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Israel Corporation Ltd.
Condensed Consolidated Interim
Financial Statements
As at September 30, 2015
This English Version of the Report is for the Convenience of the Reader.
The Hebrew Version of the Report is the Binding Version.
WorldReginfo - 827b74f9-2448-4da8-ad72-74f24bb63b0c
(UNAUDITED)
Part A –
Report of the Corporation’s Board Directors regarding the State of the Corporation’s
Affairs for the three months ended September 30, 2015
Part B –
Condensed Interim Consolidated Financial Statements as at September 30, 2015
(unaudited)
Part C –
Condensed Interim Separate-Company Financial Statements of the Corporation as at
September 30, 2015 (unaudited)
Part D –
Quarterly Report regarding Effectiveness of the Internal Control over the Financial
Reporting and Disclosure in accordance with Regulation 38C(a)
Contents
Report of the Corporation’s Board of Directors
For the Three Months Ended September 30, 2015
Israel Corporation Ltd. (hereinafter – “the Corporation”) is a public holding company the shares of which are
traded on the Tel-Aviv Stock Exchange.
On June 25, 2013, the Corporation’s Board of Directors accepted the recommendation of the Corporation’s
management and decided to examine a strategic transaction for changing the structure of the Corporation’s
holdings (hereinafter – “the Transaction” or “the Change in the Structure of the Corporation’s Holdings”). On
December 31, 2014, the Transaction was approved by the General Meeting of the Corporation’s Shareholders
and on January 7, 2015, the Transaction was completed.
Up to and including 2014, the Corporation was engaged in initiation, advancement and development of
businesses in and outside of Israel, including through subsidiaries, investments in companies and business
ventures in various areas, including, foreign ventures or those having international activities, where the focus
was on entities having extensive activities or the potential for reaching such dimensions.
Commencing from the completion date of the Transaction, the Corporation operates to advance and develop its
existing businesses in and outside of Israel. The Corporation operates through two main investee companies:
Israel Chemicals Ltd. (hereinafter – “ICL”) and Oil Refineries Ltd. (hereinafter – “ORL”).
The Corporation views its holding in ICL as a strategic holding and is examining the possibility of splitting off
its holdings in ORL.
The Corporation intends to refrain from making investments in new companies.
This Directors’ Report is submitted as part of the interim financial statements for the period ended
September 30, 2015. 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, 2014, and the Periodic Report for 2014.
Transaction for change of the Corporation’s holdings’ structure
As stated in Note 1B and Note 5 to the annual financial statements, on January 7, 2015, all the preconditions
were fulfilled for completion of the transaction for change in Corporation’s holdings’ structure, as stated
below.
1
The Corporation is involved in management of the Group companies through directors serving on the Boards
of Directors of the Corporation’s and related companies. The Corporation’s 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.
Transaction for change of the Corporation’s holdings’ structure (Cont.)
The Change in the Structure of the Corporation’s Holdings is a split-up of the Corporation’s holdings, in such
a manner that the Corporation’s holdings in I.C. Power Ltd. (hereinafter – “I.C. Power”), Qoros Automotive
Co. Ltd. (hereinafter – “Qoros”), ZIM Integrated Shipping Services Ltd. (hereinafter – “ZIM”), I.C. Green
Energy Ltd. (hereinafter – “I.C. Green”) and Tower Semiconductors Ltd. (hereinafter – “Tower”) (hereinafter
together – “the Transferred Companies”) are being transferred to and held by all of the Corporation’s
shareholders through a new company, Kenon Holdings (hereinafter – “Kenon”), the shares of which were
distributed to them – pro rata – as a “dividend-in-kind”.
After the transaction, the Corporation holds Israel Chemicals Ltd. and Oil Refineries Ltd.
The Corporation’s debt to the financing banks and the holders of the debentures remains in the Corporation.
The amount of the dividend distributed in-kind as shares of Kenon was set at the amount of $950 million,
based on the value of the assets being transferred as a derivative of the value of Kenon as it was traded at the
time of completion of the distribution transaction. In addition, as part of the transaction, as stated, a cash
dividend, in the amount of about $200 million, was also distributed.
Since execution of the Transaction was highly probable, upon its approval by the General Meeting of the
Corporation’s shareholders on December 31, 2014, the Corporation reclassified in its financial statements as at
December 31, 2014, the assets and liabilities transferred to Kenon in the framework of the Transaction
(hereinafter – “the Transferred Assets”) as assets and liabilities of a disposal group classified as intended for
distribution to the owners and the results of the operations of the transferred companies as discontinued
operations, as well as the comparative figures in the statement of income and the statement of comprehensive
income, in accordance with IFRS 5. Furthermore, in accordance with the provisions of IFRS 5, the value of the
group of the Transferred Assets is presented as a derivative of the value of Kenon on the first day of trading
and, therefore, the Corporation recorded a write down in its financial statements for 2014, in the amount of
about $329 million, which was included as part of the discontinued operations as stated above. The said write
down decreased the book value of the dividend-in-kind distributed by the Corporation. Accordingly, the said
write down did not impact the Corporation’s retained earnings on the day following distribution of the
dividend-in-kind as part of completion of the Transaction.
Further to that stated in Note 5D(3) to the annual financial statements, on February 4, 2015, pursuant to the
loan agreement between the Corporation and Kenon, the Corporation provided Kenon a loan in the amount of
$45 million. During May 2015, the Corporation transferred to Kenon an additional loan of $65 million. After
provision of the additional loan, the total loans provided to Kenon total $110 million. The balance of the credit
framework to Kenon amounts to $90 million. Pursuant to the loan agreement, Kenon placed a lien in favor of
the Corporation on 59.5% of the issued capital of I.C. Power.
Further to that stated in Notes 5D(2)(e) and 11B(3)(a)(iii) to the annual financial statements, on February 11,
2015, the Corporation was released from the guarantee it provided in July 2012 to Chery Automobile Co. Ltd.
(hereinafter – “Chery”), pursuant to split-up agreement with Kenon whereby it undertook to take action for its
release. After release of the said guarantee, the Corporation has no more guarantees relating to Qoros.
Further to that stated in Note 28H to the annual financial statements, the value of the assets distributed, as
stated above, for purposes of determining the amount of the withholding of tax at the source from the dividend
in-kind in accordance with the approval of the Taxes Authority was determined based on the average closing
price of a Kenon share in the first three trading days on the Tel-Aviv Stock Exchange, that is, a value of about
NIS 4,217 million (about $1,065 million).
2
Further to that stated in Note 5D(2) to the annual financial statements, on January 7, 2015, as part of the
Transaction, the Corporation transferred cash to Kenon, in the amount of about $35 million, against shares.
Transaction for change of the Corporation’s holdings’ structure (Cont.)
As a result of distribution of the dividends, as stated, most of which (about 86%) derive from an Approved
Enterprise, the Corporation recognized tax income, on the date of distribution of the dividends, in the amount
of about NIS 644 million (about $162 million) in respect of tax refunds to which the Corporation is entitled to
receive from the Taxes Authority pursuant to law, as stated above. In addition, as a result of completion of the
transaction, and after the value of Kenon was clarified in the trading, the Corporation has a loss for tax
purposes, which it estimates at about NIS 5 billion, in nominal values.
Further to that stated in Note 5D(4) to the annual financial statements, the Corporation made a one-time
commitment to the holders of the debentures as part of the trust certificates and as defined therein, that the
total net financial liabilities, net, of the Corporation after completion of the Transaction, pursuant to the
financial statements that will include for the first time execution of the Transaction, that is, the financial
statements as at March 31, 2015, will not exceed the amount of $1,850 million. The Corporation complied with
this commitment.
Additional information
1.
Further to that stated in Note 11B(3)(c) to the annual financial statements, on April 15, 2015, the
Corporation notified ZIM Integrated Shipping Services Ltd. (“ZIM”) of cancellation of the loan
agreement, in the amount of $50 million, due to non-compliance on the part of ZIM with the conditions
provided in the loan agreement. After cancellation of the loan agreement, there are no liabilities or loans
between the Corporation and ZIM.
2.
On August 2, 2015, the Corporation’s former CEO, Mr. Nir Gilad, notified that he immediately, fully,
finally and unequivocally relinquishes all the options he was issued as part of the options’ plan that was
approved by a decision of the Board of Directors on November 26, 2012. The impact on the income in
the third quarter of 2015 as a result of acceleration of the vesting of the balance of the options is not
about $0.7 million.
3.
On August 20, 2015, the Corporation’s Board of Directors decided to distribute a dividend, in the
amount of $100 million, about $13.11 per share. The dividend was distributed on September 17, 2015.
The Corporation was in compliance with all the covenants undertaken to the holders of the debentures
that are provided as part of the trust certificates relating to distribution of the dividend, as stated. For
details – see also Note 5.D.4).2 to the annual financial statements.
Upon completion of the distribution transaction, as stated above, the Transferred Companies are no longer a
part of the Corporation’s consolidated assets and liabilities. In the financial statements for 2014, the
Corporation applied the reporting standard IFRS 5, as a result of which the assets and liabilities of the
Transferred Companies were presented separately in the statement of financial position in the category “assets
/ liabilities of a disposal group classified as designated for distribution”. In addition, pursuant to the Standard,
the comparative figures with respect to the assets and liabilities were not adjusted retroactively as at
September 30, 2014.
The results of the Transferred Companies, expenses relating to the split-up and expenses in connection with
the Transferred Companies, in the comparative figures, were presented in the category “gain (loss) from
discontinued operations (after tax)” in the statement of income.
For additional information in connection with the split-up transaction – see Note 5 to the consolidated financial
statements.
–
The total sales for the nine-month and the three-month periods ended September 30, 2015 amounted to
about $3,978 million and about $1,379 million, respectively, compared with about $4,708 million and
about $1,560 million, respectively, for the corresponding periods ended September 30, 2014.
3
FINANCIAL POSITION AND RESULTS OF OPERATIONS
–
The total net income attributable to the owners of the Corporation for the nine-month and the
three-month periods ended September 30, 2015 amounted to about $390 million and about $76 million,
respectively, compared with net income attributable to the owners of the Corporation about $637 million
and about $719 million, respectively, in the corresponding periods last year. The income in the
corresponding periods last year includes losses from discontinued operations (after tax) attributable to
the owners of the Corporation, in the amounts of about $554 million and about $678 million,
respectively.
–
The total assets, as at September 30, 2015, amounted to about $9,648 million, compared with about
$14,562 million, as at September 30, 2014, and compared with about $14,282 million, as at
December 31, 2014. The decline in the total assets compared with the corresponding period last year
stems, mainly, from removal from the consolidation of the companies transferred as part of the
reorganization transaction.
–
The current assets net of current liabilities, as at September 30, 2015 amounted to about $1,169 million,
compared with about $2,571 million as at September 30, 2014, and compared with about $3,154 million,
as at December 31, 2014.
–
The total non-current assets, as at September 30, 2015, amounted to about $6,449 million, compared
with about $9,060 million, as at September 30, 2014, and compared with about $5,936 million, as at
December 31, 2014. The decline in the balance of the non-current assets compared with the
corresponding period last year stems, mainly, from removal from the consolidation of the companies
transferred as part of the reorganization transaction.
–
The non-current liabilities, as at September 30, 2015, amounted to about $5,095 million, compared with
about $7,467 million, as at September 30, 2014, and compared with about $5,455 million, as at
December 31, 2014. The decline in the balance of the non-current liabilities compared with the
corresponding period last year stems, mainly, from removal from the consolidation of the companies
transferred as part of the reorganization transaction.
–
The total equity as at September 30, 2015 amounted to about $2,523 million and the total equity
attributable to the owners of the Corporation amounted to about $908 million, compared with equity of
$4,164 million and total equity attributable to the owners of the Corporation of $2,310 million as at
September 30, 2014, and compared with total equity of about $3,635 and total equity attributable to the
owners of the Corporation of about $1,833 million as at December 31, 2014. The decline in the equity
stems mainly from distribution of dividends during January 2015 as part of the reorganization
transaction, as stated above.
Set forth below are results of operations, for the period July – September 2015:
–
ICL finished the third quarter of 2015 with income of about $121 million, compared with income of
about $179 million in the corresponding quarter last year.
–
Oil Refineries Ltd. (hereinafter – “ORL”), which applies in its financial statements IFRS 9 (2013),
finished the third quarter of 2015 with income of about $23 million, compared with income of about $15
million in the corresponding quarter last year.
Without the impact of application of IFRS 9 (2013), which is not applied by Israel Corporation, ORL
finished the period of the report with income of about $19 million, compared with income of about $7
million in the corresponding quarter last year.
4
FINANCIAL POSITION AND RESULTS OF OPERATIONS (Cont.)
Set forth below are the results of operations, for the period January – September 2015:
–
ICL finished the period of the report with income of about $413 million, compared with income of about
$378 million in the corresponding period last year.
–
ORL which applies IFRS 9 (2013) in its financial statements, finished the period of the report with
income of about $208 million, compared with income of about $23 million in the corresponding period
last year.
Without the impact of application of IFRS 9 (2013), which is not applied by Israel Corporation, ORL
finished the period of the report with income of about $211 million, compared with income of about $14
million in the corresponding period last year.
Set forth below is the composition of the Corporation’s results attributable to the owners:
ICL
ORL
Amortization of excess cost
Administrative, general, financing and other expenses of the
Corporation’s headquarters
Income from re-measurement to fair value of the collar
options (1)
Tax benefit (expenses) of the Corporation’s headquarters (2)
The Corporation’s results from discontinued operations (3)
59
7
(3)
94
3
(3)
202
78
(13)
198
5
(8)
(25)
(45)
(82)
(101)
47
(9)
–
76
–
(8)
678
719
54
151
–
390
–
(11)
554
637
(1) Further to that stated in Note 15.F.1 to the annual financial statements, the income derives from
re-measurement of the options based on their fair value in connection with the financial transaction in ICL
shares (hereinafter – “the Collar Options”), including adjustment of the dividend component. The said
income is included in the “other income” category in the statement of income.
(2) In the nine-month period ended September 30, 2015, derives mainly from distribution of dividends the
source of which is an Approved Enterprise, which entitles the Corporation to tax refunds from the Tax
Authorities in accordance with law (see the section “Transaction for change of the Corporation’s
holdings’ structure” above).
(3) See Note 5 to the consolidated financial statements
* Regarding an analysis of the results of ICL and ORL – see the sections below.
5
Three months
Nine months
ended
ended
September 30
September 30
2015
2014
2015
2014
$ Millions
Following is a brief summary of the financial results of the Corporation and the principal investees:
ISRAEL CHEMICALS LTD.
7–9/2015
$
% of
millions sales
Sales
Gross profit
Operating income
Adjusted operating income*
Income before tax
Net income attributable to
ICL’s shareholders
Adjusted net income attributable
to ICL’s shareholders*
Adjusted EBITDA*
Cash flows from operating
activities
7–9/2014
$
% of
millions sales
1–9/2015
$
% of
millions sales
1–9/2014
$
% of
millions sales
2014
$
% of
millions sales
1,379
488
197
242
156
–
35
14
–
11
1,560
578
262
262
249
–
37
17
–
16
3,978
1,270
619
767
553
–
32
16
–
14
4,708
1,683
583
757
511
–
36
12
–
11
6,111
2,196
758
960
632
–
36
12
–
10
121
9
179
11
413
10
378
8
464
8
154
339
–
–
179
354
–
–
523
1,036
–
–
581
1,037
–
–
695
1,345
–
–
124
–
295
–
515
–
583
–
893
Net income attributable to ICL’s shareholders
Depreciation and amortization
Financing expenses, net
Taxes on income
Non-recurring expenses**
Total adjusted EBITDA
7–9/2015
7–92014
1–9/2015
$ millions
1–9/2014
2014
121
90
49
34
45
339
179
87
20
68
–
354
413
257
79
139
148
1,036
378
264
91
130
174
1,037
464
356
157
166
202
1,345
* ICL discloses in its reports financial measures entitled Adjusted EBITDA, Adjusted operating income and Adjusted net
income attributable to ICL’s shareholders. ICL uses Adjusted EBITDA, Adjusted operating income and Adjusted net
income attributable to ICL’s shareholders to facilitate operating performance comparisons from period to period.
Adjusted EBITDA is defined as the net income to ICL’s shareholders after eliminating depreciation and amortization
and financing expenses, net and taxes on income and after eliminating certain items as presented in the table
“Reconciliation of the reported operating income and net income” below which were adjusted for the operating income
and net income attributable to ICL’s shareholders.
ICL believes that Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing
out potential differences caused by variations such as capital structures (affecting financing expenses, net), taxation
(affecting taxes on income) and the age and book depreciation of facilities, equipment and intangible assets (affecting
relative depreciation and amortization), which may vary for different companies for reasons unrelated to operating
performance. Adjusted EBITDA is a non-IFRS measure for reporting ICL’s total company performance. ICL’s
management believes, however, that disclosure of Adjusted EBITDA provides useful information to investors, financial
analysts and the public in their evaluation of our operating performance. Adjusted EBITDA should not be considered as
the sole measure of ICL’s performance and should not be considered in isolation from, or as a substitute for, operating
income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of ICL’s
profitability or liquidity. Adjusted EBITDA does not take into account ICL’s debt service requirements and other
commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. In addition, Adjusted EBITDA, as presented in this report, may not be comparable to
similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
** See “Adjustments to the Operating Income and the Reported Income” below.
6
Adjusted EBITDA for the period of activity*
(Cont.)
ISRAEL CHEMICALS LTD. (Cont.)
Results of operations for the period July – September 2015
ICL's sales in the third quarter of 2015 amounted to $1,379 million, compared with $1,560 million in the
corresponding period last year. This decrease is attributable mainly to sale of non-core businesses (net of
revenue from services in a subsidiary in Germany, which is not part of ICL’s core business and which is
designated for sale), which led to a decrease in sales of approximately $84 million, a decrease in the quantities
sold, in the amount of approximately $42 million, mainly in the fertilizers segment, the impact of the change in
the currency exchange rates, in the amount of approximately $74 million (mainly from devaluation of the euro
against the dollar), a decline in sales due to the impact of the fire in a fertilizers production facility in Israel, in
the amount of approximately $33 million, and a decline in the sales quantities of bromine, bromine compounds
and magnesium products as a result of the strike at ICL Dead Sea and at ICL Neot Hovav (the Bromine
Compounds plant), in the amount of approximately $30 million. This decrease was partly offset by first-time
consolidation of companies acquired, which led to an increase in sales of $65 million and an increase in selling
prices of approximately $17 million, mainly of phosphate fertilizers, bromine-based flame retardants and
elemental bromine.
Set forth below is a breakdown of the sales based on location of the customers:
Europe
North America
Asia
South America
Rest of the world
Total
483
354
290
158
94
1,379
35
26
21
11
7
100
7–9/2014
$ millions
%
561
415
333
131
120
1,560
36
27
21
8
8
100
1–12/2014
$ millions
%
2,389
1,374
1,299
569
480
6,111
39
22
21
9
9
100
The breakdown of sales in the third quarter of 2015 indicates an increase in sales in South America, mainly
from the contribution of the acquisition of Fosbrasil as well as from an increase in the quantity of potash sold
in Brazil. This increase was partly offset by a decline in the quantities of phosphate fertilizers sold. Sales in
Europe declined, mainly due to the sale of non-core businesses in the ICL Performance Products segment, and
a weakening of the exchange rate of the euro and the British pound against the dollar. This decline was partly
offset due to the first-time consolidation of companies acquired. The decline in sales in Asia was derived
primarily from the sale of non-core businesses in the ICL Performance Products segment and a decrease in the
sale quantities of elemental bromine and bromine-based flame retardants. This decline was partly offset by an
increase in the quantities of potash sold in China. The decline in North America is attributable to a decrease in
the sale prices and quantities of potash. This decline was partly offset by an increase in the sales of fire
prevention and flame retardant products.
7
7–9/2015
$ millions
%
(Cont.)
Results of operations for the period July – September 2015 (Cont.)
The cost of sales in the third quarter of 2015 amounted to $891 million compared with $982 million in the
corresponding period last year. The decrease in cost of sales derives, primarily, from the impact of the change
in currency exchange rates, in the amount of approximately $52 million (mainly due to the devaluation of the
euro, the shekel and the Brazilian real against the dollar), a decline in costs resulting from divestitures of
non-core businesses (net of costs from services in a subsidiary in Germany which is not part of ICL’s core
business and which is designated for sale) in the amount of approximately $54 million, a decrease in the cost
of sales due to a decrease in the quantities sold, in the amount of approximately $18 million, as well as a
decline in the sales quantities of bromine, bromine compounds and magnesium products as a result of the strike
at ICL Dead Sea and at ICL Neot Hovav, in the amount of approximately $21 million, a decrease in the
quantities produced and sold deriving from the impact of the fire in a fertilizers production facility in Israel, in
the amount of approximately $24 million, and a decrease in the energy prices, in the amount of approximately
$4 million. This decrease was partly offset by first-time consolidation of companies acquired, in the amount of
approximately $51 million, an increase in raw-material prices, in the amount of approximately $11 million, an
increase in depreciation expenses, in the amount of approximately $6 million, mainly at ICL Rotem along with
an increase in the depreciation expenses, in the amount of approximately $3 million, as a result of acceleration
of the depreciation of the facilities of ICL UK following of update of the potash reserves (see “ICL Fertilizers
— Business Environment — ICL UK” below), a provision in respect of system-wide electricity costs in Israel
relating to the first half of 2015, in the amount of approximately $4 million, a decline in the value of
inventories of magnesium, in the amount of approximately $2 million, and an increase in other operating
expenses, in the amount of approximately $8 million. The cost of sales in the corresponding period last year
included the negative impact of the strike at ICL Rotem, in the amount of approximately $3 million.
