israel chemicals ltd. financial statements as at...

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

Israel Chemicals Ltd.

Financial Statements

As at December 31, 2008


Consolidated Financial Statements as of December 31, 2008 Contents

Page

Auditors' Report 2 Consolidated Balance Sheets 3 Consolidated Statements of Income 5 Consolidated Statements of Recognized Income and Expenses 6 Consolidated Statements of Cash Flows 7 Notes to the Consolidated Financial Statements 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.

Auditors' Report to the Shareholders of Israel Chemicals Ltd. We have audited the accompanying consolidated balance sheets of Israel Chemicals Ltd. (the Company) as at December 31, 2008 and 2007 and the consolidated income statements, the consolidated statements of recognized income and expense and the consolidated statements of cash flows, for each of the two years which ended on the same dates. 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, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position as at December 31, 2008 and 2007 and consolidated results of operations and the consolidated cash flows for each of the two years which ended on the same dates in accordance with International Financial Reporting Standards (IFRS) and in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993. Somekh Chaikin Certified Public Accountants (Isr.) March 29, 2009

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Israel Chemicals Limited Consolidated Balance Sheets as at December 31 2008 *2007 Note US$ thousands US$ thousands Current assets Cash and cash equivalents 215,154 58,204 Short-term investments, deposits and loans 6 125,061 73,345 Trade receivables 7 1,054,387 964,194 Other receivables and debit balances including derivative instruments 8, 17 143,273 123,703 Income taxes refundable 146,820 8,825 Inventories 9 1,278,004 970,570 Total current assets 2,962,699 2,198,841 Non-current assets Investments in investee companies 10 27,181 39,064 Long-term deposits and receivables 13 185,669 111,115 Long-term derivative instruments 17, 28 7,334 2,468 Inventories – non-current 51,188 30,502 Deferred taxes, net 21 74,969 25,327 Property, plant and equipment 14 1,907,264 1,803,993 Intangible assets 15 521,438 478,633 Total non-current assets 2,775,043 2,491,102 Total assets 5,737,742 4,689,943 * Reclassified

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Israel Chemicals Limited Consolidated Balance Sheets as at December 31 2008 *2007 Note US$ thousands US$ thousands Current liabilities Credit from banks and others 18 411,533 622,704 Trade payables 19 448,154 428,266 Provisions 23 19,519 26,147 Other payables, including derivative instruments 17, 20 651,099 401,677 Income taxes payable 46,438 62,000 Total current liabilities 1,576,743 1,540,794 Non-current liabilities Loans from banks and others 18 897,269 629,630 Debentures 18 125,000 125,000 Long-term derivative instruments 17, 28 11,784 1,734 Provisions 23 63,397 34,704 Deferred taxes, net 21 111,214 111,469 Employee benefits 22 441,408 379,694 Total non-current liabilities 1,650,072 1,282,231 Total liabilities 3,226,815 2,823,025 Equity 25 Share capital 540,784 540,779 Share premium 81,546 81,396 Capital reserves 709 78,955 Retained earnings 2,073,483 1,101,564 Treasury shares (253,569) (2,197) Total equity attributable to the holders of the Company’s equity interests 2,442,953 1,800,497 Minority interests 67,974 66,421 Total equity 2,510,927 1,866,918 Total liabilities and equity 5,737,742 4,689,943

( ---- ) ( ---- ) ( ---- ) Nir Gilad Akiva Mozes Avi Doitchman

Chairman of the Board of Chief Executive CFO Directors Officer

Approval date of the financial statements: March 29, 2009. The notes 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 2008 2007* Note US$ thousands US$ thousands Sales 27(A) 6,904,049 4,103,179 Cost of sales 27(B) 3,448,774 2,545,043 Gross profit 3,455,275 1,558,136 Selling, transportation and marketing expenses 27(D) 761,485 599,868 General and administrative expenses 27(E) 207,179 161,172 Research and development expenses 27(C) 57,317 38,730 Other expenses 27(G) 108,664 16,581 Other income 27(G) (14,859) (801) Operating income 2,335,489 742,586 Financing expenses 177,760 104,130 Financing income (55,676) (27,489) Financing expenses, net 27(F) 122,084 76,641 Share in income of associated companies, net of tax 10(B) 13,804 3,969 Income before taxes on income 2,227,209 669,914 Taxes on income 21 233,241 119,730 Income for the year 1,993,968 550,184 Attributed to: Equity holders of the Company 2,004,238 553,440 Minority interest (10,270) (3,256) Income for the year 1,993,968 550,184 U.S. dollar U.S. dollar Earnings per share attributed to the holders of the Company’s equity interests: 29 Basic earnings per share 1.565 0.431 Fully diluted earnings per share 1.559 0.430 The notes are an integral part of these financial statements.

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Israel Chemicals Limited

Consolidated Statements of Recognized Income and Expense for the Year Ended December 31 2008 2007 US$ thousands US$ thousands Foreign currency translation differences for foreign operations (86,172) 65,417 Change in fair value of financial assets available for sale 25 347 Net actuarial gains (losses) from defined benefit plans (86,993) 20,633 Income taxes in respect of revenues and expenses recorded directly to equity 21,155 378 Total other revenue (expenses) for the year, net of tax (151,985) 86,775 Income for the year 1,993,968 550,184 Total income for the year 1,841,983 636,959 Attributable to: Equity holders of the Company 1,853,272 640,277 Minority interest (11,289) (3,318) Total income for the year 1,841,983 636,959 The notes are an integral part of these financial statements.

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Consolidated Statements of Cash Flows for the Year Ended December 31 2008 2007 US$ thousands US$ thousands Cash flows from operating activities Income for the year 1,993,968 550,184 Adjustments for: Depreciation and amortization 182,188 166,137 Impairment of property, plant and equipment 47,428 - Interest expenses, net 56,212 64,782 Share in income of associated companies (13,804) (3,969) Gain on sale of property, plant and equipment (1,471) (375) Loss (gain) on securities classified as held for trading 536 (3) Loss on equity issued to minority in consolidated subsidiary 285 - Share based payment transactions 7,484 9,155 Revaluation of assets and liabilities denominated in foreign currency (4,127) (2,490) Loss from investment in securities classified as held for sale 17,319 - Income tax expense 233,241 119,730 2,519,259 903,151 Change in inventory (344,144) (109,977) Change in trade and other receivables (122,253) * (193,690) Change in trade and other payables 164,453 * 105,633 Change in provisions and employee benefits 47,464 * 47,006 2,264,779 752,123 Income tax paid (331,013) (117,553) Interest received 27,905 3,905 Interest paid (77,540) (67,768) Net cash provided by operating activities 1,884,131 570,707 Cash flows from investing activities Investments in long-term deposits (34,034) * (10,146) Proceeds from disposal of property, plant and equipment 6,127 4,156 Short-term loans and deposits, net (40,675) 81,658 Business combination less cash acquired (92,436) (354,821) Acquisition of minority interest - (346) Dividend received from associated company 1,743 - Acquisition of property, plant and equipment (319,830) (189,077) Investment grants received 1,806 2,859 Acquisition of intangible assets (6,717) * (19,190) Investment in securities available-for-sale (32,345) - Proceeds from disposal of long-term deposits 5,818 5,226 Net cash used in investing activities (510,543) (479,681) * Reclassified The notes are an integral part of these financial statements.

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Consolidated Statements of Cash Flows for the Year Ended December 31 (cont’d) 2008 2007 US$ thousands US$ thousands Cash flows from financing activities Proceeds from exercise of options granted to employees 130 - Dividend paid (966,493) (545,135) Receipt of long-term loans 610,393 673,537 Repayment of long-term loans (595,069) (188,392) Company purchase of its own shares (251,372) - Equity issued to minority in subsidiary 7,000 - Short-term credit from banks and others (21,834) (24,896) Net cash used in financing activities (1,217,245) (84,886) Increase in cash and cash equivalents 156,343 6,140 Cash and cash equivalents as at the beginning of the year 58,204 50,085 Effect of exchange rate fluctuations on cash and cash equivalents 607 1,979 Cash and cash equivalents as at the end of the year 215,154 58,204 The notes are an integral part of these financial statements.

Israel Chemicals Limited Notes to the Consolidated Financial Statements as of December 31, 2008

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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 in respect to some of the products it manufactures and/or sells in Israel. The Group’s principal 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. 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 with the consolidated financial statements of the Company.


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Note 1 - General (cont’d) C. Definitions (cont'd) 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 IFRS The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). These are the Group’s first IFRS annual financial statements and IFRS 1, “First-time Adoption of International Financial Reporting Standards”, has been applied. The financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993. An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 32. The consolidated financial statements were approved for publication by the Company’s Board of Directors on March 29, 2009. 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.


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Note 2 - Basis of Preparation (cont'd)

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 stated at fair value. 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. 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, a part 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 corporation 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 experience gained and labor agreements.


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Note 2 - Basis of Preparation (cont'd) D. Use of estimates and judgment (cont’d) 1. Employee benefits

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. 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.


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Note 2 - Basis of Preparation (cont'd)

D. Use of estimates and judgments (cont’d) 3. Property, plant and equipment (cont’d)

The previous evaluation 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, was made in the framework of the financial statements commencing with January 1, 2007.

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. 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.

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. Management's estimates of forecast cash flow and useful lives of the acquired assets might differ from the actual results.


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Note 2 - Basis of Preparation (cont'd) D. Use of estimates and judgment (cont’d) 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 3Q. 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.

7. Inventories

Inventory is measured in the financial statements as 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.

Note 3 - Significant Accounting Policies

The consolidated financial statements have been prepared on the basis of IFRS that are effective or available for early adoption at the Group’s first IFRS annual reporting date, December 31, 2008, and were the basis for the Company’s accounting policy. In addition, these financial statements are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993. The preparation of the consolidated financial statements in accordance with IFRS resulted in changes to the accounting policies as compared with the last published annual financial statements prepared under generally accepted accounting principles (GAAP) in Israel. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. They also have been applied in preparing an opening IFRS balance sheet at January 1, 2007 for the purposes of the transition to IFRS, as required by IFRS 1. The impact of the transition from Israeli GAAP to IFRS is explained in Note 32. The IFRS accounting policies have been applied consistently throughout the Group companies.


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Note 3 - Significant Accounting Policies A. 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.

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. Minority interests

The minority 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 minority interest is presented in the consolidated balance sheet in the equity section, separate from the equity attributable to the Company’s shareholders. The minority 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 minority interests and the Company’s shareholders.


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Note 3 - Significant Accounting Policies (cont’d)

A. Basis for Consolidation (cont’d)

5. Minority interests (cont’d) Where the losses attributable to the minority interests exceed the minority’s interests in the subsidiary’s equity, such excess along with any additional losses applying to the minority interests are recorded against the Group’s rights, except where the minority interests have a forceable commitment and are capable of making an additional investment to cover the losses. If the subsidiary subsequently reports income, such income is allocated to the Group’s rights until the minority’s interests in the losses previously absorbed by the Group is recovered.

B. 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”.

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. Under the provisions of IFRS 1, the Group chose to zero out the accumulated translation differences for 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.


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Note 3 - Significant Accounting Policies (cont’d) C. 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. 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. 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 decline in value and gains or losses from changes in the exchange rate, are recorded directly in equity. 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 preliminary 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.


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

The Group holds derivative financial instruments for the purpose of (economic) hedging against foreign currency risks and interest risks. In addition, 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 the 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 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. 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.

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.

D. Property, Plant and Equipment

1. Recognition and measurement

Property, plant and equipment items 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.


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Note 3 - Significant Accounting Policies (cont’d) D. Property, Plant and Equipment (cont’d)

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. 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 pools 6–25 Heavy mechanical equipment, train cars and tanks 5–10 Office furniture and equipment, motor vehicles, computer equipment and other 3–20

E. 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. Acquisitions before January 1, 2007

As part of the transition to reporting according to IFRS, the Group chose to restate according to IFRS only business combination transactions, associated companies’ acquisitions, proportionately consolidated companies’ acquisitions and minority interest acquisitions occurring after the date of transition to IFRS, January 1, 2007. Regarding business combination transactions, associated companies’ acquisitions, proportionately consolidated companies’ acquisitions and minority 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 for purposes of preparation of the Group’s opening balance sheet. 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.


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Note 3 - Significant Accounting Policies (cont’d) E. Intangible Assets (cont’d) 1. Goodwill (cont’d)

Acquisition of minority interest The difference between the amount paid and the minority interests purchased is recognized as goodwill. 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 possible to reliably measure the development costs; it is technically and commercially possible 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. 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.


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Note 3 - Significant Accounting Policies (cont’d) E. Intangible Assets (cont’d) 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 3–10 Trademarks 5–30 Customer relationships 15–25 Agreements with suppliers 5 Patents 13–15 Non-competition agreement 5 Deferred 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.

F. Leased Assets

Leases of land from the Israel Lands Administration (“ILA”) constitute an operating lease. Lease fees paid in advance to the ILA are presented in the balance sheet and are charged to profit and loss over the lease period. The lease period and the amount of amortization take into account options to extend the lease period, if at the time of the lease agreement it is reasonably certain that the option will be exercised. G. Inventories

Inventory is measured at the lower of cost or 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.


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Note 3 - Significant Accounting Policies (cont’d) G. Inventories (cont’d) 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. H. 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. I. 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. 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 standard deviation of the instrument’s rate 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. All losses from impairment are recorded in the statement of income. The cumulative loss relating to a financial asset classified as available for sale and previously recorded in equity, transfers to the statement of income where there was impairment.


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Note 3 - Significant Accounting Policies (cont'd)

I. Impairment (cont’d) 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. On January 1, 2007, the transition date to IFRS, the Group conducted an examination of impairment of goodwill and intangible assets with indefinite useful lives. In subsequent periods, the Group will conduct 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. 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 deprecation or amortization, that would have been determined if the loss from impairment of value had not been recognized.

J. 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.


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J. Employee Benefits (cont’d) 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 whereinn 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. 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 of the net liability or a decrease of 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.


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J. Employee Benefits (cont’d) 2. Defined benefit plans (cont’d)

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.

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 fair value at the time options are granted to employees is charged as a salary expense, with a corresponding increase in the balance of retained earnings as part of equity, over the period in which the employees’ eligibility for the options vest. The amount recorded as an expense is adjusted in order to reflect the number of options that have vested. Share based payments granted before November 7, 2002, or that had been vested prior to January 1, 2007, are not treated retroactively in accordance with IFRS 2, as made possible under the relief provided by IFRS 1.


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K. 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.

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.


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L. 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.

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 estimate of the percentage of completion is based on the cost of work performed. Where it is not possible to reliably estimate the results of a construction contract, the revenues from the said contract are recognized only in an amount equal to the costs that can reasonably be expected to be recovered. An anticipated loss from a construction contract is recorded immediately in the statement of income.

As part of the concession agreements for provision services with government entities for construction and operation of water desalinization facilities in exchange for fixed and variable payments, the Group recognizes a financial asset in its financial statements commencing from the start of the construction of the facilities. The financial asset reflects the government’s debt and bears interest determined based on the customer’s risk-free interest rate plus an interest rate reflecting the appropriate risk.

Operating and maintenance costs of the facility are recorded in the statement of income as incurred. The operating income was calculated based on the amount of the expenses recorded in the statement of income with the addition of a fixed margin.

3. Service 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 according with a franchise agreement, the consideration received is allocated proportionally, in accordance with the fair value of the services provided.


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Note 3 - Significant Accounting Policies (cont'd) M. 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. N. 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. O. 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 less accumulated depreciation 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. P. 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.


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Note 3 - Significant Accounting Policies (cont'd) Q. 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. 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 to it, 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.


