect to all cases, that the stated value of the units in the financial statements is lower than their recoverable value, and accordingly no loss for impairment has been recognized in respect of such units. The estimates and assumptions represent Management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). Possible reasonable changes in key assumptions, which constituted the basis for determination of the recoverable amount of the units, would not have caused the book value to be higher than the amount of their recoverable value. B. Examination of impairment of property, plant and equipment items 1) In 2008, Magnesium examined the need to record a provision for impairment in respect of its

property, plant and equipment. The examination included a comparison of the discounted value of the expected cash flows during the plant’s remaining useful life (a five-year cash flow forecast period where the fifth year was chosen as the representative year for the balance of life of the property, plant and equipment) compared with the value of the assets as stated in Magnesium’s books. Calculation of the discounted value of the expected cash flows was made using an annual discount after tax rate of 14.9% and based on the Magnesium’s assessments as to the present magnesium prices in the world market and the expectations regarding future price developments, a forecast with respect to development of unique products and the anticipated energy prices. As a result of this examination, the company included a provision for impairment of the value of Magnesium’s assets, in an amount of US$47.4 million, which was recorded on the income statement in “other expenses” category.


60

Note 16 - Impairment Testing for Property, Plant and Equipment and Cash-Generating Units Containing Goodwill (cont’d)

B. Examination of impairment of property, plant and equipment items (cont'd) 2) During 2009, the Board of Directors of a subsidiary, as part of the subsidiary’s efficiency plan,

approved a plan for shutting down one of the production facilities of ICL Performance Products and transfer of the production to other existing plants. As a result of the approved plan, the subsidiary examined the need for recognition of a provision for impairment in value of the production facility’s property, plant and equipment. The examination included comparison of the discounted value of the expected future cash flows over the remaining useful life of the facility (a period of about two years) with the book value of the facility’s assets. Calculation of the discounted value of the expected future cash flows was made using a pre-tax annual discount rate of 9.5%. As a result of the examination, the subsidiary included a provision for impairment in value of the facility’s assets in the amount of about $27 million, which was recorded in the “other expenses” category in the statement of income.

Note 17 - Derivative Instruments December 31, 2009 December 31, 2008 Assets Liabilities Assets Liabilities US$ thousands US$ thousands

Among current assets and liabilities: Currency derivative instruments 17,748 )1,756( 14,825 (22,778)Interest derivative instruments 660 - - - Commodity and sea freight derivative instruments 2,395 - - (5,879)

20,803 )1,756( 14,825 (28,657)

Among non-current assets and liabilities: Interest derivative instruments 16,739 )14,228( 7,334 (11,784)


61

Note 18 - Credit from Banks and Others


Current liabilities Short-term credit: From financial institutions 33,587 258,680 From parent company 166 110,220 Other 33,753 368,900 Current maturities of long-term loans: From financial institutions 29,501 42,374 From debentures 38,000 - From others 2,697 259 70,198 42,633 103,951 411,533


Non current liabilities Loans from financial institutions* 658,043 927,615Loans from others 60,232 12,287 718,275 939,902Less – current maturities in respect of loans from financial institutions and others 32,198 42,633 686,077 897,269 Marketable debentures 416,794 - Non-marketable debentures 125,000 125,000 541,794 125,000Less – current maturities of debentures 38,000 - 503,794 125,000 Total non-current liabilities 1,189,871 1,022,269 * The Group has the right to make early repayment of the loans from financial institutions.


62

Note 18 - Credit from Banks and Others (cont’d)

B. Classified by currency and interest rates


Current liabilities (without current maturities) Short-term credit from financial institutions: In dollars 1.6 6,726 139,723 In other foreign currencies (mainly Euro) 1.4 26,829 38,473 In Israeli currency – unlinked 1.0 32 80,484 33,587 258,680

Short-term credit from others: In Israeli currency – unlinked 4.2 22 30,480 In dollars 1.3 144 79,740 166 110,220

33,753 368,900


63

Note 18 - Credit from Banks and Others (cont’d) B. Classified by currency and interest rates (cont’d)


Non-current liabilities (including current maturities) Financial institution loans: In dollars (1) 0.8 475,434 718,411 In Swiss francs 4.0 2,428 5,499 In Euro (2) 3.0 166,723 153,527 In Israeli currency linked to CPI 7.8 13,458 50,178 658,043 927,615 Other loans: In Israeli currency - mainly linked to CPI 7.8 36,783 3,937 In dollars 2.4 2,055 6,371 In foreign currencies - mainly Euro 3.3 21,394 1,979 60,232 12,287

718,275 939,902 Debentures not traded in dollars 5.4 125,000 125,000 Debentures traded (3) In dollars 3.0 67,226 - In Israeli currency – net linked to CPI 5.0 224,881 - In Israeli currency – linked to CPI 3.4 124,687 - 416,794 -

Unutilized long-term credit lines 423,700 -

(1) Interest in respect of most of the dollar debt is determined based on LIBOR+0.45% - 1.5%. (2) Interest in respect of part of the Euro debt is determined based on Euribor + 0.45%-1.15% and

part is based on average annual fixed interest rate of 5.56%. (3) See Clause G C. Maturity periods

The credit and the loans including debentures (net of current maturities) mature in the following years after the balance sheet date, as follows:


Second year 38,147 10,736 Third year 540,588 16,728 Fourth year 273,228 755,885 Fifth year 158,631 4,238 Sixth year and thereafter 179,277 *234,682 1,189,871 1,022,269

* Reclassified


64

Note 18 - Credit from Banks and Others (cont'd) D. Restrictions on the Company relating to the grant of credit In respect of some of the loans detailed above, the Company undertook to comply with certain covenants in relation to the Group’s consolidated balance sheet. According to these covenants, the ratio of the net debt to EBITDA may not exceed 4.5, the ratio of EBITDA to net interest expenses are to be at least 3.5 and ICL’s equity will not fall below $700 million, plus 25% of the cumulative net annual income for 2005 and the cumulative subsequent years. In addition, the financial liabilities of the subsidiaries are limited to 10% of the assets in the Group’s consolidated balance sheet (in certain instances, loans to subsidiaries are not included in said restriction). Up to and as at balance sheet date, the Company is in compliance with the aforementioned financial covenants. E. Sale of receivables under securitization transaction The Company and certain subsidiaries (hereinafter- “the Companies”) entered into a number of securitization agreements with Rabobank International for the sale of customer debts to a foreign company which was established specifically for this purpose and which is neither owned nor controlled by the ICL Group (hereinafter – "the Acquiring Company"). The Acquiring Company finances acquisition of the debts by means of a loan received from a financial institution, which is not related to ICL, which finances the loan out of the proceeds from the issuance of commercial paper on the U.S. commercial paper market. The repayment of both the commercial paper and the loan are backed by credit lines from a banking consortium organized by Rabobank International. The amount of cash that will be received in respect of the initial sale of the customer debts in the securitization transaction will be up to $300 million. The acquisition is on an ongoing basis, which enables the Acquiring Company to utilize the proceeds received from customers whose debts were sold, to acquire new trade receivables. The period in which the Company is entitled to sell its trade receivables to the Acquiring Company is one year after settling the transaction. This period can be extended by agreement with all the parties for additional one year periods each time up to a maximum of 4 extensions. The existing securitization agreement will expire in July 2010. The Company is working on signing a new securitization agreement. The selling price of the trade receivables is based on the balance of the related debt, discounted by an amount based on the anticipated period from the sale until repayment. Upon acquisition of the trade receivables, the Acquiring Company pays the majority of the balance in cash and the remainder in a subordinated note, which is paid after collection of the related debt. The rate of the cash consideration varies according to the composition and behavior of the customer portfolio. The Companies bear all losses incurred, if any, by the Acquiring Company as a result of trade receivables sold under the securitization transaction and not repaid, all up to the aggregate balance of the debt not yet paid, which is included in the subordinated liability.


65

Note 18 - Credit from Banks and Others (cont'd) E. Sale of receivables under securitization transaction (cont’d)

The sale is final. The Acquiring Company has no right of recourse to the Companies in respect of amounts paid, with the exception of debts in respect of which a commercial dispute arises between the companies and their customers (i.e., a dispute involving a claim concerning the failure of the seller to fulfill the terms of the product supply agreement, such as: supply of the wrong product, supply of a defective product, delay in supply, etc.).

The Companies handle collection of the trade receivables included in the securitization transaction, on behalf of the Acquiring Company.

In the agreement, the Company undertook to comply with certain covenants, according to which the ratio of the net debt to EBITDA will not exceed 4.5. If the Company does not comply with the aforementioned covenants, the Acquiring Company is allowed to stop acquiring new receivables (without this affecting existing acquisitions). Up to and as at balance sheet date, the Company is in compliance with the aforementioned covenants.

The securitization of trade receivables executed by the Company does not meet the conditions for disposal of financial assets prescribed in International standard IAS 39, regarding Financial Instruments – Recognition and Measurement, since the Group did not transfer all of the risks and rewards deriving from the trade receivables. Therefore, the receipts received from the Acquiring company are presented as a financial liability in short-term credit. As at balance sheet date the Company has not utilized the securitization agreement (as at December 31, 2008 approximately $70 million). F. Issuance of Debentures On April 27, 2009, the Company issued three series of debentures in a private offering via a tender to institutional investors, for a consideration of NIS 695 million (about $164 million). The debentures were issued in the following three series: 1. Series A – approximately NIS 452 million debentures linked to the CPI, to be redeemed at the

end of 5 years. 2. Series B – approximately NIS 61 million debentures not linked, to be redeemed at the end of

4.5 years. 3. Series C – approximately NIS 182 million debentures linked to the dollar, to be redeemed at the

end of 4.5 years. In August 2009 the debentures were registered for trading on the Tel-Aviv Stock Exchange, based on a prospectus dated August 9. The interest rate determined in the tender after registration of the debentures on the stock exchange is 3.4% per annum for the CPI-linked debentures, 5.25% per annum for the shekel debentures and 2.4% above the six-month dollar Libor rate, for the dollar-linked debentures.


66

Note 18 - Credit from Banks and Others (cont'd) F. Issuance of Debentures (cont'd) On September 9, 2009, the Company issued three series of debentures via a tender to the public, for a consideration of NIS 898 million (about $235 million). The debentures were issued in three series, as follows: A. Expanded Series B – approximately NIS 696 million debentures not linked, to be redeemed at

the end of about 4 years, bearing interest at the rate of 5.25%. The debentures were issued at a price of NIS 1.031 per unit and at an effective interest rate of 5%.

B. Expanded Series C – approximately NIS 102 million debentures linked to the dollar, to be

redeemed in about 4 years, bearing interest at the rate of 2.4% above the six-month dollar Libor rate (rate on the issuance date – 4.4%). The debentures were issued at a price of NIS 0.913 per unit and at an effective interest rate of 4.7%.

C. Series D – approximately NIS 100 million shekel debentures not linked, to be redeemed at the

end of about 5 years, bearing interest at the rate of 1.45% above the three-month shekel Telbor rate.

In respect of its shekel and index-linked series, the Company has executed transactions in derivatives that swap the NIS cash flows with dollar cash flows. In addition, the Company has executed transactions in derivatives to hedge most of the exposure to changes in the CPI. G. On December 17, 2009, the Company signed an agreement with EIB (European Investment

Bank), whereby EIB will lend to a financial company in the Netherlands that is wholly owned by the Company, the amount of €100 million. Withdrawal of the loan will take place within one year of the signing date of the agreement and it will be scheduled for repayment at the end of 5 years from the signing date of the agreement.

Note 19 - Trade Payables


Open accounts 468,301 445,072 Checks payable 1,497 3,082

469,798 448,154


67

Note 20 - Other Payables, Including Derivative Instruments


Israeli Government – mainly in respect of royalties 40,500 110,344 Employees 221,002 224,541 Accrued expenses 68,245 58,218 Derivative instruments 1,756 28,657 Other 172,527 *216,238

504,030 637,998 * Reclassified

Note 21 - Taxes on Income

A. Taxation of Israeli companies 1. Measurement of results for tax purposes under the Income Tax (Inflationary

Adjustments) Law, 1985 (hereafter - “the Inflationary Adjustments Law”) The Income Tax Law (Adjustments for Inflation) – 1985 (hereinafter – the Law) is effective as from the 1985 tax year. The Law introduced the concept of measurement of results for tax purposes on a real (net of inflation) basis. The various adjustments required by the aforesaid Law are designed to achieve taxation of income on a real basis. In light of the fact that the financial statements are presented in dollars, the difference between the change in the Israeli CPI and in the exchange rate of the dollar relative to Israeli currency- affects the difference between the amount of the actual tax and the amount of reported income. On February 26, 2008 the Knesset enacted the Income Tax Law (Adjustments for Inflation) (Amendment No. 20) (Restriction of Commencement Period) – 2008 (hereinafter – the Amendment). In accordance with the Amendment, the effective period of the Adjustments Law will cease at the end of the 2007 tax year, and as from the 2008 tax year the provisions of the law shall no longer apply, other than the transitional provisions intended at preventing distortions in the tax calculations. In accordance with the Amendment, as from the 2008 tax year, income for tax purposes will no longer be adjusted to a real (net of inflation) measurement basis. Furthermore, the depreciation of fixed assets and carried forward tax losses will no longer be linked to the CPI, so that these amounts will be adjusted until the end of the 2007 tax year after which they will cease to be linked to the CPI. The effect of the Amendment to the Adjustments Law is reflected in the calculation of current and deferred taxes as from 2008. Adjustments for Inflation Income Tax Regulations (Rates of Depreciation) - 1986 that allow depreciation at rates different from those in Section 21 of the Ordinance, will continue to apply also after the Adjustments Law is no longer in effect, and therefore the Company will be able to record accelerated depreciations in the forthcoming periods as well. On the basis of the Inflationary Adjustments Law, industrial consolidated subsidiaries have the right to implement accelerated depreciation on property, plant and equipment.


68

Note 21 - Taxes on Income (cont'd)

A. Taxation of Israeli companies (cont'd) 2. Income tax rates On July 25, 2005, the Law for Amendment of the Income Tax Ordinance (No. 147), 2005, was passed by the Knesset, which provided, among other things, for the gradual reduction of the Companies Tax rate to 25% in the 2010 tax year and thereafter. On July 14, 2009, the Economic Efficiency Law (Legislative Amendments for Implementation of the Economic Plan for the years 2009 and 2010), 2009, was passed by the Israel Knesset, which provided, among other things, an additional gradual reduction in the Companies Tax rate to 18% in 2016 and thereafter. Pursuant to the said Amendments, the Companies Tax rates applicable in the 2009 tax year and thereafter are as follows: in the 2009 tax year – 26%, in the 2010 tax year – 25%, in the 2011 tax year – 24%, in the 2012 tax year – 23%, in the 2013 tax year – 22%, in the 2014 tax year – 21%, in the 2015 tax year – 20% and in the 2016 tax year and thereafter the applicable Companies Tax rate will be 18%. The impact of the said changes in the income tax rate are apparent within the 2009 financial statements, as a reduction in deferred tax and recognition of an income tax benefit in the amount of $26 million. The current taxes and the balances of the deferred taxes for the periods reported in these financial statements are calculated in accordance with the new tax rates as provided in the Economic Efficiency Law. B. Taxation of Non-Israeli subsidiaries Subsidiaries that are incorporated outside of Israel are assessed for tax under the tax laws in their countries of residence. The principal tax rates applicable to the major subsidiaries outside Israel are as follows: Company incorporated in the Netherlands – tax rate of 25.5%. Company incorporated in Germany – tax rate of 28% (in 2007 the regular corporate tax rate was 38%). Company incorporated in the United States – tax rate of 40%. Company incorporated in Spain – tax rate of 30%. Company incorporated in England – tax rate of 28%. The main subsidiaries have received final assessments through tax years between 1995 and 2003 (for most of the companies). C. Encouragement laws in Israel

1. Tax benefits under the Law for the Encouragement of Capital Investments, 1959

(hereinafter – “The Encouragement Law”) Production facilities of certain subsidiaries in Israel (hereafter “the companies”) received the status of “approved enterprises” or “benefited enterprise” under the Encouragement Law, including amendment Number 60 to the law that was published in April 2005.


69

Note 21 - Taxes on Income (cont'd) C. Encouragement laws in Israel (con'td)


(hereinafter – “The Encouragement Law”) (cont'd)

The main tax benefits available to the abovementioned companies are: a) Reduced tax rates During the period of benefits - 10 years commencing in the first year in which the companies earn taxable income from the approved or benefited enterprises (provided the maximum period to which it is restricted by law has not elapsed), the following reduced tax rates or tax exemptions apply to such income from the approved or benefited enterprises owned by it: 1) On approved enterprises - corporate tax of 0% or 25%, instead of the regular tax rate

(see A(2) above). 2) On benefited enterprise corporate tax of 0% for the regular track and 11.5% for the

Ireland track instead of the regular tax rate (see A(2) above). The Company has Approved Enterprises, where the tax rates applicable to them are 0% and 25%. In addition, the Company has Benefited Enterprises under the Regular Track (tax rate 0%) and Benefited Enterprises under the Ireland Track (tax rate 11.5%). In the event of the distribution of cash dividends out of income that was tax-exempt as above, the companies would have to pay the 25% tax, as stated in (A) above, in respect of the amount distributed (see also Note 3(R)). The temporary difference related to the dividend from exempt income as of December 31, 2009, where deferred taxes were not recognized is in the amount of $1,170 million. The proportion of the Company’s taxable income entitled to benefits of reduced tax rates is calculated on the basis of the ratio between the turnover of the “approved enterprise” or “benefited enterprise” and the whole turnover of the company. The turnover applicable to the “approved enterprise” is calculated, as a general rule, by taking the increase resulting from the comparison of the company’s turnover with its “basic” turnover, which is that attributed to the last year before the activation of the “approved enterprise”, or such other basis as is stipulated in the letter of approval. The turnover attributed to the “beneficiary enterprise” is generally calculated according to the increase in the turnover compared to a “base” turnover, which is the average turnover in the three years prior to the year of election of the “beneficiary enterprise”. b) Accelerated depreciation

The companies are entitled to claim accelerated depreciation as provided by law, commencing in the first year of operation of each asset, in respect of buildings, machinery and equipment used by the approved enterprise.