General and administrative expenses in the third quarter of 2015 amounted to $83 million, compared with $78
million in the corresponding period last year. The increase in the general and administrative expenses stems
mainly from consulting costs in connection with the acquisition of the phosphate activities in China, which was
completed subsequent to the date of the report.
Research and development expenses in the third quarter of 2015 amounted to $21 million, a decrease of $2
million compared with the corresponding period last year.
Other expenses, net, in the third quarter of 2015, amounted to $21 million. The other expenses include mainly
a provision in respect of system-wide electricity costs in Israel, relating to prior periods (June 2013 to
December 2014), in the amount of $12 million, an expense relating to the strike damage caused to external
contractors, in the amount of $8 million, update of the provision for arbitration relating to royalties on
downstream products in respect of prior years, in the amount of $5 million, and from a provision for legal
claims, in the amount of $5 million. This was partly offset by an income from insurance proceeds relating to a
fire that occurred in the second quarter of 2015 in a fertilizers production facility in Israel, in the amount of $7
million.
8
Selling and marketing expenses in the third quarter of 2015 amounted to $166 million, compared with $216
million in the corresponding period last year. The decrease in selling and marketing expenses is attributable
mainly to the impact of the divestitures of non-core businesses, the impact of the change in the currency
exchange rates, a decline in shipping prices and quantities as well as a decline in other operating expenses.
(Cont.)
The net financing expenses in the third quarter of 2015, amounted to $49 million, compared with net financing
expenses of $20 million in the corresponding period last year – an increase of $29 million. The increase in the
financing expenses compared with the corresponding period last year derives mostly from expenses in respect
of change in the fair value of financial derivatives and revaluation of net short-term financial liabilities, in the
amount of $38 million, compared with expenses of $22 million, in the corresponding period last year, the
impact of exchange rate differences on the provisions for employee benefits, in the amount of $12 million, due
to a devaluation of the shekel against the dollar, at the rate of about 4.1%, compared with a devaluation of
about 7.5% in the corresponding period last year, and an increase in the net interest expenses, in the amount of
$8 million. On the other hand, this increase was partly offset by an increase in capitalization of the credit costs,
in the amount of $4 million, and a decline in the interest expenses relating to provisions for employee benefits,
in the amount of $1 million.
The total tax expenses in the third quarter of 2015, amounted to $34 million or about 22% of the pre-tax
income, compared with tax expenses of $68 million in the corresponding period last year. The tax rate in the
period of the report was impacted mainly by the changes in the shekel/dollar exchange rate that gave rise to a
decrease in the tax rate of the companies operating in Israel the source of which are differences in the
measurement basis.
ICL's sales in the nine months ended on September 30, 2015 amounted to $3,978 million, compared with
$4,708 million in the corresponding period last year. The decrease is attributable mainly to the decrease in the
quantities sold as a result of the strike at ICL Dead Sea and at ICL Neot Hovav, in the amount of
approximately $452 million, the impact of the change in the currency exchange rates, in the amount of
approximately $313 million (mainly from the devaluation of the euro against the dollar), sale of non-core
business (net of revenue from services in a subsidiary in Germany which is not part of ICL’s core businesses
and which is designated for sale) ,which led to a decrease in sales of approximately $247 million, and a decline
in sales as a result of the fire in a fertilizers production facility in Israel, of approximately $33 million. This
decrease was partly offset by an increase in the quantities sold, mainly, of phosphates and in the ICL
Performance Products segment, including the first-time consolidation of companies acquired, which led to an
increase in sales of $246 million and an increase in the selling prices, mainly in the ICL Fertilizers segment,
which contributed to sales $69 million.
9
Results of operations for the period January – September 2015
(Cont.)
Results of operations for the period January – September 2015 (Cont.)
The labor interruptions at ICL Dead Sea and ICL Neot Hovav, which came as a result of the efficiency
program ICL is currently executing, negatively impacted sales by approximately $452 million, as noted above.
The negative impact of the strike on the operating income is approximately $265 million (the negative impact
of the strike on the operating income in the third quarter is approximately $17 million). ICL estimates that it
will be able to recover most of the lost potash sales resulting from the strike in future periods, due to the fact
that there is excess production capacity in the potash plants while the evaporation activities in the ponds were
not interrupted during the strikes1. The contribution to the operating income after implementation of the
efficiency plan is expected to be higher than the losses caused by the strike 2.
Europe
North America
Asia
South America
Rest of the world
Total
1,609
966
671
460
272
3,978
40
24
17
12
7
100
1–9/2014
$ millions
%
1,881
1,056
1,001
402
368
4,708
40
22
21
9
8
100
The breakdown of sales in the nine months ended on September 30, 2015, shows an increase in the sales in
South America mainly from the contribution of the acquisition of Fosbrasil and from an increase in quantities
sold of phosphate rock. This increase was partly offset as a result of a drop in quantities of potash sold due to
the strike at ICL Dead Sea. The decline in sales in Asia derived primarily from a decrease in quantities of
potash sold in China and India, due to the strike at ICL Dead Sea, as well as from a decline in sales of
elemental bromine and bromine-based flame retardants, mainly as a result of the strike and from sale of
non-core businesses in the ICL Performance Products segment. This decrease was partly offset by an increase
in the quantities sold and selling price of the green phosphoric acid sold in India. There was a decline in sales
in Europe mainly due to sale of non-core businesses in ICL Performance Products segment, devaluation of the
euro and the British pound against the U.S. dollar, a decline in the quantities sold of phosphorous-based flame
retardants and elemental bromine. This decline was partly offset by the first-time consolidation of companies
acquired and from an increase in the quantities of green phosphorous acid sold. In addition, there was a decline
in sales in North America, mainly due to a decrease in the quantities and price of the potash sold, as a result of
the strike at ICL Dead Sea and a decline in quantities sold of bromine-based flame retardants, bromine-based
biocides and magnesium chloride. This decline was partly offset by an increase in sales of fire prevention and
flame-retardant products in the ICL Performance Products segment.
ICL’s estimates constitute “forward-looking” information, within the meaning thereof in the Securities Law. These
estimates may not be realized or may be realized in a different manner, even significantly, as a result of different factors,
including changes in the business environment in which ICL operates.
2 ICL’s estimates constitute “forward-looking” information, within the meaning thereof in the Securities Law, which are
based on the fact that there is excess production capacity in the potash plants while the activities in the evaporation ponds
continued even during the period of the strike, as well as on implementation of the efficiency plan. These estimates may
not be realized or may be realized in a different manner, even significantly, as a result of different factors, including the
manner of implementation of the efficiency plan, changes in the business environment in which ICL operates and
regulation.
1
10
1–9/2015
$ millions
%
(Cont.)
Cost of sales in the nine months ended on September 30, 2015 amounted to $2,708 million compared with
$3,025 million in the corresponding period last year. The decrease derives primarily, from the impact of the
change in currency exchange rates, in the amount of approximately $232 million, mainly due to the devaluation
of the euro, the shekel and the Brazilian real against the dollar, a decrease in costs resulting from divestitures
of non-core businesses )net of costs from services in a subsidiary in Germany which is not part of ICL’s core
businesses and which is designated for sale) in the amount of approximately $142 million, the impact of the
strike at ICL Dead Sea and at ICL Neot Hovav, in the amount of approximately $131 million, a decrease in the
quantities produced and sold deriving from the impact of the fire in a fertilizers production facility in Israel, in
the amount of approximately $24 million, and a drop in energy prices, in the amount of approximately $6
million. This decrease was partly offset by an increase in the quantities sold (excluding the impact of the
strike), and including the first-time consolidation of companies acquired, in the amount of approximately $180
million, an increase in raw-material prices, in the amount of approximately $27 million, mainly as a result of
the increase in sulfur prices, and at Specialty Fertilizers, an increase in the depreciation expenses, in the
amount of approximately $13 million, mainly as a result of an increase in the depreciation expenses in
ICL Rotem, due to a drop in the scope of the mining activities during the period of the strike in the
corresponding period last year, together with an increase in the depreciation expenses, in the amount of
approximately $3 million, due to acceleration of the depreciation of the facilities of ICL UK stemming from
update of the potash reserves, a decline in value of inventories in magnesium, in the amount of approximately
$4 million and increase in other operation expenses in the amount of approximately $17 million.
The cost of sales in the corresponding period last year included the negative impact of the strike at ICL Rotem,
in the amount of approximately $26 million.
Selling and marketing expenses in the nine months ended on September 30, 2015 amounted to $472 million,
compared with $645 million in the corresponding period last year. The decrease in the expenses is attributable
mainly to sale of non-core businesses, a decline in the quantities sold due to the strike at ICL Dead Sea and at
ICL Neot Hovav, the impact of the change in the currency exchange rates and a decline in shipping costs.
Marine transportation expenses represent approximately 6% of ICL’s total operating costs during the nine
months ended on September 30, 2015 – a decrease of approximately 26% compared with the corresponding
period last year. This decrease is attributable to the decline in the shipping prices due to the drop in the oil and
fuel prices and a decline in the total shipments as a result of the strike at ICL Dead Sea and at ICL Neot Hovav.
The marine shipping prices were low during most of 2015, as a result of, among other things, a drop in oil
prices that started in the second half of 2014. Nonetheless, the marine shipping prices increased slightly toward
the end of the period and the average BDI index for the third quarter of 2015 was 974 points, an increase of
54% compared with the average BDI index for the second quarter of 2015 and an increase of 3% compared
with its value in the third quarter of last year.
11
The energy costs constituted approximately 6% of ICL's total operating costs in the period of the report.
Energy costs in the period of the report decreased by approximately 18% compared with the corresponding
period last year, mainly due to a decline in the quantities produced in Israel as a result of the strike at ICL Dead
Sea and at ICL Neot Hovav.
(Cont.)
General and administrative expenses in the nine months ended on September 30, 2015 amounted to $237
million, compared with $226 million in the corresponding period last year. The increase in the general and
administrative expenses stems mainly from expenses in connection with implementation of ICL’s strategy,
including consulting costs relating to acquisition of the phosphate activities in China, which was completed
subsequent to the date of the report, and an increase in the expenses with respect to the equity compensation
plans.
Research and development expenses in the nine months ended on September 30, 2015 amounted to $57
million, a decrease of $10 million compared with the corresponding period last year. The decrease stems,
mainly, from to a decline in activities as a result of the strike at ICL Dead Sea and at ICL Neot Hovav.
Other income, net, in the nine months ended on September 30, 2015 amounted to $115 million. The other
income includes mainly gains from sale of non-core businesses, in the amount of $223 million, and income
from first time consolidation, in the amount of $7 million, as a result of acquisition of the entire holdings in
Allana Potash in June 2015. On the other hand, this income was partly offset by expenses, including a decline
in the value of assets located in Germany, in the amount of $34 million, a provision for early retirement in
Bromine as a result of the efficiency plan, in the amount of $42 million, a provision in respect of system-wide
electricity costs in Israel, relating to prior periods (June 2013 to December 2014), in the amount of $12 million,
an expense relating to the strike damage caused to external contractors, in the amount of $8 million, an update
of the provision for arbitration relating to royalties on downstream products in respect of prior years, in the
amount of $5 million, and a provision for legal claims, in the amount of $8 million.
In the corresponding period last year, ICLrecognized a non-recurring expense, in the amount of $149 million
(before interest and the related tax effect) relating to prior periods due to an arbitration decision with respect to
royalties relating to downstream products.
The net financing expenses in the nine months ended on September 30, 2015 amounted to $79 million,
compared with net financing expenses of $91 million in the corresponding period last year – a decrease of $12
million. The financing expenses in the corresponding period last year included non-recurring expenses, in the
amount of $32 million, mainly in connection with the royalties' arbitration decision. After eliminating
non-recurring expenses, the financing expenses last year amounted to $59 million. The increase in the
financing expenses after elimination of non-recurring expenses stems mostly from an increase in the net
interest expenses, in the amount of $20 million, expenses in respect of the impact of exchange rate differences
on the provisions for employee benefits, in the amount of $22 million, due to a devaluation of the shekel
against the dollar, at the rate of about 0.9%, compared with a devaluation of about 6.5% in the corresponding
period last year. On the other hand, this increase was offset by an increase in capitalization of the credit costs,
in the amount of $12 million, and a decline in the interest expenses relating to provisions for employee
benefits, in the amount of $10 million.
The tax expenses in the nine months ended on September 30, 2015 amounted to $139 million, compared with
tax expenses of $130 million in the corresponding period last year. The tax rate on the pre-tax income is 25%,
similar to the prior year.
12
In addition, ICL included net expenses in respect of a decline in value of the property, plant and equipment that
was damaged as a result of the fire that occurred in the second quarter of 2015 in a fertilizers production
facility in Israel, in the amount of $10 million, net of insurance proceeds relating to lost sales, in the amount of
$7 million.
(Cont.)
Adjustments to reported operating income and net income
Reported operating income in accordance with
GAAP
Impact of strike by employees
Capital gain on sale of non-core businesses
Impairment in value of assets in the United
States and Europe
Provision for early retirement
Income from entry into the consolidation
Provision for arbitration in respect of prior
periods
Fire in fertilizer production plant in Israel
Electricity costs in respect of prior periods
Provision for legal claims
Other
Total adjusted operating income
Financing expenses, equity in results of
investees and taxes, including the tax impact
of the adjustments*
Total adjusted net income
7–9/2015
7–9/2014
1–9/2015
$ millions
1–9/2014
2014
197
17
–
262
–
–
619
265
(223)
583
24
–
758
17
–
–
–
–
–
–
–
–
–
–
71
–
(36)
5
2
16
5
–
242
–
–
–
–
–
262
5
12
12
8
–
767
149
–
–
–
1
757
149
–
–
–
1
960
88
154
83
179
244
523
176
581
265
695
34
42
(7)
* Includes financing expenses in respect of a provision for arbitration in respect of prior periods that were
recorded in 2014.
–
During October 2015, ICL completed the establishment of a joint venture with Yunnan Phosphate
Chemicals Group, the leading phosphate manufacturer in China. The joint venture (“YPH JV”), which
includes a world-scale phosphate rock mine that produces about 2.5 million tons of phosphate rock per
year along with extensive activities in the phosphate sector, is expected to be a leading player in the
Chinese phosphate market3. The joint manufacturing platform is at a global level and it includes
activities running the full length of the value chain – from sale of phosphate rock, bulk production of
fertilizers and up to phosphate-based specialty products for applications in the food market and the
market for complex materials.
3
The estimates in this paragraph constitute “forward-looking” information, within the meaning thereof in the Securities
Law. These estimates may not be realized or may be realized in a different manner, even significantly, as a result of
different factors, including changes in the business environment in which ICL operates and regulation.
13
Business environment and main events in ICL
(Cont.)
Business environment and main events in ICL (Cont.)
Production Capacity (in thousands of tons)4
Phosphate rock
Commodity fertilizers
Specialty fertilizers
Phosphoric acid
Purified phosphoric acid
– Incl. expansion plans
YPH JV
Total ICL*
% Change
2,500
850
115
700
60
160
6,500
2,700
895
1,300
290
410
63
45
15
117
26
64
* Includes 100% of the JV’s production capacity.
–
During the third quarter of 2015, there was an increase in bromine prices in the Chinese market as a
result of, among other things, reduced imports and stricter hazardous materials handling regulation by
the Chinese authorities following the Tianjin explosion. ICL is continuing to sell elemental bromine and
Hydrobromic Acid at the higher prices it had announced in November 2014. Bromine compounds prices
in Asia increased as a result of the increase in bromine prices.
–
There has been an increase in demand for FR122P – the new polymer flame retardant used in insulation
materials in the construction sector which is replacing HBCD. During the third quarter of 2015,
Albemarle and ICL decided to terminate their agreement for establishment of a joint venture.
Nevertheless, the parties intend to discuss a long-term supply arrangement pursuant to which ICL will
supply to Albemarle this polymeric flame retardant.
The business environment was impacted by several macro-economic aspects, as follows: (1) a decline in
economic growth and the stock market crisis in China; (2) a drop in oil prices; (3) a weakening of commodity
prices (including agricultural commodities); (4) a weakening of currencies of emerging markets against the
dollar (mainly Brazil, India, China and countries in Southeast Asia); (5) slower growth in developing markets,
such as Russia, Brazil and southeastern Asia; and (6) high government debt, mainly in European countries. On
the other hand, a certain economic recovery has started in the important markets of the United States and
Germany.
Based on data of the U.S. Department of Agriculture published on November 10, 2015, the grains stock to use
ratio is expected to be about 22.9% for the 2015/2016 agricultural year, similar to 22.8% in the 2014/2015
agricultural year5.
ICL’s estimates regarding the production capacity constitute “forward-looking” information, within the meaning thereof
in the Securities Law. These estimates may not be realized or may be realized in a different manner, even significantly, as
a result of different factors, including the quantity and availability of the raw materials and regulation.
5 The estimates in this paragraph constitute “forward-looking” information, within the meaning thereof in the Securities
different factors, including changes in the business environment in which ICL operates, the behavior of the farmers, the
weather and the commodity prices.
4
14
Business environment
(Cont.)
Business environment (Cont.)
Potash imports into China in the first nine months of 2015, reached 6.1 million tons, an increase of about 9%
compared with the corresponding period last year.
Potash imports into India in the first nine months of 2015 amounted to about 3.3 million tons, an increase of
approximately 7.7% compared with the corresponding period last year.
On the other hand, potash imports into Brazil in the first nine months of 2015 amounted to approximately 6.5
million tonnes, a decrease of approximately 8% compared with the corresponding period last year. The
decrease is attributed mainly to the decrease in the prices of agricultural commodities and to the impact of the
devaluation of the Brazilian currency along with limited availability of credit to farmers.
Global demand for phosphate fertilizers decreased during the third quarter of the 2015 mainly due to lower
demand in India, the world’s largest phosphate importer, as a result of devaluation of the rupee against the
dollar, the high level of inventories and lower than average Monsoon rains. Lower demand was recorded in
Brazil as well. Imports of phosphates into Brazil in the first nine months of the year fell by 8% to 2.2 million
tonnes (in P2O5 terms). Phosphate prices decreased moderately due to the low demand and an increase in
exports from China. Recently, there has been an increase in demand in the United States, as the fall season
fertilizer application approaches. Imposition of VAT at the rate of 13% had an adverse impact on the local
demand for phosphate fertilizers in China, however, recently there has been increased interest in anticipation
of the fall season fertilizer application.
The results of ICL Specialty Fertilizers were unfavorably impacted by an increase in the level of competition
with respect to a number of main markets and products, a weakening of the sale currencies and the economic
situation in Eastern Europe and Greece.
ICL UK
During the third quarter of 2015, ICL made a re-examination of its estimates with respect to the economic
viability of the potash reserves in the mine in the United Kingdom, which resulted in a reduction in the ore
reserves from 16.9 million tons of ore in December 2014 to 7.5 million tons as at September 30, 2015.
6
different factors, including the commodity prices, currency exchange rates, weather and regulation.
15
ICL estimates that global potash shipments in 2015 will decline compared with 2014, mainly due to lower
demand in North America and Brazil6. Moreover, in India and China a slowdown in imports was recorded
towards the end of the third quarter and it is expected to continue in the fourth quarter. In China, the main
reason for the decline is due to imposition of VAT at the rate of 13%, which led to an increase in potash prices
and created uncertainty. In India the slowdown stems from a devaluation of the local currency and a decrease
in consumption due to the shortfall in the Monsoon rains. The slowdown in potash demand globally triggered a
downward trend in potash prices, and recently a number of leading producers announced that they will cut
back the level of production.
These reserve estimates were calculated using the same assumptions (including cut-off grade and average
market price) that were used in presenting reserves in the Form 20-F for 2014 as described under Item 4.D
“Property, Plant and Equipment—Reserves.” This change is the result of depletion due to continuing mining
activities, changes in geological interpretation and no new conversion of resources to reserves from ongoing
exploration activities. In light of the updated reserve estimates and assuming annual potash production capacity
of about 600 thousand tons and no conversion of resources into reserves, the potash production activities in the
United Kingdom are expected to conclude in 20187.
In ICL’s mine in the United Kingdom, there are vast resources for the purpose of increased production of
polysulphate (a mineral used in its natural form as a fertilizer for agriculture, a fertilizer for organic agriculture
and a raw material for production of specialty fertilizers), the sale of which in commercial quantities began in
2012. The Company plans to improve the production capabilities and sales to the level of one million tons by
20208.
Set forth below is an estimate of the potash reserves and the average percentage of the KCI quality, updated as
at September 30, 20159:
Classification of the Reserve
Millions of Metric Tons
Average Quality (KCI %)
6
2
8
34
35
34
Proven
Probable
Total proven and probable
As a result of that stated above, ICL accelerated the depreciation of the facilities of ICL U.K used for the
production of potash, and accordingly, the depreciation expenses will increase in the second half of 2015 by $6
million.
ICL intends to implement various strategies to optimize its ICL U.K facilities in light of the shorter reserve life
and the goal to increase polysulphate production.
different factors, including the commodity prices, changes in geological interpretations, changes in new conversions of
resources into reserves and production capacity in the mine.
different factors, including the commodity prices, demand, currency exchange rates and production capacity in the mine.
9 The estimates regarding the estimate of the reserves constitute “forward-looking” information, within the meaning thereof
in the Securities Law. These estimates may not be realized or may be realized in a different manner, even significantly, as
a result of different factors, including the commodity prices, changes in geological interpretations, changes in new
conversions of resources into reserves and production capacity in the mine.
different factors, including the manner of implementation of the efficiency plan, changes in the business environment in
which ICL operates, currency exchange rates and regulation.
