You are on page 1of 189

Israel Corporation Ltd.

Condensed Consolidated Interim


Financial Statements
As at September 30, 2014

The English financial statements are a translation for the convenience of the reader.
The binding version is the original in Hebrew

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(UNAUDITED)

Part A

Report of the Corporations Board Directors regarding the State of the Corporations
Affairs for the nine months ended September 30, 2014

Part B

Condensed Interim Consolidated Financial Statements as at September 30, 2014


(unaudited)

Part C

Condensed Interim Separate-Company Financial Statements of the Corporation as at


September 30, 2014 (unaudited)

Part D

Quarterly Report regarding Effectiveness of the Internal Control over the Financial
Reporting and Disclosure in accordance with Regulation 38C(a)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Contents

Israel Corporation Ltd.


Report of the Corporations Board of Directors
For the Nine Months Ended September 30, 2014
Israel Corporation Ltd. (hereinafter the Corporation) is a holding company engaged in the initiation,
promotion and development of businesses in and outside Israel. The Corporation, including through investee
companies, has investments in companies and ventures in various activity sectors, including foreign ventures
and international operations, where the focus is on entities having broad-scoped activities or with the potential
for reaching such dimensions, and with any eye toward acquiring significant holdings therein.
The Corporation is a public company and its shares are traded on the Tel-Aviv Stock Exchange.
The Corporation is involved in management of the Group companies, by means of directors serving on the
boards of directors of the Corporations subsidiary and related companies.
The Group operates through an array of investee companies, mainly in the chemicals, energy and power plants
sectors, and also has additional investments, including in the areas of shipping (a main area of activity up to
July 16, 2014) advanced technology, vehicles and clean energy. The Corporations headquarters provides
management services, through a wholly controlled subsidiary, and is also actively involved in the strategic
planning and business development of the Group companies.
On July 16, 2014, upon completion of the debt arrangement in ZIM, the Corporation ceased to control ZIM.
Commencing from the completion date of the debt arrangement, the Corporation holds 32% of ZIMs issued
share capital. See below the section Developments in the Investments Portfolio relating to ZIM.
The activities of the Group companies are affected by the global economic situation. The existing uncertainties
in the global market have had an impact on the results of some of the Group companies already in the period
covered by this report. The uncertainties and concern of a slowdown in the growth rate in China, create
uncertainty with respect to the operating results of the Group companies in the rest of the year.

This Directors Report is submitted as part of the interim financial statements for the period ended
September 30, 2014. The report was prepared in accordance with the Securities Law (Periodic and
Immediate Reports), 1970, and on the assumption that the reader is also in possession of the interim
financial statements for the period ended September 30, 2013, and the Periodic Report for 2013.
Examination of change in the Corporations holdings1
On June 25, 2013, the Corporations Board of Directors adopted the recommendation of the Corporations
Management and decided to examine a strategic change of the structure of the Corporations holdings
(hereinafter the Course of Action).

That stated in this Section and the Structural Change of the Corporations Holdings in the final format to be determined,
may not be realized, in whole or in part, or may be realized in a format different than that being examined, in a different
time range than that projected and in a manner different than that anticipated. The factors that may have an impact on
this are, among other things, non-fulfillment of various conditions, including receipt of approval of the Corporations
authorities and approvals from various regulatory and other authorities, the approval of which is required.
1

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In December 2013, the Law for Advancing Competition and Reducing Corporate Structural Concentration,
2013, was published. The Corporation is studying the Laws provisions and will examine the impact thereof on
the Corporation and its investee companies.

Israel Corporation Ltd.


Examination of change in the Corporations holdings (Cont.)
The Course of Action being considered and the manner of its implementation (as is presently being examined,
and that may be completed, if ultimately completed, in a different manner), is a split-up of the Corporations
holdings, such that the Corporations holdings in I.C. Power Ltd., Qoros Automotive Co. Ltd., ZIM Integrated
Shipping Services Ltd., I.C. Green Energy Ltd. and Tower Semiconductors Ltd., will be transferred to and held
by all of the Corporations shareholders through a new company, Kenon Holdings (hereinafter Kenon), the
shares of which will be distributed to them as a dividend in kind, whereas the Corporation will continue to
hold Israel Chemicals Ltd. (hereinafter ICL) and Oil Refineries Ltd. (hereinafter ORL) (hereinafter
the Structural Change of the Corporations Holdings Transaction). The Corporations debt to financing banks
and debenture holders will remain in the Corporation. In the future, the possibility of splitting off the
Corporations investment in ORL may also be considered. The Corporation which will hold ICL and ORL after
completion of the Structural Change of the Corporations Holdings Transaction, to the extent it is ultimately
completed, intends to refrain from making investments in new companies. The intention is that after completion
of the Structural Change of the Corporations Holdings Transaction, if completed, the shares of Israel
Corporation will continue to be traded on the Tel-Aviv Stock Exchange. As part of the Structural Change of the
Corporations Holdings Transaction, the Corporation will register Kenon for trading on a foreign stock
exchange and/or on the Tel-Aviv Stock Exchange. For additional details see the Corporations Immediate
Report dated June 26, 2013 (Reference No. 2013-01-073893).

Subsequent to the date of the report, on October 13, 2014, the Corporation deposited with the Securities
Authority a preliminary report, in accordance with Regulation 12(A) of the Transaction with a Controlling
Shareholder Regulations, in connection with the transaction for restructuring the Corporations holdings, which
was approved on October 12, 2014, by the Restructuring Committee appointed by the Corporations Board of
Directors, by the Corporations Audit Committee and by the Corporations Board of Directors, after a lengthy
examination period and further to a large number of meetings held. That stated above is taking into account,
among other things, the positon of the staff of the Securities Authority, whereby the Corporations controlling
shareholders are considered to be parties having a personal interest in the distribution transaction. After
receiving the reference of the Securities Authority to the preliminary report, the Corporation will file a
Transaction Report, as defined in the Transaction with a Controlling Shareholder Regulations (hereinafter
the Transaction Report). In the Transaction Report, note will also be made of the date of the General Meeting
to be convened in order to approve the proposed decisions that will be brought in the framework thereof and the
relevant dates in connection with the voting at the General Meeting.
The said approval includes execution of the distribution transaction, with all its components, the transactions,
adjustments and actions deriving therefrom, including an approval of:
(A) The Corporations undertaking in a separation agreement with its wholly-owned subsidiary, Kenon, which
includes (among other things): (i) transfer of the holdings in the companies being transferred to Kenon, as
stated above, and transfer of certain rights and liabilities in connection with the companies being transferred
from the Corporation to Kenon; (ii) execution of an investment in the capital of Kenon in the amount of $100
million (subject to a possible adjustment); and (iii) issuance of shares of Kenon to the Corporation in respect of
the assets and rights to be transferred from the Corporation to Kenon all as detailed in the Transaction Report;
and

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In the Corporations estimation, the Structural Change of the Corporations Holdings Transaction will be
completed, if completed, during the second half of 2014. The Corporation is taking the necessary actions and
steps in order to advance the transaction and to obtain the required approvals and/or consents, and in this
framework the Corporations Board of Directors set up a committee of the Board of Directors, the members of
which are Messrs. Michael Bricker (Chairman), Prof. Gideon Langholtz, Oded Dagani, Zahavit Cohen and Dan
Zusskind, who will accompany execution of the transaction. In addition, as part of examination of the business
transaction, the Corporation set up Kenon in Singapore, and the Corporation is taking action in contemplation
of registration of Kenon for trading on the New York Stock in the United States and in Tel-Aviv.

Israel Corporation Ltd.


Examination of change in the Corporations holdings (Cont.)
(B) The Corporations undertaking in a loan agreement whereby, among other things, the Corporation will
provide Kenon a credit framework in an aggregate amount of up to $200 million, and in the framework thereof
it will be provided that in a case of realization of guarantees that the Corporation will remain responsible for
with respect to Qoros, the amount for which the Corporation will be liable in a case of realization of these
guarantees will be considered a debt of Kenon to the Corporation and the provisions of the loan agreement will
apply to it, which certain changes; and
(C) Distribution to the Corporations shareholders as a dividend in-kind, according to that detailed in the
Transaction Report, of the shares of Kenon; including registration of these shares for trading, both on a stock
exchange in New York (which is a foreign stock exchange) and on the Tel-Aviv Stock Exchange, under Part E3
of the Securities Law, 1968, and reporting by Kenon in English and in accordance with the reporting format of
the foreign law after the registration for trading, as stated, and distribution of a dividend in cash.
And including execution of the other actions, adjustments and commitments involved with execution of the
distribution transaction, including all its stages, which included, completion and execution thereof, and the
other accompanying arrangements (including, but not only, in connection with liabilities relating to the
companies being transferred that will remain in the Corporation and agreements covering registration rights)
all based on the principles detailed in the Transaction Report.

Subsequent to the date of the report, on November 24, 2014, the Corporation gave notice of convening of
General Meetings of the holders of the debentures (Series 6-9) which the Corporation issued (hereinafter the
Debentures) for purpose of receiving the consent of the holders of the Debentures for the distribution
transaction and revision of the trust indenture of the relevant series a special decision for each series
separately. It is noted that the even though the trust indentures for all the Debenture series do not instructions
and/or conditions whereby the distribution transaction will constitute a violation thereof and/or will provide
grounds for calling the Debentures for immediate payment, the Corporation published this summons for
convention of Meetings, for the sake of good order and in order to receive the cooperation of the holders of the
Debentures and their consent for its execution.
It is noted that the decisions referred to above were made after the Corporations Board of Directors determined
that distribution of the dividend that is subject of the distribution transaction meets the distribution tests
provided in the Companies Law, 1999, where it is the intention of the Corporation that the amount of the final
dividend in the framework of the distribution transaction will be determined, subject to the approval of the
Board of Directors, on the basis of the Corporations financial statements as at September 30, 2014, as
approved by the Corporation. The Corporation will publish an Immediate Report at the time and subject to the
distribution decision, as stated.
It is noted that execution of the distribution transaction is subject to receipt of the approval and consents of
third parties (including regulatory approvals), as will be detailed in the Transaction Report, which had not yet
been received at the date of this report.
Further to an Immediate Report dated October 13, 2014, at its meeting held on November 24, 2014, the
Corporation's Board of Directors approved, after receiving the approval of the Audit Committee and the
Restructuring Committee, the distribution transaction. A General Meeting of the Corporation's shareholders
will be convened in order to approve the transaction.
3

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In addition, the said approval includes agreement of the Restructuring Committee (and/or a party authorized by
it), to take all the required actions in order to complete, perfect and execute the above-mentioned decisions
based on the principles detailed in the Transaction Report, including agreement to make all the adjustments
and/or changes with respect to the manner of executing the distribution transaction and/or regarding the assets
being transferred in the framework thereof as a derivative of, among other things, the demands that may be
raised by third parties, which do not have a significant impact on the distribution transaction taking into
account all its aspects.

Israel Corporation Ltd.


FINANCIAL POSITION
Upon completion of the debt arrangement in ZIM (see detail and the ZIM section below), on July 16, 2014, the
Corporation ceased to control ZIM and, therefore, in the third quarter of 2014 the Corporation recorded income
in the amount of about $796 million as a result of loss of control of ZIM and presentation of its investment in
ZIM as an associated company based on its fair value as derived from the amount of the Corporations
investment in ZIMs equity in accordance with the arrangement, and also recorded a loss of $187 million due to
the Corporations waiver of all of ZIMs debts.

The total sales for the nine-month and the three-month periods ended September 30, 2014 amounted to
about $5,859 million and about $1,960 million, respectively, compared with about $5,647 million and
about $1,757 million, respectively, for the corresponding periods ended September 30, 2013.

The total net income attributable to the owners of the Corporation for the nine-month and the
three-month periods ended September 30, 2014 amounted to about $637 million and about $719 million,
respectively, compared with a net loss about $214 million and about $84 million, respectively, in the
corresponding periods last year. The income for the nine-month and the three-month periods ended
September 30, 2014 include income from discontinued operations (after taxes), in the amounts of about
$479 million and about $609 million, respectively, compared a loss from discontinued operations (after
taxes), in the amounts of about $253 million and about $43 million, respectively, in the corresponding
periods last year.

The total assets, as at September 30, 2014, amounted to about $14,562 million, compared with about
$15,714 million, as at September 30, 2013, and compared with about $15,662 million, as at
December 31, 2013.

The current assets net of current liabilities, as at September 30, 2014 amounted to about $2,571 million,
compared with about $9 million as at September 30, 2013, and compared with a negative about $45
million, as at December 31, 2013.

As at September 30, 2013 and December 31, 2013, loans and debentures in ZIM were reclassified to
short-term due to non-compliance with financial covenants, in the amounts of about $1,508 million and
about $1,505 million, respectively.

The total non-current assets, as at September 30, 2014, amounted to about $9,060 million, compared with
about $10,474 million, as at September 30, 2013, and compared with about $10,526 million, as at
December 31, 2013.

The non-current liabilities, as at September 30, 2014, amounted to about $7,467 million, compared with
about $6,441 million, as at September 30, 2013, and compared with about $6,766 million, as at
December 31, 2013.

The total equity as at September 30, 2014 amounted to about $4,164 million and the total equity
attributable to the owners of the Corporation amounted to about $2,310 million, compared with equity of
$4,042 million and total equity attributable to the owners of the Corporation of $2,064 million as at
September 30, 2013, and compared with total equity of about $3,715 and total equity attributable to the
owners of the Corporation of about $1,685 million as at December 31, 2013.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The results of ZIMs operations up to the date of completion of the debt arrangement together with the gain as a
result of loss of control and the loss due to waiver of all of ZIMs debts, as stated above, were presented
separately in the statement of income in the category gain (loss) from discontinued operations (after taxes). In
addition, the comparative figures were retroactively adjusted in order to present the statement of income data of
the discontinued operations separately.

Israel Corporation Ltd.


CHANGES IN THE INVESTMENT PORTFOLIO
Qoros Auto Limited (hereinafter Qoros)
A.

In January 2014, the Corporation invested an additional amount of about $41 million in Qoros, as part of
the joint ventures business plan.

B.

On September 9, 2014, the Corporation transferred to Qoros the amount of about $81 million, by means
of convertible shareholders loans, and thus completed its obligation to invest in Qoros in accordance
with the business plan, except for an amount of about $4 million that has not yet been transferred. The
loan will be converted into shares of Qoros after receipt of the required approvals from the authorities in
China. If the above-mentioned approvals are not received, Qoros has committed to repay the loan to the
Corporation plus interest.

C.

On July 31, 2014, the Corporation provided an irrevocable guarantee for the benefit of Chery (hereinafter
the 2014 Guarantee), in respect of half of every amount that Chery will pay under a guarantee
provided by Chery to a company in a city in the district in which the production facility of Qoros is
located, which provided a guarantee for the said financing. The 2014 Guarantee is up to an aggregate
amount of RMB 750 million plus accompanying expenses and interest (in the aggregate amount of about
$155 million), on the basis of the terms Chery committed to (back-to-back) and subject to the terms of
the guarantee.

In addition, in order to secure additional financing taken out by Qoros, in the amount of about RMB 1.2
billion (about $200 million), the Corporation placed a lien on part of its shares in Qoros (including a
dividend deriving therefrom), based on its proportionate share in the capital of Qoros, in favor of the
Chinese bank that provided the said financing. At the same time, Cherys subsidiary (through which
Cherys rights in Qoros are held) also placed a lien on a corresponding part of its rights in Qoros. This
financing agreement of Qoros includes, among other things, liabilities, provisions regarding financial
covenants, events giving rise to immediate repayment and/or early repayment due to violations and/or
events provided in the agreement. The lien agreement includes, among other things, provisions regarding
the proportion of collaterals and addition of collaterals in circumstances, including addition of shares up
to pledging all of the shares of Quantum (a wholly-owned subsidiary through which the the
Corporations rights in Qoros are held) in Qoros or cash, provisions regarding the events the occurrence
of which will entitle the Chinese bank to realize the lien, certain representations and undertakings
(covenants) and provisions regarding recording and confirmation of the lien.
D.

On September 30, 2014, the Corporations Board of Directors approved a framework for provision of a
shareholders loan to Qoros, against release of the Corporation from the guarantees, as stated above,
which it provided in connection with financing Qoros took out, in the amount of about RMB 1,500
million (about $300 million) (hereinafter the Guarantees). As part of the said framework, the
Corporation will provide a shareholders loan to Qoros during the fourth quarter of 2014, in the amount
of about $60 million, against release of half of the Guarantees, and during the first quarter of 2015, the
Corporation will provide a shareholders loan to Qoros, in the amount of about $70 million, against
release of most of the balance of the Guarantees. The framework for provision of the loans and release of
the Guarantees, as stated, will also be made concurrently by Chery, which holds, by means of a
subsidiary, 50% of Qoros, with reference to the Guarantees it provided in connection with financing of
Qoros, as stated in Section C., above.

E.

Up to September 30, 2014, the Corporation invested in Qoros about $596 million. The balance of the
investment in Qoros as at September 30, 2014, was about $226 million.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

It is clarified that the said 2014 Guarantee is in addition to the guarantee provided by the Corporation in
connection with the said financing agreement from July 2012, up to an aggregate amount of RMB 750
million plus accompanying expenses and interest (in the aggregate amount of about $145 million).

Israel Corporation Ltd.


CHANGES IN THE INVESTMENT PORTFOLIO (Cont.)
Israel Chemicals Ltd. (hereinafter ICL)
On September 24, 2014, the Corporation entered into transactions with respect to shares of ICL, in the
aggregate amount of 78.4 million shares of ICL (constituting about 6.2% of ICLs issued share capital), and a
pricing process was completed in connection with sale of ICL shares pursuant to ICLs prospectus in the
United States. As part of the Corporations sale offer, about 36.2 million shares of ICL were sold to the public
in the United States and to institutional investors in Israel. The total net proceeds received by the Corporation in
respect of the sale are about US$243 million. The difference created between the proceeds, as stated, and the
carrying value of the shares in the Corporations books, in the amount of about $147 million, was recorded
directly to retained earnings since the Corporation has retained its control over ICL.
In addition, the Corporation entered into a financial transaction with entities from the Morgan Stanley and
Goldman Sachs groups (hereinafter the Financial Entities) (of the derivative variable prepaid forward on
the basis of an ISDA agreement) in connection with an additional 36.2 million shares of ICL (hereinafter
the Financial Transaction or the Transaction and the Transaction Shares, respectively), which were
transferred into the name of the Financial Entities, as detailed below. As stated, as part of the Financial
Transaction, the Financial Entities will provide the Corporation an initial amount that is essentially a loan, in
the amount of about $191 million. About 24 million shares out of the Transaction Shares were offered for sale
by means of underwriters in the prospectus published by ICL in New York.
Accordingly, as part of the tender offer and the Financial Transaction, as stated, a total of about 60.2 million
ICL shares were sold by the Financial Entities, at a price of about US$7 per ICL share. With respect to the said
sale, the Corporation signed an underwriting agreement with ICL and with U.S. underwriters (hereinafter the
Underwriting Agreement). In addition, as part of the Underwriting Agreement, the underwriters were granted
an option (Green Shoe) to acquire up to an additional 6 million shares, which may be exercised within 30 days.
Subsequent to the date of the report, on October 7, 2014, the underwriters exercised the said option at the price
in the public offering. The aggregate proceeds (net) received in respect of exercise of the option are about
US$40 million. The expected difference between the proceeds, as stated, and the carrying value of the shares in
the Corporations books, in the amount of about $24 million, will be recorded directly to retained earnings.

Commencing from September 24, 2014, ICLs shares are traded on the New York Stock Exchange (NYSE).
After execution of the said transactions (and after full exercise of the aforesaid option to the underwriters), the
rate of the Corporations in the issued capital of ICL is about 49.02% in equity and about 46.18% in the voting
rights.
With respect to the Financial Transaction, it is noted that on the dates provided in the financial closing, an
accounting will be made between the Corporation and the Financial Entities of their liabilities with reference to
the components of the Transaction all in accordance with the terms of the Financial Transaction, the
principles of which are set forth below:
1.

As part of the Financial Transaction, the Corporation will receive protection against a decline in the price
of an ICL share below an average of 90% of the price of an ICL share in the said tender offer of ICLs
shares on the New York Stock Exchange, and the Financial Entities will profit from an increase in the
price of an ICL share above an average of 130%.

2.

In addition, the Corporation transferred all the transaction shares into the name of the Financial Entities
for purposes of hedging the exposure from their standpoint, which will be permitted to execute any
transaction in the shares (the Financial Entities may buy and sell ICL shares from time to time during the
period of the Financial Transaction and in connection therewith or at the end of it).

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

It is noted that the Underwriting Agreement includes, among other things, representations and indemnification
arrangements between the underwriters, ICL and the Corporation. It is further noted that the Corporation made
a commitment to refrain from selling ICL shares during a period of 180 days, subject to the terms agreed to.

Israel Corporation Ltd.


CHANGES IN THE INVESTMENT PORTFOLIO (Cont.)
Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
3.

The financial closing is expected to take place in increments, on a number of closing dates that will occur
over the course of a period of between two years and five years from the execution date of the Financial
Transaction, and in an average period of three and a half years (it is noted that the period of the
Transaction and the finish dates may change, due to, among other things, an early closing of the
Transaction, as stated below, or as a result of changes and adjustments made during the life of the
Transaction). Subject to the terms of the Financial Transaction, the Corporation will have the possibility
of, among other things, choosing not to receive a return of the Transaction Shares and the Corporation
will be credited with their value against the payments due from the Corporation (physical settlement)
or to receive a return of the number shares and to repayment the amount of the loan, where if the
Corporation did not give notice of its choice, a physical settlement will be made. The Corporation is not
required to repay the loan in cash or to add collaterals or additional shares.

4.

It is clarified that the Corporation will have no voting rights in respect of the Transaction Shares. It is
further clarified that as part of the Financial Transaction there are arrangements whereby in a case of
distribution of a cash dividend by ICL during the period of the Financial Transaction, the Corporation
will be entitled to receive the amount of the dividend in respect of part of the Transaction Shares in
accordance with the calculation model of the Financial Entities.

5.

In the Financial Transaction provisions were made regarding, among other things, liabilities and
representations of the Corporation (including indemnity provisions and restrictions with respect to
execution of transactions in ICL shares during the closing period), and grounds were also provided in the
Financial Transaction for early closing of the Transaction, as well as violation events upon the
occurrence of which the Financial Entities will have the possibility, among other things, of closing the
Transaction early without returning the Transaction Shares. It is further noted that the terms of the
Transaction include provisions regarding making of changes in the structure of the Transaction and/or
adjustments by the Financial Entities during the Transaction period, including with reference to its
various components, the period and dates of the changes therein, among other things, as a result of
certain events in ICL or its shares and changes in the relevant market conditions.

The Corporation views its holdings in ICL as a strategic holding.

ZIM Integrated Shipping Services Ltd. (hereinafter ZIM)


On July 16, 2014, all the preconditions were fulfilled for execution of the Corporations part in ZIMs debt
arrangement and the arrangement was completed (including approval of the arrangements with the related ship
owners and the Corporations controlling shareholder as part of the arrangement with the components and
transactions related thereto as approved by the Corporations Board of Directors). The Corporations part in the
debt arrangement includes, among other things, the following:
A.

Execution of the Corporations investment in ZIMs capital, in the amount of $200 million,
Corporations such that after completion of the arrangement the Corporation will hold about 32% of
ZIMs issued capital.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The purpose of the Transaction is to increase the flexibility of the Corporations capital structure and to create
an infrastructure for reducing the Corporations net debt.

Israel Corporation Ltd.


CHANGES IN THE INVESTMENT PORTFOLIO (Cont.)
ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
B.

Waiver by the Corporation of all of ZIMs debts to it, amounting to, as at June 30, 2014, a total of about
$244 million (in nominal values). This debt is composed of the following: ZIMs debts to the
Corporation under ZIMs debt arrangement from 2009, which includes amounts deriving from reduction
of the lease fees as part of the 2009 debt arrangement that were assigned to the Corporation by the related
ship owners that leased ships to ZIM at that time; provision of a reserve amount pursuant to the 2009
debt arrangement and investment of amounts by the Corporation as part of the security net; a
subordinated debt of ZIM to the Corporation, in the amount of about NIS 45 million under a compromise
arrangement in connection with requests for approval to file a derivative claim and debt in respect of
management fees. To the extent a court decides that the said waiver of the NIS 45 million in connection
with the derivative claim is invalid, the validity of ZIMs debt under the said compromise arrangement
will be reinstated.

C.

The Corporations commitment to provide or to see to provision to ZIM of a credit framework, in the
amount of $50 million, for a period of two years from the date of completion of the arrangement at
market terms, against ZIMs customer receivables, in a coverage ratio of 2:1, and if necessary, to provide
support and/or backing to the party that will provide the credit pursuant to the said compromise
arrangement for purposes of securing its repayment.

On July 16, 2014, upon completion of the debt arrangement, as stated above, the Corporation ceased
controlling ZIM and, accordingly, in the third quarter of 2014, the Corporation recorded income, in the amount
of about $796 million, as a result of loss of control of ZIM and presentation of the investment in ZIM as an
associated company based on its fair value as derived from the amount of the Corporations investment in
ZIMs equity pursuant to the arrangement, and also recorded a loss, in the amount of about $187 million, due to
the Corporations waiver of all of ZIMs debts to it, as stated above. The resulting amount of the income
created, in the amount of about $609 million, as stated, was presented in the statement of income in the
category gain (loss) from discontinued operations (after taxes).

A.

Receipt of all the consents required for approval of the arrangement, including: approval of the General
Meeting of the shareholders of Israel Corporation and approval of the relevant parties to the arrangement,
as provided in the arrangement, including approval of the meetings of the holders of ZIMs debentures
for the arrangement.

B.

Update of the terms of the Special State Share such that it will not restrict transfer of ZIM shares below a
certain threshold and will not prevent completion of the arrangement pursuant to its terms due to the
restrictions of maintaining a minimum fleet of ships owned by ZIM as provided in the State Share.

Set forth below is a summary of the decisions in connection with fulfillment of this precondition:
(A)

The decision of the District Court:

On July 2, 2014, the decision of the District Court was received whereby it was provided, in brief, that the
Special State Share in ZIM shall be updated such that consent of the State for transfer of ZIM shares will be
required in a case where such transfer provides the owners a holding at the rate of 35% or more in ZIMs shares
(hereinafter the Transfer), instead of a threshold of 24% as it was up to now. In addition, it was provided
that in any case of a transfer of shares that gives the holder an interest of more than 24%, but which does not
exceed 35%, advance notice will be required to be given to the State, which will be permitted to notify that it
objects to the transfer, with 21 days, only on the grounds that the aforesaid transfer could constitute harm to the
States security or to any of its essential interests.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Execution of the Corporations part in the transaction was subject to fulfillment of the following preconditions:

Israel Corporation Ltd.


CHANGES IN THE INVESTMENT PORTFOLIO (Cont.)
ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
Set forth below is a summary of the decisions in connection with fulfillment of this precondition: (Cont.)
(A)

The decision of the District Court: (Cont.)

In such a case, the transfer will not be made unless there is court approval (hereinafter the Security
Grounds). It was further provided in this context that there will be no change in the provisions of the terms of
the Special State Share with reference to acquisition of control, that is, the States consent will also be required
in a case of acquisition of control in ZIM (hereinafter the Consent for Change in Control).
(B)

The compromise agreement:

On July 7, 2014, the State filed an appeal in the Supreme Court of the District Courts decision along with a
request to postpone execution. On July 14, 2014, the date set for the hearing and the Supreme Courts
recommendation, the State and ZIM reached a compromise agreement that received the force of a court
decision by the Supreme Court in connection with update of the terms of the Special State Share in ZIM, which
in the Corporations opinion, as detailed below, is not significantly different than the operative part of the
District Courts decision.

1.

The decision of the District Court is cancelled with the agreement of the parties.

2.

In place of the currently existing situation, whereby consent of the State is required for every transfer of
shares that gives the owner an interest of 24% or more in ZIMs share capital, the following arrangement
will apply (and ZIMs Articles of Association will be amended accordingly):
2.1

The States consent will be required for every transfer of shares that gives the owner an interest
of 35% or more in ZIMs share capital.

2.2

In addition, any transfer of shares that gives the owner an interest of more than 24% but not more
than 35% will require provision of advance notice to the State wherein full details of the proposed
transferor and the transferee, the rate of the shares that will be held by the transferee after the
transfer and relevant details with respect to the transaction, including voting agreements and
agreements for appointing directors (if any). To the extent the State believes that such a share
transfer poses possible harm to the States security or any of its vital interests or that it did not
receive the relevant information for purposes of formulating its decision, the State will be
permitted to give notice, within 30 days, that it objects to the transfer and it will be required to set
forth the reasons for its objection. In such a case, the party requesting the share transfer will be
permitted to take steps regarding this matter in the authorized court, which will hear and decide the
matter.

3.

If the State objects as stated in Section 2.2 above, clearly every party will reserve all of its contentions.

4.

In order to remove doubt, the provision whereby every holding or transfer of shares at a rate that gives
the holder thereof control over ZIM, is subject to the States consent, remains intact. Moreover, in order
to remove doubt, it is once again clarified that all the rest of the terms of the Special State Share will
remain unchanged.

The Corporation determined, taking into account legal advice it received, that the compromise agreement
significantly fulfills terms of the Transfer in connection with ZIMs shares that will be owned by the
Corporation after completion of the arrangement.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The language of the compromise agreement is as follows:

Israel Corporation Ltd.


RESULTS OF OPERATIONS
Upon completion of the debt arrangement, as stated above, on July 16, 2014, the Corporation ceased
controlling ZIM and, accordingly, in the third quarter of 2014, the Corporation recorded income, in the amount
of about $796 million, due loss of control of ZIM and presentation of its investment in ZIM as an associated
company based on its fair value as deriving from the Corporations investment in ZIMs equity in accordance
with the debt arrangement, net of the amount of about $187 million, resulting from waiver by the Corporation
of all of ZIMs debts.
The results of ZIMs operations up to the date of completion of the debt arrangement together with the gain as a
result of loss of control and the loss due to waiver of all of ZIMs debts, as stated above, were presented
separately in the statement of income in the category gain (loss) from discontinued operations (after taxes). In
addition, the comparative figures were retroactively adjusted in order to present the statement of income data of
the discontinued operations separately.
The Corporation finished the third quarter of 2014 (July September 2014) with income attributable to the
owners of the Corporation of about $719 million, compared with a loss of about $84 million in the
corresponding quarter last year. The income attributable to the owners of the Corporation in the third quarter
includes income from discontinued operations (after taxes), in the amount of about $609 million, compared
with a loss from discontinued operations (after taxes) of about $43 million, in the corresponding period last
year.
The Corporation finished the period of the report (January September 2014) with income attributable to the
owners of the Corporation of about $637 million, compared with a loss of about $214 million in the
corresponding period last year. The income attributable to the owners of the Corporation in the period of the
report includes income from discontinued operations (after taxes), in the amount of about $479 million,
compared with a loss from discontinued operations (after taxes) of about $253 million, in the corresponding
period last year.

ICL finished the third quarter of 2014 with income of about $180 million, compared with income of
about $78 million in the corresponding quarter last year.

Oil Refineries Ltd. (hereinafter ORL), which applies in its financial statements IFRS 9 (2010),
finished the third quarter of 2014 with income of about $15 million, compared with a loss of about $70
million in the corresponding quarter last year.
Without the impact of application of IFRS 9 (2010), which is not applied by the Corporation, ORL
finished the period of the report with income of about $7 million, compared with a loss of about $69
million in the corresponding quarter last year.

I.C. Power Ltd. finished the third quarter of the period of the report with income of about $130 million,
compared with income of about $15 million in the corresponding quarter last year.

ZIM finished the third quarter of 2014 with a loss of about $65 million, compared with a loss of about
$44 million in the corresponding quarter last year.

Tower Semiconductor Ltd. (hereinafter Tower) finished the third quarter of the period of the report
(in accordance with IFRS) with a loss of about $11 million, compared with income of about $31 million
in the corresponding quarter last year.

Qoros finished the third quarter of the period of the report with a loss of about $95 million, compared
with a loss of about $48 million in the corresponding period last year.

10

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Set forth below are the factors which impacted the results of operations, attributable to the owners of the
Group companies, for the period July September 2014:

Israel Corporation Ltd.


RESULTS OF OPERATIONS (Cont.)
Set forth below are the factors which impacted the results of operations, attributable to the owners of the
Group companies, for the period January September 2014:

ICL finished the period of the report with income of about $378 million, compared with income of about
$699 million in the corresponding period last year.

ORL which applies IFRS 9 (2010) in its financial statements, finished the period of the report with
income of about $23 million, compared with a loss of about $110 million in the corresponding period last
year.
Without the impact of application of IFRS 9 (2010), which is not applied by the Corporation, ORL
finished the period of the report with income of about $14 million, compared with a loss of about $116
million in the corresponding period last year.

I.C. Power finished the period of the report with income of about $189 million, compared with income of
about $46 million in the corresponding period last year.

ZIM finished the period of the report, with a loss of about $197 million, compared with a loss of about
$252 million in the corresponding period last year.

Tower finished the period of the report (in accordance with IFRS) with income of about $9 million,
compared with a loss of about $78 million in the corresponding period last year.

Qoros finished the period of the report with a loss of about $232 million, compared with a loss of about
$111 million in the corresponding period last year.

As an investment company, the Corporations financial results are affected by the results of its investee
companies.
Presented below is detail of the Corporations results:

ICL
ORL
I.C. Power
ZIM (after the debt arrangement based on 32%)
Tower
Better Place
Qoros
Other
Gain (loss) from discontinued operations (after taxes)*
Administrative, general and financing expenses of the
Corporations headquarters
Tax income (expenses) of the Corporations headquarters

94
3
131
(17)
(3)

(48)
(7)
609

41
(26)
20

(10)

(24)
(4)
(43)

198
5
206
(17)

(116)
(18)
479

366
(43)
57

(24)
**(48)
(56)
(14)
(253)

(35)
(8)
719

(61)
23
(84)

(89)
(11)
637

(134)
(65)
(214)

* Commencing from July 16, 2014, ZIMs results up to the completion date of the debt arrangement together with the
gain from loss of control and the loss from waiver of all of ZIMs debts, as stated above, are presented separately in
the statement of income in the category gain (loss) from discontinued operations (after taxes). In addition, the
comparative figures have adjusted retroactively in order to present the income (loss) from the discontinued operations
separately.
** Includes a provision for decline in value of the investment in Better Place, in the amount of about $29 million,
recorded by Israel Corporation.
11

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Three months ended


Nine months ended
September 30
September 30
2014
2013
2014
2013
$ Millions

Israel Corporation Ltd.


Following is a brief summary of the financial results of the Corporation and the principal investees:
ISRAEL CHEMICALS LTD.
Results of operations for the period JulySeptember 2014
ICL finished the third quarter of 2014 with net income of about $180 million, compared with net income of
about $78 million in the corresponding quarter last year an increase of about $102 million.
The sales of the ICL group in the third quarter amounted to about $1,559 million, compared with $1,445
million in the corresponding period last year. This increase stems mainly from an increase in the quantities sold,
including due to the first-time consolidation of companies acquired during the period of the report, which led to
an increase in sales of about $186 million, and from the impact of the change in the rate of exchange, in the
amount of about $4 million. This increase was partly offset by a decrease in the selling prices, which led to a
decrease in the sales of about $76 million.
The sales' breakdown indicates an increase in sales in Asia, mainly as a result of an increase in the quantities of
potash sold to China and India, an increase in sales in North America, as a result of an increase in the quantities
of potash sold and an increase in the quantities sold of bromine-based and phosphorous-based flame retardants,
bromine-based clear brine fluids, bromine-based and chlorine-based biocides for treating water and magnesium
chloride, as well as an increase in sales in Europe, stemming from an increase in sales in the Performance
Products segment, mainly as a result of acquisition of Hagesud and an increase in the sales of P2S5. On the
other hand, there was a decline in sales in South America stemming mainly from a decline in the quantities of
potash sold due to a lack of availability of granulated potash and a drop in its price.

The gross profit amounted to $577 million, compared with gross profit of $506 million in the corresponding
period last year, an increase of about $71 million. The gross profit margin as a percentage of sales was
about 37%, compared with about 35% in the corresponding period last year.
The selling and marketing expenses amounted to about $216 million, compared with about $197 million in the
corresponding period last year.
The operating income amounted to approximately $262 million, an increase of about $40 million compared
with the corresponding period last year. The rate of the operating income out of the total sales was
about 16.8%, compared with about 15.4% in the corresponding period last year.

12

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The cost of sales in the third quarter amounted to about $982 million compared with about $939 million in the
corresponding period last year an increase of about $43 million. The increase in the cost of sales derives,
primarily, from an increase in the quantities produced and sold, including due to the first-time consolidation of
companies acquired during the period of the report, in the amount of about $73 million, the impact of the
change in currency exchange rate, in the amount of about $12 million, an increase in the royalties expenses in
the current period as a result of the arbitration decision, in the amount of about $2 million and an increase in the
cost of raw materials due to the impact of the strike in Rotem, in the amount of about $3 million. This increase
was partly offset by a decline in the raw-material and energy prices, in the amount of about $16 million, and a
decrease in other operating expenses, in the amount of about $31 million, which stems mainly from a decrease
in the salaries' expenses, including as a result of the retirement of Rotem employees.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Results of operations for the period JulySeptember 2014 (Cont.)
The net financing expenses in the third quarter amounted to about $21 million, compared with net financing
expenses of about $3 million in the corresponding period last year, an increase of about $18 million compared
with the corresponding period last year. The increase in the financing expenses in the quarter compared with
the corresponding period last year stems mainly from an increase in the interest expenses, in the amount of
about $6 million, expenses in the period due to a change in the fair value of financial derivatives and
revaluation of net, short-term financial liabilities, in the amount of about $22 million, compared with revenues
of about $20 million in the corresponding period last year, and an increase in the interest expenses in respect of
provisions for employee benefits, in the amount of about $1 million. On the other hand, there was a decrease in
the financing expenses due to the impact of the exchange rates on provisions for employee benefits, in the
amount of about $32 million, as a result of devaluation of the shekel against the dollar at the rate of about 7.5%,
compared with an appreciation at the rate of about 2.2% in the corresponding period last year.
The tax expenses in the quarter amounted to about $67 million, compared with tax expenses of about $152
million in the corresponding quarter last year. The tax rate on the pre-tax income is about 27.1%, compared
with about 66.0% in the corresponding period last year. In the corresponding period last year non-recurring tax
expenses were recognized in connection with the release of trapped earnings, in the amount of about $107
million. The rate of the tax expenses in the period of the report derives mainly from the change in the exchange
rate of the dollar against the shekel, which caused an increase in the tax rate of the companies operating in
Israel, the source of which is differences in respect of the measurement basis along with an increase in the
Companies Tax rate in Israel to 26.5%.
Results of operations for the period JanuarySeptember 2014

ICL's sales in the period of the report amounted to about $4,708 million, compared with $4,855 million in the
corresponding period last year. This decrease stems mainly from a decrease in the selling prices, which led to a
decrease in the sales of about $456 million. This decrease was partly offset by an increase in the quantities sold,
including the first-time consolidation of companies acquired during the period of the report, which contributed
about $246 million, and from the impact of the change in the currency exchange rates, in the amount of about
$63 million.
The sales' breakdown indicates an increase in sales in North America, primarily as a result of an increase in the
quantities of potash sold, along with an increase in bromine-based and phosphorous-based flame retardants,
bromine-based clear brine fluids, bromine-based and chlorine-based biocides for treatment of water, and
magnesium chloride, as well as an increase in sales in Europe deriving from an increase in sales in the
Performance Products segment, mainly as a result of the acquisition of Hagesued and an increase in the sales of
P2S5. On the other hand, there was a decrease in the sales in Asia mainly due to a decrease in the prices of
potash and a decrease in the quantities of potash sold in Asia, except for China. The decline in South America
stems mainly from a decline in the quantities sold and selling prices of fertilizers and potash sold, compared
with the corresponding period last year. The decline in the fertilizer quantities in South America, derives,
mainly, from the impact of the strike in Rotem.

13

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ICL finished the period of the report with net income of about $378 million, compared with net income of
about $699 million in the corresponding period last year a decrease of about $321 million. The net income
after eliminating certain impacts, mainly a provision in respect of prior periods resulting from the arbitration
decision regarding the royalties matter, costs in connection with the strike at Rotem, and assessment
agreements of ICL subsidiaries in Europe, amounted to about $581 million a decrease of about $236 million
compared with the corresponding period last year.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Results of operations for the period JanuarySeptember 2014 (Cont.)
The cost of sales in the period of the report amounted to about $3,025 million compared with about $2,972
million in the corresponding period last year an increase of about $53 million. The increase in the cost of
sales derives, primarily, from an increase in the quantities manufactured and sold, including the first-time
consolidation of companies acquired during the period of the report, in the amount of about $111 million, the
impact of the change in the currency exchange rates, in the amount of about $76 million, from the impact of the
strike in Rotem, in the amount of about $ 26 million and an increase in the royalties expense in the current
period due to the arbitration decision regarding this matter, in the amount of about $8 million. This increase
was partly offset by a decline in the raw-material and energy prices, in the amount of about $72 million, a
decrease in royalties, mainly due to the drop in sales, in the amount of about $39 million, and a decrease in
other operating expenses, in the amount of about $57 million, stemming mostly from the decrease in the
salaries' expenses, including the impact of retirement of Rotem employees.
The gross profit amounted to $1,683 million, compared with gross profit of $1,883 million in the corresponding
period last year, a decrease of about $200 million. The gross profit margin as a percentage of sales was
about 36%, compared with about 39% in the corresponding period last year.
The selling and marketing expenses amounted to about $645 million, compared with about $630 million in the
corresponding period last year.
The other expenses, net, amounted to about $162 million an increase of about $156 million compared with
the corresponding period last year. The increase in the other expenses stems mainly from a non-recurring
expense, in the amount of about $149 million (before interest expenses and the tax impact) relating to prior
periods, due to the arbitration decision regarding the royalties' issue. For additional details see Note 5.B to the
financial statements.

The net financing expenses amounted to about $90 million, compared with net financing expenses of about $21
million in the corresponding period last year. The financing expenses include non-recurring expenses, in the
amount of about $32 million, mainly in connection with the arbitration decision dated May 19, 2014 regarding
the royalties issue (for additional details see Note 5.B to the financial statements), where after elimination of
non-recurring expenses, the financing expenses amounted to about $58 million an increase of about $37
million, compared with the corresponding period last year. The increase derives mainly from an increase in the
interest expenses, in the amount of about $15 million, expenses in the period due to a change in the fair value of
financial derivatives and revaluation of net short-term financial liabilities, in the amount of about $11 million,
compared with revenues of about $42 million in the corresponding period last year, and an increase in the
interest expenses in respect of provisions for employee benefits, in the amount of about $3 million. On the other
hand, there was a decrease in the financing expenses in respect of the impact of exchange rate differences on
provisions for employee benefits, in the amount of about $37 million, as a result of devaluation of the shekel
against the dollar, at the rate of about 6.5%, compared with an appreciation, at the rate of about 5.3%, in the
corresponding period last year.

14

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The operating income amounted to approximately $583 million, a decrease of about $395 million compared
with the corresponding period last year. The rate of the operating income out of the total sales was about 12%,
compared with about 20% in the corresponding period last year. The operating income after eliminating
non-recurring impacts, primarily a provision in respect of prior periods stemming from the arbitration decision
regarding the royalties and costs in connection with the strike at Rotem, amounted to about $ 757 million, a
decrease of $ 221 million compared with the corresponding period last year. The rate of the adjusted operating
income out of the total sales is about 16%, compared with about 20% in the corresponding period last year.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Results of operations for the period JanuarySeptember 2014 (Cont.)
The tax expenses amounted to about $131 million, compared with tax expenses of about $275 million in the
corresponding period last year. The tax rate on the pre-tax income is about 25.5% compared to about 28.2% last
year. The high rate of the tax expenses in the period of the report stems, mainly, from a non-recurring tax
expense as a result of an assessment agreement in subsidiaries in Europe, after offsetting a tax income derived
from an additional deduction for tax purposes in respect of investments made by a subsidiary in Europe, in the
amount of about $27 million, a change in the shekel/dollar exchange rate that gave rise to an increase in the tax
rate of the companies operating in Israel the source of which is differences in the measurement basis, and an
increase in the Companies Tax rate in Israel to 26.5%. On the other hand, the difference in the tax rates in
connection with recognition of a deferred tax asset with respect to the provision for the arbitration reduced the
tax rate. In the corresponding period last year, the tax expenses included non-recurring tax expenses recognized
in respect of the release of trapped earnings, in the amount of about $107 million.
Forward-Looking Statements ICL Section

Forward-looking statements appear in a number of places in the ICL Section and include, but are not limited to,
statements regarding ICLs intent, belief or current expectations. Forward-looking statements are based on
ICLs managements beliefs and assumptions and on information currently available to management. Such
statements are subject to risks and uncertainties, and actual results may differ materially from those expressed
or implied in the forward-looking statements due to various factors, including, but not limited to, those noted in
the Risk Factors in the prospectus (F-1). These risks and uncertainties include factors relating to:
Loss or impairment of business licenses or mining permits or concessions;
Natural disasters;
Failure to raise the water level in evaporation Pond 5 in the Dead Sea;
Accidents or disruptions at our seaport shipping facilities or regulatory restrictions affecting our ability to
export our products overseas;
Labor disputes, slowdowns and strikes involving our employees;
Currency rate fluctuations;
Rising interest rates;
General market, political or economic conditions in the countries in which we operate;
Pension and health insurance liabilities;
Price increases or shortages with respect to our principal raw materials;
Volatility of supply and demand and the impact of competition;
Changes to laws or regulations (including environmental protection and safety and tax laws or regulations),
or the application or interpretation of such laws or regulations;
Government examinations or investigations;
The difference between actual reserves and our reserve estimates;
Failure to integrate or realize expected benefits from acquisitions and joint ventures;
Volatility or crises in the financial markets;
Cyclicality of our businesses;
Changes in demand for our fertilizer products due to a decline in agricultural product prices, lack of
available credit, weather conditions, government policies or other factors beyond our control;
Decreases in demand for bromine-based products and other industrial products;
Litigation, arbitration and regulatory proceedings;
War or acts of terror; and
Other risk factors discussed under Risk factors in the F-1.
15

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The ICL Section contains statements that constitute forward-looking statements, many of which can be
identified by the use of forward-looking words such as anticipate, believe, could, expect, should,
plan, intend, estimate and potential, among others.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Forward-Looking Statements ICL Section (Cont.)
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to
update them in light of new information or future developments or to release publicly any revisions to these
statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
The business environment
ICL is a leading specialty minerals company that operates a unique, integrated business model. ICL extracts
and processes raw materials and utilizes sophisticated processing and product formulation technologies to add
value to customers in three attractive end-markets: agriculture, food and engineered materials. These three end
markets constitute over 90% of ICLs present revenues. ICL operates in three operating segments Fertilizers
(wherein production processes are executed with respect to production of raw materials and production and
marketing of potash, phosphate and specialty fertilizers), Industrial Products (mainly production of bromine
from the Dead Sea and production and marketing of bromine and phosphorous compounds for the electronics,
construction, oil and gas and vehicle industries), and Performance Products (mainly production, marketing and
sale of a wide range of phosphate-based downstream products as food additives and intermediary materials for
industry).
ICLs principal assets include: access to one of the worlds richest, longest-life and lowest-cost sources of
potash and bromine (the Dead Sea); access to potash mines in the United Kingdom and Spain; bromine
compounds processing facilities located in Israel, the Netherlands and China; and a unique integrated phosphate
value chain, from phosphate rock mines in the Negev Desert in Israel to our value-added products in Israel,
Europe, US, Brazil and China.