30

Note 3 - Significant Accounting Policies (cont'd) R. 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. S. Segment Information A segment is a distinguishable component of the Group, which is engaged in provision of products or services that are likely to be interrelated (business segment) or provision of products or services in a defined economic environment (geographical segment), and which is exposed to risks and rewards that are different from those of the other segments. The Group’s format for segment reporting is based on business segments and is determined on the basis of the Group’s structure and its internal reporting. The inter-segment pricing is determined on the basis of transaction prices in the ordinary course of business. 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. T. 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. U. Reclassification The Company has reclassified items of assets and liabilities in the balance sheet as of December 31, 2007, as well as income and expense components in the income statement for the year ended on that date in immaterial amounts.

V. Sale of trade receivables 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.


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W. 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 CPI US dollar relative (Points) (In NIS) to the Euro

December 31, 2008 106.4 3.802 0.718 December 31, 2007 102.5 3.846 0.680 Changes during the year ended: December 31, 2008 3.8% (1.1%) 5.6% December 31, 2007 3.4% (9.0%) (10.5%) X. New Standards and Interpretations not yet Adopted 1. IFRS 8 “Operating Segments” (hereinafter – “the Standard”). The Standard provides that the

segment report is to be made in accordance with the “management approach”, that is, in accordance with the internal reporting format used by the entity’s decision makers. The Standard will apply to annual periods beginning on and after January 1, 2009. No change is expected in the Company’s presentation format of segment information in the financial statements after adoption of the Standard.

2. IAS 23, “Borrowing Costs”, amended (hereinafter – “the Standard”). The Standard eliminates

the possibility of recording borrowing costs as expenses in the statement of income and requires the entity to capitalize to the cost of the asset borrowing costs that can be directly allocated to the acquisition, construction or development of a qualifying asset. The Standard will apply to annual periods beginning on and after January 1, 2009. In the Company’s estimation, adoption of the Standard will have no impact on its financial statements.

3. IAS 1, “Presentation of Financial Statements”, amended (hereinafter – “the Standard”). The

Standard requires collection of information in the financial statements on the basis of common characteristics and presentation of a comprehensive statement of income. The Standard permits presentation of revenues and expense items as well as other total income items in the framework of a single comprehensive statement of income, which includes interim totals or, alternatively, to present two separate statements (a statement of income and afterwards a comprehensive statement of income). The names of some of the financial statements have been changed with the goal of clarifying their purposes (for example, the balance sheet will be called the statement of financial position). The Standard will apply to annual periods beginning on and after January 1, 2009. Early adoption is possible. Implementation of the Standard is expected to impact the presentation of the consolidated financial statements. The Group will be required to present a statement of comprehensive income (which will replace the consolidated statement of income) and a statement of changes in equity under the framework of the financial statements.


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Note 3 - Significant Accounting Policies (cont'd) X. New Standards and Interpretations not yet Adopted (cont’d) 4. IFRS 3 Business Combinations Revised (2008) and Revised IAS 27 Consolidated and Separate

Financial Statements (2008) (hereinafter – the “Standards”). The principal relevant amendments in the Standards are as follows: a. The definition of a business has been broadened, which is likely to result in more

acquisitions being treated as business combinations.

b. Transactions resulting in discontinuance of consolidation are to be accounted for at full fair value, so that the residual holding after discontinuance of the consolidation is remeasured on the date of discontinuing the consolidation, at fair value, through profit or loss.

c. Transactions resulting in the consolidation of financial statements (that were not consolidated before then) are to be accounted for at full fair value, so that the original holding before the consolidation is remeasured on the first date of consolidation, at fair value, through profit or loss.

d. Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in fair value of the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

e. Acquisitions of additional shares or partial sales of existing shares, without the Company discontinuing consolidation of the financial statements of the companies that performed the transactions, are to be accounted for so that all the differences deriving from the transactions are included directly in equity (including differences that in the past would have been included in profit or loss or as goodwill).

f. Transaction costs will be expensed as incurred.

g. Measurement at fair value of contingent considerations in business combinations with changes in estimates relating to a contingent consideration that is a financial liability being recognized in profit or loss.

h. Goodwill is not to be adjusted in respect of the utilization of carry-forward tax losses that existed on the date of acquiring businesses.

i. The attribution of comprehensive income to all shareholders. These standards shall apply to annual periods beginning on or after July 1, 2009, and early adoption is permitted (only both standards at the same time). As regards implementation in respect of 2009 or after then, the principal revisions of these standards shall be applied prospectively, meaning in respect of transactions as from the initial date of implementation.

5. IFRS 2 “Share-Based Payments”, amended (hereinafter – “the Standard”). The Standard

provides a number of changes in the definition of the vesting conditions of share-based payments and regarding the manner of measuring share-based payments. The Standard will be applied retroactively for annual periods after January 1, 2009. Early implementation is permitted along with disclosure thereof. In the Company’s estimation, adoption of the Standard will not have a significant impact on its financial statements.


33

Note 3 - Significant Accounting Policies (cont'd) X. New Standards and Interpretations not yet Adopted (cont’d) 6. In the framework of the Improvements to IFRS project, in May 2008 the IASB published and

approved 35 amendments to various IFRS on a wide range of accounting issues. The amendments are divided into two parts: (1) Amendments that result in accounting changes for presentation, recognition or measurement purposes and (2) Terminology or editorial amendments that are expected to have either no or only minimal effects on accounting. Most of the amendments shall apply to periods beginning on or after January 1, 2009 and permit early adoption, subject to the specific conditions of each amendment and subject to the transitional provisions relating to a first-time adopter of IFRS. In respect of the Improvements made, there are some amendments that may be relevant to the Company, including: IAS 28 Investments in Associates, Revised (hereinafter – the Amendment). In accordance with the amendment, an investment in an associated company shall be tested for impairment with respect to the overall investment. Accordingly, an impairment loss recognized on the investment shall not be specifically allocated to the goodwill included in the investment but to the overall investment, and therefore it will be possible to reverse the full amount of an impairment loss that was recognized in the past when the conditions for reversal of IAS 36 are met. The Amendment can be implemented retroactively or prospectively as from the financial statements for periods beginning on January 1, 2009. Earlier adoption is permitted with appropriate disclosure. IAS 19 “Employee benefits” (as amended) (hereinafter – “the Standard”). According to the amendment of IAS 19, other long-term benefits are to include also employee benefits, the entitlement to which is accrued in the short-term but their utilization is expected to occur on a date subsequent to the end of one year from the end of the period that entitles the benefit, such as benefits in respect of accumulated vacation days or sick leave expected to be utilized in the period subsequent to the end of one year from the balance sheet date. These benefits will require from now recognition in the financial statements on the basis of an actuarial computation, taking into consideration future wages and discounted to present value. The amendment is to be applied retroactively as from the financial statements for periods beginning on January 1, 2009. Early adoption of the Standard is permitted. The Company is examining the effect of the amendment on its financial statements.

7. IFRS 7, “Financial instruments: disclosure” (hereinafter – “the Standard”). The amendment

expands the disclosure requirements regarding the measurement according to fair value of financial instruments, in particular with respect to financial instruments, the fair value of which is measured using valuation techniques. In addition, the amendment improves the required disclosure regarding liquidity risk. The amended Standard is to be implemented from now onwards for annual periods starting on January 1, 2009 or thereafter. Early adoption of the Standard is permitted with the required disclosure. The Company is examining the effect of the amendment on its financial statements.


34

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.


35

Note 4 - Determination of Fair Values

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. 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 formula. 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.


36

Note 5 - Business Segments and Geographical Areas 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, through the Superseta Group, which was acquired in the third quarter of 2007 (see Note 11(A)). 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. During the month of January 2008, an operation in the water treatment field was acquired within the framework of ICL Performance Products (see Note 11(B)). 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.


37

Note 5 - Business Segments and Geographical Areas (cont'd) A. General (cont’d) 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.


38

Note 5 - Business Segments and Geographical Areas (cont'd)

B. Business 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

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 (122,084) Taxes on income (233,241) Share in income of associated companies 13,804 Income for the year 1,993,968

Other data: Segment assets 1,787,733 986,051 (112,271) 2,661,513 1,454,227 1,004,260 189,176 (57,081) 5,252,095 Unallocated assets 485,647 Consolidated total assets 5,737,742

Segment liabilities 501,080 336,739 (84,023) 753,796 335,351 265,681 146,777 (67,210) 1,434,395 Inter-segment unallocated liabilities 1,792,420 Consolidated total liabilities 3,226,815

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)).


39


B. Business 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, net (76,641) Taxes on income (119,730) Share in income of associated companies 3,969 Income for the period 550,184

Other data: Segment assets 1,482,751 836,487 (52,796) 2,266,442 1,353,012 821,859 206,860 (98,919) 4,549,254 Unallocated assets 140,689 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 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


40


C. Information on geographical segments:

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

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

Europe 2,420,466 1,532,557 Asia 1,633,084 868,899 North America 1,152,113 802,442 South America 971,211 514,737 Other 292,131 140,028

6,469,005 3,858,663 In Israel 435,044 244,516

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 4,244,509 2,237,426 Europe 2,470,515 1,526,331 United States 998,959 698,633 Other 381,261 268,009

8,095,244 4,730,399 Transfers - mainly from Israel (1,191,195) (627,220)

6,904,049 4,103,179

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


Israel 1,656,608 556,116 Europe 506,867 125,766 United States 144,099 37,321 Other 27,915 23,383

2,335,489 742,586


41


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 December 31 2008 2007 2008 2007 US$ thousands US$ thousands US$ thousands US$ thousands

Israel 3,131,205 2,612,853 148,675 51,634 Europe 1,430,754 1,328,230 114,770 250,394 United States 823,129 719,104 26,652 190,275 Other 168,464 195,605 153,410 13,353 Eliminations (301,457) (306,538) - -

5,252,095 4,549,254 443,507 505,656

Following are data for depreciation and amortization by geographical area:


Israel 134,321 87,456 Europe 64,671 53,320 United States 25,078 21,276 Other 5,546 4,085

229,616 166,137 Note 6 - Short-Term Investments, Deposits and Loans December 31 December 31 2008 2007 US$ thousands US$ thousands

Available-for-sale securities 17,494 2,997 Held-for-trading securities 3,398 - Deposits in banks and financial institutions and short-term loans 98,119 66,041 Current maturities of long-term deposits and receivables 6,050 4,307 125,061 73,345


42

Note 7 - Trade Receivables

A. Composition December 31 December 31 2008 2007 US$ thousands US$ thousands

Trade - open accounts: Outside Israel 964,690 899,980 Domestic (Israel) 95,811 69,671 1,060,501 969,651 Less – allowance for doubtful debts 6,114 5,457 1,054,387 964,194 B. Factoring of trade receivables Subsidiaries discount (factor) part of their trade receivables and transactions with banks in order to ensure payment of the trade receivables. Transactions wherein trade receivables are factored, as stated, in respect of which there is no right of recourse and all the risks and rewards have been transferred to the banks, are recognized as a sale. Transactions regarding which the banks have a right of recourse are presented in the “trade receivables” category and, concurrently, the credit received from the bank is included in the “short-term credit from banks” category. As at the balance sheet date, the balance of the trade receivables discounted with no right of recourse amounts to about $87 million.

Note 8 - Other Receivables and Debit Balances, Including Derivative Instruments December 31 December 31 2008 2007 US$ thousands US$ thousands

Government institutions in Israel 11,352 19,972 Governmental institutions outside Israel 16,542 9,801 Prepaid expenses 27,843 25,835 Income to be received from insurance 6,503 4,880 Advances from supplier 4,496 8,890 Derivative instruments 14,825 6,982 Other 61,712 47,343

143,273 123,703


43

Note 9 - Inventories A. Composition December 31 December 31 2008 2007 US$ thousands US$ thousands

Finished products 780,281 544,196 Work in progress 233,435 173,460 Raw materials and supplies 223,067 194,948 Spare parts and maintenance supplies 92,409 88,468 1,329,192 1,001,072 Less – non-current inventory (presented in non-current assets) 51,188 30,502 1,278,004 970,570 B. Provision for impairment of inventories Following a sharp decline in prices of certain fertilizer products that began in the reported period, the Company included in the reporting period 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.

Note 10 - Investment in Investee Companies


Shares: Cost of shares, including undistributed earnings up to December 31, 1991* 5,358 14,716 Share in earnings, accumulated since January 1, 1992 less dividends received 21,005 8,944 Differences from translation of financial statements of investees (946) 2,109 25,417 25,769

Capital notes and long-term loans 1,764 13,295

27,181 39,064 * Includes goodwill:

Original amounts 3,348 3,348

Amount after accumulated amortization 1,674 1,674


44

Note 10 - Investment in Investee Companies (cont’d)

B. Movement during the year US$ thousands

Balance as at beginning of the year 39,064 Changes during the year: Decrease in capital notes and long-term loans (11,531)Disposal of an asset in respect of the acquisition of additional rights in a company presented by the proportional consolidation method (9,358)Share in profits, net 13,804 Dividend (1,743)Translation differences (3,055) Balance as at year end 27,181


45

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, 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

December 31, 2007 US$ thousands Current Non-current Total Current Non-current Total Income assets assets assets liabilities liabilities liabilities Revenues Expenses

Associated companies 78,387 297,249 375,636 55,617 275,057 330,674 139,972 130,353 9,619 Jointly controlled entities 110,087 85,976 196,063 73,699 45,728 119,427 159,913 132,567 27,346


46

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 operations 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. The Company holds an interest in Dead Sea Magnesium Ltd (hereafter - “DSM”) conferring 65% of the ownership and 67% of the control therein. The remaining ownership and voting rights are held by Volkswagen AG (hereafter – “Volkswagen”). Under an agreement between ICL and Volkswagen, ICL has a right of first refusal should Volkswagen choose to sell its shares in DSM. In addition, should Volkswagen choose to sell all or part of its shares in DSM, and does not find a bona fide purchaser, it must notify ICL. In such a case, ICL is obligated to purchase those shares at a price to be determined on the basis of 75% of the equity in net assets (shareholders’ equity) of DSM.

On December 2, 2008, the Company received notice from Volkswagen, which holds 35% of the share capital of the subsidiary DSM under which Volkswagen requested, pursuant to the joint venture agreement between the parties of 1996, to sell its shares in DSM to ICL.

ICL rejected the notice, inter alia since in ICL’s opinion, Volkswagen is not entitled to exercise the right to transfer at this time, and it continues to be bound to perform its obligations to DSM, to the banks and to third parties.

Negotiations and meetings held between the parties up until recently in order to bring the dispute to an end have not, to date, resolved the matter. The Company is examining its steps as a result, including taking legal action.

During the fourth quarter of 2008, shareholders invested in the equity of Magnesium, on a pro rata basis to their holdings, a total of $20 million.

The auditors of DSM directed attention in their opinion on the financial statements as at December 31, 2008, regarding the uncertainty with respect to DSM’s ability to continue operating as a “going concern”, in light of the lack of sources of financing to cover the expected deficit in the upcoming 12 months without assistance from its shareholders. DSM’s financial statements do not include any adjustments regarding the values of assets and liabilities and the classification thereof that may be necessary if DSM is unable to continue operating as a “going concern”.

With respect to a provision for impairment of the DSM company’s property, plant and equipment during the period, see Note 16(B) of the financial statements.


47

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. Subsequent to balance sheet date, in February 2009, the Government decided to approve the issue of shares in Mekoroth. The State and the Company advised the Court of this, and the Court has requested a response from the claimants of the class action. The claimants of the class action have not yet responded.

Note 13 - Long-Term Deposits and Receivables


Deposits in banks 6,595 6,648 Long-term financial asset (1) 138,053 31,272 144,648 37,920 Less – current maturities 6,050 4,307 138,598 33,613 Prepaid expenses for operating lease (2) 8,678 5,779 Surplus plan assets for liabilities for defined benefit plan (3) 38,393 71,723

185,669 111,115 (1) Mainly 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(L)(2). (2) The Group leases most of the land on which the operations in Israel are conducted from the Israel Land Administration, under long-term leases (lease periods ending mostly in the years between 2017 until 2049). In certain cases – with option for renewal of the lease. A part of the real estate assets and the long-term lease rights have not yet been registered in the names of the Group companies at the Land registry Office. (3) See Note 22.