7
16
In light of that stated above, ICL commenced a process of implementation of an efficiency plan whereby it is
taking action to reduce the number of employees. The impact on the financial statements of reducing the
number of employees is not expected to be material10.
(Cont.)
During the third quarter of 2015, a trend of declining demand for bromine-based flame retardants for the
printed circuit boards market was discernable, compared with 2014, this being in light of the economic
situation in China and postponement of purchasing as a result of a fall in the BPA (Bisphenol A) prices at a
time when the TBBA prices remained relatively stable at an elevated level. In addition, the demand in the
television market weakened due to the general economic conditions and inventory destocking along the supply
chain. In addition, there was a decrease in demand for other bromine-based products as a result of the
weakening of the demand in the Agrochemicals markets and strong competition in the polyester fibers
industry. During the quarter, there was relatively high demand for clear brine fluids for oil drilling despite the
drop in the worldwide oil prices, in light of demand in Africa, South America and the Gulf of Mexico, as
opposed to a slowdown in the North Sea area. In addition, growth was recorded in the sales of bromine
compounds for mercury emission control (Merquel), while the demand for flame retardants in the market of
connectors for electricity and vehicles remained stable.
The prices of elemental bromine in China increased in the third quarter of 2015, compared with the
corresponding period last year. The prices of elemental bromine in the United States and Europe continued to
be characterized by relative stability.
Sales of phosphorous-based flame retardants were unfavorably impacted by the weakening of the euro against
the dollar and as a result of an increase in competition from Chinese manufacturers.
Sales of ICL Food Specialties in the third quarter of 2015 were favorably impacted by the integration of
Prolactal, partly offset by lower sales in Eastern Europe, the financial crisis in Russia which resulted in the
ruble depreciation and weaker sales in North America as large food companies experienced slower sales as
consumer preferences and the market becomes more diversified. ICL Food Specialties strategy is targeted at
meeting consumer demand for healthier food with higher protein content while maintaining favorable texture
and stability. The acquisition of Prolactal in 2015 which expanded ICLs protein ingredient portfolio
contributed to Food Specialties growth.
Demand for ICL’s Advanced Additives remained relatively stable in the third quarter of 2015. The U.S
phosphoric acid market continues to experience competitive price pressure from increased imports from China.
The upcoming ban of using STPP in Automatic Dishwasher detergents in Europe has resulted in
reformulations and STPP volume decline. Sales of phosphoric acid were favorably impacted by the
contribution of Fosbrasil which was acquired at the end of 2014.
17
In the nine months ended on September 30, 2015, there was a decline in demand for bromine based biocides
used for oil and gas drillings due to a decrease in drilling activities in North America as a result of the fall in
oil and gas prices. On the other hand, a new regulation in Europe requires manufacturers to register and
confirm biocide products, and thus removes competitors from the market that did not take action and invest in
execution of the said registration process, which creates a business opportunity.
(Cont.)
The P2S5 business declined from prior year primarily due to lower volume as a result of maintenance
shutdowns in Europe (which are expected to impact North America in the fourth quarter of 201511) and a
generally weaker market.
Demand for forest fire prevention products significantly increased due to historically high wildfire activity in
the northwestern United States and Canada during the third quarter, as well as significant increase in
customers' tanker capacity in the U.S.
Divestitures of non-core businesses in the first nine months of 2015 contributed $197 million to the income.
The weakening euro against the dollar had a negative impact on sales in the period of the report, which was
mostly offset by a decline in the costs in dollar terms in Europe.
ICL’s financial position and sources of financing
As at September 30, 2015, the net financial liabilities of ICL amounted to $2,668 million, an increase of $9
million compared with the balance at the end of 2014.
ICL's sources of financing are short-term and long-term bank loans, mostly from international banks and Israeli
institutions, debentures and securitization of customer receivables, whereby some of the Group companies sell
customer receivables in return for provision of a credit facility. The total amount of the securitization
framework and credit facility deriving therefrom amounts to $405 million (for additional information regarding
the new securitization framework – see Note 6 to the consolidated financial statements). As at September 30,
2015, ICL had used $316 million of the securitization facility.
Subsequent to the date of the financial statements, ICL increased its long term debt to fund the payment of its
share of the YPH J.V. as well as consolidating the J.V.’s debt, in the total amount of approximately $400
million.
Subsequent to the date of the financial statements, on October 29, 2015, Standard & Poor’s Ratings Services
revised its rating outlook of the Company’s credit, which is rated BBB (together with the rating of the
debentures) from stable to negative. In addition, subsequent to the date of the financial statements, on
November 22, 2015, Standard and Poor’s Maalot (a local rating company) announced that ICL’s credit rating
(ilAA with a stable rating outlook) remained unchanged.
11
different factors, including the rate of return to normal activities in the production plant, currency exchange rates,
competition, demand and changes in the business environment in which ICL operates.
18
ICL also has long-term credit facilities of $1,740 million and € 127 million, of which $878 million has not
been used as of September 30, 2015.
(Cont.)
ICL’s financial position and sources of financing (Cont.)
Set forth below are the main changes in the cash flows in the period of the report and in the third
quarter of 2015 compared with the corresponding periods last year:
For the
Three Months Ended
Nine Months Ended
September 30
September 30
2015
2014
2015
2014
In Millions of U.S. Dollars
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by (used in) financing
activities
Year Ended
December 31
2014
124
(161)
295
(241)
515
(229)
583
(748)
893
(996)
28
(32)
(195)
177
(70)
Set forth below are the highlights of the changes in the cash flows in the third quarter of 2015, compared
with the corresponding period last year:
Net cash provided by operating activities:
In the third quarter of 2015, the cash flows provided by operating activities decreased compared with the
corresponding period last year by approximately $171 million. This decrease stems from the decline in income,
an increase in the working capital, the impact of the strike, payment of royalties relating to prior periods and
payments relating to retirement of employees.
In the third quarter of 2015, the cash flows used in investing activities decreased compared with the
corresponding period last year, by approximately $80 million. This decrease is attributable mainly to a decline
of $42 million in the investments in property, plant and equipment, a decrease in investments and short-term
deposits, in the amount of approximately $18 million, and business combinations made in the corresponding
period last year, in the amount of approximately $16 million.
Net cash provided by (used in) financing activities:
In the third quarter of 2015, there was an increase of approximately $60 million in the cash flows provided by
financing activities compared with the corresponding period last year. This increase derives mainly from
utilization of short-term and long-term credit, in the amount of approximately $66 million.
Events Occurring during the Period of the Report and Thereafter
1.
Regarding the agreement, which was signed on May 28, 2015, between Dead Sea Works Ltd. (“DSW”)
and Bromine Compounds Ltd. ("Bromine Compounds"), and the General Workers’ Union (“the
Histadrut”), the Dead Sea Works Council and the Workers Council of Bromine Compounds, which
concludes the work strike, and the legal proceedings pending between the parties, and which allows the
immediate return of the workers to a full work schedule – see Note 6B(1) to the financial statements.
19
Net cash used in investing activities:
(Cont.)
2.
Regarding completion of the alumina, paper and water industry (APW) transaction, the thermoplastic
products for the footwear industry (Renoflex) and the hygiene products for the food industry
(Anti-Germ), and as a result of which ICL recognized a gain of about $209 million (about $158 million
net of tax) – see Note 6B(2) to the financial statements.
3.
Regarding completion of the acquisition of Prolactal, a leading European company in the area of
production of milk proteins for the food and beverage industry – see Note 6B(3) to the financial
statements.
4.
Regarding completion of the acquisition of Allana Potash, an advanced company in the area of
acquisition and development of potash assets, the shares of which are traded on the Toronto Stock
Exchange – see Note 6B(4) to the financial statements.
5.
On March 23, 2015, ICL entered into an agreement with a group of eleven international banks, which
will provide to ICL a revolving credit facility in the total amount of $1,705 million. For additional
details – see Note 6B(6) to the financial statements.
6.
Regarding completion of establishment of the joint venture (“YPH JV”) with Yunnan Phosphate
Chemicals Group Corporation Ltd. (“YTH”), the leading phosphate producer in China – see Note 6B(5)
to the financial statements.
7.
In July 2015, some of ICL’s subsidiaries signed a securitization agreement with respect to customer
receivables with three international banks, in the amount of $405 million. This agreement replaces the
prior securitization agreement, in the amount of $350 million. For details – see Note 6B(7) to the
financial statements.
8.
Regarding issuance of options and restricted shares to the Chairman of ICL’s Board of Directors, ICL’s
CEO, officers, senior employees and directors of ICL, as well as the terms of employment of the
Chairman of ICL’s Board of Directors – see Note 6B(8)–(10) to the financial statements.
9.
In April 2015, AkzoNobel (AkzoNobel Industrial Chemicals) and ICL Iberia signed an agreement for
production and marketing of high-quality vacuum salt. The production will be performed by ICL while
the marketing will be performed by AkzoNobel, in the amount of 1.5 million tons per year. An
additional 50 thousand tons per year of white potash will be produced and marketed by ICL. High purity
vacuum salt is used in a variety of applications by the chemicals industry, as well as the food and feed
industries, and also for water treatment applications. The vacuum salt will be produced by ICL Iberia
and sold by AkzoNobel Industrial Chemicals by way of an off-take agreement for acquisition of the
partnership's products. According to the agreement, ICL will finance and construct two production
plants at its mining facility located in Suria in Catalonia, Spain. Each plant will have a production a
capacity of 750 thousand tons of vacuum salt per year. Construction of the first plant is scheduled to be
completed in 2015 and the second plant is supposed to be ready in 2017. Construction of the plants, with
a capital investment of €175 million, is included in ICL's previously announced investment as part of the
“Phoenix” project, for developing and increasing ICL’s production capacity at ICL Iberia in Spain.
20
Events Occurring during the Period of the Report and Thereafter (Cont.)
(Cont.)
Events Occurring during the Period of the Report and Thereafter (Cont.)
10.
ICL is examining options to build or to buy a potassium nitrate production plant to enable an increase in
the production of soluble fertilizers and food-grade phosphoric acid. ICL’s examination is in line with its
‘Next Step Forward’ growth strategy to meet anticipated increased need for soluble specialty fertilizers,
as well as for food-grade phosphoric acid. Potassium nitrate is a major component in liquid and water
soluble fertilizers, as well as in several other industrial applications.
11.
Regarding an assessment from the Taxes Authority for 2009-2011 and appeal of the assessment by ICL
– see Note 7B(1) to the financial statements.
12.
Regarding the agreement between ICL Iberia (IBP), the Spanish subsidiary, and the Government of
Catalana, regarding assurance of continuation of the potash mining activities in Catalana and
arrangement of removal of the salt pile on the company’s site in Sallent, including completion of the
plan for restoration of the site – see Note 7B(7) to the financial statements. In addition to that stated in
the ICL Section Paragraph 4 of the Annual Report for 2014 (d. Main Property, Plant and Equipment,
Land and Facilities), in connection with Reserva Catalana, ICL is in the process of extending a number
of concessions in the region for an additional 30 years. To the best of ICL’s knowledge, most of the
government approvals have been received during the past several days and the rest of the approvals are
expected to be received in the near future.
13.
Regarding additional contingent liabilities against ICL – see Notes 7B(1)–(11)to the financial
statements.
In the nine-month period ended on September 30, 2015, there were no material changes in the risk factors
previously disclosed in our annual report on Form 20-F for the year ended December 31, 2014. Nonetheless,
further to that stated in the annual financial statements (Form 20-F), on August 6, 2015, the Government of
Israel adopted the conclusions of the Sheshinski Committee for determination of the State's share in national
natural resources (the Sheshinski 2 Committee) as part of the State’s budget Law, along with authorization of
several government officials, to make agreed changes in the conclusions prior to the proposed draft legislation
being placed before the Knesset. Concurrently, the Knesset’s Finance Committee commenced discussion of the
proposed draft legislation, and on November 8, 2015, it voted in favor of its approval. The proposed draft
legislation still requires approval by the plenary Knesset. Subsequent to the date of the report, on
November 18, 2015, the Knesset approved the proposed Law for Taxation of Profits from the Natural
Resources, in the format in which it was approved by the Knesset Finance Committee on November 8, 2015.
The said Law represents application of the recommendations of the Sheshinski Committee.
21
Risk factors
(Cont.)
Risk factors (Cont.)
The net impact of the Law on ICL’s annual profits in the upcoming years depends, to a significant extent, on
the potash prices that will exist in those years, this being from the date the Law enters into effect, which is
expected to be commencing from 2016 for natural resources other than potash and commencing from 2017 for
potash. Assuming the potash prices that prevailed in 2015, in the estimation of ICL the net impact of the Law
on ICL’s annual profits is expected to be lower12 than a net impact of $90-$100 million, regarding the potash
price that existed in 2013 as reported by ICL on November 12, 2015. The final version of the Law has not yet
been published and, accordingly, the highlights thereof will be published by ICL in a supplementary report
shortly after its publication and after ICL has had a chance to analyze it.
Further to that stated in the Form 20-F for 2014, regarding the magnesium plant – on November 11, 2015, the
Company’s Board of Directors decided to postpone for one year the decision with respect to the continued
operation of the magnesium plant until final clarification of the tax effects, royalties, and cost of participation
in the management services of the electricity system that are expected to be imposed on the plant.
OIL REFINERIES LTD.
Commencing from January 1, 2011, ORL applies, after making early adoption, the provisions of IFRS 9
(2010), and has commenced making early adoption, starting from the third quarter of 2014, of the amendment
to the Standard IFRS 9 (2013). The Corporation has not made early adoption of the said Standards, and it
makes reconciliations to the books of ORL in its financial statements. The data below includes impacts from
early adoption of the Standards, as stated.
ORL completed the third quarter with income of about $23 million, compared with income of about
$15 million in the corresponding period last year. Without the impact of IFRS 9 (2013), ORL finished the
period of the report with income of about $19 million, compared with income of about $7 million in the
corresponding period last year.
The average price of Brent crude oil (“Brent”) in the third quarter of 2015 was $50.5 per barrel, substantially
lower than in the corresponding period last year –$101.9 per barrel.
12
different factors, including the manner of implementation of the Committee’s recommendations and the language of the
final version of the legislation.
22
Results of operations for the period July – September 2015
OIL REFINERIES LTD. (Cont.)
In the first half of 2014, the Brent price increased and in June it reached a record high of $115.3 per barrel.
Commencing from the second half of 2014, the Brent price dropped sharply, falling to a level of $55 per barrel
as at December 31, 2014. In January 2015, the Brent price continued to fall, reaching $45 per barrel. Later on,
the price increased and reached $61 per barrel at the end of the second quarter. In the third quarter of 2015,
there was a significant drop in the Brent price due to a worsening of the macro-economic data in Asia and
signing of the nuclear agreement with Iran. At the end of the period of the report, the Brent price stood at $47.3
per barrel.
In order to present the results of ORL’s activities on an economic basis as well, and for purposes of
comparison with the benchmark margin, the accounting effects in the fuel segment are adjusted and presented
in a way that ORL believes will allow better understanding of its performance and closer comparison with the
benchmark margin (regarding the components of the adjustment – see below).
7–9/2015
7–9/2014
Accounting Adjusted Accounting
*Adjusted
$ millions
Sales
Operating income – segments
Operating income
Taxes on income
Net income
1,349
56
54
(27)
(4)
23
1,349
135
133
(27)
(4)
102
2,443
38
58
(32)
(11)
15
2,443
67
87
(32)
(11)
44
* Restated using the updated adjustment method for comparison. In the fourth quarter, of 2014 ORL revised the
method of computation for part of the adjustment components in the fuels segment. For further information, see the
ORL section in the 2014 Directors’ Report.
The sales in the fuels’ segment amounted to about $1,171 million in the third quarter, compared with about
$2,238 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 dropped in the third
quarter to about $464, compared with about $854 in the corresponding period last year – mainly due to the
global decline in fuel prices.
Domestic consumption of distillates (fuel for transportation, industry and heating) rose by 6% compared with
the corresponding period last year. Transport fuel consumption (gasoline, diesel fuel and kerosene) increased
by 9% compared with the corresponding period last year when there was a decrease in fuel consumption due to
the “Tzuk Eitan” military operation.
Sales in the petrochemical segment in the third quarter of 2015 amounted to about $321 million, compared
with about $469 million in the corresponding period last year, a decrease of $148 million. The decrease is
mainly due to a decrease of about $59 million in the selling prices of polymers and a decrease of about $6
million in sales volume. The decrease also stems from a decline in prices in the aromatic activities of about
$49 million and a decline in the quantities sold of about $27 million. The above-mentioned total sales include
intercompany sales.
23
ORL’s total sales in the third quarter totaled about $1,349 million, compared with about $2,443 million in the
The adjusted consolidated operating income in ORL’s activity segments in the third quarter amounted to about
$135 million, compared with about $67 million in the corresponding period last year. The increase in the
adjusted operating income derived mainly from an increase in the refining margin/contribution, in the amount
of about $77 million, while on the other hand, there was a decrease in the operating expenses of about
$7 million.
During the second quarter of 2015, ORL shutdown some of its continuation facilities for purposes of
performing periodic maintenance, which was concluded at the beginning of the third quarter. In ORL’s
assessment, the estimate of the total lost profits caused as a result of performance of the periodic maintenance
in the said quarter is about $47 million (about $27 million in the fuels segment and about $20 million in the
polymers segment).
The adjusted EBITDA of ORL in the third quarter, amounted to about $167 million, compared with adjusted
EBITDA of about $95 million in the corresponding period last year.
Set forth below are the adjusted components in the fuels’ sector:
July–September
2015
*2014
$ millions
Increase (decrease) in the accounting income
Expenses from timing differences (1)
Income from adjustment of value of inventory to market value, net (2)
Expenses (income) from the effect of changes in fair value of derivatives (3)
Total adjustments in the fuels’ segment
*
48
3
28
79
31
18
(20)
29
Restated using the updated adjustment method for comparison. In the fourth quarter of 2014, ORL revised the
method of computation for part of the adjustment components in the fuels’ segment. For additional information
– see the ORL section in the Directors’ Report for 2014.
(2) Expenses (income) arising from changes in the accounting provision for adjustment of hedged inventory to
market value and expenses (income) from changes in accounting provision for impairment of unhedged
inventory, at the end of the period of the report.
(3) Expenses (income) arising from changes in the revaluation of the fair value of open positions that do not relate
to hedged inventory (hedging transactions on future cash flow exposure for purchase of base inventory and
hedging of refining margins).
It is noted that there are differences in a number of parameters between ORL’s refining margin and the
benchmark margin. These include composition of crude oil (ORL also refines crude oil types that are not Ural),
composition and quality of products produced by the refineries, the energy source used for refining, and the
difference generated due to the fact that the quote takes into account purchase and sale on the same day, while
in practice, there is a gap between the purchase date of the crude and the selling date of distillates produced
from the crude oil. Comparison to the benchmark margin could provide insight in relation to development
trends of ORL’s refining margin, and does not constitute a precise parameter for estimating ORL’s refining
margin in the short term.
24
(1) Expenses (income) arising from changes in the value of unhedged inventory. In accordance ORL’s policy, ORL
does not hedge the inventory of up to 430 thousand tons.
Set forth below is data and the impact thereof on the refining margins (dollars per ton):
July–September
2015
*2014
Accounting margin
Adjustments in the fuels’ segment
Adjusted margin
33.3
32.9
66.2
27.4
12.4
39.8
Adjusted margin – dollar per barrel
9.1
5.4
Benchmark margin – dollar per barrel
4.9
3.4
* Restated using the updated adjustment method for comparison.
In the third quarter of 2015, the gap between ORL’s refining margin and the benchmark margin narrowed due
to the shutdown of part of the downstream plants until conclusion of the periodic maintenance services during
July, as stated above, and the breakdowns that occurred in part of the downstream plants (plants that are not
crude refining plants).
In the third quarter of 2015, the adjusted refining margins increased to $9.1 per barrel, compared with $5.4 per
barrel in the corresponding period last year. The main factors explaining the increase in the refining margin
compared with the corresponding period last year are: a rise in the benchmark margin by about $1.5 per barrel;
ORL benefited from substantial market opportunities by purchasing and accordingly optimizing the raw
material mix; the operating improvements introduced in ORL and high utilization of facilities.
The net financing expenses in the third quarter amounted to about $27 million, compared with about $32
million in the corresponding period last year. Without the impact of IFRS 9 (2013), which is not applied by the
Corporation, the net financing expenses in the period of the report amounted to about $31 million, compared
with about $41 million in the corresponding period last year.
ORL completed the period of the report with income of about $208 million, compared with income of about
$23 million in the corresponding period last year. Without the impact of IFRS 9 (2013), ORL finished the
period of the report with income of about $211 million, compared with income of about $14 million in the
The average price of Brent crude oil (“Brent”) in the period of the report was $55.3 per barrel, substantially
lower than in the corresponding period last year, $106.5 per barrel
In order to present the results of ORL’s activities on an economic basis as well, and for purposes of
comparison with the benchmark margin, the accounting effects in the fuel segment are adjusted and presented
in a way that ORL believes will allow better understanding of its performance and closer comparison with the
benchmark margin (regarding the components of the adjustment – see below).
25
Results of operations for the period January – September 2015
1–9/2015
1–9/2014
Accounting Adjusted Accounting
*Adjusted
$ millions
Sales
Operating income – segments
Operating income
Taxes on income
Net income
4,306
380
358
(105)
(46)
208
4,306
477
455
(105)
(46)
305
7,164
143
145
(102)
(20)
23
7,164
157
159
(102)
(20)
37
* Restated based on the updated adjustment method for comparative purposes.