ICLs production facilities are based in Israel and throughout the world. ICLs operations outside of Israel are
primarily in the production of products that are complimentary to or are based on ICLs operations in Israel or
related fields. The activities of ICLs facilities are integrated with one another to a significant extent, in terms
of both supply of raw materials and such that one facility frequently utilizes the by-products of another facility
to produce additional products. This synergistic value chain allows us to efficiently convert raw materials into
downstream high value-added products in a cost-efficient manner.
About 5% of ICLs total sales are made in Israel. Regarding these sales, for some specific products, ICL and
some of the ICL companies have been declared a monopoly in Israel.
About 53% of ICLs sales' revenues were derived from production activities taking place outside of Israel.
About 9% of the cost of sales of the products produced outside of Israel is attributable to raw materials supplied
from Israel.
ICL is examining various possibilities in connection with activities that do not constitute the core businesses
and is preparing to divest activities that are not synergetic with the Company's activities. Accordingly, on
October 26, 2014, ICL and its subsidiary, BK Giulini GmbH entered into an agreement with Kurita Water
Industries Ltd. (Kurita) for sale of business units in ICLs Performance Products segment, which operate in a
number of areas: solutions for treatment of water and chemicals for paper, as well as aluminum compounds.
The said business units are primarily located in Germany, and in other locations elsewhere in Europe and in
China. The acquiring company is a leading Japanese company active in the water treatment field, and its shares
are traded on the Tokyo Stock Exchange. The transaction will be for a consideration of approximately 250
million.
16

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ICL has an extensive global logistics and distribution network with operations in over 30 countries and a
focused and highly experienced group of technical experts developing production processes, new applications,
formulations and products for our three key end markets agriculture, food and engineered materials.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
The business environment (Cont.)
Closing of the transaction is expected to take place towards the end of 2014, subject to the completion of
certain preconditions set forth in the sale agreement, including receipt of approvals from competent authorities,
as well as approval of a minimum number of employees for transfer to employment by the purchasing
company. In addition, the Company is examining growth possibilities as part of the implementation of its
strategic plan by means of participation in and acquisition of activities that are in line with the Company's value
chain starting from specialty minerals and running up to the end markets. On September 12, 2014, the
Company disclosed that it is carrying on negotiations with a third party in connection with a joint venture
relating to existing and future activities involving the mining and sale of phosphate rock in developing markets,
as well as production, marketing and distribution of phosphate-rock products in these markets. As at the date of
the report, these negotiations had not yet ripened into in-principle commercial agreements, and the parties had
not reached agreement regarding the structure of the transaction and the consideration to be paid by the
Company. Accordingly, binding agreements have not yet been signed, and there is no certainty that these
negotiations will ultimately mature into binding agreements and/or that a transaction as referred to will be
completed. To the extent the negotiations do finally ripen into binding agreements, the Company estimates the
consideration at several hundred million dollars.

There is an interdependency between the amount of available arable land, the amount of food needed for the
population, and the use of fertilizers. The natural population growth, change in food consumption habits (a shift
to richer nutrition, largely based on animal protein, which increases grain consumption) resulting from the
rising standard of living, mainly in the developing countries, and environmental-quality considerations along
with the aspiration of western countries to reduce dependence on oil imports, which have strengthened the trend
of shifting to production of fuel from agricultural products (bio-fuels), affect the increase in global consumption
of grains (cereals, rice, soya, corn, etc.). These trends already led to significantly lower grain inventories a few
years ago, and consequently, higher prices of agricultural produce, increased planting of grain crops worldwide,
and also a trend of higher yield per unit of agricultural land, mainly by increased application of fertilizers. One
of the main considerations with respect to the purchase of fertilizers by the farmers is the selling price of the
agricultural produce. Following the stability in the first half of 2014, prices of crop commodities in the third
quarter of the year dropped sharply in response to expectations for a record harvest as a result of an increase in
the planted areas along with favorable weather conditions in the primary growing areas. In October 2014, the
grain prices dropped to their lowest level in the past four years.
Based on the monthly report published by the US Department of Agriculture (USDA) in October 2014, an
increase is expected in the grain stock-to-use ratio, to a level of 21.47% at the end of the 2014/2015 agricultural
year, compared with 20.97% at the end of the 2013/2014 agricultural year, and 19.91% in the 2012/2013
agricultural year. Most of the increase in the 2014/2015 agricultural year stems mainly from an increase in the
inventory of corn. In addition, the inventory of soybeans, which is not included in the grains' inventory index,
is also rising.
Production of ethanol from corn in the U.S. in 2013 was somewhat higher than in the prior year and an
additional increase is expected in 2014 as well. Nonetheless, the sharp rise that had continued up to 2010 came
to a halt due to moderation of the fuel prices, the decision not to increase the percentage of ethanol in gasoline
(the blending rate) from 10% to 15%, and the decline in fuel consumption in the United States.

17

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Regarding the plan for efficiency and integration of the global processes into the Company, as well as the plan
for reducing the production cost of ICL's specialty minerals pursuant to the strategic plan, ICL expects that
these activities, the execution of which the Company has already commenced, will give rise to savings, in 2016
(year end run-rate), in the amount of about $350 million, in annual terms, compared with 2013.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
The business environment (Cont.)
As part of framework agreements with customers in China, in JanuaryFebruary 2014 ICL Fertilizers signed
contracts for the supply of a comparable amount of potash in the first half of 2014 as compared to contracts
signed with its customers for the first half of 2013. The contracts were signed at a price of $305 per ton CFR,
constituting a price reduction of about $95 per ton CFR compared with the contracts signed in 2013. In the
third quarter, the potash shipments to the Company's customers in China continued at the current sale prices
(spot prices). The imports into China in the first nine months of 2014 were 5.6 million tons, an increase of
about 17.4% compared with the corresponding period last year. In the Company's estimation, the trend of
increasing imports in 2015 is expected to continue to grow due to an increase in consumption, as well as
logistics problems of the local producers.
In the Indian market, a change in the subsidy policies for fertilizers and the devaluation of the local currency
against the U.S dollar, led to a significant increase in the retail price of potash and phosphates for the farmer
and a drop in demand. Imports of potash into India fell from 4.5 million tons in 2011 to 3.4 million tons in 2012
and to 3.1 million tons in 2013. In the first quarter of 2014, the potash manufacturers signed contracts for the
agricultural year beginning on April 1, 2014 and ending on March 31, 2015 at a price that reflects a decline of
$105 per ton compared with the price in the annual supply contracts in India which were signed in the
beginning of 2013. Even though there were no changes in the market conditions, there was a recovery in the
consumption of potash in the first nine months of 2014, and the imports into India increased by 43% compared
with the corresponding period last year and totaled about 3.07 million tons. The demand for potash increased
mainly as a result of an understanding on the part of the farmers that under-fertilization in the past two years
unfavorably impacted the crop production. In April and up to the date of ICLs report, ICL also agreed with its
customers in India to supply potash for the 2014/2015 year in an aggregate quantity of about 825 thousand tons
(including optional quantities). The selling price agreed to is about the same as the price set in transactions with
other producers supplying potash to the Indian market. In the Company's estimation, the improvement in the
demand for potash in India is expected to continue in 2015 as the farmers have adapted to the higher level of
prices, which is expected to support the increased demand in the upcoming years as well.

The recovery of the demand for phosphate fertilizers that started at the end of 2013 and the resulting price
recovery came to a halt in the beginning of the fourth quarter of 2014. The end of the fertilizing season in India
coupled with a weaker demand in South America, where the fertilizing season has not yet commenced, are
exerting pressure on the fertilizer prices. In addition, the high ammonia prices, which unfavorably impact the
profits of the fertilizer producers, caused the U.S. fertilizer producer Mosaic, to announce a curtailment of the
production. In addition OCP, the Moroccan phosphate producer, has also given notice of its intention to
concentrate on production of phosphoric acid and TSP (phosphoric fertilizers that do not contain ammonia).
The producers of the phosphate fertilizers are awaiting the start of the fertilizing season in Brazil, which
together with the conclusion of the period of tax preferences on exports from China should support the trend of
increasing demand for phosphate fertilizers.

18

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The strong demand for potash in Brazil continued in the first nine months of 2014, where the total imports in
the first nine months of 2014 were about 6.9 million tons reflecting an increase of about 16% compared with
the corresponding period last year. Nonetheless, imports into Brazil in the fourth quarter of the year are
expected to be lower than they were in prior quarters due to the seasonal factor along with the sharp drop in the
grain prices, as noted.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
The business environment (Cont.)
The operations of ICL-IP are largely affected by the level of activities in the electronics, construction,
automotive, oil drilling, furniture, pharmaceuticals, agriculture, textile and water treatment markets. Pressure is
increasingly being exerted by green organizations in the area of environmental protection to reduce the use of
bromine-based flame retardants. On the other hand, additional and new uses for bromine and its related
compounds are being developed, along with regulation in additional countries leading to increased use of
bromine and bromine compounds. The economic slowdown in the world over the past several years, triggered a
slowdown in the demand for electronic products and in the construction area. This trend, along with the decline
in sales of personal computers due to increased use of tablets and smart phones, led to a decline in the demand
for flame retardants, mainly bromine-based, in these markets. Nonetheless, during the period of the report, and
particularly in the third quarter of 2014, there was a certain improvement in demand for bromine-based flame
retardants for some of the uses in the electronics sector. Subsequent to the period of the report, there has been a
trend of stability in demand and mild pressure on prices. In the area of bromine-based flame retardants in the
market for printed circuits, there was no change in the demand in 2014. In the period of the report, the
elemental bromine prices were relatively stable in the United States, whereas there were price declines in
Europe, China and India.

In 2013, the market for biocides used in swimming pools was impacted by falling prices as a result competitors
strategy to increase their market share. In the beginning of 2013, the U.S. Department of Commerce decided to
impose an anti-dumping tax on manufacturers of chlorine-based biocides from China, at the rate of about 30%
38%. In the beginning of 2014, the anti-dumping tax on the Chinese was increased by a further 20%, and at the
beginning of April 2014 the authorities in the United States gave notice of imposition of anti-dumping taxes on
the Japanese manufacturers, at the rate of 59%109%, However, in the beginning of October 2014, taxation of
the Japanese producers in 2015 was cancelled. The Company estimates that the anti-dumping tax on the biocide
prices in the U.S. market will permit the Company a better position in the market, even though this impact had
not yet been expressed due to the fact that most of the transactions in this market are based on annual contracts.
In the field of bromine-based biocides used for water treatment, the trend of an increase in demand continued in
the period of the report. After stability in 2013, the market for in-organic bromides for neutralizing mercury
(Merquel products) showed an increase in demand in the period of the report due to the cold weather
conditions and high gas prices. In addition, the increase also stems from the entry of new customers as part of
the preparations for the entry into effect of a new regulatory system in the United States which requires the
reduction of mercury emissions in 2015. The technological development that permits production of shale gas
and application thereof in the United States creates additional business opportunities for the Company, and
among other things, an increase in demand for bromine-based biocides.
ICL-PP is affected by the global economic situation, competition in the target markets, volatility of prices in the
fertilizers' market, which affect the prices of ICL-PPs principal raw materials and availability of the raw
materials, as well as by fluctuations in the energy prices. These market conditions create a competitive market
for ICL-PP's products.

19

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Despite the decline in the price of fuel in the period of the report, demand for clear brine fluids for oil and gas
drilling, continued to be strong in the period of the report, due to a relatively high number of drillings in the
Gulf of Mexico.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
The business environment (Cont.)
In addition, some of ICL-PP's target markets are characterized by a seasonal factor, mainly in the area of
wildfire flame retardants (fire safety). In the third quarter, the demand for the Company's downstream
phosphate-based products in the European and U.S. markets declined compared with the corresponding period
last year mainly as a result of competition with the exporters of phosphoric acid to the United States, along with
a decline in the demand for phosphate salt deriving from the continuing economic slowdown in Europe.
Furthermore, the behavior of the competitors who implemented a sales' strategy that gives preference to market
share over prices, continued to have an impact in the third quarter. Nonetheless, in the period of the report,
there was a moderate increase in prices and quantities sold of the P2S5 products as well as in the area of
products for the prevention and retarding of fires, as a result of multi-sector seasonal demand with respect to the
said products for the prevention and retarding of fires in the western part of the United States and in Canada
compared with a low level of activities in this area in the corresponding quarter last year, and as a result of the
acquisition of Auxquimia in Spain and the acquisition of the German company Hagesued, which also
contributed to the segment's results. Reduction of the impact of the crisis in the Ukraine during the third quarter
restored the demand in the Commonwealth of Independent States (CIS) to a normal level. The fourth quarter is
usually weaker in the phosphate-based downstream product lines due to, among other things, performance of
annual maintenance work at the customers' sites, and customer preference to end the year with low inventory
levels.
Marine transportation expenses amount to about 7% of ICLs total operating costs in the period of the report.
The marine transportation expenses of the Company in the period of the report totaled about $283 million.
After several years of falling marine bulk transportation prices, commencing from mid-2013, there has been
increase in the shipping prices, which reached a record high of the last 3 years, and stood at 2,337 points in the
middle of last December (the BDI (Baltic Dry Index) marine shipping index). Commencing from the first
quarter of 2014, the prices fell to their level prior to the increase and the average index for the third quarter was
950 points, about 27% less than the average index for the third quarter of 2013. The energy costs account for
about 6% of ICL's total operating costs in the period of the report. The energy costs in the quarter decreased
compared with the corresponding quarter last year due to supply of gas from the Tamar field, which led to a
savings as a result of the switch from use of expensive fuels, and from the undertaking to purchase electricity
from the OPC company, at low costs compared with the price of the electricity purchased from Israeli Electric
Company.

1.

On September 12, 2014, ICL gave notice that it is carrying on negotiations with a third party in
connection with entering into joint ventures relating to existing and future mining activities of phosphate
rock and the sale thereof in developing markets, as well as the manufacture, marketing and distribution of
downstream phosphate-rock products in the said markets.
As at the date of the report, the negotiations had not yet ripened into in-principle commercial agreements,
the parties had not yet reached essential agreement with respect to the structure of the transaction and/or
the consideration to be paid by the Company. Accordingly, binding agreements have not yet been signed
and there is no certainty that the negotiations will mature into binding agreements and/or that a
transaction, as stated, will ultimately be closed. To the extent the negotiations reach the stage of binding
agreements, the Company estimates that the consideration will amount to several hundred million
dollars.

2.

For additional details regarding decisions of ICLs Board of Directors on August 27, 2014, in connection
with Bromine Compounds and the magnesium plant see Note 5.B to the financial statements.

20

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Other developments in the period of account and thereafter

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)

3.

On September 21, 2014, ICL received a request that was filed in the District Court for certification of a
class action against the subsidiary, Dead Sea Works Ltd. (DSW), in the amount of about $26 million.
In the request for certification of the class action claim it is contended that DSW prejudicially exploited
its monopolistic power while violating the Restrictive Business Practices Law, 1988 (hereinafter the
Restrictive Business Practices Law), in that it collected an inflated and unfair price for potash, contrary
to the Restrictive Business Practices Law.

4.

On September 23, 2014, ICL submitted a final prospectus for registration for trading (F-1) on the NYSE
in New York (hereinafter the Prospectus). On November 1, 2014, ICL commenced reporting in
accordance with the provisions of Part E3 of the Securities Law, 1968, which govern the reporting
applicable to dual-listed companies. Pursuant to Part E3, the Companys reporting requirements in Israel
will be satisfied by compliance with the reporting requirements in the United States.

5.

Further to the statement on page 180 of ICLs Registration Statement (F-1), on September 29, 2014 the
Israeli Supreme Court rejected the appeal filed by the plaintiffs in the proceedings against the State of
Israel, the Local Industrial Council of Neot Hovav and the factories of ICL Industrial Products,
contending that various pollutions in the area of Neot Hovav had caused a number of diseases from
which the plaintiffs suffered.

6.

Further to the statement on page 177 of the Registration Statement (F-1), on September 30, 2014, the
District Court in Jerusalem rejected the request filed by DSW for appointment of an arbitrator on behalf
of the State for the purpose of conducting arbitration proceedings between DSW and the Government of
Israel, pursuant to the binding arbitration clause included in the Concession Agreement between the
parties, and determined that after completion of the legislative processes for adoption of the
recommendations of the Sheshinski Committee, ICL may raise its contentions before the High Court of
Justice and challenge the constitutional validity of the law.

7.

Further to the statement on pages 180-181 of the Registration Statement (F-1) in connection with the
planned closing of the potash production site in Sallent, in Spain, ICL has decided to continue the
operations of the site until mid 2016. The decision was taken, among others, following the new
provisions that were published on October 2, 2014, by the competent authorities in Spain which permit to
continue operating the site until June 2017.

8.

On October 6, 2014, the rating company, Standard & Poor's Maalot, downgraded ICL's credit rating to
'ilAA' from a rating of 'ilAA+', with a stable rating outlook.

9.

Further to the statement on page 181 of the Registration Statement (F-1), on October 7, 2014, Haifa
Chemicals Ltd. (Haifa Chemicals) filed a motion to start an examination process, in accordance with
Section 292(2) of the arbitrator's decision rendered in the arbitration proceedings between DSW and
Haifa Chemicals, to determine the examined price, within the meaning of this term in Section 292(6)
of the decision, for 2011, 2012 and 2013. ICL has filed a request for the debt payment of Haifa
Chemicals for 2009 to 2010. On November 4, 2014, Haifa Chemicals submitted to DSW an offset notice
with respect to the amount of Haifa Chemicals' debt, in such a manner that the above-mentioned amount
will be deducted from the amounts it contends are due to Haifa Chemicals from DSW.

21

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Other developments in the period of account and thereafter (Cont.)

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Other developments in the period of account and thereafter (Cont.)
Further to the statement on page 177 of the Registration Statement (F-1), on October 20, 2014, the
Sheshinski Committee published the final conclusions regarding the government take to be received
from use of national resources by private bodies on the Internet site of the Ministry of Finance (the
Recommendations of the Committee).
The main Recommendations of the Committee, as described in the Executive Summary chapter, are as
follows:
The mix of taxes on natural resources in Israel will include three taxation elements: royalties, natural
resources tax and corporate tax.
The royalty rate for all minerals will be 5% for any extracted amount (currently, the royalty rate for
potash is 5% on annual sales of up to 1.5 million tons, and 10% for any sales above that amount. The
royalty rate for phosphates is 2%); the calculation of the royalties for phosphates which is made in
accordance with the Mines Ordinance, will be changed such that the recognition of refining and
processing costs of the mined raw material will be in accordance with normative costs to be established
in the law.
A new natural resources tax will be imposed. The following are the main aspects of the proposed tax:
The natural resources tax base will be the amount from which the natural resources tax will be collected
every year.
The tax base will be ICLs operating profit, according to accounting profit and loss statements, after
certain adjustments (such as adjusting the consolidated profit and loss statements to the solo statement,
adjusting the sale price in transactions with related parties according with the transfer price, adjustments
according to the Income Tax Ordinance) less financing expenses in the rate of 5% of ICLs working
capital, and less an amount that will represent the yield on the remaining depreciated cost of the fixed
property used in the production and sale of the mineral.
A progressive tax will be imposed on the tax base, as described above, at a rate that will be determined in
accordance with the level of the yield on the remaining depreciated cost of the fixed property used in the
production and sale of the mineral in that year. The first tax bracket for the natural resource tax will be
25% and the second tax bracket will be 42%, based on the range of the yields on the remaining
depreciated cost of the fixed property, as follows:
For operating profit in a yield level of 14%, the tax will be 0%.
For operating profit in a yield level between 14%20%, the tax rate will be 25%.
For operating profit in a yield level above 20%, the tax rate will be 42%.
For the years in which the natural resources tax base is negative, the negative amount will be carried over
from year to year, and will serve as a tax shield in the following tax year.

22

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

10.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Other developments in the period of account and thereafter (Cont.)
(Cont.)
The limits of the natural resources tax the natural resources tax will only be imposed on the profits
derived from the production and the sale of minerals, such as potash and phosphates, and not on profits
derived from downstream industrial activity. In addition, the natural resources tax will be calculated
separately for each mineral. However, to the extent that there is a synergy between the different
resources, and that a particular mineral produces a benefit in the production of a different mineral, the
Committee believes that such benefit should be reflected in the calculation of the natural resources tax.
Consequently, the benefit produced by the magnesium plant for the potash plant in the production of
sylvinite will be recognized as an expense for the potash plant, and accordingly will be recognized as
income for the magnesium plant. Clear rules will be established for this purpose with regard to the
calculation of the said savings, with respect to potash and other minerals, if applicable.
A mechanism will be established for determining the market price for natural resources transactions
between related parties in Israel, as well as a mechanism for calculating the manner in which expenses
will be attributed to the production and sale of the natural resource and to the downstream activities.
Regarding bromine, a natural resources tax will be imposed in the same way it is imposed on other
natural resources, other than that the transfer price will be calculated separately for transfers to related
parties in Israel, and separately for sales to related parties abroad. The transfer price for elemental
bromine to related parties will be the higher of the following:
The actual price the actual sale price for elemental bromine to related parties in Israel or abroad,
whichever is relevant;
The price to a third party the weighted average of the sale price to unrelated parties, which are
manufacturers of bromine compounds, while adjusting the shipping and marketing costs, as needed;
A normative price the normative price will be linked to the bromine compounds index and determined
based on the Netback method, relying on the data from the five previous years for the Bromine
Compounds Company in Israel or abroad, as relevant. In each of those years, all bromine compounds
production costs will be deducted from the sales turnover for the Bromine Composite Company, except
for the cost of purchasing the raw bromine. The operating profit, before the deduction of the cost of
purchasing the raw bromine, will also be deducted of a normative profit in the rate of 12% of the sales
turnover of the Bromine Compounds Company in Israel or abroad, as the case may be. The amount
reached through this calculation, for each of the years that is examined, will be divided by the amount of
the bromine that the Bromine Compounds Company has purchased in each of the years, and will be
weighted into the stated normative price. The mechanism will be examined every 5 years and will be
updated if necessary.
The government take to be received from minerals when a natural resources tax is imposed is expected
according to the Committee to range from 46%55%.
The Recommendations of the Committee, if they are enacted into legislation, will apply to DSW, as of
January 1, 2017.

23

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

10.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Other developments in the period of account and thereafter (Cont.)
10.

(Cont.)
The end of the Dead Sea concession period a designated team will be established, to be appointed by
the Accountant General at the Ministry of Finance, which will work to establish certainty regarding the
manner in which the value of the DSW assets will be calculated at the end of the concession period, in
accordance with the Deed of Concession. This team will submit its recommendations to the Minister of
Finance by the end of the first quarter of 2015. Additionally, the Minister of Finance will appoint a
second team which will submit recommendations regarding the government actions that are needed in
anticipation of the end of the concession period and will examine the manner in which the concession
will be granted in the future. This team will submit its recommendations by the end of the first quarter of
2016.
The Encouragement of Capital Investments Law the Law will be amended, to clarify that with regard to
any tax benefits pursuant to that law, the definition of a mineral extraction plant will include all the
plants activity through the production of the first sellable natural resources, such as potash, bromine and
magnesium. Therefore, any activity in the production of the mineral will be subjected to the excess profit
tax, and will not be entitled to tax benefits pursuant to the Encouragement of Capital Investments Law.
Downstream product activity such as bromine compounds and fertilizers will not be a part of the base
used for calculating the excess profits tax and will not be excluded from the application of the Law.

ICL, with the assistance of its economic and legal advisors, is reviewing the Recommendations of the
Committee, including the changes between the final recommendations in comparison to the interim
recommendations, and their impact, inter alia, on its business results. ICLs Board of Directors has
determined that the Recommendations will not change the decisions reached by the Board of Directors in
August 2014 (see section 7.2 above) that were based on the Interim Recommendations. On
November 10, 2014, the Ministry of Finance issued a press released according to which on
November 10, 2014, the Social-Economic Cabinet unanimously approved the Recommendations of the
Committee. According to the press release, the final recommendations will be enacted into law and
brought for the approval of the Knesset. There is no certainty that the Knesset will approve the
Recommendations of the Committee in their current wording.
11.

For additional details regarding the undertaking of ICL and its subsidiary, BK Giulini GmbH, with
Kurita Water Industries Ltd., in an agreement for the sale of business units of in ICL's Performance
Products segment in the areas of solutions for water treatment and chemicals for paper as well as
aluminum compounds see Note 5.B to the financial statements.

12.

Subsequent to the date of the report, on November 11, 2014, ICLs Board of Directors authorized ICLs
management to launch an offering of notes to institutional investors in the U.S., Europe and Israel
pursuant to Rule 144A and Regulation S of the U.S. Securities Act of 1933, as amended. Subsequent to
the date of the report, on November 20, 2014, the pricing of the issuance of senior unsecured debentures,
as stated, was completed, in the cumulative amount of $800 million, bearing interest at the rate of 4.5%,
scheduled for repayment in 2024. The price in the issuance of the debentures is 99.285% and they bear a
yield of 4.59%. Completion of the issuance is expected to take place on December 2, 2014, subject to
customary closing conditions.

24

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

It is noted, that attached to the Recommendation of the Committee was, among others, a minority
statement of the Accountant General at the Ministry of Finance as well as a reservation from the
Committees Recommendations of the representatives of the Ministry of Economy and the Ministry of
National Infrastructures, Energy and Water Resources.

Israel Corporation Ltd.


ISRAEL CHEMICALS LTD. (Cont.)
Other developments in the period of account and thereafter (Cont.)
12.

(Cont.)
ICL intends to use the net proceeds from the offering, if completed, to repay certain short-term loans and
debt under its outstanding revolving credit facilities, which will provide it flexibility for future
borrowings under the revolving credit facilities for general corporate purposes, potential acquisitions and
refinancing of existing debt.
The securities to be offered have not been and will not be registered under the U.S. Securities Act of
1933, as amended, and may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.

13.

Further to the statement on page 111 of the Registration Statement (F-1), in connection with expansion of
the manufacturing on the Suria site in Spain, on November 11, 2014, ICLs Board of Directors approved
investments, in the aggregate amount of about $330 million, with respect to execution of the second
stage of the project and construction of logistical facilities on the production site and in the Barcelona
port.

I.C. POWER LTD.


Set forth below is main data from I.C. Powers statement of income:

Sales
Cost of sales
Gross profit

1,034
(805)
229

612
(465)
147

373
(290)
83

260
(207)
53

Other income, net


Impairment loss
Administrative and general expenses
Operating income

237
(35)
(49)
382

(30)
119

193
(35)
(18)
223

(9)
46

Financing expenses, net


Financing expenses with the parent company, net
Share in income (losses) of associated companies, net
Taxes on income
Income for the period

(83)
(17)
13
(85)
210

(45)
(11)
21
(27)
57

(33)
(1)
(2)
(50)
137

(22)
(5)
7
(8)
18

21
189
210

11
46
57

7
130
137

3
15
18

Attributable to:
Non-controlling interests
The owners of the Corporation

25

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Nine Months Ended


Three Months Ended
September 30
September 30
2014
2013
2014
2013
$ Millions

Israel Corporation Ltd.


I.C. POWER LTD. (Cont.)
Set forth below is main data from I.C. Powers statement of cash flows:
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
$ Millions

Cash flows provided by operating activities


Cash flows provided by (used in) investing activities
Cash flows provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of the period
Investments in property, plant and equipment and
and intangible assets
Total depreciation and amortization

322
(182)
(261)
(121)

203
(188)
152
167

135
96
(173)
58

104
(108)
189
185

386

349

386

349

289
113

215
52

110
63

80
21

Set forth below is significant data from I.C. Powers statements of financial position:
As at September 30
2014
2013
$ Millions

Total financial liabilities (1)


Total monetary assets (2)
Total equity attributable to the owners
Total assets

2,029
574
779
3,456

1,468
403
630
2,798

(1) Not including balances with the Corporation, trade payables, other payables and credit balances and financial
derivatives.
(2) Not including trade receivables, other receivables and debit balances and financial derivatives.

Nine Months
Ended
September 30
2014
$ Millions

Balance as at January 1, 2014


Income for the period
Dividend distributed
Other comprehensive loss for the period
Balance as at September 30, 2014

653
189
(37)
(26)
779

26

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Set forth below is the movement in I.C. Powers equity attributable to its owners:

Israel Corporation Ltd.


I.C. POWER LTD. (Cont.)
Results of operations for the period July September 2014
I.C. Power finished the third quarter of 2014 with net income of about $130 million, compared with income of
about $15 million in the corresponding period last year. The net income in the third quarter includes income
(net of taxes), in the amount of about $110 million, as a result of the sale of Edegel (about $85 million capital
gain and about $25 million income from a capital reserve for foreign currency translation differences that was
recorded on the statement of income), negative goodwill, in the amount of about $21 million, as a result of
acquisition of Puerto Querzal Power (see detail below), while, on the other hand, there was an impairment loss
in the gross amount of about $35 million (about $26 million net of the tax effect) relating to one of Inkias
subsidiaries.
I.C. Powers total revenues in the third quarter of 2014 amounted to about $373 million, compared with
revenues of about $260 million in the corresponding period last year. Most of the increase in the total revenues
in the third quarter of 2014 compared with the corresponding period last year stems from, among other things,
an increase in revenues from the subsidiaries acquired in Nicaragua, Jamaica, Guatemala and Colombia.
I.C. Powers operating income in the third quarter of 2014 from continuing operations amounted to about $223
million, compared with about $46 million in the corresponding period last year. After eliminating the capital
gain from sale of Edegel, negative goodwill and the decline in value of one of Inkias subsidiaries, the
operating income in the third quarter of 2014 amounted to about $80 million.
I.C. Powers EBITDA from the investee operating companies in the third quarter of 2014 amounted to about
$107 million, compared with EBITDA of about $67 million in the corresponding period last year.
I.C. Powers proportionate EBITDA (the proportionate EBITDA of each of the investee operating companies)
in the third quarter of 2014 amounted to about $98 million, compared with proportionate EBITDA of about $69
million in the corresponding period last year.
Results of operations for the period January September 2014

The net income for the period included a non-recurring capital gain (after taxes) in respect of the sale of Edegel,
in the amount of about $110 million, non-recurring income in respect of negative goodwill, in the amount of
about $60 million, which includes about $16 million in respect of acquisition of AEI Nicaragua, about $23
million, in respect of acquisition of AEI Jamaica, and about $21 million relating to acquisition of Puerto
Quetzal Power (see detail below), and an impairment loss of about $35 million (about $26 million net of tax) in
connection with a property of one of Inkias subsidiaries.
I.C. Powers total revenues in the period of the report amounted to about $1,034 million, compared with
revenues of about $612 million in the corresponding period last year. Most of the increase in the total revenues
in the period of the report compared with the corresponding period last year stems from, among other things,
consolidation of the financial results of the subsidiaries acquired during 2013 and 2014 in Chile, Nicaragua,
Jamaica and Colombia, and the start of the combined cycle power station of OPC in Israel, in July 2013.
I.C. Powers operating income in the period of the report from continuing operations amounted to about $382
million, compared with about $119 million in the corresponding period last year. After eliminating the capital
gain from sale of Edegel, negative goodwill and the decline in value of one of Inkias subsidiaries, the
operating income in the period of the report amounted to about $200 million.
I.C. Powers EBITDA from the investee operating companies in the period of the report amounted to about
$276 million, compared with EBITDA of about $171 million in the corresponding period last year.

27

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

I.C. Power finished the period of the report with net income of about $189 million, compared with income of
about $46 million in the corresponding period last year.

Israel Corporation Ltd.


I.C. POWER LTD. (Cont.)
Results of operations for the period January September 2014 (Cont.)
I.C. Powers proportionate EBITDA (the proportionate EBITDA of each of the investee operating companies)
in the period of the report amounted to about $265 million, compared with proportionate EBITDA of about
$186 million in the corresponding period last year.
As at the date of the report, I.C. Powers financial liabilities (except for balances with the Corporation, trade
payables, other payables and derivative instruments) amounted to about $2,029 million, compared with about
$1,468 million in the corresponding period last year. Most of the increase in the financial liabilities stems from
raising debt, in the amount of $150 million, by Inkia in September 2013, raising of mezzanine loans by
I.C. Power Israel in June 2014 (see detail below), and from commencement of use of the bank financing in the
Cerro del Aguilla hydro project.
As at the date of the report, I.C. Powers net financial liabilities (financial liabilities net of financial assets)
amounted to about $1,455 million, compared with about $1,065 million in the corresponding period last year.
As at the date of the report, I.C. Powers proportionate financial liabilities (the net separate-company debt of
I.C. Power plus the proportionate net debt of each of the investee companies) amounted to about $1,575
million, compared with about $940 million in the corresponding period last year.
Other developments in I.C. Power
In February 2014, I.C. Power, through Inkia, entered into a transaction for acquisition of AEI Nicaragua
Holdings Ltd. and AEI Jamaica Holdings Ltd. (hereinafter the AEI Companies), for a cash
consideration of about $54 million. The AEI Companies hold and operate, through subsidiaries, power
stations in Nicaragua and Jamaica having production capacity of about 245 megawatts including, among
other things, power stations operating on wind energy, with production capacity of about 63 megawatts.
By force of this agreement, Inkia will acquire, indirectly, 100% of the shares of Jamaica Private Power
Company Limited, in which it held, prior to the transaction, 15.6%. In March 2014, the transaction for
acquisition of the shares of AEI Nicaragua was closed, and the acquisition price was updated from about
$36 million to about $30 million. In addition, the preconditions were fulfilled and the approvals for the
transaction were received. In May 2014, the transaction for acquisition of the shares of AEI Jamaica was
closed, and the acquisition price was updated from about $18 million to about $21 million.
As a result of acquisition of the above-mentioned companies, income was recorded in the period of the
report in respect of negative goodwill, in the amount of about $39 million, which includes about
$16 million in respect of AEI Nicaragua, and about $23 million in respect of AEI Jamaica.
2.

In March 2014, I.C. Power, through Inkia, entered into a transaction for acquisition of 60% of the share
capital of the Colombian company Supertroil, for a consideration of about $18 million. Supertroil is
engaged in production of energy from natural gas, as well as in transport and distribution of natural gas
in Colombia.

3.

In March 2014, I.C. Power won a tender published by Israel Lands Administration for lease of the lot
located adjacent to the site of the power station of I.C. Power. The size of the lot is about 55 dunams and
will be able to serve I.C. Power in the future for, among other things, expansion of the electricity
production capacity in Israel.

4.

On March 23, 2014, the draft recommendations of the steering committee for execution of a reform in
Israel Electric Company and in the Israeli electricity industry were published. I.C. Power is studying the
draft recommendations of the steering committee and the possible consequences to its activities in Israel.

28

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

1.

Israel Corporation Ltd.


I.C. POWER LTD. (Cont.)

5.

In March 2014, I.C. Power won a tender published by the Government of Chile for acquisition of land in
North Chile, which is intended for construction of a power station with a capacity of about
350 megawatts.

6.

In April 2014, acquisition was completed of the open-cycle power station that operates on natural gas
having a capacity of 193 megawatts on the Chilca site in Peru, adjacent to the Kalpa electricity
production site, after all the required regulatory approvals were received.

7.

in April 2014, I.C. Power, through Inkia, entered into a transaction for sale of its shares in Inkia Holdings
(Acter) Limited, which holds, indirectly, about 39.01% of Generadnes Peru SA, the controlling
shareholder in Edegel SA, for a consideration of $413 million. In addition, I.C. Power has the right to
receive a dividend based on its proportionate share in Edegel SA, for the period up to sale of the shares.
During the third quarter the transaction was closed and accounting income was recorded (net of tax) in
the amount of about $110 million, including a capital gain of about $85 million (net of tax) and income
from a translation reserve of about $25 million.

8.

In June 2014, I.C. Power Israel, a subsidiary of I.C. Power, raised mezzanine loans, in the amount of
about NIS 350 million ($100 million).

9.

In the period of the report, I.C. Power transferred to Israel Corporation the amount of about $300 million,
of which about $263 million was in respect of repayment of shareholders loans and capital notes, and
about $37 million was in the form of a dividend.

10.

In August 2014, I.C. Power, through Inkia, signed an agreement with AEI Power Ltd. for acquisition of
its shares in AEI Guatemala, for a cash consideration of $29 million. AEI Guatemala holds the Puerto
Querzal Power (PQP) Company, which operates the power station in Guatemala that is installed on
3 floating rafts, operates using crude oil and has a capacity of 234 megawatts. The acquisition transaction
was completed in September 2014. As a result of acquisition of the company, capital gain from negative
goodwill was recorded, in the amount of about $21 million.

11.

On August 25, 2014, the Public Services Authority Electricity (hereinafter the Authority or the
Electricity Authority) published a proposed decision for a hearing in connection with the tariffs for
management services with respect to the electricity system (hereinafter the Hearing). Pursuant to the
Hearing, electricity tariffs will be imposed on electricity suppliers in respect of system management
services as determined in the Hearing. According to the proposed Hearing, the tariffs will apply
retroactively commencing from June 1, 2013.
I.C. power is studying the Hearing and is preparing its response, which must be submitted by January 1,
2015.

12.

Subsequent to the date of the report, in October 2014, Kanan Overseas (hereinafter Kanan), a
subsidiary of I.C. power in Panama, which was set up for purposes of that stated below, won a tender for
supply of 86 megawatts during a period of five years to distribution companies in Panama, commencing
from July 2015. Supply of the electricity will be made from two of the companys existing rafts located
in Guatemala and in the Dominican Republic, which will be moved to Panama.

13.

There are lawsuits pending in the State Court of the State of Texas in the United States between
I.C. Power and Crystal Power Co. Ltd (hereinafter Crystal), the holder of the minority interest (29%
of the shares) in Nejapa Power Company LLC (hereinafter Nejapa), a subsidiary of I.C. Power that
operates in El Salvador. Recently, the Court directed the parties to a reconciliation proceeding for
purposes of settling the disputes between them.
29

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Other developments in I.C. Power (Cont.)

Israel Corporation Ltd.


I.C. POWER LTD. (Cont.)
Other developments in I.C. Power (Cont.)
13.

(Cont.)
Subsequent to the date of the report, in November 2014, the reconciliation proceeding ended in a
compromise whereby companies in the I.C. Power group will acquire the share of Crystal Power in
Nejapa for a consideration of $20 million, and thus there will be a final and unequivocal settlement of all
the claims between the parties. The compromise will be set down in an agreement that will be signed by
the parties and will be approved by the Court. Upon completion of the agreement and transfer of the
holdings of Crystal in 29% of the shares, I.C. Power will hold 100% of the shares of Nejapa.

14.

Projects under construction:


A.

In November 2011, Cerro Del Aguilla (hereinafter CDA), a second-tier subsidiary of


I.C. Power, signed an agreement for construction of a hydroelectric power station in Peru. As at
September 30, 2014, CDA had invested about $568 million in the project. The planned cost of the
investment in the project is about $900 million, including interest during the construction period,
and includes bank financing in the amount of $595 million. As at the date of the report, about $260
million had been withdrawn from the loan.
The construction contractor of the hydro project contacted I.C. Power with a demand for an
addition of about $92 million to the construction cost, in addition to a postponement of the
projects construction timetables by 6 months.

B.

Puerto Bravo further to the winning, in 2013, of a tender of the Government of Peru for
construction of a dual-fired power plant (natural gas and diesel) with an open cycle, having a
production capacity of about 600 megawatts, in April 2014, Puerto Bravo, a second-tier subsidiary
of I.C. Power, signed an EPC agreement with the Korean company Posco for construction of the
power station, and a limited commencement order covering the work was issued. The agreement
with the Government is for a period of 20 years and in the aggregate monetary amount of about $1
billion. The power station is to be constructed in the Mollendo region in the Arequipa district in
Peru. When gas reaches the region, the power station will operate on gas and Puerto Bravo will be
able to sell the electricity produced on a fixed basis to the private market, with an additional price.
Completion of construction of the power station and commencement of its operation are expected
to take place in May 2016. The cost of the investment in construction of the power station is
estimated at about $380 million. As at September 30, 2014, Puerto Bravo has invested about $69
million in the project.

C.

Set forth below is detail of the capital investments in construction projects for the nine months
ended September 30, 2014 and for 2013 (in millions of dollars)2:

19/2014
2013

OPC

CDA

Puerto Bravo

Other

Total

71

184
167

67
2

6
17

257
257

Except for projects of associated companies, including Edegel.


30

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

According to advice received by I.C. Power, there is no basis for the contractors demands. It is
possible that there is justification for four sections of the demand, which in the estimate of the
engineering consultant amount to about $300 thousand, without delaying the construction period.
The expectation with respect to commercial operation of the station is in the second half of 2016.

Israel Corporation Ltd.


OIL REFINERIES LTD.
Results of operations for the period July September 2014
ORL completed the third quarter of 2014 with income of about $15 million, compared with a loss of about $70
million in the corresponding period last year. Without the impact of IFRS 9 (2010), ORL finished the third
quarter period of the report with income of about $7 million, compared with a loss of about $69 million in the
corresponding period last year.
The total sales in the third quarter of 2014 amounted to about $2,443 million, compared with about $2,623
million in the corresponding period last year. The average price per ton of the main products basket in the
Mediterranean Sea area that is roughly the same as the basket produced by ORL was about $853 in the third
quarter of the period of the report, compared with about $903 in the corresponding period last year.
In order to also present ORLs results of operations on an economic basis and for purposes of comparison to the
allocable margin, the accounting impacts in the fuel sector are eliminated, and the results are presented in a
manner that ORL believes permits better understanding of the companys performance and a closer comparison
to the allocable margin.
The neutralized operating income after elimination of the accounting impacts (neutralized) in the third
quarter of 2014 amounted to about $81 million, compared with neutralized operating income of about $27
million in the corresponding period last year. The increase in the operating income derived mainly from a
decline in the operating expenses, which contributed about $23 million, and from recognition of income due to
settlement of a defined benefits plan, and in the amount of about $23 million.
The neutralized EBITDA of ORL in the third quarter of the period of the report, amounted to about $95
million, compared with neutralized EBITDA of about $72 million in the corresponding period last year.
The net financing expenses (without the impact of IFRS 9 (2010)), in the third quarter of 2014 amounted to
about $41 million, compared with net financing expenses of about $49 million in the corresponding period last
year. The financing expenses decreased mainly as a result of the impact of exchange rate differences on
monetary items.

ORL completed the period of the report with income of about $23 million, compared with a loss of about $110
million in the corresponding period last year. Without the impact of IFRS 9 (2010), ORL finished the period of
the report with income of about $14 million, compared with a loss of about $116 million in the corresponding
period last year.
The total sales in the period of the report totaled about $7,164 million, compared with about $7,425 million in
the corresponding period last year. The average price per ton of the main products basket in the Mediterranean
Sea area that is roughly the same as the basket produced by ORL was about $884 in the period of the report,
compared with about $906 in the corresponding period last year. In Israel in the period of the report, there was
an increase in consumption of the transportation fuels (diesel, kerosene) of about 4% compared with the
corresponding period last year. The total sales of polymers declined by about $101 million, mainly due to a fall
in the quantities sold (due to a fire in one of the facilities) and a decline in the selling prices.
The neutralized operating income in the period of the report amounted to about $159 million, compared with
neutralized operating income of about $83 million in the corresponding period last year. The increase in the
operating income derived mainly from an increase in the refining margin of the polymers and a decrease in the
operating expenses, as well as from recognition of income from settlement of a defined benefits plan.

31

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Results of operations for the period January September 2014

Israel Corporation Ltd.


OIL REFINERIES LTD. (Cont.)
Results of operations for the period January September 2014 (Cont.)
The neutralized EBITDA of ORL in the period of the report, amounted to about $261 million, compared with
EBITDA of about $214 million in the corresponding period last year.
The net financing expenses (without the impact of IFRS 9 (2010)), in the period of the report amounted to
about $115 million, compared with net financing expenses of about $145 million in the corresponding period
last year. The financing expenses decreased in the period of the report mainly due to due to the impact of
exchange rate differences on the monetary items and an increase in income from changes in the fair value of
hedges.
Set forth below is data and the impact thereof on the refining margins (dollar per ton):
JulySeptember
2013
2014

JanuarySeptember
2014
2013

Neutralized margin
Neutralizations in the fuels segment

36.2
(9.5)

40.5
3.8

37.9
(1.9)

39.5
(1.4)

Accounting margin

26.7

44.3

36.0

38.1

Other developments in the period of account and thereafter

As a result of the low allocable margins that existed in 2013, ORL announced during 2013 a plan to secure
financing requirements and improve liquidity. The plan includes raising capital by issuing rights in the
aggregate amount of $151 million to ORLs shareholders in December 2013; replacing short-term debt with
long-term debt by issuing additional debentures, in the aggregate amount of about $180 million;
implementation of a plan for improving ORLs efficiency and increasing profits, as detailed below which ORL
is implementing with the aim of improving its operating results by $100 million; and agreements with the banks
to ensure continued provision of ORLs credit requirements.
ORL believes that implementation of the above program, together with other measures to improve profitability
that are being implemented within the ORL Group, should add $100 million to the Groups annual operating
profit, commencing from 2014.
Commencing from the first quarter of 2014, ORL is executing the plan, whereby the scope of the undertakings
with contractors and service providers was reduced, the number of employees in the Group was cutback, and
some of the activities and investments were completed that were planned for purposes of improvement of the
profit. In the second quarter, ORL continued to act in accordance with the efficiency plan and began to enjoy its
fruits. ORL estimates that it will be able to meet the plans overall target.

32

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In the third quarter, there were significant and extraordinarily strong changes in the business environment,
mainly, a sharp drop crude oil prices, a large increase in the allocable margin, transition from a backwardation
market to a contango market, and changes between the relative prices of the types of crude oil, which when all
taken together, along with the impact of the breakdown in the pipeline entering into the hydrocracker facility
(as noted below), reduced ORLs neutralized margin addition beyond the allocable margin in this quarter.
Taking into account the extraordinary changes described above, the neutralized margin which constitutes an
estimate of the fuel units economic performance may not fully reflect the above-mentioned changes.

Israel Corporation Ltd.


OIL REFINERIES LTD. (Cont.)
Other developments in the period of account and thereafter (Cont.)
The expected addition to the operating income as a result of implementation of the efficiency plan is based on
ORLs plans and estimates regarding the matter. This forecast constitutes forward-looking information, the
full realization of which is not certain and is not under ORLs sole control. Accordingly, there is no certainty
that the estimates/forecasts will be realized, in whole or in part, and the addition to the operating income may
ultimately be different than that projected.
In September 2014, a breakdown occurred in the entrance pipeline to the Hydrocracker facility and ORL shut
down the facility up to its repair and re-entry into operation during the same month. The event did not give rise
to environmental or safety harm. In the estimation of company management, the direct impact of the shutdown
on the operating income, stemming from non-production in the facility, amounts to about $10 million in ORL.
In September 2014, ORL successfully completed selling of additional debentures, in the aggregate scope of
about NIS 600 million (and about NIS 300 million from options for debentures, the exercise date of which is up
to December 31, 2014) including debentures and options for debentures. This fundraising constitutes another
part of the financial actions taken in the past year, which have contributed to an increase in liquidity in ORL
and lengthening of the average life of its liabilities.
ZIM INTEGRATED SHIPPING SERVICES LTD.
Brief explanation of ZIMs results
Results of operations for the period July September 2014

ZIMs revenues in the third quarter of the period of the report amounted to about $854 million, compared with
about $900 million in the corresponding quarter last year a decrease of about $46 million. The decrease in the
total revenues stems, mainly, from a decline in revenues from cargo containers, in the amount of about $56
million. In the third quarter of the period of the report, the quantity shipped decreased compared with the
corresponding period last year, by about 13%, from about 640 thousand containers to about 557 thousand
containers, whereas the average shipping price per container decreased by about 6.6% from about $1,202 per
container to about $1,281 per container. The decrease in the quantities shipped stems mainly from closing of
the Asia to North Europe line during the second quarter of 2014.
Results of operations for the period January September 2014
The loss in the period of the report attributable to ZIMs owners amounted to about $197 million, compared
with a loss of about $252 million in the corresponding period last year.
ZIMs revenues in the period of the report amounted to about $2,596 million, compared with about $2,794
million in the corresponding period last year a decrease of about $198 million. The decrease in the total
revenues stems, mainly, from a decline in revenues from cargo containers, in the amount of about $119 million,
and a decrease in revenues from subsidiaries, in the amount of about $95 million. In the period of the report, the
quantity shipped decreased compared with the corresponding period last year, by about 4.3%, from about 1,873
thousand containers to about 1,793 thousand containers. The average shipping price per container decreased by
about 0.9% from about $1,243 per container to about $1,232 per container.

33

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The loss attributable to ZIMs owners in the third quarter of the period of the report amounted to about $65
million, compared with a loss of about $44 million in the corresponding quarter last year.

Israel Corporation Ltd.