70

Note 21 - Taxes on Income (cont'd) C. Encouragement laws in Israel (cont'd)


(hereinafter – “The Encouragement Law”) (cont'd)

c) Conditions for entitlement to the benefits

The entitlement to the above benefits is conditional upon the companies fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved enterprises. In the event of failure to comply with these conditions, the benefits may be cancelled, in whole or in part, and the companies may be required to refund the amount of the benefits, with the addition of late payment interest.

d) The Law for the Encouragement of Capital Investments specified in the past that the

period between the beginning of the year of operation of an “approved enterprise” choosing the grant alternative and the chosen year of an enterprise entitled to benefits (“the cooling-off period”) is five years. On November 16, 2008, Amendment No. 65 of the Law for the Encouragement of Capital Investments, 2008, was passed, according to which the “cooling-off period” was shortened from five years to three years with retroactive effect from April 1, 2005. The effect of this Amendment on the tax expense for 2008 resulted in a tax income of US$70 million.

2. The Law for the Encouragement of Industry (Taxation), 1969

a) The Company and some of its Israeli subsidiaries are "industrial companies", as defined

by this law. As such, these companies are entitled to claim depreciation at increased rates for equipment used in industrial activity, as stipulated by regulations published under the inflationary adjustments law.

b) The industrial enterprises held by the Company and some of its Israeli subsidiaries have

a common line of production and are therefore entitled to file consolidated tax returns in accordance with Section 23 of the Law for the Encouragement of Industry. Accordingly, each company is entitled to offset its tax losses against the taxable income of the other.

Non-application of International Financial Reporting Standards (IFRS) for tax purposes On February 4, 2010, the Law for Amendment of the Income Tax Ordinance No. 174 – Temporary Order for the Years 2007, 2008 and 2009 (hereinafter – “the Amendment to the Ordinance”), was published in the Official Publications. Pursuant to the Amendment to the Ordinance, Israeli Accounting Standard No. 29, regarding “Early Adoption of International Financial Reporting Standards (IFRS)” will not apply for purposes of determination of the taxable income in the said years, even if it was applied in preparation of the financial statements. The impact of the Amendment to the Ordinance on the financial statements is not significant.


71

Note 21 - Taxes on Income (cont'd) D. Carried forward tax losses The balances of carryforward tax losses of subsidiaries not consolidated for tax return purposes with the Company, on which deferred taxes were created, amount to approximately $49 million as at December 31, 2009 (December 31, 2008 - approximately $40 million). The balance of carryforward tax losses of subsidiaries not consolidated with the Company for tax purposes, on which deferred taxes were not created is approximately $28 million. Furthermore, a subsidiary that operates outside of Israel has a capital loss in the amount of $0.4 million for which no deferred taxes have been recorded. As at balance sheet date there are carry-forward capital tax losses in the amount of $59 million. In accordance with an assessment agreement with the Israeli tax authorities, it will be possible to utilize most of these losses only against capital gains that the Group companies have from the sale of shares of companies in which they directly hold at least 30% to a company they directly or indirectly control at the rate of 50% or more. Deferred taxes were not recorded in respect of these capital losses. These losses are linked to the CPI in accordance with that stated in Paragraph A(1) above. See paragraph A(1)c above regarding discontinuance of the linkage to the CPI of losses in accordance with Adjustment law. E. Temporary Order - Amendment No. 169 to the Income Tax Ordinance On January 1, 2009 Amendment No. 169 to the Income Tax Ordinance was passed as a temporary order effective only for the 2009 tax year, by which a company can elect to pay income tax of 5% on dividend income it received in 2009 that was paid by a foreign resident body of persons, providing that the conditions provided in the temporary order have been met. After the Company examined the means of implementing the said amendment to the Ordinance, the Board of Directors of the Company approved a one-time withdrawal of profits from the foreign group companies in the amount of $ 209 million. F. Tax assessments The Company and its subsidiaries for tax purposes have received final tax assessments up to and including the 2003 tax year. The rest of the companies in Israel have final tax assessments from 2000 through to 2005. The Company and the subsidiaries consolidated with it for tax purposes are under audit with the Israeli tax authorities for the years 2004–2007. In the Company’s opinion, the provision included in the statement of financial position as at December 31, 2009 covers the tax exposures arising from the assessment discussions.


72

Note 21 - Taxes on Income (cont'd)

G. Deferred income taxes 1. The composition of the deferred taxes and the changes therein, are as follows:

In respect of balance sheet items Depreciable In respect of property, Employee carryforward plant and related tax losses equipment Inventories obligations Other (see D above) Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Balance as at January 1, 2007* )222,608( 30,644 64,856 7,968 4,050 )115,090( Changes in 2007: Additions in respect of business combinations )5,560( 52 212 1,155 7,018 2,877Amounts recorded to equity reserve - - 477 )92( - 385Translation differences 3,251 6 )3,905( 2,190 )2,316( )774(Amounts recorded in income statement 15,538 14,447 3,166 )1,810( )4,881( 26,460Balance as at December 31, 2007* )209,379( 45,149 64,806 9,411 3,871 )86,142( Changes in 2008: Additions in respect of business combinations - - - )2,152( - )2,152(Amounts recorded to equity reserve - - 21,167 360 - 21,527Translation differences 2,636 162 )738( )159( 191 2,092Amounts recorded in income statement 19,435 )2,351( 1,565 4,644 5,137 28,430Balance as at December 31, 2008* )187,308( 42,960 86,800 12,104 9,199 )36,245( Changes in 2009: Additions in respect of business combinations )1,094( - 33 )18( - )1,079(Amounts recorded to equity reserve - - 1,421 )916( - 505Translation differences )5,352( 2 350 )553( )1,624( )7,177(Amounts recorded in income statement 43,077 )12,281( 8,695 )1,615( 4,606 42,482Balance as at December 31, 2009 )150,677( 30,681 97,299 9,002 12,181 )1,514(

* Reclassified.


73

Note 21 - Taxes on Income (cont'd) G. Deferred income taxes (cont'd) 2. Deferred taxes are presented in the balance sheets as follows:


Among non-current assets 100,271 74,969 Among non-current liabilities (101,785) (111,214) (1,514) (36,245)

3. For companies in Israel - the deferred taxes as of December 31, 2009 are computed mainly at the weighted-average tax rate of 19% (December 31, 2008 - 22%). As to companies outside of Israel - see B above.

H. Taxes on income included in the income statements: 1. Composition


Current taxes in respect of the reported year 215,036 267,255 139,058Deferred taxes in respect of the reporting period )15,713( (27,463) )26,310(Taxes in respect of prior years * )30,831( (6,551) 6,982

168,492 233,241 119,730 * Including change in the tax rate - impact of the Economic Efficiency Law.


74

Note 21 - Taxes on Income (cont'd) H. Taxes on income included in the income statements (cont’d) 2. Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the

regular tax rates (see A(2) above) and the tax expense presented in the consolidated statements of income:


Income before taxes on income, as reported in the statements of income 942,806 2,227,209 669,914 Statutory tax rate 26% 27% 29% Theoretical tax expense 245,130 601,346 194,275Less – tax benefits arising from reduced tax rate applicable to an "approved enterprise" and "benefited enterprise" 73,071 285,732 64,146 172,059 315,614 130,129Add (less) – the tax effect of: Differences between the basis of measurement for tax purposes (the Israeli CPI) and for financial reporting purposes (the dollar), see also A(2) above 888 161 )8,186(Difference in respect of foreign subsidiaries 17,997 480 )5,226(Utilization of tax losses for which deferred taxes were not recorded - (74,391) )8,298(Non deductible expenses 3,509 6,324 7,120Additional deduction for tax purposes of subsidiaries overseas )19,935( (11,788) - Temporary differences in respect of which deferred taxes were not recorded 7,188 - - Deferred taxes amendment in respect of tax benefits arising from "benefited enterprise" Taxes from prior years )30,831( (6,551) 6,982 Elimination of tax calculated in respect of the Company's share in profits from associated companies 385 (3,728) )1,151(Tax in respect of dividend from foreign subsidiaries 14,607 6,936 - Other differences 2,625 184 )1,640( Taxes on income included in the income statements 168,492 233,241 119,730


75

Note 21 - Taxes on Income (cont'd) I. Taxes on income recorded directly in equity

Year ended December 2009 2008 US$ thousands US$ thousands

Current taxes 320 1,343 Deferred taxes 505 * 20,783

Total taxes recognized directly in equity 825 22,126

* Reclassified Note 22 - Employee Benefits


Present value of funded obligations 587,730 505,798 Less - fair value of plan assets 578,535 483,202 9,195 22,596

Present value of unfunded obligations 347, 500 308,134 Post-retirement medical benefits 7,592 6,048

Recognized liability for defined benefit obligations 364, 287 336,778 Liability for severance benefits 99,976 66,237 Total employee benefits liabilities recognized in the balance sheet 464,263 403,015

The liability in respect of employee benefits is presented in the statement of financial position as follows: December 31 December 31 2009 2008 US$ thousands US$ thousands

Among non-current assets 66,057 38,393 Among non-current liabilities 530,320 441,408 464,263 403,015 December 31 December 31 2009 2008 US$ thousands US$ thousands

Equity instruments 166,927 116,592 Debt instruments 374,165 330,053 Deposits with insurance companies 37,443 36,557 578,535 483,202


76

Note 22 - Employee Benefits (cont’d) B. Severance pay 1. Israeli companies

Pursuant to Israeli labor laws and valid labor contracts, the Company and its Israeli subsidiaries are required to pay severance pay to dismissed employees and employees leaving their employment in certain other circumstances. Severance pay is computed based on length of service and generally according to the latest monthly salary and one month’s salary for each year worked. The liabilities relating to employee severance pay rights are covered as follows: a) Under collective labor agreements, the Group companies in Israel make current

deposits in outside pension plans for some of the employees. These plans generally provide full severance pay coverage and, in some cases, 72% of the severance pay liability. The severance pay liabilities covered by these plans are not reflected in the financial statements, since all the risks relating to the payment of the severance pay, as described above, have been transferred to the pension funds.

b) The Group companies in Israel make current deposits in Managers’ Insurance policies

in respect of employees holding management positions. These policies provide coverage for the severance pay liability in respect of the said personnel. Under employment agreements, these insurance policies are, subject to certain limitations, the property of the employees. The amounts funded in respect of these policies are not reflected in the balance sheets since they are not under the control and management of the companies.

c) As to the balance of the liabilities, which are not funded as above, a full provision is

made in the financial statements. 2. Certain subsidiaries outside Israel

Since the countries where these subsidiaries operate have no law requiring payment of severance pay, it is not customary to include a provision in their financial statements for possible eventual future severance payments to employees, except in cases where part of the activities of the enterprise is discontinued and, as a result, the employees are dismissed.

3. Post-employment retirement benefits

The retirees of the Group companies receive, aside from pension payments from a pension fund, benefits that are primarily holiday gifts and weekends. The companies' liability for these costs accrues during the employment period. The Group companies include in their financial statements the costs projected in the post-employment period according to an actuarial calculation.


77

Note 22 - Employee Benefits (cont’d)

C. Pension and early retirement 1. Some of the Group's employees in and outside of Israel (some of whom have already left the

Group) have defined benefit pension plans (within the Company) for their retirement. Generally, the terms of the plans provide that the employees are entitled to receive pension payments based on, among other things, their number of years of service (in certain cases up to 70% of their last base salary) or computed, in certain cases, based on a fixed salary.

2. A consolidated subsidiary has commitments for pension payments to its employees in respect of which that subsidiary had established a pension fund. The subsidiary is responsible for depositing funds with the pension fund and in case of a shortage in the value of the fund’s assets, the subsidiary is responsible for supplementing the difference in accordance with the rules applying in the country in which that subsidiary operates. The subsidiary is not entitled to withdraw funds from the pension fund even if a surplus over the pension liability exists. The subsidiary is also not entitled to liquidate the pension fund.

3. In addition to the above, some Group companies have entered into an agreement with a

provident fund – and with a pension fund for some of the employees – under which such companies make current deposits with that fund which releases them from their liability for pension payment under the labor agreements to all of their employees upon reaching retirement age. The amounts funded are not reflected in the balance sheets since they are not under the control and management of the companies.

4. Employees of a subsidiary in Sdom are entitled to early retirement if they fulfill certain conditions, including age and seniority at time of retirement.

D. (1) Movement in present value of defined benefit obligations For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Obligation in respect of defined benefit plan at the beginning of the year 819,980 927,942 853,630Current service costs 31,292 31,756 30,790Interest costs 44,687 56,971 46,527Employee contributions 532 1,553 2,073Benefits paid )48,309( (42,857) )28,874(Actuarial losses (gains) recognized in equity 62,399 (54,585) )27,436(Liabilities acquired as part of business combinations 154 924 335Reduction as a result of benefits dimunition )677( (12,883) - Changes in respect of exchange rate differences 3,871 3,500 32,714Changes in respect of translation differences 28, 893 (92,341) 18,183Obligation in respect of defined benefit plan at the end of the year 942, 822 819,980 927,942


78

Note 22 - Employee Benefits (cont’d) D. (2) Movement in plan assets for defined benefit plans


Fair value of plan assets as at the beginning of the year 483,202 667,686 600,580Expected return on plan assets 23,663 41,945 37,304Actuarial gains (losses) recognized in equity 62,767 )141,578( )6,803(Employer contributions 18,216 14,373 17,036Employee contributions 551 753 2,298Benefits paid )36,546( )26,338( )15,835(Changes in respect of exchange rate differences 1,582 4,969 20,010Changes in respect of translation differences 25,100 )78,608( 13,096Fair value of plan assets as at the end of the year 578,535 483,202 667,686

(3) Expenses recognized in income statement


Current service costs 31,292 31,756 30,790Interest costs 44,687 56,971 46,527Expected return on plan assets )23,663( )41,945( )37,304(Reductions as a result of curtailment of benefits )677( )12,883( - Net exchange rate differences 2,289 )1,469( 12,704

53,928 32,430 52,717

The expense is recognized in the following line items in the income statement:


Cost of sales 26,104 28,219 24,369Selling and marketing expenses 1,446 860 2,530General and administrative expenses 3,009 2,072 2,867Research and development expenses 733 605 1,024Other income )677( )12,883( - Financing expenses 23,313 13,557 21,927

53,928 32,430 52,717


79

Note 22 - Employee Benefits (cont’d)

D. (cont’d)

(4) Actual and expected return For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Actual return on plan assets 86,430 )99,633( 30,501Expected return on plan assets 23,663 41,945 37,304

(5) Actuarial gains and losses recognized directly in equity


Cumulative amount (before tax) as at January 1 66,360 )20,633( - Actuarial (gains) losses recognized during the period )368( 86,993 )20,633(Cumulative amounts (before tax) as at December 31 65,992 66,360 )20,633(Deferred tax regarding actuarial gains and losses recognized directly in equity )23,457( )22,037( )869(

42,535 44,323 )21,502(

(6) Actuarial assumptions

Principal actuarial assumptions at the reporting date (expressed as weighted averages): 2009 2008 2007 % % %

Discount rate as at December 31 5.5 5.6 5.6Expected return on plan assets as at January 1 5.2 6.4 5.7Future salary increases 4.0 4.0 4.7Future pension increase 2.4 2.0 2.4

Assumptions regarding the future mortality rate are based on published statistics and accepted mortality tables. A one percentage point change in assumed healthcare cost trend rates have no material effect on the Company.

(7) Historical information December 31 December 31 December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Present value of the obligation under defined benefit plans Fair value of plan assets 942,822 819,980 927,942 578,535 483,202 667,686Deficit in the plan 364,287 336,778 260,256

Experience adjustments arising on liabilities )9,347( 8,838 )1,058(

Experience adjustments arising on assets 62,283 )123,400( )2,747(


80

Note 22 - Employee Benefits (cont’d) E. Early retirement plan In November 2007, the board of directors of the Company approved an employee early retirement plan under preferred terms. As the cost of the retirement the Company recorded a provision of US$4.8 million which was charged to the income statement in the item “Other expenses” (in 2008 an expense of US$11.6 million) was recorded.

