Israel Chemicals Ltd. Separate Information Separate...

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

Israel Chemicals Ltd.

Separate Information in accordance with a Regulation 9C

of the Securities Regulations (Periodic and Immediate Reports) 1970

Separate Financial Data of the Company from

the Consolidated Financial Statements as at

December 31, 2009

Israel Chemicals Ltd. Separate Information in Accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) 1970 Separate Financial Data of the Company from the Consolidated Financial Statements as at December 31, 2009 Contents

Page

Auditors' Report 2 Details of Financial Position 4 Details of Income 6 Details of Comprehensive Income 7 Details of Cash Flows 8 Additional information 9

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.

To: The shareholders of Israel Chemicals Ltd. Subject: Special auditors’ report on separate financial data according to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) – 1970 We have audited the separate financial data presented in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) – 1970 of Israel Chemicals Ltd. (hereinafter – the Company) as at December 31, 2009 and 2008 and for each of the three years, the last of which ended December 31, 2009. The separate financial data are the responsibility of the Company’s Board of Directors and of its Management. Our responsibility is to express an opinion on the separate financial data based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial data are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial data. An audit also includes assessing the accounting principles that were used in preparing the separate financial data and the significant estimates made by the Board of Directors and by Management, as well as evaluating the separate financial data presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the separate financial data has been prepared, in all material respects, in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) - 1970. Somekh Chaikin Certified Public Accountants (Isr.) March 23, 2010

Israel Chemicals Limited

Separate Financial Data according to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) 1970 Separate Financial Data of the Company from the Consolidated Financial Statements as at December 31, 2009 Presented hereunder are financial data from the Group’s consolidated financial statements of December 31, 2009, which are being issued in the framework of the periodic reports (hereinafter – the consolidated financial statements), and which are attributed to the Company itself (hereinafter – separate financial data), and are issued in accordance with Regulation 9C (hereinafter – the Regulation) and the tenth addendum to the Securities Regulations (Periodic and Immediate Reports) – 2010 (hereinafter – the tenth addendum) regarding separate financial data of an entity.

In this separate financial data – investee companies are according to their definition in Note 1C of the consolidated financial statements.

The tenth addendum provides, inter alia, that the separate financial data will provide the following information:

(1) Information on amounts of assets and liabilities included in the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), according to categories of assets and liabilities, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total assets less total liabilities, in respect of investee companies, including goodwill.

(2) Information on amounts of revenues and expenses included in the consolidated financial statements, allocated between income and other comprehensive income, attributable to the Company itself (other than in respect of investee companies), while specifying the categories of revenues and expenses, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total revenues less total expenses in respect of the operating results of investee companies, including goodwill impairment, impairment of an investment in an affiliated company or its reversal and impairment of an investment in an equity accounted jointly controlled entity or its reversal.

(3) Details of cash flows included in the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), based on the consolidated statement of cash flows, classified according to flow from operating activities, investing activities and financing activities with details of their composition. For purposes of this separate financial data, the balance of cash and cash equivalents attributable to the Company itself includes the cash and cash equivalents that were transferred between it and its investee companies.

(4) Any further material information, which may have an effect on an investor’s economic decisions, to the extent such information is not included in the consolidated financial statements in a manner relating specifically to the Company itself. Such additional information shall include: disclosure of cash and cash equivalents, disclosure of financial assets and liabilities, disclosure of income and expenses from income taxes and disclosure of deferred taxes, in accordance with the instructions of the Regulation. Also to be included are a description of all the material relationships, commitments and transactions between the Company and its investee companies, whether or not they were recognized and measured in the consolidated financial statements and were reflected in the financial data presented in accordance with paragraphs (1) through (3) above.

The accounting policies described in Note 3 on the significant accounting policies in the consolidated financial statements were applied in the preparation of the separate financial data, including the manner by which the financial data were classified in the consolidated financial statements, with any necessary changes deriving from the aforementioned.