ZIM INTEGRATED SHIPPING SERVICES LTD. (Cont.)
Other developments in the period of the report and thereafter
In light of the continuing crisis situation in the shipping industry and its negative impacts on ZIM, as stated,
and further to ZIMs estimate that it may encounter difficulties meeting its liabilities on time commencing from
2013, ZIM took of steps in order to allow it to cope with the effect of the continuing crisis in the shipping
market.
On January 22, 2014, ZIM and representatives of most of the creditor groups and the other relevant parties to
the arrangement formulated a memorandum of understanding (MOU) for an arrangement outlining a
restructuring of ZIMs capital and debt structure. In the weeks that followed, ZIM focused on two main issues:
(1) expansion of the discussions so that they will include all the parties relevant to the arrangement (including
those who were not parties to the MOU) and formulation of agreements with the parties, as stated; and
(2) development of the legal framework for the arrangement, including drafting of the relevant agreements.
On July 16, 2014, the debt arrangement between ZIM and most of its creditors, representatives of its
shareholders and holders of its options was completed and entered into effect.
For additional details regarding the debt arrangement see Note 5D to the financial statements.
The financial statements of ZIM Integrated Shipping Services Ltd. are attached to the Corporations financial
statements.
QOROS AUTOMOTIVE CO. LTD.
Results of operations for the period July September 2014
The net loss of Qoros in the third quarter of the period of the report amounted to about $95 million, compared
with a loss of about $48 million in the corresponding period last year.
The total sales in the third quarter of the period of the report amounted to about $38 million. The total cost of
sales was about $51 million.

The increase in the operating expenses stems mainly from the selling and transport expenses, in the amount of
about $105 million.
Results of operations for the period January September 2014
The net loss of Qoros in the period of the report amounted to about $232 million, compared with a loss of about
$111 million in the corresponding period last year.
The total sales in the period of the report amounted to about $92 million. The total cost of sales was about $99
million.
The operating loss of Qoros in the period of the report amounted to about $212 million, compared with an
operating loss of about $112 million in the corresponding period last year. The increase in the operating
expenses stemmed mainly from selling and transport expenses, in the amount of about $105 million.

34

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The operating loss of Qoros in the third quarter of the period of the report amounted to about $85 million,
compared with an operating loss of about $47 million in the corresponding period last year.

Israel Corporation Ltd.


QOROS AUTOMOTIVE CO. LTD. (Cont.)
Other developments in the period of the report and thereafter
During 2014, Qoros has introduced new models. As a result of these new models and others, Qoros expects a
significant increase in costs in the period wherein it will commence marketing all of its different models. Qoros
expects significant marketing expenses in the future in order to promote the sales of its new models through use
of the traditional media, such as: television, radio and the press, including financing expenses, due to
development of the various different models and the start of development of the second stage of the production
facilities, if Qoros decides to expand the production capacity of its facilities. Due to the significant costs over
time, Qoros does not expect to reach profitability until 20142016.
In the period of the report, Qoros commenced its commercial activities. The first vehicle it began selling in
December 2013, is the Qoros 3 Sedan, and in June 2014 it began commercial sales of the next model, Qoros 3
Hatch. As at the date of the report, Qoros had sold about 4,420 Qoros 3 Sedan and Qoros 3 Hatch vehicles, of
which 1,880 vehicles were sold in the quarter. In this early stage where in Qoros is also involved, in building up
the Qoros trade name, and due to the delay in spreading out the dealer network, there has not been a
significant increase in sales between the second quarter and the third quarter of the period of the report. Qoros
is continuing to make efforts aimed at expanding the dealer network.
Qoros estimates that it will continue to accumulate operating losses and net losses every quarter, until
significant sales of vehicles to agents begins, up to the point when large sale volumes are achieved, as is usual
for companies at the start of their operations.
In addition, Qoros will continue to bear costs in the future due to its investments, such as:

Design, development and production of new and other models.


Increase in selling and marketing activities.
Establishment and expansion of an inventory of parts and components for a variety of models.
Expansion of the design, development and production capacity, including expansion of the production
facilities.
Increase in administrative and general personnel in order to support the growing activities.

Further to that stated in Section 12.2.3B of the Corporations Periodic Report for 2013, due to that stated above,
in September 2014, the Board of Directors of Qoros approved a new 5-year business plan that includes a lower
forecast of the number of vehicles to be sold than the estimate included in the prior business plan, assuming
making of the minimum essential investments required for production. As a result of approval of the new
business plan, Qoros performed a test for impairment in value of its assets (mainly its property, plant and
equipment and intangible assets). In the impairment test, it was found that the recoverable amount of the assets
is higher than their carrying value in the books of Qoros and, accordingly, no provision for impairment in value
was recognized in the financial statements of Qoros. It is noted that the estimate of the recoverable amount is
based on a number of significant assumptions, and despite the fact that the management of Qoros believes that
these assumptions are reasonable and appropriate, they are, to a large extent, subjective and there is no certainty
they will be realized.

35

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Israel Corporation Ltd.


QOROS AUTOMOTIVE CO. LTD. (Cont.)
Other developments in the period of the report and thereafter (Cont.)
The ability of Qoros to obtain outside financing may be limited and dependent on, among other things, the
market conditions, the financing terms required by the financing parties, and on restrictions relating to Qoros
complying with these terms, including provision of collaterals to the financing parties.
As at the date of this report, the ratio of the debt to total assets in Qoros is higher and the liquidity ratio is lower
than the allowable ratios in the financing agreement, to the extent of RMB 3 billion. In addition, the ratio of the
debt to total assets in Qoros is higher and the liquidity ratio is lower than the allowable ratios in the working
capital financing agreement, to the extent of RMB 800 million. In 2014, the financing parties in the
above-mentioned financing agreements waived compliance by Qoros with the financial covenants up to the
middle of 2017.
After entry of Qoros into continuous commercial operations, to the extent necessary it will be able to contact
the financing parties under the various financing agreement with a request to consider revising the financial
covenants. If any of the said covenants continues to be violated after the above-mentioned waiver date, and to
the extent agreement is not reached with respect to waiver of compliance with the financial covenants or
revision of the financial covenants, the financing parties may call the unpaid balance under each of the said
agreements for immediate repayment. A calling for immediate repayment, as stated, could result in, among
other things, a foreclosure or loss of assets of Qoros and could have an unfavorable impact on its business,
financial position and operating results.
Regarding the format for provision of shareholders loans to Qoros against release of the Corporation from
guarantees see Note 5A6 to the financial statements.
The financial statements of Qoros for the period of the report are attached to the Corporations financial
statements.
TOWER SEMICONDUCTOR LTD.

In the third quarter, Tower signed an agreement for re-financing long-term bank loans, in the amount of about
$111 million. The agreement will significantly reduce the principal repayments in 20152016, from about
$101 million to about $24 million.
Towers total sales in the period of the report amounted to about $593 million, an improvement of 60%
compared with about $370 million in the corresponding period last year. Tower finished the period of the report
(according to IFRS) with income of about $9 million, compared with a loss of about $78 million in the
corresponding period last year.
The income in the period of the report included a number of non-recurring items: a gain, in the amount of about
$166 million, from acquisition of a company in Japan with Panasonic and non-cash provisions, in the amount
of about $76 million, resulting mainly from write downs of the book value of property of the factory in
Nishiwaki, Japan, due to reorganization of the companys activities in Japan.
The net financing expenses (according to IFRS) in the period of the report amounted to about $58 million,
compared with about $41 million in the corresponding period last year.

36

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Towers total sales in the third quarter of the period of the report amounted to about $226 million, an
improvement of 70% compared with about $133 million in the corresponding period last year. Tower finished
the third quarter of the period of the report (according to IFRS) with a loss of about $11 million, compared with
a loss of about $31 million in the corresponding period last year.

Israel Corporation Ltd.


SOURCES OF FINANCING FOR THE CORPORATION AND THE HEADQUARTERS COMPANIES
As at September 30, 2014, the total financial liabilities of the Corporation and of the wholly owned and
controlled headquarters companies (hereinafter the Headquarters Companies) amounted to about $2,397
million. The fair value of the collar transaction, and the currency SWAP and interest transactions, mainly in
respect of the debentures, economically reduces the liabilities by the amount of about $78 million.
As at the date of the report, the investments of the Corporation and of the Headquarters Companies in liquid
assets amounted to about $1,200 million. The amounts are invested in short-term deposits.
The net debt of the Corporation and of the Headquarters Companies as at the date of the report was about
$1,119 million, compared with a net debt balances of about $1,121 million and about $1,567 million, as at
June 30, 2014 and December 31, 2013, respectively.
In the period of the report, the Corporation paid current maturities of loans and debentures in the amount of
about $306 million (net of hedging transactions in respect thereof). This amount includes payment of current
maturities during the third quarter of the balance of the debentures (Series 4), in the amount of about $47
million (net of a hedging transaction) and loans in the amount of about $137 million.
In July 2014, the Corporation received a long-term loan, in the amount of $50 million, and extended the
repayment dates of long-term loans, in the amount of $143 million, for a period of 4.5 years. In July 2014, the
Corporation received $58 million on account of the fair value of hedging transactions made with a bank, while
adjusting the terms of the transactions.
In September 2014, the Corporation entered into transactions with respect to shares of ICL, as follows:
As part of a tender offer, 36.2 million shares of ICL were sold to the public in the United States and to
institutional investors, for an aggregate net consideration of about $243 million.
In addition, the Corporation signed an underwriting agreement whereby the underwriters were given an option
to acquire about 6 million shares of ICL at the price in the public offering. In October 2014, the option was
exercised by the underwriters for a net consideration of about $40 million.

As part of the financial transaction, the Corporation will receive protection against a decline in the price of an
ICL share below an average of 90% of the price of an ICL share in the said tender offer of ICLs shares on the
New York Stock Exchange, and the financial entities will enjoy an increase in the price of an ICL share above
an average of 130%.
On September 21, 2014, Standard &Poors Maalot, announced that the rating ilA+/stable remains unchanged.

37

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Furthermore, the Corporation entered into a financial transaction with financial entities in connection with 36.2
million ICL shares, which were transferred into the name of the financial entities. As part of the transaction, the
financial entities provided the Corporation an initial amount of about $191 million, which is essentially a loan.

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT
List of Transactions for Hedging Exposures (Table of Positions in Derivatives) of the Corporation on a
Consolidated Basis as at September 30, 2014
Recognized for Accounting Purposes
Not Recognized for Accounting Purposes
Par Value
Fair Value
Par Value
Fair Value
Long
Short
Long
Short
Long
Short
Long
Short
Millions of Dollars

Hedging changes in variable LIBOR


interest rate on dollar loans (1)
Up to one year
CAP options
FLOOR options
COLLAR transactions
IRS transactions
More than one year
CAP options
IRS transactions

4
4
20
25

48

332

(21)

100
417

(1)
(6)

112

20

25

12

386

38

132

97

17

48

170

Up to one year
SWAP to dollar liability with variable
interest from index-linked liability with
fixed interest
SWAP to dollar liability with variable
interest from shekel liability with fixed
interest
SWAP to dollar liability with variable
interest from shekel liability with
variable interest

More than one year


SWAP to dollar liability with variable
interest from index-linked liability with
fixed interest

SWAP to dollar liability with variable


interest from shekel liability with fixed
interest

SWAP to dollar liability with fixed


interest from index-linked liability with
fixed interest

SWAP to dollar liability with fixed


interest from shekel liability with fixed
interest

(1)
Long liability for payment in fixed interest.
Short liability for payment in variable interest.

38

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Hedging changes in exchange rate


and interest rate on loans

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
List of Transactions for Hedging Exposures (Table of Positions in Derivatives) of the Corporation on a
Consolidated Basis as at September 30, 2014

Recognized for Accounting Purposes


Not Recognized for Accounting Purposes
Par Value
Fair Value
Par Value
Fair Value
Long
Short
Long
Short
Long
Short
Long
Short
Millions of Dollars

Hedging changes in the CPI-linked


interest rate
Other derivatives in a subsidiary
More than one year
Transactions for hedging fuel prices
Forward contract up to one year

70
13

(7)
(1)

260
260

(45)
37

Euro/Dollar
Forward contract
Call options
Put options

94
94

319

(6)

Shekel/Dollar
Forward contract
Call options
Put options

217
767
767

(8)
(28)
2

Transactions hedging energy prices


and shipping fees
Up to one year
More than one year
Transactions hedging share prices
more than one year
Call options on an ICL share
Put options on an ICL share
Hedging changes in exchange rates
on cash flows (2)

(2)

Long receipt in dollars against the counter currency.


Short payment in dollars against the counter currency.

39

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Up to one year

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
List of Transactions for Hedging Exposures (Table of Positions in Derivatives) of the Corporation on a
Consolidated Basis as at September 30, 2014

Recognized for Accounting Purposes


Not Recognized for Accounting Purposes
Par Value
Fair Value
Par Value
Fair Value
Long
Short
Long
Short
Long
Short
Long
Short
Millions of Dollars

Hedging changes in exchange rates


on cash flows (2) (Cont.)
Yen/Dollar
Forward contract
Call options
Put options

8
13
13

1
1

British pound/Euro
British pound / euro up to one year
British pound / euro call options
British pound / euro put options

35
15
15

(1)

British pound/Dollar
British pound / dollar up to one year
British pound / dollar call options
British pound / dollar put options

45
9
9

Other
Dollar / New Suli foroni

52

(7)

Long receipt in dollars against the counter currency.


Short payment in dollars against the counter currency.

40

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(2)

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses with respect to changes in market factors (consolidated)
Market risks embody the potential for changes in the fair value of the financial instruments or of the cash flows
deriving from them, which are comprised of the following types of risk:
1.

Currency risk as a result of changes in the exchange rates of various currencies in reference to the
exchange rate of the dollar with respect to which the Corporation measures the exposure.

2.

Interest rates risk as a result of changes in the market interest rates.

3.

Price risk as a result of changes in market prices.

4.

Index risk as a result of changes in the CPI.

The sensitivity analysis was made for the risk factors that characterize the exposure components, for changes in
the exchange rates, changes in the dollar interest rate, changes in the shekel interest rate, changes in the real
(inflation-adjusted) interest rate, changes in the prices of shares, goods and services and changes in price
volatility of an ICL share.
Measurement of the changes in the fair value is made in millions of dollars. In the following tables, the changes
are presented with respect to instruments that are sensitive to the parameters stated in the heading of each table
and that relate to the fair value of instruments sensitive to the parameter presented. An increase means a
strengthening of the dollar against the counter currency. A decrease means a weakening of the dollar against the
counter currency.

41

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The Group made sensitivity analyses in respect of changes in the market factors in the upper and lower range
of 5% and 10%, except for interest rates and prices of raw materials and commodities. In light of the low
interest rates, the sensitivity analyses to changes in the interest rates were made with an increase and a decrease
of 50 and 100 base points (BP), for the existing interest curves, in order to better reflect the exposure to the
interest rates. The sensitivity analyses to changes in the commodity prices were made with an increase and a
decrease of 20% and 50%. The market analyses were made as at the date of the financial statements.

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses in respect of changes in market factors (consolidated)
Sensitivity to changes in interest
Sensitivity to changes in shekel interest linked to the CPI:

Instrument Type
Long-term loans from banks
Debentures
SWAP transactions from
index to dollar*
Total

Increase
(decrease)
in fair value
$ millions
Rise of 100 BP

Increase
(decrease)
in fair value
$ millions
Rise of 50 BP

40
28

21
14

(23)
45

(12)
23

Increase
(decrease)
in fair value
$ millions
Fall of 50BP

Increase
(decrease)
in fair value
$ millions
Fall of 100 BP

(620)
(891)

(22)
(15)

(45)
(29)

74
(1,437)

12
(25)

24
(50)

Increase
(decrease)
in fair value
$ millions
Fall of 50BP

Increase
(decrease)
in fair value
$ millions
Fall of 100 BP

Fair value
$ millions

Increase
(decrease)
in fair value
$ millions
Rise of 100 BP

Instrument Type
Debentures
SWAP transactions from
shekel interest to fixed
dollar interest *
SWAP transactions from
index and shekel to fixed
dollar interest *
Total

Increase
(decrease)
in fair value
$ millions
Rise of 50 BP

Fair value
$ millions

(221)

(2)

(4)

(4)

(2)

11

(13)
(13)

(6)
(6)

8
(202)

7
7

14
14

* These transactions were entered into for exchange of currency and/or interest rate in respect of the liabilities.

42

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Sensitivity to changes in shekel interest:

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses in respect of changes in market factors (consolidated) (Cont.)
Sensitivity to changes in interest (Cont.)
Sensitivity to changes in the fixed dollar interest rate:
Increase
(decrease)
in fair value
$ millions
Rise of 100 BP

Instrument Type
Long-term loans from banks
Debentures
SWAP transactions from shekel
and index to fixed dollar*
IRS transactions variable to
fixed*
Call options on an ICL share
(sold)
Put options on an ICL share
(purchased)
Total

Increase
(decrease)
in fair value
$ millions
Rise of 50 BP

Fair value
$ millions

(1,335)
(1,063)

Increase
(decrease)
in fair value
$ millions
Fall of 50BP

Increase
(decrease)
in fair value
$ millions
Fall of 100 BP

(17)
(25)

(34)
(51)

33
48

16
24

18

30

(9)

(19)

41

21

(26)

(21)

(42)

(3)

(1)

(45)

(4)
133

(2)
67

37
(2,402)

Increase
(decrease)
in fair value
$ millions
Rise of 10%

Increase
(decrease)
in fair value
$ millions
Rise of 5%

(62)
(89)

(31)
(45)

76
(75)

38
(38)

2
(69)

4
(139)

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

(620)
(891)

31
45

62
89

74
(1,437)

(38)
38

(75)
76

Instrument Type
Long-term loans from banks
Debentures
SWAP transactions from
index to dollar*
Total

Fair value
$ millions

* These transactions were entered into for exchange of currency and/or interest rate in respect of the liabilities.

43

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Sensitivity to changes in the CPI:

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses in respect of changes in market factors (consolidated) (Cont.)
Sensitivity to changes in exchange rates:
(An increase means strengthening of the dollar against the counter currency, a decrease means weakening of the dollar
against the counter currency)

Shekel/USD
Increase
(decrease)
in fair value
$ millions
Rise of 10%

Instrument Type
Cash and cash equivalents
Short-term deposits and loans
Trade receivables
Other receivables and debits
Long-term receivables and
debits
Trade payables
Other payables and credits
Long-term loans from banks
Debentures
SWAP transactions from
shekel to dollar*
Currency options
Forward currency transactions
Call option on an ICL share
(sold)
Put option on an ICL share
(purchased)
Total

Increase
(decrease)
in fair value
$ millions
Rise of 5%

Fair value
$ millions

246
21
89
39

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

12
1
4
2

25
2
9
4

1
(17)
(7)
(41)
(60)

2
(33)
(14)
(85)
(126)

(24)
(2)
(9)
(4)

(12)
(1)
(4)
(2)

(2)
33
14
73
104

(1)
17
7
38
54

22
(331)
(138)
(782)
(1,139)

(109)
(80)
(19)

(57)
(45)
(10)

93
(26)
(8)

63
29
11

134
67
23

11

(45)

(7)

(15)

7
(7)

4
(6)

37
(1,922)

(4)
(13)

(7)
(14)

44

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

* These transactions were entered into for exchange of currency and/or interest rate in respect of the liabilities.

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses in respect of changes in market factors (consolidated) (Cont.)
Sensitivity to changes in exchange rates: (Cont.)
EURO/USD

Instrument Type
Cash and cash equivalents
Short-term deposits and loans
Trade receivables
Other receivables and debits
Inventory
Credit from banks and others
Trade and other payables
Other payables and credits
Long-term loans from banks
Forward transactions
Total

Increase
(decrease)
in fair value
$ millions
Rise of 10%

Increase
(decrease)
in fair value
$ millions
Rise of 5%

(7)
(1)
(28)
(3)
(1)
10
18
14
20
(36)
(14)

(4)

(14)
(1)

5
9
7
10
(17)
(5)

Increase
(decrease)
in fair value
$ millions
Rise of 10%

Increase
(decrease)
in fair value
$ millions
Rise of 5%

(2)
(8)
3
3
1
(3)

(1)
(4)
1
1
1
(2)

Fair value
$ millions

70
9
279
25
9
(96)
(184)
(141)
(200)
(6)
(235)

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

14
1

(5)
(9)
(7)
(10)
15
3

7
1
28
3
1
(10)
(18)
(14)
(20)
29
7

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

1
4
(1)
(1)
(1)
2

2
8
(3)
(3)
(1)
3

Instrument Type
Cash and cash equivalents
Trade receivables
Credit from banks and others
Trade and other payables
Other payables and credits
Total

45

Fair value
$ millions

18
79
(28)
(28)
(13)
28

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

\USD

Israel Corporation Ltd.


EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Sensitivity analyses in respect of changes in market factors (consolidated) (Cont.)
Sensitivity to changes in share prices:
Increase
(decrease)
in fair value
$ millions
Rise of 10%

Instrument Type
Call option on an ICL share
(sold)
Put option on an ICL share
(purchased)
Total

Increase
(decrease)
in fair value
$ millions
Rise of 5%

Fair value
$ millions

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

(14)

(7)

(45)

12

(6)
(20)

(3)
(10)

37
(8)

4
10

8
20

Increase
(decrease)
in fair value
$ millions
Fall of 5%

Increase
(decrease)
in fair value
$ millions
Fall of 10%

Instrument Type
Call options on an ICL share
(sold)
Put options on an ICL share
(purchased)
Total

Increase
(decrease)
in fair value
$ millions
Rise of 10%

Increase
(decrease)
in fair value
$ millions
Rise of 5%

(6)

(3)

(45)

5
(1)

37
(8)

(3)

(5)
1

46

Fair value
$ millions

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Sensitivity to changes in share volatility:

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS
Set forth below are significant updates and/or changes in the Corporations business that occurred from the
publication date of the of the Corporations Annual Report for 2013 on March 26, 2014 and up to the
publication date of this report3:
1.

To Section 4 of Paragraph A of the Periodic Report Acquisition, Sale or Transfer of Assets


A.

Further to the report dated March 19, 2014, on September 12, 2014, Israel Chemicals Ltd.
(hereinafter ICL) filed a prospectus (F-1) for purposes of registering its shares for trading on
the New York Stock Exchange (NYSE) in the United States. For additional details see the
Corporations Immediate Report dated September 12, 2014 (Ref. No. 2014-01-156525).

B.

Further to that stated in the reports dated March 19, 2014 and September 12, 2014, on
September 24, 2014, the Corporation reported that on September 24, 2014 the Corporation entered
into transactions with respect to shares of ICL, as stated below, in an aggregate scope of 78.4
million shares of ICL (constituting about 6.2% of ICLs issued share capital), and a pricing
process was completed in connection with sale of ICL shares pursuant to ICLs prospectus in the
United States.
As part of the Corporations sale offer, about 36.2 million shares of ICL were sold to the public in
the United States and to institutional investors in Israel. The total net proceeds received by the
Corporation in respect of the sale are about US$243 million. The aggregate proceeds (net) received
by the Corporation in respect of the sale are $243 million. The difference created between the
proceeds, as stated and the carrying value of the shares in the Corporations books, in the amount
of about $147 million, was recorded directly to retained earnings since the Corporation has
retained control over ICL.

Accordingly, as part of the tender offer and the Financial Transaction, as stated, a total of about
60.2 million ICL shares were sold by the Financial Entities, at a price of about US$7 per ICL
share. With respect to the said sale, the Corporation signed an underwriting agreement with ICL
and with U.S. underwriters (hereinafter the Underwriting Agreement). In addition, as part of
the Underwriting Agreement, the underwriters were granted an option (Green Shoe) to acquire up
to an additional 6 million shares, which may be exercised within 30 days. It is noted that the
Underwriting Agreement includes, among other things, representations and indemnification
arrangements between the underwriters, ICL and the Corporation.

Update of the Corporations business is prepared in accordance with Regulation 39A of the Securities Regulations
(Periodic and Immediate Reports), 1970, and includes significant changes or new developments in the Corporations
business that occurred from the publication date of the Corporations Annual Report for 2013 and up to the publication
date of this report. Unless it is expressly determined otherwise or where the context of the matters requires otherwise, all
the terms and expressions used in this report shall have the meaning existing for them in the Corporations Periodic
Report for 2013, which was published on March 27, 2014 (Ref. No. 2014-01-025926) (hereinafter the Periodic
Report). Every reference to an Immediate Report includes as part of this document all the information included in the
Immediate Report as stated.
47

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In addition, the Corporation entered into a financial transaction with entities from the Morgan
Stanley and Goldman Sachs groups (hereinafter the Financial Entities) (of the derivative type)
in connection with 36.2 million shares of ICL (hereinafter the Financial Transaction or the
Transaction and the Transaction Shares, respectively), which were transferred into the name of
the Financial Entities, as detailed below. As stated, as part of the Financial Transaction, the
Financial Entities provided the Corporation an initial amount that is essentially a loan, in the
amount of about $191 million. About 24 million shares out of the Transaction Shares were offered
for sale by means of underwriters in the prospectus published by ICL in New York.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 4 of Paragraph A of the Periodic Report Acquisition, Sale or Transfer of Assets
(Cont.)
B.

(Cont.)
It is further noted that the Corporation made a commitment to refrain from selling ICL shares
during a period of 180 days, subject to the terms agreed to.
Commencing from September 24, 2014, ICLs shares are traded on the New York Stock Exchange
(NYSE). After execution of the said transactions (and after full exercise of the aforesaid option to
the underwriters), the rate of the Corporations in the issued capital of ICL is about 49.1% in
equity and about 46.2% in the voting rights. As a result of the sale, no gain was recorded and the
expected increase in the Corporations equity is about $150 million.
With respect to the Financial Transaction, it is noted that on the dates provided in the financial
closing, an accounting will be made between the Corporation and the Financial Entities of their
liabilities with reference to the components of the Transaction all in accordance with the terms of
the Financial Transaction.
In the Financial Transaction provisions were made regarding, among other things, liabilities and
representations of the Corporation (including indemnity provisions and restrictions with respect to
execution of transactions in ICL shares during the closing period), and grounds were also provided
in the Financial Transaction for early closing of the Transaction, as well as violation events upon
the occurrence of which the Financial Entities will have the possibility, among other things, of
closing the Transaction early without returning the Transaction Shares. It is further noted that the
terms of the Transaction include provisions regarding making of changes in the structure of the
Transaction and/or adjustments by the Financial Entities during the Transaction period, including
with reference to its various components, the period and dates of the changes therein, among other
things, as a result of certain events in ICL or its shares and changes in the relevant market
conditions.
For additional details see the Corporations Immediate Report dated September 24, 2014
(Ref. No. 2014-01-164040).

C.

Further to the report dated September 24, 2014, regarding the Corporations undertaking in
transactions with respect to shares of ICL, on September 12, 2014, the Corporation updated that
the U.S. underwriters with which the Corporation has signed an underwriting agreement, as stated
in the above-mentioned report, exercised, on October 7, 2014, the option granted to them in the
underwriting agreement for acquisition of 6,015,814 ordinary shares of ICL at the price in the
public offering. After exercise of the option, the rate of the Corporations holding in ICLs issued
share capital is expected to be 49.02% and 46.18% in the voting rights. For additional details see
the Corporations Immediate Report dated October 12, 2014 (Ref. No. 2014-01-174588).

48

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

1.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
1.

To Section 4 of Paragraph A of the Periodic Report Acquisition, Sale or Transfer of Assets


(Cont.)
D.

Further to the report dated June 26, 2013, regarding that stated in Section 4.2 of the Corporations
Periodic Report for 2013 in the Corporations Periodic Reports for the first quarter and the second
quarter of 2014, on October 13, 2014, the Corporation published an Immediate Report pursuant to
Regulation 12(B) of the Securities Regulations (Transaction between a Company and a
Controlling Shareholder Therein), 2001 (hereinafter the Transaction with a Controlling
Shareholder Regulations), whereby the Corporation notified that on October 13, 2014, the
Corporation deposited a preliminary report with Securities Authority in accordance with
Regulation 12(B) of the Transaction with a Controlling Shareholder Regulations, in connection
with a distribution transaction (as defined below) that was approved on October 12, 2014, by the
Restructuring Committee that was appointed by the Corporations Board of Directors, on
October 12, 2014, by the Corporations Audit Committee, and was also approved on October 12,
2014, by the Corporations Board of Directors after a lengthy examination process and further to a
number of meetings held.

The highlights of the decision of the Board of Directors are approval, as a single unit, of the
corporate separation by way of transfer of the Corporations holdings in the following companies:
(a) I.C. Power Ltd., (b) Quantum (2007) LLC (which holds half of the equity of Qoros Automotive
Co. Ltd. (hereinafter Qoros)), (c) ZIM Integrated Shipping Services Ltd., (d) I.C. Green
Energy Ltd. and (e) Tower Semiconductors Ltd. (hereinafter together the Companies Being
Transferred), to a subsidiary of the Corporation, the shares of which will be distributed as a
dividend in-kind by the Corporation, in such a manner that on the date of completion of the
proposed transaction, a traded company will be created the shares of which are held by the
Corporations shareholders on the effective date of the distribution all in accordance with the
final format that will be approved by the Corporations Board of Directors (which may include
transfer of part of the holdings in the said companies being transferred) and as detailed in the
Transaction Report (heretofore and hereinafter the Distribution Transaction). It is clarified that
the Corporations holdings in Israel Chemicals Ltd. and in Oil Refineries Ltd., will remain in the
hands of the Corporation4.
The said approval includes execution of the Distribution Transaction, with all its components, the
transactions, adjustments and actions deriving therefrom, including an approval of:

It is possible that in the future the possibility will be considered of separating the Corporations holdings in Oil
Refineries Ltd. That stated is forward-looking information regarding which there is no certainty regarding its ultimate
realization, which is dependent on, among other things, decisions of the Corporation, the conditions in the market and
approvals that may be required.
49

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

That stated above is after taking into account, among other things, the position of the staff of the
Securities Authority, whereby the positon of the staff of the Securities Authority, whereby the
Corporations controlling shareholders are considered to be parties having a personal interest in
the distribution transaction. After receiving the reference of the Securities Authority to the
preliminary report, the Corporation filed a Transaction Report, as defined in the Transaction with a
Controlling Shareholder Regulations (hereinafter the Transaction Report), as stated in
subsection E. below. It is noted that the Corporations CEO and Deputy CEOs notified the Board
of Directors that the Corporation of their personal interests in approval of the distribution
transaction stated below, as will be detailed in the Transaction Report.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 4 of Paragraph A of the Periodic Report Acquisition, Sale or Transfer of Assets
(Cont.)
D.

(Cont.)
(a)

The Corporations undertaking in a separation agreement with its wholly-owned subsidiary,


Kenon, which includes (among other things): (i) transfer of the holdings in the companies
being transferred to Kenon, as stated above, and transfer of certain rights and liabilities in
connection with the companies being transferred from the Corporation to Kenon;
(ii) execution of an investment in the capital of Kenon in the amount of $100 million
(subject to a possible adjustment, as will be detailed in the Transaction Report); and
(iii) issuance of shares of Kenon to the Corporation in respect of the assets and rights to be
transferred from the Corporation to Kenon all as detailed in the Transaction Report; and

(b)

The Corporations undertaking in a loan agreement whereby, among other things, the
Corporation will provide Kenon a credit framework in an aggregate amount of up to $200
million, and in the framework thereof it will be provided that in a case of realization of
guarantees that the Corporation will remain responsible for with respect to Qoros5, the
amount for which the Corporation will be liable in a case of realization of these guarantees
will be considered a debt of Kenon to the Corporation and the provisions of the loan
agreement will apply to it, which certain changes; and

(c)

Distribution to the Corporations shareholders as a dividend in-kind, according to that


detailed in the Transaction Report, of the shares of Kenon; including registration of these
shares for trading, both on a stock exchange in New York (which is a foreign stock
exchange) and on the Tel-Aviv Stock Exchange, under Part E3 of the Securities Law, 1968,
and reporting by Kenon in English and in accordance with the reporting format of the
foreign law after the registration for trading, as stated, and distribution of a dividend in cash.

And including execution of the other actions, adjustments and commitments involved with
execution of the distribution transaction, including all its stages, which included, completion and
execution thereof, and the other accompanying arrangements (including, but not only, in
connection with liabilities relating to the companies being transferred that will remain in the
Corporation and agreements covering registration rights) all based on the principles detailed in
the Transaction Report.

For details regarding guarantees the Corporation provided to Qoros see the Corporations Immediate Report dated
August 7, 2014. As stated, these guarantees, in the aggregate amount of about $300 million as at the date of this report,
will remain in the Corporation after execution of the transaction. For details regarding the possibility of releasing the
guarantees against provision of shareholders loans see the Corporations Immediate Report dated October 1, 2014. As
stated in the above-mentioned Report, a format for provision of shareholders loans against release of the guarantees is
subject to obtaining consents, and there is no certainty it will ultimately be executed. To the extent that this format is
executed and the Corporation provides Qoros shareholders loans in the framework thereof, such amounts will be
reduced from the amount of the investment in the equity of Kenon, as stated.
50

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

1.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
1.

To Section 4 of Paragraph A of the Periodic Report Acquisition, Sale or Transfer of Assets


(Cont.)
D.

(Cont.)
In addition, the said approval includes agreement of the Restructuring Committee (or a party
authorized by it), to take all the required actions in order to complete, perfect and execute the
above-mentioned decisions based on the principles detailed in the Transaction Report, including
agreement to make all the adjustments and/or changes with respect to the manner of executing the
distribution transaction and/or regarding the assets being transferred in the framework thereof as a
derivative of, among other things, the demands that may be raised by third parties, which do not
have a significant impact on the distribution transaction taking into account all its aspects.
Subsequent to the date of the report, on November 24, 2014, the Corporation gave notice of
convening of General Meetings of the holders of the debentures (Series 6-9) which the
Corporation issued (hereinafter the Debentures) for purpose of receiving the consent of the
holders of the Debentures for the distribution transaction and revision of the trust indenture of the
relevant series a special decision for each series separately. It is noted that the even though the
trust indentures for all the Debenture series do not instructions and/or conditions whereby the
distribution transaction will constitute a violation thereof and/or will provide grounds for calling
the Debentures for immediate payment, the Corporation published this summons for convention of
Meetings, for the sake of good order and in order to receive the cooperation of the holders of the
Debentures and their consent for its execution.
It is noted that execution of the distribution transaction is subject to receipt of the approval and
consents of third parties (including regulatory approvals), as will be detailed in the Transaction
Report, which had not yet been received at the date of this report.
For additional details see the Corporations Immediate Report dated October 13, 2014
(Ref. No. 2014-01-175335).

2.

To Section 8 of Paragraph A of the Periodic Report Israel Chemicals Ltd. (hereinafter ICL)
A.

On April 30, 2014, Dead Sea Works (hereinafter DSW), a subsidiary of ICL, filed a request in
the District Court in Jerusalem to utilize its authority pursuant to Section 8 of the Arbitration Law,
1968, and to instruct with respect to appointment of an arbitrator on behalf of the State for
purposes of administering an arbitration proceeding between DSW and the State pursuant to the
mandatory arbitration condition between the parties. That stated above is further to DSWs
notification to the State of Israel regarding filing of a statement of claim as part of an arbitration
proceeding in connection with violation of the concession and DSWs request to appoint an
arbitrator on behalf of the State, and after the Ministry of Finance rejected DSWs request to
appoint an arbitrator on behalf of the State. For additional details see the Corporations
Immediate Reports dated March 30, 2014 and April 30, 2014 (Reference Nos. 2014-01-028239
and 2014-01-054201, respectively).

51

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Further to the said Immediate Report, the Corporations Board of Directors approved, at its
meeting on November 24, 2014, after approval of the Audit Committee and the Restructuring
Committee, the distribution transaction. A General Meeting of the Corporations shareholders will
be convened to approve the transaction.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 8 of Paragraph A of the Periodic Report Israel Chemicals Ltd. (hereinafter ICL)
(Cont.)
B.

On April 3, 2014, the Corporation notified that ICL was informed that regarding the matter of
phosphate mining permits in the Barir Field, the Minister of Health contacted the Head of the
Planning Administration in the Ministry of the Interior, and notified her that the opinion of the
expert appointed by the Ministry of Health was provided to her and after reading it carefully, she
has decided to oppose the possibility of mining in the Barir Field, including the test mining. ICL
notified that it is examining the notification of the Minister of Health and its consequences,
including with respect to the continued activities of the subsidiary, Rotem.

C.

On May 18, 2014, the Sheshinski Committee published draft recommendations for the publics
comments. For additional details see the Corporations Immediate Report dated May 18, 2014
(Ref. No. 2014-01-066780).

D.

On May 19, 2014, a partial arbitration decision was received regarding the matter of royalties. For
additional details see the Corporations Immediate Report dated May 20, 2014
(Ref. No. 2014-01-067818). On May 27, 2014, the Corporation made reference to the impact of
the partial arbitration decision on its financial statements as at March 31, 2014
(Ref. No. 2014-01-074403).

E.

On June 24, 2014, an economic administrative petition was filed in the District Court of Tel-Aviv
Jaffa (Economic Division) by S.F.A. Drillings Ltd., contending that it is an owner of ICL shares,
where the said claim is against the Securities Authority and ICL. Among other things, the Court is
requested to determine that ICL must publish a copy of the arbitration decision referred to in
subsection D above. For additional details see the Corporations Immediate Report dated
May 18, 2014 (Ref. No. 2014-01-098535).

F.

On August 28, 2014, ICL published an Immediate Report regarding decisions of ICLs Board of
Directors in connection with the factories Magnesium and Bromine Compounds Ltd. For
additional details see the Corporations Immediate Report dated August 28, 2014
(Ref. No. 2014-01-144426).

G.

On September 12, 2014, the Corporation reported that on September 12, 2014 ICL submitted a
prospectus (F-1) for purposes of registration of its shares for trading on the NYSE in the United
States. For additional details regarding transactions in ICL shares owned by the Corporation see
Section 1A above and the Corporations Immediate Report dated September 12, 2014
(Ref. No. 2014-01-156525).

H.

In connection with ICLs notification on September 12, 2014 of filing of a registration for trading
prospectus (F-1) for purposes of registering its shares for trading on the NYSE in the United States
and transactions in ICL shares owned by the Corporation, on September 12, 2014 ICL notified that
it is carrying on negotiations with a third party with respect to an undertaking in joint ventures
relating to existing and future phosphate rock mining activities and the sale thereof in developing
markets, as well as manufacturing, marketing and distribution of downstream phosphate rock
products in the said markets. As at September 12, 2014, the negotiations had not yet ripened into
in-principle commercial agreements, and the parties had not reached agreement regarding the
structure of the transaction and the consideration to be paid by ICL. Accordingly, binding
agreements have not yet been signed, and there is no certainty that these negotiations will
ultimately mature into binding agreements and/or that a transaction as referred to will be
completed.

52

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

2.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 8 of Paragraph A of the Periodic Report Israel Chemicals Ltd. (hereinafter ICL)
(Cont.)
H.

(Cont.)
To the extent the negotiations do finally ripen into binding agreements, ICL estimates the
consideration at several hundred million dollars. For additional details see the Corporations
Immediate Report dated September 14, 2014 (Ref. No. 2014-01-1566511).

I.

Further to the prospectus (F-1) ICL published on September 12, 2014, for purposes of registration
of its shares for trading on the NYSE in the United States together with a tender offer and a
financial transaction of the Corporation to the public outside of Israel and to certain investors
enumerated in the First Addendum to the Securities Law, 1968, on September 15, 2014, ICL
published a presentation program that will be used by ICLs management in meetings with
investors, as stated, in connection with the registration for trading in the United States and the
offer, as noted. The prospectus was not examined and was not approved by the Securities
Authority in Israel and an offering is not being made to the public in Israel. For additional details
see the Corporations Immediate Report dated September 16, 2014 (Ref. No. 2014-01-1258688).

J.

On September 22, 2014, ICL reported that on September 21, 2014, ICL received a request that was
filed in the District Court for certification of a class action claim against the subsidiary Dead Sea
Works Ltd. (hereinafter DSW), in the amount of about NIS 96.4 million (about $26.5 million).
In the request for certification of the class action claim it is alleged that the plaintiff is a farmer and
bought and buys potash in Israel produced by DSW for purposes of fertilizing. ICL and its legal
advisors are studying the request for certification of the class action claim. For additional details
see the Corporations Immediate Reports dated September 22, 2014 (Ref. Nos. 2014-01-161946
and 2014-01-162675).

K.

On October 6, 2014, the rating company, Standard & Poor's Maalot, downgraded ICL's credit
rating to 'ilAA' from a rating of 'ilAA+', with a stable rating outlook. For additional details see
the Corporations Immediate Report dated October 6, 2014 (Ref. No. 2014-01-171804).

L.

On October 21, 2014, ICL published an Immediate Report in connection with the final conclusions
of the Sheshinski Committee. ICL, with the assistance of its economic and legal advisors, will
examine the Committees recommendations, including the changes that were made in the
Committees final recommendations compared with the interim draft of the recommendations and
the impact thereof, including on ICLs business results. The Committees recommendations
require approval by the Government and legislative enactment by the Knesset and additional
changes may be made therein. For additional details see the Corporations Immediate Report
dated October 21, 2014 (Ref. No. 2014-01-177960).

M.

On October 26, 2014, ICL notified that on October 26, 2014, ICL and its subsidiary, BK Giulini
GmbH entered into an agreement with Kurita Water Industries for sale of business units in ICLs
Performance Products segment, which operate in a number of areas: solutions for treatment of
water and chemicals for paper, as well as aluminum compounds. The transaction will be for a
consideration of approximately 250 million. Closing of the transaction is expected to take place
towards the end of 2014, subject to the completion of certain preconditions set forth in the sale
agreement. There is no certainty that the transaction will be completed and/or that the transaction
will be completed in accordance with the terms set forth above. For additional details see the
Corporations Immediate Report dated October 27, 2014 (Ref. No. 2014-01-181440).

53

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

2.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 8 of Paragraph A of the Periodic Report Israel Chemicals Ltd. (hereinafter ICL)
(Cont.)
N.

3.

For details regarding description of the business environment and an analysis of the business
results and financial statements of ICL for the period ended September 30, 2014 see the
Corporations Immediate Report dated November 12, 2014 (Ref. No. 2014-01-193185).

To Section 9 of Paragraph A of the Periodic Report ZIM Integrated Shipping Services Ltd.
(hereinafter ZIM)
A.

On May 15, 2014, the Corporation notified that on May 14, 2014, the Corporations Board of
Directors approved, after receiving the approval of the Special Committee and the Corporations
Audit Committee, the Corporations part in the arrangement all as detailed in the Transaction
Report. For additional details see the Corporations Immediate Report dated May 15, 2014
(Ref. No. 2014-01-064428).

B.

On May 18, 2014, the Corporation published a Transaction Report, as defined in the Securities
Regulations (Transaction between a Company and a Controlling Shareholder Therein), 2001
(hereinafter the Transaction Report), and gave notice of convening of an Extraordinary
General Meeting of the Corporations shareholders, on June 23, 2014 (the said Meeting was
postponed to June 27, 2014). For additional details see the Transaction Report dated May 18,
2014 (Ref. No. 2014-01-066804), the Corporations report regarding postponement of the
Meeting, dated May 17, 2014 (Ref. No. 2014-01-092787), and the Amended Transaction Report,
dated June 20, 2014 (Ref. No. 2014-01-095181; 2014-01-095184).

C.

On May 22, 2014, ZIM filed an urgent request in the District Court of Haifa, to convene a meeting
of shareholders and holders of rights to receive and/or purchase shares of ZIM (hereinafter the
Options). For additional details see, among other things, Section 3.3.5 of the Amended
Transaction Report, dated June 20, 2014 (Ref. No. 2014-01-095184) and the Corporations
Immediate Report, dated June 25, 2014 (Ref. No. 2014-01-098499)

D.

On June 27, 2014, the General Meeting of the Corporations shareholders the Transaction Report
Corporations part in ZIMs arrangement. For additional details see the Corporations Immediate
Report regarding the results of the Meeting, dated June 29, 2014 (Ref. No. 2014-01-100914) and
additional Immediate Reports regarding the results of the Meeting, dated July 6, 2014, July 9,
2014 and July 20, 2014 (Ref. Nos. 2014-01-107205, 2014-01-107613, 2014-01-108900,
2014-01-109206 and 2014-01-117237, respectively).

E.

On July 2, 2014, the Corporation gave notice that some of the preconditions for completion of the
transaction as detailed in the Transaction Report were not fulfilled by July 1, 2014, the date set for
fulfillment of the preconditions for execution of the arrangement. For additional details see the
Corporations Immediate Report, dated July 2, 2014 (Ref. No. 2014-01-105141).

F.

On July 2, 2014 in the afternoon, the District Court in Haifa decided (Liquidation 42082-05-14)
(hereinafter the Decision of the Haifa District Court) to update the terms of ZIMs Special
State Share. For additional details see the Corporations Immediate Report, dated July 2, 2014
(Ref. No. 2014-01-105696).

G.

Further to Immediate Reports dated July 2, 2014, on July 6, 2014, the Corporation gave notice of
its decisions regarding ZIMs arrangement. For additional details see the Corporations
Immediate Report, dated July 6, 2014 (Ref. No. 2014-01-106971).

54

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

2.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 9 of Paragraph A of the Periodic Report ZIM Integrated Shipping Services Ltd.
(hereinafter ZIM) (Cont.)
H.

On July 8, 2014, the Corporation gave notice that on July 7, 2014 the State filed an appeal in the
Supreme Court (Civil Appeal 4796/14) with respect to the Decision of the Haifa District Court
regarding update of the conditions of the Special State Share. For additional details see the
Corporations Immediate Report, dated July 8, 2014 (Ref. No. 2014-01-109698).

I.

On July 14, 2014, the Corporation gave notice that the State and ZIM reached a compromise
agreement that received the force of a court decision For details, including a description of the
compromise agreement see the Corporations Immediate Report, dated July 14, 2014
(Ref. No. 2014-01-113874).

J.

On July 15, 2014, the Corporation gave notice that further to the Corporations Immediate Report
dated February 17, 2014, regarding a petition filed with the Supreme Court sitting as the High
Court of Justice by the Union of Marine Officers and others (hereinafter the Petitioners) in
connection with ZIMs Special State Share, on July 13, 2014, at the request of the Petitioners, the
High Court of Justice decided to cancel the petition with no order for expenses. For additional
details see the Corporations Immediate Report, dated July 15, 2014 (Ref. No. 2014-01-114378).

K.

On July 15, 2014, the Corporation gave notice that the District Court in Haifa approved the
arrangement between ZIM and ZIMs shareholders. For additional details see the Corporations
Immediate Report, dated July 15, 2014 (Ref. No. 2014-01-114441).

L.

On July 15, 2014, the Corporation published a summary of its decisions with respect to fulfillment
of the preconditions relating to transfer of ZIMs shares that were owned by the Corporation after
completion of the arrangement that is the subject of the Transaction Report. For additional details
see the Corporations Immediate Report, dated July 15, 2014 (Ref. No. 2014-01-114915).

M.

On July 16, 2014, the Corporation notified that, as it was informed by ZIM, as at July 15, 2014 at
night, the consents required for execution of ZIMs arrangement were obtained, and the activities
with respect to completion of the arrangement were commenced. For additional details see the
Corporations Immediate Report, dated July 17, 2014 (Ref. No. 2014-01-115170).

N.

On July 17, 2014, the Corporation gave notice that on July 16, 2014, after all the preconditions for
execution of the Corporations part in ZIMs arrangement, the arrangement was completed. For
additional details see the Corporations Immediate Report, dated July 17, 2014
(Ref. No. 2014-01-115932).

O.

On August 6, 2014, the Corporation was served with a copy of a request for certification of a claim
as a derivative claim (and a copy of the claim), which was filed in the District Court in Tel-Aviv
Jaffa (the Economics Division) by a Corporation shareholder that allegedly holds 19 of the
Corporations shares, against the Corporation, ZIM, Messrs. Gideon Langholtz, Oded Dagani,
Zahavit Cohen and Michael Bricker (who serve as Corporation directors) and against Millennium
Investments Elad Ltd. and Mr. Idan Ofer. The requesting party contends, in brief, that the
Corporations undertaking and its execution of an interested party transaction as part of ZIMs
debt arrangement were made in violation of the authorization contrary to approval of the General
Meeting of the Corporations shareholders, and also that the precondition for the Corporations
entry into this undertaking was not fulfilled. For additional details see Note 6 to the
Corporations financial statements as at September 30, 2014, and the Corporations Immediate
Report, dated August 7, 2014 (Ref. No. 2014-01-128847).