In July 2008, the board of directors of a consolidated subsidiary approved an early retirement plan prior to the pension age specified by law. During 2008, a provision of US$32 million was recorded in respect of the plan and charged to the income statement in the item “Other expenses”. In September 2009, the Board of Directors of a subsidiary approved a plan for early retirement for employees at preferred terms prior to the retirement age provided by law. In the period of the report, a provision of about $48 million was recorded in respect of the plan, which was recorded in the “other expenses” category in the statement of income. F. The amount recognized in respect of defined contribution plans in 2009 is about $23 million (in

2008 - $21 million). Note 23 – Provisions

A. Composition Site restoration removal dismantling of property, plant and equipment Legal Warranties items claims Other Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands Balance as at January 1, 2009 2,319 53,739 2,870 58,726* 117,654Provisions made during the period 239 15,571 68 2,530 18,408Provisions reversed during the period )270( )3,668( )767( )1,692( )6,397(Time based effects (due to discounting) - 1,343 - - 1,343Payments during the period )648( )3,001( )277( )213( )4,139(Translation differences 29 1,705 )24( 455 2,165Balance as at December 31, 2009 1,669 65,689 1,870 59,806 129,034


81

Note 23 - Provisions (cont’d) Balance sheet presentation: December 31 December 31 2009 2008 US$ thousands US$ thousands

Among current liabilities 22,115 19,519 Among non-current liabilities 106,919 *98,135

129,034 *117,654 * Reclassified B. Restoration of mines and mining sites

The Company and its subsidiaries manufacture, store and sell hazardous chemical products and, therefore, they are exposed to risks deriving from environmental protection. The companies invest significant amounts in order to comply with the environmental rules and regulations. In the estimation of Company Management and on the basis of information in its possession as at the signing date of the financial statements, the provision existing in the financial statements covers the quantifiable liabilities in respect of costs relating to environmental protection.

1. The Group included a provision in the books for restoration of mines and mining sites. The provision is based on the discounted cash flows based on an estimate of the future expenses that will be required to close down the mines and to restore the mining sites. The estimated closing date of the mines is based on a geological evaluation of the quantity of potash remaining in the mines and the resources available to the subsidiaries.

2. Pursuant to the provisions of Spanish environmental protection law relating to areas affected by

mining activities, 2 subsidiaries in Spain submitted a plan for site clearance of mining waste. The plan is intended to last for a period of about 24 years and 36 years for each of the above-mentioned subsidiaries. As at December 31, 2008, a provision was included in the subsidiary’s books in Spain, in the amount of $22,590 thousand (€15,671 thousand). The provision was calculated based on discounting the forecasted costs for removal of the waste.

3. At a subsidiary’s factory in Ramat Hovav there is solid waste. Pursuant to the requirements of

the Ministry of Environmental Protection, the Company is required to treat the existing and current waste. The treatment will be through a future facility for restoration of HBR. In Management’s assessment, the company has an appropriate provision in the financial statements, which on the basis of information in its possession as at the signing date of the financial statements, covers the estimated cost of treating the historical waste. At this stage, until construction of the waste treatment facility, the barrels are stored on a special site in coordination with the Ministry of Environmental Protection.

4. From time to time, a subsidiary is required to examine various contentions regarding residual

waste found in areas surrounding its factories or that there is subterranean penetration of waste created during the manufacturing process. The subsidiary may be required to clean up the relevant sites or the subterranean areas if and when it is found that it is responsible for the said contamination as stated. In the past several years, various examinations are being performed by various institutions in order to discover land contamination in the area of Ramat Hovav and in the area surrounding the subsidiary’s site in Beer Sheva.


82

Note 24 - Commitments, Concessions and Contingent Liabilities A. Commitments 1. Certain subsidiaries have entered into agreements with suppliers in Israel and abroad for the

purchase of raw materials in the regular course of business, for various periods ending within 5 years after December 31, 2009. The scope of the commitment for the period of the agreements is approximately $234 million.

2. Certain subsidiaries have entered into agreements with suppliers for acquisition of property,

plant and equipment. As of December 31, 2009, the subsidiaries had commitments for investments of approximately $151 million.

3. A subsidiary in England has entered into several contracts to lease land that is used to mine

potash. The lease fees are generally determined based on the quantity of potash mined in each mine. The two major lease contracts are until 2015 and 2035, where the latter could terminate in 2012, subject to serving prior notice of six months. The balance of the contracts are generally for periods of between 35 and 50 years.

4. In September 2003, a long-term (20 year) supply agreement was signed between a subsidiary

and Chemtura Corporation commencing from January 2004, for the supply of bromine and bromine compounds.

5. Certain subsidiaries are committed to pay royalties to the State of Israel – computed at rates of 2% to 4% of the proceeds received on the sale of products, regarding which the Government participated, by way of grants, in the research and development thereof. These commitments are for 100% - 150% of the dollar amounts of the grants received (for products produced in Israel).

At the time the participations from the Government of Israel were received, successful development of the related projects was not assured. In the case of failure of a project that was partly financed by royalty-bearing Government participations, the Group is not obligated to pay any royalties to the Government. The maximum amount of royalties for which the Company may be liable as of December 31, 2009 is about $8.6 million.

6. In 2008, a subsidiary in Spain signed an agreement with another company, Petroleum Oil &

Gas Espania – ("Petroleum"), for the development of underground natural gas reserves. Petroleum is interested in the development and utilization of natural gas reserves and plans to develop a production project to create spaces for the storage of natural gas using solution mining.

An initial payment of 2 million euro was paid by Petroleum upon signing the agreement. If Petroleum should decide that the project is not feasible – the subsidiary will have to refund the proceeds received. In the financial statements a provision was recognized in the amount of the possible obligation. The company’s management believes that the project is feasible and that the gas storage option can be carried out.


83

Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) A. Commitments (cont'd) 7. The Articles of Association of the Company and its subsidiaries include provisions that permit

exemption, indemnification and insurance of the liability of officers, all in accordance with the provisions of the Companies Law. The Company, with the approval of the audit committee, the board of directors and a general meeting of shareholders, granted its officers an exemption and letters of indemnification, and has also taken out a directors and officers insurance policy. The insurance and the compensation does not apply to those cases specified in Section 263 of the Companies Law. The exemption is for damage caused and/or to be caused by such officers, due to a breach of the duty of care to the Company. The amount of the indemnification payable by the Company under the letter of indemnification, in addition to amounts received from an insurance company, if any, for all of the officers on a cumulative basis, for one or more of the events detailed therein, was limited to $300 million. The insurance is renewed annually. The coverage in effect (including a joint layer with the parent company in the amount of $20 million) is in the aggregate amount of $185 million.

8. A proportionately consolidated company – I.D.E. Technologies Ltd. (hereinafter – “I.D.E.”) has

agreements under the BOT (Build, Operate, Transfer) method in connection with water desalinization, based on the “take or pay” principle, as follows: a) A proportionately consolidated company of I.D.E. signed an agreement from April

2001 with the State of Israel for the financing, planning, construction, operation and transfer to the State of Israel of a seawater desalinization plant in Ashkelon with a total production of 100 million cubic meters of desalinized seawater per year. The agreement is for a period of approximately 25 years. Construction of the plant was completed in 2005 and its commercial operation was commenced in 2006. Recently an agreement was signed between the State of Israel and the proportionately consolidated subsidiary of I.D.E. for expansion of the desalination facility in Ashkelon. As part of the expansion, an additional 15 million cubic meters of seawater will be desalinized per year.

b) A subsidiary of I.D.E. held at the rate of 51% has a new agreement, from January 2010,

with the State of Israel for financing, planning, construction, operation and transfer to the State of Israel of a seawater desalination facility in Soreq in an overall scope of 150 million cubic meters of desalinized seawater per year. The agreement is for a period of about 25 years (after a construction period of about 2.5 years).


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d)

A. Commitments (cont'd) 8. (cont'd)

c) A consolidated partnership of I.D.E. has an agreement with the Water Authority of Cyprus for the financing, planning, construction and operation of water desalinization plant having a capacity of about 17 million cubic meters of water per year. The agreement is for a ten-year period. Construction of the project ended in 2001 at which time the consolidated partnership commenced.

Thereafter, an agreement was signed to expand the facility by a further 20 million cubic meters of sea water, until the end of the agreement period.

d) A proportionately consolidated company of I.D.E. has an agreement from November

2006 with the State of Israel for the financing, planning, construction, operation and transfer to the State of Israel of a seawater desalinization plant in Hadera with a total production of 100 million cubic meters of desalinized seawater per year. The agreement is for a period of about 25 years.

The State of Israel accepted the proposal of I.D.E. to expand the treatment facility in Hadera. Within the framework of the expansion, an additional 27 million cubic meters of sea water will be treated annually.

Subsequent to the balance sheet date, construction of the facility was completed. Commercial operation of the facility commenced in February 2010 (without the expansion).

9. On March 25, 2008, an agreement was signed ("the Agreement") between Dead Sea Works and

the partners in the Yam Thetys Group for the supply of natural gas to the Group’s factories in Israel. Under the Agreement, the Group undertook in the agreement to purchase from the Partners in the Yam Thetys Group approximately 2 BCM of gas (about 2 billion cubic meters), subject to the adjustments described in the Agreement ("the Contractual Quantity of Gas"). Netivei Gas L’Israel Ltd. completed connection of the pipeline system (and facilities accompanying the pipeline) to the factories of ICL in Sdom and commenced supplying gas to the Company’s factories in Sdom, starting from the end of November 2009. Later on, Netivei Gas L’Israel plans to complete in 2010 connection of the said pipeline system to ICL’s other sites at Mishor Rotem and Ramat Hovav.

Supply of the gas will end at the earlier of the following (subject to adjustments):

(1) Five years from the date of the end of the start-up period, but no later than September 2015 (subject to extension as described below);

(2) Completion of the purchase of the Contractual Quantity of Gas.

The price of the gas was set according to a formula based on the price of the heavy fuel, with a discount component, including floor and ceiling prices. ICL Group undertook to take or pay for a minimum annual quantity of gas in a volume and in accordance with a mechanism described in the Agreement.

The total scope of the undertaking in the agreement is estimated at $260–$330 million.


85


B. Concessions

1. Dead Sea Works Ltd.

Pursuant to the Israeli Dead Sea Concession Law, 1961 (hereafter - “the Concession Law”), as amended in 1986, Dead Sea Works Ltd. (hereafter – “DSW”) was granted an exclusive concession to exploit the natural resources of the Dead Sea and to lease the land needed for its plants, for a period ending on March 31, 2030, with right of first refusal for a period after the concession’s expiration. DSW pays the Government royalties at the rate of 5% of the value of the products at factory gate, net of certain expenses and lease fees in respect of the land.

As of 2010, the government may demand renegotiation of the level of royalties, for quantities exceeding 3 million tons of potash produced and sold in any given year starting from that year onward, provided that the amount of the royalties for such surplus is no more than 10% of the value of the potash at the factory gate, less certain expenses. On the basis of the Concession Law and the concession agreement, Dead Sea Works, granted a sub-concession to Dead Sea Bromine, to produce bromine and bromine compounds from the Dead Sea, whose term also extends until 2030.

The Magnesium company operates under a sublease from Dead Sea Works, and is subject to the payment of royalties to the Government of Israel based on the raw material (carnalite) used in the production of metal magnesium. The State of Israel is permitted to reexamine the royalties' formula in respect of the Magnesium company.

The royalties paid to the state of Israel amounted to $90 million and $41 million and $21 million in 2009, 2008 and 2007, respectively.

In 2006, a letter was received from the Accountant General claiming Dead Sea Works underpaid royalties in amounts alleged to total hundreds of millions of shekels. In light of that stated above, the Accountant General requested to utilize the arbitration clause in the concession document in connection with these underpayments.

The requirement to pay royalties is under the concession which DSW received from the State, and is referred to in the sub-concession given by DSW to the Bromine Company, with the consent of the government. DSW believes, based on a legal opinion, that the royalties paid were calculated in the manner required under these concessions, in accordance with a calculation method implemented consistently over decades, from the time when it was wholly owned by the State, which method was known to the State, which had made no claims (prior to the receipt of the above letters from the Accountant General) regarding incorrect calculation or payment of the royalties. It should be noted that payment of the royalties was checked several times in the past by the authorities of the State, including the State Comptroller. Therefore, based also on the opinion of its legal counsel, DSW is of the opinion that the demands and claims of the Accountant General have no basis, and therefore, in accordance with the above, no provision has been recorded in the financial statements.

DSW is trying to resolve the dispute by agreement with the authorities of the State. If no agreement is reached, the dispute will be sent to arbitration, in accordance with the concession agreement.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) B. Concessions (cont’d)

2. Rotem

Rotem has been mining phosphates in the South for the last fifty years. The mining is conducted in accordance with phosphate mining concessions, which are granted from time to time by the Ministry of National Infrastructures under the Mines Ordinance, through the Supervisor of Mines in his Office (hereinafter – “the Supervisor”), accompanied by mining authorizations issued by the Israel Lands Administration (hereinafter – “the ILA”). The concessions relate to the quarry (rock and phosphates) whereas the authorizations relate to use of land as active mine sites. Mining concessions: Rotem has the following four mining concessions: 1. Sadeh Rotem – valid up to the end of 2021;

2. Sadeh Zafir – (Oron-Zin) – valid up to the end of 2021;

3. Sadeh Effa – valid up to the end of 2013;

4. Sadeh Hatrurim – valid up to the end of December 2010 (the Supervisor confirmed in writing that he intends to grant Rotem a long-term mining license in Sadeh Hatrurim, for a period of 15 years, upon receipt of mining authorization from the ILA. The Supervisor recommended to the ILA to grant Rotem a mining authorization for the period as stated, and the matter is being attended to by the ILA. The Supervisor also confirmed in writing that up to completion of handling of the matter by the ILA, the concession will be extended for one year each time).

Mining royalties: In respect of mining of the phosphate, Rotem is required to pay the State royalties based on a calculation format stipulated in the Mines Ordinance. The calculation format for the royalties was updated in February 2010 as part of a compromise agreement that settled all the disputes regarding past royalties and formulas for future royalties. Rotem paid royalties to Israeli government of approximately $629 thousand and $619 thousand in 2009 and 2008, respectively.

3. As to mining rights of a subsidiary in Spain – see Note 15A(1).

4. CPL’s mining concession is based on approximately 113 mining leases and concessions for extracting various minerals, in addition to numerous easements and rights of way from private owners of land under which CPL operates or, in the case of mining underneath the North Sea, granted by the British Crown. The terms of all of these leases, concessions, easements and rights of way extend until 2015-2038.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) C. Contingent liabilities

1. As at December 31, 2009, the total guarantees provided to external parties amount to $29

million. The guarantees provided by the Company in respect of loans taken out by the subsidiaries amount to about $1,036 million.

2. Beginning in 1994 three subsidiaries within ICL Industrial Products (hereinafter in this section: the “subsidiaries”) were joined in a lawsuit as third and fourth party defendants by American companies that had been sued in the United States and other countries by approximately 30,000 plaintiffs from various countries including countries in Central America and the Caribbean. The plaintiffs mostly worked as plantation workers and they claim to have been injured by exposure to chemical substances produced by a number of manufacturers, including large chemical companies, and supplied to banana growing companies (together, the “defendants”), over the course of approximately thirty years (1960-1990). All of these claims are for bodily injury and therefore, the sums are not set out in the statements of claim.

During the period when these proceedings were being held, most of the plaintiffs arrived at a settlement with the defendants. The subsidiaries are mentioned, under the settlement, as a party included in the release from the above plaintiffs, despite not having contributed to them financially.

As at the date of approval of the financial statements, the subsidiaries are parties to two legal proceedings, including jointly with 11 plaintiffs. In one outstanding claim in Hawaii, no hearing has yet been conducted. In a similar corresponding claim, which is also under the jurisdiction of Hawaii, and to which the subsidiaries are not a party, a motion to certify the complaint as a class action was rejected, and the proceedings are continuing as personal claims of the plaintiffs.

In an additional complaint in Texas, against the subsidiaries, among others, two plaintiffs have not yet reached a settlement. These plaintiffs filed a request to certify their complaint as a class action in 2009. No hearing on the merits of the request has yet been conducted, and it is not possible to estimate whether the request will be granted.

The subsidiaries argue that they have no liability or responsibility in the case, and they estimate that they have several legal lines of defense available to them, including but not limited to lack of jurisdiction over said proceedings.

The Bromine Group estimates that the quantity of material supplied by the companies in this sector to the relevant countries in the relevant period was, if any, small compared to the quantities of material supplied by the other manufacturers.

The Company’s management, based on the evaluations of its legal advisors, believes that the risk facing the subsidiaries, in an amount exceeding USD 10 million, is low, subject to changes for the worse which may develop regarding the claim in Texas. No hearing on the merits of the claim has yet been conducted and therefore it is not possible to assess its chances for success at this point.


88


C. Contingent liabilities (cont’d) 3. Ecology

a) In December 2007, updated business license conditions were issued to Bromine

Compounds Ltd. under which the treatment of effluent was under the exclusive responsibility of each plant (including the removal stage). Under the conditions of the license, the wastewater from the facilities will be removed to the evaporation ponds and reservoirs that are operated and managed by the Council, until the end of 2009. After this date, independent removal systems will be operated under the management of each facility, and wastewater pumping into the current system will be prohibited. Each facility is to meet the established wastewater values by no later than the beginning of 2010 (and on the condition that all the approvals from the Authorities to perform the project will be received). In accordance with the conditions of the business license, Bromine Compounds together with the other relevant factories in the industrial zone contacted the authorities and presented a delay of about two years in the establishment process of the waste removal system due to a delay in the statutory process. The Ministry of environmental Protection postponed the date on which the factories are required to comply with the established wastewater values to October 1, 2011.