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Israel Chemicals Limited Financial Data Related to the Company from the Consolidated Financial Statements as at December 31 In thousands USA dollars Details of Financial Position Additional 2009 2008 information US$ thousands US$ thousands Current assets Cash and cash equivalents 1 52,728 195 Short-term investments, deposits and loans 22,733 17,850 Investee companies - current account 238,842 55,676 Other receivables, including derivative instruments 2,563 2,216 Income taxes refundable 44,786 27,467 Total current assets 361,652 103,404 Non-current assets Investments in investee companies 3,314,799 3,020,278 Long-term deposits and receivables 8,270 2,908 Loans to subsidiaries 570,000 586,275 Long-term derivative instruments 2,5 16,739 7,334 Deferred taxes, net 4 7,746 8,532 Property, plant and equipment 1,052 1,395 Total non-current assets 3,918,606 3,626,722 Total assets 4,280,258 3,730,126

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Israel Chemicals Limited Financial Data Related to the Company from the Consolidated Financial Statement as at December 31 Additional 2009 2008 information US$ thousands US$ thousands Current liabilities Credit from banks and others 3 810,067 696,903 Credit from investee companies 87,018 38,557 Other payables, including derivative instruments 22,320 52,987 Total current liabilities 919,405 788,447 Non-current liabilities Loans from banks and others 3 30,000 30,000 Loans from investee companies 111,522 443,718 Debentures 3 416,794 - Long-term derivative instruments 2,5 14,228 11,784 Employee benefits 14,549 13,224 Total non-current liabilities 587,093 498,726 Total liabilities 1,506,498 1,287,173 Equity 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 holders of the Company 2,773,760 2,442,953 Total liabilities and equity 4,280,258 3,730,126

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.

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Israel Chemicals Limited Financial Data Related to the Company from the Consolidated Financial Statements as at December 31 In thousands USA dollars Details of income Year ended December 31 Additional 2009 2008 2007 information US$ thousands US$ thousands US$ thousands Financing income 15,950 23,414 13,971 Expenses General and administrative 27,022 29,687 28,398 Financing 33,716 55,910 19,775 Other - - 374 60,738 85,597 48,547 Income from investee companies, net 6 756,723 2,094,845 580,644 Income before taxes on income 711,935 2,032,662 546,068 Taxes on income 4 (58,485) 28,424 (7,372) Income for the year attributed to owners of the Company 770,420 2,004,238 553,440

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Israel Chemicals Limited Financial Data Related to the Company from the Consolidated Financial Statements as at December 31 In thousands USA dollars Details of comprehensive income Year ended December 31 2009 2008 2007 US$ thousands US$ thousands US$ thousands Income for the year 770,420 2,004,238 553,440 Other comprehensive income components Change in fair value of financial assets available for sale 6,816 25 347 Net actuarial gains (losses) from defined benefit plans (555) (962) 30 Change in fair value of cash flow (1,230) - - Income taxes in respect of revenues and expenses recorded directly to equity (1,209) 229 (104) Other comprehensive income in respect of investee companies, net 30,712 (150,258) 86,564 Other comprehensive income (loss) for the year, net of tax 34,534 (150,966) 86,837 Total comprehensive income for the year attributed to the owners of the Company 804,954 1,853,272 640,277

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Israel Chemicals Limited Financial Data Related to the Company from the Consolidated Financial Statements as at December 31

In thousands USA dollars

Details of cash flows

2009 2008 2007 US$ thousands US$ thousands US$ thousands

Cash flows from operating activities Income for the year 770,420 2,004,238 553,440

Adjustments for: Depreciation and amortization 479 503 336 Interest expenses, net 6,748 11,598 9,780 Gain on securities classified as available-for-sale (150) - - Less gain from consolidated companies (756,723) (2,094,845) (580,644)Share based payment transactions 2,462 5,948 9,155 Revaluation of assets and liabilities denominated in foreign currency 5,763 4,450 - Loss from investment in securities classified as available for sale - 17,312 - Income tax expense (58,485) 28,424 (7,372) (29,486) (22,372) (15,305)