ORL’s total sales in the period of the report totaled about $4,306 million, compared with about $$7,164
million in the corresponding period last year.
The sales in the fuels’ segment amounted to about $3,741 million in the period of the report, compared with
about $6,594 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 dropped in the
period of the report to about $502, compared with about $884 in the corresponding period last year – mainly
due to the global decline in fuel prices.
Domestic consumption of distillates (fuel for transportation, industry and heating) rose by 7% compared with
the corresponding period last year. Transport fuel consumption (gasoline, diesel fuel and kerosene) increased
by 7% compared with the corresponding period last year.
The adjusted consolidated operating income in ORL’s segments in the period of the report amounted to about
$477 million, compared with about $157 million in the corresponding period last year. The increase in the
adjusted operating income derived mainly from an increase in the refining margin/contribution, in the amount
of about $311 million.
The adjusted EBITDA of ORL in the period of the report, amounted to about $568 million, compared with
adjusted EBITDA of about $261 million in the corresponding period last year.
26
Sales in the petrochemical segment in the period of the report amounted to about $1,031 million, compared
with about $1,394 million in the corresponding period last year, a decrease of $363 million. The decrease is
mainly due to a decrease of about $183 million in the selling prices of polymers, which was offset by an
increase of about $27 million in sales volume. The decrease also stems from a decline in prices in the aromatic
activities of about $173 million and a decline in the quantities sold of about $11 million. The above-mentioned
total sales include intercompany sales.
Set forth below are the adjusted components in the fuels’ sector:
January–September
2015
*2014
$ millions
Increase (decrease) in the accounting income
Expenses (income) from timing differences (1)
Income from adjustment of value of inventory to market value, net (2)
Expenses (income) from the effect of changes in fair value of derivatives (3)
Total adjustments in the fuels’ segment
*
70
(8)
35
97
29
6
(21)
14
Restated using the updated adjustment method for comparison. In the fourth quarter of 2014, ORL revised the
method of computation for part of the adjustment components in the fuels’ segment. For additional information
– see the ORL section in the Directors’ Report for 2014.
(1) Expenses (income) arising from changes in the value of unhedged inventory. In accordance ORL’s policy, ORL
does not hedge the inventory of up to 430 thousand tons.
(2) Expenses (income) arising from changes in the accounting provision for adjustment of hedged inventory to
market value and expenses (income) from changes in accounting provision for impairment of unhedged
inventory, at the end of the period of the report.
(3) Expenses (income) arising from changes in the revaluation of the fair value of open positions that do not relate
to hedged inventory (hedging transactions on future cash flow exposure for purchase of base inventory and
hedging of refining margins).
Set forth below is data and the impact thereof on the refining margins (dollars per ton):
Accounting margin
Adjustments in the fuels’ segment
Adjusted margin
61.2
13.7
74.9
36.2
2.0
38.2
Adjusted margin – dollar per barrel
10.3
5.2
5.3
1.4
Benchmark margin – dollar per barrel
* Restated using the updated adjustment method for comparison.
In the period of the report, the benchmark margin rose compared with 2014 and on average it stood at $5.3 per
barrel – about $4.9 in the third quarter of 2015. The significant rise in the benchmark margin is, among other
things, due to a decline in crude oil prices, increase in distillate consumption and a decrease in refining
capacity in Europe, which reduced the supply of distillates.
In the period of the report, the adjusted refining margins increased to $10.3 per barrel, compared with $5.2 per
barrel in the corresponding period last year. The main factors explaining the increase in the refining margin
compared with the corresponding period last year are: a rise in the benchmark margin by about $3.9 per barrel;
ORL benefited from substantial market opportunities by purchasing and accordingly optimizing the raw
material mix; the operating improvements introduced in ORL and high utilization of facilities.
The net financing expenses in the period of the report amounted to about $105 million, compared with about
$102 million in the corresponding period last year. Without the impact of IFRS 9 (2013), which is not applied
by the Corporation, the net financing expenses in the period of the report amounted to about $102 million,
compared with about $115 million in the corresponding period last year.
27
April–September
2015
*2014
Other developments in the period of account and thereafter
In the second half of 2014 and in 2015, ORL’s benchmark margin and refining profit rose significantly. Since
2014, ORL has been taking measures for increasing profit margins, including minimizing the scope of
engagements with contractors and service providers, reducing the number of employees in the Group and
completing part of the operational and investment actions planned for improving profit.
ORL is continuing to implement these measures, together with additional measures, to improve profit margins
in ORL and in the Group, and it believes that the contribution of these measures will continue.
ORL’s assessments with regard to the contribution of the foregoing measures for improving the profits of ORL
and the Group constitutes forward-looking information the realization of which is not certain and is not within
the control of ORL alone. Consequently, it is not certain that ORL’s estimates regarding these matters will be
realized, in whole or in part, and this could affect the results of operations in a manner different than ORL’s
estimates.
In the period of the report, ORL issued to the public two new series of debentures (Series E and Series F),
which are not convertible into shares – one denominated in shekels and the other linked to the rate of exchange
of the U.S. dollar, respectively, in the aggregate amount of about $260 million.
Further to ORL’s intention to continue examining taking on the debts of Carmel Olefins to banks and
debenture holders, on October 22, 2015, Carmel Olefins filed a request in the District Court in Haifa for
approval of an arrangement, the purpose of which is replacement of the marketable debentures issued by
Carmel Olefins with a designated series of debentures (Series G), which will be issued by ORL and which will
be backed by a guarantee of Carmel Olefins, the par value and the repayment, linkage and interest terms of
which will be the same as those of the debentures of Carmel Olefins. To the extent the General Meeting of the
debenture holders of Carmel Olefins approves replacement of the debentures and to the extent the replacement
process is completed, Carmel Olefins will cease to be a debenture company, a reporting company and a
different tier company.
For additional details in connection with ORL – see Note 6C to the financial statements.
As at September 30, 2015, the total financial liabilities of the Corporation and of the wholly owned and
controlled headquarters companies (hereinafter – “the Headquarters Companies”) amounted to about $1,905
million. The balance of the options in the financial transaction (hereinafter – “the Collar Options”) The fair
value of the collar transaction and the currency and interest SWAP transactions, mainly in respect of the
debentures, economically reduces the liabilities by the amount of about $51 million and about $2 million,
respectively.
As at the date of the report, the investments of the Corporation and of the Headquarters Companies in liquid
assets amounted to about $338 million. The investments are mainly in short-term deposits.
The net debt of the Corporation and of the Headquarters Companies as at the date of the report was about
$1,514 million, compared with a net debt balance of about $1,133 million and about $1,119 million, as at
September 30, 2014 and December 31, 2014, respectively.
28
SOURCES OF FINANCING AND LIQUIDITY OF ISRAEL CORPORATION AND THE
HEADQUARTERS COMPANIES
SOURCES OF FINANCING AND LIQUIDITY OF ISRAEL CORPORATION AND THE
HEADQUARTERS COMPANIES (Cont.)
In September 2014, the Corporation entered into a financial transaction with financial entities, in connection
with 36.2 million shares of ICL, which were transferred into the name of the financial entities. As part of the
transaction, the financial entities provided the Corporation with an initial amount of about $191 million, which
is essentially a loan. As at September 30, 2015 and December 31, 2014, the balance of the loan, which is
included as part of the Corporation’s net debt, amounted to about $199 million and about $192 million,
respectively.
In January 2015, as part of a structural change of the Corporation’s holdings, the Corporation transferred to
Kenon about $35 million in cash and distributed a cash dividend, in the amount of about $200 million. In
September 2015, the Corporation distributed a cash dividend, in the amount of about $100 million. The
Corporation was in compliance with the financial covenants for distribution of a dividend that were undertaken
to the holders of the debentures. In addition, pursuant to the credit framework between the Corporation and
Kenon, in the period of the report, the Corporation provided Kenon a loan in the amount of $110 million.
In the period of the report, the Corporation and the Headquarters Companies repaid $506 million, of which
current maturities of debentures and loans in the amount of about $91 million (net of hedging transactions in
respect thereof), and it made early repayment of the principal balance of loans, in the amount of about $414
million.
In addition, during the period of the report, the Corporation raised about $115 million by making a private
issuance of debentures (Series 7).
During the period of the report, the Corporation extended the repayment dates of long-term loans, in the
amount of about $150 million, for a period of 5 additional years, and also received a credit facility, the amount
of $50 million, for a period of 5 years. Subsequent to the date of the report, the Corporation withdrew the
amount of the credit facility.
In the period of the report, the Corporation and the Headquarters Companies received dividends, net of tax, in
the amount of about $109 million.
On August 27, 2014, Standard &Poor’s Maalot, announced the provision of a rating of ilA+ to the debentures,
in a total amount of up to NIS 350 million par value, which were issued by the Corporation (ilA+/stable) by
means of expansion of (Series 7).
29
Subsequent to the date of the report, on November 23, 2015, Standard &Poor’s Maalot, announced that the
rating ilA+/stable remains unchanged.
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, 2015
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
COLLAR transactions
IRS transactions
–
–
–
–
–
–
–
–
100
20
–
–
–
–
–
–
More than one year
IRS transactions
–
–
–
–
380
–
(14)
–
–
–
–
–
–
94
–
7
–
–
–
–
–
44
–
(1)
–
16
–
–
–
–
–
–
–
–
–
–
–
292
–
(6)
–
–
–
–
–
88
–
(5)
–
97
–
5
–
–
–
–
–
32
–
1
–
170
–
(8)
Up to one year
SWAP to dollar liability with variable
interest from index-linked liability with
fixed interest
interest from shekel liability with fixed
interest
SWAP to dollar liability with fixed
interest
More than one year
fixed interest
interest
fixed interest
interest
(1) Long – liability for payment in fixed interest; (2) Short – liability for payment in variable interest.
30
Hedging changes in exchange rate
and interest rate on loans
EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT (Cont.)
Corporation’s Consolidated Derivative Positions as at September 30, 2015
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
Transactions hedging energy prices
and shipping fees
–
–
–
–
28
–
(11)
–
–
–
–
–
–
–
–
–
–
–
186
186
–
–
(6)
57
Euro/Dollar
Forward contract
Call options
Put options
–
–
–
–
–
–
–
–
–
–
–
–
–
48
48
381
–
–
–
(1)
2
(1)
–
–
Shekel/Dollar
Forward contract
Call options
Put options
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123
621
621
–
–
–
(1)
(15)
9
Yen/Dollar
Forward contract
Call options
Put options
–
–
–
–
–
–
–
–
–
–
–
–
4
4
4
–
–
–
–
–
–
–
–
–
Pound/Euro
Pound/euro up to one year
Call options pound/euro
Put options pound/euro
–
–
–
–
–
–
–
–
–
–
–
–
–
12
12
27
–
–
–
–
–
–
–
–
Pound/Dollar
Pound/dollar up to one year
Call options pound/dollar
Put options pound/dollar
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29
10
10
–
–
–
(1)
–
–
Chinese Yuan/Dollar
Put options
Call options
–
–
–
–
–
–
–
–
–
–
100
200
–
–
–
2
Up to one year
Transactions hedging share prices –
more than one year
Call options ICL shares
Put options ICL shares
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.
31
Up to one year
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, changes in the prices of goods and services
and changes in the fluctuation of the prices of ICL shares.
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.
32
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, 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.
Sensitivity analyses in respect of changes in market factors (consolidated)
Sensitivity to changes in shekel interest linked to the CPI:
Instrument Type
Debentures
SWAP transactions from
index to dollar*
Total
Increase
(decrease)
in fair value
$ millions
Rise of 100
base points
Increase
(decrease)
in fair value
$ millions
Rise of 50
base points
Fair value
$ millions
Increase
(decrease)
in fair value
$ millions
Fall of 50
base points
Increase
(decrease)
in fair value
$ millions
Fall of 100
base points
22
11
(806)
(11)
23
(15)
7
(8)
3
6
(800)
8
(3)
16
39
Increase
(decrease)
in fair value
$ millions
Rise of 100
base points
Instrument Type
Long-term loans from banks
Debentures
shekel to fixed dollar*
SWAP transactions from index
and shekel to fixed dollar*
Total
Increase
(decrease)
in fair value
$ millions
Rise of 50
base points
9
2
5
1
(2)
(1)
(11)
(2)
(6)
(1)
Fair value
$ millions
Increase
(decrease)
in fair value
$ millions
Fall of 50
base points
Increase
(decrease)
in fair value
$ millions
Fall of 100
base points
(173)
(179)
(5)
(1)
(10)
(2)
(5)
1
2
(8)
(365)
6
1
12
2
* These transactions were entered into for exchange of currency and/or interest rate in respect of the
liabilities.
33
Sensitivity to changes in shekel interest:
Sensitivity analyses in respect of changes in market factors (consolidated) (Cont.)
Sensitivity to changes in fixed dollar interest rate:
Increase
(decrease)
in fair value
$ millions
Rise of 100
base points
Instrument Type
Debentures
SWAP transactions from index
and shekel to fixed dollar*
IRS transactions variable to
fixed*
Call options on ICL
share (sold)
Put options on ICL
share (purchased)
Total
Increase
(decrease)
in fair value
$ millions
Rise of 50
base points
Fair value
$ millions
Increase
(decrease)
in fair value
$ millions
Fall of 50
base points
Increase
(decrease)
in fair value
$ millions
Fall of 100
base points
17
72
9
37
(739)
(1,097)
(9)
(39)
(18)
(79)
15
8
(1)
(8)
(16)
18
9
(15)
(10)
(20)
(1)
–
(6)
–
1
(4)
117
(2)
61
57
(1,801)
2
(64)
4
(128)
Increase
(decrease)
in fair value
$ millions
Fall of 100
base points
Instrument Type
Total
Increase
(decrease)
in fair value
$ millions
Rise of 100
base points
Increase
(decrease)
in fair value
$ millions
Rise of 50
base points
Fair value
$ millions
Increase
(decrease)
in fair value
$ millions
Fall of 50
base points
2
2
1
1
(36)
(36)
(1)
(1)
(2)
(2)
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
(81)
(40)
(806)
40
81
56
(25)
28
(12)
6
(800)
(28)
12
(55)
26
Sensitivity to changes in the CPI:
Instrument Type
Debentures
index to dollar*
Total
Fair value
$ millions
liabilities.
34
Sensitivity to changes in fixed euro interest rate:
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
Instrument Type
Cash and cash equivalents
Trade receivables
Other receivables and debits
Trade and other payables
Other payables and credits
Long-term bank loans
Debentures
shekel to dollar*
Currency options
Forward currency transactions
Call options on ICL
shares (sold)
Put options on ICL
shares (purchased)
Total
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
(2)
(20)
(6)
18
12
16
90
(1)
(10)
(3)
9
6
8
47
20
216
63
(185)
(123)
(173)
(985)
1
11
3
(9)
(6)
(9)
(52)
2
22
6
(18)
(12)
(19)
(109)
(84)
(56)
(11)
(44)
(25)
(6)
(6)
(6)
(1)
49
27
6
103
60
14
2
1
(6)
(2)
(4)
11
(30)
5
(13)
57
(1,129)
(5)
14
(11)
34
Fair value
$ millions
35
liabilities.
Sensitivity to changes in exchange rates: (Cont.)
EURO/USD
Instrument Type
Trade receivables
Other receivables and debits
Credit from banks and others
Currency options
Forward transactions
Total
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
(2)
(25)
(2)
21
15
12
4
5
(42)
(14)
(1)
(13)
(1)
11
7
6
2
2
(20)
(7)
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
(4)
3
2
1
2
(2)
1
1
1
1
Fair value
$ millions
24
253
20
(213)
(146)
(116)
(36)
1
(1)
(214)
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
1
13
1
(11)
(7)
(6)
(2)
(2)
18
5
2
25
2
(21)
(15)
(12)
(4)
(5)
35
7
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
2
(1)
(1)
(1)
(1)
4
(3)
(2)
(1)
(1)
Instrument Type
Trade receivables
Total
36
Fair value
$ millions
42
(30)
(23)
(15)
(26)
£\USD
Chinese Yuan\USD
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
(7)
(1)
(6)
(14)
(4)
–
(2)
(6)
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
Instrument Type
Trade receivables
Other options
Total
Fair value
$ millions
71
7
1
79
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
4
–
7
11
7
1
18
26
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
Sensitivity to changes in share prices:
Instrument Type
Call option on ICL share
(sold)
Put option on ICL share
(purchased)
Total
Fair value
$ millions
(3)
(2)
(6)
1
2
(10)
(13)
(5)
(7)
57
51
6
7
12
14
Increase
(decrease)
in fair value
$ millions
Fall of 5%
Increase
(decrease)
in fair value
$ millions
Fall of 10%
Instrument Type
Call option on ICL share
(sold)
Put option on ICL share
(purchased)
Total
Increase
(decrease)
in fair value
$ millions
Rise of 10%
Increase
(decrease)
in fair value
$ millions
Rise of 5%
(2)
(1)
(6)
1
2
3
1
2
1
57
51
(2)
(1)
(3)
(1)
37
Fair value
$ millions
Sensitivity to changes in fluctuation of the share:
UPDATE REGARDING DESCRIPTION OF THE CORPORATION’S BUSINESS
Set forth below are significant updates and/or changes in the Corporation’s business that occurred from the
publication date of the of the Corporation’s Annual Report for 2014 on March 31, 2015 and up to the
publication date of this report13:
13
To Section 8 of Paragraph A of the Periodic Report – Israel Chemicals Ltd. (hereinafter – “ICL”)
A.
On April 23, 2015, ICL notified that on April 22, 2015 signing of agreements with its customers in
China was completed for supply of potash, in the amount of about 1.1 million tons, which are to be
supplied in 2015. For additional details – see the Corporation’s Immediate Report dated April 26,
2015 (Ref. No. 2015-01-005157).
B.
Regarding ICL’s financial statements as at March 31, 2015 and the presentation to investors
published by ICL as a result thereof – see the Corporation’s Immediate Reports dated May 13,
2015 and May 14, 2015 (Ref. Nos. 2015-01-018579 and 2015-01-019173).
C.
On May 19, 2015, ICL held an investors and analysts day in New York and the presentations it
made there are available in ICL’s Internet site (www.icl-group.com). For details – see the
Corporation’s Immediate Report dated May 18, 2015 (Ref. No. 2015-01-021933).
D.
On May 29, 2015, ICL gave notice of conclusion of the strike and execution of a reorganization
plan. For details – see the Immediate Report dated May 31, 2015 (Ref. No. 2015-01-033651).
E.
On June 1, 2015, ICL gave notice of the Examiner’s Decision regarding the arbitration proceedings
with Haifa Chemicals. For details – see the Immediate Report dated June 2, 2015 (Ref. No.
2015-01-037740).
F.
Regarding the notification of ICL and ORL in connection with a request for certification of a class
action – see the Immediate Report dated June 10, 2015 (Ref. No. 2015-01-044778).
G.
Regarding completion of the Allana Potash transaction – see the Immediate Reports dated June 23,
2015 (Ref. No. 2015-01-054183) and June 16, 2015 (Ref. No. 2015-01-049017).
H.
Regarding a petition to restrict the pumping from the Dead Sea – see the Immediate Report dated
June 17, 2015 (Ref. No. 2015-01-049887).
I.
Regarding a report of sale of potash to customers in India – see the Immediate Report dated
uUne 21, 2015 (Ref. No. 2015-01-052119).
J.
Further to that stated in the annual financial statements, in August 2015, the Government of Israel
decided to include the conclusions of the Sheshinski Committee with respect to taxation of natural
resources as part of the Economic Plan Law for the years 2015-2016 and to authorize a committed
of ministers to make changes in the conclusions prior to a memorandum of a proposed is placed
before the Knesset.
Update of the Corporation’s 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 Corporation’s
business that occurred from the publication date of the Corporation’s Annual Report for 2014 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 Corporation’s Periodic
Report for 2014, which was published on September 30, 2015 (Ref. No. 2015-01-070012) (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.
38
1.
UPDATE REGARDING DESCRIPTION OF THE CORPORATION’S BUSINESS (Cont.)
1.
To Section 8 of Paragraph A of the Periodic Report – Israel Chemicals Ltd. (hereinafter – “ICL”)
(Cont.)
K.
Regarding ICL’s financial statements as at June 30, 2015 and a slide presentation for investors
published by ICL as a result thereof – see the Corporation’s Immediate Reports dated August 12,
2015 (Ref. Nos. 2015-01-095100 and 2015-01-095112, respectively).
L.
Regarding a decision of the Committee of Ministers in connection with the conclusions of the
Sheshinski Committee 2 – see the Corporation’s Immediate Report dated August 23, 2015 (Ref.
No. 2015-01-101805).
M.
Regarding completion of establishment of a joint venture in the area of phosphates in China – see
the Corporation’s Immediate Report dated October 13, 2015 (Ref. No. 2015-01-133320).
N.
Regarding a report of Maalot in connection with the credit rating of ICL – see the Corporation’s
Immediate Report dated November 1, 2015 (Ref. No. 2015-01-145551).
O.
On November 22, 2015, a report of Maalot was published in connection with the credit rating of
ICL (Ref. No. 2015-01-160029).
P.
On November 22, 2015, an Immediate Report was published in connection with the
recommendations of the Sheshinski Committee (Ref. No. 2015-01-159576).
Q.
On November 16, 2015, an Immediate Report was published in connection with completion of an
agreement in Spain (Ref. No. 2015-01-155997).