48

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 2008 2008 2007 % US$ thousands US$ thousands

In Israeli currency 6.38 129,900 16,854 In foreign currency : Cypriot pound - 13,725 Swiss francs 6.18 11,926 - US dollar without interest 1,818 6,398 Other 4.25 1,004 943 144,648 37,920 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 2008 2007 US$ thousands US$ thousands

Second year 8,437 4,995 Third year 10,201 5,275 Fourth year 3,474 4,175 Fifth year 1,623 607 Sixth year and thereafter (through 2016) 1,824 1,877 Not yet determined 113,039 16,684 138,598 33,613


49

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 containers 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


50

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

A. Composition (cont’d)

Furniture, office Heavy equipment, mechanical vehicles, Land, land Installations, equipment, computer development, machinery Dikes and railroad equipment roads and and evaporating cars and and other plant Plants under Spare parts for buildings equipment ponds containers and equipment 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, 2007 452,899 3,388,901 420,541 113,970 173,137 60,408 7,648 4,617,504 Additions 7,030 93,250 24,020 2,546 10,600 58,005 3,601 199,052 Addition in respect of business combinations 21,003 57,812 - - 2,413 1,637 - 82,865 Disposals (4,327) (70,107) (158) (2,191) (8,621) - - (85,404) Translation differences of financial statements 29,872 55,829 15,697 213 7,291 1,241 - 110,143 Balance as at December 31, 2007 506,477 3,525,685 460,100 114,538 184,820 121,291 11,249 4,924,160 Accumulated depreciation (1) Balance as at January 1, 2007 258,198 2,206,217 286,945 91,327 141,893 - - 2,984,580 Additions 16,050 102,327 14,225 3,909 10,813 - - 147,324 Disposals (4,135) (67,820) (34) (1,792) (7,652) - - (81,433) Translation differences of financial statements 18,939 35,266 10,143 123 5,225 - - 69,696 Balance as at December 31, 2007 289,052 2,275,990 311,279 93,567 150,279 - - 3,120,167 Depreciated balance as at December 31, 2007 217,425 1,249,692 148,821 20,971 34,541 121,291 11,249 1,803,993


51

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, 2008 is about $ 1,634 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 920,849 926,780 Less – accumulated depreciation 617,921 606,428 302,928 320,352

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. B. As to liens on the assets – see Note 26. C. Change in Accounting Estimate

International accounting standard, IAS 16, regarding “Property, Plant and Equipment”, provides that the useful life of an asset shall be reviewed at least at the end of every financial year, and if the expectations are different from the prior estimates, the change is to be treated as a change in an accounting estimate, in accordance with international accounting standard, IAS 8, regarding “Accounting Policy, Changes in Accounting Estimates and Errors”. Based on opinions received (mostly internal opinions and one opinion from an external independent appraiser), the Group changed the estimate of the remaining useful life of the property, plant and equipment reflecting an extension of the depreciation period as part of the financial statements prepared in accordance with IFRS, commencing from January 1, 2007. On the basis of the valuations performed, the depreciation period of some of the companies’ plants was extended to 25 years, commencing from January 1, 2007.

On the basis of the experience accumulated by the Group, the cost of assets which have been fully depreciated and are still used for manufacturing are significant. The Group has reexamined the useful life of property, plant and equipment as compared to the industry in which the Group operates, the level of maintenance of the facilities and the functioning of the facilities over the years. According to this examination the remaining period of depreciation of property, plant and equipment is lower than the balance of the anticipated useful life of the facilities. On the basis of this assessment, the Group decided to change the estimate of the economic useful life of property, plant and equipment. The change in estimate is based on the experience accumulated by the Group and not on changes that have occurred in the assets or in the business environment. The previous estimate of the useful life of the Group’s property, plant and equipment was performed in 2002. The assessment was also based on the accumulated experience of the entity.


52

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, 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 First-time consolidation 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.


53

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, 2007 72,726 156,545 19,109 13,506 13,400 4,855 - 4,948 63,471 348,560 Additions - - - 464 - 920 238 - 4,565 6,187 First-time consolidation 95,066 - 21,293 20,129 81,064 - - - - 217,552 Translation differences 7,632 7,484 1,361 747 2,227 2 - 530 1,662 21,645 Balance as at December 31, 2007 175,424 164,029 41,763 34,846 96,691 5,777 238 5,478 69,698 593,944 Amortization and impairment losses Balance as at January 1, 2007 22,818 22,289 3,707 1,996 1,033 2,274 - 3,746 36,384 94,247 Translation differences 1,839 146 401 4 10 - - 530 427 3,357 Amortization for the year - 3,243 535 2,380 3,090 201 - - 8,258 17,707 Balance as at December 31, 2007 24,657 25,678 4,643 4,380 4,133 2,475 - 4,276 45,069 115,311 Amortized balance as at December 31, 2007 150,767 138,351 37,120 30,466 92,558 3,302 238 1,202 24,629 478,633


54

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 322,575 301,785 Intangible assets having an indefinite useful life 198,863 176,848

521,438 478,633 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 2008 2007 US$ thousands US$ thousands

Goodwill ICL Fertilizers, Spain 4,474 8,269 ICL Industrial products, Europe 38,662 40,222 ICL Industrial Products, United States 56,826 56,826 ICL Performance Products, United States 9,018 9,018 ICL Fertilizers, Israel 15,125 15,125 Industrial Products, Israel 3,998 3,998 ICL Performance Products, Europe 38,764 11,394 ICL Performance Products, South America 5,915 5,915

172,782 150,767 Trademarks ICL Industrial products, United States 13,000 13,000 ICL Performance Products, United States 13,081 13,081 26,081 26,081

198,863 176,848


55

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 11.5% 5.1% 2% 5 yearsICL Industrial Products Europe 11.5% 5.3% 2% 6 yearsICL performance products 9.5% 1.6% 2% 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 with the assistance of an independent valuation expert. It has been determined with respect to all cases, that the stated value of the units is lower than their recoverable value, and accordingly no loss on 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 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.


56

Note 17 - Derivative Instruments December 31 2008 2007 Assets Liabilities Assets Liabilities US$ thousands US$ thousands

Among current assets and liabilities: Currency derivative instruments 14,825 (22,778) 6,445 (296)Interest derivative instruments - - 537 - Commodity derivative instruments - (5,879) - - 14,825 (28,657) 6,982 (296) Among non-current assets and liabilities: Interest derivative instruments 7,334 (11,784) 2,468 (1,734) Note 18 - Credit from Banks and Others


Current liabilities Short-term credit: From financial institutions 258,680 188,351 From parent company - 55,400 Other 110,220 117,434 368,900 361,185 Current maturities of long-term loans: From financial institutions 42,374 260,544 From others 259 975 42,633 261,519 411,533 622,704


57

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


Non current liabilities Loans from financial institutions* 927,615 879,136 Loans from others 12,287 12,013 939,902 891,149 Less – current maturities in respect of loans: From financial institutions 42,374 260,544 From others 259 975 42,633 261,519 897,269 629,630 Debentures 125,000 125,000 * 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 2008 2008 2007 % US$ thousands US$ thousands

Current liabilities (without current maturities) Short-term credit from financial institutions: In dollars 2.19 139,723 139,232 In other foreign currencies (mainly Euro) 3.39 38,473 18,073 In Israeli currency – unlinked 3.75 80,484 31,046 258,680 188,351

Credit from parent company in dollars - 55,400

Short-term credit from others: In Israeli currency – unlinked 2.85 30,480 45,858 In dollars 1.39 79,740 71,576 110,220 117,434

368,900 361,185


58

Note 18 - 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 2008 2008 2007 % US$ thousands US$ thousands

Non-current liabilities (including current maturities) Financial institution loans: In dollars (1) 1.05 718,411 870,339 In Swiss francs (2) 4.02 5,499 8,207 In Euro 4.25 153,527 590 In Israeli currency linked to CPI 7.75 50,178 - 927,615 879,136 Other loans: In Israeli currency - mainly linked to CPI 4.00 3,937 7,899 In dollars 4.95 6,371 3,386 In foreign currencies - mainly Euro 3.50 1,979 728 12,287 12,013 939,902 891,149 Debentures - in dollars 5.42 125,000 125,000 Unutilized long-term credit lines - 125,000 (1) Interest in respect of the dollar debt is determined based on LIBOR+0.45% - 0.8%. (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 5.7%. 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 10,736 33,878 Third year 738,465 3,391 Fourth year 34,148 491,751 Fifth year 4,238 90,000 Sixth year and thereafter 107,410 69 Repayment date has not yet been determined 127,272 135,541 1,022,269 754,630


59

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 equity may not exceed 2.1, 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 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). As to balance sheet date, the Company is in compliance with the aforementioned financial covenants. E. Sale of receivables under securitization transaction On July 26, 2004 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 $220 million. On July 11, 2007, the said agreement was updated in such a manner that the maximum amount of the financial means available to the Acquiring Company will be $300 million instead of $220 million for the same time. 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 Companies will be entitled to sell their trade receivables to the Acquiring Company within a period of one year from the closing date of the transaction. This period may be extended, subject to the approval of all parties, for a maximum of four additional one-year periods. The existing agreement expires in July 2009. 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.


60

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 equity will not exceed 2.1 and 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). As to balance sheet day, 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 debts. Therefore, the receipts received from the Acquiring Company are presented as a financial liability in short-term credit. The balance of the receipts as at December 31, 2008 amounts to $70 million (December 31, 2007 – 0).

F. Loans from banks in the Magnesium Company

The Magnesium Company has taken long-term loans from banks in the amount of $76 million, where their original repayment date was December 31, 2008. The Magnesium Company requested that the banks who provided the credit not take action against it due to non-repayment of the loans for a further three month period from the original repayment date, in order for them to perform negotiations with its shareholders. In addition, ICL notified the banks that it would continue to guarantee the Magnesium Company’s liabilities up to its relative share of liabilities to the banks on the basis of its holdings in the shares of the Company (65%). The banks accepted the Magnesium Company’s request and notified it that it would not take any action until March 31, 2009.


61

Note 19 - Trade Payables December 31 December 31 2008 2007 US$ thousands US$ thousands

Open accounts 445,072 427,146 Checks payable 3,082 1,120

448,154 428,266 Note 20 - Other Payables, Including Derivative Instruments


Israeli Government – mainly in respect of royalties 110,344 41,601 Employees 224,541 196,271 Accrued expenses 58,218 65,857 Derivative instruments 28,657 296 Other 229,339 97,652

651,099 401,677 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.


62

Note 21 - Taxes on Income (cont'd)

A. Taxation of Israeli companies (cont'd) 2. Tax rates

The income of the Company and the subsidiaries in Israel (other than income from approved and beneficiary enterprises - see C.1 hereunder) is subject to the ordinary rate of tax.

On July 25, 2005 the Knesset passed the Law for the Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) – 2005 (hereinafter – the Amendment). The Amendment provides for a gradual reduction in the company tax rate in the following manner: in 2007 the tax rate will be 29%, in 2008 the tax rate will be 27%, in 2009 the tax rate will be 26% and from 2010 onward the tax rate will be 25%. Furthermore, as from 2010, upon reduction of the company tax rate to 25%, real capital gains will be subject to tax of 25%.

The current taxes and the balances of deferred taxes for the reported periods in these financial statements are computed in accordance with the new tax rates, as determined in the said Amendment.

Capital gains (other than the real capital gain on the sale of marketable securities - which is subject to tax at the regular rates) are taxed at a reduced rate of 25% on the capital gains derived after January 1, 2003, and at the regular corporate tax rates on the gains derived through to the aforementioned date. 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 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%. 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”) Under the law, including Amendment No. 60 to the law that was published in April 2005, by virtue of the “approved enterprise” or “benefited enterprise” status granted to certain of their production facilities certain subsidiaries are entitled to various tax benefits.


63

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


(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). 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(Q)). The temporary difference related to the dividend from exempt income as of December 31, 2008 is in the amount of $2,037 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.


64

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.

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 $40 million as at December 31, 2008; as at December 31, 2007 - approximately $24 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 $29 million. Furthermore, a subsidiary that operates outside of Israel has a capital loss in the amount of $410 million for which no deferred taxes have been recorded.


65

Note 21 - Taxes on Income (cont'd) D. Carried forward tax losses (cont’d) As at balance sheet date there are carry-forward 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. 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 2004.

F. 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 (217,709) 27,848 62,930 6,702 5,139 (115,090) Changes in 2007: Additions in respect of business combinations (5,560) 52 212 1,155 7,018 2,877 Amounts recorded to reserve - - 477 (92) - 385 Translation differences 3,251 6 (3,905) 2,190 (2,316) (774) Amounts recorded in income 15,538 14,447 3,166 (1,810) (4,881) 26,460 Balance as at December 31, 2007 (204,480) 42,353 62,880 8,145 4,960 (86,142)

Changes in 2008: Additions in respect of business combinations - - - (2,152) - (2,152) Amounts recorded to reserve - - 21,167 360 - 21,527 Translation differences 2,636 162 (738) (159) 191 2,092 Amounts recorded in income 19,435 (2,351) 1,565 4,644 5,137 28,430 Balance as at December 31, 2008 (182,409) 40,164 84,874 10,838 10,288 (36,245)

* Restated - see Note 2J.


66

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


Among non-current assets 74,969 25,327 Among non-current liabilities (111,214) (111,469) (36,245) (86,142)

3. For companies in Israel - the deferred taxes as of December 31, 2008 are computed mainly at the weighted-average tax rate of 22% (December 31, 2007 - 25%). As to companies outside of Israel - see B above.

4. Unrecognized deferred tax liabilities

Deferred tax liabilities totaling $37 million, for temporary differences totaling $735 million related to an investment in a subsidiary, were not recognized since it is the Group that will make the decision whether to sell this company, and does not intend to sell it in the foreseeable future.

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


Current taxes in respect of the reported year 267,255 139,058 Deferred taxes in respect of the reporting period (27,463) (26,310)Taxes in respect of prior years (6,551) 6,982 233,241 119,730


67

Note 21 - Taxes on Income (cont'd) G. 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 2,227,209 669,914 Principal tax rate 27% 29% Theoretical tax expense 601,346 194,275 Less – tax benefits arising from reduced tax rate applicable to an "approved enterprise" and "benefited enterprise" 285,732 54,505 315,614 139,770 Add (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 161 (8,186)Difference in respect of foreign subsidiaries 480 (5,226)Utilization of tax losses for which deferred taxes were not recorded (74,391) (8,298)Non deductible expenses 6,324 7,120 Additional deduction for tax purposes of subsidiaries overseas (11,788) - Deferred taxes amendment in respect of tax benefits arising from "benefited enterprise" - (9,641)Taxes in respect of prior years (6,551) 6,982 Elimination of tax calculated in respect of the Company's subsidiary (3,728) (1,151)Tax in respect of dividend from foreign subsidiaries 6,936 - Other differences 184 (1,640) Taxes on income included in the income statements 233,241 119,730


68

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

Year ended December 2008 2007 US$ thousands US$ thousands

Current taxes 1,343 791 Deferred taxes 19,812 (413)

Total taxes recognized directly in equity 21,155 378 Note 22 - Employee Benefits

A. Composition December 31 2008 2007 US$ thousands US$ thousands

Present value of funded obligations 505,798 601,269 Less - fair value of plan assets 483,202 667,686 22,596 (66,417)

Present value of unfunded obligations 308,134 320,696 Post-retirement medical benefits 6,048 5,977

Recognized liability for defined benefit obligations 336,778 260,256 Liability for other long-term and severance benefits 66,237 47,715 Total employee benefits liabilities recognized in the balance sheet 403,015 307,971 The composition of the Plan assets is as follows: December 31 2008 2007 NIS thousands NIS thousands

Equity instruments 116,592 254,194 Debt instruments 330,053 379,412 Deposits with insurance companies 36,557 34,080 483,202 667,686 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.