Change in trade and other receivables (326) 3,245 (249)Change in trade and other payables (13,527) 17,843 7,727 Change in provisions and employee benefits 770 794 1,502 (42,569) (490) (6,325)Income tax received (paid) 23,697 (101,206) 80,361 Interest received 1,058 1,022 739 Interest paid (6,524) (13,864) (9,565)Net cash provided (used) by operating activities related to the Company (24,338) (114,538) 65,210 Net cash provided by operating activities related to investee companies 645,662 987,989 409,534 Net cash provided by operating activities 621,324 873,451 474,744 Cash flows from investing activities Investments in long-term deposits (5,387) - (172)Receipt from sale of investment securities available-for-sale 2,261 - - Acquisition of property, plant and equipment (136) (753) (294)Proceeds from sale of long-term deposits - 80 - Investment in securities available-for-sale - (32,345) - Net cash used in investing activities related to the Company (3,262) (33,018) (466)Net cash used (provided) in investing activities related to investee companies (250,558) 23,512 (349,025)Net cash used in investing activities (253,820) (9,506) (349,491)Cash flows from financing activities Proceeds from options allocated to employees - 130 - Issue of debentures 402,840 - - Dividend paid (549,037) (966,493) (545,135)Long-term loan received - - 125,000 Repayment of long-term loans (30,000) - (90,000)Acquisition by the Company of its own shares (6,544) (251,372) - Short-term credit from banks and others 143,164 340,000 299,327 Net cash used in financing activities related to the company (39,577) (877,735) (210,808) Net cash flows from financing activities related to investee companies (275,394) 13,872 79,002 Net cash used in financing activities (314,971) (863,863) (131,806)Net increase in cash and cash equivalents 52,533 82 (6,553)Cash and cash equivalents as at the beginning of the year 195 113 6,666 Cash and cash equivalents as at the end of the year 52,728 ` 195 113

Israel Chemicals Limited Separate Financial Data of the Company from the Consolidated Financial Statements

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Additional information 1 - Cash and Cash Equivalents December 31 December 31 2009 2008 US$ thousands US$ thousands

Presented in New Shekel 43,789 92 Linked to Dollar 8,822 82 Linked to other currency 117 21

52,728 195 2 - Derivative Instruments December 31 2009 2008 Assets Liabilities Assets Liabilities US$ thousands US$ thousands

Among current assets and liabilities: Currency derivative instruments 31 - - 2,117Interest derivative instruments 660 - - -

691 - - 2,117

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


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3 - Credit from Banks and Others

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

Current liabilities Short-term credit: From financial institutions 810,067 637,287 From Other - 29,616 810,067 666,903 Current maturities of long-term loans: From financial institutions - 30,000 810,067 696,903

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

Non current liabilities Loans from financial institutions* 30,000 60,000 Marketable debentures 416,794 - 446,794 60,000

Less – current maturities in respect of loans: From financial institutions - 30,000

446,794 30,000

* The Group has the right to make early repayment of the loans from financial institutions. B. 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

Current liabilities (without current maturities) Short-term credit from financial institutions: In dollars 0.5 810,067 556,905 In other foreign currencies (mainly Euro) - 4 In Israeli currency – unlinked 3.8 - 80,378 810,067 637,287 Short-term credit from others In Israeli currency – unlinked 1.4 - 29,616

810,067 666,903


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3 - Credit from Banks and Others (cont'd)

B. Classified by currency and interest rates (cont'd) Weighted average interest rate as at December 31 December 31 December 31 2009 2009 2008 % US$ thousands US$ thousands

Non-current liabilities (including current maturities) Financial institution loans: In dollars (1) 0.9 30,000 60,000 30,000 60,000 Marketable debentures (2): In dollars 3.0 67,226 - In Israeli currency - unlinked 5.0 224,881 - In Israeli currency - linked to CPI 3.4 124,687 - 416,794 - Unutilized long-term credit lines 209,700 -

(1) Interest in respect of the dollar debt is determined based on LIBOR+0.6%. (2) See paragraph E. C. Maturity periods The credit and the loans including debentures (net of current maturities) mature in the following years after the reporting date, as follows:

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

Second year 30,000 - Third year - 30,000 Fourth year 265,651 - Fifth year 151,143 - 446,794 30,000

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. As at reporting date, the Company is in compliance with the aforementioned financial covenants.


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3 - Credit from Banks and Others (cont'd)

E. 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 in 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. 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: 1. 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%.

2. 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%.

3. 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 against exposure to changes in the CPI.


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4 - Taxes on Income

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

In respect of balance sheet items Depreciable property, Employee plant and related equipment obligations Other Total US$ thousands US$ thousands US$ thousands US$ thousands

Balance as at January 1, 2007 - 3,001 696 3,697 Changes in 2007: Amounts recorded to equity - (8) 1,890 1,882 Amounts recorded in income - (67) (1,083) (1,150) Balance as at December 31, 2007 - 2,926 1,503 4,429 Changes in 2008: Amounts recorded to equity - 241 (362) (121)Amounts recorded in income (28) 345 3,907 4,224 Balance as at December 31, 2008 (28) 3,512 5,048 8,532 Changes in 2009: Amounts recorded to equity - 131 (911) (780)Amounts recorded in income (8) 194 (192) (6) Balance as at December 31, 2009 (36) 3,837 3,945 7,746 The deferred taxes as at December 31, 2009 are calculated at a tax rate of 25% (December 31, 2008 - 26%). B. Taxes on income included in the income statements:

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

Current taxes 18,188 (24,200) (8,522)Deferred taxes 6 (4,224) 1,150 Taxes in respect of prior years (76,679) - - (58,485) (28,424) (7,372)


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4 - Taxes on Income (cont'd) C. Taxes on income recorded directly in equity Year ended December 2009 2008 US$ thousands US$ thousands Current taxes 320 1,343 Deferred taxes (780) (120) Total taxes recognized directly in equity (460) 1,223

5 - Financial Instruments and Risk Management A. General The Company 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 Company holds 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 debentures, 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 Company the credit risk in their respect is low.

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

The Company monitors 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 management of the Company implement the policies that are determined, while taking into consideration actual market developments and anticipations.


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5 - 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 - 52,728 - - - Investments in deposits and short-term loans - 381 22,352 - - Other receivables and debit balances, including derivative instruments 691 1,430 - - - Deposits and other long-term receivables - 8,270 - - - Derivative instruments 16,739 - - - - Total financial assets 17,430 62,809 22,352 - - Short-term credit from banks and others - - - - (810,067)Other payables, including derivative instruments - - - - (21,566)Long-term loans from banks and others - - - - (446,794)Derivative instruments - - - (14,228) - Total financial liabilities - - - (14,228) (1,278,427) Total financial instruments, net 17,430 62,809 22,352 (14,228) (1,278,427)


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5 - Financial Instruments and Risk Management (cont’d)

C. Credit risk (1) General 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. (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 52,728 195 Investment deposits and short-term loans 22,733 17,850 Other receivables, including derivative instruments 2,121 2,150 Deposits and other long-term receivables 8,270 2,908 Long-term derivative instruments 16,739 7,334 102,591 30,437 D. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company'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.


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5 - Financial Instruments and Risk Management (cont’d) D. Liquidity risk (cont'd) 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 Short-term credit from banks and others (without maturities) 810,067 814,118 - - - Other payables 21,566 21,566 - - - Non-convertible debentures (including maturities) 416,794 17,359 19,036 471,834 - Long-term Bank loans (including maturities) 30,000 267 30,433 - - 1,278,427 853,310 49,469 471,834 - Financial liabilities - derivative instruments utilized for economic hedging Interest rate swaps 14,228 - 7,227 6,771 230 14,228 - 7,227 6,771 230 Total financial liabilities 1,292,655 853,310 56,696 478,605 230


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5 - Financial Instruments and Risk Management (cont’d) 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 Short-term credit from banks and others not including current maturities 696,903 709,248 - - - Other payables 52,987 52,987 - - - Long-term Bank loans (including current maturities) 30,000 608 656 30,951 - 779,890 762,843 656 30,951 - Financial liabilities - derivative instruments utilized for economic hedging Interest rate swaps 11,784 - - 12,411 342 Foreign exchange derivatives 2,117 2,117 - - - 13,901 2,117 - 12,411 342 Total financial liabilities 793,791 764,960 656 43,362 342


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5 - 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 Company has loans bearing variable interest and therefore its financial results and cash flows are exposed to fluctuations in market interest rates.

The Company 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.

(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 3,114 2,908 Financial liabilities (321,543) -

(318,429) 2,908

Variable rate instruments: Financial assets 5,537 - Financial liabilities (935,251) (726,903)

(929,714) (726,903) (b) Fair value sensitivity analysis for fixed rate instruments The Company 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.


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5 - Financial Instruments and Risk Management (cont’d) E. Market risk (cont’d) (1) Interest risk (cont’d) (c) Cash flow sensitivity analysis for variable rate instruments (cont’d) 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 9,297 4,649 (4,649) (9,297)Interest rate swaps )9,281( )4,570( 4,279 8,405Cylinder instruments )4,658( )2,418( 1,921 4,097Swap contract to dollar liabilities at fixed interest from shekel liabilities at fixed interest (8,658) )4,239( 4,179 8,270

(13,300) (6,578) 5,730 11,475 Changes in shekel interest Swap contract to dollar liabilities at fixed interest from shekel liabilities at fixed interest (10,844) (5,717) 4,917 10,429 Changes in interest linked to the CPI Swap contract to dollar liabilities at variable interest from liabilities at fixed interest linked to the CPI )1,668( )844( 866 1,753 (25,812) (13,139) 11,513 23,657 Year ended 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 7,269 3,635 (3,635) (7,269)Interest rate swaps 2,494 1,593 478 8 Cylinder instruments (5,163) (2,257) 1,989 4,014 (4,600) 2,971 (1,168) (3,247)