R.
Regarding ICL’s financial statements as at September 30, 2015 and a slide presentation for
investors published by ICL as a result thereof – see the Corporation’s Immediate Reports dated
November 12, 2015 (Ref. Nos. 2015-01-153915 and 2015-01-153921, respectively).
For additional details regarding ICL’s business developments – see the Corporation’s financial
statements as at September 30, 2015.
To Section 19 of Paragraph D of the Periodic Report – Legal Proceedings
For details regarding legal proceedings in which the Corporation is a party – see Note 7 the
Corporation’s financial statements as at September 30, 2015.
3.
To Section 15 of Paragraph D of the Periodic Report – Financing
A.
On April 30, 2015, the Corporation notified that in accordance with the loan agreement between
the Corporation and Kenon Holdings Ltd. (Kenon), the Corporation will provide Kenon an
additional loan of $65 million. After provision of the additional loan, the total loans provided to
Kenon total $110 million. The balance of the credit framework to Kenon amounts to $90 million.
Pursuant to the loan agreement, Kenon placed a lien in favor of the Corporation on 59.5% of the
issued capital of I.C. Power. For additional details – see the Corporation’s Immediate Report dated
April 30, 2015 (Ref. No. 2015-01-009615).
B.
On April 15, 2015, the Corporation notified ZIM Integrated Shipping Services Ltd. (“ZIM”) of
cancellation of the loan agreement, in the amount of $50 million, due to non-compliance on the
part of ZIM with the conditions provided in the loan agreement. After cancellation of the loan
agreement, there are no liabilities or loans between the Corporation and ZIM. For details – see the
Immediate Report dated April 16, 2015 (Ref. No. 2015-01-000168).
39
2.
4.
5.
To Section 15 of Paragraph D of the Periodic Report – Financing (Cont.)
C.
On August 20, 2015, the Corporation’s Board of Directors decided to distribute a cash dividend in
the aggregate amount of $100 million. (Ref. No. 2015-01-101331).
D.
On August 26, 2015, the Corporation reported that it is considering expansion of the debentures
(Series 7) by means of a private issuance to institutional investors (Ref. No. 2015-01-105942).
E.
On August 27, 2015, a rating report for the Corporation was issued by Maalot (Ref. No.
2015-01-107376).
F.
On August 30, 2015, the Corporation reported private issuance, namely expansion of the
debentures (Series 7) (Ref. No. 2015-01-107772).
G.
On November 23, 2015, the Corporation’s credit rating was published by Maalot (Ref. No.
2015-01-161331).
To Section 26A of the Paragraph “Additional Details regarding the Corporation for 2014”, and
Part E – Report of Corporate Governance, Effectiveness of the Control and Internal Audit
A.
On June 31, 2015, Mr. Shmuel Rosenblum ceased serving as the Corporation’s Internal Auditor.
B.
On June 4, 2015, Mr. Ofer Alkalei commenced serving as the Corporation’s Internal Auditor. For
details – see the Immediate Report dated September 4, 2015 (Ref. No. 2015-01-040350).
To Section 13 of Paragraph D of the Periodic Report – Human Resources, and Section 29B to
the “Additional Details” Paragraph
A.
On July 14, 2015, the General Meeting of the Corporation’s shareholders approved the
remuneration policy for the Corporation’s officers. For details – see the Immediate Report dated
July 14, 2015 (Ref. No. 2015-01-072771).
B.
On July 16, 2015, it was reported that the EVP of Communications and Regulation will cease
serving as an officer on September 30, 2015 (Ref. No. 2015-01-074613).
C.
On August 20, 2015, it was reported that the Acting CFO, at his request, will conclude his position
on November 30, 2015 (Ref. No. 2015-01-101184).
D.
On October 8, 2015, it was reported that the General Meeting approved an update of the
Corporation’s self-participation (deductible) in connection with insurance covering directors and
officers (Ref. No. 2015-01-130458).
E.
On November 25, 2015, it was reported that the EVP of Business Development and Strategy, at
his request, will conclude his position on November 30, 2015.
F.
On November 25, 2015, it was reported that Sagi Kabla was appointed as the CFO, effective from
December 1, 2015.
DISCLOSURE REGARDING THE APPROVAL PROCESS OF THE CORPORATION’S 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 Corporation’s Audit Committee.
40
3.
DISCLOSURE REGARDING THE APPROVAL PROCESS OF THE CORPORATION’S FINANCIAL
STATEMENTS (Cont.)
The Committee has 4 members: Mr. Oded Degani (external director and Chairman of the Board); Mr. Gideon
Langholtz (external director); Ms. Zahavit Cohen (independent director); and Mr. Dan Zusskind (independent
director). Three of the four 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 2014.
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, Michael Bricker and Aviad Kaufman, directors (who participated in the
stage of presentation of the matters only); Avisar Paz, CEO; Natan Yalovsky, Acting CFO; Maya
Alscheich-Kaplan, EVP , Legal Advisor and Corporation Secretary; and Eran Sarig, EVP Business
Development and Strategy. In addition, representative of the auditing CPAs from the Office of KPMG was
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.
As part of the discussions of the Balance Sheet Committee, on November 23, 2015, the Committee examined
the financial statements, by means of a detailed presentation by the Corporation’s CEO and Acting 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 Corporation’s significant matters. In addition, an in-principle and comprehensive discussion was held of
the significant reporting issues.
The Corporation’s Board of Directors believe that the recommendations of the Balance Sheet Committee,
which were provided on November 23, 2015, were provided a reasonable time prior to the meeting of the
Board of Directors (which in the opinion of the Board of Directors is usually 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 Committee’s 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 Corporation’s CEO and
Acting CFO of the Corporation’s financial statements, its financial results and the significant issues in the
financial report relating to the statements.
After the Board of Directors was satisfied that the financial statements properly reflect the Corporation’s
financial position and results of operations, the Corporation’s Board of Directors decided on November 25,
2015, to approve the Corporation’s 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.
41
The Committee’s discussions were based on the material presented to its members with respect to the relevant
matters by the Corporation’s 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 Corporation’s outside auditing CPAs addressed these issued during the Committee’s discussions
and presented the main findings that were found during the review process. In the Committee’s discussions, the
following persons participated: Oded Dagani, Zahavit Cohen, Gideon Langholtz and Dan Zusskind.
ADDITIONAL INFORMATION
For data regarding the Corporation’s liabilities – see the Immediate Report regarding the position of the
liabilities based on repayment dates published by the Corporation on November 25, 2015 (Ref.
No. 2015-01-163413), where the information included in that Report is included herein by reference.
ADDITIONAL INFORMATION INCLUDED IN THE AUDITORS’ REVIEW REPORT
Set forth below is a quote from the Auditors’ Review Report:
Without qualifying our opinion as stated above, we direct attention to:
That stated in Notes 7.C.1 and 5 regarding certain legal proceedings and other contingencies against ORL and
its subsidiaries, 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 Corporation’s 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
Group’s operations.
____________________________
Ron Moshkovitz
Chairman of the Board of Directors
____________________________
Avisar Paz
CEO
42
November 25, 2015
Condensed Consolidated Interim Financial Statements
(Unaudited)
Condensed Consolidated Interim Financial Statements
At September 30, 2015
Unaudited
Contents
Page
Condensed Consolidated Interim Statements of Financial Position
2
3–4
Condensed Consolidated Interim Statements of Income
5
Condensed Consolidated Interim Statements of Comprehensive Income
6
Condensed Consolidated Interim Statements of Changes in Equity
7–9
Condensed Consolidated Interim Statements of Cash Flows
10 – 12
Notes to the Condensed Consolidated Interim Financial Statements
13 – 50
Auditors’ Review Report
Somekh Chaikin
Telephone
Fax
Internet
KPMG Millennium Tower
17 Ha'arba'a Street, PO Box 609
Tel Aviv 61006 Israel
972 3 684 8000
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, 2015 and the condensed
consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the
nine-month and three-month periods then ended. 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.
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
Based on our review, 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.
Without qualifying our above-mentioned conclusion, we direct attention to:
That stated in Note 7.C.1 and 5 regarding certain legal proceedings and other contingencies against ORL and its
subsidiaries, 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 25, 2015
Somekh Chaikin, a partnership registered under the Israeli Partnership
Ordinance, is the Israeli member firm of KPMG International, a Swiss
cooperative.
2
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.
Current Assets
Short-term investments, deposits and loans
Trade receivables
Other receivables and debit balances, including derivative
instruments
Income taxes receivable
Inventories
Assets of realization group classified as intended for
distribution
Assets of realization group classified as held for sale
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
461
170
883
791
1,289
1,364
637
780
1,039
223
230
1,184
241
214
1,352
177
150
1,335
–
48
3,199
--------
–
251
5,502
---------
4,003
225
8,346
---------
667
–
126
58
1,132
1
53
70
613
–
12
26
71
162
58
4,073
1,234
6,449
--------
67
171
56
6,424
1,086
9,060
---------
66
158
57
3,996
1,008
5,936
---------
9,648
14,562
14,282
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
3
At September 30
At December 31
2015
2014
2014
(Unaudited)
(Audited)
At September 30
At December 31
2015
2014
2014
(Unaudited)
(Audited)
Non-Current Liabilities
Loans from banks and others
Debentures
Provisions
Deferred taxes, net
Employee benefits
Total non-current liabilities
Total liabilities
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
Holders of non-controlling interests
Total equity
Total liabilities and equity
____________________________
Ron Moshkovitz
851
544
42
1,198
769
32
862
585
36
494
83
819
54
739
42
–
–
16
2,030
--------
59
2,931
---------
2,877
51
5,192
---------
2,182
1,832
32
99
362
588
5,095
--------
4,386
1,813
27
106
428
707
7,467
---------
2,524
1,833
46
102
287
663
5,455
---------
7,125
--------
10,398
---------
10,647
---------
314
(116)
308
25
308
(25)
190
520
908
176
1,801
2,310
190
1,360
1,833
1,615
1,854
1,802
2,523
--------
4,164
---------
3,635
---------
9,648
14,562
14,282
___________________________
Avisar Paz
CEO
__________________________
Natan Yalovsky
Acting CFO
Approval date of the financial statements: November 25, 2015
4
Current Liabilities
Trade payables
Provisions
Other payables and credit balances, including derivative
instruments
Income taxes payable
Liabilities of realization group classified as intended for
distribution
Liabilities of realization group classified as held for sale
Total current liabilities
Condensed Consolidated Interim Statements of Income
Year Ended
December 31
2014
(Audited)
Sales
Cost of sales
3,978
2,718
4,708
3,028
1,379
892
1,560
984
6,111
3,918
Gross profit
1,260
1,680
487
576
2,193
21
166
86
31
(58)
23
216
85
2
(2)
Research and development expenses
Selling, transportation and marketing expenses
Administrative and general expenses
Other expenses
Other income
Operating income
Financing expenses
Financing income
57
472
249
131
(300)
651
-------218
(68)
67
645
248
176
(11)
555
-------311
(143)
241
-------113
(39)
252
-------153
(97)
87
841
335
273
(53)
710
-------500
(233)
150
--------
168
--------
74
--------
56
--------
267
--------
85
--------
20
--------
13
--------
8
--------
(17)
--------
Income before taxes on income
586
407
180
204
426
Taxes on income (tax benefit)
(15)
141
42
75
179
Income for the period from continuing
activities
601
266
138
129
247
Income from discontinued operations (after
tax)
–
575
–
682
174
Income for the period
601
841
138
811
421
Attributable to:
Owners of the Corporation
Holders of non-controlling interests
390
211
637
204
76
62
719
92
173
248
601
841
138
811
421
51.32
83.86
10.06
94.66
23.60
Share in income (losses) of associated
companies accounted for using the equity
method of accounting
Income per share attributable to the
owners of the Corporation: (in dollars)
Basic and diluted income per share
* Reclassified – see Note 5A.
5
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(Unaudited)
Condensed Consolidated Interim Statements of Comprehensive Income
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
*2014
2015
*2014
(Unaudited)
(Unaudited)
601
-----
841
-----
(168)
(146)
Year Ended
December 31
2014
(Audited)
811
-----
421
-----
(37)
(144)
(221)
138
-----
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
Net change in fair value of cash flow hedges
transferred to the statement of income
2
9
6
10
6
Group’s share in other comprehensive income
(loss) of companies accounted for using the
equity method of accounting
1
(2)
(1)
(1)
1
Effective portion of the change in fair value of
cash flow hedges
(4)
(16)
(9)
(13)
(18)
Components of other comprehensive loss from
discontinued operations
–
(40)
–
(36)
(50)
(169)
------
(195)
------
(41)
------
(184)
------
(282)
-----
(9)
(38)
(103)
Total
Actuarial gains (losses) from defined
benefit plans, net
31
(97)
Income taxes in respect of components of other
comprehensive income
(9)
23
–
9
24
Components of other comprehensive loss from
–
(4)
–
2
(4)
22
------
(78)
------
(9)
------
(27)
------
(83)
-----
(147)
------
(273)
------
(50)
------
(211)
------
(365)
-----
Comprehensive income for the period
454
568
88
600
56
Attributable to:
Owners of the Corporation
Holders of rights non-controlling interests
318
136
477
91
49
39
594
6
(39)
95
454
568
88
600
56
Total
Other comprehensive loss for the period,
net of tax
Comprehensive income for the period
 Reclassified – see note 5A
6
Components of other comprehensive income
(loss) that will not be recognized in future
periods in the statement of income
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
equity
1,802
3,635
12
12
Total
For the nine months ended
September 30, 2015
Balance at January 1, 2015
(audited)
Share-based payments in a
subsidiary
Expiration and waiver of options
granted to employees in the
Corporation
Share-based payments in the
Corporation
Dividend to holders of
non-controlling interests in a
subsidiary
Dividend to equity holders
(see Note 5 and 6A)
Loss of control due to split up
of holdings (see Notes 5)
Issuance of shares of a
subsidiary to holders of
non-controlling interests
Other comprehensive income
(loss) for the period, net of tax
Balance at September 30, 2015
308
(70)
45
190
1,360
1,833
–
–
–
–
–
–
–
(6)
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
(1,250)
(1,250)
–
(30)
26
–
4
–
–
–
–
–
–
–
–
5
390
–
(81)
(2)
–
314
(181)
65
300
87
–
6
–
2
–
–
2
(135)
–
–
(135)
(1,250)
(212)
(212)
5
390
12
211
17
601
11
(72)
(75)
(147)
190
520
908
1,615
2,523
59
176
1,063
1,685
2,030
3,715
–
–
–
–
–
9
9
–
(8)
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(356)
(77)
(356)
(77)
–
–
–
–
–
–
38
38
–
(4)
–
–
147
143
100
243
–
–
–
–
–
–
–
–
–
637
–
637
19
204
19
841
–
308
(111)
(28)
(3)
53
–
176
(46)
1,801
(160)
2,310
(113)
1,854
(273)
4,164
(audited)
subsidiary
Expiration of options granted to
employees in the Corporation
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Loss of control of subsidiary
Non-controlling interests in
respect of business combination
Sale of shares of subsidiary while
retaining control
Issuance of shares of a subsidiary to
holders of non-controlling interests
Other comprehensive loss for
the period, net of tax
8
–
5
–
7
–
5
For the nine months ended
September 30, 2014
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
equity
1,597
2,556
5
5
Total
For the three months ended
September 30, 2015
Balance at July 1, 2015
(audited)
subsidiary
308
(162)
74
190
549
959
–
–
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
–
(100)
–
(100)
(27)
–
(27)
(100)
–
–
–
–
–
–
–
–
–
76
–
76
1
62
1
138
–
(19)
(3)
–
(27)
(23)
(50)
314
(181)
65
190
520
908
1,615
2,523
300
85
61
176
950
1,572
1,844
3,416
–
–
–
–
–
–
3
3
8
–
(8)
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(26)
(77)
(26)
(77)
–
–
–
–
–
–
2
2
–
–
–
–
–
–
2
2
–
–
(4)
–
–
–
–
–
147
719
143
719
100
92
243
811
(1)
53
–
176
(15)
1,801
(125)
2,310
(86)
1,854
(211)
4,164
Expiration and waiver of
options granted to employees
in the Corporation
non-controlling interests in a
subsidiary
Dividend to equity holders
Issuance of shares of a
subsidiary to holders of
non-controlling interests
6
(5)
–
–
Balance at July 1, 2014
subsidiary
employees in the Corporation
Corporation
Dividend to holders of noncontrolling interests in a subsidiary
Issuance of shares of a subsidiary
to holders of non-controlling
interests
Sale of shares of subsidiary while
retaining control
–
308
(109)
(28)
–
1
–
–
1
8
For the three months ended
September 30, 2014
Total
capital
2,030
3,715
12
12
Total
subsidiary
employees of the Corporation
Corporation
non-controlling interests in
a subsidiary
Sale of shares of subsidiary
while retaining control
Issuance of shares of a subsidiary
to holders of non-controlling
interests
Transactions with controlling
shareholder
Income for the year
Comprehensive loss for the
year, net of tax
300
87
59
176
1,063
1,685
–
–
–
–
–
–
–
(8)
–
–
–
–
–
6
–
–
–
–
–
–
–
–
(425)
(425)
–
–
–
–
–
–
41
41
–
(4)
–
–
171
167
116
283
–
–
–
–
–
–
–
–
–
–
–
–
20
(87)
20
(87)
–
–
–
–
–
–
14
–
–
173
14
173
–
248
14
421
–
(153)
(12)
–
(47)
(212)
(153)
(365)
Balance at December 31, 2014
308
(70)
45
190
8
1,360
–
6
1,833
–
–
1,802
6
3,635
9
Share
capital
and
premium
Attributable to the Corporation’s shareholders
Capital
reserve for
Translation
transactions
reserve for
with
foreign
Capital
controlling
Retained
activities
reserves
shareholder
earnings
$ millions
Noncontrolling
interests
Cash flows from operating activities
Adjustments:
Decline in value of assets
Loss from decline in value of assets in respect
of disposal group designated for distribution
Share in losses (income) of associated
companies accounted for using the equity
method of accounting
Capital gains, net
Share-based payment transactions
Gain on entry of associated company into the
consolidation
Gain on sale of subsidiaries (see Note 6B2)
Gain on bargain purchase (negative goodwill)
Gain on loss of control in subsidiary
Gain on re-measurement to fair value of
collar option
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions and employee benefits
Income taxes paid, net
Dividend received
Net cash provided by operating activities
Year Ended
December 31
2014
(Audited)
601
841
138
811
421
312
–
424
35
92
–
117
35
548
124
–
104
–
276
–
43
–
26
329
357
(85)
(1)
14
94
(181)
17
(13)
(1)
5
58
(168)
5
174
(174)
21
(7)
(223)
–
–
–
–
(60)
(609)
–
–
–
–
–
–
(21)
(609)
(36)
–
(68)
(609)
(54)
(15)
646
–
241
1,078
(47)
42
259
–
131
385
7
279
1,373
114
99
(15)
(187)
657
64
(231)
62
89
1,062
(6)
26
32
(95)
216
8
84
63
(26)
514
(11)
(50)
93
117
1,522
(7)
16
(181)
44
(47)
4
(71)
17
(218)
51
666
-------
925
-------
173
-------
460
-------
1,355
-------
10
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(Unaudited)
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment
Short-term deposits and loans, net
Business combinations less cash acquired
Proceeds from sale of subsidiary, net of
cash acquired
Proceeds from sale of subsidiaries, net (see
Note 6B(2))
Investments in associated and other companies
Exit from the consolidation and transition to
associated company, less cash eliminated
Acquisition of property, plant and equipment
Provision of long-term loan to related
company
Acquisition of intangible assets
Interest received
Payments from derivative transactions used for
hedging, net
Receipts from (payments for) derivative
transactions not used for hedging, net
Net cash provided by (used in) investing
activities
3
612
(188)
–
27
(725)
(149)
2
262
–
Year Ended
December 31
2014
(Audited)
–
(632)
(45)
28
(449)
(210)
360
–
360
361
372
–
–
(345)
–
–
–
(200)
–
(202)
–
(393)
(111)
(880)
–
(136)
(111)
(285)
(311)
(1,177)
(110)
(76)
6
–
(75)
10
–
(28)
1
–
(33)
3
–
(95)
13
(11)
–
(4)
(13)
115
(42)
47
71
–
(109)
117
-------
(1,784)
-------
59
-------
(900)
-------
(1,984)
-------
11
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(Unaudited)
Cash flows from financing activities
Dividend paid to holders of non-controlling
interests
Proceeds from issuance of equity to holders of
non-controlling interests in subsidiaries
Proceeds from sale of shares in subsidiary
while retaining control
Receipt of long-term loans and issuance of
debentures
Dividend paid to the owners of the
Corporation
Cash of previously consolidated subsidiaries
distributed as a dividend in-kind (see Note 5)
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
Net cash provided by (used in) financing
activities
Increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of the
period
Cash and cash equivalents included as part
of assets held for sale
Cash and cash equivalents included as part
of assets held for distribution
Effect of exchange rate fluctuations on
balances of cash and cash equivalents
Cash and cash equivalents at the end of the
period
(135)
(356)
(27)
Year Ended
December 31
2014
(Audited)
(26)
(427)
–
19
–
2
20
–
243
–
243
284
440
3,087
917
1,655
255
(300)
–
(100)
–
–
(645)
(1,202)
(49)
–
(829)
155
–
(101)
(57)
–
(375)
(109)
–
(1,600)
(180)
(1)
(147)
–
(280)
(1)
(48)
1
(79)
(5)
(336)
(1,562)
------(779)
1,255
607
------(252)
1,083
(79)
------153
317
97
------(343)
1,172
–
(12)
–
(12)
–
–
–
–
(15)
(28)
461
791
(9)
461
843
------214
1,083
(8)
(610)
(26)
(42)
791
637
12
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(Unaudited)
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
Note 1 – The Reporting Entity
Israel Corporation Ltd. (hereinafter – “the Corporation”) is an Israeli-resident corporation
incorporated in Israel whose shares are listed for trading on the Tel-Aviv Stock Exchange. The
Corporation’s registered office is located at 23 Aranha St., Tel-Aviv. The consolidated financial
statements include those of the Corporation, its subsidiaries (hereinafter – “the Group”) along with
the Group’s rights in associated companies.