69

Note 22 - Employee Benefits (cont’d)

B. Severance pay (cont'd) 1. Israeli subsidiaries (cont'd)

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.

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.


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Note 22 - Employee Benefits (cont’d)

C. Pension and early retirement (cont'd)

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. Pursuant to a collective bargaining agreement signed in 2005 with employees of a subsidiary, Sdom employees are entitled to retire to an early pension under certain conditions, which combines age and period of service at time of retirement.

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

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

Obligation in respect of defined benefit plan at the end of the year 819,980 927,942


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Note 22 - Employee Benefits (cont’d) D. (1) Movement in present value of defined benefit obligations (cont’d)

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

(2) Movement in plan assets for defined benefit plans Fair value of plan assets as at the beginning of the year 667,686 600,580 Expected return on plan assets 41,945 37,304 Actuarial losses recognized in equity (141,578) (6,803)Employer contributions 14,373 17,036 Employee deposits 753 2,298 Benefits paid (26,338) (15,835)Changes in respect of exchange rate differences 4,969 20,010 Changes in respect of translation differences (78,608) 13,096 Fair value of plan assets as at the end of the year 483,202 667,686

(3) Expenses recognized in income statement


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

32,430 52,717

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


Cost of sales 28,219 24,369 Selling and marketing expenses 860 2,530 General and administrative expenses 2,072 2,867 Research and development expenses 605 1,024 Other income (12,883) - Financial expenses 13,557 21,927

32,430 52,717


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Note 22 - Employee Benefits (cont’d) D. (cont’d)

(4) Actual and expected return

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

(5) Actuarial gains and losses recognized directly in equity

2008 2007 US$ thousands US$ thousands

Cumulative amount (before tax) as at January 1 (20,633) - Actuarial (gains) losses recognized during the period 86,993 (20,633)

Cumulative amounts (before tax) as at December 31 66,360 (20,633)Deferred tax regarding actuarial gains and losses recognized directly in equity (22,037) (869)

44,323 (21,502)

(6) Actuarial assumptions

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

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


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

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

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


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Note 22 - Employee Benefits (cont’d) E. Early retirement plan In November 2007, the board of directors of a consolidated subsidiary approved an employee early retirement plan under preferred terms, within the framework of which, 37 employees retired during 2008. In 2007, the company recorded a provision of US$11.6 million in respect of the cost of early retirement, which was charged to the income statement in the item “Other expenses”.

On July 2, 2008, the board of directors of a consolidated subsidiary approved a plan, within the framework of which, 50 employees of that subsidiary were entitled to early retirement prior to the pension age specified by law. At the end of December 2008, the board of directors of that subsidiary approved an expansion of the plan to 54 employees. All 54 employees of the subsidiary took advantage of the plan. During the reported year, a provision of US$32 million was recorded in respect of the 54 employees that joined the plan and charged to the income statement in the item “Other expenses”. F. The amount recognized in respect of defined contribution plans in 2008 is about $21 million (in

2007 - $18 million). Note 23 - Provisions

Site restoration removal and 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, 2008 102 44,073 3,046 13,630 60,851 Provisions made during the period 2,217 11,892 1,263 10,379 25,751 Provisions reversed during the period- - - (750) (21) (771)Time based effects (due to capitalization) - 4,246 - - 4,246 Payments during the period - (3,404) (666) - (4,070)Translation differences - (3,068) (23) - (3,091)Balance as at December 31, 2008 2,319 53,739 2,870 23,988 82,916


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Note 23 – Provisions (cont’d) Balance sheet presentation: December 31 2008 2007 US$ thousands US$ thousands

Among current liabilities 19,519 26,147 Among non-current liabilities 63,397 34,704

82,916 60,851

A. Restoration of mines and mining sites 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.

B. Waste removal 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. Based on the company’s estimate, the overall scope of the site clearance plan with respect to mining waste will amount to $22 million (€16 million). As at December 31, 2008, a provision was included in the subsidiary’s books in Spain, in the amount of $13 million (€9 million). The provision was calculated based on discounting the forecasted costs for removal of the waste.

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, 2008. The scope of the commitment for the period of the agreements is approximately $123 million.

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

plant and equipment. As of December 31, 2008, the subsidiaries had commitments for investments of approximately $178 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 2035 and 2017. Alternatively, the latter could terminate in 2012, subject to serving prior notice of six months. The balance of the contracts are generally for periods of 35 years.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) A. Commitments (cont’d) 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 Government – computed at rates of 2% to 4% of 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 at all royalties to the Government. The maximum amount of royalties payable by the Company as of December 31, 2008 is about $10 million.

6. All the salt brine deriving from the manufacturing process of a Spanish subsidiary is disposed of through a large system of pipes leading out to the sea, called “Colector de Salmueras” (hereinafter – the Colector), which were built in a number of stages by the Catalonia government. The subsidiary in Spain is required to pay annual fees for the use of the Colector in the amount of $536 thousand up to and including 2019. If the subsidiary in Spain discontinues its activity before 2019, it will have to pay the Catalonia government for the rights to use the Colector in respect of the period from discontinuance of the activity until the end of 2019, unless the rights are transferred to another entity. The subsidiary in Spain also pays the amount of $376 thousand per year in respect of the operation and maintenance expenses of the Colector, and it is required to pay this amount for as long as it uses the Colector.

7. 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 consolidated company’s management believes that the project is feasible and that the gas storage option can be carried out.

8. 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 undertaken 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. In 2008, there was coverage (including joint cover with the parent company of $20 million) totaling up to $220 million.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) A. Commitments (cont’d) 9. 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, which are 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 24.5 years. Construction of the plant was completed in 2005 and its commercial operation was commenced in 2006,

Subsequent to the balance sheet date, the State of Israel accepted the proposal of a proportionally consolidated company to expand the water treatment facility in Ashkelon. Within the framework of the expansion, an additional 15 million cubic liters of sea water will be treated annually.

b) 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 liters of sea water, until the end of the agreement period.

c) 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 25 years (of which 2.5 years constitute the construction period).

Subsequent to the balance sheet date, 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 15 million cubic liters of sea water will be treated annually.

d) In June 2007 I.D.E. signed an agreement for construction of a seawater desalination

plant in China for local energy company in an overall scope of about $119 million. e) In July 2008, I.D.E. signed an agreement with a customer in Australia to design and

build a treatment facility with an annual volume of 46 million cubic liters.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) A. Commitments (cont’d) 10. 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 to purchase from 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").

Delivery of the gas will commence upon completion of the gas pipeline to the south. At the reporting date, according to the schedule delivered by the gas transportation company, Netivei Gaz le-Israel Ltd., completion of the pipeline, will apparently be during the second half of 2009. Delivery will end at the earlier of the following dates (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. 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 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 to be 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. Magnesium 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 examine the royalties' of Magnesium. The royalties paid to the state of Israel amounted to $41 million and $20 million in 2008 and 2007, respectively. In recent years, the Ministry of Industry, Trade and Labor (MOIT) has conducted audits regarding the payment of royalties. DSW has not received a copy of the findings of the audits.


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

1. Dead Sea Works Ltd. (cont’d)

There is a claim by the Accountant General in the Ministry of Finance, based apparently on these audits, that DSW paid royalties in deficient sums, which he alleges amount to “hundreds of millions of shekels”. 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.

2. Rotem Amfert Negev Ltd.

Rotem Amfert Negev Ltd. (hereinafter – “Rotem”) has mined phosphates in the Negev for more than 50 years. The mining is performed under concessions for mining phosphates that were granted from time to time by the State pursuant to the Mining Ordinance. In June 2002, Rotem received three concessions for Rotem Field (valid up to the end of 2021), Zafir Field (valid up to the end of 2021) and Effa Field (valid up to the end of 2013). In respect of mining phosphate, Rotem is required to pay the State royalties based on the calculation formula provided in the Mining Ordinance. The validity of the concessions received by Rotem was conditioned on signing mining authorization agreements (hereinafter – “the Authorizations”) between Rotem and the Administration for the concession sites. Rotem signed a final and agreed-to version of the Authorizations and, in September 2003, made a payment of usage fees to the Administration, based on its demand and in accordance with the terms of the Authorizations. The Administration has not yet returned copies of the Authorizations signed by it, however it has acted in accordance therewith and, in Rotem’s estimation, based on the opinion of its legal advisors, it is bound by them. With respect to the “Hatrurim” phosphate field, the Company has a mining license from the supervisor of mines until the end of March 2009, after the Israel Lands Administration had postponed handling the grant of a long-term mining permit. The Company is making efforts to extend the mining license. If a mining license is not granted after the said date, there will be no significant adverse impact on the Company's results.


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

2. Rotem Amfert Negev Ltd. (cont’d)

Mining and quarrying activities require zoning approval for the area within the framework of a plan pursuant to the Planning and Building Law, 1965. Such plans are updated, as needed, from time to time. As at the date of the report, various requests are in different stages of hearings before the Planning Boards. A request submitted by Rotem for extension of the performance stages beyond 2005, in connection with a site plan from 1991 that zones the Zafir area (Zin–Oron) for mining and quarrying, was approved for the most part, and the performance stages were extended by four years up to the end of 2009. At the same time, Rotem was requested to prepare a new site plan along with detailed plans with respect to part of the mining fields.

In 2008 and 2007, Rotem paid royalties of $619 thousand and $534 thousand, respectively, to the State of Israel.

3. As to mining rights of a subsidiary in Spain – see Note 15. 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.

C. Contingent liabilities 1. As of December 31, 2008, the total guarantees provided to external parties, amount to $34

million. The guarantees provided by the Company in respect of loans taken out by the subsidiaries amounts to about $1,017 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. In the assessment of ICL Industrial Products, the amount of material supplied by the defendants to the relevant countries, and during the relevant period was, if at all, small in proportion to the quantity of material supplied by other manufacturers.


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Note 24 - Commitments, Concessions and Contingent Liabilities (cont’d) C. Contingent liabilities 2. (cont’d)

As at the date of publication of this report, two claims filed by, apparently, eleven individual plaintiffs to which the consolidated subsidiaries are a party (together with other defendants) are pending in the courts in the USA. These claims were filed as class actions but the application to approve them as such has not yet been heard. The Company is unable at this stage to assess if and to what extent the subsidiaries in the segment are exposed to liability in these proceedings, due to the uncertainty involved in the proceedings, and therefore, no provision was made in the financial statements in respect of them. However, in the opinion of management of the Company, based on the assessment of ICL according to the evaluation of its legal advisors, it is not reasonable that if any of the claims against the consolidated subsidiaries is upheld, the sum awarded against the consolidated subsidiaries will be greater than $10 million. In November 2007, the Los Angeles Court handed down a ruling in the claim of 12 plaintiffs from Nicaragua against the defendants therein. The jury upheld the claim of six of the plaintiffs, and dismissed the claims of the others. Compensation was awarded to the six plaintiffs in whose favor the ruling was handed down in the sum of approximately $3.3million. The subsidiaries were not a party to these proceedings.

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). Bromine Compounds Ltd. is required to construct a biological treatment plant, and values were set for effluents coming out of the treatment plants. As at the date of preparation of this report, the biological treatment plant has been put into operation after being run-in. As of the beginning of 2008, the pumping of effluent into the Ramat Hovav Local Industrial Council’s central treatment system is prohibited. The Subsidiary disconnected from the Council’s effluent treatment system in May 2007, and began treating its industrial waste independently. Under the new conditions of the license, the wastewater from the facilities will be removed to the evaporation pools and reservoirs that are operated and managed by the Council, until the end of 2009. After that date, independent removal systems will be operated under the management of each facility, and wastewater pumping into the current system shall 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 industrial companies in the area requested a delay of one year in establishing the waste water system due to delays in the process of the license. Pursuant to the new conditions of the license, the plants submitted a plan for setting up an independent removal system, and to conduct a risk survey for the independent removal system including the solid sediment in it.


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

C. Contingent liabilities

3. Ecology (cont’d)

a) (cont’d)

Under an agreement of December 2006 between the Ministry of the Environment, the Manufacturers’ Association, plants at Ramat Hovav (including ICL Industrial Product’s plants) and the Sustainable Negev Association, which was authorized by the District Court in December 2006, the Ministry and the plants 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 subsidiary in the ICL Industrial Products segment that operates the plant in Ramat Hovav received the new conditions of the business license relating to air emissions. Under the new license conditions, the plant must conduct surveys of emissions of any kind from the plant into the environment. The Ministry will determine the measures to be used for treating emissions and pollution on the basis of the results of these surveys. ICL Industrial Products has started conducting the surveys. Furthermore, ICL Industrial Products shall be required to treat diffused emissions of substances emitted during the production process immediately. It is not possible to assess what the additional cost of these conditions will be.

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 plaintiffs claim that the diversion of wastewater into the Kishon caused them to suffer from cancer (and other diseases). Dozens of factories and government authorities were also joined as third-party defendants to these lawsuits. During the course of hearing the claims, nine of the plaintiffs withdrew their claims, which were struck out. Because these claims are for physical 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 $36 million (and approximately $800 thousand for pending claims which overlap the principal damage), 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.


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C. Contingent liabilities (cont’d)

3. Ecology (cont’d) 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 reserve has been included in the financial statements. 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. As at the date of this report, 23 of the plaintiffs have withdrawn their claims, which have been struck out. As at the date of this report, there remain 89 plaintiffs in court, claiming for 87 soldiers in the sum of approximately $72 million (nominal, as at the date of submission of the claim) - as quantifiable special/general damages, approximately $21 million in dependant damages (some of which overlap with the special damages), and $36 million in punitive damages (all of these amounts are as at the date of submission of the lawsuit). 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. The defendants joined third parties including FCM as well as dozens of plants and government entities, including the State of Israel. 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 in the initial hearing stages. Consequently, the factual information regarding the plaintiffs and the nature of their alleged exposure is mostly not known to the defendants and third-party defendants, including FCM. 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. It is likely, with the necessary caution and subject to the abovementioned information, that some of FCM defenses to the claims described in sub-section 2 above will also serve to defend FCM with regard to these claims.


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b) Pending proceedings relating to the Kishon River (cont’d) 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 reserve has been included in the financial statements. The Haifa Rowing Club Association filed a class action under the Prevention of Environmental Hazards (Civil Claims) Law, 5752-1992, in the Magistrates Court in Haifa against a number of plants on the banks of the Kishon River, including against FCM. The Claim called for cessation of the pollution of the Kishon River and for an order to restore the Kishon River to the state it was in prior to the discharge of the waste. Dozens of factories and government authorities, including the State of Israel, were also joined as third-party defendants to these lawsuits. In 2007, the Court struck out the Claim without merit. The Court approved the discretion exercised by the Authorities with respect to the grant of pumping permits into the Kishon River, noting the steps taken by the authorities and the defendants to improve the state of the Kishon River, and the considerable improvement in recent years in the quality of the water and in the state of the river. An appeal that was submitted by the association to the Court in Haifa was struck off by agreement on September 23, 2008, reserving the right for each side, including the Association to submit a new claim as long as there is a relevant factual basis. It was also held, with the consent of the Parties that if a new claim were to be filed, it would not be possible to make limitations of action claims against the existence of the hazard or nuisance (presuming that such is proven).

c) In February 2004 a consolidated company 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 the former and current managers of the consolidated company, 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.

d) ICL Fertilizers has two potash production sites in Spain. Salt, which accumulates in

mountains, 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 mountains 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).


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d) (cont’d) As for the license to accumulate salt mountains on the sites, there is a permit to heap 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 3 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 factories operate, including the factories of ICL Industrial Products. The plaintiffs claim that various kinds of contamination in the region of Ramat Hovav have caused the illnesses that they are suffering from. 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 $63 million. In May 2008, the Local Council filed a third party notice against a number of factories 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 factories, or they must be required to indemnify the council or the State for any compensation that they are required to pay to the plaintiffs.