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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 %

Interest rate swaps from fixed into variable 6,467 106,000 1-7 4.7% - 4.0%Interest rate swaps from variable into fixed )4,672( 356,262 1-5 4.3% - 2.4%Cylinder instruments )5,749( 195,000 2-6 1.5% - 5.3% 2. Currency risk The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Company. The main exposure is to the NIS currency. The Company 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 debentures in a private placement to institutional investors through an auction, for a consideration of NIS 695 million (USD 167 million). Several of the issued series are denoted in shekels and several are CPI-linked bearing CPI-linked interest. On September 9, 2009, the Company issued three series of debentures 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 derivatives, 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 equity.


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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. December 31 December 31 2009 2008 Impact on Impact on profit (loss) profit (loss) US$ thousands US$ thousands Non-derivative financial instruments Dollar/NIS 30,038 11,805 A weakening of 10% of the US$ against the currencies above would have the same effect but in the opposite direction. Presented hereunder is a sensitivity analysis of the Company’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/NIS Forward (4,793) (2,511) 2,775 5,858 (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 *%

Dollar/NIS Forward 31 200 3.8 The maturity date of all of the derivatives used to economically hedge foreign currency risk is up to a year.


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5 - 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

Non-derivative financial instruments Cash and cash equivalents 8,822 7 110 43,789 - Investments deposits and short-term loans 381 - - 22,352 - Other receivables 614 - - 816 - Deposits and other long-term receivables 5,156 - - - 3,114 Total financial assets 14,973 7 110 66,957 3,114 Credit from banks and other credit providers (810,067) - - - - Other payables (1,255) - - (20,311) - Long-term loans from banks and other credit providers (97,226) - - (224,881) (124,687) Total financial liabilities (908,548) - - (245,192) (124,687)Total non-derivative financial instruments, net (893,575) 7 110 (178,235) (121,573) Derivative instruments Forwards - - - 200,000 Call options - - - - - Put options - - - - - Cylinder - - - - - Swaps Dollar to NIS and CPI - - - 226,730 38,892 Total derivative instruments - - - 426,730 38,892 Net exposure (893,575) 7 110 248,495 (82,681)


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5 - 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

Non-derivatives financial instruments Cash and cash equivalents 82 9 12 92 - Investments deposits and short-term loans 356 - - 17,494 - Other receivables 562 - - 1,588 - Deposits and other long-term receivables - - - - 2,908 Total financial assets 1,000 9 12 19,174 2,908 Credit from banks and other credit providers (586,963) - - (109,940) - Other payables (22,873) - - (30,114) - Long-term loans from banks and other credit providers (30,000) - - - - Total financial liabilities (639,836) - - (140,054) - Total non- derivative financial instruments, net (638,836) 9 12 (120,880) 2,908 Derivative instruments Forwards - - - - - Call options - - - - - Put options - - - - - Cylinder - - - - - Total derivative instruments - - - - - Net exposure (638,836) 9 12 (120,880) 2,908


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5 - Financial Instruments and Risk Management (cont’d) E. Market risk (cont’d) 3. Other price risk management Investment in securities As of 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.

F. Fair value of financial instruments The financial instruments of the Company 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 Carrying amount Fair value US$ thousands US$ thousands

Marketable fixed rate debentures 321,543 330,142 The fair value of the marketable debenture is based on the stock market price for the report date.


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6 - Related and Interested Parties A. Profit from investee companies, net includes the Company’s share in profits of its subsidiaries,

management fees from subsidiaries and financing income and expenses, net relating to credit and loans that were provided or received from the subsidiaries.

B. Significant transactions with investee companies

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

Dividend from investee companies 607,992 947,631 382,557 Management fees from investee companies 28,429 43,039 24,510 Financing income from investee companies, net 9,409 3,903 (3,842)

C. Financial guarantees

The Company guarantees the liabilities of its subsidiaries to banks to an unlimited amount. The balance of the subsidiaries’ bank liabilities for which the Company provided a guarantee is $1,036 million at the reporting date.

D. Loans

Loans between the Company and investee companies in Israel are provided at the same conditions as the Company received and is conditioned on the conditions of the loans will not be below the minimum interest required under the tax law in Israel. For the period of the financial statements the loans were in accordance with the said condition.

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