On June 25, 2013, the Corporation’s Board of Directors accepted the recommendation of the
Corporation’s management and decided to examine a strategic transaction for changing the
structure of the Corporation’s holdings (hereinafter – “the Transaction” or “the Change in the
Structure of the Corporation’s Holdings”). On December 31, 2014, the Transaction was approved
by the General Meeting of the Corporation’s Shareholders and on January 7, 2015, the Transaction
was completed.
Up to and including 2014, the Corporation was engaged in initiation, advancement and
development of businesses in and outside of Israel, including through subsidiaries, investments in
companies and business ventures in various areas, including, foreign ventures or those having
international activities, where the focus was on entities having extensive activities or the potential
for reaching such dimensions.
Commencing from the completion date of the Transaction, the Corporation operates to advance and
develop its existing businesses in and outside of Israel. The Corporation operates through two main
investee companies: Israel Chemicals Ltd. (hereinafter – “ICL”) and Oil Refineries Ltd.
(hereinafter – “ORL”).
The Corporation is involved in management of the Group companies through directors serving on
the Boards of Directors of the Corporation’s and related companies.
Note 2 – Basis of Preparation of the Financial Statements
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, 2014 (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 Corporation’s Board of Directors on November 25, 2015.
B.
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.
13
A.
Note 2 – Basis of Preparation of the Financial Statements (Cont.)
B.
Use of estimates and judgment (Cont.)
Management’s judgment, at the time of implementing the Group’s accounting policies and
the main assumptions used in the estimates involving uncertainty, are consistent with those
used in preparation of the Annual Financial Statements.
Note 3 – Significant Accounting Policies
The Group’s accounting policies in these condensed consolidated interim financial statements are
the same accounting policies applied in the Annual Financial Statements.
Note 4 – Information on Activity Segments
General
In the financial statements as at September 30, 2014, the Corporation reported four main
activity segments based on the areas of Corporation’s activities: ICL, ORL, ZIM and
I.C. Power. As a result of the transaction for change of the Corporation’s holdings’ structure
and presentation of the companies being transferred that had constituted reportable segments,
immediately prior to the completion date of the transaction, as discontinued operations, the
Corporation updated its reportable segments as at September 30, 2014, in order to conform
them to the segment reporting after completion of the transaction, which will include two
operating segments based on the areas of the activities of the investee companies, Israel
Chemicals Ltd. (hereinafter – “ICL”) and Oil Refineries Ltd. (hereinafter – “ORL”).
The Group is composed of the following activity segments:
1) Israel Chemicals Ltd. – ICL is a leading multi-national company engaged in the area of
specialty minerals that operates a unique, integrated business model. ICL is a global
manufacturer of products based on specialty minerals that fulfill humanity’s essential
needs primarily in three markets: agriculture, food and engineered materials, by utilizing
a unique, integrated business model. The agricultural products produced by ICL help to
feed the world’s growing population. The potash and phosphates that it mines and
manufactures are used as ingredients in fertilizers and serve as an essential component in
the pharmaceutical and food additives industries. ICL’s bromine and phosphorous-based
applications allow the safe and widespread use of a variety of products and materials,
help to create energy that is more efficient and environmentally friendly and prevent the
spread of forest fires. The food additives that ICL produces enable people to have
greater access to more varied and higher quality food.
2) Oil Refineries Ltd. (associated company) – ORL and its subsidiaries are industrial
companies operating in Israel and are engaged, mainly, in production of fuel products,
raw materials for the petrochemical industry and materials for the plastics industry, oils,
wax and accompanying products. The factories of ORL’s subsidiaries are integrated in
ORL’s facilities. In addition, ORL provides power and water (mainly electricity and
steam) services to a number of industries located near the refinery in Haifa.
14
A.
Note 4 – Information on Activity Segments (Cont.)
A.
General (Cont.)
2) (Cont.)
ORL is applying, by means of early adoption, the provisions of IFRS 9 (2010), and the
amendment IFRS 9 (2013) to the said Standard. Since Israel Corporation is not applying
the said Standards by means of early adoption, the Corporation makes adjustments to
ORL’s statements in its financial statements. The data included in this note includes the
impacts of the early adoption of these Standards.
Evaluation of the segment’s performance as part of the management reports is based on the
EBITDA data (after certain adjustments made by the companies).
Information regarding activities of the reportable segments is set forth in the following
tables.
Information relating to Business Segments
For the nine months ended September 30, 2015
Sales to external customers
EBITDA income
Financing income
Financing expenses
Share in income of equity-accounted investees
Extraordinary or non-recurring expenses and
adjustments
Income before taxes
ICL
ORL
3,978
4,306
Adjustments (1)
Unaudited
$ millions
(4,306)
Total
3,978
1,036
566
(578)
1,024
---------
---------
---------
---------
257
(45)
124
(13)
99
(6)
111
(1)
(89)
(17)
(17)
(71)
267
(68)
218
(85)
160
483
109
312
(163)
(357)
106
438
---------
---------
----------
---------
553
139
414
254
46
208
(221)
(200)
(21)
586
(15)
601
(1) Most of the adjustments stem from the ORL segment.
15
B.
B.
Information relating to Business Segments (Cont.)
For the nine months ended September 30, 2014*
EBITDA income
Financing income
Financing expenses
adjustments
Income before taxes
Taxes on income
Income for the period from continuing activities
Income from discontinued operations (after taxes)
ICL
ORL
4,708
7,164
Adjustments (1)
Unaudited
$ millions
(7,164)
Total
3,708
1,037
261
(273)
1,025
---------
---------
---------
---------
264
(81)
172
(19)
122
(43)
145
–
(122)
(19)
(6)
(1)
264
(143)
311
(20)
190
526
(6)
218
22
(126)
206
618
---------
---------
----------
---------
511
130
381
–
381
43
20
23
–
23
(147)
(9)
(138)
575
437
407
141
266
575
841
16
(1) Most of the adjustments stem from the ORL segment, which is an associated company.
B.
For the three months ended September 30, 2015
EBITDA income
Financing income
Financing expenses
Extraordinary or non-recurring expenses (income)
and adjustments
Income before taxes
Taxes on income
ICL
ORL
1,139
1,349
Adjustments (1)
Unaudited
$ millions
(1,349)
Total
1,379
339
167
(175)
331
---------
---------
---------
---------
90
(23)
72
(8)
34
14
12
–
(32)
(30)
29
(5)
92
(39)
113
(13)
52
183
80
140
(134)
(172)
(2)
151
---------
---------
----------
---------
156
34
122
27
4
23
(3)
4
(7)
180
42
138
17
Israel Corporation Ltd.Notes to the Unaudited Condensed Consolidated Interim Financial Statements
B.
For the three months ended September 30, 2014*
ICL
ORL
1,560
2,443
EBITDA income
Adjustments (1)
Unaudited
$ millions
(2,443)
Total
1,560
354
101
(111)
344
---------
---------
---------
---------
87
(59)
79
(7)
40
(25)
57
–
(40)
(13)
17
(1)
87
(97)
153
(8)
5
105
3
75
(3)
(40)
5
140
Financing income
Financing expenses
adjustments
---------
---------
----------
---------
249
68
181
–
181
26
11
15
–
15
(71)
(4)
(67)
682
615
204
75
129
682
811
Income before taxes
Taxes on income
Income for the period from continuing activities
Income from discontinued operations (after taxes)
18
2014
EBITDA income
Financing income
Financing expenses
Share in losses (income) of associated companies
Extraordinary expenses and adjustments
Income (loss) before taxes
Taxes on income
Income (loss) for the period from continuing
activities
Income from discontinued operations, after taxes
Income (loss) for the year
ICL
ORL
6,111
9,328
Investments in associated companies
Segment liabilities
Investments in non-current assets
(9,328)
Total
6,111
1,345
213
(256)
1,302
---------
---------
---------
-----------
*356
(122)
279
(31)
*231
713
168
(73)
215
–
(18)
292
(164)
(38)
7
48
18
(129)
360
(233)
501
17
231
876
---------
---------
----------
-----------
632
166
(79)
14
(127)
(1)
426
179
466
–
466
(93)
–
(93)
(126)
174
48
247
174
421
Other significant non-cash items:
Decline in value of fixed and intangible assets
Segment assets
Adjustments (1)
(Audited)
$ millions
–
–
8,163
3,697
1,809
13,669
185
5
423
613
14,282
5,347
3,048
2,252
10,647
958
65
71
(65)
71
958
* Reclassified.
Note 5 – Discontinued Operations
A.
General
1.
As stated in Note 1B and Note 5 to the annual financial statements, on June 25, 2013,
the Corporation’s Board of Directors accepted the recommendation of the Corporation’s
management and decided to examine a strategic transaction for changing the structure of
the Corporation’s holdings (hereinafter – “the Transaction” or “the Change in the
Structure of the Corporation’s Holdings”). On December 31, 2014, the Transaction was
approved by the General Meeting of the Corporation’s Shareholders and on January 7,
2015, the Transaction was completed.
19
B.
Note 5 – Discontinued Operations
General (Cont.)
1.
(Cont.)
The Change in the Structure of the Corporation’s Holdings is a split-up of the
Corporation’s holdings, in such a manner that the Corporation’s holdings in I.C. Power
Ltd. (hereinafter – “I.C. Power”), Qoros Automotive Co. Ltd. (hereinafter – “Qoros”),
ZIM Integrated Shipping Services Ltd. (hereinafter – “ZIM”), I.C. Green Energy Ltd.
(hereinafter – “I.C. Green”) and Tower Semiconductors Ltd. (hereinafter – “Tower”)
(hereinafter – “the Transferred Companies”) are being transferred to and held by all of
the Corporation’s shareholders through a new company, Kenon Holdings Ltd.
(hereinafter – “Kenon”), the shares of which were distributed to them – pro rata – as a
“dividend-in-kind”.
The Corporation continues to hold Israel Chemicals Ltd. (hereinafter – “ICL”) and Oil
Refineries Ltd. (hereinafter – “ORL”).
The Corporation’s debt to the financing banks and the holders of the debentures remains
in the Corporation.
The Corporation views its holding of ICL as a strategic holding and is examining the
possibility of splitting off its holdings in ORL.
The Corporation intends to refrain from making investments in new companies.
Since execution of the Transaction was highly probable, upon its approval by the
General Meeting of the Corporation’s shareholders on December 31, 2014, the
Corporation reclassified in its financial statements as at December 31, 2014, the assets
and liabilities transferred to Kenon in the framework of the Transaction (hereinafter –
“the Transferred Assets”) as assets and liabilities of a disposal group classified as
intended for distribution to the owners and the results of the operations of the transferred
companies as discontinued operations, as well as the comparative figures in the
statement of income and the statement of comprehensive income, in accordance with
IFRS 5. Furthermore, in accordance with the provisions of IFRS 5, the value of the
group of the Transferred Assets is presented according to the value of Kenon on the first
day of trading and, therefore, the Corporation recorded a write down in its financial
statements for 2014, in the amount of about $329 million, which was included as part of
the discontinued operations as stated above. The said write down decreased the book
value of the dividend-in-kind distributed by the Corporation. Accordingly, the said write
down did not impact the Corporation’s retained earnings on the day following
distribution of the dividend-in-kind as part of completion of the Transaction.
2.
On July 16, 2014, due to completion of the debt arrangement in ZIM and as part of its
conditions, the rate of the Corporation’s holdings in ZIM’s issued share capital dropped
to 32% and as a result it ceased to control ZIM. In the annual financial statements, the
Corporation’s presented the results of ZIM’s operations 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 the debts to ZIM separately in the statement of income as part of the category
“income (loss) from discontinued operations (after tax)”.
20
A.
Note 5 – Discontinued Operations (Cont.)
General (Cont.)
Results attributable to the discontinued operations
Revenues
Cost of sales
Gross profit
Research and development expenses
Selling, transport and marketing expenses
Other expenses
Other income
Gain on sale of discontinued operations due
to debt arrangement in ZIM
Loss from impairment in value of the
Transferred Assets
For the
nine months
ended
September 30
2014
(Unaudited)
For the
three months
ended
September 30
2014
(Unaudited)
$ millions
For the
year
ended
December 31
2014
(Audited)
2,957
2,662
295
422
338
84
3,336
2,980
356
6
6
142
37
(259)
3
2
19
35
(202)
14
7
197
67
(285)
(609)
(609)
(609)
–
329
972
836
636
192
(9)
183
(114)
37
(5)
32
(66)
218
(13)
205
(157)
675
738
274
Taxes on income
100
56
100
Income for the period from
discontinued operations (after tax)
575
682
174
554
21
678
4
153
21
575
682
174
Basic and diluted earnings per share from
continuing activities
11.21
5.76
3.67
Basic and diluted earnings per share
from discontinued operations
72.65
88.90
19.93
Operating income
Financing expenses
Financing income
Share in losses of equity-accounted investees
Attributable to:
The owners of the Corporation
Non-controlling interests
Total comprehensive income for the
period
21
–
A.
A.
General (Cont.)
Cash flows provided by operating activities
activities
activities
Impact of fluctuations in the exchange rates
on the cash and cash equivalents
Net cash provided by (used in)
For the
nine months
ended
September 30
2014
(Unaudited)
For the
three months
ended
September 30
2014
(Unaudited)
$ millions
For the
year
ended
December 31
2014
(Audited)
323
101
450
(327)
101
(679)
6
(172)
312
(12)
(12)
(19)
(10)
18
64
B.
Further to that stated in Note 5D(2) to the annual financial statements, on January 7, 2015,
the Corporation transferred the balance of the cash to Kenon, in the amount of about $35
million, against shares.
C.
Further to that stated in Note 5D(3) to the annual financial statements, on February 4, 2015,
pursuant to the loan agreement between the Corporation and Kenon, the Corporation
provided Kenon a loan in the amount of $45 million. During May 2015, the Corporation
transferred to Kenon an additional loan of $65 million. After provision of the additional loan,
the total loans provided to Kenon total $110 million. The balance of the credit framework to
Kenon is in the amount of up to $90 million. Pursuant to the loan agreement, Kenon placed a
lien in favor of the Corporation on 59.5% of the issued capital of I.C. Power.
D.
Further to that stated in Notes 5D(2)(e) and 11B(3)(a)(iii) to the annual financial statements,
on February 11, 2015, the Corporation was released from the guarantee it provided in July
2012 to Chery Automobile Co. Ltd (hereinafter – “Chery”), pursuant to split-up agreement
with Kenon whereby it undertook to take action for its release. After release of the said
guarantee, the Corporation has no more guarantees relating to Qoros.
22
Results attributable to the discontinued operations
Over the years, the Corporation has received dividends from ICL and ORL, which the
distributing companies attributed to dividends deriving from an Approved Enterprise or a
Benefitted Enterprise in accordance with the Law for Encouragement of Capital Investments,
1959 (hereinafter – “the Encouragement Law”), and which were not distributed to the
Corporation’s shareholders. Regarding these dividends, tax was withheld at the source with
respect to the Corporation at the rate of 15%. On September 19, 2014, the Corporation
received an arrangement from the Taxes Authority (in an early request proceeding) in
connection with the manner of withholding of the tax at the source relating to distribution of
shares of the new company as a dividend in-kind (hereinafter, including clarifications of the
Taxes Authority dated November 11, 2014 – “the Approval of the Taxes Authority”).
Pursuant to the provisions of Section 47(B)(2)(b) and 51B(d) of the Encouragement Law, the
Corporation will be entitled to tax refunds in respect of the gross amount of the approved
dividends that were distributed to the shareholders as a dividend in-kind. In addition, in
accordance with the Encouragement Law, in general (and subject to the circumstances and
characteristics of every shareholder and situation) in respect of every such approved dividend
distribution from Israel Corporation, tax will be withheld at a special rate (generally 15%
whether a shareholder is involved who is an individual or a shareholder that is a corporation,
and with respect to shareholders that are not Israeli residents a tax rate of 4% will apply to
certain dividends).
On January 7, 2015, in accordance with the transaction for changing the holdings’ structure,
as stated, the Corporation transferred to Kenon its holdings in I.C. Power, Quantum (which
holds 100% of Qoros), ZIM, I.C. Green and Tower, against issuance of shares, in a taxable
transaction, along with distribution of shares of Kenon as a dividend in-kind to the
shareholders. Regarding withholding of tax at the source, distribution of Kenon’s shares as a
dividend in-kind is in accordance with its value for tax purposes, which was determined
pursuant to an approval of the Taxes Authority, and which reflects the average closing price
of a Kenon share in the first three trading days on the Tel-Aviv Stock Exchange, that is, a
value of about NIS 4,217 million (about $1,065 million). In addition, as part of the
transaction, the Corporation distributed a cash dividend, in the amount of about $200 million.
As a result of distribution of the dividends, as stated, most of which (about 86%) derive from
an Approved Enterprise, the Corporation recognized tax income, on the date of distribution
of the dividends, in the amount of about NIS 644 million (about $162 million) in respect of
tax refunds to which the Corporation is entitled to receive from the Taxes Authority pursuant
to law, as stated above. In addition, as a result of completion of the transaction, and after the
value of Kenon was clarified in the trading, the Corporation has a loss for tax purposes,
which it estimates at about NIS 5 billion, in nominal values.
23
E.
Note 6 – Additional Information
B.
The Corporation
1.
Further to that stated in Note 11B(3)(c) to the annual financial statements, on April 15,
2015, the Corporation notified ZIM Integrated Shipping Services Ltd. (“ZIM”) of
cancellation of the loan agreement, in the amount of $50 million, due to non-compliance
on the part of ZIM with the conditions provided in the loan agreement. After
cancellation of the loan agreement, there are no liabilities or loans between the
Corporation and ZIM.
2.
On August 2, 2015, the Corporation’s former CEO, Mr. Nir Gilad, notified that he
immediately, fully, finally and unequivocally relinquishes all the options he was issued
as part of the options’ plan that was approved by a decision of the Board of Directors on
November 26, 2012. The expected impact on the income in the third quarter as a result
of acceleration of the vesting of the balance of the options is about $0.7 million.
3.
On August 25, 2015, the Corporation’s Board of Directors decided to distribute a
dividend, in the amount of $100 million, about $13.11 per share. The dividend was
distributed on September 17, 2015.
4.
Further to that stated in Section 15F(1) of the annual financial statements, as a result of
re-measurement of the options at the fair value in the financial transaction in connection
with shares of ICL (hereinafter – “the Collar Option”), including the component for
adjustment of the dividends, the Corporation realized income in the amount of about $54
million and about $47 million in the nine-month and three-month periods ended
September 30, 2015, respectively, which is included in the “other income” category in
the statement of income.
Israel Chemicals Ltd. (hereinafter – “ICL”)
1.
On February 2, 2015, the Workers Council of Bromine Compounds Ltd. (“Bromine
Compounds”), which belongs to ICL’s Industrial Products segment, started a full-scale
strike at Bromine Compound’ plants in Neot Hovav and halted all shipments of goods
from the plants. The strike at the plants came, among other things, in response to the
efficiency programs that ICL is currently executing in Neot Hovav, whereby ICL
requested that a number of employees employed under a collective agreement will be
dismissed and/or will leave under early retirement conditions. On February 19, 2015, in
response to the termination letters that were sent to employees of Bromine Compounds,
and further to similar efficiency discussions held at Dead Sea Works (“DSW”), the
Workers Council of DSW gave notice of a full-scale strike at DSW’s facilities in
Sodom, including the bromine facility and the power station.
On May 28, 2015, an agreement was signed between DSW and Bromine Compounds
and between the General Workers Council (Histadrut), the DSW Workers Council and
the Bromine Compounds Workers Council, ending the strike, the employment disputes
and the legal proceedings pending among the parties, and allowing the immediate return
of the employees to full employment (hereinafter – “the Agreement”).
24
A.
Note 6 – Additional Information (Cont.)
Israel Chemicals Ltd. (hereinafter – “ICL”) (Cont.)
1.
(Cont.)
The key elements of the Agreement are as follows:
a.
210 employees will voluntarily retire under the early retirement route.
b.
38 employees will end their employment by December 31, 2015 under the
severance pay route (or earlier under certain conditions), and will be entitled to
special severance pay in excess of that prescribed by law.
c.
The parties consent to implementation of the efficiency plans in DSW and
Bromine Compounds and to implementation of the plan to establish the regional
shared services center (under ICL Israel).
d.
During the period beginning on the signing date of the Agreement and up to
completion of the efficiency plans or until December 31, 2018, whichever occurs
first (the "Efficiency Period"), no collective dismissal, including early retirement
which is not voluntary, shall take place in DSW and in Bromine Compounds.
Despite the aforesaid, up to July 1, 2017, the management of Bromine
Compounds may execute an early retirement plan which is not voluntary
retirement, wherein up to 45 employees, included in a list agreed upon with the
employees' representatives, shall retire subject to certain terms specified in the
Agreement.
e.