The claim is in very initial stages and the statements of defense of all of the litigants in the proceedings have not yet been submitted. 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$286 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.


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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

As part of the evaporation process, salt precipitates into the bed of one of the evaporation ponds at Sdom, in one of the sites of DSW, of ICL Fertilizers. The precipitate 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.

The Ein Boqeq and Tamar 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 defenses: These defenses are characterized by constructing a dike near the relevant hotels together with a system for lowering the ground water, in some places. As part of the treatment of these defenses, a number of temporary defenses have been implemented for several years along the western shore of the pond. At present, additional defense alternatives are also being examined for pond no. 5 including the construction of a temporary lagoon and the construction of breakwaters. 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 publications by the State, it has allocated sums for effecting additional interim protections, and for feasibility studies on the 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)

Permanent Solution: The State is examining three alternative permanent solutions. The harvesting alternative – which is based on harvesting the salt from the pond bed in order to keep the pond level constant; the lagoon alternative – which is based on construction of another dike within the pond, which would separate the area near to the hotels, where the water level would remain constant and the precipitated salt would be harvested, from the rest of the pond in which the water level would continue to rise each year. There is also an alternative of moving the hotels being discussed. 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. Hotels Union Petition: 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 High 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.

Financing: 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. DSW’s consent is conditional upon regulations being made by the Minister of Finance with respect to the above. 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.


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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)

Zoning Plan – 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.

5. In October 2007, a claim was filed against ICL Performance Products by a drug company in the

Court of Missouri, USA. The drug company alleges that it needed to recall finished products from the shelves due to an allegedly faulty product supplied both by Astaris (before its operations were purchased by ICL Performance Products) and by ICL Performance Products which was a raw material in the finished product of such drug company. The drug company is suing for damages and compensation in the sum of more than $ 15 million. ICL Performance Products views Astaris and its previous owners as being responsible for all of the damage caused, if any. In the assessment of ICL Performance Products, even if it becomes apparent that ICL Performance Products is liable for damage caused, the financial exposure flowing from this suit is not material.

6. On July 31, 2008, the Clean Air Law, 5768-2008 was enacted, which was intended to regulate the treatment and supervision of air pollution in Israel. The provisions of the Law that are relevant to ICL Fertilizers shall be applied gradually, partly as of 2011 and partly as of 2014. A considerable portion of the provisions of the Law shall be regulated in accordance with regulations that have not yet been established, and the date of which is by 2010. The Company is continuing to prepare for implementation of the provisions of the Law.

7. 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.

8. 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 $11 million as of December 31, 2008, the Company and the subsidiaries have recorded provisions at that date of $2 3. million; in addition, $1 million of the above claims are covered by insurance. In the opinion of the management of the companies, based on the opinions of their legal counsel, these amounts are sufficient to cover any liabilities that might arise.


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Note 25 – Equity

A. Composition:

December 31, 2008 December 31, 2007 Issued and Issued and Authorized paid Authorized paid

Ordinary shares of NIS 1 par value 1,484,999,999 1,287,306,734 1,484,999,999 1,287,290,068 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, 2008 was NIS 26.3. 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 may be 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 to be issued to the employees in Israel will be covered by Section 102 of the Income


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Note 25 – Equity (cont’d)

C. Share-based payments to employees (cont’d) 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 are vesting in three equal portions as follows: one-third at the end of 12 months from the Grant Date, one-third at the end of 24 months from the Grant Date, and one-third at the end of 36 months from the Grant 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. 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 exercise date and the exercise price. 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 2008 and 2007 an expense in respect of the said plan in the amount of $5,948 and $9,155 thousand, respectively.

2. The option movement during 2006 and 2007 are as follows:

Number of options Plan 2007

Balance as at January 1, 2007 - Movement in 2007 Granted during the year 11,800,000 Total options outstanding - December 31, 2007 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 Total options that can be exercised - December 31, 2008 3,866,667


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Note 25 - Shareholders’ Equity (cont’d) C. Share-based payments to employees (cont’d) 2. The option movement during 2007 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 warrants (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 warrants 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 warrants.

D. Dividends On March 27, 2007, the Company's Board of Directors decided to distribute a dividend in the amount of $283.9 million (the net dividend, less the share of a subsidiary, amounts to $283.4 million). The dividend was paid on April 25, 2007. On May 28, 2007, the Company's Board of Directors decided to distribute a dividend in the amount of $66.8 million (the net dividend, less the share of a subsidiary, amounts to $66.7 million). The dividend was paid on June 18, 2007. On August 21, 2007, the Company's Board of Directors decided to distribute a dividend in the amount of $88.1 million (the net dividend, less the share of a subsidiary, amounts to $88 million). The dividend was paid on September 18, 2007. On November 19, 2007, the Company’s Board of Directors decided to distribute a dividend in the amount of $104.9 million (the net dividend, less the share of a subsidiary, amounts to $104.6 million). The dividend was paid on December 17, 2007. On March 27, 2008, the Company’s Board of Directors decided to distribute a dividend in the amount of $115 million (the net dividend, less the share of a subsidiary amounts to $114.8 million). The dividend was paid on April 30, 2008.


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Note 25 - Shareholders’ Equity (cont’d) D. Dividends (cont’d) 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.

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.

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 $79.3 million). The dividend was paid on December 22, 2008.

The dividend per share in respect of the distributions as detailed above in 2008 and 2007 was 0.74 dollar and 0.42 dollar, respectively.

Subsequent to balance sheet date, 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).

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. H. Treasury shares 1) As at December 31, 2008 and 2007 a subsidiary holds 2,216,131 and 2,221,289 ordinary shares

of NIS 1 par value of ICL, respectively.


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Note 25 - Equity (cont’d) H. Treasury shares (cont’d) 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 will take place in the period commencing from the date of the decision and up to June 30, 2009. The acquisitions may be made either in the course of trading on the stock exchange or in an off-market transaction. Nothing in the above-mentioned decision obligates the Company to make acquisitions of all or part of the full quantity of shares. The acquisitions are 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.

As at December 31, 2008, 21,543,885 shares were acquired by the Company at a cost of $251,372 thousand, constituting about 1.675% of the Company’s issued and paid-up share capital. Subsequent to the balance sheet date, 824,457 shares were acquired by the Company at a cost of $6,642 thousand. 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.


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Note 25 - Equity (cont’d) I. Details of additional movement in equity Minority Total Equity attributed to Company's equity interests interest equity Reserve from translation differences Reserve from Share of foreign assets available Capital Treasury Retained Share capital premium operations for sale reserves shares earnings Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Balance at January 1, 2007 540,779 81,396 - - 2,127 (2,197) 1,072,150 1,694,255 (7,562) 1,686,693 Movement in 2007: Share-based payments - - - - 9,155 - - 9,155 - 9,155 Dividend to shareholders - - - - - - (545,135) (545,135) - (545,135) Tax benefit in respect of shares allotted to employees - - - - 1,945 - - 1,945 - 1,945 Issue of shares allotted to minority in subsidiary - - - - - - - - 77,676 77,676 Acquisition of shares of subsidiary from the minority - - - - - - - - (375) (375) Total income for the period - - 65,477 251 - - 574,549 640,277 (3,318) 636,959 Balance 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 Movement in 2008: Exercise of options allocated to employees 5 150 - - (25) - - 130 - 130 Company purchase of own shares - - - - - (251,372) - (251,372) - (251,372) Share-based payments - - - - 5,948 - - 5,948 - 5,948 Dividend to shareholders - - - - - - (966,493) (966,493) - (966,493) Tax benefit in respect of shares allocated to employees - - - - 971 - - 971 - 971 Issue of shares to minority in subsidiary - - - - - - - - 7,285 7,285 Minority interest in first time consolidated company - - - - - - - - 4,021 4,021 Options of proportionally consolidated company that were issued to its employees - - - - - - - - 1,536 1,536 Total income for the period - - (85,153) 13 - - 1,938,412 1,853,272 (11,289) 1,841,983 Balance 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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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 specified in the agreements with the banks) up to an agreed amount. 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). ICL has also undertaken to hold at least 67%-70% of the control in its main subsidiaries (DSB, DSW, Rotem).

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)). 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 6,768,767 4,047,821 Construction contracts 115,427 47,906 Concession agreements 19,855 7,452 6,904,049 4,103,179


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

B. Cost of sales (1)


Materials and spare parts 1,647,347 989,652 Power and energy 440,515 301,476 Labor and related expenses 745,295 602,325 Subcontracted work 313,683 254,080 Depreciation and amortization 147,067 135,147 Other production expenses 311,040 229,105 Logistics and port expenses 65,747 51,379 3,670,694 2,563,164 Increase in inventories of finished products and work in progress (221,920) (18,121) 3,448,774 2,545,043 (1) Net of amounts capitalized to property,

plant and equipment under construction 28,688 22,857 By sources of income Sales 3,338,216 2,506,633 Construction contracts 93,516 32,643 Concession agreements 17,042 5,767 3,448,774 2,545,043

C. Research and development expenses


Amount of expenses 58,128 39,279 Less – grants and participations, see Note 24(A)(5) 811 999 57,317 38,730


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

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

Transportation and insurance 545,169 443,490 Salaries and related expenses 105,561 75,385 Agents’ commissions 31,742 22,673 Other 79,013 58,320

761,485 599,868 E. General and administrative expenses


Salaries and related expenses 114,987 103,457 Buildings maintenance 12,418 9,828 Legal advice 11,297 6,990 Other* 68,477 40,897

207,179 161,172 * Including in respect of doubtful debts 2,563 (1,939)

F. Financing income and expenses


Financing income recorded in income: Interest income from bank deposits 27,506 16,515 Net change in fair value of derivative financial instruments 28,170 10,974

55,676 27,489 Financing expenses recorded in income Interest expenses to banks and others 65,637 46,389 Interest expenses in respect of securitization transactions 17,975 18,985 Other interest expenses 3,998 6,378 Financing expenses in respect of employee benefits 13,089 23,197 Bank commissions 1,883 1,605 Provision for impairment of financial assets available for sale 17,319 - Net loss in exchange rate differences 60,889 10,663 Financing expenses 180,790 107,217 Net borrowing costs capitalized (3,030) (3,087) 177,760 104,130 Net financing expenses recorded in income 122,084 76,641


97

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


Curtailment in defined benefit plans for employees 12,883 - Capital gains, net 1,471 173 Other 505 628 Other income recorded in income 14,859 801 Expenses in respect of early retirement (1) 31,761 11,676 Provision for impairment of plants (2) 47,428 281 Disposal of installations that taken out of use 6,151 - Past service cost - 568 Other 23,324 4,056 Other expenses recorded in income 108,664 16,581 (1) See Note 22(E). (2) In respect of the provision for impairment of the property, plant and equipment of DSM in

2008, 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 uses financial derivative instruments, including forward transactions, swap transactions and options. 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.


98

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

December 31, 2008 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 - 215,154 - - - Investments in deposits and short-term loans 3,398 104,169 17,494 - - Trade receivables - 1,054,387 - - - Other receivables and debit balances, including derivative instruments 14,825 95,926 - - - Deposits and other long-term receivables - 140,273 - - - Derivative instruments 7,334 - - - - Total financial assets 25,557 1,609,909 17,494 - - Short-term credit from banks and others - - - - (411,533) Trade payables - - - - (448,154) Other payables and derivative instruments - - - (28,657) (403,830) Long-term loans from banks and others - - - - (1,020,289) Derivative instruments - - - (11,784) - Total financial liabilities - - - (40,441) (2,283,806) Total financial instruments, net 25,557 1,609,909 17,494 (40,441) (2,283,806)


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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 short-term 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.


100


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 2008 2007 Carrying amount US$ thousands US$ thousands Cash and cash equivalents 215,154 58,204 Investment deposits and short-term loans 125,061 73,345 Trade receivables 1,054,387 964,194 Other receivables including derivative instruments 110,751 88,977 Deposits and other long-term receivables 140,273 46,908 Long-term derivative instruments 7,334 2,468 1,652,960 1,234,096 The maximum exposure to credit risk for trade receivables, at the reporting date by geographic region was: December 31 2008 2007 Carrying amount US$ thousands US$ thousands Eastern Europe 3,093 3,825 Western Europe 229,028 378,686 North America 145,360 122,693 South America 161,052 65,333 India 320,977 154,743 China 49,931 55,474 Israel 90,847 69,671 Others 54,099 113,769 1,054,387 964,194


101

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 2008 2008 2007 2007 Gross Impairment Gross Impairment US$ thousands US$ thousands US$ thousands US$ thousands Not past due 928,556 (4,019) 871,766 (1,931)Past due to 3 months 118,715 (423) 84,500 (246)Past due 3 to 6 months 10,517 (160) 9,422 (78)Past due 9 to 12 months 1,611 (410) 765 (4)Past due Over 12 months 1,102 (1,102) 3198 (3,198) 1,060,501 (6,114) 969,651 (5,457) The movement in the provision for impairment in respect of trade receivables during the year was as follows: 2008 2007 NIS thousands NIS thousands Balance as at January 1 5,457 7,533 Impairment loss on trade receivables recognized in the period 1,359 503 Receivables written off as uncollectible (875) (203)First time consolidation 177 - Changes due to translation differences (4) 15 Cancellation of past allowance - (2,391) Balance as at December 31 6,114 5,457 During 2008, the Group reached a new agreement regarding the payment terms of a long-standing customer that owes the Company the amount of US$109 million. The agreement extended the number of customer credit days under the existing credit insurance in consideration for interest and other collateral. No impairment provision was recognized in relation to the receivable.


102


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, 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 411,533 420,434 - - - Trade payables 448,154 448,154 - - - Other payables 432,487 432,487 - - - Non-convertible debentures 125,000 6,777 44,777 32,557 74,665 Long-term Bank loans 897,267 16,134 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


103


D. Liquidity risk (cont'd)

December 31, 2007 Carrying 12 months More than amount or less 1-2 years 2-5 years 5 years US$ thousands

Non-derivative financial liabilities Short-term bank loans and from other credit providers 622,704 653,854 - - - Trade payables 428,266 428,266 - - - Other payables 303,871 303,871 - - - Non-convertible debentures 125,000 6,777 6,777 74,562 78,497 Long-term Bank loans 629,630 3,643 76,028 680,551 - 2,109,471 1,396,411 82,805 755,113 78,497 Financial liabilities - derivative instruments utilized for economic hedging Cylinder instruments 4,794 4,988 - - - Interest rate swaps 1,734 - 364 1,117 546 Foreign exchange rate derivatives 2,016 2,098 - - - Commodity derivatives 46 48 - - - 8,590 7,134 364 1,117 546 Total financial liabilities 2,118,061 1,403,545 83,169 756,230 79,043


104

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 respect of changes in market interest rates. 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 are the interest rate profile of the non-derivatives interest-bearing financial instruments was:

December 31 2008 2007 Carrying amount US$ thousands US$ thousands

Fixed rate instruments Financial assets 128,171 33,613 Financial liabilities (181,843) (228,002) (53,672) (194,389) Variable rate instruments Financial assets 341,992 131,549 Financial liabilities (1,251,960) (1,149,332)

(909,968) (1,017,783)


105


E. Market risk (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 2007. 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 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) Year ended December 31, 2007 Influence on profit or loss Decrease of Decrease of Increase of Increase of 10% 5% 5% 10% US$ thousands US$ thousands US$ thousands US$ thousands Non-derivative instruments 5,014 2,507 (2,507) (5,014)Interest rate swaps 2,100 1,100 (900) (1,900)Cylinder instruments (1,200) (500) 800 1,300 5,914 3,107 (2,607) (5,614)


106


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

Carrying December 31, 2008 amount Notional Maturity Interest rate (fair value) amount date range US$ thousands US$ thousands Years %

Interest rate swaps 2,373 242,002 2-7 2%-5% Cylinder instruments (6,823) 425,000 1-6 2%-6% 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. (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 2007. Non-derivative financial instruments December 31 December 31 2008 2007 Impact on Impact on profit (loss) profit (loss) US$ thousands US$ thousands Dollar/Euro (10,754) (23,414)Dollar/NIS 8,517 21,727 Dollar/British pound 1,066 975 Dollar/Japanese yen (1,456) (1,214)Dollar/Brazilian real (159) 284 Dollar/Chinese Yuan (1,807) (649)Dollar/Canadian Dollar (1,124) (722) A weakening of 10% of the US$ against the currencies above would have the same effect but in the opposite direction.