Under an agreement of December 2006 between the Ministry of the Environment, the Manufacturers’ Association, factories at Ramat Hovav (including ICL Industrial Products) and the Sustainable Negev Association, which was authorized by the District Court, the Ministry and the factories agreed to commence accelerated negotiations for a period of half a year (which ended in June 2007) regarding air emissions both from new and existing facilities, as well as diffused emissions, and prevention of pollution and odor hazards, on the basis of international standards. In April 2007, the government resolved, as part of a decision to move a conglomeration of IDF training bases to the Negev Junction near Ramat Hovav, that government ministries would act to improve the air quality around the Ramat Hovav Industrial Zone, in accordance with an outline agreed upon by the Ministry of Health, the Ministry of the Environment and the Israel Defense Forces.

In March 2008, a company from ICL Industrial Products that operates the plant in Ramat Hovav, obtained a list of emission-related conditions for its business license. According to the conditions of the license, the plant must conduct surveys on all types of emissions generated by the plant into the environment. The Ministry will determine the means to address the emissions and pollution on the basis of the results of these surveys. ICL Industrial Products performed the surveys and submitted them to the Council and the Ministry of the Environment. Survey findings indicated compliance with benchmark values in the plant’s vicinity. Furthermore, a workplan for the plant’s compliance with the specifications determined for the plant was submitted. The Ministry has not yet responded to the plant. The plant is also required to conduct measurements and address diffused emissions of substances generated in the course of the production process. These actions were performed in 2008 and 2009. In future years, regular action on this issue is planned.


89


C. Contingent liabilities (cont’d) 3. Ecology (cont'd)

b) Pending proceedings relating to the Kishon River

The production site of Fertilizers and Chemical Materials Ltd., a company in the ICL Fertilizers segment (hereinafter - FCM) borders the Kishon River. For decades FCM, along with many other entities, municipalities and plants, has diverted wastewater to the Kishon River.

Between 2001 and 2005, a number of claims for monetary damages were filed in the Haifa District Court against FCM and a series of other defendants (including the State of Israel) by 50 individuals (or their heirs or dependants), most of them fishermen who had worked, according to the claims, in the Kishon’s fishing harbor. The flow of sewage to the Kishon River by each of the chemical plants operating on the river banks has caused the plaintiffs’ cancer and other illnesses. Several dozen factories, local governments and insurance companies were joined as third-party defendants. In the process of examining the claims, ten plaintiffs withdrew their complaints, which were dismissed. Because these claims are for bodily injury, the plaintiffs are not required to quantify the amounts sought as damages. As at the date of preparation of this report, the damages quantified in the claims amount to approximately NIS 138 million ($37 million), as valued on the date of filing of the claims, plus linkage differentials and interest from the date of illness or the date of filing of the claim, as well as penal damages and additional costs such as treatments and third party assistance – which, in a small number of cases, were not quantified – fees and costs. Note that this is an arithmetic addition of the sums quantified in the statements of claim, and not a risk evaluation by the defendants nor an evaluation of the risk to which FCM is exposed. As of the date of this Report, these cases are in the stages of hearing the evidence. First, the court is deliberating the question of the causal link in the narrow sense, meaning the connection between the substances alleged to have been in the fishing harbor and the plaintiffs’ injuries. These actions involve highly complex fact patterns spanning decades and involving over one hundred parties (plaintiffs, defendants and third parties), and constitute a precedent-setting case, both in terms of the nature of the claim and the division of responsibility among the defendants and third parties. FCM claims that it has good defenses, based on expert opinions presented by FCM and other defendants. These defenses include: (a) a higher cancer rate is not apparent among the fishermen, (b) most of their ailments can be attributed to personal risk factors (primarily the fact that over 90% of the plaintiffs are smokers) as well as natural illness, and (c) the circumstances of the claimed exposure are not known to cause the plaintiffs’ diseases.

However, based on the evaluation of its legal advisors, given the factual and legal complexity of these proceedings, the initial stage in which they are at present, and the multitude of parties involved, the Company cannot estimate its exposure with regard to these claims and no provision has been included in the financial statements.


90


C. Contingent liabilities (cont’d)

3. Ecology (cont’d)

b) Pending proceedings relating to the Kishon River Between 2000 and 2007, a number of claims were filed in the District Court at Haifa against a list of defendants by former soldiers (and their heirs and dependents). The plaintiffs claim that contact with toxic substances in and around the Kishon River caused them cancer and other diseases). Several dozen factories (including Fertilizers & Chemicals), local governments, including the State of Israel, and insurance companies were joined as third-party defendants. As at the date of the Report, 23 plaintiffs withdrew their complaints, and complaints in respect of 87 soldiers (89 plaintiffs) remain. The complaints involve a total amount of NIS 500 million (USD 132 million) which does not reflect the entire scope of the soldiers’ legal suits, which are personal-injury suits. Because these claims are for physical injury, the plaintiffs are not required to precisely quantify the amounts sought as damages. Other primary damages not quantified in the claim include loss of future livelihood, medical expenses, in some cases loss of salary for years lost from work, etc., as well as interest and linkage differentials, attorneys’ fees and costs. Note that this is an arithmetic addition of the sums quantified in the statements of claim, and not a risk evaluation by the defendants nor an evaluation of the risk to which FCM is exposed.

These cases are at various stages of evidentiary hearings. Initially, the court hears the issue of the causal connection, from a narrow perspective, in other words, the connection between the substances that allegedly were contained in the Kishon vicinity, and the plaintiff’s illnesses. These actions involve highly complex fact patterns spanning decades and involving hundreds of parties (plaintiffs, defendants and third parties), and constitute a precedent-setting proceeding, both in terms of the nature of the claim and the division of responsibility among the defendants and third parties.

Based on the evaluation of its legal advisors, given the factual and legal complexity of these proceedings, the initial stage in which they are at present, and the multitude of parties involved, the Company cannot estimate its exposure with regard to these claims and no provision has been included in the financial statements.

c) In February 2004 a subsidiary of ICL Fertilizers which operates a mine in Spain, was informed that a Prosecutor of Environmental Crimes in Catalonia, Spain, instituted a criminal proceeding in which it filed a brief in the Magistrate’s Court in Manresa, Spain, against former and current managers of the subsidiary claiming that the managers violated local legislation and caused groundwater contamination due to seepage of salt waste from the salt mountains which have been a by-product of the potash plants over many years, in part before ICL Fertilizers acquired the company. An application for an order prohibiting continued dumping of salt was set aside by the Court in 2007. The criminal proceeding against the managers is pending. In the Company’s estimation, based on an opinion of its legal advisors, the Subsidiary’s exposure is not significant.


91



3. Ecology (cont’d)

d) ICL Fertilizers has two potash production sites in Spain. Salt, which accumulates in piles, is a by-product of the production of potash. Most of the accumulated salt is of no use. Periodically, ICL Fertilizers needs to obtain permits to make these piles on its sites and to obtain a permit to renew its “environmental license” once every 8 years (like every other company in Spain).

Regarding the environmental license, a license was received by both sites in 2007 (in effect until 2015).

As for the license to accumulate salt piles on the sites, there is a heaping permit on the first site sufficient for 20 years (until 2026) at current production levels and for the second site, there is a heaping license on the site sufficient, at current production rates for around 2 more years. ICL Fertilizers is acting to renew this permit and to obtain an area that will suffice for 30 years at the present production levels.

e) Three claims were filed with the District Court at Beer Sheva in March and June 2007 against the State of Israel and the Industrial Local Council at Ramat Hovav, in whose jurisdiction the Ramat Hovav plants operate, including the plants of ICL Industrial Products. The plaintiffs argue that various pollutants in the vicinity of Ramat Hovav have caused their illnesses, including, among other things, respiratory diseases, spontaneous abortion, birth defects, diseases of the nervous system, cancer, and other illnesses. The claims rely, among other things, on results of an epidemiological study. The claims sue for sums for treatment expenses incurred by the plaintiffs, as well as compensation for pain and suffering, distress, and punitive damages. The plaintiffs are suing for a total sum of more than $60 million.

In May 2008, the Local Council filed a third party notice against a number of plants at Ramat Hovav, the Israel Electric Corporation and the factories of ICL Industrial Products. In December 2008, the State also filed a third party notice against the same factories. The notices alleged that if the Council or the State are held to be liable to compensate the defendants, then the obligation to compensation must be imposed upon the plants, or they must be required to indemnify the Council or the State for any compensation that they are required to pay to the plaintiffs.

At this stage, ICL is unable to assess the chances of success of the claim nor the extent to which ICL Industrial Products is exposed to compensating the plaintiffs, compared with the rest of the defendants. However, it would appear that the chances of the claim being upheld in full against all of the parties and imposition of the entire sum of the claim on ICL Industrial Products are low.

f) A claim and motion to certify it as a class action was filed with the District Court in Beer Sheva in November 2007 against Bromine Compounds Ltd., a company in the ICL Industrial Products segment. The plaintiffs claim that the defendant’s factory emitted hazardous substances into the air. According to the plaintiffs, the defendant must pay Negev residents “financial compensation for harm to autonomy of will and for imposing a health hazard” and to provide “a fund for medical observation purposes”. The sum claimed in the class action is US$288 million. In ICL Industrial Products’ assessment, based on the opinion of its legal counsel, the chances that the motion to certify will not be approved are greater than the chances that they will be approved.

After the balance sheet date, the parties notified the District Court of their decision to embark on mediation, and explore the option of settling their dispute by consent.


92

Note 24 - Commitments, Concessions and Contingent Liabilities (cont'd)


4. Increase in level of Pond 150

As part of the evaporation process, salt immerses into the bed of one of the evaporation ponds at Sdom, in one of the sites of DSW, of ICL Fertilizers. The immersed salt creates a layer on the pond bed of approximately 20 centimeters in height annually. The process of production of the raw material requires that a fixed brine volume is preserved in the pond. To this end, the water level of the pond is raised by approximately 20 centimeters annually. As a result, ICL is required to raise the dykes supporting Pond 150. Based on the present height of the dyke, the next raise must be completed in 2013.

The Ein Boqeq and Hamei Zohar hotels, the town of Neve Zohar and other facilities and infrastructure are situated on the western beach of this pond. Raising the water level of the pond above a certain level is likely to cause structural damage to the foundations and the hotel buildings situated close to the water’s edge and to other infrastructure on the western shoreline of the pond, depending on the height to which the water level is raised and the location of the relevant object.

The above-mentioned situation requires the establishment of defenses for the relevant objects. Such protections are divided into two stages. The first is the stage of temporary defenses, which are supposed to provide protection pending the implementation of a permanent solution. The second stage is that of the permanent solution which is supposed to provide protection until the end of the current concession period (i.e. until 2030).

Temporary defense: The temporary means of defense have been performed for several years, including an embankment along the western bank of the pond, opposite the relevant hotel, in combination with a system used to lower the ground water level, in several places. The height of these protective embankments must be increased as part of the embankments that surround Pond 150. Additional defense alternatives for Pond 150 are currently under consideration, including the construction of a one-time harvest system, construction of a breakwater, etc. The State is also examining the following three alternative permanent solutions: The harvest alternative – which entails harvesting the salt from the bottom of the pond, where the level of the pond remains fixed; The laguna alternative – construction of an additional embankment inside the pond which will divide the section adjacent to the hotels, where the water level will remain fixed and the salt will be harvested, from the remainder of the pool where the level will continue to rise annually. Another alternative under consideration is the relocation of the hotels.

As at the date of publication of this report, the assessment is that the permanent solution will not be completed prior to 2015. Since the existing interim defenses will not provide a solution until then, this requires the construction of additional interim defenses which shall provide a solution until such time as the permanent solution is completed. There is no certainty as to whether the construction of these defenses will finish on the dates required by the height level of the pond, since there might be delays flowing, inter alia, from the need to receive the permits required by law (which are subject to complex and lengthy proceedings), and for other reasons. Delays in constructing the interim defenses could cause significant damage to the hotels and/or to DSW.

The issue of defenses (both temporary and those that are part of the permanent solution) is being handled by the government, which has mandated that the Ministry of Tourism coordinate the issue and has declared the protections project a project of national importance. In order to promote the project, in 2008 the State set up a new government company called the Dead Sea Protection Company (DSP). According to State publications, the State has allocated funds to perform additional interim defense and to perform a feasibility study of a permanent solution.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont'd) C. Contingent liabilities (cont’d) 4. Increase in level of Pond 150 (cont’d)

A decision has not yet been made as to which of these alternatives will be implemented. The feasibility studies are supposed to provide the basis for deciding which alternative will be chosen.

In 2006, the Dead Sea Hotels Union filed a petition to the High Court of Justice. It requested that the Court order the State: to abandon the hotel removal alternative; to decide which of the other two remaining alternatives (harvest or lagoon) would be implemented; that the permanent solution be completed no later than the end of 2007; and to declare that the hotels would not bear any expense relating to the permanent solution. An interim injunction was also requested prohibiting the raising of the water level in Pond 5 above the level planned for the end of 2008.

The Supreme Court held a number of hearings on the petition. The High Court held that there is a “need for special, constant and unwavering diligence” in handling the matter, and that it is important that budget decisions and statutory processes relating to the temporary defenses and the permanent solution be advanced with the relevant persons taking into account the time factor. The Court, which did not award the requested remedies, left the petition pending in order to receive reports from the State regarding the nature and speed of progress of the defense project.

Under the Arrangements Law of 2002, half of the financing of a certain portion of the interim defenses was imposed upon the State. The other half was imposed upon DSW, the Tamar Regional Council and the Hotels, in equal shares.

During 2007, the government ruled that the additional financing required for the interim defenses and for the above feasibility studies would be determined in negotiations that the Ministry of Finance would conduct with the various responsible persons (DSW, the Tamar Regional Council and the Hotels), and in the absence of an agreement, the matter would be resolved by legislation.

As at the date of this report, DSW and the State are in agreement that DSW will bear 39.5% of the costs of the additional financing for the interim stage and the feasibility studies, and that the State, either directly or via the other entities (the Regional Council, the Hotels) shall bear the remainder of the costs. The agreement states that it does not constitute a precedent for dividing the financing for the permanent solution, and that in the event of a dispute between DSW and the State regarding division of the financing burden for the permanent solution, if any, the section relating to dispute resolution appearing in the concession agreement signed by the State and DSW shall be implemented.


94

Note 24 - Commitments, Concessions and Contingent Liabilities (cont'd) C. Contingent liabilities (cont’d) 4. Increase in level of Pond 150 (cont’d)

As part of the decision to declare the protection project a national infrastructure project, it was resolved to advance a special outline plan for this purpose named NIP 35. The plan is being led by the Dead Sea Protection Company. According to what is coming to light now, the plan will be divided into two stages – the immediate stage which will include requirements for the coming years and the second stage which will deal with permanent protections. The boundaries for the plan has not yet been set. In addition, the plan also deals with the approval of mining and quarrying sites from which the construction materials required for the protection of the hotels and for the needs of the Company will be sourced until the concession period ends. Approval of all stages of the program in a timely manner is critical for the production process of Dead Sea Works, and any delay may cause damage to the process and consequently cause damage and loss.

5. In 2008, Israel National Roads Company filed a suit for damages totaling $10 million for damages sustained by bridges located along Highway 90. The plaintiff alleges that the damages were sustained also as a result of the Company's materials, which spilled out of trucks that transported it to the Eilat Port. The Company, based on the assessment of its legal counsel, estimates that it is more reasonable than not that the law suit will be dismissed than it will be accepted. Therefore, no provision was recorded in the Company's books to account for the aforementioned sum.

6. In addition to the contingencies referred to in sections above, a number of claims are pending against the Company and various subsidiaries (including lawsuits). In respect of claims for an amount up to about $13 million as of December 31, 2009, the Company and the subsidiaries have recorded provisions at that date of about $2 million; in addition, part of the above claims are covered by insurance. In the opinion of the management of the company, based on the opinions of its legal counsel, the provision recorded is sufficient to cover any liabilities that might arise.

Note 25 - Equity

A. Composition:

December 31, 2009 December 31, 2008 Issued and Issued and Authorized paid Authorized paid

Ordinary shares of NIS 1 par value 1,484,999,999 1,288,227,288 1,484,999,999 1,287,306,734 Special State share of NIS 1 par value 1 1 1 1 The shares of ICL are listed for trade on the Tel-Aviv Stock Exchange. The closing price per share on the Tel-Aviv Stock Exchange on December 31, 2009 was NIS 50.


95

Note 25 - Equity (cont'd)

B. Rights conferred by the shares The ordinary shares confer upon their holders voting rights (including appointment of directors by a simple majority at shareholders’ meetings), the right to participate in shareholders’ meetings, the right to receive profits and the right to a share in excess assets upon liquidation of ICL.

The Special State share, held by the State in order to safeguard matters of vital interest to the State, confers upon it special rights to make decisions among other things on the following matters:

– Sale or transfer of assets of the Company, which are "vital" to the State not in the ordinary course of business.