During the Efficiency Period it was determined, among other things, that the
management may transfer employees and may adjust the number of positions in
the companies, perform structural and organizational changes, and establish and
operate new installations and projects.
f.
Management will be permitted to transfer employees under the existing
employment agreements – this being in addition to the employee transfer
provisions in Section e. above.
In light of the Agreement, as stated, during the first half of 2015, ICL increased the
provision for employee benefits in respect of conclusion of employment by the amount
of about $42 million.
2.
Further to that stated in Note 6 to the annual financial statements, in January 2015, the
alumina, paper and water industry (APW) transaction was closed and in February 2015,
the thermoplastic products for the footwear industry (Renoflex) and the hygiene
products for the food industry (Anti-Germ) deals were closed. As a result of completion
of the sale of these activities, in the first quarter of 2015 ICL recognized a capital gain of
$209 million, which was included under "other income" in the statement of income
($158 million net of tax).
During the second quarter of 2015, ICL completed the sale of the pharmaceutical and
gypsum businesses (PCG), and as a result it recognized a gain of $14 million which was
included under “other income” in the statement of income ($11 million net of tax).
25
B.
2.
(Cont.)
Impact of the realizations on the financial position
As at and for the
nine months ended
September 30
2015
(Unaudited)
$ millions
Cash
Inventory
Receivables and other debit balances
Property, plant and equipment, net
Intangible assets, net
Payables and other credit balances
Employee benefits
Deferred taxes, net
Capital gain
Cash received
Less – cash expended
Net cash
7
61
28
37
76
(30)
(20)
(3)
223
379
(7)
372
As part of execution of ICL’s strategy to focus on the key end markets, ICL has
commenced a process of divesting activities involving services located in Germany and,
accordingly, during the first quarter of 2015, ICL reclassified these activities as "assets
held for sale". As a result of re-measurement of these assets, based on the lower of their
carrying value in the books and their fair value (less selling expenses), in the first
quarter ICL recognized a loss in the amount of $34 million, which was included under
“other expenses” in the statement of income ($28 million net of tax). In addition, the
Corporation wrote down excess cost, in the amount of about $5 million, net of tax, in
respect of these assets.
3.
In March 2015, the acquisition of Prolactal was completed, a leading European producer
of dairy proteins for the food and beverage industry. Prolactal, a privately-held company
with sales of approximately €100 million in 2014, produces a range of functional dairy
proteins used by the beverage, dairy and meat industries to stabilize and improve the
nutritional value of beverages and foods. The combination of ICL’s backward integrated
specialty phosphate capabilities, Prolactal’s protein capabilities and both companies’
advanced know-how will enable ICL Food Specialties to provide a broader selection of
innovative, value-added food additives for improvement of texture and stability that
outperform other currently available solutions, and to meet the growing demand for
healthy foods and beverages containing higher protein levels. The acquisition of
Prolactal constitutes a strategic step aimed at strengthening and expanding ICL's core
business activities in the area of specialty-food ingredients.
26
B.
4.
In March 2015, ICL signed an agreement to acquire the shares of Allana Potash
(hereinafter – “Allana”), a company that focuses on acquisition and development of
potash assets, the shares of which were traded on the Toronto Stock Exchange. Allana
holds a concession to mine potash in Ethiopia, through its subsidiary, Allana Potash
Afar Plc. Pursuant to its feasibility study, ICL estimates that its Danakhil project could
yield up approximately 1-1.5 million tons of potash production per year for 25 years. On
June 22, 2015, ICL acquired the balance of Allana’s shares (83.78%) for the total
consideration of approximately $112 million of which approximately $96 million was in
cash, and approximately $16 million was by means of issuance of 2,225,337 ordinary
shares of ICL, their fair value is based on the price of ICL's shares on June 22, 2015
($7.08 per share). As a result, the Corporation’s share in ICL declined by an
insignificant and the increase in the Corporation’s share in the investment in ICL, in the
amount of $5 million, was recorded to retained earnings.
As part of the acquisition, a gain of $7 million was realized, which represents the gain
created as a result of re-measurement of the fair value of the 16.22% of the shares of the
acquired company that ICL held prior to obtaining control. The gain was recorded under
“other income” in the statement of income.
Pursuant to an announcement of the Ministry of Mines, Allana was required to complete
the development stage and begin the production stage within two years from the signing
date of the agreement (October 8, 2013). ICL is carrying on negotiations with the
Ethiopian government for extension of the development period, this being in light of its
acquisition of the ownership. In ICL’s estimation, an arrangement will be reached with
the Ethiopian government for extension of the development period.
5.
Further to Note 12A(1)(d) to the Annual Financial Statements, on October 12, 2015, ICL
completed the establishment of YPH JV with Yunnan Phosphate Chemicals Group
Corporation Ltd. (“YTH”), China’s leading phosphate producer. The closing occurred
following fulfillment of the closing conditions to the parties’ satisfaction, including all
necessary approvals and ICL’s payment of approximately $180 million in consideration
of its share of YPH JV. ICL’s 15% investment in YTH (which was initially a closing
condition) has been preliminarily approved by the PRC Ministry of Commerce and is
pending final approval by the China Securities Regulatory Commission (CSRC). As at
November 11, 2015, YTH’s quoted stock price on the Shanghai Stock Exchange was
CNY 12.12, compared to the stock purchase price of CNY 8.24 per share that was
agreed between the parties.
Based on the transaction agreements, ICL controls YPH JV mainly in light of its power
to direct the relevant activities, which significantly affects YPH JV’s returns and as a
result ICL will consolidate YPH JV’s financial information commencing from the
closing date.
The transaction is expected to transform ICL into the world’s leading specialty
phosphate player and to roughly double its global phosphate market share. YPH JV is
also targeted to improve the cost competitiveness of ICL’s phosphate operations by
providing ICL access to a low-cost phosphate rock operation with extensive reserves, as
well as to low-cost phosphoric acid.
27
B.
6.
On March 23, 2015, ICL entered into an agreement with a group of eleven international
banks, which will provide to ICL a revolving credit facility in the total amount of $1,705
million, on the following terms:
a.
The loan agreement is for a term of five years from the signing date of the credit
facility.
b.
The loan agreement does not include an undertaking for minimum use of the
credit facility. A non-utilization fee will be at the rate of 0.21% per year.
c.
Annual interest will apply to the amount of the loan actually used, scaled to the
amount of the credit facility actually used, as follows:
–
–
–
Up to 33% credit: Libor + 0.7%.
From 33% to 66% credit: Libor + 0.8% (on the entire sum used).
66% credit or more: Libor + 0.95% (on the entire sum used).
d.
ICL has an option to choose between a dollar loan and a euro loan.
e.
Under the loan agreement, ICL undertook restrictions that include financial
covenants (which are identical to the financial covenants applicable to the
Company's prior loans, as detailed in ICL’s 2014 annual report), a cross-default
mechanism and a negative pledge.
This loan agreement replaces credit facilities taken out in March 2011 and in December
2011 in the aggregate amount of $1,325 million for a period of five years (to be repaid in
one lump sum) which was repaid in April 2015, and credit lines in the amount of
approximately $125 million, that were signed in the beginning of 2014 and were repaid
during the period of the report.
7.
In July 2015, a few subsidiaries signed a securitization transaction with respect to trade
receivables with three international banks, whereby the companies will sell all their
trade receivables to a designated company that was established for this purpose and
which is neither owned nor controlled by the ICL Group (hereinafter – “the Acquiring
Company”).
This agreement replaces the prior securitization agreement, in the amount of $350
million, which came to an end in July 2015. The main structure of the renewed
securitization transaction is similar to the prior transaction.
The withdrawal limit of the securitization transaction is $405 million. ICL's policy is to
utilize the securitization limit based on its cash-flow needs, alternative financing sources
and market conditions. The new securitization agreement will expire in July 2020.
28
B.
7.
(Cont.)
In the agreement, ICL undertook to comply with a covenant, according to which the ratio
of net debt to EBITDA will not exceed 4.75. If ICL does not comply with the
aforementioned covenant, the Acquiring Company is allowed to stop acquiring new
trade receivables (without affecting the existing acquisitions). As at the reporting date,
ICL is in compliance with the aforementioned covenant.
The securitization of trade receivables does not meet the conditions for disposal of
financial assets prescribed in International Standard IAS 39, regarding Financial
Instruments – Recognition and Measurement, since ICL does not transfer all of the risks
and rewards deriving from the trade receivables. Therefore, the receipts received from
the Acquiring Company are presented as a financial liability in short-term credit.
As of September 30, 2015, ICL had utilized the amount of $316 million from the
withdrawal limit.
8.
On May 10, 2015 and June 1, 2015, and on May 12, 2015 and June 5, 2015, ICL’s
Compensation Committee and Board of Directors, respectively, approved allocation of
up to 7,931,500 non-marketable and non-transferrable options, for no consideration,
exercisable for up to 7,931,500 of ICL’s ordinary shares, and up to 1,397,302 restricted
shares, to approximately 550 of ICL’s officers and senior employees. The said allocation
includes a significant private placement of 404,220 options and 68,270 restricted shares
to the Chairman of ICL’s Board of Directors and of 530,356 options and 89,574
restricted shares to ICL’s Chief Executive Officer, which was approved by the General
Meeting of ICL’s shareholders by special majority, on June0 29, 2015.
The options and restricted shares will vest in three equal tranches: one-third at the end of
12 months after the grant date, one-third at the end of 24 months after the grant date and
one-third at the end of 36 months after the grant date. The expiration date of the options
in the first and second tranches is at the end of 36 months after the grant date and the
expiration date of the options in the third tranche is at the end of 48 months after the
grant date.
The grant date is the date on which all the contingent conditions for allocation have been
met, as detailed in the Equity Compensation Plan (2014) included as an exhibit to the
S-8 registration statement filed by ICL on July 7, 2015, including approval of the
Tel-Aviv Stock Exchange for the listing for trade of the exercise shares and the
restricted shares, and, with respect to the Chairman of ICL’s Board of Directors and to
the Chief Executive Officer, including approval of the General Meeting of ICL’s
shareholders.
29
B.
8.
(Cont.)
Each option may be exercised for 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 ICL’s
ordinary shares, immediately upon the issuance thereof. The options issued to the
employees in Israel are subject to the provisions of Section 102 of the Israeli Income
Tax Ordinance (New Version) and the regulations promulgated thereunder. ICL elected
to execute the issuance through a trustee, under the Capital Gains Track. The exercise
price is about $7.17 per option. This price was set in NIS (NIS 27.76) and is linked to
the CPI that is known on the date of payment. In a case of distribution of a dividend by
ICL, the exercise price is reduced on the “ex-dividend” date, by the amount of the
dividend per share (gross), based on the amount thereof in NIS on the effective date.
The total fair value of all the options was estimated through application of the binomial
model for option pricing and is approximately $9.3 million, of which approximately
$475 thousand relates to the Chairman of ICL’s Board of Directors and approximately
$623 thousand relates to the Chief Executive Officer.
The expected fluctuation for the first, second and third tranche is 25.4%, 25.4% and
28.8%, respectively, determined based on the historical volatility of the prices of ICL’s
shares. Since the life span of each tranche is different, ICL made use of the fluctuation
rate and the risk-free interest rate that is appropriate for each tranche. The life span of
the options was determined in accordance with Management's estimation regarding the
period the employees will hold the options, taking into account their positions in ICL
and ICL’s past experience in connection with employee turnover.
The risk-free interest rate was determined based on the yield to maturity on index-linked
government bonds, where their remaining period is equal to the expected life span of the
options.
The total fair value of the said restricted shares is approximately $9.7 million, of which
approximately $475 thousand relates to the Chairman of ICL’s Board of Directors and
approximately $623 thousand relates to the Chief Executive Officer. The value of the
restricted shares offered to the offerees was determined according to the closing price on
the Stock Exchange on the last trading day prior to the date of approval by our Board of
Directors (approximately NIS 26.94 / $6.96).
The cost of the embedded benefit of the said plans is recognized in the income
statements over the vesting period of each tranche.
30
B.
B.
9.
On May 10, 2015 and May 12, 2015, ICL’s Compensation Committee and Board of
Directors, respectively, approved the terms of employment of Mr. Nir Gilad as
Chairman of ICL’s Board of Directors, in accordance with ICL’s compensation policy,
and on June 29, 2015, the General Meeting of ICL’s shareholders approved Mr. Gilad’s
employment terms. The terms of Mr. Gilad’s employment are as follows: (1) an annual
gross annual salary of $800 thousand; (2) an annual target bonus of $720 thousand; and
(3) a long-term annual bonus of $950 thousand. The advance notice for termination of
the engagement was set at 6 months if at the initiation of the Chairman of the Board of
Directors of ICL and at 12 months if at the initiation of ICL.
10. On November 8 and 11, 2015, ICL’s Compensation Committee and the Board of
Directors, respectively, approved the grant of restricted shares to ICL’s directors
(excluding the President & CEO, Mr. Stefan Borgas and the Executive Chairman of the
Board, Mr. Nir Gilad), for no consideration, under the Equity Compensation Plan
(2014), and subject to shareholder approval. The restricted shares will vest in three equal
tranches, subject to the directors continuing to serve in their position on the vesting date,
as follows: (i) one-third will vest at the end of 12 months from the date of the annual
general shareholders meeting; (ii) one-third will vest at the end of 24 months from the
date of the annual general shareholders meeting; and (iii) one-third will vest at the end
of 36 months from the date of the annual general shareholders meeting.
The determined value of the restricted shares is about $0.6 million. The number of
restricted shares will be determined based on the closing price of the Company’s
ordinary shares on the TASE on the trading day preceding the date of the approval of the
annual general shareholders meeting, which is the grant date.
Oil Refineries Ltd. (hereinafter – “ORL”)
ORL is applying, by means of early adoption, the provisions of IFRS 9 (2010), and the
amendment IFRS 9 (2013) to the said Standard. Since Israel Corporation is not applying the
said Standards by means of early adoption, Israel Corporation makes adjustments to ORL’s
statements in its financial statements. The data included in this note includes the impacts of
the early adoption of these Standards.
1.
As at September 30, 2015, ORL (on a consolidated basis) had a working capital deficit
on a consolidated basis of about $16 million.
As at September 30, 2015, Carmel Olefins, a wholly-owned subsidiary of ORL, had a
deficit in working capital of about $11 million.
During the period of the report, the operating results of ORL and Carmel Olefins
showed a significant and continuing improvement in income and liquidity compared
with prior periods, the trend of a significant decline in ORL’s total consolidated working
capital deficit and of Carmel Olefins continued (as at December 31, 2014, ORL (on a
consolidated basis) and Carmel Olefins had a working capital deficit of about $401
million and about $92 million), the ORL group has unutilized guaranteed short-term
credit frameworks up to December 31, 2015 in the amount of about $353 million and a
balance of cash and cash equivalents of about $197 million.
31
C.
Oil Refineries Ltd. (hereinafter – “ORL”) (Cont.)
1.
(Cont.)
In addition, the rating of the debentures of ORL and of Carmel Olefins was raised, as
detailed below, new debentures were issued (Series E and Series F) in the amount of
$260 million and the average life of ORL’s long-term liabilities was extended, revisions
to the financial covenants of ORL and Carmel Olefins were agreed to with their lending
banks and there is a significant gap between the ratios/amounts required in the financial
covenants compared with the actual ratios/amounts as at September 30, 2015.
2.
On January 1, 2015, Maalot rating agency confirmed the rating of BBB and revised the
rating outlook from stable to positive, following the increase in ORL’s ability to
generate cash and an expected decrease in the leverage level. On May 17, 2015, Maalot
raised the rating of ORL to BBB+. On June 2, 2015, the Midroog rating company raised
the rating of ORL’s debt to Baa1 with a stable rating outlook.
3.
As at September 30, 2015, ORL and Carmel Olefins were n compliance with the
financial covenants applicable to them.
4.
As from the end of ORL’s guarantee (April 1, 2015), the comfort letter from ORL
re-entered into effect, whereby ORL, as the controlling shareholder in Carmel Olefins,
agrees that if Carmel Olefins has insufficient financial resources to meet its obligations
towards the recipients of the comfort letter, it will act, as necessary, to assist in finding
the sources of financing that will allow Carmel Olefins to meet its financial obligations.
5.
Subsequent to the date of the report, on October 22, 2015, Carmel Olefins filed a request
in the District Court in Haifa for approval of an arrangement, pursuant to Section 350 of
the Companies Law, 1999. The purpose of the arrangement is to replace the marketable
debentures issued by Carmel Olefins with a new designated series of debentures
(Series G), which will be issued by ORL and backed by a guarantee of Carmel Olefins,
and the par value, repayment, linkage and interest terms of which will be the same as the
debentures of Carmel Olefins. Against issuance of the new debentures by ORL in place
of the debentures of Carmel Olefins, Carmel Olefins will have a debt to ORL by force of
an intercompany loan, the repayment schedule of which and its interest and linkage
conditions will be the same conditions as those of the new debentures.
On November 5, 2015, the Court approved the summoning of a meeting of the holders of
the debentures of Carmel Olefins in order to approve arrangement, and it was summoned
to convene on December 16, 2015.. If the meeting of the holders of the debentures of
Carmel Olefins approves replacement of the debentures, as described above, and to the
extent the replacement transaction is completed, Carmel Olefins will cease to be a
debenture company, a reporting company and a different tier company.
32
C.
Oil Refineries Ltd. (hereinafter – “ORL”) (Cont.)
Condensed data regarding associated company – ORL
Condensed data regarding the interim statement of position:
September 30
2015
(Unaudited)
September 30
2014
(Unaudited)
$ millions
ISRAEL
37.08%
December 31
2014
(Audited)
1,092
2,417
(1,108)
(1,544)
1,631
2,494
(1,876)
(1,493)
1,267
2,435
(1,668)
(1,380)
Main location of activities
Rate of ownership rights
Current assets
Non-current assets
Current liabilities
Non-current liabilities
857
Total net assets (100%)
654
756
Condensed data regarding the interim statement of income:
For the
nine months ended
September 30
2015
2014
(Unaudited)
Revenues
For the
three months ended
September 30
2015
2014
(Unaudited)
$ millions
For the
year ended
December 31
2014
(Audited)
4,306
7,164
1,349
2,443
208
23
23
15
(93)
(52)
2
(20)
(38)
(29)
25
(5)
(131)
Income (loss)
Other comprehensive
income (loss)
Total comprehensive income
(loss)
(6)
202
33
9,328
C.
Note 7 – Contingent Liabilities, Commitments and Concessions (Cont.)
The Corporation
1.
As detailed in Note 20B(1)(a) to the annual financial statements, regarding a monetary
claim of V-Cars that was filed against the Corporation in the District Court in Tel-Aviv,
the parties are acting to complete the preliminary proceedings. At the Court’s
recommendation, the parties agreed to enter into a reconciliation proceeding, which took
place subsequent to the date of the report at the end of October 2015, without this
delaying the timetables set for hearing the case before the Court. It was provided that the
parties are required to submit a file of representations on their behalf and a list of their
witnesses, which is also to include the matters regarding which each of the witnesses
intends to provide testimony. The dates for hearing of the proofs were set as
February 28-29 and March 1-2, 2016. Management estimates, based on the opinion of its
legal advisors, that the chances the claim will be accepted are low, and in any event, in
the estimation of the Corporation’s management, based on the opinion of its legal
advisors, the chances the Corporation will be held liable to pay the Plaintiff a significant
amount are weak.
2.
Further to the detail in Note 20B(1)(b) to the annual financial statements, regarding
filing of a request for certification of a derivative claim in the name of the Corporation
against the members serving on the Board of Directors and against the Corporation’s
CEO at that time, Mr. Nir Gilad (and the derivative claim itself) – the cause of action of
the claim involves allegations with respect to the timing of approval of issuance of the
equity component, shortly before entry into effect of Amendment No. 20 to the
Companies Law, and that the equity component granted to the former CEO is
unreasonable and exaggerated. As part of the claim the Honorable Court was requested
to approve filing of the derivative claim, among other things, against the members of the
Corporation’s bod due to breach of their fiduciary duty and breach of their duty of
caution.
On March 16, 2015, summations were filed on behalf of the petitioner, on May 7, 2015
summations were filed on behalf of the respondents and on May 17, 2015 summations of
the reply were filed on behalf of the petitioner. On August 2, 2015, the Corporation
submitted an update notification (hereinafter – “the Update Notification”) whereby in
light of conclusion of the employment in the Corporation of Respondent No. 14, Mr. Nir
Gilad, the Corporation’s former CEO (and after passage of the early notification period
he was granted under his employment agreement), Respondent No. 14 notified that he
immediately, fully, finally and unequivocally relinquishes all the options he was issued
as part of the options’ plan that was approved by a decision of the Board of Directors on
November 26, 2012. Further to that stated, the Corporation noted that these
circumstances significantly strengthen what has already be contended in the
Corporation’s summations dated May 7, 2015, that as a practical matter there is no good
reason whatsoever to approve the request for certification of the derivative claim and,
accordingly, the Honorable Court is requested to summarily dismiss the request and/or
to reject it substantively against all the Respondents.
34
A.
The Corporation (Cont.)
2.
(Cont.)
On August 3, 2015, a decision was issued instructing the Requesting Party to respond to
the Corporation’s notification within 10 days. On August 19, 2015, the Requesting Party
filed his response to the Corporation’s notification. As part of the response of the
Requesting Party, as stated, the Court was requested to approve the request for
certification of the derivative claim and to accept the derivative claim this being, among
other things, since effectively the relief the Requesting Party petitioned for was
received.