55

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

3.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 11 of Paragraph A of the Periodic Report I.C. Power Ltd. (hereinafter ICP)
A.

On April 2, 2014, the Corporation notified that in connection with acquisition of the power station
with a capacity of 193 megawatts in the Chilca district in Peru, by Kallpa Generacion, a subsidiary
of ICP, which is wholly owned by the Corporation, all the required regulatory approvals were
received for the transaction and commencing from April 1, 2014, the power station is owned by
Kallpa Generacion. In addition, further to the Immediate Report dated February 19, 2014, with
respect to acquisition of the shares of AEI Nicargua Holdings, and AEI Jamaica Holdings, the
Corporation notified that at this stage the preconditions have been fulfilled and the approvals for
the transaction with respect to acquisition of the shares of AEI Nicargua Holdings only have been
received. For additional details see the Corporations Immediate Reports dated February 19,
2014 and April 2, 2014 (Reference Nos. 2014-01-042379 and 2014-01-035760, respectively).

B.

On May 1, 2014, the Corporation notified that Inkia Americas Holdings Ltd., an indirect
subsidiary of ICP, which is wholly owned by the Corporation, signed, on April 30, 2014, together
with ICP, as a guarantor for the sellers liabilities, an agreement for sale of shares of Enersis SA.
Pursuant to the agreement, ICP will sell its shares in Inkia Holdings (Acter) Limited, which holds,
indirectly, 39.01% of Gas Peruenerand SA, the controlling shareholder in Edegel SA, for a
consideration of $413 million. In addition, the Corporation has the right to receive dividends based
on its proportionate in Edegel SA for the period up to the shares of Enersis to the extent it is
decided to distribute a dividend.
Execution of the agreement is contingent on fulfillment of certain preconditions that are customary
in transactions of this type. Upon execution of the agreement, the consideration will be paid in
cash against transfer of the shares. Upon closing of the transaction, and as a result of sale of Inkia
Holdings (Acter) Limited, ICP will transfer all its holdings in the following companies to Eneresis:
Southern Cone Power Ltd.; Latin America Holdings I Ltd.; Latin America Holdings II Ltd.;
Southern Cone Power Peru SAA and Generandes Peru
ICP holds indirectly 21.14% of the shares of Edegel SA, a Peru company that holds and operates
power stations in Peru, having a production capacity of 1,657 megawatts. For additional details
see the Corporations Immediate Report dated May 1, 2014 (Ref. No. 2014-01-054399).
On September 4, 2014, the Corporation notified that on September 3, 2014, the aforesaid
transaction for sale of ICPs indirect holdings in Edegel SA was completed after the preconditions
for the transaction were fulfilled and the consideration, in the amount of about $413 million was
received. For additional details see the Corporations Immediate Report dated September 4, 2014
(Ref. No. 2014-01-150942).
As a result of the above-mentioned sale transaction, ICP recognized a capital gain (net of tax), in
the amount of about $110 million.

56

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

4.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
4.

To Section 11 of Paragraph A of the Periodic Report I.C. Power Ltd. (hereinafter ICP)
(Cont.)
C.

Further to the Immediate Report dated February 19, 2014, in connection with acquisition of shares
of AEI Nicaragua Holdings and AEI Jamaica Holdings, and further to the Immediate Report dated
April 2, 2014, in connection with regarding completion of the transaction for acquisition of
AEI Nicaragua Holdings, on June 1, 2014, the Corporation gave notice that on May 30, 2014,
acquisition of AEI Jamaica Holdings was completed after all the preconditions were fulfilled and
the approvals for the transaction were received. For additional details see the Corporations
Immediate Report dated June 1, 2014 (Ref. No. 2014-01-080562).

D.

In August 2014, I.C. Power, through Inkia, signed an agreement with AEI Power for acquisition of
all its shares in AEI Guatemala, for a cash consideration of $29 million. AEI Guatemala holds
Puerto Querzal Power (PQP), which operates the power station in Guatemala, which is installed
on 3 rafts and operates using crude oil with an aggregate capacity of 234 megawatts. The
transaction is subject to preconditions that are customary for transactions of this type, such as
approvals from third parties, which are expected to be received in the third quarter of 2014.
That stated in this section regarding approvals from third parties includes forward-looking
information, which is based on the estimates of I.C. Power and derives from decisions of the
relevant authorities. It is possible that ultimately the approvals from third parties will be delayed or
will not be received due to, among other things, a change in the policies of those authorities and/or
other changes relating to these authorities.

E.

To Section 12 of Paragraph A of the Periodic Report Qoros


A.

Further to that stated in Section 12.2 of the Corporations annual report, on June 10, 2014, the
Corporation updated that on September 9, 2014, the Corporation transferred to Qoros the amount
of $81 million, by means of a convertible shareholders loan, and thus completed its obligation to
invest in Qoros based on its business plan, except for an obligation of about $4 million that has not
yet been transferred. The loan will be converted into equity of Qoros, after receipt of all the
approvals from the government of China. To the extent the said approvals are not received, Qoros
committed to repay the loan to the Corporation plus interest. For additional details see the
Corporations Immediate Report dated June 10, 2014 (Ref. No. 2014-01-087186).

B.

Further to that stated in Sections 12.2.14 and 12.2.3 of the Corporations annual report for 2013,
from March 27, 2014, the Corporation and Section 4 to the Periodic Report for the first quarter of
2014 from May 28, 2014, in connection with matters relating to financing of Qoros, on August 7,
2014, the Corporation gave notice as follows:

57

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

5.

In October 2014, Kanan Overseas (hereinafter Kanan), a subsidiary of I.C. power in Panama,
which was set up for purposes of that stated below, won a tender for supply of 86 megawatts
during a period of five years to distribution companies in Panama, commencing from July 2015.
Supply of the electricity will be made from two of the companys existing rafts located in
Guatemala and in the Dominican Republic, which will be moved to Panama.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
To Section 12 of Paragraph A of the Periodic Report Qoros (Cont.)
B.

(Cont.)
(1)

In connection with a financing agreement of Qoros from July 2012, on July 31, 2014, the
Corporation provided an irrevocable guarantee for the benefit of Chery (hereinafter the
2014 Guarantee), in respect of half of every amount that Chery will pay under a guarantee
provided by Chery to a company in a city in the district in which the production facility of
Qoros is located, which provided a guarantee for the said financing. The 2014 Guarantee is
up to an aggregate amount of RMB 750 million plus accompanying expenses and interest
(in the aggregate amount of about $155 million as at the date of this report), on the basis of
the terms Chery committed to (back-to-back) and subject to the terms of the guarantee. It is
clarified that the said 2014 Guarantee is in addition to the guarantee provided by the
Corporation in connection with the said financing agreement from July 2012, as stated in the
Corporations Immediate Report dated July 24, 2012. The total amount of the guarantee
including the 2012 guarantee and the 2014 guarantee is about RMB 1.5 billion (about $300
million) including accompanying expenses and interest.

(2)

In addition, in order to secure additional financing taken out by Qoros, in the amount of
about RMB 1.2 billion (about $200 million as at the date of this report), the Corporation
placed a lien on part of its shares in Qoros (including a dividend deriving therefrom), based
on its proportionate share in the capital of Qoros, in favor of the Chinese bank that provided
the said financing to Qoros. At the same time, Cherys subsidiary (through which Cherys
rights in Qoros are held) also placed a lien on a corresponding part of its rights in Qoros.

For additional details see the Corporations Immediate Report dated August 7, 2014
(Ref. No. 2014-01-128814).
C.

Pursuant to the estimate of Qoros, Qoros will require additional long-term financing up to the first
quarter of 2015, in the amount of RMB 1.2 billion (about $200 million). The financing banks may
require collaterals from the shareholders of the joint venture, in connection with provision of
financing, in whole or in part, as stated. The terms of the financing of this loan have not yet been
agreed to.
That stated in this section includes forward-looking information, which includes information in
connection with the business plan of the joint venture, as it is updated from time to time, and is
based on the estimate of the joint venture on the date of this report. It is possible that the business
plan of the joint venture will be significantly different and/or will require adjustments or updates
and, accordingly, there may be demands from the financing banks for provide additional
collaterals by the shareholders of the joint venture. In the estimation of Qoros, the guarantee it
provided in 2012 and the other guarantee which the Corporation provided in the period of the
report (which back up a loan of RMB 3 billion), will be cancelled by end of the first quarter of
2015. Cancellation of the guarantees, as stated, is contingent on approvals from the financing bank
and there is no certainty that, in fact, they will be cancelled, in whole or in part, and within the
timetables, as stated. For additional details regarding the format for release of the guarantees see
subsection E. below.

58

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

5.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)

6.

To Section 12 of Paragraph A of the Periodic Report Qoros (Cont.)


D.

Further to that stated in Section 12.2.3A of the Corporations annual report, in connection with an
agreement with the shareholders of Qoros (in this Section the Agreement), including an
expected revision to the Agreement, in August 2014, a revision to the Agreement was signed that
updates certain provisions in the Agreement, among others, regarding joint appointment by the
parties of the CEO and the CFO of Qoros, regarding the ownership of Qoros of the intellectual
property in connection with the products of Qoros (including use and development arrangements
with Chery), and regarding transfer of rights in Qoros. In addition, the arrangements were updated
regarding the process of determining the value of Qoros by appraisers in a case of sale of rights in
Quantum to Chery where there is a cancellation of the Agreement (on the conditions provided
therein), and it was also updated that in a case of liquidation, pursuant to that provided in the
Agreement, all the assets of Qoros will be included as part of the assets of Qoros to be sold in the
liquidation. It is noted that to the extent an approval is required from the authorities in China, the
revision to the Agreement will be contingent on receipt of approval from the authorities, as stated.

E.

On October 1, 2014, the Corporation reported that on September 30, 2014, the Corporations
Board of Directors approved a framework for provision of shareholders loans to Qoros against
release of the Corporation from guarantees it provided in connection with financing Qoros took
out, in the aggregate amount of about $300 million, as at October 1, 2014 (for details regarding the
guarantees provided by the Corporation as stated see the Corporations Immediate Report dated
August 7, 2014) (hereinafter the Guarantees). As part of the said framework, the Corporation
will provide shareholders loans to Qoros during the fourth quarter of 2014, in the aggregate
amount of about $60 million against release of half of the Guarantees, and during the first quarter
of 2015 the Corporation will provide shareholders loans to Qoros in the aggregate amount of
about $70 million against release of most of the balance of the Guarantees. The framework for
provision of the Guarantees, as stated, will be executed concurrently by Chery, with reference to
the guarantees it provided in connection with financing of Qoros, as stated in the above-mentioned
Immediate Report. It is emphasized that as at October 1, 2014, a framework for provision of
shareholders loans against release of the Guarantees and execution of its terms had not yet been
signed, including the timetables subject to signing of a framework as stated by all the relevant
parties and execution thereof accordingly. There is no certainty that the framework as stated will
be signed or that it will be executed in accordance with the terms detailed above. For additional
details see the Corporations Immediate Report dated October 1, 2014
(Ref. No. 2014-01-167532).

To Section 19 of Paragraph D of the Periodic Report Description of the Corporations Business,


Legal Proceedings
For details regarding legal proceedings to which the Corporation is a party see Note 6 to the
Corporations financial statements as at September 30, 2014.

59

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

5.

Israel Corporation Ltd.


UPDATE REGARDING DESCRIPTION OF THE CORPORATIONS BUSINESS (Cont.)
7.

To Section 13 of Paragraph D of the Periodic Report Human Resources


A.

On March 26, 2014, the Corporation published a notice of convening of a General Meeting of the
Corporations shareholders for purposes of approving the remuneration policy with respect to the
Corporations officers (hereinafter the Remuneration Policy), after having held discussions
with the Corporations shareholders and with the Company for Consulting to Institutional Entities,
as a result of which the Corporations updated the Remuneration Policy, and after the
Corporations Board of Directors held several discussions regarding the matter of the updated
Remuneration Policy and after it considered the recommendation of the Remuneration Committee
with reference to the updated Remuneration Policy, the Corporations Board of Directors approved
the Remuneration Policy. On May 1, 2014, the General Meeting of the Corporations shareholders
approved the Remuneration Policy for the Corporations officers as detailed in Section 1 of the
Report Convening the Meeting. For additional details see the Corporations Immediate Reports
dated March 26, 2014 and May 1, 2014 (Reference Nos. 2014-01-025239 and 2014-01-055587,
respectively).

8.

B.

On June 15, 2014, Mr. Yoav Doppelt ceased serving as a Corporation director. For additional
details see the Corporations Immediate Report dated September 16, 2014 (Reference
No. 2014-01-091488).

C.

On September 21, 2014, and further to publications in the media on the same date, the Corporation
clarified that as part of examination of the transaction for restructuring its holdings, with respect to
the Corporation reported on June 26, 2013, in the Corporations Periodic Report for 2013 and in
the report for the second quarter of 2014, the Corporation notified that the Corporations CEO,
Mr. Nir Gilad, is expected to conclude his service, this being in connection with the split-up of the
Corporations holdings the Corporation expects to bring for the approval of the shareholders in the
upcoming weeks. On October 13, 2014, the Corporation gave notice that effective from the
completion date of split-up of the Corporations holdings, to the extent completed, Mr. Nir Gilad
will conclude his service as the Corporations CEO. The Corporations Board of Directors
resolved to appoint Mr. Avisar Paz, who serves as at the date of this report, as the Corporations
CFO, to serve as the Corporations CEO. Mr. Natan Yalovsky was appointed to be the
Corporations acting CFO, effective from the completion date of the split-up of the Corporations
holdings, to the extent completed. As at the date of this report, Mr. Natan Yalovsky serves as the
Corporations controller. For additional details see the Corporations Immediate Reports dated
September 22, 2014, September 25, 2014 and October 13, 2014 (Reference Nos. 2014-01-162321,
2014-01-164043 and 2014-01-175305, respectively).

To Section 15 of Paragraph D of the Periodic Report Financing


On September 21, 2014, Maalot reaffirmed the Corporations credit rating of ilA, with a stable rating
outlook. The Corporation does not expect to be adversely affected by implementation of the split-up plan
based on the format published. For additional details see the Corporations Immediate Report dated
September 21, 2014 (Reference No. 2014-01-161598). In addition, for additional details regarding ICLs
credit rating see Section 2K above.

60

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In June 2014, the Corporations Remuneration Committee and Board of Directors approved
updates to the employment terms of the Corporations Deputy CEOs regarding retirement terms
and salary within the limits provided in the remuneration policy, as approved on May 1, 2014. The
Remuneration Committee and Board of Directors also approved provision of bonuses in respect of
2013 to the Corporations Deputy CEOs in an amount of up to four monthly salaries, and after it
was determined that provision of the bonuses, as stated, conforms with the approved remuneration
policy, as stated, and is reasonable under the circumstances of the matter.

Israel Corporation Ltd.


DISCLOSURE REGARDING THE APPROVAL PROCESS OF THE CORPORATIONS FINANCIAL
STATEMENTS
The Committee for Examination of the Financial Statements (hereinafter the Balance Sheet Committee) is a
separate committee that does not also serve as the Corporations Audit Committee.
The Committee has 5 members: Mr. Oded Degani (external director and Chairman of the Board); Mr. Gideon
Langholtz (external director); Mr. Zev Nehari (director); Ms. Zahavit Cohen (independent director); and
Mr. Dan Zusskind (independent director). Four of the five member of the Committee have accounting and
financial expertise. All of the members provided a declaration in accordance with the Companies Regulations
(Provisions and Conditions regarding the Approval Process of the Financial Statements), 2010, as required at
the time of the appointments. For additional details regarding the members of the Committee see Part E to the
Periodic Report for 2013.
Set forth below is the name and position of each senior officer, interested party, family member of any of these
and/or a party on his behalf that was present at the meetings of the Committee: Messrs. Ron Moshkovitz,
Chairman of the Board of Directors, Amnon Leon, Eitan Raf, Michael Bricker and Aviad Kaufman, directors
(who participated in the stage of presentation of the matters only); Nir Gilad, CEO, Avisar Paz, Chief CFO;
Maya Alscheich-Kaplan, Deputy CEO, Legal Advisor and Corporation Secretary; Eran Sarig, Deputy CEO,
Business Development and Strategy; and Eli Goldschmit, Deputy CEO, Communications and Regulation. In
addition, representatives of the auditing CPAs from the Office of KPMG were present: Messrs. Zion Amsalem,
CPA, and Yagel Drori, CPA.
Set forth below is detail of the processes employed by the Committee for purposes of formulating it
recommendation to the Board of Directors.

The Committees discussions were based on the material presented to its members with respect to the relevant
matters by the Corporations Management and questions and answers that arose and were addressed during the
discussions, including reference by the outside auditing CPAs to the said issues. Where necessary, the Balance
Sheet Committee requested that comprehensive reviews be presented regarding matters having a significant
impact. The Corporations outside auditing CPAs addressed these issued during the Committees discussions
and presented the main findings that were found during the review process. In the Committees discussions, the
following parties participated: Messers. Oded Dagani, Zeev Nehari, Zahvit Cohen, Gideon Langholtz and Dan
Zusskind.
The Corporations Board of Directors believes that the recommendations of the Balance Sheet Committee,
which were provided on November 20, 2014, were provided a reasonable time prior to the meeting of the Board
of Directors (which in the opinion of the Board of Directors is up to 2 business days prior to the meeting of the
Board of Directors), taking into account the extent of the recommendations and their complexity.
After the Board of Directors received the draft of the financial statements and Committees recommendations a
reasonable time in advance, the Board of Directors held a discussion of the recommendations of the Balance
Sheet Committee and also received a detailed review and analysis from the Corporations CEO and CFO of the
Corporations financial statements, its financial results and the significant issues in the financial report relating
to the statements.

61

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

As part of the discussions of the Balance Sheet Committee, on November 20, 2014, the Committee examined
the financial statements, by means of a detailed presentation by the Corporations CEO and CFO, including:
(a) estimates and assessments made in connection with the financial statements; (b) the internal controls
relating to the financial statements; (c) the completeness and appropriateness of the disclosure in the financial
statements; and (d) the accounting policies adopted and the accounting treatment applied with respect to the
Corporations significant matters. In addition, an in-principle and comprehensive discussion was held of the
significant reporting issues.

Israel Corporation Ltd.


DISCLOSURE REGARDING THE APPROVAL PROCESS OF THE CORPORATIONS FINANCIAL
STATEMENTS (Cont.)
After the Board of Directors was satisfied that the financial statements properly reflect the Corporations
financial position and results of operations, the Corporations Board of Directors decided on
November 24, 2014, to approve the Corporations financial statements. At the meeting of the Board of
Directors during which the financial statements were approved, all the members of the Board of Directors were
present.
EVENTS OCCURRING DURING THE PERIOD OF THE REPORT AND THEREAFTER
Appointments in the Corporation
A.

Effective from the completion date of the split-up of the Corporations holdings, to the extent
completed, the service of Mr. Nir Gilad as the Corporations CEO will be concluded. The
Corporations Board of Directors resolved to appoint Mr. Avisar Paz, who serves as at the date of
this report as the Corporations CFO, to serve as the Corporations CEO.

B.

Mr. Natan Yalovsky was appointed to be the Corporations acting CFO, effective from the
completion date of the split-up of the Corporations holdings, to the extent completed. As at the
date of this report, Mr. Natan Yalovsky serves as the Corporations controller.

C.

In March 2014, Mr. Oded Degani was appointed to serve as an external director of the
Corporation.

D.

In June 2014, Mr. Yoav Doppelt ceased serving as a director of the Corporation.

2.

On May 1, 2014, the General Meeting of the Corporations shareholders approved the remuneration
policy for the Corporations officers. For additional details see the Corporations Immediate Report
dated on May 1, 2014 (Reference Nos. 2014-01-055587).

3.

On August 5, 2014, the Corporation was served with a copy of a request for certification of a claim as a
derivative claim on the grounds that an undertaking of the Corporation and execution of an interested
party transaction by it as part of the debt arrangement of ZIM were made in violation of the
authorization and in opposition to the approval of the General Meeting of the Corporations shareholders.
For additional details see Note 6E to the financial statements.

4.

For data regarding the Corporations liabilities see the Immediate Report regarding the position of the
liabilities based on repayment dates published by the Corporation on November 24, 2014 (Ref.
No. 2014-01-202626), where the information included in that Report is included herein by reference.

62

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

1.

Israel Corporation Ltd.


ADDITIONAL INFORMATION INCLUDED IN THE AUDITORS REVIEW REPORT
Set forth below is a quote from the Auditors Review Report:
Without qualifying our conclusion as stated above, we direct attention to:
1.

That stated in Note 5.D.1 regarding the financial position as at September 30, 2014, of an associated
company (ZIM) and regarding completion of the debt arrangement in ZIM, which in the estimation of its
Management and Board of Directors enables it to meet its liabilities and operating needs and to comply
with the new financial covenants for a period of 12 months following the date of the report.

2.

That stated in Note 5.E regarding a deficit in working capital as at September 30, 2014 of an associated
company (ORL) and its subsidiaries, and the liquidity position of ORL, regarding plans of the
managements of ORL and its subsidiary to improve the cash flows and their profitability and regarding
consents that were signed with the lending banks and the terms thereof, as well as that stated in
Notes 6.B and 6.I regarding certain legal proceedings against ORL and its subsidiaries (including a class
action claim wherein the Corporation is also a defendant), which in the estimation of the managements of
the defendant companies, based on the opinion of their legal advisors, it is not possible to predict at this
point the impact thereof on the financial statements, if any, and accordingly, no provision in respect
thereof has been included in the financial statements.

The Corporations Board of Directors expresses its appreciation to the employees and officers of the
Corporation and of the Group companies for their devoted service and contribution to the advancement of the
Groups operations.

____________________________
Ron Moshkovitz
Chairman of the Board of Directors

____________________________
Nir Gilad
CEO

63

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

November 24, 2014

Israel Corporation Ltd.


Condensed Consolidated Interim Financial Statements
As at September 30, 2014

(Unaudited)

The English financial statements are a translation for the convenience of the reader.
The binding version is the original in Hebrew

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Consolidated Interim Financial Statements
At September 30, 2014
Unaudited

Contents

Page

Condensed Consolidated Interim Statements of Financial Position

2
34

Condensed Consolidated Interim Statements of Income

Condensed Consolidated Interim Statements of Comprehensive Income

Condensed Consolidated Interim Statements of Changes in Equity

79

Condensed Consolidated Interim Statements of Cash Flows

10 11

Notes to the Condensed Consolidated Interim Financial Statements

12 62

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Auditors Review Report

Somekh Chaikin
KPMG Millennium Tower
17 Ha'arba'a Street, PO Box 609
Tel Aviv 61006 Israel

Telephone

972 3 684 8000

Fax
Internet

972 3 684 8444


www.kpmg.co.il

Review Report of the Independent Auditors to the Shareholders of Israel Corporation Ltd.
Introduction
We have reviewed the accompanying financial information of Israel Corporation Ltd. and its subsidiaries including the condensed
consolidated interim statement of financial position as at September 30, 2014 and the condensed consolidated interim statements of
income, comprehensive income, changes in equity and cash flows for the nine-month and three-month periods ended on that date. The
Board of Directors and Management are responsible for preparation and presentation of the financial information for these interim
periods in accordance with IAS 34 Financial Reporting for Interim Periods, and are also responsible for preparation of financial
information for these interim periods in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports),
1970. Our responsibility is to express a conclusion on the interim financial information for these interim periods based on our review.
We did not review the condensed financial information for the interim periods of a subsidiary, the assets of which included in the
consolidation constitute about 0.4% of the total consolidated assets as at September 30, 2014, and the revenues of which included in the
consolidation constitute about 3.1% and about 2.6% of the total consolidated revenues for the nine-month and three-month periods
ended on that date, respectively. In addition, we did not review the condensed financial information for the interim periods of an
associated company, the investment in which totaled about $9 million as at September 30, 2014, and the Groups share in its profits was
about $9 million and about $3 million, for the nine-month and three-month periods ended on that date, respectively. The condensed
financial information for the interim periods of those companies was reviewed by other auditors whose review reports thereon were
furnished to us and our conclusion, insofar as it relates to amounts included in respect of those companies, is based on the review
reports of the other auditors.
Scope of the Review
We conducted our review in accordance with Review Standard 1, Review of Interim Financial Information for Interim Periods
Performed by the Independent Auditor of the Entity of the Institute of Certified Public Accountants in Israel. A review of financial
information for interim periods consists of making inquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of
all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion

In addition to that mentioned in the previous paragraph, based on our review, nothing has come to our attention that causes us to believe
that the accompanying attached financial information does not comply, in all material respects, with the disclosure requirements of
Section D of the Securities Regulations (Periodic and Immediate Reports), 1970.
Without qualifying our above-mentioned conclusion, we direct attention to:
1.

That stated in Note 5.D.1 regarding the financial position as at September 30, 2014, of an associated company (ZIM) and
regarding completion of the debt arrangement in ZIM, which in the estimation of its Management and Board of Directors
enables it to meet its liabilities and operating needs and to comply with the new financial covenants for a period of 12 months
following the date of the report.

2.

That stated in Note 5.E regarding a deficit in working capital as at September 30, 2014 of an associated company (ORL) and its
subsidiaries, and the liquidity position of ORL, regarding plans of the managements of ORL and its subsidiary to improve the
cash flows and their profitability and regarding consents that were signed with the lending banks and the terms thereof, as well
as that stated in Notes 6.B and 6.I regarding certain legal proceedings against ORL and its subsidiaries (including a class action
claim wherein the Corporation is also a defendant), which in the estimation of the managements of the defendant companies,
based on the opinion of their legal advisors, it is not possible to predict at this point the impact thereof on the financial
statements, if any, and accordingly, no provision in respect thereof has been included in the financial statements.

Somekh Chaikin
Certified Public Accountants (Isr.)
November 24, 2014

Somekh Chaikin, a partnership registered under the Israeli Partnership


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

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Based on our review and on the review reports of other auditors, nothing has come to our attention that causes us to believe that the
above-mentioned financial information is not prepared, in all material respects, in accordance with International Accounting Standard
IAS 34.

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Financial Position

Current Assets
Cash and cash equivalents
Securities held for trade
Short-term investments, deposits and loans
Trade receivables
Other receivables and debit balances, including derivative
instruments
Income taxes receivable
Inventories
Assets of realization groups classified as held for sale
(see Note 5.B.11)
Total current assets
Non-Current Assets
Investments in associated companies accounted for using
the equity method of accounting
Investments in other companies
Deposits, loans and other debit balances
Derivative instruments
Excess of assets over liabilities in respect of defined benefit
plan
Deferred taxes, net
Non-current inventory
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets

791
37
1,252
1,364

1,074
39
767
*1,396

1,083
37
586
1,405

241
214
1,352

*372
67
*1,525

346
121
1,558

251
5,502
---------

5,240
---------

5,136
---------

1,132
1
53
70

1,255
5
82
242

1,193
5
87
182

67
171
56
6,424
1,086
9,060
---------

79
125
48
7,491
1,147
10,474
---------

83
139
62
7,616
1,159
10,526
---------

14,562

15,714

15,662

* Reclassified.

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

At December 31
At September 30
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Financial Position

Current Liabilities
Credit from banks and others
Long-term liabilities reclassified as short-term
Trade payables
Provisions
Other payables and credit balances, including derivative
instruments
Income taxes payable
Liabilities of realization groups classified as held for sale
(see Note 5.B.11)
Total current liabilities
Non-Current Liabilities
Loans from banks and others
Debentures
Derivative instruments
Provisions
Deferred taxes, net
Employee benefits
Total non-current liabilities
Total liabilities

1,198

769
32

1,644
1,508
*1,158
70

1,607
1,505
1,188
68

819
54

728
123

756
57

59
2,931
---------

5,231
---------

5,181
---------

4,386
1,813
27
106
428
707
7,467
---------

3,443
1,789
26
77
356
750
6,441
---------

3,733
1,752
17
100
368
796
6,766
---------

10,398
---------

11,672
---------

11,947
---------

Equity
Share capital and premium
Capital reserves
Capital reserve in respect of transactions with controlling
shareholder
Retained earnings
Total equity attributable to the owners of the Corporation

308
25

300
122

300
146

176
1,801
2,310

176
1,466
2,064

176
1,063
1,685

Holders of non-controlling interests

1,854

1,978

2,030

Total equity

4,164
---------

4,042
---------

3,715
---------

Total liabilities and equity

14,562

15,714

15,662

* Reclassified.

____________________________
Ron Moshkovitz
Chairman of the Board of Directors

___________________________
Nir Gilad
CEO

__________________________
Avisar Paz
CFO

Approval date of the financial statements: November 24, 2014


The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
4

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

At December 31
At September 30
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Income

Year Ended
December 31
2013
(Audited)

Sales
Cost of sales

5,859
3,945

5,647
3,604

1,960
1,300

1,757
1,193

7,374
4,746

Gross profit

1,914

2,043

660

564

2,628

73

70

26

22

93

643
310
212
(265)

621
266
45
(9)

218
108
37
(204)

193
87
7
(4)

842
365
202
(25)

Research and development expenses


Selling, transportation and marketing
expenses
Administrative and general expenses
Other expenses
Other income
Operating income
Financing expenses
Financing income
Financing expenses, net
Share in losses of associated companies
accounted for using the equity method
of accounting

941
-------394
(145)

1,050
-------335
(167)

475
-------184
(100)

259
-------133
(71)

1,151
-------356
(143)

249
--------

168
--------

84
--------

62
--------

213
--------

(99)
--------

(126)
--------

(58)
--------

(58)
--------

(209)
--------

Income before taxes on income

593

756

333

139

729

Taxes on income

231

368

131

138

405

Income for the period from continuing


operations

362

388

202

324

Income (loss) for the period from discontinued


operations (after taxes)

479

(253)

609

(43)

(535)

Income (loss) for the period

841

135

811

(42)

(211)

Attributable to:
The owners of the Corporation
Holders of non-controlling interests

637
204

(214)
349

719
92

(84)
42

(620)
409

Income (loss) for the period

841

135

811

(42)

(211)

Income (loss) per share attributable to


the owners of the Corporation:
Basic and diluted income (loss) per share
(in dollars)
Basic and diluted income (loss) per share from
continuing operations (in dollars)
Basic and diluted income (loss) per share from
discontinued operations (in dollars)

83.86

(27.69)

94.66

(10.95)

(80.71)

20.72

4.58

14.42

(5.37)

(11.80)

63.14

(32.27)

80.24

(5.58)

(68.91)

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Comprehensive Income

Income (loss) for the period


Components of other comprehensive
income (loss) that will be recognized in
future periods in the statement of income
Foreign currency translation differences in
respect of foreign activities
Foreign currency translation differences in
respect of foreign activities transferred to
the statement of income
Net change in fair value of cash flow hedges
transferred to the statement of income
Groups share in other comprehensive
loss of companies accounted for using
the equity method of accounting
Effective portion of the change in fair value
of cash flow hedges
Income taxes in respect of components of
other comprehensive income
Components of other comprehensive loss that will
be recognized in future periods in the statement
of income from discontinued operations

841
-----

135
-----

(154)

(28)

Year Ended
December 31
2013
(Audited)

811
-----

(42)
-----

(211)
-----

(152)

49

38

(28)

(32)

10

(11)

(31)

(4)

(6)

(2)

(1)

(4)

(19)

14

(11)

20

(3)

(2)

(3)

(195)
-----

(14)
-----

(183)
-----

43
-----

25
-----

(101)

38

(37)

47

23

(11)

(4)

(15)

(3)

(78)
-----

27
-----

(28)
-----

3
-----

29
-----

(273)
-----

13
-----

(211)
-----

46
-----

54
-----

Comprehensive income (loss) for the period

568

148

600

(157)

Attributable to:
The owners of the Corporation
Holders of rights non-controlling interests
Comprehensive income (loss) for the period

477
91
568

(220)
368
148

594
6
600

(63)
67
4

(601)
444
(157)

Total
Components of other comprehensive
income (loss) that will not be recognized in
future periods in the statement of income
Actuarial gains (losses) from defined benefit
plans, net
Income taxes in respect of components of
other comprehensive income (loss)
Components of other comprehensive loss that will
not be recognized in future periods in the
statement of income from discontinued
operations
Total
Other comprehensive income (loss) for the
period, net of tax

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Changes in Equity

Share
capital
and
premium

Attributable to the owners of the Corporation


Capital
reserve for
Translation
transactions
reserve for
with
foreign
Capital
controlling
Retained
activities
reserves
shareholder
earnings
(Unaudited)
$ millions

Noncontrolling
interests

Total
capital

2,030

3,715

Total

For the nine months ended


September 30, 2014
Balance at January 1, 2014
(audited)
Share-based payments in a
subsidiary
Expiration of options granted to
employees in the Corporation
Share-based payments in the
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Non-controlling interests in
respect of business combination
Sale of shares of subsidiary while
retaining control
Loss of control of subsidiary
Issuance of shares of a subsidiary to
holders of non-controlling interests
Income for the period
Other comprehensive loss for
the period, net of tax
Balance at September 30, 2014

300

87

59

176

1,063

1,685

(8)

(356)

(356)

38

38

(4)

147

143

100
(77)

243
(77)

637

637

19
204

19
841

308

(111)
(28)

(3)
53

176

(46)
1,801

(160)
2,310

(113)
1,854

(273)
4,164

285

80

68

175

1,651

2,259

1,894

4,153

18

18

15

(15)

(301)

(301)

(13)

(13)

28

28

1
(214)

349

1
135

300

(8)
72

(11)
50

176

(6)
2,064

19
1,978

13
4,042

For the nine months ended


September 30, 2013
For the nine months ended
Balance at January 1, 2013
(audited)
Share-based payments in a
subsidiary
Exercise of options granted to
employees in a subsidiary
Expiration of options granted to
employees in the Corporation
Share-based payments in the
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Elimination of non-controlling
interests in subsidiaries
Issuance of shares of a subsidiary to
holders of non-controlling interests
Transactions with controlling
shareholder
Income (loss) for the period
Other comprehensive income
(loss) for the period, net of tax
Balance at September 30, 2013

16

(214)
13
1,466

16

(16)

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
7

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

September 30, 2013

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Changes in Equity

Share
capital
and
premium

Attributable to the owners of the Corporation


Capital
reserve for
Translation
transactions
reserve for
with
foreign
Capital
controlling
Retained
activities
reserves
shareholder
earnings
(Unaudited)
$ millions

Noncontrolling
interests

Total
capital

1,844

3,416

Total

For the three months ended


September 30, 2014
Balance at April 1, 2014
Share-based payments in a
subsidiary
Expiration of options granted to
employees in the Corporation
Share-based payments in the
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Non-controlling interests in
respect of business combination
Sale of shares of subsidiary while
retaining control
Loss of control of subsidiary
Issuance of shares of a subsidiary
to holders of non-controlling
interests
Income for the period
Other comprehensive loss for
the period, net of tax
Balance at September 30, 2014

300

85

61

176

(8)

(26)

(26)

(4)

147

143

100
(77)

243
(77)

719

719

2
92

2
811

308

(109)
(28)

(1)
53

176

(15)
1,801

(125)
2,310

(86)
1,854

(211)
4,164

285

46

68

175

1,549

2,123

2,025

4,148

15

(15)

(111)

(111)

(13)

(13)

(84)

1
(84)

26

(6)

300

72

50

176

950

1,572

Balance at July 1, 2013


Share-based payments in a
subsidiary
Expiration of options granted to
employees in the Corporation
Share-based payments in the
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Elimination of non-controlling
interests in subsidiaries
Issuance of shares of a subsidiary
to holders of non-controlling
interests
Transactions with controlling
shareholder
Income (loss) for the period
Other comprehensive income (loss)
for the period, net of tax
Balance at September 30, 2013

42

1
(42)

21

25

46

1,466

2,064

1,978

4,042

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the three months ended


September 30, 2013

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Changes in Equity

Total
equity

1,894

4,153

23

23

Total

Balance at January 1, 2013


Share-based payments in a
subsidiary
Exercise of options granted to
employees in a subsidiary
Expiration of options granted to
employees of the Corporation
Share-based payments in the
Corporation
Dividend to holders of
non-controlling interests in a
subsidiary
Issuance of shares of a
subsidiary to holders of
non-controlling interests
Elimination of non-controlling
interests due to loss of control
Transactions with controlling
shareholders
Income (loss) for the period
Other comprehensive income (loss)
for the period, net of tax

285

80

68

175

1,651

2,259

15

(15)

10

(330)

(330)

28

28

(13)

(13)

(620)

1
(620)

409

1
(211)

(4)

16

19

35

54

Balance at December 31, 2013

300

87

59

176

1,063

1,685

2,030

3,715

16

16

10

(16)

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

10

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Share
capital
and
premium

Attributable to the owners of the Corporation


Capital
reserve for
Translation
transactions
reserve for
with
foreign
Capital
controlling
Retained
activities
reserves
shareholder
earnings
(Audited)
$ millions

Noncontrolling
interests

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Cash Flows

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Year Ended
December 31
2013
(Audited)

Cash flows from operating activities


Income (loss) for the period
Adjustments:

841

135

811

(42)

(211)

Depreciation and amortization


Decline in value of assets
Financing expenses, net
Share in losses of associated companies accounted
for using the equity method of accounting
Capital losses (gains), net
Gain in respect of loss of control of subsidiary
Share-based payment transactions
Gain on bargain purchase (negative goodwill)
Taxes on income

424
35
276

425

370

117
35
26

145

131

594
79
572

94
(181)
(609)
17
(60)
241
1,078

119
(38)

29

384
1,424

58
(168)
(609)
5
(21)
131
385

55
(40)

144
402

199
18

37

427
1,715

64
(231)
62
89
1,062

*60
*(104)
*(58)
14
1,336

8
84
63
(26)
514

*8
*161
*(20)
4
555

21
(95)
(120)
79
1,600

(181)
44

(200)
61

(71)
17

(75)
20

(363)
76

Income taxes paid, net


Dividend received
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from realization of long-term deposits
Proceeds from sale of property, plant and
equipment
Short-term deposits and loans, net
Business combinations less cash acquired
Proceeds from sale of subsidiary, less cash
acquired
Investments in associated companies
Exit from the consolidation and transition to an
associated company, less cash eliminated
Acquisition of property, plant and equipment
Acquisition of intangible assets
Interest received
Proceeds from sale of associated company
Payments from derivative transactions used
for hedging, net
Receipts from derivative transactions not used
for hedging, net
Net cash used in investing activities

925

--------

1,197

--------

31

460

-------

500

1,313

--------

--------

37

27
(725)
(149)

89
(342)
(61)

(632)
(45)

35
(116)
(4)

99
(149)
(91)

360
(345)

(155)

360
(200)

(51)

2
(244)

(111)
(880)
(75)
10

(817)
(18)
18
29

(111)
(285)
(33)
3

(291)
(10)
7
23

(1,138)
(31)
23
50

(11)

(4)

(4)

(2)

(8)

115

65

47

32

(1,784)

--------

(1,165)

--------

(900)

--------

(376)

--------

138
(1,312)

--------

* Reclassified.

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

10

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions and employee benefits

Israel Corporation Ltd.


Condensed Consolidated Interim Statements of Cash Flows

2014

2013

Net cash provided by (used in) financing


activities
Increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
the period

2014

(356)

(301)

(26)

19

28

243
1,655

2013

(Unaudited)
In Millions of U.S. Dollars

(Unaudited)

Cash flows from financing activities


Dividend paid to holders of noncontrolling interests
Proceeds from issuance of shares to holders
of non-controlling interests in subsidiaries
Proceeds from sale of shares of subsidiary
while retaining control
Receipt of long-term loans and issuance of
debentures
Repayment of long-term loans and
debentures
Short-term credit from banks and others, net
Payments from derivative transactions
used for hedging, net
Interest paid

For the
Three Months Ended
September 30

Year Ended
December 31
2013

(Audited)

(111)
4

(330)
28

243

1,064

440

599

1,559

(829)
155

(939)
184

(375)
(109)

(329)
43

(1,526)
435

(280)

(1)
(273)

1
(79)

(101)

4
(371)

(105)
-------

(201)
-------

229

(200)

607
-------

(252)

1,083

Cash and cash equivalents included as part


of assets held for sale (see Note 5B11)

(12)

Effect of exchange rate fluctuations on


balances of cash and cash equivalents

(28)

Cash and cash equivalents at the end of


the period

791

(238)
-------

(206)

1,271

97
-------

(343)

1,172

(12)

1,074

(26)

791

835

1,271

10

12

1,074

1,083

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

11

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Nine Months Ended


September 30

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 1 The Reporting Entity


Israel Corporation Ltd. (hereinafter the Corporation) is an Israeli-resident public corporation
whose securities are listed for trading on the Tel-Aviv Stock Exchange and its registered office is
located at 23 Aranha St., Tel-Aviv, Israel. The condensed consolidated interim financial statements
as at September 30, 2014, include those of the Corporation, its subsidiaries and their rights in
associated companies and joint transactions (hereinafter the Group).
The Group operates through an array of investee companies, mainly, in the chemicals, energy and
power station sectors, and it also has additional investments including in the areas of shipping (main
segment up to July 16, 2014), advanced technology, vehicles, and clean energy. The
Corporations headquarters provides management services, through a fully controlled subsidiary,
and is also actively involved in the strategic planning and business development of the Group
companies. In addition, the Group acts to initiate and develop additional business interests.
Note 2 Basis of Preparation of the Financial Statements
A.

Declaration of compliance with International Financial Reporting Standards (IFRS)


The condensed consolidated interim financial statements were prepared in accordance with
IAS 34, Financial Reporting for Interim Periods and do not include all of the information
required in complete, annual financial statements. These statements should be read together
with the financial statements for the year ended December 31, 2013 (hereinafter the
Annual Financial Statements). In addition, these financial statements were prepared in
accordance with the provisions of Section D of the Securities Regulations (Periodic and
Immediate Reports) 1970.
The condensed, consolidated, interim financial statements were approved for publication by
the Corporations Board of Directors on November 24, 2014.
Functional currency and presentation currency
The dollar is the currency representing the main economic environment in which the
Corporation operates and, accordingly, the dollar constitutes the Corporations functional
currency. The dollar also serves as the presentation currency in these financial statements.
Currencies other than the dollar constitute foreign currency.

C.

Use of estimates and judgment


In preparation of the condensed consolidated interim financial statements in accordance with
IFRS, Corporation management is required to use judgment when making estimates,
assessments 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.
Managements judgment, at the time of implementing the Groups accounting policies and
the main assumptions used in the estimates involving uncertainty, are consistent with those
used in preparation of the Annual Financial Statements.

12

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 3 Significant Accounting Policies


A.

The Groups accounting policies in these condensed consolidated interim financial statements
are the same accounting policies applied in the Annual Financial Statements.

B.

First-Time Application of New Standards


Interpretation IFRIC 21 Levies (hereinafter the Interpretation) the
Interpretation provides guidelines in connection with the accounting treatment of a liability to
pay government levies that are within the scope of IAS 37 "Provisions, Contingent Liabilities
and Contingent Assets", as well as with respect to government levies that are not within the
scope of IAS 37 since the timing of their repayment and the amounts thereof are certain. A
levy is defined as an outflow of resources imposed on an entity by the government through
legislation and/or regulation. The Interpretation provides that a liability for payment of a levy
is to be recognized upon occurrence of the event that creates the payment obligation, even in
cases where the entity has no practical possibility of avoiding the event.
The Interpretation applies to reporting periods commencing on January 1, 2014. The impact
of the above-mentioned Interpretation on the condensed consolidated interim financial
statements is not material.
Standards required to be Applied in Later Periods
1) International Financial Accounting Standard IFRS 15 Revenues from Contracts
with Customers the Standard replaces the presently existing guidelines regarding
recognition of revenue from contracts with customers and provides two approaches for
recognition of revenue: at one point in time or over time. The model includes five stages
for analysis of transactions in order to determine the timing of recognition of the revenue
and the amount thereof. In addition, the Standard provides new disclosure requirements
that are more extensive that those currently in effect.
The Standard is to be applied for annual periods commencing on January 1, 2017, with
the possibility of early adoption. The Standard includes various alternatives with respect
to the transitional rules, such that companies may choose one of the following
alternatives when applying the Standard for the first time: full retroactive application,
full retroactive application with practical relaxations or application of the Standard
commencing from the initial application date, while adjusting the balance of the retained
earnings as at this date for transactions that have not yet been completed. The Group has
not yet commenced examining the impacts of adoption of the Standard on its financial
statements.

13

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

C.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 3 Significant Accounting Policies (Cont.)


C.

Standards required to be Applied in Later Periods (Cont.)


2) International Financial Accounting Standard IFRS 9 (2014) Financial
Instruments a final version of the Standard, which includes updated provisions for
classification and measurement of financial instruments, as well as a new model for
measurement of impairment in value of financial assets. These provisions are added to
the Section regarding Hedge Accounting General, which was published in 2013.
The Standard is to be applied for annual periods commencing on January 1, 2018, with
the possibility of early adoption. The Standard is to be applied retroactively, except in a
number of circumstances. The Group has not yet commenced examining the impacts of
adoption of the Standard on its financial statements.
Indices and Exchange Rates
Set forth below are the rates of change in the dollar and euro exchange rates and in the CPI:

Rates of change for the nine months ended:


September 30, 2014
September 30, 2013
Rates of change for the three months ended:
September 30, 2014
September 30, 2013
For the year ended December 31, 2013

14

Consumer
Price Index
(known index)
%

DollarNIS
exchange
rate
%

DollarEuro
exchange
rate
%

0.1
1.8

6.5
(5.3)

9.5
(2.3)

0.3
0.5
1.8

7.5
(2.2)
(7.0)

8.5
(3.3)
(4.3)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 4 Information on Activity Segments


General
Commencing from July 16, 2014, upon completion of the debt arrangement in ZIM
Integrated Shipping Services Ltd. (hereinafter ZIM), the Corporation ceased controlling
ZIM, and commencing from this date, ZIM is accounted for using the equity method of
accounting in the financial statements. Upon completion of the debt arrangement and loss of
the control, the marine shipping lines by means of containers that are incorporated under
ZIM, which were previously included as a separate reportable segment, are presented,
commencing from the period of the report, as part of other segemts. In the comparative
figures form the nine-month and three-month periods ended September 30, 203 and for the
year ended December 31, 2013, ZIM is presented as a separate reportable segment.
The Group is composed of the following activity segments:
1) Israel Chemicals Ltd. ICL is a multi-national group, operating mainly in the areas of
fertilizers and special chemicals. The ICL Group has concessions and licenses for
production of minerals from the Dead Sea, concessions for mining phosphate rock in the
South, and mining agreements and licenses covering the mining of potash and salt from
underground mines in Spain and the United Kingdom. ICL is engaged in production of
these minerals, in the sale thereof throughout the world and development, production and
marketing of extension products based mainly on these raw materials.
2) Oil Refineries Ltd. (associated company) ORL and its subsidiaries are engaged,
mainly, in refining crude oil, production of fuel products, raw materials for the
petrochemical industry and materials for the plastics industry. Most of the ORL Groups
sales derive from ORLs purchase of crude oil and intermediary products, refining
thereof and separation of the refined products into various other products some of
which are final products and some of which serve as raw materials in the manufacture of
other products.
3) I.C. Power Ltd. I.C. Power, through its investee companies, is engaged in the
production and sale of electricity in countries in Latin America and the Caribbean region,
as well as in activities intended for the construction and operation of power stations in
Israel and Latin America.
4) Other in addition to the segments detailed above, the Corporation has other activities,
such as, marine shipping lines by means of containers (up to July 16, 2014 this
constituted a separate reportable segment activity) , advanced technology, vehicles and
clean energy.
Evaluation of the segments performance as part of the management reports is based on the
EBITDA data.
Information regarding activities of the reportable segments is set forth in the following tables.
Inter-segment pricing is determined based on the transaction prices in the ordinary course of
business.

15

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 4 Information on Activity Segments (Cont.)