– Voluntary liquidation, change or reorganization of the organizational structure of ICL or merger (excluding mergers of entities controlled by ICL that would not impair the rights or power of the Government, as holder of the Special State share).

– Any acquisition or holding of 14% or more of the issued share capital of ICL. – The acquisition or holding of 25% or more of the issued share capital of ICL (including

augmentation of an existing holding up to 25%), even if there was previously an understanding regarding a holding of less than 25%.

Any percentage of holding of the Company's shares, which confers upon their holder the right, ability or actual possibility to appoint, directly or indirectly, such number of the Company's directors equal to half, or more than half, of the Company's directors actually appointed.

C. Share-based payments to employees 1. On January 28, 2007, the Company’s Board of Directors approved a plan for a private issuance,

for no consideration, of 12.9 million options exercisable for Company shares, to a group of officers and other senior employees holding management positions with the Company and companies it controls, in and outside of Israel. On January 28, 2007, 5.4 million options from the aforementioned plan were allotted, of which 2.2 million to the Company’s CEO. On March 27, 2007, 6.4 million options from the aforementioned plan were allotted. The rest of the options of that plan that were not allotted were cancelled at the end of March 2007.

Upon exercise, each option is exercised for one of the Company’s ordinary shares of NIS 1 par value. Immediately upon their issuance, the ordinary shares issued as a result of exercise of the options will have all the same rights as the Company’s ordinary shares. The options issued to the employees in Israel will be covered by Section 102 of the Income Tax Ordinance (New Version), and the regulations promulgated thereunder. The Company elected that the issuance shall be through a trustee under the “Capital Gains” tax track.

The options vested in three equal portions as follows: one-third at the end of 12 months from the board of directors approval date, one-third at the end of 24 months from the board of directors approval date, and one-third at the end of 36 months from the board of directors approval date. Each portion will be locked-up for an additional year from its vesting. The expiration date of the options is at the end of 60 months from the Grant Date. In addition, rules have been provided for a case of termination of service or employment of any of the option holders. The exercise price was set at NIS 25.59 per share linked to the Consumer Price Index “known” on the payment date (the base index is the index for December 2006). In the case of distribution of a dividend by the Company, the exercise price will be reduced on the ex-dividend date in the (gross) amount of the dividend per share, based on the amount thereof in NIS on the Effective Date.


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Note 25 – Equity (cont’d)

C. Share-based payments to employees (cont’d) Alternatively, and based on the Company’s discretion, it may transfer or issue shares at the rate of the difference between the price per share on the exercise date and the exercise price multiplied by the number of options the employee intend to exercise. The options are not marketable and may not be transferred. The weighted-average value of each option on the eve of the Grant Date, computed using the Black and Scholes options-pricing model is NIS 6.43, based on the stock market price of one of the Company’s ordinary shares of NIS 1 par value, on the eve of the Grant Date NIS 25.59. The cost of the benefit inherent in the options allotted as aforementioned, on the basis of the fair value on the date they were granted, amounted to $17.9 million. This amount is recorded in the statements of income over the vesting period of each portion. Accordingly, the Company included in 2009 and 2008 an expense in respect of the said plan in the amount of $2,462 and $5,948 thousand, respectively.

2. The option movement during 2009 and 2008 are as follows:

Number of options Plan 2007

Balance as at January 1, 2008 11,800,000 Movement in 2008: Exercised during the year (16,666)Forfeited during the year (18,334) Total options outstanding - December 31, 2008 11,765,000 Movement in 2009: Exercised during the year (1,781,148)Forfeited during the year (140,000) Total options outstanding - December 31, 2009 9,843,852 Total options that can be exercised - December 31, 2009 5,963,297


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Note 25 - Shareholders’ Equity (cont’d) C. Share-based payments to employees (cont’d) 2. The option movement during 2009 and 2008 are as follows: (cont’d)

The fair value of the options granted under the 2007 plan as aforementioned was valued on the basis of the Black & Scholes model for the pricing of options. The parameters that were used in order to implement the model are as follows:

Number of options Plan 2007

Share price (in NIS) 25.59 Exercise price (in NIS) 25.59 Expected volatility 24.60% Life of options (in years) 4 Risk free interest rate 3.34% Economic value (in $ millions) 17.9 The expected volatility was determined on the basis of the historical volatility in the Company’s share prices. The life of the option was determined on the basis of the management’s estimate of the period the employees will hold the options, taking into consideration their position with the Company and the Company’s past experience regarding the turnover of employees. The risk-free interest rate was determined on the basis of the yield to maturity of shekel-denominated Government debentures, with a remaining life equal to the anticipated life of the option.

3) Subsequent to the balance sheet date, an additional 634,662 options were exercised for 350,386

of the Company’s ordinary shares. After exercise of the options for shares, the Company’s issued and paid-up capital is 1,288,577,674 ordinary shares of NIS 1 par value.

4) After the balance-sheet date, on January 7, 2010, ICL’s Board of Directors approved an issue of

10,930,500 non-marketable options for no consideration to 318 ICL executives and senior employees in Israel and overseas. The issue included a material private placement of 1,100,000 options to the ICL CEO and 800,000 options to the Company’s Chairman of the Board. On February 15, 2010, ICL’s special general shareholder meeting approved the issue to the Chairman of the Board. The option may be exercised and converted into shares for an exercise price of NIS 53.1 (the base price of the shares at the beginning of the trading day on which the resolution was made), linked to the CPI and subject to adjustments. The option may be exercised in three equal portions on January 7, 2011, 2012, and 2013. The expiry date of the options for the first and second portions at the end of 36 months from the approval of the Board and the expiry date of the options for the third portion is at the end of 48 months from the approval of the Board. The option to employees in Israel were issued to a trustee under Section 102 of the Income Tax Ordinance, in the “capital gain” tax track. The fair value of the option issued in the said 2010 plan was valued on the basis of the Black & Scholes model to the pricing of the options. The following parameters were used in applying the formula:


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Note 25 - Shareholders’ Equity (cont’d) C. Share-based payments to employees (cont’d) 4) (cont’d)

Share price (in NIS) 53.1Exercise price (in NIS) 53.1Expected volatility:

First and second portions 54.98%Third portion 48.45%

Life of options (years) : First and second portions 2.5Third portion 3.5

Risk free interest rate: First and second portions 0.59%Third portion 1.29%

Economic value (in $ million) 54.3 Expected volatility was determined on the basis of historic volatility of the Company’s share price. Option lifetime was determined according to management’s estimation of employees’ period of holding the options, taking into consideration their positions with the Company and the Company’s experience in employee attrition. The risk free interest rate was determined on the basis of the yield to maturity of shekel-based government bonds, whose duration is different from the expected lifetime of the option. D. Dividends During 2007 a dividend was distributed in the amount of $543.7 million (the net dividend, less the share of a subsidiary, amounts to $542.6 million), about 0.42 dollar per share. On March 27, 2008, the Company's Board of Directors decided to distribute a dividend in the amount of $115million (the net dividend, less the share of a subsidiary, amounts to $114.8 million). The dividend was paid on April 30, 2008, about 0.09 dollar per share. On May 26, 2008, the Company's Board of Directors decided to distribute a dividend in the amount of $173 million (the net dividend, less the share of a subsidiary, amounts to $172.7 million). The dividend was paid on June 25, 2008, about 0.13 dollar per share. On August 19, 2008, the Company's Board of Directors decided to distribute a dividend in the amount of $300 million (the net dividend, less the share of a subsidiary, amounts to $299.5 million). The dividend was paid on September 23, 2008, about 0.23 dollar per share. On November 24, 2008, the Company’s Board of Directors decided to distribute a dividend in the amount of $380 million (the net dividend, less the share of a subsidiary, amounts to $379.3 million). The dividend was paid on December 22, 2008, about 0.30 dollar per share.


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Note 25 - Shareholders’ Equity (cont’d) D. Dividends (cont'd) On March 29 2009, the Company’s Board of Directors decided to distribute a dividend in the amount of $175 million (the net dividend, less the share of a subsidiary amounts to $174.7 million). The dividend was paid on May 4, 2009, about 0.14 dollar per share. On May 19, 2009 the Company’s Board of Directors decided to distribute a dividend in the amount of $100 million (the net dividend, less the share of a subsidiary amounts to $99.8 million). The dividend was paid on June 17, 2009, about 0.08 dollar per share. On August 23, 2009, the Company’s Board of Directors decided to distribute a dividend in the amount of $100 million (the net dividend, less the share of a subsidiary amounts to $99.8 million). The dividend was paid on September 16, 2009 about 0.08 dollar per share. On November 23, 2009, the Company's Board of Directors decided to distribute a dividend in the amount of 175 million (the net dividend, less the share of a subsidiary amounts to $174.7 million). The dividend was paid on December 22, 2009 about 0.14 dollar per share. Subsequent to balance sheet date, on March 23, 2010, the Company’s Board of Directors decided to distribute a dividend in the amount of $155 million (the net dividend, less the share of a subsidiary amounts to $154.7 million), about 0.12 per share. E. Translation reserve from foreign operations The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. F. Reserve from available-for-sale financial assets The equity reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognized or impaired. G. Capital reserves The capital reserves include the expenses for payroll against a parallel increase in equity in respect of share based payments to employees.


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Note 25 - Shareholders’ Equity (cont’d) H. Reserve for hedging of cash flows The capital reserve for hedging cash flows includes changes in the fair value of derivatives utilized for hedging shekel debentures that were issued during the reporting period (see Note 28E(c)). I. Treasury shares 1) As at December 31, 2009 and 2008 a subsidiary holds 2,216,131 ordinary shares of NIS 1 par

value of ICL. 2) On September 3, 2008, the Company’s Board of Directors decided to approve that the Company

may acquire, from time to time, itself and/or by a subsidiary, ordinary shares of the Company up to 5% of the Company’s issued and paid-up share capital – this being out of the Company’s distributable earnings in accordance with the Companies Law, 1999. The acquisition plan took place in the period commencing from the date of the decision and up to June 30, 2009. The acquisitions were made in accordance with the restrictions provided by law and the Company’s internal enforcement plan with respect to securities, according to guidelines provided from time to time by an Ad-Hoc directors committee appointed to the subject, and all as part of the aforesaid decision. In total 22,368,342 shares were acquired by the Company, constituting about 1.74% of the Company’s issued and paid-up share capital.

3) In determining the amount of retained earnings available for distribution as a dividend, the

Companies Law stipulates that the cost of the Company’s shares acquired by a subsidiary (that is presented as a separate item within the framework of the Company's shareholders’ equity) must be deducted from the amount of retained earnings available for distribution presented within the framework of the Company’s shareholders’ equity.

Note 26 - Pledges and Restrictions Placed in Respect of Liabilities A. Some of the Group companies have made a “negative pledge” to certain Israeli and non-Israeli

banks in respect of loans and credit received from them. Under the negative pledge, those companies are not to pledge their assets. The lenders are entitled to request early repayment if the State ceases to hold the Special State shares issued to it by ICL, DSW, Rotem, Bromine Company, Bromine Compounds and Tami.

B. ICL has undertaken various obligations in respect of loans and credit received from non-Israeli

banks (mentioned in A above). Among others, it has undertaken to restrict guarantees and indemnities to third parties (other than the guarantees in respect to subsidiaries up to an agreed amount for $550 million. ICL has also undertaken to grant loans only to subsidiaries and to associated companies in which it holds at least 25% of the voting rights – up to the amount stipulated by the agreement with the banks. ICL has also undertaken not to grant any credit, other than in the ordinary course of business, and not to register any charges, including rights of lien, except those defined in the agreement as “liens permitted to be registered” on its present or future assets or income. For details with regards to the covenants in respect of these loans, see Note 18(D).


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Note 26 - Pledges and Restrictions Placed in Respect of Liabilities (cont’d) C. Under the Law for the Encouragement of Capital Investments, certain subsidiaries have

received investment grants from the State of Israel. In the event of failure to comply with the terms attached to the receipt of the grants, the companies may be required to refund the amount of the grants, in whole or in part, with interest from the date of receipt (see Note 21(C)(1)).

As at December 31, 2009 and 2008, the Company is in compliance with the conditions for receipt of the grants, as stated.

The above companies have registered floating charges on all their assets in favor of the State of Israel as security for compliance with the terms attaching to the grants.

Note 27 - Details of Statement of Income Items

A. Revenues


Sales 4,365,582 6,768,767 4,047,821Construction contracts 161,690 115,427 47,906Concession agreements 27,044 19,855 7,452 4,554,316 6,904,049 4,103,179

B. Cost of sales (1)


Materials and spare parts 1,064,713 1,647,347 989,652Power and energy 282,081 440,515 301,476Labor and related expenses 648,273 745,295 602,325Subcontracted work 270,921 313,683 254,080Depreciation and amortization 158,306 147,067 135,147Other production expenses 256,801 311,040 229,105Logistics and port expenses 40,368 65,747 51,379 2,721,463 3,670,694 2,563,164Increase in inventories of finished products and work in progress )3,677( )221,920( )18,121(

2,717,786 3,448,774 2,545,043(1) Net of amounts capitalized to property,

plant and equipment under construction 23,122 28,688 22,857 By sources of income Sales 2,573,317 3,338,216 2,506,633Construction contracts 124,214 93,516 32,643Concession agreements 20,255 17,042 5,767

2,717,786 3,448,774 2,545,043


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Note 27 - Details of Statement of Income Items (cont’d)

C. Research and development expenses Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Amount of expenses 54,766 58,128 39,729Less – grants and participations, see Note 24(A)(5) 943 811 999

53,823 57,317 38,730

D. Selling, transportation and marketing expenses Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Transportation and insurance 362,395 545,169 443,490Salaries and related expenses 99,616 105,561 75,385Agents’ commissions 24,822 31,742 22,673Other 71,292 79,013 58,320

558,125 761,485 599,868

E. General and administrative expenses Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Salaries and related expenses 110,966 114,987 103,457Buildings maintenance 10,887 12,418 9,828Legal advice 10,742 11,297 6,990Other* 63,294 68,477 40,897

195,889 207,179 161,172

* Including in respect of doubtful debts 1,762 2,563 )1,939(

F. Financing income and expenses Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Financing income recorded in income: Interest income from bank deposits 26,072 27,506 16,515Net change in fair value of derivative financial instruments 63,467 28,170 10,974 89,539 55,676 27,489Financing expenses recorded in income Interest expenses to banks and others 48,236 87,610 71,752Financing expenses in relation to employee benefits 23,313 13,089 23,197Bank commissions 2,424 1,883 1,605Provision for impairment of financial assets available for sale - 17,319 - Net loss in exchange rate differences 11,714 60,889 10,663Financing expenses 85,687 180,790 107,217Net borrowing costs capitalized )2,263( )3,030( )3,087( 83,424 177,760 104,130

Net financing expenses (income) recorded in income (6,115) 122,084 76,641


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Note 27 - Details of Statement of Income Items (cont’d) G. Other income and expenses


Curtailment in defined benefit plans for employees 677 12,883 -Capital gains, net 2,550 1,471 173Other 397 505 628

Other income recorded in income 3,624 14,859 801 Expenses in respect of early retirement (1) 55,336 31,761 11,676Provision for impairment of plants (2) 27,043 47,428 281Disposal of installations that were taken out of use - 6,151 - Past service cost - - 568Other 11,765 23,324 4,056

Other expenses recorded in income 94,144 108,664 16,581 (1) See Note 22(E). (2) See Note 16(B).

Note 28 - Financial Instruments and Risk Management

A. General

The Group has extensive international activity in which it is exposed to credit, liquidity and market risks (including currency, interest and other price risks). In order to reduce the exposure to these risks, the Group hold financial derivative instruments, (including forward transactions, transformation transactions, and options) for the purpose of economic (not accounting) hedging of foreign currency risks, commodity price risks, and interest risks. Furthermore, the Company holds derivative financial instruments to hedge its risk in respect of changes in the cash flows of issued bonds, and such instruments are accounting hedges.

The transactions in derivatives are executed with large financial institutions in Israel and abroad, and therefore in the opinion of management of the Group the credit risk in their respect is low.

This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for measuring and managing risk.

The Group companies monitor on a regular basis the extent of the exposures and the hedge documentation of various matters. The hedge policies of all the types of exposures are discussed by the Company’s board of directors and by the boards of directors of the companies in the framework of the annual budget. The finance committee of ICL receives a report every quarter in the framework of the discussion on the quarterly results, as a means of controlling implementation of the policies and for the purpose of updating the policies if required. The managements of the companies implement the policies that are determined, while taking into consideration actual market developments and anticipations.