107

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, 2008 and December 31, 2007. 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, 2008 Increase Increase Decrease Decrease 10% 5% 5% 10% US$ thousands US$ thousands US$ thousands US$ thousands

Dollar/Euro Forward (48,630) (25502) 27,962 59,795 Options (8,708) (4,712) 5,528 11,923 Dollar/NIS Forward (8,907) (4,663) 5,210 10,792 Options (9,272) (5,258) 6,908 15,720 Embedded derivative (618) (309) 309 618 Dollar/JPY Forward 957 501 (553) (1,170)Options 609 337 (1,100) (1,128) Euro/GBP Forward 1,674 876 (969) (2,045)Options (4,428) (2,338) 2,624 5,515 NIS/Euro Options (21) (21) 15 16 Embedded derivative 4,636 2,318 (2,318) (4,636) Other currencies Forward 1,978 1,036 (1,144) (2,417)Options 69 36 (41) (87)Embedded derivative (850) (425) 425 850


108

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

December 31, 2007 Increase Increase Decrease Decrease 10% 5% 5% 10% US$ thousands US$ thousands US$ thousands US$ thousands

Dollar/Euro Forward (12,100) (6,300) 7,000 14,800 Options (4,000) (4,500) 6,000 12,100 Dollar/NIS Forward (5,700) (3,000) 3,300 7,000 Options (8,300) (4,100) 4,200 8,900 Embedded derivative 1,026 514 (514) (1,026) Dollar/JPY Forward 1,100 600 (700) (1,400)Options 600 200 300 700 NIS/Euro Embedded derivative 3,867 1,934 (1,934) (3,867) Other currencies Forward (712) (373) 412 870 Embedded derivative 2,992 1,026 (1,496) (2,992)


109

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, 2008 Carrying Notional Average amount amount exchange rate US$ thousands US$ thousands *%

Forward contracts Dollar/NIS (1,322) 99,995 3.8 Dollar/Euro (4,462) 547,962 1.4 Dollar/JPY 246 10,787 88.5 Dollar/GBP (26) 17,013 1.5 Euro/GBP 275 18,707 0.9 Euro/JPY 122 3,158 121.3 Other 290 2,053 - Put options Dollar/NIS 5,871 198,900 3.7 Dollar/Euro 12,299 129,612 1.5 Dollar/JPY (811) 11,000 95.4 Euro/GBP 264 58,682 0.8 Dollar/Swedish Krone - 968 6.2 Call options Dollar/NIS (3,341) 157,100 3.9 Dollar/Euro (2,299) 131,329 1.5 Dollar/JPY 31 11,000 106.1 Dollar/GBP 10,866 58,682 0.8 Dollar/Swedish Krone 222 984 6.1 The maturity date of all of the derivatives used to economically hedge foreign currency risk is up to a year.


110

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, 2008 US$ Euro GBP NIS CPI JPY Others

Non-derivatives 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 48,052 - 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


111

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, 2007 US$ Euro GBP NIS CPI JPY Others

Non derivative financial instruments Cash and cash equivalents 35,881 15,590 655 2,313 - 295 3,470 Investments, deposits and short-term loans 38,466 12,467 4,487 3,721 2,279 200 11,725 Trade receivables 547,956 280,411 38,417 52,178 - 21,565 23,667 Other receivables 41,179 10,772 4,072 24,884 - 186 902 Deposits and other long-term receivables 5,151 2,577 - 6,018 22,724 135 10,303 Total financial assets 668,633 321,817 47,631 89,114 25,003 22,381 50,067

Short-term credit from banks and other credit providers 440,079 99,564 3,831 76,905 - - 2,325 Trade payables 81,280 182,157 9,879 138,852 - 5,932 10,166 Other payables 111,903 80,850 11,296 92,399 - 376 7,047 Long-term loans from banks and other credit providers 738,062 1,189 - 127 6,970 - 5,194 Total financial liabilities 1,371,324 363,760 25,006 308,283 6,970 6,308 24,732 Total non-derivative financial instruments, net (702,691) (41,943) 22,625 (219,169) 18,033 16,073 25,335

Derivative instruments Forwards - (128,206) - 64,498 - (12,878) (16,026) Call options - (7,459) - - - - - Put options - - - 47,333 - - - Cylinder - (139,879) - 75,462 - (11,500) (1,791)

Total derivative instruments - (275,541) - 187,293 - (24,378) (17,817)

Net exposure (702,691) 317,484 22,625 (31,876) 18,033 (8,305) 7,518


112

Note 28 - Financial Instruments and Risk Management (cont'd) E. Market risk (cont’d) 3. Other price risk management As of December 31, 2008, the Company has an investment in shares classified as available-for-sale in the amount of US$17 million. A 10% decline in the market price of these shares will result in the need to create a provision for impairment of US$1.7 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$1.7 million to shareholders’ equity. 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, 2008 December 31, 2007 Carrying Carrying amount Fair value amount Fair value US$ thousands US$ thousands US$ thousands US$ thousands

Long-term loans - - 103,002 102,581 Debentures 125,000 128,709 125,000 126,220

The fair value of the long-term loans received is based on the calculation of the present value of the cash flows according to the Libor interest rate customary for similar loans having comparable characteristics – 5.2%. The fair value of the debentures received is based on the calculation of the present value of the cash flows using Libor, according to similar loans having comparable characteristics - 4.1% (December 31, 2007 - 4.2%).


113

Note 29 - Earnings Per Share

Basic earnings per share

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


Net income for the period 2,004,238 535,640 Weighted average of ordinary shares: For the year ended December 31 2008 2007 US$ thousands US$ thousands

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

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


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

Weighted average of ordinary shares used in the computation of the basic earnings per share 1,280,446 1,285,069 Effect of stock options 5,082 1,268 Weighted average of ordinary shares used in the computation of the diluted earnings per share 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.


114

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 33, 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 participates in the Company’s plan of options exercised into shares. (See Note 25(C) – Share-based payments to employees). Benefits for key management personnel (including directors) engaged in business activities comprised: Year ended December 31 2008 2007 US$ thousands US$ thousands Short-term benefits 5,500 4,421 Post-employment benefits 809 373 Share-based payments 2,080 2,793 Total * 8,389 7,587 * Included benefits to interested parties employed by ICL (1 employee) 3,834 9,292 Benefits for key management personnel (including directors) that are not employed by the Company: Year ended December 31 2008 2007 Amount Amount US$ thousands US$ thousands Total compensation to directors not

employed by the Company (12 directors) 1,432 405


115

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

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. (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.


116

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

D. Transactions with interested parties Year December 31 2008 2007 US$ thousands US$ thousands

Income - 3,152 Cost of sales (1) 63,521 54,890 Selling transportation and marketing expenses (2) 35,765 20,920 Management fees to the parent company 2,500 2,500 As to options and shares allotted to interested parties – see Note 25(C). (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 into a framework agreement with a fellow subsidiary of its parent company, Zim Integrated Shipping Services Ltd. (hereinafter – Zim), which is not exclusive, regarding the transport of containers for all the ICL Group companies. 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.

E. Balances with interested parties


Long-term deposits, net of current maturities 1,838 2,995

Current maturities of long-term deposits - 230

Other current assets 3,866 1,638

Short-term credit - 56,309

Other current liabilities (excluding current maturities of long-term liabilities, see also Note 18(A)) 8,771 8,267


117

Note 31 - Condensed Financial Data on Stand-Alone Basis Presented hereunder are condensed financial data based on the separate financial statements of the Company (hereinafter – the stand-alone financial statements), which are presented in accordance with FAQ 11 of the Securities Authority regarding the attachment of stand-alone financial statements to financial statements prepared in accordance with IFRS. The accounting policies described in Note 3 on the significant accounting policies were applied in the preparation of this condensed note, other than that described hereunder: A. Measurement of investments in investee companies The Company accounts for its investments in subsidiaries, jointly controlled entities and associated companies according to the cost model and according to the amendment to IAS 27, by which a dividend received from subsidiaries, jointly controlled entities and associated companies will be recognized as revenue in the stand-alone financial statements of the holding company. B. Determination of the carrying value of investments in investee companies on the date of

transition to IFRS The Company has elected to implement the instruction of revised IFRS 1, by which a company that has elected the cost model for measuring investments in subsidiaries, jointly controlled entities and associated companies may measure these investments in the stand-alone financial statements on the date of transition to IFRS at deemed cost, which is the fair value or carrying value in accordance with previous GAAP. Presented hereunder is the aggregate amount of investments in investee companies according to deemed cost:

January 1 2007 US$ thousands

Total investments presented at deemed cost – carrying value in accordance with previous GAAP 1,515,418


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Note 31 - Condensed Financial Data on Stand-Alone Basis (cont'd) A. Balance sheet


Current assets Cash and cash equivalents 195 113 Short-term investments, deposits and loans 17,850 2,790 Investee companies - current account 55,676 356,393 Other receivables and debit balances including derivative instruments 2,216 4,756 Income taxes refundable 27,467 - Total current assets 103,404 364,052 Non-current assets Investments in investee companies 1,806,461 1,774,935 Loans to subsidiaries 586,275 319,280 Long-term deposits and debit balances including derivative instruments 10,242 5,483 Deferred taxes, net 8,532 4,823 Property, plant and equipment, net 1,395 1,145 Total non-current assets 2,412,905 2,105,666 Total assets 2,516,309 2,469,718


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Note 31 - Condensed Financial Data on Stand-Alone Basis (cont'd) A. Balance sheet (cont’d)


Current liabilities Credit from banks, other credit providers and consolidated companies 696,903 326,903 Investee companies - current account 30,216 158,356 Other payables, including derivative instruments 61,328 16,940 Income taxes payable - 52,803 Total current liabilities 788,447 555,002 Non-current liabilities Loans from banks and other credit providers 30,000 60,000 Loans from consolidated companies 443,718 305,000 Long-term derivative instruments 11,784 1,734 Employee benefits, net 13,224 11,468 Total non-current liabilities 498,726 378,202

Total liabilities and equity 2,516,309 2,469,718


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Note 31 - Condensed Financial Data on Stand-Alone Basis (cont'd) B. Statement of Income


Income Dividend from subsidiaries 947,631 382,557 Management fees from investee companies 43,039 24,510 990,670 407,067 Expenses General and administrative 29,687 28,398 Financing 28,593 9,646 Others - 374 58,280 38,418 Income before taxes on income 932,390 368,649 Taxes on income 28,244 (7,372) Income for the period 904,146 376,021 C. Statement of recognized income and expenses


Change in fair value of financial assets available- for-sale, net 25 347 Actuarial gains (losses) from defined benefit plans (962) 30 Income taxes in respect of revenues and expenses recorded directly in equity 229 (104) Total other revenue for the period, net of tax (708) 273 Income for the period 904,146 376,021 Total income for the period 903,438 376,294


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Note 31 - Condensed Financial Data on Stand-Alone Basis (cont'd) D. Statements of cash flows


Cash flows from operating activities Profit for the period 904,146 376,021 Adjustments for: Income from dividend from subsidiaries (947,631) (382,557)Depreciation and amortization 502 336 Interest expenses, net (17,474) (3,032)Income tax expenses on income 28,244 (7,372)Revaluation of assets and liabilities (587) 4,540 Loss on securities classified as available-for-sale 17,319 - Share-based payment transactions 5,948 9,155 (9,533) (2,909) Change in trade receivables and other receivables 3,109 456 Change in trade payables and other payables 46,497 8,174 Change in provisions and employee benefits 794 1,502 40,867 7,223 Income tax receipts (refund) (128,949) 80,214 Interest received 39,852 13,823 Interest paid (25,056) (10,215) Net cash (used in) provided by from operating activities (73,286) 91,045 Cash flows from investing activities Short-term loans to subsidiaries, net 300,717 (233,166)Investments in securities available-for-sale (32,345) - Dividend from consolidated companies 947,631 382,557 Short-term loans and deposits, net 18 (10)Investment in subsidiaries (13,600) (206,271)Acquisition of property, plant and equipment (752) (294)Loans to consolidated companies (920,534) (22,750)Investment in long-term deposits 286 228 Proceeds from disposal of long-term deposits 655,810 103,914 Net cash used in investing activities 937,231 34,208


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Note 31 - Condensed Financial Data on Stand-Alone Basis (cont'd) D. Statements of cash flows (cont'd)


Cash flows from financing activities Proceeds from exercise of options allotted to employees 130 - Company purchase of its own shares (251,372) - Receipt of long-term loans from subsidiaries 583,718 305,000 Repayment of long-term loans from subsidiaries (508,834) (161,500)Dividend paid (966,493) (545,135)Short-term credit from banks and other credit providers 340,000 299,327 Short-term credit from subsidiaries (61,012) (64,498)Receipt of long-term loans from banks and others - 60,000 Repayment of long-term loans from banks and others - (25,000) Net cash used in financing activities (863,863) (131,805) Increase (decrease) in cash and cash equivalents 82 (6,553)Cash and cash equivalents as at the beginning of the year 113 6,666 Cash and cash equivalents as at the end of the year 195 113

Note 32 - Explanation with respect to the Effects of the Transition to IFRS

A. General As stated in Note 2A the consolidated financial statements prepared by the Group are the first annual consolidated financial statements prepared on the basis of IFRS.. The accounting policies set out in Note 3 that have been applied in preparing the consolidated financial statements for the year ended December 31, 2008, and the comparative data for the year ended December 31, 2007 and in the opening IFRS balance sheet as at January 1, 2007 (hereinafter – the transition date). This note has been prepared on the basis of IFRS standards as known as of today, that are effective or available for early adoption at the Group’s first IFRS annual reporting date, December 31, 2008, and were the basis for the Company’s accounting policies. B. Detail of the Relief Provisions Selected Set forth below is detail of the relief provisions the Company has selected under IFRS 1 and regarding which the Company is not making retroactive application as at the Transition Date of IFRS:


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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont’d)

B. Detail of the Relief Provisions Selected (cont’d)

1. Business Combinations The Company did not retroactively apply IFRS 3 (which deals with business combinations) and, therefore, goodwill and excess cost created in business combinations, in acquisitions of associated companies, companies under joint control and minority acquisitions after obtaining control, taking place prior to January 1, 2007 were not treated in accordance with IFRS 3 but, rather, pursuant to generally accepted accounting principles in Israel.

2. Translation Differences from Foreign Activities The Company elected to apply the relief provision provided in IFRS 1 whereby as at the Transition Date the balances of the reserve caused by cumulative translation differences relating to all the foreign activities as at the Transition Date will be reclassified to the retained earnings’ balance.

3. Compound financial instruments In accordance with the relief provided in IFRS 1, the Company has chosen not to split compound financial instruments into a liability component and an equity component in accordance with IAS 32, “Financial Instruments: Presentation and Disclosure”, since the liability no longer exists on the Transition Date.

4. Share-based payment transactions In accordance with Israeli GAAP, as from January 1, 2006 the Company recognized share-based payment transactions with respect to grants awarded after March 15, 2005 that had not yet vested as at January 1, 2006. In accordance with the relief in IFRS 1, share-based payments awarded before November 7, 2002 or were fully vested until January 1, 2007 were not retroactively accounted for, in accordance with the relief provisions of IFRS 1.