Information relating to Business Segments

For the nine months ended


September 30, 2014:
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
EBITDA for the period
Depreciation and amortization
Financing income
Financing expenses
Share in losses (income) of
associated companies
Special or non-recurring expenses
(income) and adjustments

Income (loss) before taxes


Taxes on income
Income (loss) from continuing
operations
Income (loss) from discontinued
operations (after taxes)
Income (loss) for the period
For the nine months ended
September 30, 2013:*
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
EBITDA for the period
Depreciation and amortization
Financing income
Financing expenses
Share in losses (income) of equitybased companies
Special or non-recurring expenses
(income) and adjustments

Income (loss) before taxes


Taxes on income
Income (loss) from continuing
operations
Loss from discontinued operations
(after taxes)
Income (loss) for the period
*
(1)

ICL

ORL

ZIM

4,708

4,708

4,708

7,164

7,164

7,164

1,734
8
1,742
(8)
1,734

904
130
1,034
(130)
904

1,037
--------264
(81)
171

247
--------122
(43)
145

57
--------75
(2)
110

275
--------113
(5)
105

(5)

(13)

178
--------(121)
9

(220)
(20)
--------295
86

(19)
190
525
--------512
131

(20)
204
--------43
20

I.C. Power
Other
(Unaudited)
$ millions

181

181

181
(17)
--------4
(72)
130
131

193
--------(210)
11

Adjustments (1)

Total

(8,832)
(74)
(8,906)
74
(8,832)

5,859
64
5,923
(64)
5,859

(304)
----------(194)
58
(267)

1,294
----------384
(145)
394

5
20
(378)
----------74
(26)

99
(30)
702
----------593
231

381

23

(130)

209

(221)

100

362

381

23

(130)

209

609
388

(130)
(30)

479
841

4,855

4,855

4,855

7,425

7,425

7,425

2,782
12
2,794
(12)
2,782

601
11
612
(11)
601

191

191

191

(10,207)
(23)
(10,230)
23
(10,207)

5,647

5,647

5,647

1,241
--------246
(86)
107

205
--------131
(20)
166

86
--------121
(2)
183

171
--------52
(4)
59

(279)
----------(250)
39
(363)

1,368
----------304
(167)
335

(19)

(1)

(7)

(19)

17
265
--------976
275

276
--------(71)
45

24
319
--------(233)
16

88
--------83
26

701

(116)

(249)

57

(376)

371

388

701

(116)

(249)

57

(376)

(253)
118

(253)
135

Reclassified.
Most of the adjustments stem from the ORL and ZIM segments.

16

(56)
--------4
(94)
183
166
(3)
256
--------(312)
64

6
(24)
(592)
----------313
(58)

126
14
612
----------756
368

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 4 Information on Activity Segments (Cont.)


Information relating to Business Segments (Cont.)

For the three months ended


September 30, 2014:
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
EBITDA for the period
Depreciation and amortization
Financing income
Financing expenses
Share in losses (income) of
associated companies
Special or non-recurring expenses
(income) and adjustments

Income (loss) before taxes


Taxes on income
Income (loss) from continuing
operations
Income from discontinued operations
(after taxes)
Income (loss) for the period
For the three months ended
September 30, 2013:*
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
EBITDA for the period
Depreciation and amortization
Financing income
Financing expenses
Share in losses (income) of equitybased companies
Special or non-recurring expenses
(income) and adjustments

Income (loss) before taxes


Taxes on income
Income (loss) from continuing
operations
Loss from discontinued operations
(after taxes)
Income (loss) for the year
*
(1)

ICL

ORL

ZIM

1,559

1,559

1,559

2,443

2,443

2,443

355
--------87
(59)
80

72
--------40
(25)
57

--------

107
--------63
(3)
33

(26)
46
--------26
11

--------

(179)
(86)
--------193
56

(7)
5
106
--------249
68

I.C. Power
Other
(Unaudited)
$ millions

332
41
373
(41)
332

50

50

50
(9)
--------1
(37)
60
65

Adjustments (1)

Total

(2,424)
(19)
(2,443)
19
(2,424)

1,960
22
1,982
(22)
1,960

(72)
--------(39)
24
(46)

453
----------152
(100)
184

58

89
--------(98)
8

26
(35)
--------(37)
(12)

(174)
120
----------333
131

181

15

137

(106)

(25)

202

181

15

137

609
503

(25)

609
811

1,445

1,445

1,445

2,623

2,623

2,623

895
4
899
(4)
895

249
11
260
(11)
249

63

63

63

(3,518)

(3,518)

(3,518)

1,757
15
1,772
(15)
1,757

314
--------82
(39)
42

80
--------44
(7)
56

56
--------40
(1)
57

67
--------21
(3)
27

(133)
--------(84)
15
(119)

373
----------105
(71)
133

(3)

(7)

93
--------(13)
56

93
--------(37)
6

38
--------29
8

79

(69)

(43)

21

(101)

114

79

(69)

(43)

21

(101)

(43)
71

(43)
(42)

(12)
10
83
--------231
152

Reclassified.
Most of the adjustments stem from the ORL and ZIM segments.

17

(11)
--------2
(36)
70
77
(1)
112
--------(123)
(22)

(185)
--------52
(62)

58
9
234
----------139
138

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 4 Information on Activity Segments (Cont.)


Information relating to Business Segments (Cont.)

2013:*
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
EBITDA income (loss)
Depreciation and amortization
Financing income
Financing expenses
Share in losses (income) of
associated companies
Special or non-recurring expenses
(income)

Income (loss) before taxes


Taxes on income
Income (loss) from continuing
operations
Loss from discontinued operations
(after taxes)
Income (loss) for the year
Other significant non-cash items:
Decline in value of fixed and
intangible assets

ICL

ORL

ZIM

6,272

6,272

6,272

9,902
93
9,995
(93)
9,902

3,666
16
3,682
(16)
3,666

256

256

256

(13,526)
(151)
(13,677)
151
(13,526)

Total

7,374
27
7,401
(27)
7,374

1,569

257

69

247

(68)

(310)

1,764

---------

---------

---------

---------

-----------

-----------

348
(132)
159

193
(35)
212

238
(3)
328

76
(6)
86

6
(136)
241

(426)
169
(670)

435
(143)
356

(26)

(1)

(10)

(32)

267

11

209

24
577

124

58
436

(44)
(960)

120
469

20
389

178
1,035

---------

---------

---------

---------

---------

-----------

-----------

1,100
280

(132)
34

(508)
22

123
42

(504)
82

650
(55)

729
405

820

(166)

(530)

81

(586)

705

324

820

(166)

(530)

81

(586)

(535)
170

(535)
(211)

Segment assets
Investments in associated
companies

7,799

4,523

175

Segment liabilities

*
(1)

804
69
873
(69)
804

Adjustments (1)

---------

Capital expenses

I.C.
Power
Other
$ millions

79

2,591

2,749

4,788

(7,981)

14,469

11

286

721

(5)

1,193
15,662

4,295

3,744

3,180

2,237

3,504

(5,013)

11,947

947

121

20

351

(121)

1,318

Reclassified.
Most of the adjustments stem from the ORL and ZIM segments.

18

79

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information


The Corporation
1.

On June 25, 2013, the Corporations Board of Directors adopted the recommendation of
the Corporations Management and decided to examine a strategic change of the
structure of the Corporations holdings (hereinafter the Course of Action). The
Course of Action being considered and the manner of its implementation (as is presently
being examined, and that may be completed, if ultimately completed, in a different
manner), is a split-up of the Corporations holdings, such that the Corporations holdings
in I.C. Power Ltd., Qoros Automotive Co. Ltd., ZIM Integrated Shipping Services Ltd.,
I.C. Green Energy Ltd. and Tower Semiconductors Ltd., will be transferred to and held
by all of the Corporations shareholders through a new company, Kenon Holdings
(hereinafter Kenon), the shares of which will be distributed to them as a dividend in
kind, whereas the Corporation will continue to hold Israel Chemicals Ltd. (hereinafter
ICL) and Oil Refineries Ltd. (hereinafter ORL) (hereinafter the Structural
Change of the Corporations Holdings Transaction). The Corporations debt to
financing banks and debenture holders will remain in the Corporation. In the future, the
possibility of splitting off the Corporations investment in ORL may also be considered.
The Corporation which will hold ICL and ORL after completion of the Structural
Change of the Corporations Holdings Transaction, to the extent it is ultimately
completed, intends to refrain from making investments in new companies. The intention
is that after completion of the Structural Change of the Corporations Holdings
Transaction, if completed, the shares of Israel Corporation will continue to be traded on
the Tel-Aviv Stock Exchange. As part of the Structural Change of the Corporations
Holdings Transaction, the Corporation will register Kenon for trading on a foreign stock
exchange and/or on the Tel-Aviv Stock Exchange.
In the Corporations estimation, the Structural Change of the Corporations Holdings
Transaction will be completed, if completed, during the second half of 2014. The
Corporation is taking the necessary actions and steps in order to advance the transaction
and to obtain the required approvals and/or consents, and in this framework the
Corporations Board of Directors set up a committee of the Board of Directors which
will accompany execution of the transaction. In addition, as part of examination of the
business transaction the Corporation set up Kenon in Singapore and the Corporation is
taking action in contemplation of registration of Kenon for trading on the New York
Stock Exchange in the United States and in Tel-Aviv.
Subsequent to the date of the report, on October 13, 2014, the Corporation deposited
with the Securities Authority a preliminary report, in accordance with Regulation 12(A)
of the Transaction with a Controlling Shareholder Regulations, in connection with the
transaction for restructuring the Corporations holdings, which was approved on
October 12, 2014, by the Restructuring Committee appointed by the Corporations Board
of Directors, by the Corporations Audit Committee and by the Corporations Board of
Directors, after a lengthy examination period and further to a large number of meetings
held. That stated above is taking into account, among other things, the positon of the
staff of the Securities Authority, whereby the Corporations controlling shareholders are
considered to be parties having a personal interest in the distribution transaction. After
receiving the reference of the Securities Authority to the preliminary report, the
Corporation will file a Transaction Report, as defined in the Transaction with a
Controlling Shareholder Regulations (hereinafter the Transaction Report).

19

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
1.

(Cont.)
The said approval includes execution of the distribution transaction, with all its
components, the transactions, adjustments and actions deriving therefrom, including an
approval of:
(A) The Corporations undertaking in a separation agreement with its wholly-owned
subsidiary, Kenon, which includes (among other things): (i) transfer of the holdings in
the companies being transferred to Kenon, as stated above, and transfer of certain rights
and liabilities in connection with the companies being transferred from the Corporation
to Kenon; (ii) execution of an investment in the capital of Kenon in the amount of $100
million (subject to a possible adjustment); and (iii) issuance of shares of Kenon to the
Corporation in respect of the assets and rights to be transferred from the Corporation to
Kenon all as detailed in the Transaction Report; and
(B) The Corporations undertaking in a loan agreement whereby, among other things, the
Corporation will provide Kenon a credit framework in an aggregate amount of up to
$200 million, and in the framework thereof it will be provided that in a case of
realization of guarantees that the Corporation will remain responsible for with respect to
Qoros, the amount for which the Corporation will be liable in a case of realization of
these guarantees will be considered a debt of Kenon to the Corporation and the
provisions of the loan agreement will apply to it, which certain changes; and
(C) Distribution to the Corporations shareholders as a dividend in-kind, according to
that detailed in the Transaction Report, of the shares of Kenon; including registration of
these shares for trading, both on a stock exchange in New York (which is a foreign stock
exchange) and on the Tel-Aviv Stock Exchange, under Part E3 of the Securities Law,
1968, and reporting by Kenon in English and in accordance with the reporting format of
the foreign law after the registration for trading, as stated, and distribution of a dividend
in cash.
And including execution of the other actions, adjustments and commitments involved
with execution of the distribution transaction, including all its stages, which included,
completion and execution thereof, and the other accompanying arrangements (including,
but not only, in connection with liabilities relating to the companies being transferred
that will remain in the Corporation and agreements covering registration rights) all
based on the principles detailed in the Transaction Report.
In addition, the said approval includes agreement of the Restructuring Committee (and/or
a party authorized by it), to take all the required actions in order to complete, perfect and
execute the above-mentioned decisions based on the principles detailed in the
Transaction Report, including agreement to make all the adjustments and/or changes
with respect to the manner of executing the distribution transaction and/or regarding the
assets being transferred in the framework thereof as a derivative of, among other things,
the demands that may be raised by third parties, which do not have a significant impact
on the distribution transaction taking into account all its aspects.

20

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
1.

(Cont.)
Subsequent to the date of the report, on November 24, 2014, the Corporation gave notice
of convening of General Meetings of the holders of the debentures (Series 6-9) which the
Corporation issued (hereinafter the Debentures) for purpose of receiving the consent
of the holders of the Debentures for the distribution transaction and revision of the trust
indenture of the relevant series a special decision for each series separately. It is noted
that the even though the trust indentures for all the Debenture series do not instructions
and/or conditions whereby the distribution transaction will constitute a violation thereof
and/or will provide grounds for calling the Debentures for immediate payment, the
Corporation published this summons for convention of Meetings, for the sake of good
order and in order to receive the cooperation of the holders of the Debentures and their
consent for its execution.
The decisions referred to above were made after the Corporations Board of Directors
determined that distribution of the dividend that is subject of the distribution transaction
meets the distribution tests provided in the Companies Law, 1999, where it is the
intention of the Corporation that the amount of the final dividend in the framework of the
distribution transaction will be determined, subject to the approval of the Board of
Directors, on the basis of the Corporations financial statements as at September 30,
2014, as approved by the Corporation.
It is noted that execution of the distribution transaction is subject to receipt of the
approval and consents of third parties (including regulatory approvals), as will be
detailed in the Transaction Report, which had not yet been received at the date of this
report.
Subsequent to the date of the report, on November 24, 2014, the Corporation's Board of
Directors approved, after receiving the approval of the Audit Committee and the
Restructuring Committee, the distribution transaction. A General Meeting of the
Corporation's shareholders will be convened in order to approve the transaction.

2.

On September 24, 2014, the Corporation entered into transactions with respect to shares
of ICL, as part of ICLs transaction for registration of its shares for trading on the New
York Stock Exchange (NYSE), in the aggregate amount of 78.4 million shares of ICL
(constituting about 6.2% of ICLs issued share capital), and a pricing process was
completed in connection with sale of ICL shares pursuant to ICLs prospectus in the
United States. As part of the Corporations sale offer, about 36.2 million shares of ICL
were sold to the public in the United States and to institutional investors in Israel. The
total net proceeds received by the Corporation in respect of the sale are about $243
million. The difference created between the proceeds, as stated, and the carrying value of
the shares in the Corporations books, in the amount of about $147 million, was recorded
directly to retained earnings since the Corporation has retained its control over ICL.

21

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
2.

(Cont.)
In addition, the Corporation entered into a financial transaction with entities from the
Morgan Stanley and Goldman Sachs groups (hereinafter the Financial Entities) (of
the derivative variable prepaid forward on the basis of an ISDA agreement) in
connection with an additional 36.2 million shares of ICL (hereinafter the Financial
Transaction or the Transaction and the Transaction Shares, respectively), which
were transferred into the name of the Financial Entities, as detailed below. As stated, as
part of the Financial Transaction, the Financial Entities provided the Corporation an
initial amount that is essentially a loan, in the amount of about $191 million. About 24
million shares out of the Transaction Shares were offered for sale by means of
underwriters in the prospectus published by ICL in New York.
Accordingly, as part of the tender offer and the Financial Transaction, as stated, a total of
about 60.2 million ICL shares were sold by the Financial Entities, at a price of about
US$7 per ICL share. With respect to the said sale, the Corporation signed an
underwriting agreement with ICL and with U.S. underwriters (hereinafter the
Underwriting Agreement). In addition, as part of the Underwriting Agreement, the
underwriters were granted an option (Green Shoe) to acquire up to an additional
6 million shares, which may be exercised within 30 days. Subsequent to the date of the
report, on October 7, 2014, the underwriters exercised the said option at the price in the
public offering. The aggregate proceeds (net) received in respect of exercise of the
option are about $40 million. The expected difference between the proceeds, as stated,
and the carrying value of the shares in the Corporations books, in the amount of about
$24 million, will be recorded directly to retained earnings.
It is noted that the Underwriting Agreement includes, among other things,
representations and indemnification arrangements between the underwriters, ICL and the
Corporation. It is further noted that the Corporation made a commitment to refrain from
selling ICL shares during a period of 180 days, subject to the terms agreed to.
Commending from September 24, 2014, ICLs shares are traded on the New York Stock
Exchange (NYSE). After execution of the said transactions (and after full exercise of the
aforesaid option to the underwriters), the rate of the Corporations in the issued capital of
ICL is about 49.02% in equity and about 46.18% in the voting rights.
With respect to the Financial Transaction, it is noted that on the dates provided in the
financial closing, an accounting will be made between the Corporation and the Financial
Entities of their liabilities with reference to the components of the Transaction all in
accordance with the terms of the Financial Transaction, the principles of which are set
forth below:

22

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
2.

(Cont.)
a)

As part of the Financial Transaction, the Corporation will receive protection


against a decline in the price of an ICL share below an average of 90% of the price
of an ICL share in the said tender offer of ICLs shares on the New York Stock
Exchange, and the Financial Entities will profit from an increase in the price of an
ICL share above an average of 130%.

b)

In addition, the Corporation transferred all the transaction shares into the name of
the Financial Entities for purposes of hedging the exposure from their standpoint,
which will be permitted to execute any transaction in the shares (the Financial
Entities may buy and sell ICL shares from time to time during the period of the
Financial Transaction and in connection therewith or at the end of it).

c)

The financial closing is expected to take place in increments, on a number of


closing dates that will occur over the course of a period of between two years and
five years from the execution date of the Financial Transaction, and in an average
period of three and a half years (it is noted that the period of the Transaction and
the finish dates may change, due to, among other things, an early closing of the
Transaction, as stated below, or as a result of changes and adjustments made
during the life of the Transaction). Subject to the terms of the Financial
Transaction, the Corporation will have the possibility of, among other things,
choosing not to receive a return of the Transaction Shares and the Corporation will
be credited with their value against the payments due from the Corporation
(physical settlement) or to receive a return of the number shares and to
repayment the amount of the loan. If the Corporation did not give notice of its
choice, a physical settlement will be made. The Corporation is not required to
repay the loan in cash or to add collaterals or additional shares.

d)

It is clarified that the Corporation will have no voting rights in respect of the
Transaction Shares. It is further clarified that as part of the Financial Transaction
there are arrangements whereby in a case of distribution of a cash dividend by ICL
during the period of the Financial Transaction, the Corporation will be entitled to
receive the amount of the dividend in respect of part of the Transaction Shares in
accordance with the calculation model of the Financial Entities.

e)

In the Financial Transaction provisions were made regarding, among other things,
liabilities and representations of the Corporation (including indemnity provisions
and restrictions with respect to execution of transactions in ICL shares during the
closing period), for early closing of the Transaction, as well as violation events
upon the occurrence of which the Financial Entities will have the possibility,
among other things, of closing the Transaction early without returning the
Transaction Shares. It is further noted that the terms of the Transaction include
provisions regarding making of changes in the structure of the Transaction and/or
adjustments by the Financial Entities during the Transaction period, including with
reference to its various components, the period and dates of the changes therein,
among other things, as a result of certain events in ICL or its shares and changes in
the relevant market conditions.
23

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
2.

(Cont.)
The components of the undertaking were separated and measured separately, such that in
the first stage the derivatives relating to the hedging of the price of an ICL share
(including the dividend adjustment component that is not received by the Corporation)
were measured based on fair value, and will be measured subsequently based on fair
value in the statement of income. On the other hand, the loan component was measured
based on the amount of the transaction consideration after eliminating the fair value of
the derivatives recognized, as stated above. The loan is measured subsequently based on
the effective interest method. The fair value of the derivatives on the transaction date is
not material.

3.

On July 16, 2014, all the preconditions were fulfilled for execution of the Corporations
part in ZIMs debt arrangement and the arrangement was completed (including approval
of the arrangements with the related ship owners and the Corporations controlling
shareholder as part of the arrangement with the components and transactions related
thereto as approved by the Corporations Board of Directors). The Corporations part in
the debt arrangement includes, among other things, the following:
a)

Execution of the Corporations investment in ZIMs capital, in the amount of $200


million, Corporations such that after completion of the arrangement the
Corporation will hold about 32% of ZIMs issued capital.

b)

Waiver by the Corporation of all of ZIMs debts to it, amounting to, as at June 30,
2014, a total of about $244 million (in nominal terms). This debt is composed of
the following: ZIMs debts to the Corporation under ZIMs debt arrangement from
2009, which includes amounts deriving from reduction of the lease fees as part of
the 2009 debt arrangement that were assigned to the Corporation by the related
ship owners that leased ships to ZIM at that time; provision of a reserve amount
pursuant to the 2009 debt arrangement and investment of amounts by the
Corporation as part of the security net; a subordinated debt of ZIM to the
Corporation, in the amount of about NIS 45 million under a compromise
arrangement in connection with requests for approval to file a derivative claim and
debt in respect of management fees. To the extent a court decides that the said
waiver of the NIS 45 million in connection with the derivative claim is invalid, the
validity of ZIMs debt under the said compromise arrangement will be reinstated.

c)

The Corporations commitment to provide or to see to provision to ZIM of a credit


framework, in the amount of $50 million, for a period of two years from the date
of completion of the arrangement at market terms, against ZIMs customer
receivables, in a coverage ratio of 2:1, and if necessary, to provide support and/or
backing to the party that will provide the credit pursuant to the said compromise
arrangement for purposes of securing its repayment.

24

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
3.

(Cont.)
Upon completion of the debt arrangement in ZIM (see detail and the ZIM section below),
on July 16, 2014, the Corporation ceased to control ZIM and, therefore, in the third
quarter of 2014 the Corporation recorded income in the amount of about $796 million as
a result of loss of control of ZIM and presentation of its investment in ZIM as an
associated company based on its fair value as derived from the amount of the
Corporations investment in ZIMs equity in accordance with the arrangement, and also
recorded a loss of $187 million due to the Corporations waiver of all of ZIMs debts, as
noted above. The resulting amount of the income created, in the amount of about $609
million, as stated, was presented in the statement of income in the category gain (loss)
from discontinued operations (after taxes).
As part of the debt arrangement, as stated above, the Corporation investment about $200
million in the shareholders equity of ZIM. Based on a PPA (purchase price allocation)
study made by an external appraiser, the excess cost was allocated, primarily, as follows:
negative excess cost to ships, in the amount of about $104 million, negative excess cost
in respect of unfavorable operating lease contracts, in the amount of about $39 million,
positive excess cost in respect of containers and equipment, in the amount of about $30
million, positive excess cost in respect of a brand name, in the amount of about $80
million, and goodwill, in the amount of about $219 million.
Execution of the Corporations part in the transaction was subject to fulfillment of the
following preconditions:
a)

Receipt of all the consents required for approval of the arrangement, including:
approval of the General Meeting of the shareholders of Israel Corporation and
approval of the relevant parties to the arrangement, as provided in the
arrangement, including approval of the meetings of the holders of ZIMs
debentures for the arrangement.

b)

Update of the terms of the Special State Share such that it will not restrict transfer
of ZIM shares below a certain threshold and will not prevent completion of the
arrangement pursuant to its terms due to the restrictions of maintaining a minimum
fleet of ships owned by ZIM as provided in the State Share.
Set forth below is a summary of the decisions in connection with fulfillment of
this precondition:

25

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
3.

(Cont.)
b)

(Cont.)
(a) The decision of the District Court:
On July 2, 2014, the decision of the District Court was received whereby it was
provided, in brief, that the Special State Share in ZIM shall be updated such that
consent of the State for transfer of ZIM shares will be required in a case where
such transfer provides the owners a holding at the rate of 35% or more in ZIMs
shares (hereinafter the Transfer), instead of a threshold of 24% as it was up to
now. In addition, it was provided that in any case of a transfer of shares that gives
the holder an interest of more than 24%, but which does not exceed 35%, advance
notice will be required to be given to the State, which will be permitted to notify
that it objects to the transfer, with 21 days, only on the grounds that the aforesaid
transfer could constitute harm to the States security or to any of its essential
interests. In such a case, the transfer will not be made unless there is court
approval (hereinafter the Security Grounds). It was further provided in this
context that there will be no change in the provisions of the terms of the Special
State Share with reference to acquisition of control, that is, the States consent will
also be required in a case of acquisition of control in ZIM (hereinafter the
Consent for Change in Control).
(b) The compromise agreement:
On July 7, 2014, the State filed an appeal in the Supreme Court of the District
Courts decision along with a request to postpone execution. On July 14, 2014, the
date set for the hearing and the Supreme Courts recommendation, the State and
ZIM reached a compromise agreement that received the force of a court decision
by the Supreme Court in connection with update of the terms of the Special State
Share in ZIM, which in the Corporations opinion, as detailed below, is not
significantly different than the operative part of the District Courts decision.
The language of the compromise agreement is as follows:
1.

The decision of the District Court is cancelled with the agreement of the
parties.

2.

In place of the currently existing situation, whereby consent of the State is


required for every transfer of shares that gives the owner an interest of 24%
or more in ZIMs share capital, the following arrangement will apply (and
ZIMs Articles of Association will be amended accordingly):
2.1

The States consent will be required for every transfer of shares that
gives the owner an interest of 35% or more in ZIMs share capital.

26

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
3.

(Cont.)
b)

(Cont.)
(b) The compromise agreement: (Cont.)
2.2

3.

In addition, any transfer of shares that gives the owner an interest of


more than 24% but not more than 35% will require provision of
advance notice to the State wherein full details of the proposed
transferor and the transferee, the rate of the shares that will be held by
the transferee after the transfer and relevant details with respect to the
transaction, including voting agreements and agreements for
appointing directors (if any). To the extent the State believes that
such a share transfer poses possible harm to the States security or
any of its vital interests or that it did not receive the relevant
information for purposes of formulating its decision, the State will be
permitted to give notice, within 30 days, that it objects to the transfer
and it will be required to set forth the reasons for its objection. In
such a case, the party requesting the share transfer will be permitted
to take steps regarding this matter in the authorized court, which will
hear and decide the matter.

If the State objects as stated in Section 2.2 above, clearly every party will
reserve all of its contentions.
In order to remove doubt, the provision whereby every holding or transfer
of shares at a rate that gives the holder thereof control over ZIM, is subject
to the States consent, remains intact. Moreover, in order to remove doubt, it
is once again clarified that all the rest of the terms of the Special State Share
will remain unchanged.

The Corporation determined, taking into account legal advice it received, that the
compromise agreement significantly fulfills terms of the Transfer in connection
with ZIMs shares that will be owned by the Corporation after completion of the
arrangement.
4.

Further to that stated in Note 10.B.3(b) to the annual financial statements, in January
2014, the Corporation, through a subsidiary, and Chery Automobile Co. Ltd., each one,
invested the amount of about $41 million, in the capital of Qoros Automotive Co., Ltd.
(hereinafter Qoros), as part of the joint ventures business plan.

27

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


The Corporation (Cont.)
4.

(Cont.)
On June 9, 2014, the Corporation transferred to Qoros the amount of about $81 million,
by means of convertible shareholders loans, and thus completed its obligation to invest
in Qoros in accordance with the business plan, except for an amount of about $4 million
that has not yet been transferred. The loan will be converted into equity of Qoros, among
other things, at the request of Qoros, and after receipt of the required approvals from the
authorities in China. If the above-mentioned approvals are not received, Qoros has
committed to repay the loan to the Corporation plus interest.

5.

On July 31, 2014, the Corporation provided an irrevocable guarantee for the benefit of
Chery (hereinafter the 2014 Guarantee), in respect of half of every amount that
Chery will pay under a guarantee provided by Chery to a company in a city in the district
in which the production facility of Qoros is located, which provided a guarantee for the
said financing. The 2014 Guarantee is up to an aggregate amount of RMB 750 million
plus accompanying expenses and interest (in the aggregate amount of about $155
million), on the basis of the terms Chery committed to (back-to-back) and subject to the
terms of the guarantee.
It is clarified that the said 2014 Guarantee is in addition to the guarantee provided by the
Corporation in connection with the said financing agreement from July 2012, up to an
aggregate amount of RMB 750 million plus accompanying expenses and interest (in the
aggregate amount of about $145 million).
In addition, in order to secure additional financing taken out by Qoros, subsequent to the
date of the report, in the amount of about RMB 1.2 billion (about $200 million), the
Corporation placed a lien on part of its shares in Qoros (including a dividend deriving
therefrom), based on its proportionate share in the capital of Qoros, in favor of the
Chinese bank that provided the said financing. At the same time, Cherys subsidiary
(through which Cherys rights in Qoros are held) also placed a lien on a corresponding
part of its rights in Qoros. This financing agreement of Qoros includes, among other
things, liabilities, provisions regarding financial covenants, events giving rise to
immediate repayment and/or early repayment due to violations and/or events provided in
the agreement. The lien agreement includes, among other things, provisions regarding
the proportion of collaterals and addition of collaterals in circumstances, including
addition of shares up to pledging all of the shares of Quantum in Qoros or cash,
provisions regarding the events the occurrence of which will entitle the Chinese bank to
realize the lien, certain representations and undertakings (covenants) and provisions
regarding recording and confirmation of the lien.

28

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

A.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


A.

The Corporation (Cont.)


6.

On September 30, 2014, the Corporations Board of Directors approved a framework for
provision of shareholders loans to Qoros against release of the Corporation from
guarantees, as stated in Section 5 above, it provided in connection with financing Qoros
took out, in the aggregate amount of about RMB 1,500 million (about $300 million)
(hereinafter the Guarantees). As part of the said framework, the Corporation will
provide a shareholders loan to Qoros during the fourth quarter of 2014, in the aggregate
amount of about $60 million against release of half of the Guarantees, and during the
first quarter of 2015 the Corporation will provide an additional shareholders loan to
Qoros in the aggregate amount of about $70 million against release of most of the
balance of the Guarantees. The framework for provision of the Guarantees, as stated, will
be executed concurrently by Chery, with reference to the guarantees it provided in
connection with financing of Qoros, as stated in the above-mentioned Immediate Report.
As at the date of the report, a framework for provision of shareholders loans against
release of the Guarantees and execution of its terms had not yet been signed, including
the timetables subject to signing of a framework as stated by all the relevant parties and
execution thereof accordingly. There is no certainty that the framework as stated will be
signed or that it will be executed in accordance with the terms detailed above.
In September 2014, S&P Maalot reaffirmed the Corporations rating ilA+/Stable.

8.

The Group attaches to these financial statements, the financial statements of the
associated company Qoros Automotive Ltd. the reporting currency of which is the
RMB. As at September 30, 2014, the exchange rate of the RMB vis--vis the dollar was
6.14 (as at December 31, 2013 6.05, an increase of 1.5%). The Group also attaches the
financial statements of ZIM Integrated Shipping Services Ltd.

Israel Chemicals Ltd. (hereinafter ICL)


1.

Further to that stated in Note 15 to the annual financial statements, in January 2014, ICL
received the proceeds from the private placement in the United States of unregistered
debentures. The amount of the issuance is about $275 million, for a period of 712 years,
as follows: the amount of about $84 million bearing fixed interest at an annual rate of
4.55% for a period of 7 years, the amount of about $145 million bearing fixed interest at
an annual rate of 5.16% for a period of 10 years and the amount of about $46 million
bearing fixed interest at an annual rate of 5.31% for a period of 12 years.

2.

In the first quarter of 2014, ICL included in the statement of income a provision, in the
amount of about $51 million, which was based on principles agreed to in assessment
hearings between subsidiaries in Europe and the relevant tax authorities. During the
second quarter, an assessment agreement was signed, the results of which correspond
with the principles used in calculating the said provision.

29

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

7.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
3.

Further to that stated in Note 20 to the annual financial statements, regarding receipt of
phosphate mining permits in the Barir Field, on April 3, 2014, ICL was informed that the
Minister of Health, Ms. Yael German, contacted the Head of the Planning
Administration in the Ministry of the Interior, Ms. Binat Schwartz, and notified her that
after reviewing the opinion of the expert appointed by the Ministry of Health, she had
decided to oppose the possibility of mining in the Barir Field, including the test mining.
ICL disagrees with the Minister of Health's interpretation of the opinion. In ICLs
estimation and based on its understanding of the said opinion, this opinion does not
contradict ICLs position that the mining activities in the Barir Field do not involve any
risks to the environment or to the population.

4.

Further to rejection by the Court of the petition of the Hotels Union for issuance of an
Interim Order prohibiting raising of the dykes, and the hearing scheduled to be held on
September 15, 2014, as stated in Note 20 to annual financial statements, on May 1, 2014,
some of the hotels in the Dead Sea area filed a separate administrative petition and a
request for issuance of an Interim Order (in the District Court for Jerusalem) against the
Regional Planning Board and the Company for Protection of the Dead Sea (the
respondents), instructing with respect to the issuance of Injunctive Orders prohibiting the
Regional Planning Board from hearing the request for a building permit for raising the
dykes in the area of Nevei Zohar and a prohibition against performance of the work on
the Nevei Zohar beaches by the Company for Protection of the Dead Sea. On June 1,
2014, a hearing was held wherein the Court gave the force of a court decision to the
compromise proposed as part of the separate petition, whereby the Company for
Protection of the Dead Sea will be required to provide the petitioners documents and
plans in connection with the request for a building permit, and the petitioners are to
submit their responses to the plans, as stated, which will be restricted solely to the matter
of the timetables and the manner of execution of the plan, and where no objections will
be heard regarding the height of the dyke and the height of the water level. No interim
order was issued.

5.

In May 2014, ICL signed an agreement with a European bank whereby the bank
provided a credit framework, in the amount of 50 million. This credit framework is for
a period of 5 years and is to be repaid in full at the end of the period, and bears variable
interest on the basis of the Euribor plus a margin of 0.95%-1.25%. A non-utilization
commission will be charged at the rate of 0.33% per year. As at the date of the report, the
credit framework had not been used. The financial covenants in respect of this credit
framework are the same as the financial covenants detailed in Note 15 to the annual
financial statements.

30

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
6.

In June 2014, the Company signed loan agreements with a number of international
institutional entities, in the aggregate amount of about 57 million and about $45
million. The proceeds of these loans were received subsequent to the date of the report,
in July 2014. The loans are to be repaid in a period of between five to ten years, where
some of the loans bear fixed interest in the range of 2.1%-3.75%, some of them bear
variable interest on the basis of Libor + 1.55% and some of them bear variable interest
on the basis of the Euribor plus a margin of 1.4%-1.7%. The financial covenants in
respect of these loans are the same as the financial covenants detailed in Note 15C2 to
the annual financial statements. As at the date of the financial statements ICL was in
compliance with the financial covenants.

7.

In the period of the report, ICL entered into an undertaking with a European bank
whereby the bank provided a credit framework in the amount of 100 million and $100
million. This credit framework is for a period of nine years and is to be repaid in full at
the end of the period. The credit framework in euro replaces the credit framework
provided by the bank to ICL in November 2011 which has not yet been utilized. For
details see Note 15F to the annual financial statements. The dollar framework bears
variable interest on the basis of Libor + 0.9%-1.4%, the euro framework bears variable
interest on the basis of Euribor + 0.9%-1.4%. A non-utilization commission will be
charged at the rate of 0.35% per year. As at the date of the report, about $63 million had
been utilized out of the dollar credit framework. The financial covenants in respect of
this credit framework are the same as the financial covenants detailed in Note 15C2 to
the annual financial statements. As at the date of the report, ICL was in compliance with
the financial covenants.

8.

Further to that stated in Note 20D1 to the annual financial statements, on May 19, 2014,
a partial arbitration decision was received regarding the royalties issue (hereinafter
the Arbitrators Decision). Based on the principles of the decision received, Dead Sea
Works Ltd. (DSW) is required to pay the State royalties on the sale of downstream
products manufactured by companies that are controlled by ICL that have production
plants located both in and outside the Dead Sea area, including outside of Israel. The
royalties are to be paid according to the value of the downstream products, which will be
set according to the formula described in Section 15(a)(2) of the Concession Deed, based
on the selling price of the downstream products to unrelated third parties less the
deductions set forth in subsections (I), (II) and (III) of that Section. Regarding metal
magnesium, it was decided that the State of Israel and DSW are to exhaust their
discussions on the subject of the royalties to be paid by DSW on metal magnesium, and
if no agreement is reached the matter is to be returned to arbitration. The Arbitrators
Decision was issued with respect to fundamental determinations with respect to the
obligation to pay royalties on downstream products and does not include reference to the
financial calculations arising from the decision. These financial calculations will be
discussed in the next phase of the arbitration. In the second quarter of 2014, in
accordance with ICLs estimate, based on its legal advisors, a provision was recorded in
the amount of about $135 million (the Corporations share about $70 million) due to
implementation of the partial arbitration award for the years 2000 through 2013.

31

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
8.

(Cont.)
The amount of this provision includes, among other things, interest and is net of the tax
effect. In addition, as a result of the Arbitrators Decision, the current expense in the
period of the report in respect of royalties was increased by about $6 million. The
Arbitrators Decision is partial and the financial calculations with respect to the manner
of implementation of the Decision have not yet been provided. Therefore, ICLs
estimation is based on various assumptions regarding the manner of calculating the
royalties deriving from the partial Arbitrators Decision and reflects the best estimate of
the expense that will be required to settle the liability presently, at the end of the period
of the report. The final amount that will be determined by the arbitrators at the end of the
second stage of the arbitration after the arbitration panel determines the financial
calculations, as noted, may differ, even materially, from the amount of the provision. In
the second stage of the arbitration, which will deal with determination of the amounts of
the royalties, ICL intends to claim that the correct amount of the royalties is significantly
lower than the amount stated. Pursuant to the decision of the arbitrators, ICL is required
to present the State a detailed calculation of the royalties owed to the State, according
ICLs perception of the correct calculation, by the end of December 2014.

9.

On August 6, 2014, ICLs Board of Directors approved an issuance of up to about


4,384,540 non-marketable options, for no consideration, exercisable for about 4,384,540
of ICLs shares, and up to about 1,025,449 restricted shares, to about 450 ICL officers
and senior employees. The issuance includes a material private offer of 367,294 options
and 85,907 restricted shares to ICLs CEO, which is subject to approval by the General
Meeting of ICLs shareholders. This grant format of the options' plan includes a cap
for the value of a share where if as at the exercise date the closing price of An ICL share
is higher than twice the exercise price (the Share Value Cap), the number of the
exercise shares will be adjusted so that the product of the exercise shares actually issued
to the offeree multiplied by the share closing price will equal the product of the number
of exercised options multiplied by the Share Value Cap.
The options and restricted shares will vest in three equal portions: one-third at the end of
24 months from December 1, 2014, one-third at the end of 36 months from December 1,
2014 and one-third at the end of 48 months from December 1, 2014. The expiration date
of the options in the first portion is at the end of 48 months from December 1, 2014, the
expiration date of the options in the second portion is at the end of 60 months from
December 1, 2014 and the expiration date of the options in the third portion is at the end
of 72 months from December 1, 2014.

32

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
9.

(Cont.)
Upon exercise, every option may be converted into one ordinary share of NIS 1 par value
of ICL. The ordinary shares issued as a result of exercise of the options have the same
rights as ICLs ordinary shares, immediately upon their issuance. The options issued to
the employees in Israel are covered by the provisions of Section 102 of the Income Tax
Ordinance (New Version) and the regulations promulgated thereunder. ICL elected that
the issuance will be made through a trustee, under the Capital Gains Track. The exercise
premium is about $8.4 for each option, linked to the CPI that is known on the date of
payment. In a case of distribution of a dividend by ICL, the exercise premium is reduced,
on the ex-dividend date, by the amount of the dividend per share (gross), based on the
amount thereof in shekels on the effective date. The options are not marketable and may
not be transferred.
The fair value of the options was estimated by means of application of a binomial model
for pricing options and is about $8.4 million. The expected volatility for the first, second
and third portions is about 29.37%, 31.24% and 40.77%, respectively, which was
determined on the basis of the historical volatility in ICLs share prices. The life of the
options was determined on the basis of Managements estimate of the period the
employees will hold the options, taking into consideration their position with ICL and
ICLs 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 options.
The fair value of the said restricted shares is $8.4 million. The value of the restricted
shares offered to the offerees was determined based on the closing price on the stock
market on the last trading day prior to the approval date of the Board of Directors.
The cost of the benefit embedded in the above-mentioned plan will be recognized in the
statement of income over the vesting period.
In addition, a long-term remuneration plan was approved from about 11,800
non-management ICL employees that are not included in the plan for issuance of options
and restricted shares, as described above, in the aggregate scope of up to about $17
million.
On September 28, 2014, ICL issued 927,467 shares and 4,017,246 options, pursuant to
the plan for the Company's employees.

10. On August 27, 2014, ICLs Board of Directors decided, regarding the matter of
examination of the economic profitability of continuing to produce certain products,
including metal magnesium, bromine compounds and certain phosphate downstream
products, as follows:

33

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
10. (Cont.)
Bromine Compounds ICLs Board of Directors instructed ICLs management team to
develop and implement an efficiency plan designed to significantly improve the
profitability of Bromine Compounds Company, from the Industrial Products segment.
The Board of Directors determined that this plan is required due to the continuing
erosion of profits on bromine compounds as a result of a decline in demand for flame
retardants, low structural growth in the world market, a drop in prices and strengthening
of the shekel, compounded by the significant recent developments related to the partial
arbitration decision with respect to royalties on sales of downstream products, including
bromine compounds and the possibility that the Sheshinski Committees Interim
Recommendations will be adopted and enacted into legislation. Company management is
making preparations to formulate a plan, as stated, which is expected to include the
reduction of labor and other costs in the Bromine Compounds Company. There is no
certainty that ICL will be able to formulate such a plan or that such a plan can be
implemented successfully, as a result of various factors, including the situation of the
market, competition, regulation, labor relations and/or any of the risk factors
characterizing ICLs activities, as detailed in the F-1 published by ICL on September 23,
2014. In addition, ICL could be adversely affected as a result of such plan, including
through potential labor unrest, even reaching the level of strikes in certain facilities.
Subsequent to the date of the report, on November 16, 2014, the management of
Bromine Compounds Ltd., a subsidiary of ICL (hereinafter Bromine Compounds),
gave notice to 144 employees of their inclusion on the list of candidates for termination
due to efficiency measures and possible cutbacks. Concurrently, the Employees
Committee is imposing sanctions on the factory of Bromine Compounds in Naot Hovav
and there is a concern that there will be additional tension with respect to the
employment relationships, including the possibility of a strike at the factory of Bromine
Compounds.
The Magnesium Plant ICLs Board of Directors instructed ICLs management team to
make preparations for closure of our magnesium plant at the Dead Sea, commencing
January 1, 2017, to the extent the discussions with the State of Israel regarding the tax
and royalties issues will not support the continuation of the activities of the magnesium
plant. ICLs management was instructed to ensure all existing and future customer orders
and commitments in order to avoid any interruptions until the final closure of the plant.
The main economic justification for continuation of the activities of the magnesium plant
at the Dead Sea stems from the plants synergies with our other facilities in Sodom,
which provide it with, and receive from it, raw materials (the Synergies). The net value
of the Synergies has declined due to the increase in the tax burden on production from
natural resources in Israel that have already been implemented, and will further decline if
the Sheshinski Committees Interim Recommendations are enacted into law. As noted
above, ICL has halted all investments in the magnesium plant (other than investments
required by law). In 2013, ICLs total sales of the Magnesium Company were
approximately $115 million and the gross profit of the magnesium company in 2013 was
approximately $1 million, the net book value of the fixed assets of the Magnesium
Company as of September 30, 2014 was approximately $35 million and the depreciation
expense in 2013 was approximately $6 million.

34

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Israel Chemicals Ltd. (hereinafter ICL) (Cont.)
10. (Cont.)
Further to the decision of the Governments Social-Economic Cabinet, on November 10,
2014, which provides that a proposed law memorandum Natural Resources Tax will be
expressed in the Cabinets decision whereby a special mechanism will be determined
that ensures that the Committees recommendations will not impact, directly or
indirectly, the viability of the continued existence of the magnesium plant, ICLs
management will consider recommending to the Board of Directors to re-examine its
decision regarding the continued existence of the magnesium plant, even after January
2017, if and to the extent that the actual expression of the Cabinets decision, as stated, in
the legislative enactment, will not adversely impact the contribution and value of the
synergy deriving from the activities of the magnesium plant. As at the date of the report,
the decision of the Board of Directors of August 27, 2014, is still valid.
The said decisions did not have a significant impact on ICLs financial results in the
period of the report.
11. Subsequent to the date of the report, on October 26, 2014, ICL and its subsidiary, BK
Giulini GmbH, entered into an agreement with Kurita Water Industries Ltd. (Kurita), for
the sale of business units in ICL's Performance Products segment, which operate in a
number of areas: solutions for water treatment, chemicals for paper and aluminum
compounds. The said business units operate primarily in Germany, and in other locations
elsewhere in Europe and in China. The transaction will be for a consideration of
approximately 250 million. Closing of the transaction is expected to take place towards
the end of 2014, subject to fulfillment of a number of preconditions set forth in the
purchase agreement, including receipt of approvals from competent authorities, as well
as approval of a minimum number of employees for transfer to employment by the
purchasing company. There is no certainty that the transaction will be completed and/or
that it will be completed in accordance with the conditions detailed in this report above.
Accordingly, in its financial statements as at September 30, 2014, ICL classified the
relevant business units as assets held for sale. As at the date of the report, there is no
impact on the results stemming from the said transaction.
12. Subsequent to the date of the report, on November 11, 2014, ICLs Board of
Directors authorized ICLs management to launch an offering of notes to institutional
investors in the U.S., Europe and Israel pursuant to Rule 144A and Regulation S of the
U.S. Securities Act of 1933, as amended. Subsequent to the date of the report, on
November 20, 2014, the pricing of the issuance of senior unsecured debentures, as stated,
was completed, in the cumulative amount of $800 million, bearing interest at the rate
of 4.5%, scheduled for repayment in 2024. The price in the issuance of the debentures is
99.285% and they bear a yield of 4.59%. Completion of the issuance is expected to take
place on December 2, 2014, subject to customary closing conditions.

35

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

B.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


B.

Israel Chemicals Ltd. (hereinafter ICL) (Cont.)


12. (Cont.)
ICL intends to use the net proceeds from the offering, if completed, to repay certain
short-term loans and debt under its outstanding revolving credit facilities, which will
provide it flexibility for future borrowings under the revolving credit facilities for
general corporate purposes, potential acquisitions and refinancing of existing debt.
The securities to be offered have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
I.C. Power Ltd. (hereinafter I.C. Power)
1.

In February 2014, I.C. Power, through Inkia Americas Holdings (hereinafter Inkia),
entered into a transaction with AEI Power Ltd. for acquisition of 100% of the shares of
the companies AEI Nicaragua Holdings Ltd. (hereinafter AEI Nicaragua) and
AEI Jamaica Holdings Ltd. (hereinafter AEI Jamaica). The above-mentioned
companies hold and operate, through subsidiaries, power stations in Nicaragua and
Jamaica, having an aggregate production capacity of about 245 megawatts, which
included, among others, power stations operating on wind energy, having a capacity of
about 63 megawatts.
In March 2014, the transaction for acquisition of AEI Nicaragua was completed and
commencing from this date Inkia is its controlling shareholder. Upon closing of the
transaction, Inkia paid about $37 million to AEI Power Ltd. in consideration of the
acquisition where in April 2014 about $7 million was returned due to adjustments made
to the acquisition price.
As at the approval date of the financial statements, allocation of the acquisition cost of
the assets and liabilities of AEI Nicaragua had not yet been completed. Based on a
preliminary estimate of the allocation of the acquisition cost of the said companies, about
$16 million was allocated to AEI Nicaragua, to negative goodwill, which was recorded
in the other income category in the statement of income. The negative goodwill was
created as a result of acquisitions at bargain prices due to, among other things, a lack of
potential purchasers.
In May 2014, the transaction for acquisition of AEI Jamaica was completed. Upon
closing of the transaction, Inkia paid about $17.5 million to AEI Power Ltd. in
consideration of the acquisition where subsequent to the date of the report, in July 2014,
an additional payment, in the amount of about $3 million was made due to adjustments
made to the acquisition price.
As at the approval date of the financial statements, allocation of the acquisition cost of
the assets and liabilities of AEI Jamaica had been completed. The amount of about $23
million was allocated to negative goodwill, which was recorded in the other income
category in the statement of income. The negative goodwill was created as a result of
acquisitions at bargain prices due to, among other things, a lack of potential purchasers.

36

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

C.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


I.C. Power Ltd. (hereinafter I.C. Power) (Cont.)
2.