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Note 28 - Financial Instruments and Risk Management (cont’d) B. Groups and measurement bases of financial assets and financial liabilities

December 31, 2009 Financial assets Financial liabilities Measured at Measured at fair value fair value Measured at through Loans and Available-for- through amortized profit and loss receivables sale profit and loss cost US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Cash and cash equivalents - 257,970 - - - Investments in deposits and short-term loans 3,705 141,492 22,352 - - Trade receivables - 969,620 - - - Other receivables and debit balances, including derivative instruments 20,803 72,006 - - - Deposits and other long-term receivables - 201,741 - - - Derivative instruments 16,739 - - - - Total financial assets 41,247 1,642,829 22,352 - - Short-term credit from banks and others - - - - )103,951(Trade payables - - - - )469,798(Other payables and credit balances including derivative instruments - - - )1,756( )337,746(Long-term loans from banks and others - - - - )1,189,871(Derivative instruments - - - )14,228( - Total financial liabilities - - - )15,984( )2,101,366( Total financial instruments, net 41,247 1,642,829 22,352 )15,984( )2,101,366(


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Note 28 - Financial Instruments and Risk Management (cont'd)

C. Credit risk (1) General (a) Customer credit risks Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and from other receivables as well as from investment securities. The Company sells to a large variety and number of customers, including customers with material credit balances. On the other hand, the Company does not have a concentration of sales to individual customers. The Company has a regular policy of insuring the credit risk of all its customers by means of credit insurance companies, other than sales to government agencies and sales in very small amounts. All other sales are executed only after receiving approval of coverage in the necessary amount from the insurance company, or other security of a similar level. The use of an insurance company as aforementioned ensures that the credit risk is managed professionally and objectively by an expert external party and transfers most of the credit risk to a third party. Nevertheless, the accepted deductible in credit insurance is 10% (even higher in a small number of cases) and leaves part of the risk, which was approved by the insurance company, in the hands of the Company. The credit insurance company of the Group is Israel Foreign Trade Risks Insurance Corp. The exposure of the insurance company is backed by global reinsurers of the highest level. Most of the Group’s customers have been trading with it for many years and only rarely have losses been incurred, for which the financial statements include specific provisions for doubtful debts that appropriately reflect, in the opinion of management, the loss inherent in debts the collection of which is doubtful. (b) Deposit credit risks The Company deposits its balance of liquid financial assets only in bank deposits. Other than insignificant amounts deposited with various institutions for operating purposes, all the deposits are held at leading banks with an appropriate spread between the banks and a preference to banks that provide loans to the Company.


106


C. Credit risk (cont’d) (2) Maximum Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: December 31 2009 2008 Carrying amount US$ thousands US$ thousands Cash and cash equivalents 257,970 215,154Investment deposits and short-term loans 167,549 125,061Trade receivables 969,620 1,054,387Other receivables including derivative instruments 92,809 110,751Deposits and other long-term receivables 201,741 161,910Long-term derivative instruments 16,739 7,334 1,706,428 1,674,597 The maximum exposure to credit risk for trade receivables, at the reporting date by geographic region was: December 31 2009 2008 Carrying amount US$ thousands US$ thousands Eastern Europe 10,538 3,093Western Europe 277,686 229,028North America 115,099 145,360South America 107,009 161,052India 267,916 320,977China 36,266 49,931Israel 55,032 90,847Others 100,074 54,099 969,620 1,054,387


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Note 28 - Financial Instruments and Risk Management (cont'd) C. Credit risk (cont'd) (3) Aging of debts and impairment losses The aging of trade receivables at the reporting date was: December 31 December 31 2009 2009 2008 2008 Gross Impairment Gross Impairment US$ thousands US$ thousands US$ thousands US$ thousands Not past due 859,923 )1,299( 928,556 )4,019(Past due to 3 months 101,291 )539( 118,715 )423(Past due 3 to 6 months 7,341 )111( 10,517 )160(Past due 9 to 12 months 2,409 )201( 1,611 )410(Past due over 12 months 3,378 )2,572( 1,102 )1,102( 974,342 )4,722( 1,060,501 )6,114( The movement in the provision for impairment in respect of trade receivables during the year was as follows: For the year ended December 31 2009 2008 NIS thousands NIS thousands Balance as at January 1 6,114 5,457Impairment loss on trade receivables recognized in the period 646 1,359Receivables written off as uncollectible )507( )875(Cancellation of past allowance )1,653( - First time consolidation 10 177Changes due to translation differences 112 )4( Balance as at December 31 4,722 6,114


108


D. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses. The Company manages the liquidity risk by holding cash balances, short-term deposits and secured bank credit facilities. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

December 31, 2009 Carrying 12 months More than amount or less 1-2 years 2-5 years 5 years US$ thousands

Non-derivative financial liabilities Bank overdrafts, Short-term bank loans and other providers of credit 33,753 34,172 - - - Trade payables 469,798 469,798 - - - Other payables 337,197 337,197 - - - Non-convertible debentures 541,794 62,137 23,928 504,391 70,833Long-term bank loans 718,275 46,016 53,499 573,687 119,999 2,100,817 949,320 77, 427 1, 078,078 190,832 Financial liabilities - derivative instruments utilized for economic hedging Interest rate swaps 14,228 - 7,227 6,771 230Foreign exchange derivatives 1,756 1,756 - - - Total 15,984 1,756 7,227 6,771 230 Total financial liabilities 2,116,801 951,076 84,654 1, 084,849 191,062


109


D. Liquidity risk (cont'd)

December 31, 2008 Carrying 12 months More than amount or less 1-2 years 2-5 years 5 years US$ thousands

Non-derivative financial liabilities Bank overdrafts, Short-term bank loans and other providers of credit (not including current maturities) 368,900 376,522 - - - Trade payables 448,154 448,154 - - - Other payables 432,487 432,487 - - - Non-convertible debentures (including current maturities) 125,000 6,777 44,777 32,557 74,665 Long-term bank loans (including current maturities) 939,900 60,046 43,138 905,716 99,481 2,314,441 1,323,986 87,915 938,273 174,146 Financial liabilities - derivative instruments utilized for economic hedging Interest rate swaps 11,784 - - 12,411 342 Foreign exchange derivatives 22,778 23,055 - - - Commodity derivatives 5,879 5,951 - - - Total 40,441 29,006 - 12,411 342 Total financial liabilities 2,354,882 1,352,992 87,915 950,684 174,488


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Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the fair value or future cash flows of a financial instrument. (1) Interest risk

The Group has loans bearing variable interest and therefore its financial results and cash flows are exposed to fluctuations in market interest rates. ICL uses financial instruments, including derivatives, in order to hedge this exposure. The Group uses interest rate swap contracts and interest options mainly in order to reduce the exposure to cash flow risk in respect of interest rates. Furthermore, in 2005 the Company issued debentures in the amount of $125 million at an average fixed interest rate of 5.42%. The liability in respect of the debentures, which bears fixed interest, exposes the Company to fair value risk in relation of changes in market interest. In order to change the interest rate on the aforementioned debentures, the Company executed swap transactions in the amount of $106 million in which it pays variable interest and received fixed interest at the average rate of 4.5%. (a) Interest Rate Profile The following is the interest rate profile of the non-derivative interest-bearing financial instruments:

December 31 2009 2008 Carrying amount US$ thousands US$ thousands

Fixed rate instruments: Financial assets 192,237 128,171Financial liabilities )487,026( )181,843(

)294,789( )53,672( Variable rate instruments Financial assets 392,270 341,992Financial liabilities )806,796( )1,251,960(

)414,526( )909,968(`


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E. Market risk (cont’d) (1) Interest risk (cont’d) (b) Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore a change in interest rates at the reporting date would not affect profit and loss for changes in assets and liabilities at fixed interest. (c) Cash flow sensitivity analysis for variable rate instruments This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2008. December 31, 2009 Influence on profit or loss Decrease of Decrease of Increase of Increase of 1% in interest 0.5% in interest 0.5% in interest 1% in interest US$ thousands US$ thousands US$ thousands US$ thousands

Changes in dollar interest Non-derivative instruments 4,145 2,073 )2,073( )4,145(Interest rate swaps )9,281( )4,570( 4,279 8,405Cylinder instruments )4,658( )2,418( 1,921 4,097Swap contract to liability for fixed dollar interest from liability for fixed shekel interest )8,557( )4,239( 4,179 8,270 )18,351( )9,154( 8,306 16,627

Changes in shekel interest Swap contract to liability for fixed dollar interest to liability from fixed shekel interest )10,844( )5,717( 4,917 10,429Changes in interest linked to the CPI Swap contract to liability for fixed dollar interest from liability for fixed interest linked to CPI )1,668( )844( 866 1,753 )30,863( )15,715( 14,089 28,809 December 31, 2008 Influence on profit or loss Decrease of Decrease of Increase of Increase of 1% in interest 0.5% in interest 0.5% in interest 1% in interest US$ thousands US$ thousands US$ thousands US$ thousands Non-derivative instruments 9,100 4,550 (4,550) (9,100)Interest rate swaps 2,494 1,593 478 8 Cylinder instruments (5,163) (2,257) 1,989 4,014 6,431 3,886 (2,083) (5,078)


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E. Market risk (cont'd) 1. Interest risk (cont'd) (d) Conditions of derivative financial instruments used to hedge the foreign currency risk

December 31, 2009 Carrying amount Notional Maturity Interest rate (fair value) amount date range US$ thousands US$ thousands Years %

Swap contracts from fixed to variable interest 6,467 106,000 7 -1 4.7% - 4.0%Swap contracts from variable interest to fixed interest )4,672( 356,262 5 -1 4.3% - 2.4%Cylinder instruments )5,749( 195,000 6 - 2 1.5%-5.3% 2. Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group.

The currencies in which these transactions primarily are denominated are NIS, Euro, British pound, Chinese Yuan, Japanese Yen and Brazilian real.

The Group enters into foreign currency derivatives – forward exchange and option contracts – almost all in order to protect the Group from the risk that the eventual dollar net cash flows, resulting from existing assets and liabilities, and sales and purchases of goods and services within the framework of firm or anticipated commitments (based on a budget of up to one year), will be affected by changes in the exchange rates.

Furthermore, on April 27, 2009, the Company issued three series of bonds in a private placement to institutional investors through an auction, for a consideration of NIS 695 million (USD 167 million). Part of the issued series are denoted in shekels and part are CPI-linked bearing CPI-linked interest. On September 9, 2009, the Company issued three series of bonds in a public offer through an auction, for a consideration of NIS 898 million (approximately USD 235 million). In respect of the shekel and CPI-linked liabilities, the Company performed dollar-shekel swap transactions to transform its cash flow from shekels into dollars. The Company also performed transactions in derivatives to hedge the major portion of its risk in respect of changes in the CPI. The swap transactions are for five years. This hedging transaction was not treated as an accounting hedge. Furthermore, in the third quarter of 2009, the Company invested in derivatives to hedge its risk in respect of changes in the cash flows of extended Series B bonds, in respect of changes in the shekel-dollar exchange rate. The swap transactions are for four years and affect the income statement over the entire lifetime of the debentures. This hedging transaction was treated as an accounting hedge. As a result of the implementation of hedging accounting, the Company charged part of the changes in the fair value of the derivates (a loss of USD 1.2 million) to capital reserves in other comprehensive income.


113


E. Market risk (cont'd) 2. Currency risk (cont’d) (a) Sensitivity analysis A strengthening at the rate of 10% of the US$ against the following currencies would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2008. Non-derivative financial instruments December 31 December 31 2009 2008 Impact on Impact on profit (loss) profit (loss) US$ thousands US$ thousands Dollar/Euro )20,135( )10,754(Dollar/NIS 40,035 8,517Dollar/British pound 1,135 1,066Dollar/Japanese yen )1,261( )1,456(Dollar/Brazilian real )1,157( )159(Dollar/Chinese Yuan )208( )1,807(Dollar/Canadian Dollar 13 )1,124( 18,422 (5,717) A weakening of 10% of the US$ against the currencies above would have the same effect but in the opposite direction.


114

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont'd) 2. Currency risk (cont'd) (a) Sensitivity analysis (cont'd) Presented hereunder is a sensitivity analysis of the Group’s foreign currency derivative instruments as at December 31, 2009 and December 31, 2008. Any change in the exchange rates of the principal currencies as at December 31 would have increased (decreased) profit or loss and equity by the amounts shown below (in $ thousands). This analysis assumes that all other variables remain constant.

December 31, 2009 Increase Increase Decrease Decrease 10% 5% 5% 10% US$ thousands US$ thousands US$ thousands US$ thousands

Dollar/Euro

Forward 30,116 14,356 )12,660( )24,326(Options 8,026 3,715 )3,211( )6,667( Dollar/NIS Forward )20,841( )10,917( 12,066 25,466Options )8,057( )4,648( 6,394 14,654Embedded derivative 708 354 )354( )708( JPY/Dollar Forward 797 418 )462( )975(Options 478 205 )177( )422( GBP/Dollar Forward 2,123 1,112 )1,229( )2,595( NIS/Euro Embedded derivative 6,102 3,051 )3,051( )6,102( CPI/Dollar Forward 6,449 2,763 )2,763( )6,449(Swap 4,512 2,256 )2,256( )4,512( CPI Embedded derivative 359 180 )180( )359(


115

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont'd) 2. Currency risk (cont'd) (b) Conditions of derivative financial instruments used to economically hedge the foreign

currency risk December 31, 2009 Carrying Notional Average amount amount exchange rate US$ thousands US$ thousands

Forward contracts NIS/Dollar 119 229,195 3.79Dollar/Euro 929 269,505 1.44Dollar/JPY 502 9,275 87.98Euro/GBP )40( 23,351 1.62Other 2 793 0.89 Put options NIS/Dollar 5,907 154,000 3.85Dollar/Euro 3,641 75,411 1.47Dollar/JPY )59( 9,000 84.53Dollar/GBP 234 5,904 1.64Other 81 1,714 7.00 Call options NIS/Dollar )293( 106,000 3.99Dollar/Euro )1,269( 75,411 1.47Dollar/JPY 150 9,000 96.89Dollar/GBP )95( 5,904 1.64Other 81 1,714 7.00 Embedded derivative Euro/Dollar 4,595 - - Dollar/NIS 1,507 - - The maturity date of all of the derivatives used to economically hedge foreign currency risk is up to a year.


116

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont'd) 2. Currency risk (cont'd)

(c) Linkage terms of monetary balances

December 31, 2009 US$ Euro GBP NIS CPI JPY Others

Non-derivative financial instruments: Cash and cash equivalents 110,003 57,428 1,353 60,190 - 3,070 25,926 Investments deposits and short-term loans 61,675 29,377 10,148 48,820 - - 17,529 Trade receivables 605,499 222,177 33,937 50,526 - 17,628 39,853 Other receivables 39,468 11,789 279 18,454 - 10 2,006 Deposits and other long-term receivables 25,603 2,514 - 98,038 71,503 176 3,907 Total financial assets 842,248 323,285 45,717 276,028 71,503 20,884 89,221 Credit from banks and other credit providers )49,458( )39,395( )5,991( )176( )2,225( - )6,706( Trade payables )69,344( )166,710( )14,485( )199,810( - )4,345( )15,104( Other payables )91,943( )87,295( )11,434( )127,277( )751( )346( )18,700( Long-term loans from banks and other credit providers )631,552( )160,248( - )224,881( )172,703( - )487( Total financial liabilities )842,297( )453,648( )31,910( )552,144( )175,679( )4,691( )40,997( Total non-derivative financial instruments, net )49( )130,363( 13,807 )276,116( )104,176( 16,193 48,224 Derivative instruments: Forwards - )44,505( 23,251 229,195 53,291 )9,275( 793 Call options - - - - - - - Put options - - - 48,000 - - - Cylinder - )75,411( )5,904( 106,000 - )9,000( )1,714( Swaps dollar, shekel and CPI - - - 226,730 38,892 - - Total derivative instruments - )119,916( 17,347 609,925 92,183 )18,275( )921( Net exposure (49) )250,279( 31,154 333,809 )11,993( )2,082( 47,303


117

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont'd) 2. Currency risk (cont'd)

(c) Linkage terms of monetary balances (cont'd)

December 31, 2008 US$ Euro GBP NIS CPI JPY Others

Non-derivative financial instruments: Cash and cash equivalents 140,087 43,506 680 18,922 - 2,629 9,330 Investments deposits and short-term loans 52,171 26,186 13,910 20,822 - - 11,972 Trade receivables 711,552 204,209 18,275 58,389 - 21,907 40,073 Other receivables 23,841 33,922 3,785 25,713 - 307 8,358 Deposits and other long-term receivables - 2,151 - 121,090 7,832 180 9,020 Total financial assets 927,651 303,974 36,632 244,936 7,832 25,023 78,753

Credit from banks and other credit providers 252,342 36,829 727 110,964 6,519 - 4,152 Trade payables 75,021 168,021 10,845 175,595 - 3,566 15,106 Other payables 193,237 67,483 9,793 117,740 745 261 14,571 Long-term loans from banks and other credit providers 814,467 153,900 - 3 48,049 - 3,870 Total financial liabilities 1,335,067 426,233 21,365 404,302 55,313 3,827 37,699 Total non-derivative financial instruments, net (407,416) (116,259) 15,267 (159,366) (47,481) 21,196 41,054

Derivative instruments: Forwards - (543,962) (1,694) 99,995 - (10,787) 5,211 Call options - (1,717) - - - - (16) Put options - - - 41,800 - - - Cylinder - (129,612) 58,682 157,100 - (11,000) (968)

Total derivative instruments - (675,291) 56,988 298,895 - (21,787) 4,227

Net exposure (407,416) (791,550) 72,255 139,529 (47,481) (591) 45,281


Notes to the Consolidated Financial Statements as at December 31, 2009

118

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont’d) 3. Other price risk A. Investment in securities As at December 31, 2009, the Company has an investment in shares classified as available-for-sale in the amount of US$22 million. A 10% decline in the market price of these shares will result in the need to create a provision for impairment of US$2.2 million to be charged to the income statement. An increase of 10% in the price of these shares will result in crediting the adjustment in value of US$2.2 million to shareholders’ equity. B. Hedging on marine shipping transactions The Company is exposed to risks in respect of marine shipping rates. The Company uses marine shipping derivatives to hedge against the risk that its cash flows will be affected by changes in marine shipping prices. The fair value of the marine shipping derivatives as at December 31, 2009 was USD 1.8 million. F. Fair value of financial instruments The financial instruments of the Group mostly include non-derivative assets, such as: cash and cash equivalents, investments, deposits and short-term loans, debtors and debit balances, investments and long-term receivables, non-derivative liabilities, such as: short-term credit, creditors and credit balances, long-term loans and other liabilities; as well as derivative financial instruments. Due to their nature, the fair value of the financial instruments included in the working capital of the Group is generally identical or approximates the value, according to which they are stated in the accounts. The fair value of the long-term deposits and receivables and the long-term liabilities also approximates their stated value, as these financial instruments bear interest at a rate which approximates the accepted market rate of interest. The following table shows in detail the stated value and the fair value of financial instrument groups presented in the financial statements not in accordance with their fair value.