5. Leases The Company implements the transitional provisions of IFRIC 4, “Determining Whether an Arrangement Contains a Lease”. Therefore, the Company determines whether an arrangement that existed on the date of transition included a lease on the basis of the facts and circumstances that existed on January 1, 2007 (the date of transition to IFRS).

C. Accounting policy adopted when IFRS allows various alternatives

1. Actuarial gains and losses The Company has chosen one of the alternatives allowed under IAS 19 as its policy for accounting for actuarial gains and losses. In accordance with the alternative chosen, the actuarial gains and losses will be immediately recognized against shareholders’ equity (retained earnings).

2. Jointly controlled entities In accordance with Israeli GAAP, entities in which the Company has joint control are presented according to the proportionate consolidation method. In accordance with IFRS, the investment in such entities may be presented according to the proportionate consolidation method or under the equity basis. The Company has chosen to implement the alternative of presenting investee companies under joint control according to the proportionate consolidation method.

D. Impact of the transition to IFRS

The tables and notes hereunder provide an explanation of the effects of the transition from Israeli GAAP to IFRS on the Company’s financial position, results of operations and cash flows.


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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont'd)

D. Adjustments to IFRS (cont’d)

1. Balance Sheet as at January 1, 2007 January 1, 2007 Effect of the

Israeli transition to GAAP* IFRS IFRS

US$ thousands US$ thousands US$ thousands

Current assets Cash and cash equivalents 50,085 - 50,085 Short-term investments, deposits and loans 120,820 (211) 120,609 Trade receivables 470,569 218,482 689,051 Other receivables and debit balances, including derivative instruments 172,237 (38,883) 133,354 Income taxes refundable 8,632 - 8,632 Inventories 785,433 - 785,433 Total current assets 1,607,776 179,388 1,787,164

Non-current assets Investments in investee companies 31,149 661 31,810 Long-term deposits and receivables 27,798 74,243 102,041 Inventories - non-current 33,865 - 33,865 Deferred taxes, net 6,539 15,889 ** 22,428 Receivables from the minority interest 17,011 (17,011) - Property, plant and equipment 1,700,996 (68,072) 1,632,924 Intangible assets 195,450 58,863 254,313

Total non-current assets 2,012,808 64,573 2,077,381

3,620,584 243,961 3,864,545

Current liabilities Credit from banks and other credit providers 266,973 218,482 485,455 Trade payables 315,945 - 315,945 Provisions 25,652 - 25,652 Other payables, including derivative instruments 272,033 (6,757) 265,276 Income taxes payable 72,552 - 72,552

Total current liabilities 953,155 211,725 1,164,880

Non-current liabilities Loans from banks and other credit providers 358,391 1,032 359,423 Debentures 125,000 - 125,000 Provisions 33,900 - 33,900 Deferred taxes, net 168,391 30,873) ** 137,518 Employee benefits 241,252 115,879 357,131 Minority interests 9,476 (9,476) -

Total non-current liabilities 936,410 76,562 1,012,972

Total liabilities 1,889,565 288,287 2,177,852

Equity Share capital 540,779 - 540,779 Share premium 81,396 - 81,396 Capital reserves 20,855 (18,728) 2,127 Dividend declared after balance sheet date 283,411 (283,411) - Retained earnings 806,775 265,375 1,072,150 Treasury shares (2,197) - (2,197)

Total equity attributable to the holders of the Company’s equity interests 1,731,019 (36,764) 1,694,255 Minority interests - (7,562) (7,562) Total equity 1,731,019 (44,326) 1,686,693 3,620,584 243,961 3,864,545

* Restated as a result of first-time adoption of new Israeli accounting standards. ** Reclassified.


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D. (cont'd) 2. Balance Sheet as at December 31, 2007

December 31, 2007 Effect of the Israeli transition to

GAAP IFRS IFRS US$ thousands US$ thousands US$ thousands

Current assets Cash and cash equivalents 58,204 - 58,204 Short-term investments, deposits and loans 73,655 (310) 73,345 Trade receivables 962,113 2,081 964,194 Other receivables and debit balances, including derivatives instruments 174,268 (50,565) 123,703 Income taxes refundable 8,825 - 8,825 Inventories 974,966 (4,396) 970,570

Total current assets 2,252,031 (53,190) 2,198,841

Non-current assets Investments in investee companies 37,363 1,701 39,064 Long-term deposits and receivables 36,192 74,923 111,115 Long-term derivative instruments - 2,468 2,468 Inventories - non-current 29,771 731 30,502 Deferred taxes, net 19,044 6,283 25,327 Property, plant and equipment, net 1,841,396 (37,403) 1,803,993 Intangible assets 417,496 61,137 478,633

Total non-current assets 2,381,262 109,840 2,491,102

4,633,293 56,650 4,689,943

Current liabilities Credit from banks and other credit providers 622,704 - 622,704 Trade payables 428,386 (120) 428,266 Provisions * 17,350 8,797 26,147 Other payables, including derivative instruments *395,298 6,379 401,677 Income taxes payable *62,000 - 62,000

Total current liabilities 1,525,738 15,056 1,540,793

Non-current liabilities Loans from banks and other credit providers 626,542 - 626,542 Debentures 125,000 - 125,000 Long-term derivative instruments - 1,734 1,734 Provisions * 49,588 (14,884) 34,704 Deferred taxes, net 160,132 (48,663) 111,469 Employee benefits 285,153 94,541 379,694 Minority interests 66,147 (66,147) - Total non-current liabilities 1,312,562 (30,331) 1,282,231

Total liabilities 2,838,300 (15,275) 2,823,025

Equity Share capital 540,779 - 540,779 Share premium 81,396 - 81,396 Capital reserves 96,259 (17,304) 78,955 Dividend declared after balance sheet date 114,802 (114,802) - Retained earnings 963,954 137,610 1,101,564 Treasury shares (2,197) - (2,197) Total equity attributable to holders of the Company’s equity interests 1,794,993 5,504 1,800,497 Minority interests - 66,421 66,421 Total equity 1,794,993 71,925 1,866,918 4,633,293 56,650 4,689,943 * Reclassified


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D. (cont'd) 3. 2007 Statement of income

For the year ended December 31, 2007 Effect of the Israeli transition to

GAAP IFRS IFRS US$ thousands US$ thousands US$ thousands

Sales 4,100,284 2,895 4,103,179 Cost of sales 2,585,249 (40,206) 2,545,043

Gross profit 1,515,035 43,101 1,558,136

Selling, transportation and marketing expenses 600,336 (468) 599,868 General and administrative expenses 160,850 322 172 Research and development expenses 39,189 (459) 38,730 Other expenses - 16,581 6,747 Other income - 801 801

Operating income 714,660 27,926 742,586

Financing expenses 132,154 (28,024) (104,130)Financing income (78,077) 50,588 (27,489)

Financing expenses, net 54,077 22,564 76,641

Other expenses 19,381 (19,381) -

Share in profits of associated companies - 3,969 3,969

Income before taxes on income 641,202 28,712 669,914 Taxes on income 113,059 6,671 119,730

Income after taxes on income 528,143 22,041 550,184

Shares in profits of associated companies, net of tax 3,940 (3,940) - Minority interest in losses of subsidiaries, net of tax 3,557 (3,557) -

Income for the year 535,640 14,544 550,184

Attributed to: Holders of the Company's share capital 553,440 Minority interest (3,256)Income for the year 550,184


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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont'd) D. (cont'd) 4. Adjustment of Shareholders’ Equity as at January 1, 2007 January 1, 2007 Reserve from Cost of translation Dividend company differences declared shares Share Premium Capital of foreign Retained Minority after balance held by a capital on shares reserves operations earnings interest sheet date subsidiary Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Balance as at January 1, 2007 according to Israeli GAAP * 540,779 81,396 2,127 18,728 806,775 - 283,411 (2,197) 1,731,019 Adjustments: Employee benefits - - - - (37,491) - - - (37,491) Financial instruments - - - - 1,000 - - - 1,000 Minority interests - - - - - (7,562) - - (7,562) Other - - - - (273) - - - (273) Translation differences of foreign operations - - - (18,728) 18,728 - - - - Dividend declared after balance sheet date - - - - 283,411 - (283,411) - - - - - (18,728) 265,375 (7,562) (283,411) - (44,326) Balance according to IFRS 540,779 81,396 2,127 - 1,072,150 (7,562) - (2,197) 1,686,693 * Restated as a result of first time adoption of new Israeli accounting standards.


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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont'd) D. (cont'd) 5. Adjustment of Shareholders’ Equity as at December 31, 2007 December 31, 2007 Reserve from Cost of translation Dividend company differences declared shares Share Premium Capital of foreign Retained Minority after balance held by a capital on shares reserves operations earnings interest sheet date subsidiary Total Audited Audited Audited Audited Audited Audited Audited Audited Audited US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands

Balance as at December 31, 2007 according to Israeli GAAP 540,779 81,396 13,227 83,032 963,954 - 114,802 (2,197) 1,794,993 Adjustments: Employee benefits - - - - (21,407) - - - (21,407) Financial instruments - - 251 - 4,523 - - - 4,774 Minority interests - - - - - 66,421 - - 66,421 Change in useful life estimate - - - - 22,658 - - - 22,658 Other - - - 1,173 (1,694) - - - (521) Translation differences of foreign operations - - - (18,728) 18,728 - - - - Dividend declared after balance sheet date - - - - 114,802 - (114,802) - - - - 251 (17,555) 137,610 66,421 (114,802) - 71,925 Balance according to IFRS 540,779 81,396 13,478 65,477 1,101,564 66,421 - (2,197) 1,866,918


Notes to the Consolidated Financial Statements as at December 31, 2008

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D. Adjustments to IFRS (cont'd) 6. Adjustments to income For the year ended December 31, 2007 (Audited) US$ thousands Net income according to Israeli GAAP 535,640 Employee benefits (3,278) Change in the estimated useful life of property, plant and equipment 22,658 Financial instruments 1,199 Inclusion of the minority interest in the losses of shareholders’ equity (3,557) Other (2,478) Total adjustments 14,544 Income for the year according to IFRS 550,184 7. Cash flow statement There are no significant differences between the statement of cash flows presented according to Israeli GAAP and the statement of cash flows presented according to IFRS, except the effect of the accounting treatment of the securitization transaction where according to Israeli GAAP, the securitization transaction is treated as a sale of financial assets as part of current operating activities. Pursuant to IFRS, the transaction is accounted for as a financing transaction. Therefore, the cash flows in respect of the securitization transaction are classified as part of the financing activities whereas the cash flows from collection of the customer receivables are classified as current operating activities.



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E. Summary of differences between Israeli GAAP and IFRS 1. Employee Benefits IAS 19 provides the accounting treatment (recognition, measurement and disclosure) of employee benefits. Provided hereunder are the adjustments required for the transition from the accepted practice according to Israeli GAAP to implementation of the international standard. In accordance with Israeli GAAP, the liability for employee severance benefits is measured on the basis of the number of years of service multiplied by the employee’s latest monthly salary (one month’s salary for each year worked), and the severance pay deposits against such liability are measured on the basis of their redemption value as at the balance sheet date. In addition, the liabilities for vacation and sick leave are calculated on the basis of estimates of utilization and redemption, respectively. On the date of transition to IFRS, all the net liabilities in respect of post-retirement benefits of employees and other long-term benefit plans are measured in accordance with the provisions of IAS 19, “Employee Benefits”. Pursuant to IAS 19, some of the Group’s severance pay plans are defined benefit plans as defined in IAS 19. Measurement of the liability for employee severance benefits under the above-mentioned plans is made based on an actuarial estimate and takes into account, among other things, the future increase in employee salaries along with the rate of employee turnover. The measurement is made on the basis of discounting the anticipated future cash flows. The discount rate for the Group companies operating in countries having a market whereby there is a deep market 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 deep market in corporate bonds, as stated above, is in accordance with the yield on government bonds. In addition, the severance pay deposits are measured according to their fair value on the basis of their present value after taking into account the expected future yield on the plan’s assets. The Company has foreign subsidiaries which have a liability to pay pension benefits to employees, which was calculated on the basis of an actuarial estimate, where part of the actuarial gains and losses were not recognized in the financial statements in accordance with the “corridor” method. In the consolidated subsidiaries in Israel, the actuarial gains and losses were recognized immediately in the profit and loss statement. The Company has chosen as its accounting policy one of the alternatives provided under IAS 19 for treating actuarial gains and losses. According to the alternative chosen, the actuarial gains and losses will be recognized immediately in shareholders’ equity (retained earnings). The provisions for the accumulated entitlement of employees to compensation in respect of sick leave and vacation were calculated on a “first in – first out” basis, since sick leave and vacation days are utilized first from the entitlement transferred from prior years and only after, then from the current year entitlement. In the framework of the manager insurance policies that were issued before 2004, the insurance companies and the employees of the Company agreed to transfer to the retirement savings component the cumulative real yield on the assets that were deposited in the framework of the severance pay component. At the end of the employment period the redemption value of the policy will be the total amount of the paid premiums with the addition of the results of the investment or the total amount of the paid premiums with the addition of CPI-linkage differences, whichever lower.



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E. Summary of differences between Israeli GAAP and IFRS 1. Employee Benefits (cont’d) A salary expense is recognized in each reporting period in the IFRS financial statements, in respect of the transfer of the real yield of the severance pay component to the retirement savings component, and on the other hand financing income is recognized in respect of that same real yield. Revenues and expenses included in accordance with Israeli GAAP in the “salaries and related expenses” category, are recorded under IFRS, partly as part of “salaries and related expenses” and partly in the “financing expenses” category. Included as part of the “financing expenses” category are, among other things, financing income and revaluation/erosion of the plan’s assets. 2. Change in the Estimated Useful Life of Property, Plant and Equipment International accounting standard, IAS 16, regarding “Fixed Assets”, provides that the useful life of an asset shall be reviewed at least at the end of every financial year, and if the expectations are different from the prior estimates, the change is to be treated as a change in an accounting estimate, in accordance with international accounting standard, IAS 8, regarding “Accounting Policy, Changes in Accounting Estimates and Errors”. In October 2007, the Securities Authority published Decision 3-17 regarding “Change in the Useful Life of Property, Plant and Equipment” (hereinafter – “the Authority’s Decision”). The Authority’s Decision applies to financial statements prepared in accordance with IFRS. In accordance with the Authority’s Decision, a change may be made in the estimated useful life of an asset based on the Company’s past experience with respect to such asset, in a case where solid and reliable evidence has been accumulated by the company that supports changing the estimate. Based on opinions received (mostly internal opinions and one opinion from an external independent valuer), the Group changed the estimate of the remaining useful life of the property, plant and equipment reflecting an extension of the depreciation period as part of the financial statements prepared in accordance with IFRS, commencing from January 1, 2007. On the basis of the experience accumulated by the Group, the cost of assets which have been fully depreciated and are still used for manufacturing are significant. Furthermore, the Group has reexamined the useful life of the property, plant and equipment as compared to the industry in which the Group operates the level of maintenance of the facilities and the functioning of the facilities over the years. According to this examination the remaining period of depreciation of the property, plant and equipment is lower than the balance of the anticipated useful life of the facilities. On the basis of this assessment, the Group decided to change the estimate of the economic useful life of the property, plant and equipment. The change in estimate is based on the experience accumulated by the Group and not on changes that have occurred in the assets or in the business environment. The previous estimate of the useful life of the Group’s property, plant and equipment was performed in 2002. The assessment was also based on the accumulated experience of the entity.



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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont'd) E. Summary of differences between Israeli GAAP and IFRS (cont’d) 3. Securitization Transactions The Company and certain Group subsidiaries entered into a securitization agreement according to which the companies sell part of their customer receivables to a foreign company that was incorporated for this purpose and that is not owned or controlled by the Group (hereinafter – “the Acquiring Company”). The Acquiring Company finances purchase of the receivables by means of a loan received from a financial entity unrelated to the Company that finances the loan from proceeds it receives from commercial paper it issues on the U.S. commercial paper market.