In March 2014, I.C. Power, through Inkia, acquired 60% of the share capital of the
Columbian company, Supertroil, for a consideration of about $18 million. Supertroil is
engaged in production of natural gas, and in transport and distribution of natural gas in
Columbia.
As at the approval date of the financial statements, allocation of the acquisition cost of
Supertroil to the assets and liabilities acquired had not yet been completed.

3.

In August 2014, I.C. Power, through Inkia, signed an agreement with AEI Power Ltd. for
acquisition of 100% of the shares in AEI Guatemala Holdings Ltd. (hereinafter
AEI Guatemala), for a cash consideration of $29 million. In September 2014, the
transaction was completed. Subsequent to the date of the report, in October 2014, Inkia
paid an additional $6 million due to adjustments made to the purchase price.
As at the approval date of the financial statements, allocation of the acquisition cost of
the assets and liabilities of AEI Guatemala had been completed. The amount of about
$20 million was allocated to negative goodwill, which was recorded in the other
income category in the statement of income. The negative goodwill was created as a
result of acquisitions at bargain prices due to, among other things, a lack of potential
purchasers.

4.

On April 30, 2014, Inkia signed, together with I.C. Power, which is a guarantor for the
liabilities of the sellers, with Enersis SA, an agreement for sale of its shares in Inkia
Holdings (Acter) Limited, which holds, indirectly, about 39% of Generandes Peru SA,
the controlling shareholder in Edegel SA (hereinafter Edegel), for a consideration of
$413 million.
On September 3, 2014, the transaction was completed and ICP recognized a capital gain
(net of tax), in the amount of about $110 million.
Pursuant to the terms of the debentures issued by Inkia, Inkia is subject to restriction
with respect to the proceeds of the sale. On September 16, 2014, Inkia received a consent
letter from the holders of the debentures whereby Inkia is permitted to re-invest the net
cash proceeds deriving from the sale of Edegel within 30 months of the sale date.
Inkia expects to reinvest the net proceeds in cash deriving from sale of Edegel.

5.

Subsequent to the date of the report, in October 2014, a subsidiary of I.C. power in
Panama, signed an agreement to supply electricity, in the total capacity of 86 megawatts
during a period of five years, commencing from July 2015. For this purpose, the
subsidiary will open and install thermal production units, having production capacity of
92 megawatts.

37

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

C.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


I.C. Power Ltd. (hereinafter I.C. Power) (Cont.)
6.

D.

In September 2014, Inkia prepared a five-year budget for its subsidiary, which presents a
declining trend in the subsidiarys results. In light of this, and taking into account the fact
that there has been a systematic decline in the subsidiarys profits, and due to the
potential impact of political changes on the economy of the country in which the
subsidiary operates (which has impacted the power stations market), Inkia made an
examination of a decline in value of the subsidiary. As a result of the examination of a
decline in value, Inkia found that the carrying value in the books of the assets of the
subsidiary exceeds the recoverable amount thereof, and it recorded an impairment loss in
the amount of about $35 million. The usage value was determined using a discount rate
of 7.6%.

ZIM Integrated Shipping Services Ltd. (hereinafter ZIM)


1.

As at September 30, 2014, ZIM had shareholders equity attributable to its owners in an
amount of about $79 million, compared with a capital deficit of $583 million and $297
million, as at December 31, 2013 and September 30, 2013, respectively. As at
September 30, 2014, the balance of ZIMs working capital amounted to about $1 million,
compared with a working capital deficit of about $1,927 million and about $1,864
million, as at December 31, 2013 and September 30, 2013, respectively, mainly due to
the reclassification of long term liabilities to short-term, in the amount of about $1,505
million and about $1,508 million, respectively, due violation of financial covenants.
ZIMs current operating results for the nine months and three months ended
September 30, 2014, amounted to an operating loss of about $269 million and $251
million, respectively. ZIMs operating results without the impact of the restructuring of
its equity and debt (impact as at the date of the change), for the nine months and three
months ended September 30, 2014, amounted to an operating loss of about $30 million
and $12 million, respectively, compared with an operating loss of about $59 million and
income of about $16 million for the nine months and three months ended September 30,
2013.
ZIMs net loss (including the loss attributable to the holders of non-controlling interests),
for the nine months and three months ended September 30, 2014, amounted to a net loss
of about $192 million and $63 million, respectively. ZIMs net loss without the impact of
the restructuring of its equity and debt (impact as at the date of the change), for the nine
months and three months ended September 30, 2014, amounted to a net loss of about
$180 million and $51 million, respectively, compared with a net loss of about $249
million and about $42 million for the nine months and three months ended September 30,
2013.
In order to cope with its financial position, during 2013 ZIM entered into negotiations
with its financial creditors and other parties in an attempt to reach a consensual
agreement with respect to restructuring of ZIMs equity and debt, based on the five-year
business plan, that is structured to gain long-term stability for ZIM (hereinafter the
Arrangement). The restructuring was completed and all the conditions precedents were
fulfilled, subsequent to the date of the report, on July 16, 2014 (hereinafter the Date of
the Arrangement).

38

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

C.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
1.

(Cont.)
The negotiations regarding the Arrangement involved representatives of the majority of
ZIMs financial creditors, related parties and additional stakeholders. As a result of the
Arrangement, among other things, the scope of ZIMs liabilities (par value, including
future commitments in respect of operating leases, and with regard to those parties
participating in the Arrangement) were reduced from about $3.4 billion to about
$2 billion.
The main principles of the agreements making up the Arrangement are as follows:
(a) Partly secured creditors (other than those who elected to enter into the VesselCo
arrangement detailed in (c) below) are entitled to new fully secured loans in an
amount equal to an agreed value of the assets securing the current existing debt
(hereinafter Tranche A). Tranche A debt bears interest at an annual rate of
LIBOR + 2.8% and is to be repaid on the earlier of: (i) seven years from the
effective date of the Arrangement; or (ii) the contractual date of repayment of the
original loan with respect to each secured creditor plus about nineteen and a half
months. The original security will continue to serve as a first-priority lien securing
the new loan. In general, if ZIM disposes of a secured vessel at any time prior to the
applicable maturity date, it will be required to repay all Tranche A debt for that
vessel (see also (b) below).
(b) ZIM undertook to scrap eight vessels during a period of 16 months from the Date of
the Arrangement. On the Date of the Arrangement, those vessels were classified as
held for sale and as a result, an impairment loss in an amount of $110 million will be
recorded under other operating expenses (as included on the date of the
Arrangement in the table below). The above-mentioned loss will not be recognized
in the books of Israel Corporation. Subsequent to the date of the report, two of those
vessels were sold for the purpose of demolition.
(c) Certain vessel loan creditors purchased (directly or indirectly) the vessels secured in
their favor and undertook to lease them back to ZIM at such terms and conditions as
agreed in the restructuring agreements (hereinafter VesselCo). Upon the lease
back of those vessels, five of the vessels are classified as capital leases and three of
the vessels, as operating leases.

39

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
1.

(Cont.)
(d) The unsecured portion of the current existing debt (hereinafter the Deficiency
Claim) entitles the creditors to a new unsecured debt: Series C and, for certain
creditors, also Series D Notes (hereinafter the Series C and D Notes) and ZIMs
equity (other than with respect to the shipyards loan, see (e) below). Both the Series
C and D Notes will bear interest at an annual rate of 3%, while the Series D Notes
will be entitled to additional interest at a rate of 2% per year, which shall be payable
in kind (PIK interest). The repayment of the Series C Notes is due on June 20, 2023
and the repayment of the Series D Notes is due on June 21, 2023 (bullet (i.e., a
lump-sum payment)). In case of an accumulation of cash beyond a certain threshold,
as defined in the Arrangement, a mechanism for mandatory prepayments using
excess cash flows will be provided for each of the Series C and Series D Notes. Each
of the Series C Notes and the Series D Notes has priority in early repayments
resulting from excess cash flow over Tranche A. The Series C Notes have priority in
such early repayments over the Series D Notes.
(e) With respect to the shipyards loan the outstanding amount, which was supposed
to entitle the creditor to a portion in the allocation of ZIMs shares, will instead
entitle the creditor to an unsecured loan (hereinafter Tranche E). Tranche E will
bear interest at an annual rate of 2%. In the first nine years of the loan period, 1.75%
of the interest rate shall accrue as a PIK interest and, after the first nine years until
the end of the twelfth year, subject to the full settlement of Tranche A, Series C
Notes and Series D Notes, the interest will be payable in cash.
(f) New reduced charter hire floor rates and rate adjustment mechanisms were agreed
with the ship owners, including related parties ship owners. In addition, the ship
owners (excluding certain related parties as described in (j) below) are also entitled
to ZIMs Tranche C and D Notes and to ZIMs equity.
Regarding operating leases, the classification of which upon the restructuring
remained unchanged, deferred expenses in the amount equal to the fair value of
Series C and D Notes and equity issued to third party ship owners will be recorded
as additional charter hire expenses throughout the remaining charter periods.
(g) Five leased vessels previously classified as capital leases will be reclassified, in light
of the change in the lease terms, as operational leases.
(h) The financial creditors and ship owners received shares aggregating to 68% of
ZIMs issued share capital (on a fully diluted basis, post-restructuring, after Israel
Corporations investment in ZIM, as set forth in (i) below).

40

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
1.

(Cont.)
(i) Israel Corporation invested an amount of US$ 200 million in ZIMs share capital (of
this amount, about $90 million will serve as a reserve for investments in ZIMs
business, pursuant to the provisions of the agreement, and about $70 million was
classified as long-term assets) and waived all ZIMs liabilities to it. All of ZIM's
existing shares and options, including those held by Israel Corporation, became null
and void and Israel Corporation received shares aggregating to 32% of ZIMs issued
share capital (on a fully-diluted basis).
Regarding about $13 million (about NIS 45 million) deferred debt of ZIM to Israel
Corporation in connection with a derivative claim, such waiver will be terminated
and the debt will be reinstated if the court determines that the waiver was not valid.
In such event the debt will be repaid following the full repayment of the debts under
the restructuring (Tranche A, Series C and D Notes and Tranche E).
Israel Corporation has further agreed to provide or arrange to put in place a credit
line of $50 million to ZIM.
In addition, certain related parties waived ZIMs debt to them.
See also Section (k) below.
(j) Certain related parties, which have leased vessels to ZIM, agreed to receive a charter
rate which, in general, will be lower by $1,000 per day than that paid to the ship
owners who are not related parties for similar vessels (see also (k) below).
Also, certain related parties waived their rights to receive their part of the Series C
and D Notes and ZIMs equity which are primarily attributable to the reduction of
the charter hire (see (f) above), in favor of certain third-party creditors.
(k) Pursuant to ZIMs accounting policies, transactions with related parties acting in
their capacity as shareholders are recorded directly in equity. Accordingly, all debt
waivers and benefits from related parties (in an amount of about $237 million) will
be recorded against capital reserve from transactions with related parties.
(l) According to the provisions of IAS 39, it was concluded that the terms of all debt
participating in the Arrangement were substantially modified. Accordingly, the old
debt was derecognized and the new debt (Tranche A, Series C Notes, Series D
Notes, Tranche E and financing lease liabilities under VesselCo) as well as the new
equity will be recorded at fair value at the effective date of the Arrangement.
The valuation technique which was used in order to measure the fair value of the
new debt was the discounted cash flows technique. The interest rates used to
discount cash flows (between about 3% and 10%) were estimated by an external
appraiser, based on a synthetic rating calculated using accepted methodology and
considering rating-appropriate interest rate curves.

41

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
1.

(Cont.)
(m) All the previous covenants were annulled and a new set of financial covenants was
agreed as follows:
(i) Minimum Liquidity ZIM is required to have monthly minimum liquidity
(including amounts held in the reserve account that are available for general
corporate purposes) in an amount of at least US$ 125 million (tested on the last
business day of each calendar month).
(ii) Fixed Charge Cover ZIM is required to have a certain Fixed Charge Cover
ratio, which is defined as Consolidated EBITDAL to Fixed Charges. EBITDAL
means Consolidated EBITDA (Groups Consolidated EBITDA, after certain
adjustments as specifically defined in the facility agreements), after adding back
charter hire lease costs. Fixed Charges mean mainly cash interest, scheduled
repayments of indebtedness and charter hire lease costs.
This ratio will gradually increase from 1.02:1 on December 31, 2015 to 1.07:1
on December 31, 2018 (based on last 12 months periods). Ratio levels will be
tested quarterly commencing from December 31, 2015.
(iii) Total Leverage ZIM is required to have a certain Total Leverage ratio, which
is defined as Total Debt to Consolidated EBITDA.
This ratio will gradually decrease from 8.8:1 on September 30, 2015 to 4.9:1 on
December 31, 2018 (based on last 12 months periods). Ratio levels will be
tested quarterly commencing from September 30, 2015.
(n) Amendments to the Special State Share were made as set forth in the compromise
agreement reached with the holder of the Special State Share.

42

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
1.

(Cont.)
(o) As a result of that stated above, set forth below is information regarding the impact
of the debt restructuring on the financial statements of ZIM for the third quarter of
2014. This impact does not apply to Israel Corporations financial statements:
(a) Impact on the statement of financial position:
Increase (decrease)
(In $ millions)

Total assets
Total liabilities
Total shareholders equity

(316)
(1,166)
850

(a) Impact on the statement of income:


Income (expense)
(In $ millions)

Operating income
Financing income, net
Tax benefit

(239)
186
41
(12)

In the opinion of ZIMs management and its Board of Directors, completion of the
Arrangement (restructuring), as detailed above and ZIMs expected performance in
accordance with its business plan, dated January 1, 2014, including directives that are
updated from time to time, enables ZIM to meet its liabilities and operational needs and
to comply with the new set of financial covenants for a period of at least 12 months after
the date of the report.
2.

On May 22, 2014, ZIM filed an urgent request in the District Court of Haifa, pursuant to
Section 350(A) of the Companies Law, 1999, regarding convening a meeting of
shareholders and holders of rights to receive and/or acquire ZIM shares (hereinafter
the Options). The subject matter of the request is convening of a General Meeting of
the owners of the said rights, where on the Days Agenda will be a decision whereby on
the closing date of the creditors arrangement between ZIM and the financial and other
creditors, all of ZIMs shares and the rights to receive as acquire ZIM shares will be
recognized as null and void (except for rights to convert debts of ZIM into ZIM shares,
which will be cancelled in the framework of consents with the relevant creditors at the
time of the above-mentioned closing) . In addition, as part of the said proceedings, an
update is requested of the States Special Share in ZIM, based on ZIMs Articles of
Association, while cancelling the limitations on transfer of ZIMs shares, along with
additional adjustments with respect to other aspects applicable by virtue of the said share
or, alternatively, they will be recognized as null and void, and approval of the court for
cancellation of ZIMs Memorandum of Association and adoption of new Articles of
Association.

43

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


ZIM Integrated Shipping Services Ltd. (hereinafter ZIM) (Cont.)
2.

(Cont.)
On July 15, 2014, the District Court approved the restructuring arrangement by and among
ZIM, its shareholders and the holders of rights, to receive and/or acquire shares of ZIM
(collectively the Options). According to said arrangement, on the closing of ZIMs debt
restructuring (the Closing Date), all of ZIMs shares (other than the Special State Share)
and options will become null and void. In addition, pursuant to the Courts ruling, at the
closing ZIMs memorandum has been cancelled, and ZIMs Articles of Association were
replaced by new Articles of Association.

3.

As at the date of the report, ZIM had decided to sell two ships for purposes of scrap. As a
result, ZIM recorded a loss of about $17 million.

Condensed Data regarding Associated Company ZIM


Condensed data regarding interim financial position as at
September 30, 2014
(Unaudited)
(In $ millions)

Main location of activities


Rate of ownership rights

Multi-national
32%

Current assets
Non-current assets
Current liabilities
Non-current liabilities

793
1,416
(791)
(1,339)

Total net assets (100%)

79

Three Months Ended


September 30, 2014
(Unaudited)
(In $ millions)

Revenues

854

Loss
Other comprehensive income
Total comprehensive loss

(65)
1
(64)

Corporations share in loss


Including adjustments
Corporations share in comprehensive loss shown in the books

(20)
6
(14)

44

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Oil Refineries Ltd. (hereinafter ORL)
1.

The ORL Group


a.

As at September 30, 2014, ORL had a working capital deficit of about $245
million.
In the first nine months of 2014, ORL recorded after-tax income, in the amount of
about $23 million, operating income of about $145 million and positive cash flows
from operating activities, in the amount of about $661 million.
In the first nine months of 2013, ORL recorded an after-tax loss, in the amount of
about $110 million, operating income of about $74 million and positive cash flows
from operating activities, in the amount of about $249 million.
In the third quarter of 2014, ORL recorded after-tax income, in the amount of
about $15 million, operating income of about $58 million and negative cash flows
from operating activities, in the amount of about $58 million.
In the third quarter of 2013, ORL recorded an after-tax loss, in the amount of
about $70 million, operating income of about $36 million and negative cash flows
from operating activities, in the amount of about $27 million.
In 2013, ORL recorded an after-tax loss, in the amount of about $167 million,
operating income of about $44 million and positive cash flows from operating
activities, in the amount of about $123 million.

b.

On December 18, 2013, as a result of the actions taken by ORL to improve its
liquidity, as detailed below, Maalot raised the credit rating of ORL and its
debentures to BBB with a stable outlook. OLRLs credit rating and liquidity
position are unfavorably impacted by a decline in the refining margins,
dependency on short-term credit lines, a risk of non-compliance with financial
covenants and dependency on supplier credit, the balance of which as at
September 30, 2014 was $1.2 billion. Maalot may reduce the rating if ORLs
updated forecasts indicate that the ratio of debt to EBITDA on a consolidated basis
exceeds 7. In the opinion of Maalot, such a scenario is possible if the refining and
petrochemical margins are eroded, production is less than expected, there is a
sharp increase in fuel prices or due to a more aggressive dividend distribution
policy than expected in 2015, which will delay the process of reducing the debt
burden.

c.

ORL is taking steps to improve the level of the liquidity and the profits.
In order to improve the level of its liquidity, ORL has taken and is continuing to
act in the following ways:
(1)

During the fourth quarter of 2013, ORL signed agreements with the lending
banks, the highlights of which are set forth below:

45

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Oil Refineries Ltd. (hereinafter ORL) (Cont.)
1.

The ORL Group (Cont.)


c.

(Cont.)
(1)

(Cont.)
(i)

Change of the secured and unsecured short-term credit lines that


were available for all Group companies to secured short-term credit
lines (including guarantees and letters of credit) of $485 million as at
the reporting date (ORLs share is about $318 million), up to
December 31, 2014 (the Secured Facilities).

(ii)

Renewal of the receivables factoring facility of $112 million up to


December 31, 2014, and expansion of the receivables factoring
facility of $107 million, as from January 1, 2014 to December 31,
2015. As at September 30, 2014, out of the expanded factoring
framework, ORL utilized about $194 million.

(iii)

Exercise of SWAP transactions under the conditions described in the


agreement. As at the signing date of the annual financial statements,
no realizations of SWAP transactions had been made.

(iv)

Change of ORLs financial covenants that will apply to all the lenders
that provided long-term credit to ORL, including private debenture
holders (including for long-term loans not included in the consortium
agreement of June 29, 2010, as amended from time to time (the
Consortium Agreement), with the exception of the public debenture
holders, for which there are no financial covenants, while maintaining
the remedies in the Consortium Agreement.

As at September 30, 2014, ORL was in compliance with the financial covenants.
The said agreements with the lending banks will be cancelled if any of the
conditions detailed in Note 10B3c to the annual financial statements are not
fulfilled. As at the signing date of the financial statements, the said conditions
were entirely fulfilled.
(2)

At the end of 2013, ORL entered into an agreement to expand a transaction


for availability of inventory with a foreign company. In January 2014, ORL
commenced implementation of the agreement, which is expected to permit it
to reduce the level of the inventories during the first quarter of 2014.

(3)

In December 2013, ORL raised the amount of about $90 million (net after
deduction of issuance costs) through expansion of its debentures (Series A)
and issuance of options for these debentures. In January 2014, ORL raised
an additional about $90 million from exercise of the options for debentures
(Series A).

46

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Oil Refineries Ltd. (hereinafter ORL) (Cont.)
1.

The ORL Group (Cont.)


c.

2.

(Cont.)
(4)

In September 2014 ORL raised the amount of about $163 million (net after
deduction of issuance costs) by means of issuance of debentures (Series D)
of ORL and options for these debentures.

(5)

ORL enters into agreements with crude oil suppliers with long-term credit
terms.

(6)

To improve the profitability of the ORL Group companies, the Group


companies implemented, and are continuing to implement, the following
measures:
(i)

Management and the representatives of the employees have jointly


prepared a detailed plan for streamlining and reducing costs,
including streamlining of ORL's production processes, reduction of
headquarters costs, reduction of the use of outside service providers,
and reduction of labor costs. ORL has commenced execution of the
plan on a current ongoing basis.

(ii)

The full operation of the Hydrocracker and use of natural gas for all
the energy requirements of the Group companies are consistently
providing ORL with a refining margin that is materially higher than
the benchmark margin and support ORLs ability to finance its
operating activities and repay its borrowings even when benchmark
margins are low.

Carmel Olefins Ltd. (hereinafter Carmel Olefins)


a.

As at September 30, 2014, Carmel Olefins had a deficit in working capital of $122
million.
In the first nine months of 2014, Carmel Olefins recorded operating income of $63
million; after-tax income of $28 million and positive cash flows from operating
activities of $85 million. In the first nine months of 2013, Carmel Olefins recorded
operating income of $26 million, an after-tax loss of $21 million and positive cash
flows from operating activities of $53 million.
In the third quarter of 2014, Carmel Olefins recorded operating income of $27
million; after-tax income of $16 million and positive cash flows from operating
activities of $28 million. In the third quarter of 2013, Carmel Olefins recorded
operating income of $10 million, an after-tax loss of $16 million and positive cash
flows from operating activities of $26 million.

b.

As at September 30, 2014, the par value of Carmel Olefins debentures amounted
to about $210 million.
47

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Oil Refineries Ltd. (hereinafter ORL) (Cont.)
2.

Carmel Olefins Ltd. (hereinafter Carmel Olefins) (Cont.)


c.

As at September 30, 2014, Carmel Olefins was in compliance with the financial
covenants it is required to fulfill, after the amendments to the trust indenture
detailed below.

d.

In April 2014, Midrug announced removal of the debentures of Carmel Olefins


from the Credit Review and reduction of the rating of the debentures from Baa1 to
Baa2 with a stable rating outlook.
During 2013, the holders of the debentures of Carmel Olefins (Series A) approved
revisions proposed by Carmel Olefins in the trust indenture of the debentures
whereby during the period from April 1, 2013 through April 1, 2015, Carmel
Olefins will not be required to comply with the rating condition in Group A.
Pursuant to the revisions to the trust indenture, ORL will provide the debenture
holders a guarantee limited as to time and as to amount, in order to secure
repayment of all principal amounts of the debentures that Carmel Olefins is
required to repay during the relevant period, or up to an earlier date regarding
which the trustee will notify ORL in advance, if and to the extent there will be
grounds permitting the trustee to give ORL a notice as stated (hereinafter the
Relevant Period).

e.

f.

During 2013, signed a guarantee certificate for the period from April 1, 2013
through April 1, 2015, for the benefit of the holders of the debentures of Carmel
Olefins and for the benefit of the Israeli and foreign banks that provided long-term
financing to Carmel Olefins.

g.

On August 27, 2014, the General Meeting of the holders of the debentures
(Series A) of Carmel Olefins approved, among other things, a revision to the trust
indenture whereby commencing from April 1, 2015, the right to early repayment
due to the rating of the debentures will be changed such that if the rating of the
debentures of Carmel Olefins drops below Baa3, the holders of the debentures will
have grounds for immediate repayment. In addition, further grounds for immediate
repayment were added, as follows: (a) if the shareholders equity of Carmel
Olefins falls below $175 million, and Carmel Olefins does not cure the violation
by the end of two quarters from the quarter in which the shareholders equity
decreased below the above-mentioned amount; (b) if any debt of ORL to a
financial institution, in an amount of at least 10% of ORLs total financial
liabilities as they are detailed in ORLs quarterly or annual financial statements
(on a separate-company basis), or in an amount of at least $50 million, whichever
is higher, is called for immediate repayment.

48

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


Oil Refineries Ltd. (hereinafter ORL) (Cont.)
2.

Carmel Olefins Ltd. (hereinafter Carmel Olefins) (Cont.)


g.

(Cont.)
In addition, a revision of the trust indenture was approved whereby so long as
Carmel Olefins has not repaid half of the balance of the unpaid principal as at the
date of the adjustment; and so long as the shareholders equity of Carmel Olefins as
detailed in the quarterly or annual financial statements of Carmel Olefins on a
consolidated basis is less than US$220 million, no distribution and/or loan may be
made from Carmel Olefins to ORL (nothing in that stated prevents and/or limits
other transactions between Carmel Olefins and ORL, such as payment for services
and/or goods acquired and/or in respect of a loan received by Carmel Olefins from
ORL and nothing stated prevents provision of a loan by Carmel Olefins to ORL in
the ordinary course of business). Furthermore, an obligation was added not to
create new liens in favor of a particular debt that has a shorter time to maturity
than the time to maturity of the outstanding debentures of Carmel Olefins. In
addition, the right of the holders of the debentures to early repayment due to early
repayment to the lending banks of Carmel Olefins (pursuant to the terms stipulated
in the trust indenture), which was scheduled to end on April 1, 2015, will be
extended for the entire life of the indenture.

h.

Pursuant to the revision approved, the holders of the debentures of Carmel Olefins
will be entitled to additional annual interest at the rate of 1% (such that the amount
of the annual interest to be paid to the holders of the debentures of Carmel Olefins
will be at the rate of 5.69%), plus a further addition at the rate of 0.25%, for every
period reduction in the rating of the debentures to under Baa2, up to a cumulative
addition of additional annual interest of 0.75%. On the other hand, the annual
interest to be paid to the holders of the debentures will be reduced by 0.25% in
every period in which the rating of the debentures of Carmel Olefins is at a rating
level of A3 or a higher rating level.

i.

In order to increase the positive cash flows and improve the profitability, Carmel
Olefins has acted and is continuing to act:
(1)

Use of natural gas as a raw material for production of polymers and as


burning material, in place of crude oil. Commencing from April 2013,
Carmel Olefins is receiving a supply of natural gas that is sufficient for its
needs.

(2)

The credit terms provided to Carmel Olefins by ORL for supply of raw
materials were extended.

(3)

In the period of the report, Carmel Olefins signed contracts with a


company that is not a bank for sale of certain of its customer receivables. As
at September 30, 2014, Carmel Olefins had sold about $26 million of its
customer receivables. In accordance with the agreement, customer
receivables were unequivocally, finally, totally and unconditionally
assigned to the outside bank company.
49

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


E.

Oil Refineries Ltd. (hereinafter ORL) (Cont.)


2.

Carmel Olefins Ltd. (hereinafter Carmel Olefins) (Cont.)


k.

Realization of the plans of ORLs management and the management of Carmel


Olefins, and the ability of ORL to comply with the financial covenants, is subject
to, among other things, changes in the selling prices and the prices of the raw
materials. In the estimation of the managements of ORL and Carmel Olefins,
based on the forecasts of the cash flows the source of which is the current
operating activities of ORL and Carmel Olefins, along with the steps detailed
above, the ORL group has sufficient sources, in the scope and timing required, for
payment of its liabilities and financing of its activities in the foreseeable future.

Condensed Data regarding Associated Company ORL


Condensed data regarding interim financial position as at
September 30
December 31
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

Israel
37.08%

Current assets
Non-current assets
Current liabilities
Non-current liabilities

1,631
2,494
(1,876)
(1,461)

Total net assets (100%)

1,987
2,668
(2,463)
(1,510)

778

1,904
2,624
(2,309)
(1,441)

682

778

Condensed data regarding interim profit and loss for the


Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Revenues
Income (loss)
Other comprehensive income
(loss)
Total comprehensive income
(loss)

7,164
14
(5)
9

50

7,425

2,443

2,623

(116)

(69)

(4)

(1)

(120)

10

(70)

Year Ended
December 31
2013
(Audited)

9,995
(175)
1
(174)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Main location of activities


Rate of ownership rights

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 5 Additional Information (Cont.)


F.

Qoros Ltd. (hereinafter Qoros)


In September 2014, the Board of Directors of Qoros approved a new 5-year business plan that
includes a lower forecast of the number of vehicles sold than in the prior plan, assuming
making of the minimum essential investments required for production.
As a result of approval of the new business plan, Qoros performed a test for impairment in
value of its assets (mainly its property, plant and equipment and intangible assets). In the
impairment test, it was found that the recoverable amount of the assets is higher than their
carrying value in the books of Qoros and, accordingly, no provision for impairment in value
was recognized in the financial statements of Qoros. It is noted that the estimate of the
recoverable value is based on a number of significant assumptions, and despite the fact that
the management of Qoros believes that these assumptions are reasonable and appropriate,
they are to a large extent subjective, and there is no certainty that they will be realized.

Condensed Data regarding Associated Company Qoros


Condensed data regarding interim financial position as at
September 30
December 31
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

China
50%

Current assets
Non-current assets
Current liabilities
Non-current liabilities

313
1,383
(665)
(624)

373
902
(276)
(525)

303
1,228
(628)
(499)

Total net assets (100%)

407

474

404

Condensed data regarding interim profit and loss for the


Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Revenues
Loss
Total comprehensive loss

92
(325)
(325)

51

(111)
(111)

38
(134)
(134)

(47)
(47)

Year Ended
December 31
2013
(Audited)

2
(255)
(255)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Main location of activities


Rate of ownership rights

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 6 Contingent Liabilities and Commitments


A.

As detailed in Note 20.B.1 to the annual financial statements, regarding filing of a request for
certification of a claim as a derivative claim in connection with granting of the equity
component to the CEO, on July 20, 2014, the Movement for Quality Government filed a
request to read and copy the court file. In a response filed by the requesting party on July 29,
2014, the requesting party left the decision to the discretion of the court. On the same date, a
response was submitted on behalf of the Corporation and the Respondents 1-13 in the request
(the directors).
On September 29, 2014, a hearing was held on the request for certification of the claim as a
derivative claim. On October 28, 2014, a hearing was held in the presence of the parties at the
conclusion of which January 15, 2015 was set as the date for an internal reminder.
On November 2, 2014, the reply of the Movement for Quality Government to the response of
the Corporation and of the Respondents 1-13 (the directors) to the request for examination of
the file, and on November 3, 2014, a decision was rendered allowing the Movement for
Quality Government to examine the file.

B.

On January 16, 2014, a shareholder of ORL filed a claim and a request for its certification as
a class action against ORL, the Corporation and others. As part of the claim, the plaintiff
contends that ORL and others provided, as it were, deficient and misleading reports to the
investing public regarding significant and extraordinary undertakings, as it were, of ORL
with parties that provided it financial credit. The responsibility attributed to the Corporation
stems from its being ORLs controlling shareholder. The damage claimed to the group the
plaintiff seeks to represent is, so it is alleged in the request for certification of the claim as a
class action, about NIS 135 million. On May 18, 2014, the response of the Corporation, ORL
and the other defendants to the request for certification was filed. On June 19, 2014, the
Court granted the request filed by the requesting party to submit a supplementary opinion
together with his reply to the response to the request for certification, and also allowed the
respondents to file a supplementary opinion on their behalf.
On July 15, 2014, the requesting party submitted his reply to the response to the request for
certification, along with a supplementary opinion on his behalf.
On November 2, 2014, ORL submitted a supplementary opinion on its behalf. A hearing on
the substantive request is expected to be held on December 8, 2014.
In the estimation of the Corporation and ORL, in light of the early stage of the proceeding,
they are unable to assess the chances of the claim and the request for its certification as a
class action and, accordingly, no provision has been included in the financial statements.

52

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In this preliminary stage, it is difficult for the Corporation to estimate the chances of the
claim and the risks thereof. In any event, a derivative claim does not purport to charge the
Corporation for a monetary amount.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 6 Contingent Liabilities and Commitments (Cont.)


C.

On February 16, 2014, the National Organization for Marine Officers the New General
Workers Union, Prof. Doni Gutwein and Prof. Yosi Yonah (hereinafter the Petitioners),
filed a petition with the Supreme Court sitting as the High Court of Justice against the
Minister of Finance, the Minister of Transportation (Respondents 1 and 2, hereinafter the
Ministers), the Government Companies Authority (Respondent 3) and ZIM Integrated
Shipping Services Ltd. (Respondent 4 hereinafter ZIM) and the Corporation
(Respondent 5) (hereinafter the Petition).
As part of the Petition, the Supreme Court was requested to issue conditional orders, as well
as interim orders and temporary orders against the State, in all that relating to use of its
authorities regarding the Special State Share, which is provided in ZIMs Articles of
Association all in connection with ZIMs debt arrangement (see Note 5D). The Corporation
was joined as a formal respondent to the Petition.
In the Petition, there is no monetary relief against the Corporation.
At the request of the Petitioners, on July 13, 2014, the High Court of Justice decided to
cancel the Petition with no order for expenses.
On April 27, 2014, a request was filed by CPA Boaz Ifat, a Corporation shareholder, in the
District Court of Tel-Aviv (Economics Department) for disclosure of documents pursuant to
Section 198A of the Companies Law, 1999 (hereinafter the Request) in connection with
the possibility of filing a request for certification of a derivative claim by the Corporation.
The claim revolves around the Corporations investment in Better Place Inc. (in liquidation)
(hereinafter Better Place) from February 2013.
As part of the said request, no detail was included of the grounds for the claim or of the
potential defendants.
A preliminary hearing on the request was scheduled for September 10, 2014. In accordance
with the decision of the Court on April 29, 2014, the trial agreement between the parties was
approved whereby the Corporation is required to submit its response to the request no later
than June 25, 2014, and on June 25, 2014, the Corporation submitted its response to the
Request.
On September 9, 2014, the Court decided to cancel the said hearing, due to the notification of
the parties whereby they have reached understandings with respect to the hearing process,
which removes the need for the request and the hearing thereof. Subsequent to the date of the
report, on October 20, 2014, the Court gave force to the hearing-process decision of the
parties whereby after the Corporation transfers certain documents in connection with the
request will the parties submit an agreed request for withdrawal of the request, with no order
for expenses. On November 10, 2014, the Court rendered a decision according to which, with
the consent of the parties, the request is cancelled with no order for expenses.

53

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

D.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 6 Contingent Liabilities and Commitments (Cont.)


On August 5, 2014, a request was filed in the District Court in Tel-AvivJaffa (the
Economics Division) for certification of a claim as a derivative claim (hereinafter the
Request for Certification), by a Corporation shareholder that allegedly holds 19 of the
Corporations shares (hereinafter the Requesting Party) against the Corporation, ZIM,
Messrs. Gideon Langholtz, Oded Dagani, Zahavit Cohen and Michael Bricker (who serve as
Corporation directors) and against Millennium Investments Elad Ltd. (hereinafter
Millennium) and Mr. Idan Ofer (hereinafter the Respondents). A copy of the statement
of claim is attached to the Request for Certification.
In brief, the Requesting Party contends that the Corporations undertaking and its execution
of an interested party transaction as part of ZIMs debt arrangement were made in violation of
the authorization and contrary to the approval of the General Meeting of the Corporations
shareholders, and also that the precondition for the Corporations undertaking in this
transaction was not fulfilled. In this context, the Requesting Party refers to the condition for
transfer of ZIMs shares by virtue of the Special State Share, which the Requesting Party
claims was not fulfilled. The Requesting Party further argues that as a result of this
undertaking and its execution, the Corporation suffered damage, which in the Requesting
Partys estimation amounts to tens of millions of dollars. As part of the Request for
Certification, the Court is requested to require the Respondents (except for the Corporation
and ZIM) to convene an additional meeting of the shareholders whereat it will be decided
whether to approve the Corporations undertaking in ZIMs debt arrangement, or
alternatively to instruct the Respondents (except for the Corporation) to compensate the
Corporation in an amount of not less than $27.4 million, as a result of the lower value of the
ZIM shares issued to the Corporation due to non-compliance with the precondition, as
contended. In addition, the Requesting Party claims various causes of action against the
directors noted above, the members of the Special Committee of the Board of Directors for
Accompaniment of ZIMs Debt Arrangement, including breach of a legislative duty,
violation of an authorization, breach of the duty of caution and the duty of trust, as well as
that they, Millenium and Mr. Ofer, as the controlling shareholders of the Corporation, were
required to act to convene an additional General Meeting of the shareholders.
Concurrently, the Requesting Party filed a request that the parties shall submit their
contentions in writing with short timeframes and that a close date be set for hearing the
Request for approval of the claim as a derivative claim (hereinafter the Request to Set
Dates).
After all the responses (objections) were filed on behalf of the respondents and after the
Requesting Party replied to these responses, the Court determined, in its decision dated
August 26, 2014, that no grounds were found for specially accelerating the proceedings.
On October 5, 2014, the Corporation filed a request for postponement of the dates for
submission of statements of claims and dates. After the reply (objection) of the Requesting
Party was filed, the Court decided, in its decision dated October 7, 2014, that the responses to
the request for approval are to be filed no later than November 9, 2014, the reply of the
Requesting Party is to be filed no later than November 30, 2014 and the hearing is to be held
on December 15, 2014.

54

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

E.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 6 Contingent Liabilities and Commitments (Cont.)


E.

(Cont.)

On November 11, 2014, (after an agreed postponement) the response (objection) was filed on
behalf of the Corporation to the request for approval (concurrent with the filing of the
responses of ZIM and the directors and the short notice on behalf of the controlling
shareholders). In brief, the Corporation contends that the request for approval of the claim as
a derivative claim must be rejected, both summarily (due to incongruity between the main
relief requested therein issuance of an Order instructing convention of another General
Meeting of the Corporations shareholders and the hearing course of a derivative claim), as
well as substantively, since the claim does not show a cause having a chance against any of
the respondents; is not for the benefit of the Corporation; suffers from delay and is directed
against an act already committed; indicates the impropriety of the Requesting Party, along
with other defects in the request for approval, as detailed in the response. On November 12,
2014, the Requesting Party filed a request with the Court to instruct the Corporation and ZIM
to advance the date for submitting a response to the request for disclosure of documents. On
November 13, 2014, the Court determined that the Corporation and ZIM are to respond to the
request for disclosure of documents by November 23, 2014 and the Requesting Party is to
reply to the response by November 25, 2014. In addition, the Court determined that the
Requesting Party is to reply to the responses to the request for approval by December 7,
2014. On November 18, 2014, the Requesting Party filed a request to cancel the request for
disclosure of documents to the extent it relates to ZIM. On November 19, 2014, the
Requesting Party filed a request to instruct the Corporation to deliver the documents
requested for disclosure without blacking out the restricted parts. On the same date, the Court
instructed the Corporation to make reference to this request as part of its response to the
request for disclosure of documents. On November 23, 2014, the Corporation responded to
the request for disclosure of documents.
At this preliminary stage, it is difficult for the Corporation to estimate the chances of the
claim and its risks. In any event, the derivative claim does not pose a threat of a liability for a
monetary amount on the party of the Corporation.
F.

As detailed in Note 20.B.1.C to the annual financial statements, regarding filing of a request
for certification of a claim as a class action claim against the Corporation, ICL, and others on
the grounds of a misleading item, misleading and non-disclosure of a significant item in
ICLs reports, on June 2, 2014, the requesting party submitted a reply to the response of the
respondents wherein she restated the contentions raised in in the request. The requesting party
attached to this reply, among other things, an arbitrators decision issued during arbitration
proceedings that were carried on between Haifa Chemicals and Dead Sea Works Ltd., which
is a second-tier subsidiary of ICL. On September 28, 2014, the responding parties submitted
their reply to the response of the requesting party to the response of the responding parties
wherein, among other things, an answer is provided to the documents the requesting party
attached to its reply, including, reference to the decision of the arbitrator.

55

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

On November 9, 2014, the Requesting Party filed a request with the Court to instruct the
Corporation and ZIM to disclose various documents, pursuant to Section 198(A) of the
Companies Law, 1999. On the same date, the Court instructed the Corporation and ZIM to
respond to the request no later than November 26, 2014 and the Requesting Party to reply to
the response no later than December 3, 2014.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 6 Contingent Liabilities and Commitments (Cont.)


F.

(Cont.)

G.

As detailed in Note 20.B.1.A to the annual financial statements, regarding a monetary claim
of V-Cars, filed against the Corporation in the District Court of Tel-Aviv, on July 27, 2014,
the Corporation filed a request to require the plaintiffs to deposit a guarantee to secure the
Corporations expenses. The plaintiff submitted its response on September 21, 2014 and on
October 30, 2014 the plaintiff submitted its reply to the response. On November 9, 2014, a
decision was rendered whereby the plaintiff was required to deposit a guarantee, in the
amount of NIS 500 thousand, to secure the Corporations expenses in the proceeding. The
plaintiff was also required to pay the Corporation its expenses incurred with respect to filing
the request for a guarantee and attorneys fees, in the amount of NIS 7,500. A pretrial hearing
before Judge Fergo was scheduled for January 18, 2015. The Corporation believes that the
chances the claim will be accepted are low, and in any event, in the Corporations estimation,
the chances the Corporation will be held liable to pay the plaintiff a significant amount are
weak.

H.

In September 2013, the District Court in Lod issued a fixed liquidation order against Better
Place, which is incorporated in Delaware in the United States, in which the Corporation holds
about 30% of its shares. This liquidation order was recognized during October 2013 by the
competent court in Delaware. As far as we know, a liquidation order has also been issued
against subsidiaries of Better Place. In March 2014, the Corporation submitted to the
Liquidator of Better Place a debt claim in the amount of about $72 million in respect of its
investment in subordinated convertible notes issued by Better Place in November 2012 and
February 2013. On September 2, 214, the decision of the liquidators of Better Place was
received whereby the debt claim submitted by the Corporation is rejected. No appeal of the
decision on the debt was filed.

I.

As detailed in Note 20.B.3 to the annual financial statements, legal proceedings are being
carried on against ORL, laws have been enacted and orders have been issued in connection
with matters relating to fuel, gas and infrastructure facilities involving the ORL group, and
proceedings are being carried on regarding the matter of environmental protection. In the
estimation of ORLs management, based on its legal advisors and the legal advisors of ORLs
subsidiaries, at this stage it is not possible predict the impact of that stated, if any, on the
financial statements as at September 30, 2014. Accordingly, no provisions have been
recorded in the financial statements in connection with these matters.

K.

Regarding liabilities outstanding against the Corporation and investee companies see Note 20 to
the Corporations Annual Financial Statements.

56

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

On November 16, 2014, a hearing was held on the request to certify the claim as a class
action. During the next two months, the parties are t submit their written summaries with
respect to the case. At this stage, in the opinion of the Corporations management, based on
the position of its legal advisors, it appears that the chances that contentions of the requesting
party will be rejected are higher than the chances that they will be accepted.

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 7 Financial Instruments


Fair value
Fair value compared with book value
The Corporations financial instruments include mainly, cash and cash equivalents,
short-term investments, deposits and short-term loans, receivables and debit balances, longterm investments and receivables, short-term credit, payables and credit balances, long-term
loans and other liabilities; and derivative financial instruments.
Due to their nature, the fair value of the financial instruments included in the Corporations
working 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 generally approximates their stated value, since these financial instruments
bear interest at a rate which approximates the accepted market rate of interest.
The following table shows in detail the book value and the fair value of financial instrument
groups the fair value of which in the books does not equal or approximate their fair values:

September 30, 2014


Book
Market
value
value
Unaudited

As at
September 30, 2013
Book
Market
value
value
Unaudited
Millions of dollars

December 31, 2013


Book
Market
value
value
Audited

Non-convertible
debentures with
fixed interest

2,032

2,247

2,635

2,936

2,355

2,595

Loans from banks


and others with
fixed interest

2,370

2,517

3,596

2,957

3,835

3,016

57

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(1)

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 7 Financial Instruments (Cont.)


Fair value (Cont.)
Hierarchy of fair value
The following table presents an analysis of the financial instruments measured at fair value,
using an evaluation method. The various levels were defined as follows:

Level 1: Quoted prices (not adjusted) in an active market for identical instruments.
Level 2: Observed data, direct or indirect, not included in Level 1 above.
Level 3: Data not based on observed market data.
Level 1

Assets
Marketable securities held for trade
Derivatives used for accounting hedge
Derivatives not used for accounting hedge
Liabilities
Derivatives used for accounting hedge
Derivatives not used for accounting hedge

Liabilities
Derivatives used for accounting hedge
Derivatives not used for accounting hedge

22
89
111

37
22
89
148

32
66
98

32
66
98

Liabilities
Derivatives used for accounting hedge
Derivatives not used for accounting hedge

58

As at September 30, 2013


Level 2
Level 3
$ millions

Total

39
1

40

40
258
298

84
84

39
41
342
422

31
28
59

1
1

31
29
60

Level 1

Assets
Marketable securities held for trade
Derivatives used for accounting hedge
Derivatives not used for accounting hedge

Total

37

37

Level 1

Assets
Marketable securities held for trade
Derivatives used for accounting hedge
Derivatives not used for accounting hedge

As at September 30, 2014


Level 2
Level 3
$ millions

As at December 31, 2013


Level 2
Level 3
$ millions

Total

37

37

28
277
305

37
28
277
342

24
26
50

24
26
50

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(2)

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 7 Financial Instruments (Cont.)


Fair value (Cont.)
(3)

Financial instruments measured at fair value at Level 3


The following tables present a reconciliation between the opening balance and the closing
balance in connection with financial instruments measured at fair value at Level 3 in the fair
value hierarchy:
Book
Market
value
value
Derivatives not used
for hedging
Millions of dollars
Balance as at January 1, 2013

107

(3)

Total income (losses) recognized in the statement


of income

(23)

84

Balance as at September 30, 2013

Balance as at January 1, 2013


Total income (losses) recognized in the statement
of income
Balance as at December 31, 2013

(4)

107

(3)

(107)

Data regarding measurement of fair value at Level 2 and Level 3


Level 2
The fair value of forward contracts on foreign currency is determined using trading programs
that are based on their market prices. The market price is determined based on a weighting of
the exchange rates and an interest coefficient that is appropriate for the transaction period and
the relevant currency index.
The fair value of currency options and fuel options is determined using trading programs that
are based on the Black and Scholes model, which takes into account the internal value,
standard deviation, interest rates and the period of the option.

59

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Book
Market
value
value
Derivatives not used
for hedging
Millions of dollars

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 7 Financial Instruments (Cont.)


Fair value (Cont.)
Data regarding measurement of fair value at Level 2 and Level 3 (Cont.)
Level 2 (Cont.)
The fair value of interest swaps and fuel swaps is determined using trading programs and is
based on the market price, the period to maturity of each contract and the credit risks of the
parties to the contract.
The fair value of currency and interest rate swaps is based on the market interest for
discounting the future cash flows on based on the terms and the length of the period to
maturity of each transaction and using market interest rates.
The fair value of transactions hedging the rate of the index is based on the market interest and
discounting of the future cash flows based on the terms and the length of the period to
maturity of each transaction using interest rates and a market standard deviation of a similar
instrument as at the measurement date.
Level 3
Despite the fact that the Group believes that the fair values determined for measurement
and/or disclosure are appropriate, use of different assumptions or different measurement
methods could cause a change in the fair values. Regarding measurement of fair value, a
reasonable change in one or more of the assumptions could increase (decrease) the income
(loss) and the equity as shown below:
As at September 30, 2013
Change in Income (Loss)
and Equity
Increase
Decrease
of 10%
of 10%
Millions of dollars
Change in the discount rate
Change in the standard deviation of the yield to
maturity of the debentures

60

(5)

13

(13)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(4)

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 8 Discontinued Operations


Upon completion of the debt arrangement in ZIM, on July 16, 2014, the Corporation declined to a
rate of holdings of 32% of ZIMs equity and as a result it ceased to control ZIM. Commencing from
this date, the Corporation presents its investment in ZIM as an associated company (for details with
respect to the debt arrangement see Note 5A3 above). ZIMs results up to the completion date of
the debt arrangement, together with the income due to loss of control and the loss due to waiving all
ZIMs debts, were presented separately in the statements of income in the category income (loss)
from discontinued operations (after tax).
Set forth below are the results attributable to the discontinued operations

Sales

Year Ended
December 31
2013
(Audited)

1,734

2,782

896

3,666

(1,681)

(2,796)

(893)

(3,770)

53

(14)

(104)

(24)

(71)

13

(209)

(120)

(237)

(37)

(513)

10

16

22

Loss after taxes on income

(130)

(253)

(43)

(535)

Income from realization of


discontinued operations

609

609

Income (loss) for the period from


discontinued operations

479

Cost of sales
Gross profit (loss)
Operating loss
Loss before taxes on income
Taxes on income

61

(253)

609

(43)

(535)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Nine Months Ended


Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Notes to the Unaudited Condensed Consolidated Interim Financial Statements
At September 30, 2014

Note 8 Discontinued Operations (Cont.)