December 31, 2009 December 31, 2008 Carrying Carrying amount Fair value amount Fair value US$ thousands US$ thousands US$ thousands US$ thousands

Fixed rate debentures: Traded 321,543 330,142 - - Not traded 125,000 131,775 125,000 128,709 446,543 461,917 125,000 128,709 The fair value of the non-marketable debenture received is based on a calculation of the present value of the cash flows based on the customary Libor rate for similar loans having similar characteristics. The average discount rate as at December 31, 2009 is 3.4% (December 31, 2009 – 4.1%). The fair value of the marketable debenture is based on the stock market price for the balance date.



119


G. Hierarchy of fair value The following table presents an analysis of the financial instruments measured by fair value, using the valuation method. The following levels were defined: Level 1: Quoted (unadjusted) prices in an active market for identical instruments Level 2: (directly or indirectly) Observed data not included in Level 1.

As at December 31, 2009 Level 1 Level 2 Total US$ thousands US$ thousands US$ thousands

Available-for-sale securities 26,057 - 26,057 Derivative used in economic hedging - 21,558 21,558 26,057 21,558 47,615

Note 29 - Earnings Per Share

Basic earnings per share

Calculation of the basic earnings per share for the year ended December 31, 2009, is based on the earnings allocated to the holders of the ordinary shares in the amount of US$770,420 thousand (2008 and 2007 – US$2,004,238 and US$553,440 thousand, respectively), divided by the weighted-average number of ordinary shares outstanding of 1,262,991 thousand shares (2008 and 2007 – 1,280,446 and 1,285,069 thousand shares, respectively), calculated as follows: For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Net income for the period 770,420 2,004,238 553,440 Weighted average number of ordinary shares: For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Balance as at January 1 1,263,542 1,285,069 1,285,069 Less - the Company's acquisitions of own shares (808) (4,632) - Plus options exercised into shares 257 9 - Weighted average number of ordinary shares used in the computation of basic earnings per share 1,262,991 1,280,446 1,285,069



120

Note 29 - Earnings Per Share (cont’d) Diluted earnings per share

Calculation of the diluted earnings per share for the year ended December 31, 2009, is based on the earnings allocated to the holders of the ordinary shares in the amount of US$770,420 thousand (2008 and 2007 – US$ 2,004,238 and US$533,440 thousand, respectively), divided by the weighted-average number of potential diluted ordinary shares of 1,266,398 thousand shares (2008 and 2007 – 1,285,528 and 1,286,337 thousand shares, respectively), calculated as follows: For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Earnings attributed to the ordinary shareholders (diluted) 770,420 2,004,238 553,440 Weighted average of ordinary shares (diluted): For the year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands

Weighted average of ordinary shares used in the computation of the basic earnings per share 1,262,991 1,280,446 1,285,069 Effect of stock options 3,407 5,082 1,268 Weighted average of ordinary shares used in the computation of the diluted earnings per share 1,266,398 1,285,528 1,286,337 The average market value of the Company's shares, for the purpose of calculating the dilutive effect of the stock options, is based on the quoted market prices for the period in which the options were outstanding.

Note 30 – Related and Interested Parties A. Parent company and subsidiaries The Group's parent company is Israel Corporation Ltd. Regarding the subsidiaries - see Note 31, regarding the entities in the Group. B. Benefits to key management personnel (including directors) Senior management, in addition to their salaries, are entitled to non-cash benefits (car and phone). The Group contributes to a post-employment defined benefit plan on their behalf. In accordance with the terms of the plan, senior management retirement age is 67. Senior management also participate in the Company’s plan of options exercised into shares. (See Note 25(2) – Share-based payments to employees).



121

Note 30 – Related and Interested Parties (cont’d) B. Benefits to key management personnel (including directors) (cont’d) Benefits for key management personnel (including directors) engaged in business activities comprised:

Year ended December 31 2009 2008 US$ thousands US$ thousands

Short-term benefits 6,239 5,500 Post-employment benefits 676 809 Share-based payments 862 2,080

Total * 7,777 8,389 3,403 3,834

* To interested parties employed by the Company. Benefits for key management personnel (including directors) that are not employed by the Company:

Year ended December 31 2009 2008 Amount Amount US$ thousands US$ thousands Total compensation to directors not

employed by the Company (12 directors) 1,197 1,432

C. Ordinary transactions that are not exceptions

The Company’s Board of Directors, with the agreement of the Audit Committee, decided that a transaction will be considered an “insignificant” transaction for public reporting purposes if all the following conditions have been met:

(a) It is not an “extraordinary transaction” within its meaning in the Companies Law.

(b) The effect of each one of the parameters listed hereunder, to the extent they are relevant to the matter, is less than one percent:

For every transaction or arrangement that is tested for “insignificant status”, the parameters will be checked, as long as they are relevant, and on the basis of ICL consolidated financial statements, reviewed or audited, according to the issue, prior to the transaction as detailed below:

Assets ratio – The amount of the assets in the transaction (acquired or sold assets) divided by total assets.

Equity ratio – The increase or decrease in equity divided by total equity. Revenue ratio – Estimated revenue from the transaction divided by annual

revenue. Manufacturing expenses ratio – The amount of the expenses in the transaction

divided by the annual cost of sales. Profit ratio – The profit or loss attributed to the transaction divided by total

annual profit or loss including the period.



122

Note 30 – Related and Interested Parties (cont’d)

C. Ordinary transactions that are not exceptions (cont’d) (c) The transaction is insignificant also from a qualitative point of view. For the purpose of

this criterion, it shall be examined whether there are special considerations justifying a special report on the transaction, even if it does not meet the quantitative criteria described above.

(d) As regards a transaction that will occur in the future, the probability of the transaction

occurring should be examined.

D. Transactions with interested parties

Year December 31 2009 2008 US$ thousands US$ thousands

Sales 2,660 3,374 Cost of sales (1) 63,691 63,521 Selling transportation and marketing expenses (2) 34,620 35,765 Management fees to the parent company 3,500 2,500 (1) A subsidiary in the performance products segment entered into a long-term agreement with an

interested party of the Company for the acquisition of food quality phosphoric acid. The agreement was signed even before the subsidiary was acquired by ICL and is in effect until 2018. In addition, companies of the ICL Group purchase from a shipping company, in which Zim is an interested party, immaterial amounts of customs and related services. In the opinion of ICL the services are purchased at market terms.

(2) A subsidiary of ICL’s industrial products segment entered in September 2007 into a framework agreement with a fellow subsidiary of its parent company, Zim Integrated Shipping Services Ltd. (hereinafter – Zim). In a three-year framework agreement for transporting containers for all the ICL Group companies. It is emphasized that ICL is not obligated to transport containers through Zim. Transport rates are determined as a function of the various destinations, and, additionally, a discount or surcharge mechanism of up to 1.5% was defined, based on the effective annual transport volumes compared to the volume stated in the agreement. In the opinion of ICL and on the basis of the periodic tests performed by the segment under the supervision of the audit committee of ICL, the transport is executed at market terms and the selection of the shipping company, whether Zim or another company, is based on the needs of ICL.

(3) In June 2009, following approval by the Audit Committee, the Company’s Board of Directors approved a revision of the management fees payable to Israel Corp, in effect from January 1, 2009, to USD 3.5 million per year for each of the years from 2009 to 2011 (management fees in the amount of USD 2.5 million per year were paid prior to December 31, 2008). On July 20, 2009, the revision was approved by the general shareholders meeting of the Company. Pursuant to the Security Regulations (Presentation in financial statements of operations between corporations and their controlling owners) 5756-1996, the Company is obligated to include pro forma data on net earnings data and other related line items in the income statement. Said pro forma data are not material to the financial statements.



123

Note 30 – Related and Interested Parties (cont’d)

E. Balances with interested parties 1) Composition:


Long-term deposits, net of current maturities 1,529 1,634 Current maturities of long-term deposits 218 204 Other current assets 1,712 3,866 Other current liabilities 16,904 8,771

2) Controlling shareholder, Israel Corporation, from time to time deposits surplus monies, in short-

term U.S. dollar or shekel deposits in ICL. The terms of the deposits are determined based on the market prices existing on the date the deposit is made. The interest paid on the deposit is the market interest, which represents for Israel Corporation surplus interest over the interest on a bank deposit (to a depositor) and the market interest, which represents for ICL interest lower than the interest charged on a loan from a bank (to the borrower). The deposits are received in ICL without security and each party may withdraw the monies on a daily basis. The average scope of the loans in 2008 (calculated based on the amount of the loan multiplied by the number of loan days and divided by 365) was $39 million. The average interest rate in 2008 in respect of the dollar deposits was 1.28%. The average interest rate on the shekel loans in 2008 was 4.08%. In 2008, the highest deposit amount received by the Company was $181 million – on December 29, 2009 through December 30, 2009. In 2009, Israel Corporation did not deposit monies with ICL.



126

Note 31 - Group Entities

Percentage of shareholding

The Holding company The Subsidiary Shares conferring rights to profits

Voting shares

Israel Chemicals Ltd. Israel Chemicals Ltd. Dead Sea Works Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. Dead Sea Bromine Company Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. Rotem Amfert Negev Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. Dead Sea Periclase Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. Mifalei Tovala Ltd., Israel 100.00 100.00

Israel Chemicals Ltd. Rotem Amfert Negev B.V., The Netherlands 32.60 32.60

Israel Chemicals Ltd. I.D.E. Technologies Ltd., Israel 50.00 50.00 Israel Chemicals Ltd. ICL Financing and Issuing Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. “Ferson” Chemicals Ltd. , Israel 100.00 100.00 Israel Chemicals Ltd. ICL Fine Chemicals Ltd., Israel 100.00 100.00

Israel Chemicals Ltd. P.A.M.A ( Energy Resources Development) Ltd., Israel 25.00 25.00

Israel Chemicals Ltd. Dead Sea Magnesium Ltd., Israel 100.00 100.00 Israel Chemicals Ltd. ICL Finance B.V., The Netherlands 100.00 100.00 Israel Chemicals Ltd. ICL Finance Inc., USA 100.00 100.00 Israel Chemicals Ltd. Twincap Försäkrings AB, Sweden 100.00 100.00

Israel Chemicals Ltd. Hy-Yield Bromine Inc., U.S.A. 80.00 80.00

Dead Sea Works Ltd. Dead Sea Works Ltd. ICL Fertilizers, Israel 50.00 50.00 Dead Sea Works Ltd. Ashli Chemicals Ltd., UK 100.00 100.00 Dead Sea Works Ltd. Potash Technology Industries Ltd., Israel 100.00 100.00 Dead Sea Works Ltd. Ashli Chemicals (Holland) B.V., Israel 100.00 100.00 Dead Sea Works Ltd. Cleveland Potash Ltd. (CPL), U.K 75.00 75.00 Ashli Chemicals (Holland) B.V., Israel Ashli Chemicals (Holland) B.V., Israel Cleveland Potash Ltd. (CPL), U.K 25.00 25.00 Ashli Chemicals Ltd. , England

Ashli Chemicals Ltd., England Y.H.M.S. Investment Establishment, Liechtenstein 100.00 100.00

Y.H.M.S. Investment Establishment, Liechtenstein

Y.H.M.S. Investment Establishment, Liechtenstein Cogepotasse, Ltd., Belgium 8.80 8.80



127

Note 31 - Group Entities (cont’d)



Voting shares

Cleveland Potash ltd (CPL), U.K Cleveland Potash Ltd. (CPL), U.K Constantine & Company (Export) Limited 50.00 50.00 Cleveland Potash Ltd. (CPL), U.K ICL Iberia Ltd., UK 100.00 100.00 Cleveland Potash Ltd. (CPL), U.K ICL Iberia SCS, Spain 100.00 100.00 ICL Iberia SCS, Spain ICL Iberia SCS, Spain Iberpotash S.A., Spain 100.00 100.00 ICL Iberia SCS, Spain Trafico de Mercancias S.A., Spain 100.00 100.00 ICL Iberia SCS, Spain Medentech Limited, Ireland 100.00 100.00

Dead Sea Bromine Company Ltd. Dead Sea Bromine Company Ltd. Bromine Compounds Ltd., Israel 100.00 100.00 Dead Sea Bromine Company Ltd. ICL IP Europe B.V., The Netherlands 100.00 100.00

Dead Sea Bromine Company Ltd. Tami (IMI) Institute for R&D Ltd., Israel 100.00 100.00

Dead Sea Bromine Company Ltd. ICL IP America Inc., USA 100.00 100.00

Dead Sea Bromine Company Ltd. ICL-IP JAPAN Ltd. 100.00 100.00

Dead Sea Bromine Company Ltd. Landchem Ltd. ,South Africa 100.00 100.00

Dead Sea Bromine Company Ltd. Bromine and Chemicals Ltd., UK 100.00 100.00

Dead Sea Bromine Company Ltd. Euro Clearon Netherlands B.V, The Netherlands 100.00 100.00

Dead Sea Bromine Company Ltd. Dead Sea Periclase Fused products Co., Israel 99.00 99.00

Bromine Compounds Ltd. Bromine Compounds Ltd. Tetrabrom Technologies Ltd., Israel 50.00 50.00 Bromine Compounds Ltd. Chemada Fine Chemicals Ltd., Israel 26.00 26.00 Bromine Compounds Ltd. Bromine Compounds Marketing (2002) Ltd., Israel 100.00 100.00 Bromine Compounds Ltd. Dead Sea Periclase Fused Products Co., Israel 1.00 1.00 ICL IP Europe BV, The Netherlands

ICL IP Europe B.V., The Netherlands ICL IP Terneuzen BV, The Netherlands 100.00 100.00

ICL IP Europe B.V., The Netherlands Société pour le traitement des sols et l’alimentation animale SA, France 100.00 100.00

ICL IP Europe B.V., The Netherlands Broomchemie Holding B.V., The Netherlands 100.00 100.00

ICL IP Europe B.V., The Netherlands Bromisa Industrial e Commercial Ltda, Brasil 90.95 90.95

ICL IP Europe B.V., The Netherlands L.Y.G.D.S.B., China 60.00 60.00



128




Voting shares

ICL IP Europe B.V., The Netherlands Transbrom (Europe) B.V., The Netherlands 100.00 100.00

ICL IP Europe B..V, The Netherlands Sinobrom Compounds Co. Ltd. 75.00 75.00

ICL IP Europe B.V., The Netherlands Rotem Amfert Negev B.V., The Netherlands 67.40 67.40

ICL IP Europe B.V., The Netherlands Eurobrom sucursal En Espana, Spain 100.00 100.00

ICL IP Terneuzen B.V., The Netherlands

ICL IP Terneuzen B.V., The Netherlands Bromisa Industrial and Commercial Ltda, Brasil 9.05 9.05

Rotem Amfert Negev B.V. Rotem Amfert Negev B.V. Eurocil Holding B.V., The Netherlands 0 49.90

Tami IMI Institute for R&D Ltd.

Tami IMI Institute for R&D Ltd. Potassium Nitrate Ltd., Israel 50.00 50.00

Tami IMI Institute for R&D Ltd. Novetide Ltd. Israel 50.00 50.00 Tami IMI Institute for R&D Ltd. Magsens Ltd. 22.20 22.20

Rotem Amfert Negev Ltd. Rotem Amfert Negev Ltd. ICL Fertilizers, Israel 50.00 50.00 Rotem Amfert Negev Ltd. Eurocil Holding B.V., The Netherlands 100.00 50.10 Rotem Amfert Negev Ltd. Edom Mining and Development Ltd. 100.00 100.00 Rotem Amfert Negev Ltd. Agro-Vant, Israel 98.50 98.50 Rotem Amfert Negev Ltd. Fertilizers and Chemicals Ltd., Israel 100.00 100.00

Rotem Amfert Negev Ltd. Zuari Rotem Specialty Fertilizers Limited, India 50.00 50.00

Edom Mining and Development Ltd.

Edom Mining and Development Ltd. Keter Tovala Ltd., Israel 100.00 100.00

Fertilizers and Chemicals Ltd.