In accordance with Israeli GAAP, the securitization transaction executed by the Group met the conditions of its definition as a true sale, and therefore the customer receivables included in the securitization transaction were eliminated in the consolidated financial statements.

The securitization transaction executed by the Group does not comply with the conditions for elimination of financial assets provided in IAS 39 regarding “Financial Instruments – Recognition and Measurement” since the Group did not transfer all the risks and rewards deriving from the customer receivables. Therefore, upon the transition to IFRS, the customer receivables included in the securitization transaction were recorded in the consolidated balance sheet. And in accordance with IFRS the amounts received from the Purchasing Company in the framework of the securitization transaction are recorded as financial liabilities in the “short-term credit” category, and are not offset against the balance of customer receivables.

Accordingly, in the transition to the international standards, there was an increase in the balance of the customer receivables against an increase in the “short-term credit” category. 4. Financial Instruments The Group uses financial instruments, including derivative financial instruments, in order to reduce exposure to currency and interest risks.

According to the accepted practice in Israel, the conditions for applying hedge accounting are based mainly on economic criteria. In addition, under certain circumstances, derivative financial instruments used for hedging purposes are not recognized in the balance sheet and are not measured according to fair value.

International Standard IAS 39 provides that in order for a transaction in financial instruments to be considered a hedging transaction a number of conditions must be fulfilled, including conditions regarding designation of the instrument, compliance with strict documentation requirements and an anticipation of high hedge effectiveness at the beginning and during the entire hedge. Changes in the fair value of a financial instrument designated as a hedge of an asset or liability will be recognized as income or expense concurrently with recognizing the changes in the fair value of the hedged asset or liability that relate to the hedged risk. Furthermore, in accordance with IFRS, changes in the fair value of derivative financial instruments which do not comply with the required conditions for implementation of hedge accounting, are recorded immediately in the statement of income. The transactions the Group executes in financial instruments for purposes of reducing exposure, as noted above, do not meet the hedge conditions provided in the international standards and, therefore, upon the transition to IFRS the said financial instruments are measured according to fair value and the changes in their fair value are immediately recognized as income or expense.

Furthermore, loans granted to employees of the company and the subsidiaries, not in accordance with regular market conditions, were presented at fair value on the date of their grant as part of the transition to application of IFRS, and the difference was recognized as salary expenses over the loan period.



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Note 32 - Explanation with respect to the Effects of the Transition to IFRS (cont'd) E. Summary of differences between Israeli GAAP and IFRS (cont’d) 5. Minority Interest Pursuant to Israeli GAAP, the minority interest is presented in the balance sheet outside of the shareholders’ equity section, whereas under IFRS the minority interest is presented in the balance sheet as part of the equity section. In addition, in accordance with Israeli GAAP, the minority interest in the results of subsidiaries is included as part of the results of operations in the statement of income, whereas under IFRS the minority interest, as stated, is not part of the statement of income but, rather, it is presented as part of distribution of the income between the holders of the Company's equity and the minority shareholders. 6. Rights in Land Leased from the Israel Lands Administration and Mining Rights Based on the lease agreements with the Israel Lands Administration, lease rights in lands have been granted to subsidiaries for a period of 49 years (with an option to extend) that are scheduled to end in different periods. The said lease agreements do not provide the company rights to acquire the full rights in the real estate and, in some cases, the subsidiaries were not granted rights to extend the lease period. In accordance with Israeli GAAP, amounts paid in respect of lease rights in lands were presented within the Group’s property, plant and equipment and the amounts paid were amortized over the lease period. Pursuant to international standard IAS 17, regarding “Leases”, a lease of land that does not include an option to acquire the full rights in the real estate at the end of the lease period is to be classified as an operating lease and, accordingly, amounts paid in respect of leases from the Israel Lands Administration constitute prepaid lease fees. In accordance with IFRS reporting, the lease fees, as stated, are to be presented in “prepaid expenses in respect of operating leases” category and not in the “property, plant and equipment” category. In addition, the financial statements of a subsidiary included as part of the “property, plant and equipment” category, costs in respect of mining rights in Spain. A portion of these rights is valid up to 2037 whereas the balance is in effect up to 2067. As part of adjustment of the financial statements based on IFRS, the mining rights were classified from “property, plant and equipment” to the “intangible assets” category. 7. Deferred Taxes Pursuant to Israeli GAAP, deferred tax assets were classified as current assets or non-current assets according to the classification of the assets for which they were created. In accordance with IFRS, deferred tax assets are classified as non-current assets even if it is anticipated that they will be realized in the short term. Therefore, upon the transition to IFRS, short-term deferred taxes as at the Transition Date and as at December 31, 2007 were reclassified from the “other receivables” category in the “current assets” section to the “deferred tax assets” category in the “non-current assets” section, and short-term deferred taxes as at transition date and as at December 31, 2007 were reclassified from the item of other payables under current liabilities to the item of deferred tax liabilities under non-current liabilities.



134


E. Summary of differences between Israeli GAAP and IFRS (cont’d) 8. Reserve from Translation Differences of Foreign Operations The Company elected to implement the relief provision offered by IFRS 1 whereby the entire balance of the “reserve for translation differences of foreign operations” as at the Transition Date, may be reclassified to retained earnings. 9. Classification of Other Income/Expenses According to the accepted practice in Israel, gains and losses from sales of fixed assets, gains and losses from actuarial changes and expenses in respect of early retirement of employees were not presented in the consolidated financial statements as part of the operating income, but are presented under “other income/expenses”. Under IFRS, these items are to be included in the operating profit or gross profit, as relevant. 10. Concession Agreements A proportionately consolidated company has concession agreements with government entities under which the company constructed desalination facilities. Furthermore, in accordance with the agreements the company operates the desalination facilities and sells the desalinized water to the State in exchange for fixed and variable payments, as provided in the concession agreements. In accordance with Israeli GAAP (as from January 1, 2006) and in accordance with IFRS, as part of concession-based agreements, a financial asset reflecting the customer’s debt is recognized in the financial statements where the said financial asset bears interest. In accordance with Israeli GAAP, the interest on the financial asset is fixed based on use of the weighted average cost of capital (WACC) of the project. In addition, recognition of the financial asset starts from the date the facility was placed in service. Under IFRS (IFRIC 12), the interest rate on the financial asset was set based on the borrower’s risk free rate of interest plus an appropriate risk premium. Also, recognition of the financial asset started from the commencement date of construction of the facility. 11. Dividend Declared Subsequent to the Balance Sheet Date In accordance with Israeli GAAP, a dividend declared subsequent to the balance sheet date and up to the approval date of the financial statements was presented in the “shareholders’ equity” section as a reduction in the “retained earnings” and an increase in the category “dividend declared subsequent to the balance sheet date”.

Upon the transition to reporting under IFRS, the Company provides disclosure only of a dividend declared subsequent to the balance sheet date. 12. Measurement of equity financial instruments available for sale Unlike Israeli GAAP, in accordance with IFRS equity financial instruments classified as available for sale are measured at fair value with the changes in fair value during the period being included directly in shareholders’ equity and not in the statement of income.



135


E. Summary of differences between Israeli GAAP and IFRS (cont’d) 13. Business combinations In accordance with Israeli GAAP, a liability in respect of employee benefits was recognized following a structural change in a company consolidated for the first time, against goodwill, as at the date of acquisition. In accordance with IFRS, the Company recognized a liability for a structural change as a current expense and not as part of the cost allocation of a business combination, because the financial statements of the acquired company did not include, on the acquisition date, a liability in accordance with IAS 37 regarding provisions, contingent liabilities and contingent assets. 14. Embedded derivatives In accordance with Israeli GAAP embedded derivatives do not have to be separated from hybrid contracts. In accordance with IFRS, embedded derivatives are to be separated from hybrid instruments under certain circumstances and be presented at fair value on every balance sheet date, with the changes in fair value being recognized as income or expense for each reporting period. 15. Financing expenses and income In accordance with Israeli GAAP, financing expenses and income were presented on a net basis in the statement of income. In accordance with IFRS, financing expenses and financing income are presented separately in the statement of income.

Note 33 - Group Entities

Percentage shareholding

The Holding company The Subsidiary Shares conferring rights to profits

Voting shares

Israel Chemicals Ltd. Israel Chemicals Ltd. Dead Sea Works Ltd. 100.00 100.00 Israel Chemicals Ltd. Dead Sea Bromine Company Ltd. 100.00 100.00 Israel Chemicals Ltd. Rotem Amfert Negev Ltd. 100.00 100.00 Israel Chemicals Ltd. Dead Sea Periclase Ltd. 100.00 100.00 Israel Chemicals Ltd. Mifalei Tovala Ltd. 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. 50.00 50.00 Israel Chemicals Ltd. ICL Financing and Issuing Ltd. 100.00 100.00 Israel Chemicals Ltd. “Ferson” Chemicals Ltd. 100.00 100.00 Israel Chemicals Ltd. ICL Fine Chemicals Ltd. 100.00 100.00

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

Israel Chemicals Ltd. Dead Sea Magnesium Ltd. 65.00 66.67

Israel Chemicals Ltd. ICL Finance B.V. 100.00 100.00 Israel Chemicals Ltd. ICL Finance Inc., USA 100.00 100.00 Israel Chemicals Ltd. Twincap Försäkrings AB 100.00 100.00

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

Note 33 - Group Entities (cont'd)



Voting shares

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 8.83 8.80

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 SCS, 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 Iberpotash S.A. , Spain Iberpotash S.A. , Spain Trafico de Mercancias S.A.,Spain 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. 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

Note 33 - Group Entities (cont’d)



Voting shares

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 BV, The Netherlands ICL IP Terneuzen BV, The Netherlands 100.00 100.00


Société pour le traitement des sols et l’alimentation animale SA 100.00 100.00


Broomchemie Holding B.V., The Netherlands 100.00 100.00


Bromisa Industrial e Commercial Ltda, Brasil 90.95 90.95

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

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

ICL IP Europe BV, The Netherlands Sinobrom compounds Co. Ltd 75.00 75.00

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

ICL IP Europe BV, The Netherlands Eurobrom sucursal En Espana, Spain 100.00 100.00

ICL IP Terneuzen BV, The Netherlands

ICL IP Terneuzen BV, The Netherlands

Bromisa Industrial e Commercial Ltda, Brasil 9.05 9.05




Voting shares

Rotem Amfert Negev B.V.

Rotem Amfert Negev B.V. Eurocil Holding B.V., The Netherlands 0.00 49.90

ICL IP America Inc. U.S.A

ICL IP America Inc. U.S.A Hy-Yield Inc. ,U.S.A. 100.00 100.00

ICL IP America Inc. U.S.A Hy-Yield Bromine Inc. ,U.S.A. 80.00 80.00

ICL IP America Inc. U.S.A Rotem B.K.G LLC, USA 100.00 100.00 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 50.00 50.00

Rotem Amfert Negev Ltd. Eurocil Holding B.V., The Netherlands 100.00 50.10

Rotem Amfert Negev Ltd. Negev Star Ltd. 51.00 51.00 Rotem Amfert Negev Ltd. Edom Mining and Development Ltd. 100.00 100.00 Rotem Amfert Negev Ltd. Agro-Vant, Israel 25.25 25.25 Rotem Amfert Negev Ltd. Fertilizers and Chemicals Ltd. 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. 100.00 100.00




Voting shares

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 49.50 49.50

Industrial Chemical Equipment Ltd., Israel Industrial Chemical Equipment Ltd., Israel Agripo Managment services Ltd. 50.00 50.00

Agripo Managment services Ltd. Agripo Managment services Ltd. Agriphuzia, 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 BV , The Netherlands 100.00 100.00

ICL FE Potash BV , The Netherlands

ICL FE Potash BV , The Netherlands Florett S A, Luxembourg 85.00 85.00

ICL Brasil Ltda.

ICL Brasil Ltda. FosBrazil S.A 44.00 44.00

Pekafert B.V., The Netherlands

Pekafert B.V., The Netherlands Eurocil Luxembourg SA, Luxembourg 100.00 100.00




Voting shares

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 Penngar S.A.S France, 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

Penngar SAS, France Penngar SAS 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 Holdings 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

Speciality Technologies Europe B.V. The Netherlands

Speciality Technologies Europe B.V. The Netherlands

Scora S.A, France 100.00 100.00




Voting shares

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 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


BK Giulini Leather Chemistry Co. Ltd. Hong Kong, 100.00 100.00

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


ICL Performance Products Holding Inc., USA 100.00 100.00

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


Jiangyin Rhenoflex Performance Products Co., Ltd. Jiangyin, China 100.00 100.00


BKG Performance Products Jiangyin Co., Ltd. Jiangyin, China 100.00 100.00

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

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




Voting shares

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

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 100.00 100.00

Rotem Holding G.M.B.H. , Germany Supresta Verwaltungs GmbH, Germany 100.00 100.00

BK Giulini Leather Chemistry Co. Ltd. Hong Kong,

BK Giulini Leather Chemistry Co. Ltd. Hong Kong,

BK Giulini Leather Chemistry Ltd.,China 100.00 100.00

Flexotex GmbH , Germany

Flexotex GmbH , Germany Private Fleischeerschule Gmbh 100.00 100.00 Flexotex GmbH , Germany BKG Sup Finance GmbH 100.00 100.00 ICL Performance Products Finance Inc, US

ICL Performance Products Finance Inc, US Phosphorus Derivatives Inc 100.00 100.00

ICL Performance Products Finance Inc, US ICL Performance Products Inc, US 100.00 100.00

ICL Performance Products Finance Inc, US ICL IP GF Inc., USA 100.00 100.00

ICL Performance Products Inc, US

ICL Performance Products Inc, US ICL Performance Products LP 100.00 100.00

ICL Performance Products Inc, US ICL Performance Products LLC, US 100.00 100.00

ICL Performance Products Inc, US

ICL Performance Products Canada; Canada 100.00 100.00

ICL Performance Products Inc, US B.K. Giulini Corporation Simi Vally, U.S.A. 100.00 100.00




Voting shares

BKG Personal Care Co., Ltd.Hong Kong

BKG Personal Care Co., Ltd.Hong Kong BKG Personal Care Ltd. China 100.00 100.00

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. 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. 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




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

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




Voting shares

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

Amsterdam Fertilizers B.V., The Netherlands

Amsterdam Fertilizers Deutschland beschränkt haftende OHG, Germany 95.00 95.00


Finacil EEIG (European Economic Interest Grouping) 12.50 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


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

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

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 French Branch 100.00 100.00




Voting shares

Amsterdam Fertilizers Deutschland beschränkt haftende OHG, Germany


Stodiek Dunger GmbH ,Germany 100.00 100.00


ICL Holding Germany GmbH, Germany 100.00 100.00


Rotem Holding G.M.B.H. , Germany 90.00 90.00


ICL Fertilizers Deutschland GmbH. , Germany 100.00 100.00

ICL Holding Germany GmbH, Germany ICL Holding Germany GmbH, 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., USA 100.00 100.00 I.D.E. Technologies Ltd. IDE Canaries S.A., Spain 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




Voting shares

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 50.00 50.00

I.D.E. Technologies Ltd. OTID desalination partnership 50.00 50.00

I.D.E. Technologies Ltd. West Galile Desalination Company Ltd 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 S.A. DG.C.V 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 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

Ambient Technologies Inc., USA

Ambient Technologies Inc., USA

Larnaca Water Partners, Cyprus 5.00 5.00

Ambient Technologies Inc., USA IDE Technologies India Private Ltd. , India 1.00 1.00

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 Magnesuim Ltd. Magnesium Die Casting Ltd., 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

israel chemicals ltd. financial statements as at...

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