Set forth below are the cash flows attributable to the discontinued operations
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Net cash flows provided by


(used in) operating activities

41

Net cash flows provided by


(used in) investing activities

(24)

Net cash flows provided by


(used in) financing activities
Impact of fluctuations in the
currency exchange rate on the
balances of cash and cash
equivalents
Cash and cash equivalents used in
discontinued operations

(8)

Year Ended
December 31
2013
(Audited)

15

12

129

53

134

(28)

(189)

(81)

(209)

(1)

(1)

(1)

(12)

(69)

(13)

(64)

Set forth below is the impact on the statement of financial position

Cash and cash equivalents


Short-term investments, deposits and loans
Trade receivables and other receivables and debit balances
Inventory
Vessels, containers, property, plant and equipment and intangible assets
Other assets
Credit from banks and others
Trade payables
Long-term loans from banks and others
Other liabilities
Holders of non-controlling interests

111
50
290
106
1,963
65
(1,968)
(516)
(449)
(131)
(80)

Net liabilities

(609)

Payment made in cash


Balance of cash eliminated

(200)
(111)

Exit from the consolidation, less cash eliminated

(311)

62

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

July 1, 2014
(Unaudited)
(In $ millions)

Israel Corporation Ltd.


Separate information provided in
accordance with Regulation 38D of the
Securities Regulations (Periodic and
Immediate Reports), 1970
As at September 30, 2014

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(Unaudited)

Israel Corporation Ltd.


Separate Information provided in accordance with Regulation 38D of the Securities Regulations
(Periodic and Immediate Reports), 1970
As at September 30, 2014
Unaudited

Contents

Page

Condensed Interim Statement of Financial Position Information

2
34

Condensed Interim Statement of Income Information

Condensed Interim Statement of Comprehensive Income Information

Condensed Interim Statement of Cash Flows Information

Additional Information

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Special Report of the Auditors with respect to Separate-Company Financial Information

Somekh Chaikin
KPMG Millennium Tower
17 Ha'arba'a Street, PO Box 609
Tel Aviv 61006 Israel

Telephone

972 3 684 8000

Fax
Internet

972 3 684 8444


www.kpmg.co.il

To the Shareholders of Israel Corporation Ltd.


Re: Special Report of the Auditors with respect to Separate-Company Interim Financial Information presented in
accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970
Introduction
We have reviewed the separate-company interim financial information presented in accordance with Regulation 38D of the
Securities Regulations (Periodic and Immediate Reports), 1970, of Israel Corporation Ltd. (hereinafter the Corporation) as at
September 30, 2014 and for the periods of nine months and three months ended on that date. The separate-company interim
financial information is the responsibility of the Corporations Board of Directors and Management. Our responsibility is to
express a conclusion on the separate-company interim financial information based on our review.
We did not review the condensed interim financial information of an investee company, the investment in which is about $9
million as at September 30, 2014 and the Corporations share in its income is about $9 million and about $3 million for the
nine-month and three-month periods then ended, respectively. The financial statements of this company were reviewed by other
auditors whose review report was provided to us and our conclusion, insofar as it relates to amounts included in respect of this
company, is based on the review report of the other auditors.
Scope of the Review
We conducted our review in accordance with Review Standard 1, Review of Interim Financial Information for Interim Periods
Performed by the Independent Auditor of the Entity of the Institute of Certified Public Accountants in Israel. A review of
separate-company interim financial information consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review and on the review report of other auditors, nothing has come to our attention that causes us to believe that
the above-mentioned financial information is not prepared, in all material respects, in accordance with Regulation 38D of the
Securities Regulations (Periodic and Immediate Reports), 1970.

1.

That stated in Note 5.D.1 to the Corporations consolidated financial statements, regarding the financial position as at
September 30, 2014, of an associated company (ZIM) and regarding completion of the debt arrangement in ZIM, which
in the estimation of its Management and Board of Directors enables it to meet its liabilities and operating needs and to
comply with the new financial covenants for a period of 12 months following the date of the report.

2.

That stated in Note 5.E to the Corporations consolidated financial statements, regarding a deficit in working capital as at
September 30, 2014 of an associated company (ORL) and its subsidiaries, and the liquidity position of ORL, regarding
plans of the managements of ORL and its subsidiary to improve the cash flows and their profitability and regarding
consents that were signed with the lending banks and the terms thereof, as well as that stated in Notes 6.B and 6.I
regarding certain legal proceedings against ORL and its subsidiaries (including a class action claim wherein the
Corporation is also a defendant), which in the estimation of the managements of the defendant companies, based on the
opinion of their legal advisors, it is not possible to predict at this point the impact thereof on the financial statements, if
any, and accordingly, no provision in respect thereof has been included in the financial statements.

Somekh Chaikin
Certified Public Accountants (Isr.)
November 24, 2014

Somekh Chaikin, a partnership registered under the Israeli Partnership


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

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Without qualifying our above-mentioned conclusion, we direct attention to:

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
Condensed Interim Statements of Financial Position Information

Current Assets
Cash and cash equivalents
Short-term deposits
Loans to investee companies
Other receivables and debit balances
Derivative instruments
Total current assets
Non-Current Assets
Investments in investee companies
Investments in other companies
Loans to investee companies
Debit balances, including derivative instruments
Total non-current assets
Total assets

196
970
61

34
1,261
-------

232
647
105
5
65
1,054
-------

215
474
110
2
62
863
--------

2,576
1
637
61
3,275
-------

2,371
1
843
322
3,537
-------

2,050
1
885
347
3,283
--------

4,536

4,591

4,146

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

At September 30
At December 31
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
Condensed Interim Statements of Financial Position Information

Current Liabilities
Current maturities in respect of non-current liabilities
Other payables and credit balances
Derivative instruments
Income tax payable
Total current liabilities
Non-Current Liabilities
Loans from banks
Debentures
Long-term derivatives
Long-term balances
Deferred taxes, net
Total non-current liabilities
Total liabilities
Equity
Share capital and premium
Capital reserves
Capital reserve for transactions with controlling shareholder
Retained earnings
Total equity attributable to the owners of the Corporation
Total liabilities and equity

____________________________
Ron Moshkovitz
Chairman of the Board of Directors

161
11
10
6
188
--------

369
17
6
12
404
--------

317
26
5
8
356
--------

1,100
870
7
52
9
2,038
--------

951
1,055
51
27
39
2,123
--------

936
1,048
53
25
43
2,105
--------

2,226
--------

2,527
--------

2,461
--------

308
25
176
1,801
2,310
--------

300
122
176
1,466
2,064
--------

300
146
176
1,063
1,685
--------

4,536

4,591

4,146

___________________________
Nir Gilad
CEO

Approval date of the financial statements: November 24, 2014

__________________________
Avisar Paz
CFO

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

At September 30
At December 31
2014
2013
2013
(Unaudited)
(Audited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
Condensed Interim Statements of Income Information

Year Ended
December 31
2013
(Audited)

Administrative and general expenses


Other income (expenses)

(14)
9

(17)
(34)

(2)
8

(6)
(4)

(24)
(90)

Operating income (loss)

(5)
-----

(51)
-----

6
-----

(10)
-----

(114)
-----

Financing expenses
Financing income

(128)
91

(168)
123

(67)
30

(46)
30

(216)
170

Financing expenses, net

(37)
-----

(45)
-----

(37)
-----

(16)
-----

(46)
-----

213
-----

198
-----

149
-----

(38)
-----

157
-----

171

102

118

(64)

(3)

11

65

(23)

84

Income (loss) from continuing operations


after taxes

160

37

110

(41)

(87)

Income (loss) from discontinued operations


after taxes

477

(251)

609

(43)

(533)

Income (loss) for the period attributable


to the owners of the Corporation

637

(214)

719

(84)

(620)

Share in income (losses) of investee


companies, net
Income (loss) before taxes on income
Taxes on income (tax benefit)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
Condensed Interim Statements of Comprehensive Income Information

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Income (loss) for the period attributable


to the owners of the Corporation

637
-----

Year Ended
December 31
2013
(Audited)

(214)
-----

719
-----

(84)
----

(620)
-----

Effective portion of the change in fair value


of cash flow hedges

(4)

14

(11)

20

Net change in fair value of cash flow hedges


transferred to the statement of income

(11)

10

(5)

(14)

(165)

(9)

(124)

22

13

(160)
-----

(6)
-----

(125)
-----

21
----

19
-----

477

(220)

594

(63)

(601)

Other comprehensive income (loss) in


respect of investee companies, net
Other comprehensive income (loss) for the
period, net of tax
Total comprehensive income (loss) for the
period attributable to the owners of the
Corporation

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Components of other comprehensive


income (loss) that will be recognized in
future periods in the statement of income

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
Condensed Interim Statements of Cash Flows Information

Cash flows from operating activities


Income (loss) for the period attributable to the
owners of the Corporation
Adjustments:
Financing expenses, net
Share in (income) losses of investee companies, net
Capital losses (gains), net
Share-based payment transactions
Taxes on income
Change in receivables and income tax receivable
Income tax received
Dividend received
Net cash provided by operating activities
Cash flows from investing activities
Investments in investee and other companies
Short-term deposits and loans, net
Provision of long-term loans to investee
companies
Collection of long-term loans from investee
companies
Interest received
Proceeds from sale of derivatives, net
Net cash used in investing activities
Cash flows from financing activities
Proceeds from sale of holding in investee company
Receipt of long-term loans and issuance of
debentures
Repayment of long-term loans and debentures
Interest paid
Receipt from (payment) for settlement of
derivatives used for hedging
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
the period
Effect of exchange rate fluctuations on balances
of cash and cash equivalents
Cash and cash equivalents at the end of the
period

Year Ended
December 31
2013
(Audited)

637

(214)

719

(84)

37
(81)
(618)
5
11
(9)
(49)
(58)
7
490
439
-----

45
53
34
8
65
(9)
(29)
(38)
25
391
378
-----

37
(149)
(617)
1
8
(1)
(3)
(4)
(5)
117
108
-----

16
81
3
3
(23)
(4)
(13)
(17)
2
124
109
-----

90
10
84
(14)
(42)
(56)
18
418
380
-----

(203)
(455)

(50)
(409)

(203)
(441)

(10)
(107)

(106)
(236)

(123)

(106)

(41)

(138)

263
5
106
(407)
-----

14
13
29
(509)
-----

1
70
(573)
-----

5
15
(138)
-----

14
16
42
(408)
-----

149

149

288
(393)
(90)

443
(602)
(100)

288
(244)
(35)

293
(258)
(39)

443
(698)
(124)

(1)

(1)

(47)
-----

(260)
-----

158
-----

(4)
-----

(381)
-----

(15)

(391)

(307)

(33)

(409)

215

615

508

262

615

232

215

(4)

8
232

196

(5)
196

(620)
46
376

(2)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the
Nine Months Ended
Three Months Ended
September 30
September 30
2014
2013
2014
2013
(Unaudited)
(Unaudited)
In Millions of U.S. Dollars

Israel Corporation Ltd.


Condensed Interim Separate-Company Financial Information as at September 30, 2014
(Unaudited)

Additional Information
1.

General
The interim separate-company financial information is presented in accordance with Regulation 38D of
the Securities Regulations (Periodic and Immediate Reports), 1970, and the Tenth Addendum to the
Securities Regulations (Periodic and Immediate Reports), 1970, regarding separate-company financial
information of an entity. The interim separate-company financial information should be read together
with the separate-company financial information as at December 31, 2013 and for the year then ended
and together with the condensed consolidated interim financial statements as at September 30, 2014.
In this separate-company interim financial information:
The Corporation

Israel Corporation Ltd.

B.

Subsidiaries

Companies, including partnerships, the financial statements of


which are fully consolidated, directly or indirectly, with those of
the Corporation.

C.

Investee companies

Subsidiaries and companies, including partnerships or joint


ventures, where the Corporations investment therein is included,
directly or indirectly, in the financial statements using the equity
basis of accounting.

Commitments and Significant Transactions with Investee Companies


A.

In the period of the report, dividends were received from investee companies, in the amount of
about $490 million.

B.

In the period of the report, an investee company issued capital notes to the Corporation, in the
amount of about $123 million, and an additional investee company repaid capital notes in the
amount of about $95 million.

C.

In the period of the report, investee companies repaid loans, in the amount of about $218 million,
which they received from the Corporation.

D.

In July 2014, the Corporation received $58 million on account of the fair value of hedging
transactions made with a bank while adjusting the terms of the transaction.

E.

Regarding additional information with respect to the Corporation and significant transactions with
investee companies see Note 5A to the consolidated financial statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

2.

A.

Israel Corporation Ltd.


Quarterly Report regarding
Effectiveness of the Internal Control
over the Financial Reporting and the
Disclosure in accordance with
Regulation 38C(a):
As at September 30, 2014

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(Unaudited)

Quarterly Report regarding Effectiveness of the Internal Control over the Financial Reporting and
the Disclosure in accordance with Regulation 38C(a):
Management, under the supervision of the Board of Directors of Israel Corporation Ltd. (hereinafter the
Corporation), is responsible for determining and maintaining proper internal control over the Corporations
financial reporting and disclosure.
For this purpose, the members of management are:
Nir Gilad, CEO;
Avisar Paz, CFO;
Eran Sarig, Deputy CEO of Business and Strategic Development;
Maya Alscheich-Kaplan, In-House Counsel and Corporation Secretary;
Eli Goldschmidt, Deputy CEO of Communications and Regulations.
Internal control over the financial reporting and disclosure includes the Corporations existing controls and
procedures, which were planned by the CEO and the most senior officer in the finance area or under their
supervision, or by a party actually executing the said functions, under the supervision of the Corporations
Board of Directors, which were intended to provide a reasonable level of confidence regarding the reliability of
the financial reporting and preparation of the financial statements in accordance with law, and to ensure that
information the Corporation is required to disclose in the statements it publishes under law was gathered,
processed, summarized and reported on the date and in the format prescribed by law.
The internal control includes, among other things, controls and procedures that were planned to ensure that
information the Corporation is required to disclose, as stated, was accumulated and transferred to Corporation
management, including to the CEO and to the most senior officer in the finance area or to a party actually
executing the said functions, in order to enable making decisions at the appropriate time, with respect to the
disclosure requirement.

In the Annual Report regarding the effectiveness of the internal control over the financial reporting and the
disclosure, which was attached to the Periodic Report for the period ended December 31, 2013 (hereinafter
the Latest Annual Report regarding the Internal Control), the Board of Directors and Management evaluated
the internal control in the Corporation. Based on this evaluation, the Corporations Board of Directors and
Management reached the conclusion that the internal control, as stated, as at December 31, 2013 is effective.
Up to the date of the report, no event or matter was brought to the attention of the Board of Directors and the
Management that is sufficient to change the evaluation of the effectiveness of the internal control, as found in
the Latest Annual Report regarding the Internal Control.
As at the date of the report, based on the Latest Quarterly Report regarding the Internal Control, and based on
information brought to the attention of Management and the Board of Directors as stated above, the internal
control is effective.
Management representation: attached hereto (respectively) are: (a) a signed declaration of the CEO; and (b) a
signed declaration of the most senior officer in the finance area.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Due to its inherent limitations, the internal control over the financial reporting and disclosure is not intended to
provide complete assurance that a material misrepresentation or omission of significant information in the
statements will be avoided or discovered.

Management Representation
Declaration of the CEO
In accordance with Regulation 38C(d)(1) of the
Securities Regulations (Periodic and Immediate Reports), 1970
I, Nir Gilad, declare that:
(1)

I have examined the financial statements and other financial information included in the statements of Israel
Corporation Ltd. (hereinafter the Corporation) as at September 30, 2014 (hereinafter the Statements).

(2)

As far as I am aware, the Statements do not include a misrepresentation of a material fact and they do not lack
a material fact that is required so that the representations included therein, in light of the circumstances in
which such representations were included, will not be misleading with reference to the period covered by the
Statements.

(3)

As far as I am aware, the financial statements and other financial information included in the Statements
properly reflect, in all material respects, the Corporations financial position, results of operations and cash
flows as at the dates and for the periods to which the Statements relate.

(4)

I have disclosed to the Corporations auditing CPAs, Board of Directors and Audit and Financial Statements
Committees, based on my most up-to-date estimation with respect to the internal control over the
Corporations financial reporting and disclosure:
All the significant deficiencies and weaknesses in determination or operation of the internal control
over the financial reporting and disclosure that might reasonably have an unfavorable impact on the
Corporations ability to gather, process, summarize or report financial information in such a manner
that could cause doubt with respect to the reliability of the financial report and preparation of the
financial statements in accordance with the provisions of law; and

(b)

Every fraud, whether or not significant, wherein the CEO is involved or a party under his direct
supervision or other employees are involved that have a significant function in the internal control over
the financial reporting and disclosure;

I, alone or together with others in the Corporation:


(a)

Have determined controls and procedures, or have verified the determination and existence of controls
and procedures under my supervision, which are designed to ensure that significant information
relating to the Corporation, including its subsidiaries as defined in the Securities Regulations
(Preparation of Annual Financial Statements), 1993, to the extent it is relevant to the financial
statements and the other information presented in the Statements is brought to my attention by others in
the Corporation and the subsidiaries, particularly during the period of preparation of the Statements;
and

(b)

Have determined controls and procedures, or have verified the determination and existence of controls
and procedures under my supervision, which are designed to reasonably ensure the reliability of the
financial report and preparation of the financial statements in accordance with the provisions of law,
including in accordance with generally accepted accounting principles (GAAP);

(c)

No event or matter that occurred during the period between the date of the latest Periodic Report and
the date of this report was brought to my attention that is sufficient to change the conclusions of the
Board of Directors and Management regarding the effectiveness of the internal control over the
Corporations financial reporting and disclosure.

Nothing in that stated above detracts from my responsibility or the responsibility of any other person under any law.

November 24, 2014

_____________________
Nir Gilad, CEO

ii

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(5)

(a)

Management Representation
Declaration of the most Senior Officer in the Finance Area
In accordance with Regulation 38C(d)(2) of the
Securities Regulations (Periodic and Immediate Reports), 1970
I, Avisar Paz, declare that:
(1)

I have examined the interim consolidated financial statements of Israel Corporation Ltd. (hereinafter the
Corporation) as at September 30, 2014 (hereinafter the Statements).

(2)

As far as I am aware, the financial statements and the other financial information included in the Statements
do not include a misrepresentation of a material fact and they do not lack a material fact that is required so
that the representations included therein, in light of the circumstances in which such representations were
included, will not be misleading with reference to the period covered by the Statements.

(3)

As far as I am aware, the financial statements and other financial information included in the Statements
properly reflect, in all material respects, the Corporations financial position, results of operations and cash
flows as at the dates and for the periods to which the Statements relate.

(4)

I have disclosed to the Corporations auditing CPAs, Board of Directors and Audit and Financial Statements
Committees, based on my most up-to-date estimation with respect to the internal control over the
Corporations financial reporting and disclosure:
All the significant deficiencies and weaknesses in determination or operation of the internal control
over the financial reporting and disclosure to the extent it relates to the financial statements and the
other financial information included in the Statements, which could reasonably have an adverse impact
on the Corporations ability to gather, process, summarize or report financial information in such a
manner that could cause doubt with respect to the reliability of the financial report and preparation of
the financial statements in accordance with the provisions of law; and

(b)

Every fraud, whether or not significant, wherein the CEO is involved or a party under his direct
supervision or other employees are involved that have a significant function in the internal control over
the financial reporting and disclosure;

I, alone or together with others in the Corporation:


(a)

Have determined controls and procedures, or have verified the determination and existence of controls
and procedures under my supervision, which are designed to ensure that significant information
relating to the Corporation, including its subsidiaries as defined in the Securities Regulations (Annual
Financial Statements), 1993, to the extent it is relevant to the financial statements and the other
information presented in the Statements is brought to my attention by others in the Corporation and the
subsidiaries, particularly during the period of preparation of the Statements; and

(b)

Have determined controls and procedures, or have verified the determination and existence of controls
and procedures under my supervision, which are designed to reasonably ensure the reliability of the
financial report and preparation of the financial statements in accordance with the provisions of law,
including in accordance with generally accepted accounting principles (GAAP);

(c)

No event or matter that occurred during the period between the date of the latest Periodic Report and
the date of this report was brought to my attention that is sufficient to change the conclusions of the
Board of Directors and Management regarding the effectiveness of the internal control over the
Corporations financial reporting and disclosure.

Nothing in that stated above detracts from my responsibility or the responsibility of any other person under any law.

November 24, 2014

_____________________
Avisar Paz, CFO

iii

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

(5)

(a)

ZIM INTEGRATED SHIPPING SERVICES LIMITED


CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

30 SEPTEMBER 2014

ZIM INTEGRATED SHIPPING SERVICES LTD.


INDEX TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Page
INDEPENDENT AUDITORS REPORT

FINANCIAL STATEMENTS:
Condensed consolidated interim Statements of Financial Position

Condensed consolidated interim Income Statements

Condensed consolidated interim Statements of Comprehensive Income

Condensed consolidated interim Statements of Changes in Equity

6-7

Condensed consolidated interim Statements of Cash Flows

8-9
10-17

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Notes to the condensed consolidated interim Financial Statements

Somekh Chaikin
7 Nahum Het Street
PO Box 15142, Haifa 3508506
Israel

Telephone
Fax
Internet

972 4 861 4800


972 4 861 4844
www.kpmg.co.il

Review Report to the Shareholders of


Zim Integrated Shipping Services Ltd.
Introduction
We have reviewed the accompanying financial information of Zim Integrated Shipping Services Ltd. and its
subsidiaries (hereinafter the Group) comprising of the condensed consolidated interim statement of
financial position as of September 30, 2014 and the related condensed consolidated interim statements of
income, comprehensive income, changes in equity and cash flows for the nine and three month period then
ended. The Board of Directors and Management are responsible for the preparation and presentation of this
interim financial information in accordance with IAS 34 Interim Financial Reporting. Our responsibility is
to express a conclusion on this interim financial information based on our review.
We did not review the condensed interim financial information of certain consolidated subsidiaries whose
assets constitute approximately 9% of the total consolidated assets as at September 30, 2014 and whose
revenues constitute approximately 5% of the total consolidated revenues for each of the nine and three month
period then ended. Furthermore, we did not review the condensed interim financial information of equity
accounted investees the investment in which amounted to $ 10 million as at September 30, 2014, and the
Groups share in their profits amounted to $ 5 million and $ 3 million for the nine and three month period then
ended, respectively. The condensed interim financial information of those companies was reviewed by other
auditors whose review reports thereon were furnished to us, and our conclusion, insofar as it relates to amounts
emanating from the financial information of such companies, is based solely on the said review reports of the
other auditors.
Scope of review

Conclusion
Based on our review and the review reports of other auditors, nothing has come to our attention that causes
us to believe that the accompanying financial information was not prepared, in all material respects, in
accordance with IAS 34.
We refer to Note 1b of the financial statements regarding the financial position of the Company, the
completion of the Restructuring and to Management and the Board of Directors' assessment that the
completion of the Restructuring as described in that note, enables the Company to meet its liabilities and
operational needs and to comply with the new set of financial covenants for a period of at least 12 months
after the balance sheet date.

Somekh Chaikin
Certified Public Accountants (Isr.)

Haifa, November 20, 2014

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

We conducted our review in accordance with Standard on Review Engagements 1, "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" of the Institute of Certified
Public Accountants in Israel. A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

Assets
Vessels
Containers and handling equipment
Other tangible assets
Intangible assets
Investments in associates
Other investments, including derivatives
Deferred expenses
Trade and other receivables
Deferred tax assets
Total non-current assets
Inventories
Assets classified as held for sale
Trade and other receivables
Other investments
Cash and cash equivalents
Total current assets
Total assets
Equity
Issued capital
Reserves
Accumulated deficit
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Liabilities
Loans and other liabilities
Debentures
Employee benefits
Deferred tax liabilities
Total non-current liabilities
Trade and other payables
Provisions
Deferred income
Debentures
Bank overdrafts, loans and other liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
(*) See Note 2(c)

Aaron Fogel
Chairman of the Board
of Directors

31 December
2013
(Audited)

823,466
306,149
20,967
58,031
17,139
73,952
90,185
24,823
1,195
1,415,907

1,706,746
354,875
24,174
63,437
9,397
84,205

1,602,325
342,300
23,669
62,182
10,806

38,707
4,719
2,286,260

39,629
1,349
2,082,260

96,636
72,558
307,163
78,080
238,418
792,855
2,208,762

106,400
323,292
2,389
118,042
550,123
2,836,383

100,881
3,441
273,678
18,255
123,298
519,553
2,601,813

88
1,799,261
(1,720,587)
78,762
6,289
85,051

42,301
894,126
(1,233,848)
(297,421)
4,449
(292,972)

42,301
895,093
(1,519,963)
(582,569)
4,413
(578,156)

802,902
423,902
105,077
348
1,332,229

631,303

647,170

83,087
399
714,789

86,318
350
733,838

452,642
33,657
18,222
5,932
281,029
791,482
2,123,711
2,208,762

508,944
29,761
18,323
222,672
1,634,866
2,414,566
3,129,355
2,836,383

523,675
28,815
20,225
231,162
1,642,254
2,446,131
3,179,969
2,601,813

Refael Danieli
President, CEO & Director

Guy Eldar
Chief Financial Officer

Date of approval of the Financial Statements: 20 November, 2014


The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

30 September
2014
2013(*)
(Unaudited)
US $000

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

Income from voyages and related


services
Cost of voyaged and related services
Operating expenses and cost of services
Depreciation
Derecognition of payments on account of
vessels
Gross profit (loss)
Other operating income
Other operating expenses
General and administrative expenses
Termination benefit expenses
Results from operating activities
Finance income
Finance expenses

1(b)

Net finance income (expenses)


Share of profit of associates
(net of income tax)

Income taxes
Loss for the period

2,794,219

854,133

899,566

3,682,241

(2,402,392)
(91,458)

(2,687,286)
(108,998)

(789,006)
(23,511)

(857,282)
(35,520)

(3,554,714)
(143,994)

6,764

(71,646)
(88,113)

1(b)

(2,065)

41,616

4,935
(236,528)
(116,143)
(23,176)

74,628
(722)
(106,899)
(24,006)

(236,137)
(33,586)
(23,176)

(35,089)

(268,977)

(59,064)

(251,283)

16,451

(190,610)

189,333
(145,367)

2,523
(183,010)

187,109
(36,404)

466
(56,680)

3,370
(330,119)

43,966

(180,487)

150,705

(56,214)

(326,749)

3,437

3,128

9,975

8,702

Loss before income tax

Year ended
31
December
2013
(Audited)

2,595,785

101,935

5(e), 1(b)

Three months ended 30


September
2014
2013
(Unaudited)
US $000

6,704

44,776

77,944
(7,832)
(148,603)
(24,006)

(216,309)

(232,847)

(97,141)

(36,635)

(507,384)

24,674

(15,804)

34,410

(5,644)

(22,861)

(191,635)

(248,651)

(62,731)

(42,279)

(530,245)

(196,996)
5,361
(191,635)

(252,263)
3,612
(248,651)

(64,597)
1,866
(62,731)

(43,589)
1,310
(42,279)

(534,969)
4,724
(530,245)

Attribute to:
Owners of the Company
Non-controlling interest
Loss for the period

The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Note

Nine months ended 30


September
2014
2013
(Unaudited)

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

Nine months ended


30 September
2014
2013
(Unaudited)

Loss for the period

(191,635)

(248,651)

(513)

(2,938)

Three months ended


30 September
2014
2013
(Unaudited)
US $000

(62,731)

Year ended
31 December
2013
(Audited)

(42,279)

(530,245)

(2,486)

(3,230)

Other components of Comprehensive Income (Loss)


Items of other comprehensive income (loss) that
were or will be reclassified to profit and loss:
Foreign currency translation differences for
foreign operations

763

Items of other comprehensive loss that


would never be reclassified to profit and loss:
(3,628)

(966)

408

(2,443)

Income tax on other comprehensive income


Other comprehensive income (loss) for the period,
net of tax

(4,141)

(2,938)

1,171

(2,486)

(6,639)

Total comprehensive loss for the period

(195,776)

(251,589)

(61,560)

(44,765)

(536,884)

Attributable to:
Owners of the Company
Non- controlling interests

(201,259)
5,483

(255,163)
3,574

(63,073)
1,513

(45,932)
1,167

(540,807)
3,923

Total comprehensive loss for the period

(195,776)

(251,589)

(61,560)

(44,765)

(536,884)

The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Defined benefit pension plans actuarial gains (losses)

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

Share
capital

Share
premium

Attribute to the owners of the Company


General
reserve from
transactions
with an
interested
Share
Translation
Accumulated
party
options
reserve
deficit
US $000

Total

Noncontrolling
interests

Total
equity

Balance at 1 January 2014 (audited)


Profit (loss) for the period
Other comprehensive income for the period
Nullification of the share capital and share options
Issuance of share capital
Transaction with an interested party
Dividend paid to non-controlling interests in subsidiaries
Balance at 30 September 2014

42,301

535,615

281,402

75,310

(42,301)
88

(460,305)
624,912

577,916

(75,310)

2,766
(636)

(1,519,963)
(196,996)
(3,628)

(582,569)
(196,996)
(4,264)

4,413
5,361
123

(578,156)
(191,635)
(4,141)

625,000
237,591
2,130

(1,720,587)

78,762

(3,608)
6,289

625,000
237,591
(3,608)
85,051

1,015

(1,656,398)
(64,597)
408

(720,755)
(64,597)
1,523

4,775
1,866
(352)

(715,980)
(62,731)
1,171

6,289

625,000
237,591
85,051

237,591
88

700,222

1,096,909

42,301

535,615

281,402

75,310

(42,301)
88

(460,305)
624,912

577,916

(75,310)

For the three months period ended 30 September 2014


(unaudited)
Balance at 1 July 2014
Profit (loss) for the period
Other comprehensive income for the period
Nullification of the share capital and share options
Issuance of share capital
Transaction with an interested party
Balance at 30 September 2014

1,115

88

700,222

237,591
1,096,909

2,130

(1,720,587)

625,000
237,591
78,762

The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the nine months period ended


30 September 2014 (unaudited)

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

Share
capital

Share
premium

Attribute to the owners of the Company


General
reserve from
transactions
with an
interested
Share
Translation Accumulated
party
options
reserve
deficit
US $000

Total

Noncontrolling
interests

Total
equity

For the nine months period ended


30 September 2013 (unaudited)
Balance at 1 January 2013 (audited)
Profit (loss) for the period
Other comprehensive income for the period
Transaction with an interested party
Dividend paid to non-controlling interests in subsidiaries
Non-controlling interest as of the realization date of subsidiaries
Balance at 30 September 2013

42,301

535,615

279,971

75,310

5,195

(981,585)
(252,263)

(2,900)
935

(43,193)
(252,263)
(2,900)
935

42,301

535,615

280,906

75,310

2,295

(1,233,848)

(297,421)

42,301

535,615

279,971

75,310

4,638

(1,190,259)
(43,589)

(252,424)
(43,589)
(2,343)
935

18,049
3,612
(38)
(4,599)
(12,575)
4,449

(25,144)
(248,651)
(2,938)
935
(4,599)
(12,575)
(292,972)

Balance at 1 July 2013


Profit (loss) for the period
Other comprehensive income for the period
Transaction with an interested party
Dividend paid to non-controlling interests in subsidiaries
Non-controlling interest as of the realization date of subsidiaries
Balance at 30 September 2013
For the year ended 31 December 2013 (audited)
Balance at 1 January 2013
Profit (loss) for the year
Other comprehensive income (loss) for the year
Transaction with an interested party
Dividend paid to non-controlling interests in subsidiaries
Non-controlling interest as of the realization date of subsidiaries
Balance at 31 December 2013
The accompanying Notes are an integral part of the condensed
consolidated interim Financial Statements.

(2,343)
935

42,301

535,615

280,906

75,310

2,295

(1,233,848)

(297,421)

42,301

535,615

279,971

75,310

5,195

(981,585)
(534,969)
(3,409)

(43,193)
(534,969)
(5,838)
1,431

(2,429)
1,431

42,301

535,615

281,402

75,310

2,766

(1,519,963)

(582,569)

17,224
1,310
(143)
(1,367)
(12,575)
4,449

18,049
4,724
(801)

(235,200)
(42,279)
(2,486)
935
(1,367)
(12,575)
(292,972)

(4,984)

(25,144)
(530,245)
(6,639)
1,431
(4,984)

(12,575)

(12,575)

4,413

(578,156)

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

For the three months period ended


30 September 2013 (unaudited)

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

Cash flows from operating activities


Loss for the period
Adjustments for:
Depreciation and amortisation
Impairment of tangible assets and other investments
Derecognition of payments on account of vessels
Net finance expenses
Share of profits of associates
Capital loss (gain)
Income taxes

Change in inventories
Change in trade and other receivables including derivatives
Change in trade and other payables including derivatives
and deferred income
Change in provisions and employee benefits

Dividends received from associates


Interest received
Income tax paid
Net cash generated from (used in) operating activities

Cash flows from investing activities


Proceeds from refund of payments on account of vessels
Proceeds from sale of tangible assets, intangible assets
and investments
Disposal of subsidiary, net of cash disposed and exit
from consolidation
Acquisition of vessels, containers, handling equipment,
other tangible assets, intangible assets and investments
Settlement of derivatives
Change in other investments and other receivables
Net cash generated from (used in) investing activities

Three months ended


30 September
2014
2013(*)
(Unaudited)
US $000

Year ended
31 December
2013
(Audited)

(191,635)

(248,651)

(62,731)

(42,279)

(530,245)

102,936
126,737

120,805

27,390
126,737

39,331

(43,966)
(8,702)
107,677
(24,674)
68,373

180,487
(6,704)
(71,600)
15,804
(9,859)

(150,705)
(3,437)
109,254
(34,410)
12,098

56,214
(3,128)
(43,720)
5,644
12,062

159,723
7,000
71,646
326,749
(9,975)
(72,459)
22,861
(24,700)

4,245
(9,101)

7,460
(73,756)

9,630
23,188

13,888
(34,896)

13,048
(59,480)

3,862
20,816
19,822

40,267
23,860
(2,169)

(17,975)
13,330
28,173

26,722
658
6,372

58,640
25,007
37,215

5,051
1,477
(16,190)
78,533

19,983
536
(16,237)
(7,746)

2,504
1,148
(6,750)
37,173

2,694
151
(5,993)
15,286

21,687
877
(22,449)
12,630

30,000
36,722

114,698

1,051

2,405

(13,678)
(605)
(129,432)
(105,942)

(16,471)
(7,030)
4,831
128,433

30,000
20,577

56,117

141,669
2,405

(4,723)
(97,363)
(81,509)

(6,080)
(1,628)
4,057
52,466

(22,084)
(8,261)
(10,599)
133,130

(*) See Note 2(c).

The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Nine months ended


30 September
2014
2013(*)
(Unaudited)

ZIM INTEGRATED SHIPPING SERVICES LTD.


CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
Nine months ended
30 September
2014
2013(*)
Unaudited
Cash flows from financing activities
Receipt of long term loans, capital lease and
other long term liabilities
Repayment of borrowings
Change in short term loans
Issuance of share capital
Dividend paid to non-controlling interests
Interest paid
Other financial expenses paid
Net cash generated from (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effect of exchange rate fluctuation on cash held
Cash and cash equivalents at the end of the period

161,569
(119,330)
48,780
200,000
(3,608)
(97,775)
(45,000)
144,636

18,693
(122,143)
24,704
(4,599)
(96,318)
(9,500)
(189,163)

117,227
123,232
(2,044)
238,415

(68,476)
187,500
(1,025)
117,999

Three months ended


30 September
2014
2013(*)
Unaudited
US $000

Year ended
31 December
2013
(Unaudited)

(37,101)
80

43,654
(145,560)
33,000

(41,591)
(25,615)
173,116

(1,367)
(37,137)
(5,200)
(80,725)

(4,984)
(118,731)
(16,346)
(208,967)

128,780
110,878
(1,243)
238,415

(12,973)
131,246
(274)
117,999

(63,207)
187,500
(1,061)
123,232

79,864
(56,891)
17,349
200,000

(*) See Note 2(c).

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

The accompanying Notes are an integral part of the condensed consolidated interim Financial Statements.

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Reporting entity
(a)

ZIM Integrated Shipping Services Ltd. (hereinafter - the "Company" or "Zim") and its subsidiaries
(hereinafter "the Group" or "the Companies") and the Groups interests in associates and joint
arrangements, operate in the field of container shipping and related services.
Zim is a company incorporated in Israel, with limited liability. The address of the Companys
registered office is 9 Andrei Sakharov Street, Haifa, Israel.

(b)

Financial position
As of September 30, 2014, the Company had positive equity attributable to its owners in the amount
of US$ 79 million, compared with deficit in the amount of US$ 583 million and US$ 297, as of
December 31, 2013 and September 30, 2013, respectively. As of September 30, 2014 the Company
had a positive working capital in the amounts of US$ 1 million, compared with deficit in its
working capital in the amount of US$ 1,927 million and US$ 1,864 million, as of December 31,
2013 and September 30, 2013, respectively, mainly due to reclassification to short term of long term
loans, debentures and liabilities in an amount of US$ 1,505 million and US$ 1,508 million,
respectively, as a result of non-compliance with covenants.
The Companys results from operating activities for the nine and three months period ended
September 30, 2014, amounted to an operating loss of US$ 269 million and US$ 251 million,
respectively. The Companys results from operating activities, excluding the day one restructuring
impact for the nine and three months period ended September 30, 2014, amounted to an operating
loss of US$ 30 million and US$ 12 million, respectively. Both compared with operating loss of
US$ 59 million and operating profit of US$ 16 million for the nine and three months period ended
September 30, 2013, respectively.
The Companys net loss for the nine and three months period ended September 30, 2014, amounted
to a net loss of US$ 192 million and US$ 63 million, respectively. The Companys net results
excluding the day one restructuring impact for the nine and three months period ended September
30, 2014, amounted a net loss of US$ 180 million and US$ 51 million, respectively. Both compared
with net loss of US$ 249 million and US$ 42 million for the nine and three months period ended
September 30, 2013, respectively.
In order to cope with its challenging financial position, during 2013 the Company had entered into
negotiations with its financial creditors and other parties in an attempt to reach a consensual
restructuring agreement, based on an agreed 5 year business plan, that is structured to gain long
term stability to the Company. The restructuring was completed and all the conditions precedents
were fulfilled on the 16th of July 2014 (hereinafter: the effective date of the restructuring).
The negotiations on the Companys debt restructuring involved representatives of the majority of
the Companys financial creditors, related parties and additional stakeholders. As a result of the
restructuring, among other things, the Companys outstanding indebtedness and liabilities (face
value, including future commitments in respect of operating leases, and with regard to those parties
participating in the restructuring) were reduced from approximately US$ 3.4 billion to
approximately US$ 2 billion.

10

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Reporting entity (contd)


(b)

Financial position (contd)


The main principles of the Companys restructuring agreements are:
(a) Partly secured creditors (other than those who elected to enter into the VesselCo arrangement
detailed in (c) below) received a new fully secured loans in an amount equal to an agreed value
of the assets securing the current existing debt (hereinafter: Tranche A). Tranche A debt bears
interest at an annual rate of LIBOR + 2.8% and is to be repaid on the earlier of: (i) seven years
from the effective date of the restructuring; or (ii) the contractual date of repayment of the
original loan with respect to each secured creditor plus approximately sixteen months and a half.
The original security shall continue to serve as a first ranking security to the new loan.
In general, if the Company disposes of a secured vessel at any time prior to the applicable
maturity date, all Tranche A debt for that vessel is to be repaid (see also (b) below).
(b) The Company undertook to scrap eight vessels during the period of 16 months from the effective
date of the restructuring. Upon the effective date of the restructuring, those vessels were
classified as held for sale and as a result, an impairment loss in an amount of US$ 110 million
was recorded under other operating expenses (as included in the Day 1 Effect table below).
After the balance sheet date, two of those vessels was sold for the purpose of demolition.
(c) Certain vessel loan creditors purchased (directly or indirectly) the vessels secured in their favour
and leased them back to the Company at such terms and conditions as agreed in the restructuring
agreements (hereinafter: VesselCo). Upon the lease back of those vessels, five of the vessels
were classified as capital leases and three of the vessels, as operating leases.
(d) The unsecured portion of the pre-restructuring debt (hereinafter: the deficiency claim) entitled
the creditors to a new unsecured debt: Series C and, for certain creditors, also Series D Notes
(hereinafter: Series C and D Notes) and the Companys equity (other than with respect to the
shipyards loan, see (e) below). Both Series C and D Notes bear interest at an annual rate of 3%,
while the Series D Notes entitled to an additional interest at a rate of 2% per year, which shall be
payable in kind (PIK interest). The repayment of the Series C Notes due on June 20, 2023 and
the repayment of the Series D Notes due on June 21, 2023 ("bullet"). In case of excess cash, as
defined in the restructuring agreement, a mechanism for mandatory prepayments using excess
cash flows will be provided for each of the Series C and Series D Notes. Each of the Series C
Notes and the Series D Notes has priority in early repayments resulting from excess cash flow
over Tranche A. The Series C Notes has priority in such early repayments over the Series D
Notes.
(e) With respect to the shipyards loan - the outstanding amount, which was supposed to entitle the
creditor to a portion in the allocation of the Companys shares, instead entitled the creditor to an
unsecured loan (hereinafter: Tranche E). Tranche E bears interest at an annual rate of 2%. In
the first nine years of the loan period, 1.75% of the interest rate shall accrue as a PIK interest
and, after the first nine years until the end of the twelfth year, subject to the full settlement of
Tranche A, Series C Notes and Series D Notes, interest shall be payable in cash.
(f) New reduced charter hire floor rates and rate adjustment mechanisms were agreed with the ship
owners, including related parties ship owners. In addition, the ship owners (excluding certain
related parties as described in (j) below) also received their position of the Companys Tranche
C and D Notes and the Companys equity.
Regarding operational leases, which classification upon the restructuring remained unchanged,
deferred expenses in the amount equal to the fair value of Series C and D Notes and equity
issued to third party ship owners will be recorded as additional charter hire expenses throughout
the remaining charter periods.
(g) Five leased vessels previously classified as capital leases were reclassified, in light of the change
in the lease terms, as operational leases.
(h) The financial creditors and ship owners received shares aggregating to 68% of the Companys
issued share capital (on a fully diluted basis, post-restructuring, after Israel Corporations
(hereinafter - IC) investment in the Company, as set forth in (i) below).

11

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Reporting entity (contd)


(b)

Financial position (contd)


(i) IC invested an amount of US$ 200 million in the Company's share capital (US$ 90 million out of
this amount were agreed to serve as a reserve for investments in the business of the Company,
under the provisions agreed in the restructuring agreements; US$ 70 million of such amount
were classified as long-term assets) and waived and discharged all the Companys liabilities
toward it. All of the Company's existing shares and options, including those held by IC, became
null and void and IC received shares aggregating to 32% of the Companys issued share capital
on a fully-diluted basis.
With regard to approximately US$ 13 million (NIS 45 million) deferred debt of the Company to
IC in connection with a derivative claim, such waiver will be terminated and the debt will be
reinstated if the court determines that the waiver was not valid. In such event the debt will be
repaid following the full repayment of the debts under the restructuring (Tranche A, Series C
and D Notes and Tranche E).
IC has further agreed to provide or arrange to put in place a credit line of US$ 50 million to the
Company.
In addition, certain related parties waived the Companys debt to it.
See also (k) below.
(j) Certain related parties, which have leased vessels to the Company, agreed to receive a charter
rate which, in general, will be lower by $1,000 per day than that paid to the ship owners who are
not related parties for similar vessels (see also (k) below).
Also, certain related parties waived their rights to receive their part of the Series C and D Notes
and the Companys equity which are primarily attributable to the reduction of the charter hire
(see (f) above), in favour of certain third party creditors.
(k) According to the Companys accounting policy, transactions with related parties acting in their
capacity as shareholders are recorded directly in equity. Accordingly, all debt waivers and
benefits from related parties (in an amount of approximately US$ 237 million, net of the
relevant income tax influance) were recorded against capital reserve from transactions with
related parties.
(l) According to the provisions of IAS 39, it was concluded that the terms of all debt participating in
the restructuring were substantially modified. Accordingly, the old debt was derecognized and
the new debt (Tranche A, Series C Notes, Series D Notes, Tranche E and finance lease liabilities
under VesselCo) as well as the new equity were recorded at fair value at the effective date of the
restructuring.
The valuation technique which was used in order to measure the fair value of the new debt was
the discounted cash flows technique. The interest rates used to discount cash flows (between
approximately 3% and 10%) were estimated by external evaluator based on a synthetic rating
calculated using accepted methodology and considering rating-appropriate interest rate curves.
(m) All the previous covenants were annulled and a new set of financial covenants was agreed as
follows:
1) Minimum Liquidity - The Company is required to have monthly minimum liquidity
(including amounts held in the reserve account that are available for general corporate
purposes) in an amount of at least US$ 125 million (tested on the last business day of each
calendar month). As at the balance sheet date the Company is in compliance with the
minimum liquidity covenant.
2) Fixed Charge Cover - The Company is required to have a certain Fixed Charge Cover ratio,
which is defined as Consolidated EBITDAL to Fixed Charges. EBITDAL means
Consolidated EBITDA (Groups Consolidated EBITDA, after certain adjustments as
specifically defined in the facility agreements), after adding back charter hire lease costs.
Fixed Charges mean mainly cash interest, scheduled repayments of indebtedness and charter
hire lease costs.
This ratio will gradually increase from 1.02:1 on 31 December 2015 to 1.07:1 on 31
December 2018 (based on last 12 months periods). Ratio levels will be tested quarterly from
31 December 2015.

12

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Reporting entity (contd)


(b)

Financial position (contd)


3) Total Leverage - The Company is required to have a certain Total Leverage ratio, which is
defined as Total Debt to Consolidated EBITDA.
This ratio will gradually decrease from 8.8:1 on 30 June 2015 to 4.9:1 on 31 December 2018
(based on last 12 months periods). Ratio levels will be tested quarterly from 30 June 2015.
(n) Amendments to the Special State Share were made as set forth in the compromise agreement
achieved with the holder of the Special State Share. See also Note 5 (a).

As a result of the above mentioned, presented hereunder is information regarding the effect of the debt
restructuring on the Companys third quarter of 2014 financial statements:
(1) Statements of financial position:
Total Effect on Day 1
increase (decrease)
Million US$

Total assets
Total liabilities
Toatl equity

(316)
(1,166)
850

(2) Income statements:


Total Effect on Day 1
income (expenses)
Million US$

Results from operating activities


Net finance income
Income taxes

(239)
186
41
(12)

In the opinion of the Companys management and its Board of Directors, the completion of the
restructuring, as detailed above and the Companys expected performance in accordance with its business
plan dated January 2014, including assumptions therein, as was updated from time to time, enables the
Company to meet its liabilities and operational needs and to comply with the new set of financial
covenants for a period of at least 12 months after the balance sheet date.
See also Note 5 (d) regarding a deriviative action in respect of the restructuring approval by IC.

13

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Basis of compliance
(a)

Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with
IAS 34 Interim Financial Reporting. They do not include all of the information required for full
annual financial statements and should be read in conjunction with the consolidated financial
statements of the Company as at and for the year ended 31 December, 2013 (hereafter the annual
financial statements).
These condensed consolidated interim financial statements were approved by the Board of Directors
on 20 November, 2014.

(b)

Estimates
The preparation of Financial Statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets, liabilities, income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates. The significant judgments made by management in applying the Groups
accounting policies and the principal assumptions used in the estimation of uncertainty were the same
as those that applied to the annual financial statements.
Main judgements made by the Companys management with respect of the restructuring are
described in Note 1(b).

(c)

Reclassification
Certain comparative figures have been reclassified to conform to the current year presentation.