Fertilizers and Chemicals Ltd. Industrial Chemical Equipment Ltd., Israel 100.00 100.00

Fertilizers and Chemicals Ltd. Revivim In The Bay Water and Environment Ltd., Israel 100.00 100.00

Fertilizers and Chemicals Ltd. F&C - Licorice Ltd., Israel 10.00 10.00 Fertilizers and Chemicals Ltd. Agriphuzia, Israel 49.50 49.50



129




Voting shares

Industrial Chemical Equipment Ltd., Israel Industrial Chemical Equipment Ltd., Israel Agripo Management Services Ltd. 50.00 50.00

Agripo Management Services Ltd. Agripo Management Services Ltd. Agriphuzia Limited Partnership, Israel 1.00 1.00 Eurocil Holding B.V., The Netherlands

Eurocil Holding B.V., The Netherlands Rotem Holding G.M.B.H., Germany 10.00 10.00

Eurocil Holding B.V., The Netherlands Amsterdam Fertilizers B.V., The Netherlands 100.00 100.00

Eurocil Holding B.V., The Netherlands ICL FE Potash B.V., The Netherlands 100.00 100.00

ICL FE Potash B.V., The Netherlands

ICL FE Potash B.V., The Netherlands Florett S A, Luxembourg 85.00 85.00

ICL Brasil Ltda. ICL Brasil Ltda. FosBrazil S.A, Brazil 44.00 44.00 Pekafert B.V., The Netherlands Pekafert B.V., The Netherlands Eurocil Luxembourg SA, Luxembourg 100.00 100.00 Eurocil Luxembourg S.A, Luxembourg

Eurocil Luxembourg S.A Eurocil Luxembourg S.A - Swiss finance branch, Switzerland 100.00 100.00

Eurocil Luxembourg S.A Anti-Germ Austria GmbH, Austria 100.00 100.00 Eurocil Luxembourg S.A Anti-Germ Deutschland GmbH, Germany 100.00 100.00 Eurocil Luxembourg S.A Anti-Germ France S.A.S, France 100.00 100.00 Eurocil Luxembourg S.A Euro Clearon B.V, The Netherlands 100.00 100.00

Eurocil Luxembourg S.A Speciality Technologies Europe B.V., The Netherlands 100.00 100.00

Anti-Germ France S.A.S, France Anti-Germ France S.A.S, France Penngar Hispania SL, Spain 100.00 100.00 Euro Clearon B.V., The Netherlands Euro Clearon B.V., The Netherlands Clearon Holdings Inc., U.S.A. 100.00 100.00 Clearon Holdings Inc. , U.S.A. Clearon Holdings Inc., U.S.A. Clearon Corp. , U.S.A. 100.00 100.00 Clearon Corp. , U.S.A. Clearon Corp. Inc., U.S.A. Clearon Technologies, U.S.A. 100.00 100.00 Anti-Germ Austria GmbH, Austria Anti-Germ Austria GmbH, Austria Anti-Germ CZ s.r.o; Czech Republic 100.00 100.00 Anti-Germ Austria GmbH, Austria OAG Hungary Kft., Hungary 100.00 100.00 Anti-Germ Austria GmbH, Austria Anti-Germ Slovakia s.r.o., Slovakia 100.00 100.00



130




Voting shares

Anti-Germ Austria GmbH, Austria Argochem SK, Slovakia 100.00 100.00 Anti-Germ Austria GmbH, Austria Merak CZ, Czech Republic 98.00 98.00 Anti-Germ Austria GmbH, Austria Argochem, Hungary 100.00 100.00 Merak CZ, Czech Republic Merak CZ, Czech Republic Merak, Russia 100.00 100.00 Merak CZ, Czech Republic Merak, Slovakia 100.00 100.00 Anti-Germ CZ s.r.o; Czech Republic Anti-Germ CZ s.r.o; Czech Republic Merak CZ, Czech Republic 2.00 2.00 Anti-Germ Deutschland GmbH, Germany

Anti-Germ Deutschland GmbH, Germany Hyproclean Deutschland GmbH, Germany 100.00 100.00

Speciality Technologies Europe B.V. The Netherlands

Speciality Technologies Europe B.V. The Netherlands Scora S.A, France 100.00 100.00

Rotem Holding G.M.B.H. , Germany

Rotem Holding G.M.B.H. , Germany BK Giulini, GmbH , Germany 100.00 100.00 Rotem Holding G.M.B.H. , Germany Fibrisol Service Ltd. , Great Britain 100.00 100.00

Rotem Holding G.M.B.H. , Germany Fibrisol Australia Pty. Ltd., Australia 100.00 100.00

Rotem Holding G.M.B.H. , Germany Sofima S.A.S, France 100.00 100.00 Rotem Holding G.M.B.H. , Germany B.K Giulini Argentina S.A, Argentina 95.00 95.00 Rotem Holding G.M.B.H. , Germany Shanghai Tari International Ltd., China 51.00 51.00

Rotem Holding G.M.B.H. , Germany Yunnan B.K Giulini Tianchuang Phosphate Co. Ltd., China 60.00 60.00

Rotem Holding G.M.B.H. , Germany Fibrisol Muscalla GmbH, Germany 34.65 34.65 Rotem Holding G.M.B.H. , Germany BK Giulini Polska Sp.z.o.o, Poland 95.00 95.00 Rotem Holding G.M.B.H. , Germany BK Giulini Japan Ltd. , Japan 100.00 100.00 Rotem Holding G.M.B.H. , Germany BK Giulini Leather Chemistry Co. Ltd. Hong Kong, 100.00 100.00

Rotem Holding G.M.B.H. , Germany BKG Personal Care Co., Ltd. Hongkong 100.00 100.00

Rotem Holding G.M.B.H. , Germany ICL Performance Products Holding Inc., USA 100.00 100.00

Rotem Holding G.M.B.H. , Germany Flexotex GmbH , Germany 100.00 100.00

Rotem Holding G.M.B.H. , Germany BKG Performance Products Jiangyin Co., Ltd. Jiangyin, China 43.03 43.03

Rotem Holding G.M.B.H. , Germany ICL North America Inc. USA 100.00 100.00

Rotem Holding G.M.B.H. , Germany BK Giulini Specialities Private Limited, India 51.00 51.00

Rotem Holding G.M.B.H. , Germany Turris Assekuranz GmbH, Germany 100.00 100.00



131




Voting shares

Rotem Holding G.M.B.H. , Germany ICL Biogema SAS, France 100.00 100.00 Rotem Holding G.M.B.H. , Germany ICL IP Bitterfeld GmbH, Germany 100.00 100.00 Rotem Holding G.M.B.H. , Germany BKG France S.A.S, France 100.00 100.00 Rotem Holding G.M.B.H. , Germany Supresta Verwaltungs GmbH, Germany 100.00 100.00 Rotem Holding G.M.B.H. , Germany Primalab S.A.S., France 100.00 100.00 BK Giulini Leather Chemistry Co. Ltd. Hong Kong,

BK Giulini Leather Chemistry Co. Ltd. Hong Kong,

BKG Performance Products Jiangyin Co., Ltd. Jiangyin, China 9.54 9.54

Flexotex GmbH , Germany Flexotex GmbH , Germany BKG Finance GmbH, Germany 100.00 100.00 Flexotex GmbH , Germany BKG Sup Finance GmbH 100.00 100.00 ICL North America Inc, USA ICL North America Inc. USA Phosphorus Derivatives Inc., USA 100.00 100.00 ICL North America Inc. USA ICL Performance Products Inc, USA 100.00 100.00 ICL North America Inc. USA ICL IP America Inc. U.S.A 100.00 100.00 ICL Performance Products Inc, US ICL Performance Products Inc, US ICL Performance Products LP 1100.00 100.00 ICL Performance Products Inc, US ICL Performance Products LLC, USA 100.00 100.00

ICL Performance Products Inc, US ICL Performance Products, Canada 100.00 100.00

ICL IP America Inc. U.S.A

ICL IP America Inc. U.S.A Hy-Yield Inc. ,U.S.A. 100.00 100.00 BKG Personal Care Co., Ltd. HongKong

BKG Personal Care Co., Ltd. Hong Kong BKG Performance Products Jiangyin Co., Ltd. Jiangyin, China 44.43 44.43

BKG Puriphos B.V, The Netherlands BKG Puriphos B.V, The Netherlands ICL ASIA Ltd, Hong Kong 100.00 100.00 ICL ASIA Ltd, Hong Kong ICL ASIA Ltd., Hong Kong ARM Ltd., Hong Kong 100.00 100.00 ICL ASIA Ltd., Hong Kong ICL Asia Ltd Shanghai Representative office ,China 100.00 100.00 ICL ASIA Ltd., Hong Kong ICL Fertilizers (India) Private Ltd., India 100.00 100.00 ICL ASIA Ltd., Hong Kong Jiaxing ICL Chemical Co., Ltd., China 100.00 100.00 ICL ASIA Ltd., Hong Kong Zhangjiagang FTZ ICL Trading Co. Ltd., China 100.00 100.00 ARM Ltd., Hong Kong ARM Ltd., Hong Kong ICL Trading (HK) Ltd., Hong Kong 100.00 100.00 ARM Ltd., Hong Kong DDFR Corporation Ltd , Hong Kong 50.00 50.00 ARM Ltd., Hong Kong BK Giulini Hong Kong Limited, Hong Kong 100.00 100.00

ARM Ltd., Hong Kong AUB Storing and Services (Hong Kong) Ltd., Hong Kong 55.00 55.00

1 *1% is held by ICL Performance Products LLC



132




Voting shares

BK Giulini Hong Kong Limited, Hong Kong

BK Giulini Hong Kong Limited, Hong Kong BK Giulini Hygiene Hong Kong Ltd. 100.00 100.00

BK Giulini Hong Kong Limited, Hong Kong

Angang BK Giulini Water Treatment Co Ltd., China 50.00 50.00

ICL Trading (HK) Ltd., Hong Kong

ICL Trading (HK) Ltd., Hong Kong ICL Trading (HK) Ltd., Shanghai Representative office, China 100.00 100.00

ICL Trading (HK) Ltd., Hong Kong Bromine Compounds Trading Company Ltd., Beijing Representative office, China 100.00 100.00

B.K. Giulini GmbH , Germany B.K. Giulini GmbH , Germany Fibrisol Muscalla GmbH, Germany 65.35 65.35 B.K. Giulini GmbH , Germany Hoyermann Chemie GmbH, Germany 100.00 100.00 B.K. Giulini GmbH , Germany B.K. Mercosur S.A., Uruguay 100.00 100.00 B.K. Giulini GmbH , Germany Rhenoflex GmbH, Germany 100.00 100.00 B.K. Giulini GmbH , Germany Rotem do Brasil Ltd., Brasil 100.00 100.00

B.K. Giulini GmbH , Germany Tari International N.Z Ltd., New Zealand 100.00 100.00

B.K. Giulini GmbH , Germany Rhenoflex Dreyer ,S.A.R.L., France 10.00 10.00

B.K. Giulini GmbH , Germany BK Giulini Polska Sp.z.o.o, Poland 5.00 5.00

B.K. Giulini GmbH , Germany B.K Giulini Argentina S.A 5.00 5.00

Rhenoflex GmbH , Germany Rhenoflex GmbH , Germany Gurit Worbla GmbH , Germany 100.00 100.00

Rhenoflex GmbH , Germany Rhenoflex Dreyer ,S.A.R.L., France 90.00 90.00

Nutrisi Holding, Belgium

Nutrisi Holding. , Belgium Fertilizantes Naturales de Chili SA; Spain 66.65 66.65

Nutrisi Holding. , Belgium NU3 NV, Belgium 50.00 50.00

NU3 NV, Belgium NU3 NV, Belgium NU3 B.V, The Netherlands 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands

Amsterdam Fertilizers B.V., The Netherlands Amsterdam Fertilizers B.V., France branch 100.00 100.00



133




Voting shares


ICL Holding beschränkt haftende OHG, Germany 95.00 95.00


Finacil EEIG (European Economic Interest Grouping), The Netherlands 12.5 12.50

Amsterdam Fertilizers B.V., The Netherlands BKG Puriphos B.V, The Netherlands 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands ICL Fertilizers Europe CV, The Netherlands 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands Nutrisi Holding NV , Belgium 50.00 50.00

Amsterdam Fertilizers B.V., The Netherlands Incap B.V, The Netherlands 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands Pekafert B.V., The Netherlands 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands ICL Brazil Ltda. 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands P.M. Chemicals Srl, Italy 100.00 100.00

Amsterdam Fertilizers B.V., The Netherlands BKG Puriphos CV, The Netherlands 0.35 0.35

Amsterdam Fertilizers B.V., The Netherlands BK Giulini Kimya ve Sanayi Ticaret A.S,Turkey 100.00 100.00

BK Giulini Kimya ve Sanayi Ticaret A.S, Turkey

BK Giulini Kimya ve Sanayi Ticaret A.S, Turkey

Rotem Kimyevi Maddeler Sanayi ve Ticaret A.S, Turkey 73.30 73.30

ICL Fertilizers Europe CV

ICL Fertilizers Europe CV BKG Puriphos CV, The Netherlands 99.65 99.65

ICL Fertilizers Europe CV ICL Fertilizers Europe CV France Branch, France 100.00 100.00

ICL Holding beschränkt haftende OHG, Germany

ICL Holding beschränkt haftende OHG, Germany Stodiek Dunger GmbH,Germany 100.00 100.00

ICL Holding beschränkt haftende OHG, Germany ICL Holding Germany OHG, Germany 100.00 100.00

ICL Holding beschränkt haftende OHG, Germany Rotem Holding G.M.B.H., Germany 90.00 90.00

ICL Holding beschränkt haftende OHG, Germany ICL Fertilizers Deutschland GmbH., Germany 100.00 100.00

ICL Holding beschränkt haftende OHG, Germany Eisenbacher Dentalwaren ED GmbH, Germany 100.00 100.00



134




Voting shares

ICL Holding beschränkt haftende OHG, Germany

Adentatec GmbH Competence in Dental, Germany 100.00 100.00

ICL Holding Germany OHG, Germany

ICL Holding Germany OHG, Germany ICL Holding beschränkt haftende OHG, Germany 5.00 5.00

Incap B.V, The Netherlands Incap B.V, The Netherlands Intracap Insurance Ltd., Switzerland 100.00 100.00 Mifalei Tovala Ltd.

Mifalei Tovala Ltd. Sherut Rail & Road Transportaion Services Registered Partnership, Israel 50.00 50.00

Mifalei Tovala Ltd. M.M.M. Company United Landfill Industries (1998) Ltd., Israel 33.33 33.33

I.D.E. Technologies Ltd. I.D.E. Technologies Ltd. Ambient Technologies Inc., Virgin Islands 100.00 100.00 I.D.E. Technologies Ltd. IDE Canaries S.A., Canary Islands 100.00 100.00 I.D.E. Technologies Ltd. Larnaca Water Partners, Cyprus 95.00 95.00 I.D.E. Technologies Ltd. Pelagos Desalination Services, Cyprus 100.00 100.00 I.D.E. Technologies Ltd. Detelca UTE, Spain 20.00 20.00

I.D.E. Technologies Ltd. Indian Desalination Engineering PVT Ltd., India 50.00 50.00

I.D.E. Technologies Ltd. V.I.D Desalination Company LTD, Israel 49.99 49.99

I.D.E. Technologies Ltd. OTID desalination partnership, Israel 50.00 50.00 I.D.E. Technologies Ltd. West Galile Desalination Company Ltd., Israel 50.00 50.00 I.D.E. Technologies Ltd. ADOM (Ashkelon desalination) Ltd. 40.50 45.00 I.D.E. Technologies Ltd. Inversora Del Noroeste, Mexico 20.00 20.00 I.D.E. Technologies Ltd. I.D.E.S.B DESALINATION PARTNERSHIP 50.00 50.00 I.D.E. Technologies Ltd. H2ID Ltd. 50.00 50.00 I.D.E. Technologies Ltd. OMIS Water Ltd. Israel 60.00 60.00 I.D.E. Technologies Ltd. IDE Technologies India Private Ltd., India 99.00 99.00 I.D.E. Technologies Ltd. IDE Holdings Hong Kong Limited 100.00 100.00 I.D.E. Technologies Ltd. IDE Technologies (Australia) Pty Ltd. 100.00 100.00 Ambient Technologies Inc., Virgin Islands

Ambient Technologies Inc., Virgin Islands Larnaca Water Partners, Cyprus 5.00 5.00

Ambient Technologies Inc., Virgin Islands IDE Technologies India Private Ltd., India 1.00 1.00



135




Voting shares

Dead Sea Magnesium Ltd. Dead Sea Magnesium Ltd. M.R.I. Research & Development Ltd., Israel 99.00 77.78

Dead Sea Magnesium Ltd. Magnesium Research Institute, Registered Amuta, Israel 100.00 100.00

Dead Sea Magnesium Ltd. Dead Sea Magnesium Inc., USA 100.00 100.00 Dead Sea Magnesium Ltd. Israeli Light Metal Initiative Ltd. 9.00 9.00 Dead Sea Magnesium Ltd. Magnesium Die Casting Ltd.,Israel 100.00 100.00

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Israel Chemicals Ltd. Consolidated Financial Statements As ...iclgroupv2.s3.amazonaws.com/corporate/wp-content... · statements of income, statements of comprehensive income, the