14

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Significant accounting policies


(a) The accounting policies applied by the Group in these condensed consolidated financial statements
are the same as those applied by the Group in its annual financial statements.
(b) New standards and interpretation not yet adopted
(1) IFRS 9 (2014), Financial Instruments
A final version of the standard, which includes revised guidance on the classification and
measurement of financial instruments and a new model for measuring impairment of financial
assets. IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with
early adoption being permitted. The Company is examining the effects of IFRS 9 (2014) on the
financial statements.
(2) IFRS 15, Revenue from Contracts with Customers
IFRS 15 replaces the current guidance regarding recognition of revenues and presents a new
model for recognizing revenue from contracts with customers. IFRS 15 is applicable for annual
periods beginning on or after January 1, 2017 and earlier application is permitted. The Company
is examining the effects of IFRS 15 on the financial statements.

Financial instruments
(1) Financial instruments measured at fair value for disclosure purposes only
The carrying amounts of the Groups financial assets and liabilities, are the same or proximate to
their fair value, except as follows:
30 September
2014

Debentures
Long-term loans
and other liabilities
(2)

Carrying amount
30 September
31 December
2013
2013
US $000

30 September
2014

Fair value Level 2


30 September
31 December
2013
2013
US $000

(429,834)

(222,672)

(231,162)

(420,723)

(339,361)

(290,095)

(932,602)

(2,173,830)

(2,198,089)

(934,191)

(1,315,837)

(1,176,658)

Fair value hierarchy of financial instruments measured at fair value


The table below analyses financial instruments carried at fair value on a recurring basis, by
valuation method. As at 30 September 2014 and 31 December 2013, the carrying amounts of such
financial instruments are immaterial.

Level 1

Assets
Marketable securities held for trade
Derivatives not used for hedging

30 September 2013
Level 2
Level 3
US $000

1,457
84,205

Liabilities
Derivatives not used for hedging
1,457

(1,506)

(464)

(1,506)

83,741

Total

1,457
84,205
(1,970)
83,692

15

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Financial instruments (contd)


(3)

Financial instruments carried at fair value


Financial assets

Financial liabilities

US $000

Balance as at 1 January, 2013


Total gains (losses) recognized in finance expenses
Balance as at 30 September, 2013

106,916
(22,711)
84,205
Financial assets

(2,764)
2,300
(464)
Financial liabilities

US $000

Balance as at 1 January, 2013


Total gains (losses) recognized in finance expenses
Balance as at 31 December, 2013
(4)

106,916
(106,916)

(2,764)
2,588
(176)

Fair value sensitivity analysis of level 3 financial instruments carried at fair value
Even though the Company believes that the fair values determined for measurement and/or
disclosure purposes are appropriate, the application of different assumptions or different
measurement methods may change such fair values. As regards to fair value measurements, a
reasonably possible change in one or more unobservable inputs would have increased (decreased)
profit or loss and equity as follows:
30 September 2013
Change in profit or loss
and equity
10%
10%
Increase
Decrease
US $000

Change in discount rate


Change in the standard deviation of the bonds' yield

(5,070)
(13,290)

Events during the period


(a)

Special State Share


On July 14, 2014 the State and the Company have reached a settlement agreement (the Settlement
Agreement) that has been validated as a judgment by the Supreme Court. The Settlement Agreement
provides, inter alia, the following arrangement shall apply: States consent is required to any transfer of
the shares in the Company which confers on the holder a holding of 35% and more of the Companys
share capital. In addition, any transfer of shares which confers on the holders a holding exceed 24% but
not exceed 35%, shall require a prior notice to the State. To the extent the State determines that the
transfer involves a potential damage to the States security or any of its vital interests or if the State did
not receive the relevant information in order to formulate a decision regarding the transfer, the State
shall be entitled to inform, within 30 days, that it objects to the transfer, and it will be required to reason
its objection. In such an event, the transferor shall be entitled to approach a competent court on this
matter.

(b)

Urgent Motion Under Section 350 (a)


Pursuant to proceedings initiated by the Company before the District Court in Haifa (the "Court")
under Section 350(a) of the Israeli Companies Law, 1999 (the "Companies Law"), the Court confirmed
on 15 July, 2014 the Restructuring arrangement by and among the Company, its shareholders and
holders of rights to receive and/or acquire shares of the Company (collectively, "Options"). According
to said arrangement, on the closing of the Company's debt restructuring (the "Closing"), all the
Company's shares (other than the Special State Share) and options shall become null and void. In
addition, pursuant to the Court's ruling, at the closing the Company's memorandum has been cancelled,
and the Company's articles of association were replaced by new articles of association.

16

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

2,974
13,053

ZIM INTEGRATED SHIPPING SERVICES LTD.


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Events during the period (contd)


(c)

A Petition Filed by the National Organization for Marine Officers


On June 29, 2014 the National Association of Sea Officers of the new General Labor Federation filed
an urgent request for the intervention of the Supreme Court in the proceedings taking place in the
District Court regarding the Companys submission of the application according to Section 350(a) of
the Companies Law. The Company opposed the filing of the urgent request. The Supreme Court
decided not to intervene in the ongoing proceedings of the District Court.
On July 13, 2014 as per the request of the National Association of Sea Officers of the new General
Labor Federation, with the consent of the Company, the Supreme Court struck out the petition, without
an award for costs.

(d)

Derivatives Action
On 5 August, 2014 a petition for approval of a derivative action was submitted to the District Court in
Tel Aviv by a shareholder of IC against, among others, IC and the Company. The petitioner argues
that the transaction executed by IC in connection with its participation in the Companys restructuring
deviates from the approval of IC's shareholders meeting and that the condition precedent to the
execution of ICs participation in the restructuring, as approved by such meeting, regarding the
transferability of the shares in the Company was not fulfilled. The petitioner moves to have the
defendants (other than IC and the Company) to convene IC's shareholders meeting to approve the ICs
participation in the Companys restructuring or have the defendants (other than IC) compensate IC in
the amount of US$ 27.4 million which, as argued, reflects the damage caused to IC due to its
participation in the Company's restructuring, being the decreased value of the Companys shares held
by IC in consideration therefore, due to the incompletion of the said condition precedent. Management
is unable to estimate the probability of an adverse outcome or the effect of an adverse outcome on the
Companys business, if any.

(e)

Assets held for sale


In addition to the described in Note 1 (b)(b), as at the balance sheet date, two of the Companys vessels
were classified as held for sale due to the Companys decision to sell them for the purpose of
demolition. As a result, the Company recorded an impairment in an amount of US$ 17 million under
other operating expenses.

_______
_____________
______

17

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Qoros Automotive Co., Ltd.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Condensed consolidated interim financial information


for the nine months and three months periods
ended 30 September 2014

Independent auditors report on review of condensed consolidated interim financial


information to the board of directors of Qoros Automotive Co., Ltd.
(Established in the Peoples Republic of China with limited liability)

Introduction
We have reviewed the accompanying condensed consolidated statement of financial position
of Qoros Automotive Co., Ltd. as at 30 September 2014, the condensed consolidated
statements of profit or loss and other comprehensive income for the nine months and three
months periods then ended, changes in equity and cash flows for the nine months then ended,
and notes to the interim financial information (the condensed consolidated interim financial
information). Management is responsible for the preparation and presentation of this
condensed consolidated interim financial information in accordance with International
Accounting Standard 34 Interim Financial Reporting. Our responsibility is to express a
conclusion on this condensed consolidated interim financial information based on our review.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying condensed consolidated interim financial information as at 30 September 2014
is not prepared, in all material respects, in accordance with International Accounting Standard
34 Interim Financial Reporting.

Shanghai, China
Date: 24 November 2014

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Scope of Review
We conducted our review in accordance with the International Standard on Review
Engagements 2410 Review of Interim Financial Information Performed by the Independent
Auditor of the Entity. A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical
and other review procedures. A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of profit or loss


and other comprehensive income
for the nine months and three months periods ended 30 September (unaudited)
In thousands of RMB

Revenue
Cost of sales

Note

Gross loss
Other income
Research and development
expenses
6
Selling and distribution
expenses
7
Administrative expenses 8
Other expenses

For the nine months ended


30 September
30 September
2014
2013
570,479
(615,300)

For the three months ended


30 September
30 September
2014
2013
235,975
(314,969)

(44,821)
(78,994)
------------------- ------------------- ------------------- ------------------34,364
26,733
4,521
13,620
(170,086)

(136,204)

(7,701)

(9,615)

(650,543)
(443,589)
(39,086)

(576,520)
(3,762)

(267,043)
(157,547)
(16,674)

(291,842)
(2,368)

Results from operating activities


(1,313,761)
(689,753)
(523,438)
(290,205)
------------------- ------------------- ------------------- ------------------9(a)
9(a)

Net finance (cost)/income 9(a)

Loss before income tax


Income tax expenses

16,221
(137,055)

13,135
(4,227)

Loss for the period

(680,845)

(303)

Total comprehensive income


for the period

(589,998)
(153)

(288,600)
-

(1,434,898)
(680,845)
(590,151)
(288,600)
------------------- ------------------- ------------------- -------------------

Other comprehensive income


Items that are or may be reclassified subsequently to profit or loss:
Foreign operations foreign currency
translation differences,
net of nil tax
(66)
Other comprehensive
income for the period,
net of nil tax

6,021
(4,416)

(120,834)
8,908
(66,560)
1,605
------------------- ------------------- ------------------- ------------------(1,434,595)

10

3,717
(70,277)

(78)

(66)
(78)
------------------- ------------------- ------------------- ------------------(1,434,964)

(680,845)

(590,229)

(288,600)

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.
1

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Finance income
Finance costs

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of financial position


(unaudited)

Assets
Property, plant and equipment
Intangible assets
Prepayments for purchase of equipment
Lease prepayments
Trade and other receivables
Equity-accounted investees

Note

11
12
13
14
15

Non-current assets

Inventories
Available-for-sale financial assets
Trade and other receivables
Prepayments
Pledged deposits
Cash and cash equivalents

16
14
17
18

Current assets

At 30 September
2014

At 31 December
2013

3,832,616
4,243,418
101,599
209,231
98,175
2,248

3,728,190
3,423,933
212,541
106,239
-

8,487,287
---------------------

7,470,903
---------------------

370,067
675,535
51,778
228,582
595,541

167,216
32,000
482,721
103,539
193,136
857,900

1,921,503
1,836,512
---------------------- ----------------------

Total assets

10,408,790

9,307,415

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.
2

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In thousands of RMB

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of financial position (continued)


(unaudited)

Equity
Paid-in capital
Reserves
Accumulated losses

Note

At 30 September
2014

19

Total equity

6,431,840
62
(4,940,753)

At 31 December
2013

5,931,840
105
(3,505,855)

1,491,149
---------------------

2,426,090
---------------------

3,638,390
873
182,630
7,214

2,856,000
2,251
190,570
-

3,829,107
---------------------

3,048,821
----------------------

2,727,243
2,334,308
25,466
1,517

1,254,468
2,551,077
25,392
1,567

Current liabilities

5,088,534
---------------------

3,832,504
---------------------

Total liabilities

8,917,641
---------------------

6,881,325
---------------------

10,408,790

9,307,415

Liabilities
Loans and borrowings
Finance lease liabilities
Deferred income
Provision

20
21
22

Non-current liabilities

Loans and borrowings


Trade and other payables
Deferred income
Finance lease liabilities

20
23
21

Total equity and liabilities


Approved and authorised for issue by the Board of Directors.

Guo Qian
Chairman and CEO

Volker Steinwascher
Vice-Chairman

John Meng
CFO

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.
3

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In thousands of RMB

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of changes in equity


for the nine months ended 30 September (unaudited)

Balance at 1 January 2013


Loss for the period
Total comprehensive income

Capital injection
from investors
Total contributions

Paid-in
capital

Capital Translation Accumulated


reserve
reserve
losses

Total

4,231,840

74

(1,948,728)

2,283,186

(680,845)

(680,845)

(680,845) (680,845)
-------------- ----------- -------------- ---------------- --------------

1,300,000

48

1,300,048

1,300,000
48
- 1,300,048
-------------- ------------ -------------- ---------------- --- -----------

Balance at 30 September 2013 5,531,840

122

(2,629,573)

2,902,389

Balance at 1 January 2014

124

(19)

(3,505,855)

2,426,090

(66)

(1,434,898) (1,434,898)
(66)

5,931,840

Loss for the period


Other comprehensive income
Total comprehensive income

Capital injection
from investors
Total contributions

(66) (1,434,898) (1,434,964)


-------------- ----------- -------------- ----------------- --------------

500,000

23

500,023

500,000
23
500,023
-------------- ----------- -------------- ---------------- ---------------

Balance at 30 September 2014 6,431,840

147

(85)

(4,940,753)

1,491,149

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In thousands of RMB

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of cash flows


for the nine months ended 30 September (unaudited)

Note

Cash flows from operating activities


Loss for the period
Adjustments for:
Depreciation
Amortisation of
- intangible assets
- lease prepayments
Net finance cost/(income)

For the nine months ended


30 September2014 30 September2013

(1,434,898)
100,610

Changes in:
- inventories
- trade and other receivables
- prepayments
- trade and other payables
- deferred income
Net cash used in operating activities

(680,845)
70,622

38,377
3,310
123,656
(1,168,945)

3,607
3,310
(13,087)
(616,393)

(202,851)
(184,062)
51,761
168,794
(7,866)

(14,359)
(147,372)
(62,563)
265,066
(7,940)

(1,343,169)
(583,561)
--------------------- ----------------------

Cash flows from investing activities


Interest received
Proceeds from disposal of available-for-sale
financial assets
Collection of pledged deposits
Placement of pledged deposits
Acquisition of property, plant and equipment
and intangible assets
Acquisition of available-for-sale financial assets
Acquisition of equity in joint ventures
Development expenditures
Net cash used in investing activities

13,868

11,535

32,000
57,753
(125,942)

42,699
(296,714)

(621,367)
(2,248)
(838,464)

(1,080,303)
(55,000)
(959,938)

(1,484,400)
---------------------

(2,337,721)
---------------------

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.
5

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In thousands of RMB

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Condensed consolidated statement of cash flows (continued)


for the nine months ended 30 September (unaudited)

Note

Cash flows from financing activities


Capital injection from investors
Proceeds from borrowings
Collection of pledged deposits
Repayment of borrowings
Interest paid

For the nine months ended


30 September2014 30 September 2013

500,023
3,074,633
31,520
(819,468)
(221,498)

Net cash from financing activities

2,565,210
---------------------

Net (decrease)/increase in cash and cash


equivalents

(262,359)

Cash and cash equivalents at 1 January


Cash and cash equivalents at 30 September

18

1,300,000
2,477,525
89,236
(396,440)
(138,927)
3,331,394
-----------------------

410,112

857,900

1,094,434

595,541

1,504,546

The notes on pages 7 to 23 form part of these condensed consolidated interim financial
statements.
6

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

In thousands of RMB

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Notes to the condensed consolidated interim financial information


1

Reporting entity
Qoros Automotive Co., Ltd. (the Company) is a sino-foreign joint equity enterprise
established on 24 December 2007 in the Peoples Republic of China (PRC) by Wuhu
Chery Automobile Investment Co., Ltd (Wuhu Chery) and Quantum (2007) LLC.
(Quantum). The Companys registered office is located in Changshu, Jiangsu Province,
PRC. These consolidated financial statements comprise the Company and its whollyowned subsidiary, Qoros Automotive Europe GmbH (Qoros Europe), (collectively the
Group).
The Groups principal activities are research and development, manufacture and sale of
automobiles and related components and spare parts.
Basis of accounting
This condensed consolidated interim financial information has been prepared in
accordance with IAS 34 Interim Financial Reporting. They do not include all of the
information required for a complete set of financial statements prepared in accordance
with International Financial Reporting Standards. However, selected explanatory notes
are included to explain events and transactions that are significant to an understanding of
the changes in the Groups financial position and performance since the last annual
consolidated financial statements as at and for the year ended 31 December 2013.
These financial statements were authorised for issue by the Companys Board of
Directors on 24 November 2014.

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Judgements and estimates


In preparing these condensed consolidated interim financial statements, management has
made judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The significant judgements made by management in applying the Groups accounting
policies and the key sources of estimation uncertainty were the same as those applied to
the consolidated financial statements as at and for the year ended 31 December 2013,
except for those described in Note 12.

Significant accounting policies


The International Accounting Standards Board has issued a number of amendments to
IFRSs and interpretations and new standards that are first effective for the accounting
period beginning on 1 January 2014. These developments have had no material impact
on the contents of the interim financial information. The accounting policies applied in
these condensed consolidated interim financial information are the same as those applied
in the Groups consolidated financial statements as at and for the year ended 31
December 2013. The Group has not applied any new standard or interpretation that is not
yet effective for the current accounting period.
Revenue
In thousands of RMB

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Sale of goods
Others

535,790
34,689

224,307
11,668

Total

570,479

235,975

Research and development expenses


Research and development expenses are the expenses incurred for the research and
development activities of platform and car models as follows:
In thousands of RMB

CF1X
CF11
CF14 and CF14K
CF16
Diesel
TGDI
Total

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013
7,353
90,733
7,675
44,594
17,582
2,149

90,081
1,798
3,807
40,518
-

1,826
292
5,900
3,196
4,655
(8,168)

8,106
1,509
-

170,086

136,204

7,701

9,615

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Selling and distribution expenses


In thousands of RMB

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Advertising
Marketing and promotion
Consulting fees
Personnel expenses
Others

256,854
161,430
80,964
97,850
53,445

104,763
74,469
32,587
35,080
20,144

Total

650,543

267,043

Administrative expenses
In thousands of RMB

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Personnel expenses
Consulting fees
Office expenses
Depreciation and amortisation
Rental expenses
Travelling expenses
Recruiting expenses
Taxes and duties
Low-valued consumables
Testing expenses
Others

160,930
66,167
55,753
52,331
39,147
11,109
10,665
7,291
1,448
11,356
27,392

259,476
158,929
43,256
32,565
33,132
12,712
16,015
2,809
3,472
76
14,078

55,238
23,122
18,922
17,568
14,162
7,595
2,485
2,714
4,703
11,038

99,838
121,374
20,901
8,897
12,583
5,029
7,527
966
2,343
66
12,048

Total

443,589

576,520

157,547

291,842

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Loss before income tax


Loss for the period is arrived at after (charging)/crediting:
In thousands of RMB

(a)

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Net finance income:


Interest income on
available-for-sale
financial assets
Interest income on
bank deposits
Foreign
exchange gain
Finance income

720

1,584

1,526

13,333

11,551

3,240

4,495

2,168

477

16,221
13,135
3,717
6,021
---------------- ----------------- ----------------- -----------------

Finance expense

(137,055)

Foreign
exchange loss
Finance costs

(70,277)

(4,227)

(4,416)

(137,055)
(4,227)
(70,277)
(4,416)
---------------- ----------------- ----------------- -----------------

Net finance (cost)/


income

(120,834)

8,908

(66,560)

1,605

(34,070)

(13,706)

(10,279)

(6,268)

(337,269)

(268,351)

(125,928)

(100,614)

(371,339)

(282,057)

(136,207)

(106,882)

(3,310)
(38,377)

(3,310)
(3,607)

(1,103)
(12,773)

(1,103)
(1,437)

(41,687)

(6,917)

(13,876)

(2,540)

(100,610)

(16,948)

(36,902)

(6,753)

(35,579)
(3,568)

(30,201)
(2,931)

(13,617)
(545)

(12,051)
(532)

(39,147)

(33,132)

(14,162)

(12,583)

(b) Staff costs:


Contributions to defined
contribution
retirement plan
Salaries, wages and other
benefits

(c)

Other items:
Amortisation
-lease prepayments
-intangible assets

Depreciation
-property, plant
and equipment
Operating lease charges
-hire of office rentals
-hire of cars

10

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Income taxes
Current tax expense German Income Tax
In thousands of RMB

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Current period

303

153

The statutory and applicable corporate income tax rate of the Company is 25% (2013:
25%). No provision has been made for PRC corporate income tax as the Company had
accumulative tax losses as of 30 September 2014. The statutory corporate income tax
rate of Qoros Automotive Europe GmbH, the Companys subsidiary incorporated in
Germany, is 15%.
Reconciliation of effective tax rate
In thousands of RMB

For the nine months ended


30 September 2014 30 September 2013

Loss before tax


Income tax credit at the applicable PRC
income tax rate of 25%
Differential in tax rate
Temporary difference movement for which
no deferred tax asset is recognised
Current period loss for which
no deferred tax asset is recognised
Non-deductible expenses
Income tax expense

(1,434,595)

(680,845)

358,649
202

170,211
-

(55,978)

3,239

(302,813)
(363)

(173,106)
(344)

(303)

Unrecognised deferred tax assets


Deferred tax assets have not been recognised in respect of the following items:
In thousands of RMB

As at 30 September 2014

Deductible temporary differences


Cumulative unutilised tax losses

1,939,265
2,788,812

Total

4,728,077

Deferred tax assets have not been recognised in respect of these items because it is not
probable that future taxable profit will be available against which the Company can
utilise the benefits therefrom.
11

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

10

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

10

Income taxes (continued)


Under current tax legislation, the above deductible tax losses will expire in the
following years:
In thousands of RMB

As at 30 September 2014

2015
2016
2017
2018
2019

92,479
158,364
114,346
1,213,347
1,210,276
2,788,812

Property, plant and equipment


In thousands of RMB

Leasehold
improvements

Cost
Balance at 1 January 2014
Additions
Transfer
Balance at 30 September 2014

18,076
4,892
22,968
-----------------

Depreciation
Balance at 1 January 2014
Depreciation for the period
Balance at 30 September 2014

(11,962)
(5,926)
(17,888)
----------------

Equipment

Building

1,568,809 1,258,439
652,050
59,317
2,220,859 1,317,756
---------------- -------------(47,273)
(62,076)

(5,516)
(32,608)

(109,349)
(38,124)
--------------- ------------

Construction
in progress

Total

947,617 3,792,941
420,545
425,437
(931,768) (220,401)
436,394 3,997,977
---------------- -------------

(64,751)
(100,610)

- (165,361)
---------------- -------------

Carrying amount
Balance at 1 January 2014

6,114

1,521,536 1,252,923

947,617 3,728,190

Balance at 30 September 2014

5,080

2,111,510 1,279,632

436,394 3,832,616

Leased plant and machinery


The Group leases pressing equipment as lessor under operating leases. As at 30
September 2014, the carrying amount of such leased pressing equipment is RMB
84,256 thousand (31 December 2013: RMB 90,776 thousand).

12

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

11

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

11

Property, plant and equipment (continued)


Property, plant and equipment under construction
Included in additions of construction in progress is an amount of RMB 21,292
thousand representing borrowing costs capitalised during the 9 months period ended
30 September 2014 (the first nine months of 2013: 109,636 thousand), using a
capitalisation rate of 7.65% per annum (2013: 5.00%).
As at 30 September 2014, all equipment, properties and construction in progress were
pledged to bank as security for a consortium financing agreement (Note 20(1)).
Intangible assets
In thousands of RMB
Cost
Balance at 1 January 2014
Transfer from construction
in progress
Addition for the period
Balance at 30 September 2014

Total

154,382

3,282,022

3,436,404

220,401
8,688

628,773

220,401
857,862

383,471
3,910,795
4,294,266
-------------------- -------------------- --------------------

Amortisation
Balance at 1 January 2014
Amortisation for the period
Balance at 30 September 2014

Software

Development
costs

(10,058)
(19,956)

(2,413)
(18,421)

(12,471)
(38,377)

(30,014)
(20,834)
(50,848)
-------------------- -------------------- --------------------

Carrying amount
Balance at 1 January 2014

144,324

3,279,609

3,423,933

Balance at 30 September 2014

353,457

3,889,961

4,243,418

The amortisation of software and capitalised development cost is included in


administrative expenses in the consolidated statement of profit or loss and other
comprehensive income.
See Note 23 for payables for research and development activities as at reporting date.
Included in capitalised development costs is an amount of RMB 44,499 thousand
representing borrowing costs capitalised during the 9 months period ended 30 September
2014 (first nine months of 2013: 89,658 thousand), using a capitalisation rate of 7.65%
(2013: 5.00%).

13

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

12

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

12

Intangible assets (continued)


On 11 September 2014, the Board of Directors of the Company approved a revised
business plan which adopted a lower sales volume than was previously adapted, as a
result, an asset impairment test was performed. An impairment loss is recognised if the
carrying amount of an asset or its related cash-generating unit (CGU) exceeds its
estimated recoverable amount. The recoverable amount of the CGU, to which the fixed
assets and intangible assets belong, was based on the greater of its value in use and its fair
value less costs to sell and was determined with the assistance of an independent valuer.
As the result of the impairment test showed the recoverable amount of the CGU higher
than its book value as at 30 September 2014, no impairment loss is recognised.
Lease prepayments
In thousands of RMB
Cost
Balance at 1 January and 30 September 2014
Amortisation
Balance at 1 January 2014
Amortisation for the period

220,631
--------------------(8,090)
(3,310)

Balance at 30 September 2014

(11,400)
----------------------

Carrying amount
Balance at 1 January 2014

212,541

Balance at 30 September 2014

209,231

As at 30 September 2014, the Groups lease prepayments represented the lease


prepayments of land use rights located in Changshu, Jiangsu Province. Such lease
prepayments were pledged to bank as security for a consortium financing agreement
(Note 20(1)).

14

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

13

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Trade and other receivables


In thousands of RMB
Trade receivables
Value-added tax deductible
Deposits
Deferred expenses
Receivables due from employees
Receivables due from related parties 27(c)
Others

Less: allowance for doubtful debts

At 31 December
2013

13,401
625,316
72,713
37,024
19,203
80
6,369

428,845
72,940
40,607
36,810
1,325
8,829

774,106

589,356

(396)

Non-current
Current

15

At 30 September
2014

(396)

773,710

588,960

98,175
675,535

106,239
482,721

773,710

588,960

Equity-accounted investees
On 30 July 2014, a car rental company, Fond&Liberty Car Rental/Leasing Co., Ltd (the
investee), was established by Qoros Europe, Changshu Port Development and
Construction Co., Ltd. (CPDC) and Daqian Investment Co., Ltd. ( Daqian).
The registered capital of the investee is USD 10 million, with Qoros Europe, CPDC and
Daqian holding 25%, 25% and 50% of the equity interests in the investee, respectively.
Qoros Europe injected an initial capital contribution of USD 375,000, equivalent of RMB
2.2 million.
The main business scope of the investee includes vehicle rental, sales of car parts and
components, and designated driving service, with an operation period of 12 years.

15

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

14

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

16

Inventories
In thousands of RMB

At 30 September
2014

At 31 December
2013

Raw materials and consumables


Work in progress
Finished goods

53,575
3,281
313,211

34,112
28,465
104,639

Total

370,067

167,216

During the period, raw materials and consumables, and changes in work in progress and
finished goods included in cost of sales amounted to RMB 550,047 thousand.
During the nine months ended 30 September 2014, the Group wrote down its finished
goods inventory by RMB 65,253 thousand. The write-down is included in cost of sales
in the condensed consolidated statement of profit or loss and other comprehensive
income. There were no inventory write-downs recognised during the nine months ended
30 September 2013.
17

Pledged deposits
Bank deposits of RMB 219,054 thousand (31 December 2013: RMB 193,136 thousand)
have been pledged as security for bank guarantee, bank acceptance draft and letter of
credit facility. The pledge in respect of the bank deposits will be released with the
expiration of the relevant bank guarantee, bank acceptance draft and the letter of credit
facility, which is less than one year.
Cash and cash equivalents
In thousands of RMB

At 30 September
2014

Deposit with banks within 3 months of maturity


Cash at bank

16

At 31 December
2013

9,528
586,013

82,970
774,930

595,541

857,900

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

18

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

19

Paid-in capital
In thousands of RMB

At 30 September
2014

Wuhu Chery
Quantum (2007) LLC.

At 31 December
2013

3,215,920
3,215,920

2,965,920
2,965,920

6,431,840

5,931,840

The Companys Board of Directors resolved in October 2013 to increase the Companys
registered capital from RMB 5,931,840 thousand to RMB 6,431,840 thousand. Capital of
RMB 250 million was injected by Chery Auto and USD 41,021 thousand (equivalent of
RMB 250 million) was injected by Quantum (2007) LLC. in January 2014. Capital
contributions in foreign currency, i.e. USD, were translated into Renminbi at the
exchange rates prevailing at the dates of each contribution received as quoted by the
Peoples Bank of China.
Loans and borrowings
In thousands of RMB
Denominated in:
RMB
USD
EUR

Non-current
Current

At 30 September
2014

At 31 December
2013

5,366,000
999,633
-

3,673,000
379,715
57,753

6,365,633

4,110,468

3,638,390
2,727,243

2,856,000
1,254,468

6,365,633

4,110,468

Details of non-current loans and borrowings are set out below.


(1) On 23 July 2012, the Company entered into a consortium financing arrangement
with a Group of banks. Under the arrangement, the Company can draw down loans
in either RMB or USD, up to an aggregate maximum principal amount of RMB 3
billion. The RMB loan bears the 5-year interest rate quoted by the Peoples Bank of
China from time to time and the USD loan bears interest rate of LIBOR+4.8% per
annum. The repayment schedule of loans is based on the instalments schedule as set
out in the agreement within 10 years from the first draw down date. The
arrangement is secured by the Companys land use right, equipment, properties and
construction in progress and is guaranteed by Wuhu Chery and Changshu Port
Development and Construction Co., Ltd (CPDC) respectively. Each party
provides guarantee to an aggregate principal amount of no more than RMB 1.5
billion or its equivalent. The guarantee from Wuhu Chery and CPDC are several but
not joint. In connection with Wuhu Cherys guarantee, Israel Corporation Ltd.
provided a counter-guarantee up to the aggregate principal amount of no more than
RMB 750 million or its equivalent. In connection with CPDCs guarantee, the

17

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

20

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Loans and borrowings (continued)


Company made a guarantee deposit of RMB 100 million to CPDC and Wuhu
Chery also entered into an agreement to provide a counter-guarantee to CPDC in
September 2012. The guarantee deposit was treated as deferred expenses and
carried at amortised cost.
As at 30 September 2014, the Company has drawn down RMB loans of RMB 2,856
million (31 December 2013: RMB 2,856 million) with an interest rate of 6.55%.
The loans are repayable within 10 years from 23 July 2012. The first repayment
date is set as 36 months after the first draw down date 27 July 2012. On 27 July
2015 and every 6 months after the preceding repayment date, payments are due
based on the following schedule:

27 July 2015
27 January 2016
27 July 2016
27 January 2017
27 July 2017
Remaining

Repayment of loan principal


as a % of the outstanding
loan balance on 23 July 2015
1.667%
1.667%
1.667%
6.667%
6.667%
81.665%

The loans drawn down from this consortium arrangement contains financial related
covenants. In 2013, the Company obtained a confirmation from the banks that
compliance of the financial covenants is not required for 2013 and 2014. In
September 2014, the banks further extended the covenant waiver to July 2017.
(2) On 29 November 2012, the Company entered into a working capital loan
arrangement with Bank of China, a PRC commercial bank. Under this
arrangement, the Company can draw down loans in RMB to an aggregate
maximum principal amount of RMB 800 million. The arrangement is unsecured
and unguaranteed. The loan bears either 1-year or 1~3-year interest rate quoted by
the Peoples Bank of China due to specific loan duration and the latter rate is
adjusted annually after the first draw down date 24 April 2013.
As of 30 September 2014, the Company has drawn down loans of RMB 160
million (31 December 2013: RMB 160 million) with the interest rate of 6.15%.
The loan is repayable in 3 years after the first draw down date of 24 April 2013,
and was divided into four instalments which are repayable in May 2014,
November 2014, May 2015 and November 2015 respectively. The loan contains
financial covenants. In February 2014, the Company obtained a confirmation from
the bank that compliance of the financial covenants is not required for 2013 and
2014. After the Company enters into continuous and sustained operating period, a
request for adjustment of the financial covenants, as necessary, can be submitted to
the bank for consideration. According to the repayment schedule, the Company
repaid the loan of RMB 40 million out of the RMB 160 million in the first nine
months of 2014.

18

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

20

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

20

Loans and borrowings (continued)


(3) On 31 July 2014, the Company entered into an additional consortium financing
arrangement with a bank consortium. Under this arrangement, the Company can
draw down loans in either RMB or USD, up to an aggregate maximum principal
amount of RMB 1.2 billion. The RMB loan bears the 5-year interest rate quoted by
the Peoples Bank of China with 10% mark-up and the USD loan bears interest
rate of LIBOR+5% per annum. The repayment schedule of loans is based on the
installments schedule as set out in the agreement within 10 years from the first
draw down date.
Wuhu Chery Automobile Investment Co., Ltd. and Quantum (2007) LLC,
shareholders of the Company, have each pledged 17.5% of its equity interest in the
Company, which is currently being equivalent to a registered capital of RMB 1.1
billion respectively to the bank consortium.
Current loans and borrowings represented unsecured bank loans with maturity period
within one year with the interest rate from 1.28% to 7.32%.
In May and June 2014, the Company entered into an entrusted working capital loan and a
shareholder loan agreement with Wuhu Chery and Quantum, respectively, through Bank
of China. Under these agreements, the Company obtained loans of RMB 500 million and
USD 81.2 million (RMB 500 million equivalent) from Wuhu Chery and Quantum,
respectively, each with a term of 6 months maturity. The loan from Wuhu Chery bears an
interest rate of 6%, whereas the loan from Quantum bears an interest of 3%.
As at 30 September 2014, the Company has unutilised loan facilities of RMB 1.3 billion
(31 December 2013: RMB 784 million).
Deferred income
In November 2012, the Group received RMB 213.5 million from the Management
Committee of Changshu Economic & Technology Development Zone, as a result of the
Groups investment in the Development Zone. Such government grant was initially
recognised as deferred income upon receipt and is amortised and recognized as other
income over the Groups expected remaining period of operation.

22

Provision
The provision balance as at 30 September 2014 mainly represents warranties related to
cars sold as of 30 September 2014. As no historical warranty data associated with cars
sold is available, the Group accrues warranty provisions based on the estimation made by
the Groups technical department taking into account available warranty data of similar
cars in the market.

19

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

21

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

23

Trade and other payables


In thousands of RMB
Trade payables
Note payables
Other payables for
- research and development activities
- property, plant and equipment
- services
Accrued payroll
Interest payable
Others

At 30 September
2014

At 31 December
2013

257,749
144,579

219,102
-

991,521
358,126
407,697
95,591
22,204
56,841

1,343,524
511,827
301,100
104,702
40,856
29,966

2,334,308

2,551,077

All the balances are repayable on demand.


24

Financial instruments
Financial risk management
The Groups financial risk management objectives and policies are consistent with those
disclosed in the financial statements as at and for the year ended 31 December 2013.

25

Operating leases

(a)

Leases as lessee

In thousands of RMB
Within 1 year
After 1 year but within 5 years
(b)

At 30 September
2014

At 31 December
2013

31,201
3,109

43,771
18,138

34,310

61,909

Leases as lessor
The Group leases out part of its machinery.
As at period end, the future minimum lease payments under non-cancellable leases are
receivable as follows:
In thousands of RMB
Within 1 year
After 1 year but within 5 years

20

At 30 September
2014

At 31 December
2013

20,742
12,713

48,844
24,756

33,455

73,600

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Non-cancellable operating lease rentals are payable as follows:

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

26

Capital commitments
Capital commitments outstanding but not provided for in the financial statements:
In thousands of RMB

At 30 September
2014

At 31 December
2013

1,320,710
23,309

758,622
54,799

1,344,019

813,421

Contracted for
Authorised but not contracted for

The authorised but not contracted for capital commitment mainly represented the research
and development costs to be incurred. The Board of Directors has approved these
commitments.
Related parties
(a)

Parent and ultimate controlling party


As at 30 September 2014 and 31 December 2013, the Company was jointlycontrolled by Wuhu Chery and Quantum (2007) LLC. Chery Automobile Co., Ltd.
(Chery Auto) is the ultimate parent company of Wuhu Chery and Israel
Corporation Ltd. is the ultimate parent company of Quantum (2007) LLC.
The following is a summary of principal related parties transactions carried out by
the Group with the related parties for the period presented.

(b)

Transactions with key management personnel


In thousands of RMB

For the nine months ended


30 September 30 September
2014
2013

Salaries, benefit and


contribution to the defined
contribution plan

9,454

21

10,889

For the three months ended


30 September 30 September
2014
2013

1,487

2,260
WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

27

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Related parties (continued)


(c)

Other related party transactions


The Group entered into the following material related party transactions:
In thousands of RMB

For the nine months ended For the three months ended
30 September 30 September 30 September 30 September
2014
2013
2014
2013

Loan from Wuhu Chery


Loan from Quantum (2007)
LLC
Rental expenses
paid to Chery
Autos subsidiary
Service fee paid to
Chery Auto
Service fee paid to
Shanghai SICAR Vehicle
Technology Development
Co., Ltd. (SICAR)
Purchase from
Chery Auto
Other expense charged to
Israel Corporation Ltd.

500,000
500,000

102

58

8,446

10,783

791

5,524

23,866

7,082

15,100

2,915

96,343

45,861

1,292

In addition to the above transactions, guarantees provided by Wuhu Chery and


Israel Corporation Ltd. in respect of the consortium financing agreement was
disclosed in Note 20.

22

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

27

Qoros Automotive Co., Ltd.


Condensed consolidated interim financial information
for the nine months and three months periods ended 30 September 2014

Related parties (continued)


(c)

Other related party transactions (continued)


The outstanding balances arising from the above transactions at the end of the
reporting periods are as follows:
In thousands of RMB
Amounts due from related parties
- other receivables from
Chery Auto
- other receivables from
Chery Autos subsidiary
- other receivables from
Israel Corporation Ltd.

Amounts due to related parties


- loan payable to Wuhu Chery
- loan payable to Quantum (2007) LLC
- other payables to Chery Auto
- other payables to SICAR

At 30 September
2014

At 31 December
2013

75

75

1,245

80

1,325

500,000
500,000
15,323
4,293

598
2,176

1,019,616

2,774

(d) Relationship with the related parties under the transactions stated in 27(c) above
Name of the entities

Relationship with the Company

Wuhu Chery
Quantum (2007) LLC
Wuhu Chery Car Rental Co., Ltd
SICAR

Parent Company
Parent Company
Chery Autos subsidiary
Joint venture invested by Chery Auto

23

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

27

ISRAEL CORPORATION LTD.


September 21, 2014

Rating Update

ilA+ Rating Affirmed; Israel Corp Rating Not


Expected To Be Negatively Impacted Due To
Potential Implementation Of Asset Spinoff,
As Per Published Outline
Primary Credit Analyst:
Yuval Torbati, 972-3-7539701 yuval.torbati@standardandpoors.com
Secondary Credit Analyst:
Zvi Boimer, 972-3-7539736 zvi.boimer@standardandpoors.com

Overview
Rating Action
Rationale
Outlook
Ratings List
Note that this translation was made for the company's use only
and under no circumstances obligates Standard & Poor's Maalot.
In the case of any discrepancy with the official Hebrew version
published on September 21, 2014, the Hebrew version shall apply.

Rating Update

September 21, 2014 |

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

TABLE OF CONTENTS

Israel Corporation Ltd.

Rating Update

ilA+ Rating Affirmed; Israel Corp Rating Not


Expected To Be Negatively Impacted Due To
Potential Implementation Of Asset Spinoff, As Per
Published Outline
OVERVIEW

Apart from the change in the companys stake in Zim Integrated Shipping Services Ltd., there has
been no change in the composition of Israel Corps investment portfolio, and the company continues
to maintain a level of leverage commensurate with the current rating.

Despite the deterioration in operating performance in 2013 and in the first half of 2014, mostly due to
a decrease potash prices, major subsidiary Israel Chemicals Ltd (ICL) continues to distribute
dividends in accordance with our expectations. In addition, we believe that Israel Corp.s intentions to
sell part of its stake in ICL and to register ICL for trade on the NYSE, both constitute positive steps for
Israel Corps portfolios risk profile and for its financial standing.

In July 2014, Zim signed a debt restructuring arrangement, and it is not likely to be a financial burden
on the company in the near future.

As to the companys plan to spin off its privately held assets, we believe that if the spinoff is
completed according to the currently published plan, it is unlikely to negatively impact the companys
credit rating.

We are affirming the 'ilA+' rating for operating holding company, Israel Corporation Ltd.

The stable outlook reflects our expectation that the company will manage to maintain an LTV ratio of
up to 35% in the short term. It also reflects our expectation that the companys rating will not be

in line with the currently published outline.

RATING ACTION
On September 21, 2014, Standard & Poor's Maalot affirmed its 'ilA+' long-term corporate credit rating on
operating holding company, Israel Corporation Ltd. The outlook remains stable.

RATIONALE
The affirmation of Israel Corporations ratings reflects our assessment that no significant changes have occurred
in the companys business risk or financial risk profiles over the past year, this despite a deterioration in ICLs
operating performance over the last 18 months as a result of a drop in potash prices, and despite our opinion
that there is a reduction in the potential financial burden on the company due to Zims recently completed debt
restructuring agreement.

www.maalot.co.il

September 21, 2014 |

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

negatively impacted due to a possible implementation of the spinoff plan, provided that it is executed

Despite the recent deterioration in cash flow generation, ICL remains with a robust financial and business risk
profile and continues to distribute dividends in accordance with our expectations. Israel Corporation is extremely
dependent on ICL, which currently constitutes about 75% of portfolio value and accounts for 100% of received
dividends. ICLs business and financial risk profiles are amongst the strongest of all industrial companies rated
by S&P Maalot. We believe long term trends in the potash market will remain positive, and that ICLs financial
performance is likely to stabilize in the second half of 2014. We think that Israel Corporations plan to sell 5.7%
of ICLs share capital and to register its stocks for trade on the New York Stock Exchange (NYSE) are positive
developments for Israel Corps business and financial risk profiles.
As per Zims debt restructuring agreement finalized in July 2014, and the reduction in Israel Corporations
holding in Zim from 100% to 32%, we believe these are positive developments that have removed uncertainty
regarding future capital injections by Israel Corporation into Zim.
Israel Corporations LTV ratio is currently 26%, compared to 24% in our last review in October 2013. Current
leverage is significantly below the leverage ratio which we have determined to be in line with the current rating
(i.e. up to 35%). We believe that the companys gearing is relatively low, and there is sufficient margin for taking
on additional debt or for a drop in portfolio value while maintaining the current rating. The companys relatively
low leverage provides for good financial flexibility, which is partly offset by the companys holding of a controlling
share in ICL, which reduces its willingness to sell shares beyond a certain point. As of September 1, 2014, the
company had gross holding level debt of about $2.2 billion, financial guarantees of about $320 million and cash
of about $800 million. We estimate the companys portfolio value at about $6.9 billion.
Our assessment of Israel Corporations business risk profile is based on an evaluation of the credit quality of its
investee companies, portfolio diversification in terms of assets and sectors, and liquidity of held shares. Our
assessment of the companys financial risk profile is mainly based on holding company financial leverage, as
expressed by the ratio between net debt to portfolio value (LTV), and on the holding companys cash coverage
ratios as expressed by the ratio of received dividends and management fees to interest and overhead expenses

companys level of financial flexibility, i.e., its ability to refinance debt on the back of held assets or to redeem
debt via rapid divestment from held assets.
This above outlined credit rating methodology is applied to all rated investment holding companies and operating
holding companies rated by S&P. In June 2013, Israel Corporation first made public its intent to examine a
strategic spinoff of parts of its investment portfolio. According to the proposed plan, Israel Corporation will only
retain its holdings in Israel Chemicals (ilAA+/Negative) and in Oil Refineries (ilBBB/Stable), as well as all of the
current financial debt and most of its cash. We believe that implementation of the spinoff plan is relatively likely.
If the asset split is completed, we will likely change our method of analysis such that our assessment of the
companys credit risk will be based on its consolidated reports, whereas its liquidity profile will continue to be
analyzed at the holding level. We believe that if the spinoff plan is implemented according to the last published
outline, the spinoff in itself will not negatively impact the companys current credit ratings.

www.maalot.co.il

September 21, 2014 |

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

as well as dividends paid. The blending of the companys business and financial risk profiles indicates the

Liquidity
According to our criteria, Israel Corporations liquidity profile is strong, and relies on significant cash balances
and on dividend inflows from ICL. We estimate the ratio of the companys sources to uses to be 7.7x in 2014 and
2.5x in 2015. Coverage ratios are expected to change slightly after the partial divestment of ICL shares and
assuming the completion of the asset split in early 2015. However, our assessment of the companys liquidity
profile will remain strong, as defined by our criteria. The company has displayed a proven ability to refinance
debt through the banking system and in the capital markets. Its ratio of dividends received to interest and
operating expenses is exceptionally high (about 2.5x) compared to other rated holding companies, so it can
comfortably meet its ongoing debt service.
About half of the companys total financial debt is made up of bank loans, wherein the company is required to
meet three major financial covenants. The company currently maintains significant margin on these covenants.
The company also encumbers about 55% of its holding in ICL shares with pledges to financing banks. As we
understand, the company meets the covenants on its secured loans with sufficient margin.
In our base-case scenario, we assume the companys sources as of September 1, 2014, to be:

About $770 million in cash and negotiable financial assets;

About $400 million in dividend receipts until the end of 2015;

About $35 million in management fees and other revenues until the end of 2015.

Our assumptions regarding the companys uses as of September 1, 2014, are as follows:

Principal maturities of about $310 million until the end of 2015;

Interest payments of about $170 million until the end of 2015;

General and administrative expenses of about $35 million until the end of 2015;

Investments and other (mandatory) expenses of about $20 million until the end of 2015.

The stable outlook reflects our expectation that Israel Corporation will maintain an LTV ratio of up to 35% in the
short term. We believe that implementation of the spinoff plan over the next 6 months is a relatively highlikelihood event. Accordingly, the stable outlook also reflects our expectation that the companys rating will not
be negatively impacted due to a possible implementation of the spinoff plan, provided that there are no
significant deviations from the last published outline. We note again that if the spinoff is indeed implemented, we
expect to change our method of analysis, such that our assessment of Israel Corporations credit risk will be
based on its consolidated reports. However, its liquidity profile will continue to be analyzed at the holding level.
We will consider a negative rating action if we witness a significant deterioration in ICLs cash generating ability,
which will hurt its ability to distribute the dividends necessary for Israel Corporation to service its debt and for its
other needs. We will also take a negative rating action in the short term if the companys leverage level exceeds
35%. Given significant pending developments, with special emphasis on the asset spinoff plan, we believe it is

www.maalot.co.il

September 21, 2014 |

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

OUTLOOK

too early to detail possible triggers for a positive rating action. The definitions of such triggers will only be
determined after we witness the actual implementation of the spinoff plan and update our operating forecast and
expected credit metrics for Israel Corporation.

RATINGS LIST
Current Rating

Previous Rating

Issuer Rating

ilA+/Stable

ilA+/Stable

Series 3-9 bonds

ilA+

ilA+

Israel Corporation Ltd.

It is hereby clarified that Standard & Poor's Maalot rating does not reflect risks relating to and/or arising from breaches,
through intent or oversight, of any of the obligations included in the bond documents and/or the incorrectness or inaccuracy
of any of the representations contained in the documents relating to the bond offering that is the subject of this rating,
Standard & Poor's Maalot report or the facts that form the basis for the opinions expressed to Standard & Poor's Maalot as a
condition for the giving of the rating, fraudulent or dishonest acts of commission or omission, or any other act that
contravenes the law.
The ratings could be revised as a result of changes to the information received or for other reasons. The rating should not be
perceived as expressing any opinion concerning the price of the securities on the primary or secondary market. The rating
should not be perceived as expressing any opinion concerning the advisability of buying, selling or holding any security.
Standard & Poor's Maalot reserves all rights. This summary is not to be copied, photographed, distributed or used for any
commercial purpose without Standard & Poor's Maalot consent, except to provide a copy of the whole report (with an
acknowledgement of its source) to potential investors in the bonds that are the subject of this rating report for the purpose of
their reaching a decision concerning the acquisition of the aforesaid bonds.

www.maalot.co.il

September 21, 2014 |

WorldReginfo - a83e7e85-1d17-42a9-a7fd-9a120b347591

Standard & Poor's Maalot ratings are based on information received from the Company and from other sources that Standard
& Poor's Maalot believes to be reliable. Standard & Poor's Maalot does not audit the information it receives nor does it verify
the correctness or completeness of such information.

You might also like