At the same time, on August 19, 2015, the Requesting Party submitted a request for the
award of compensation and attorneys’ fees in the derivative claim. As part of this
request, the Court was requested to charge the Respondents to pay compensation to the
Requesting Party and attorneys’ fees to his representatives, either in the amount of 10%
of the value of the options on the date of their grant or based on the valuation.
On August 26, 2015, a decision was issued ordering a response to the compensation
request within 14 days. In an additional decision of the Honorable Court issued on the
same date, it was noted that the Court’s reference to the requesting party’s response of
August 19, 2015 will be made as part of the Court’s reference to the request for the
award of compensation. On September 20, 2015, the respondents filed an agreed-to
request for granting of an extension for submission of their response up to October 8,
2015. In its decision on September 21, 2015, the Honorable Court granted the extension
request. Subsequent to the date of the report, on October 8, 2015, the respondents filed
their response to the request for the award of compensation. In the response filed on
behalf of the Corporation, wherein it re-emphasized its main contentions as they
appeared in its response to the request for certification of the claim as a derivative claim
and in its summations of May 7, 2015, whereby, from the very outset, there is no and
there was no genuine substance in the request for certification, and it requested to reject
the request of the requesting party for certification of the claim as a derivative claim,
and as a practical result, the request for compensation. In the response filed on behalf of
the directors, the Honorable Court was requested to reject the request of the requesting
party for certification of the claim as a derivative claim, as well as the request for
compensation, while charging the requesting party for expenses. Subsequent to the date
of the report, on October 9, 2015, a decision was rendered granting a right to reply to the
responses of the respondents within 5 days. Subsequent to the date of the report, on
October 13, 2015, the requesting party submitted its reply wherein it rejected the
contentions in the responses of the respondents, and also argued against the absence of a
response on the part of Mr. Nir Gilad to the request for the award of compensation. The
Honorable Court was also requested by the requesting party to award compensation and
attorneys’ fees, as requested in the request for the award of compensation. Subsequent to
the date of the report, on October 14, 2015, Mr. Nir Gilad filed a notification with the
Honorable Court, wherein he joined that contended in the Corporation’s response of
October 8, 2015, and also requested from the Honorable Court to reject all of the
requesting party’s requests. Subsequent to the date of the report, on October 16, 2015, a
decision was rendered giving the requesting party a right to reply within 5 days.
Subsequent to the date of the report, on October 18, 2015, the requesting party submitted
its reply to the notification of Mr. Nir Gilad of October 14, 2015.
35
A.
2.
(Cont.)
Subsequent to the date of the report, on October 22, 2015, a decision of the Honorable
Court was rendered whereby a decision with respect to the request for the award of
compensation will be sent to the parties.
Even though it seems that the Corporation has good defenses to reject the request for
certification of the derivative claim, at this stage it is difficult to estimate the claim’s
chances of prevailing and its risks. In any event, as usual, a derivative claim does not
pose any threat of holding the Corporation liable for a monetary liability.
3.
On August 29, 2013, a request for certification of a claim as a class action against ICL,
the Corporation, Potashcorp Cooperative Agricultural Society Ltd., the members of
ICL's Board of Directors and its CEO, was filed in the District Court in Tel-Aviv, on the
grounds of a misleading detail, deception and non-disclosure of a material detail in
ICL’s reports, this being in violation of the provisions of the Securities Law and the
general laws. As part of the request it is contended, among other things, that ICL knew
and that it was required to disclose the existence or suspicion of existence of cartels in
the area of sale of potash. The requesting party contends that by not reporting the
respondents, including Israel Corporation, violated obligations under the securities laws,
breached the duty of caution, the duty of fairness, the duty of good faith and the duty of
trust, and with respect to the investors the committed damage and were guilty of
negligence. The aggregate amount of the damage claimed is NIS 2.75 billion or NIS 3.28
billion. On February 13, 2014, the respondents (including the Corporation) filed their
response to the request for certification of a claim as a class action.
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 arbitrator’s 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. On November 16, 2014, a hearing was held on the request to
certify the claim as a class action. On March 4, 2015, the requesting party filed its
summations in the case. On May 17, 2015, the respondents filed their summations. On
May 21, 2015, the plaintiff submitted its reply summations. The parties submitted a
request to the Court for approval of a compromise arrangement with respect to the case,
whereby ICL was expected to bear a small payment to the plaintiff and to the plaintiff’s
representative and was not expected to pay the members of the group any additional
amount. After an objection was filed by the State Attorney General to the compromise
arrangement, the plaintiff gave notice that it revokes its request to approve the
compromise arrangement. Accordingly, at this stage, the Corporation is awaiting a
decision on the request for certification of the claim as a class action.
36
A.
3.
(Cont.)
In the opinion of the Corporation’s 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.
4.
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 ORL’s 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. On December 8, 2014 and on January 28, 2015,
hearings were held on the proofs in the request for approval. The plaintiff filed its
amended summations in the request for approval on March 31, 2015, and the
respondents filed their summations on May 25, 2015. The plaintiff submitted his
response summations on June 7, 2015.
In the estimation of the Corporation and ORL, at this early stage of the proceeding, they
are unable to assess the chances of the claim and, accordingly, no provision has been
included in the financial statements.
5.
Further to the detail in Note 20B(1)(e) to the annual financial statements, on August 5,
2014, a request was filed in the District Court in Tel-Aviv–Jaffa (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
Corporation’s 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 Corporation’s undertaking and its
execution of an interested party transaction as part of ZIM’s debt arrangement were
made in violation of an authorization and contrary to the approval of the General
Meeting of the Corporation’s shareholders, and also that the precondition for the
Corporation’s undertaking in this transaction was not fulfilled. In this context, the
Requesting Party refers to the condition for transfer of ZIM’s shares by virtue of the
Special State Share, which the Requesting Party claims was not fulfilled.
37
A.
5.
(Cont.)
The Requesting Party further argues that as a result of this undertaking and its execution,
the Corporation suffered damage, which in the Requesting Party’s 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 Corporation’s
undertaking in ZIM’s 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
ZIM’s 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. On
December 15, 2014, a hearing on the proofs was held with respect to the main
proceeding.
On March 19, 2015, the Requesting Party filed the summations on its behalf. On
June 22, 2015 and June 24, 2015, all the respondents filed their summations. On July 7,
2015, the Requesting Party filed the response summations on its behalf. A decision has
not yet been rendered on the request for certification of the claim as a derivative claim.
At this stage of the proceedings, it is difficult for the Corporation to estimate the chances
of these proceedings and their risks. In any event, a derivative claim (even if it is
certified as a derivative claim) does not pose a significant threat of a liability for a
significant monetary amount on the part of the Corporation.
6.
On December 31, 2014, a request for certification of a claim as a derivative claim was
filed in the District Court of Tel-Aviv–Jaffa (Economic Division) (in this Section 5 –
“the Request for Certification”), by two shareholders who allegedly hold together 42 of
the Corporation’s shares (hereinafter – “the Plaintiffs”), against the Corporation,
Messrs. Gideon Langholtz, Oded Dagani, Zahavit Cohen and Michael Bricker (who
serve as Corporation directors) (hereinafter – “the Directors”) and against Trigger
Foresight (a limited partner) (hereinafter – “Trigger Foresight”). A copy of the statement
of claim is attached to the Request for Certification. In brief, the Plaintiffs contend that
the Directors, who served as members of the Special Committee of the Board of
Directors for accompaniment of ZIM’s debt arrangement, did not fulfill their duty to
formulate the best arrangement for the Corporation since they did not examine the
opinion issued by Trigger Foresight critically and even hired Trigger Foresight although
Trigger Foresight is held by a company that provides services to the Corporation and to
its controlling shareholders.
38
A.
6.
(Cont.)
The Plaintiffs contend that the member of the committee acted to approve the debt
arrangement at “any price” while they refrained from exercising reasonable business
discretion and were even guided by strange considerations. According to the Plaintiffs’
approach, Trigger Foresight acted unreasonably as an expert, and failed to deliver a
reasonable opinion with reference to the terms of the debt arrangement from the
Corporation’s standpoint.
As part of the Request for Certification, the Plaintiffs raise various causes of action of
the Corporation against the Directors, including breach of a duty of care and a duty of
trust, and against Trigger Foresight it is alleged that it assisted in breach of those duties
and it was negligent as an expert. As part of the Request for Certification, the Court is
requested to approve the claim as a derivative claim, to determine that the Directors and
Trigger Foresight harmed the Corporation and they are required to compensate it in
respect of the harm, in an amount of not less than $110 million – this being based on an
economic opinion that was attached to the Request for Certification. After a number of
agreed-to requests for receipt of an extension for filing the response of the respondents,
which were approved by the Court, on August 30, 2015, the respondents filed their
responses (objection) to the request for certification of the claim as a derivative claim.
Subsequent to the date of the report, on November 10, 2015, the Court approved the
(agreed) request on behalf of the Plaintiffs to postpone the date for submission of the
Plaintiffs’ reply to the responses to the request for certification to November 22, 2015.
Subsequent to the date of the report, on November 22, 2015, the Plaintiffs’ reply to the
responses of the defendants to the request for certification wherein, among other things,
the Plaintiffs repeated contentions against the members of the Special Committee of
violation of the duty of trust and the duty of caution, in connection with formulation and
approval of the Corporation’s debt arrangement, as well as their contentions against
Trigger Foresight, which according to them provided the Special Committee an
unreasonable fairness opinion that was tainted by significant deficiencies and also failed
in its other obligations as an economic advisor to the Committee. At the same time, a
letter was received by the Corporation’s representative demanding disclosure and
perusal of documents, which the Corporation’s is required to provide to the Plaintiffs’
representative within 7 days. A preliminary hearing was set for December 10, 2015. At
this early and preliminary stage of the proceeding, it is difficult for the Corporation to
assess the chances of the proceeding and its risks. In any event, as usual, a derivative
claim (even if it is ultimately approved as a derivative claim) does not create actual
monetary exposure to the Corporation itself.
7.
On January 15, 2015, a request was filed on behalf of Mr. Mordochai Gavrielli
(hereinafter – “the Plaintiff”), as part of a proceeding for certification of a claim as a
class action, in the amount of NIS 32.3 million (hereinafter – “the Request”), against the
Corporation (Claim No. 30751”) and, based on that alleged in the Request, against the
members of the Corporation’s Board of Directors, the Corporation’s CEO on the
relevant dates, the Corporation’s CFO on the relevant dates (hereinafter – “the
Officers”) and the Corporation’s controlling shareholder (hereinafter jointly and
severally – “the Respondents”). The Plaintiff held 5 of the Corporation’s shares between
the dates October 14, 2014 through December 3, 2014.
39
1.
7.
(Cont.)
As part of an Immediate Report of the Corporation dated December 31, 2014, a
notification was provided whereby there was a clerical error in the Report of the Board
of Directors as at September 30, 2014, which was published on November 25, 2014
(hereinafter – “the Board of Directors”). Pursuant to that alleged in the Request, the
clerical error is a “significant error in description of the financial position of the
subsidiary”, and this error caused the Plaintiff and additional shareholders, who bought
and sold their shares during the period between November 25, 2014 (prior to the start of
trading) through December 31, 2014 (after the close of trading) (hereinafter – “the
Alleged Misleading Period”), to sustain significant harm. In order to base his
above-mentioned claim, the Plaintiff attached to the Request, among other things, an
opinion of an expert wherein the aforesaid damages are estimated at NIS 32.3 million
(hereinafter – “the Expert’s Opinion”) and reports of analysts and notices published in
the media regarding the clerical error. The Plaintiff contends that the Respondents are
those that must compensate the shareholders for their above-mentioned damages. On
January 19, 2015, the District Court issued (the Hon. Judge D. Karat-Meir) a decision
whereby the Respondents must file their response to the Request no later than March 22,
2015, and the Plaintiff must file his reply to the Respondents’ response no later than
April 29, 2015.
On February 5, 2015, the Plaintiff filed a request to add to the court file an amended
expert’s opinion, due to, so it is alleged, a typing error in the opinion attached to the
Request. After agreed-to extensions, on July 12, 2015, a response to the request for
certification of the claim as a class action was filed on behalf of the Respondents. The
reply of the Plaintiff to the response was filed subsequent to the date of the report on
November 15, 2015 and the preliminary hearing on the claim was set for January 5,
2016.
At this preliminary stage, it is not possible to assess the probability that the District
Court will reject the Request or will approve it (and will certify the claim as a class
action) and the chances that the claim itself will be accepted or rejected and/or the
amount of the compensation that will be awarded against the Corporation should the
claim be accepted, this being also since an expert’s opinion has not yet been provided
with reference to the claim and the scope thereof. As a result, it is not possible, at this
juncture, to assess the risks to the Corporation embedded in the claim. Accordingly, no
provision has been included in the financial statements.
8.
On February 4, 2015, a letter was served to the Corporation on behalf of shareholders
(so they claim) in the Corporation, whereby the Corporation was requested, pursuant to
Section 194(B) of the Companies Law, 1999, to file a claim against the Corporation’s
controlling shareholders, and against the Corporation’s former CEO and three officers of
the Corporation (hereinafter together – “the Officers”) in connection with bonuses the
Officers received or will receive from the Corporation’s controlling shareholders or
entities related to them in respect of completion of the distribution transaction (as stated
in the Corporation’s Immediate Report dated December 23, 2014).
40
1.
8.
(Cont.)
The requesting parties contend, among other things, that payment of the said bonuses is
unfit, placed the Officers in a conflict of interest with reference to the distribution
transaction in which the controlling shareholders had a personal interest, and was not
approved as required by the Corporation. It was further contended that the Corporation
is the party entitled to the bonuses. The requesting parties contend that the Corporation
has a number of causes of action against the controlling shareholders and the Officers,
and in this framework they claim that the controlling shareholders breached their duty of
propriety and good faith, and that the Officers breached their duty of trust and good faith
to the Corporation, that they received rights of enjoyment that belonged to the
Corporation or that are due to it, and that they were unjustly enriched. In light of that
stated above the requesting parties contend that controlling shareholders and the
Officers are responsible to pay the Corporation the amount of the bonuses, in the amount
of $14.3 million, and that it must sue them in respect of this.
On March 4, 2015, a response letter on behalf of the Corporation was sent to the
representative of the respondents in accordance with Section 196 of the Companies Law,
wherein it was stated, among other things, that after the Corporation’s Board of
Directors considered the matter and examined all the contentions raised in the said
demand letter, it was decided that it is unfit, there is no cause of action and there is no
justification for filing the requested claim.
On July 9, 2015, a request for certification of a claim as a derivative claim (hereinafter –
“the Request for Certification”) was filed in the District Court in Tel-Aviv–Jaffa
(Economics Division) by Ms. Yehudit Langa, who alleges to hold shares of the
Corporation (hereinafter – “the Claimant”), against the Corporation, against Mr. Idan
Ofer and Millennium Investments Elad Ltd. (hereinafter, both together – “the
Controlling Shareholders”), and against the Corporation’s form CEO and 3 additional
officers (hereinafter – “the Officers”). A copy of the statement of claim was attached to
the Request for Certification.
The Claimant contends briefly, among other things, that payment of bonuses by the
Controlling Shareholders (or entities related to them) to the Officers in respect of
completion of the process of distribution of the shares of Kenon Holdings Ltd. (the
subject of the Corporation’s report dated December 23, 2014) (hereinafter – “the
Bonuses” and “the Distribution Process”, respectively) is invalid, was made while
distorting and circumventing a series of decisions in the Corporation, and is contrary to
the Corporation’s remuneration policy and the provisions of law pertaining to
compensation of officers. It is further contended that payment of the bonuses placed the
Officers in a conflict of interests regarding the Distribution Process in which the
Officers had a personal interest.
41
1.
1.
8.
(Cont.)
The Claimant contends, among other things, that in their consent to receive the bonuses
the Officers violated their duty of trust to the Corporation, received rights of enjoyment
that she alleges belong to the Corporation, exploited a business opportunity of the
Corporation, breached their fiduciary obligations and received rights of enjoyment that
are forbidden under the laws of trust and agency, were unjustly enriched, and that the
Corporation is entitled to the amounts of the said bonuses.
The Claimant also contends that the Controlling Shareholders breached their duty to act
fairly, in good faith and in a customary manner, and that the Court must rule, among
other things, that they also bear responsibility for the alleged causes of action, as she
sees it, against the Controlling Shareholders.
In its decision on July 12, 2015, the Honorable Court (the Honorable Judge Ruth Ronen)
determined that the responses of the respondents (the Corporation, the Controlling
Shareholders and the Officers) are to be filed no later than October 12, 2015.
Subsequent to the date of the report, on October 11, 2015, the Court granted the
agreed-to request for an extension of time and extended the time for submission of the
responses of the respondents up to December 12, 2015. An initial pre-trial hearing was
set for February 2, 2016.
At this early and preliminary stage of the proceeding, it is difficult for the Corporation to
assess the chances of the proceeding and its risks. In any event, as usual, a derivative
claim (even if it is ultimately approved as a derivative claim) does not create actual
monetary exposure to the Corporation itself (since this is the rationale forming the basis
of a claim of this type), and this is true, so it would appear, in the present case as well.
B.
ICL
1.
On December 29, 2013, an assessment was received from the Israeli Tax Authority
(“ITA”) whereby ICL is required to pay tax in addition to the amount it already paid in
respect of the years 2009-2011, in the amount of approximately NIS 917 million
(approximately $234 million). ICL appealed the ITA’s assessment. On January 27, 2015,
an Order was received from the ITA regarding the additional tax as determined in the
assessment referred to above.
42
In light of the above-mentioned causes of action, as part of the relief claimed in the
Request for Certification, the Claimant requested, aside from certification of the claim
as a derivative claim, that the Court shall instruct the Officers and the Controlling
Shareholders to pay the Corporation the bonuses they received (in the amount of about
NIS 56 million plus interest and linkage differences), that the Court shall forbid the
Controlling Shareholders to enter into a direct undertaking with the Officers and with
other officers of the Corporation in connection with their positions with the Corporation
(including, to grant or to commit to grant rights, monies or another right of enjoyment
with respect to their positions), and to award the Claimant’s expenses and the fees of her
attorneys in the process of charging the Corporation.
ICL (Cont.)
1.
(Cont.)
The main contentions of the ITA are that ICL's subsidiaries: DSW and Rotem Amfert
Negev, are not entitled to benefits under the Law for Encouragement of Capital
Investments – commencing on the enacted date of Amendment No. 60 to this Law, in
2005 or, alternatively, the mining and water pumping activities, including the activities
in the evaporation pond, are not industrial activities and, therefore, they are not entitled
to benefits under the Law for Encouragement of Capital Investments. ICL disagrees with
the ITA's position and on February 25, 2015 it filed an appeal of the Order. ICL
estimates that it is more likely than not that its claims will be accepted at the end of the
appeal process and, therefore, no provision for tax has been included in the financial
statements as a result of the said assessment.
2.
Further to the detail in Note 20B(2)(g) to the annual financial statements, as part of the
arbitrator’s ruling an examiner was appointed to implement the price formula based on
the data received from DSW and Haifa Chemicals. The examiner commenced the
examination process in respect of the years 2011, 2012 and 2013, as a result of Haifa
Chemicals' request to commence the examination process in respect of the aforesaid
years.
On May 31, 2015, a ruling was rendered by the examiner with respect to implementation
of the price formula regarding the above-mentioned years, whereby Haifa Chemicals met
the threshold requirement only in 2012-2013 and, therefore, the examination process of
DSW’s costs will continue with respect to these years.
On June 8, 2015, DSW filed a petition in the District Court in Haifa contending that the
examiner overstepped his authority regarding several assumptions that were taken into
account as part of implementation of the price formula and as a result his examination is
null and void.
ICL is currently in commercial negotiations and proceedings to settle the accounts for
the prior periods (2009-2015) and to determine the future price of potash in order to
establish more clarity for future periods. Based on the status of the negotiations, ICL
estimates that the overall net result (receivable or payable) in respect to prior periods
will be insignificant. Therefore, no provision or accrued income has been included in the
financial statements. If negotiations are unsuccessful, ICL will reconsider its legal steps
and the relevant implications.
3.
On June 7, 2015, a claim and application for certification was filed in the District Court
of Tel Aviv-Jaffa against eleven defendants, including a subsidiary of ICL, Fertilizers
and Chemical Materials Ltd., regarding claims relating to air pollution in Haifa Bay
(Israel) and damage resulting from it, according to the claims, to the population of Haifa
Bay. The scope of the claim is approximately NIS 14.4 billion ($3.8 billion).
43
B.
ICL (Cont.)
3. (Cont.)
ICL is studying the request. In light of the complexity and early stage of the proceeding,
along with the fact that the requested opinions of the various experts have not yet been
received, it is difficult to predict the outcome of the proceeding. Nonetheless, in ICL’s
estimation, based on the preliminary factual material provided and the relevant court
decisions, the chances that the contentions of the requesting parties will be rejected
exceed the chances that they will be accepted. (Regarding this claim against ORL,
Carmel Olefins, and Gadiv – see C3 below).
4.
In June 2015, a fire broke out in one of the facilities of the subsidiary, Rotem Amfert, in
Israel. ICL has insurance coverage for most of the direct damage. In the second quarter
of 2015, ICL recognized an expense of $10 million, which reflects the write-off of the
facility’s book value. Subsequent to the date of the report, ICL received a partial
payment from the insurance company of about $7 million, which was recognized in the
third quarter of 2015 as income under “other income” in the statement of income.
5.
On June 16, 2015, a petition was filed in the Israeli Court for Water Matters, wherein
the Government Water Authority is requested to act to regulate and supervise the use of
water sources by DSW, this being, among other things, by means of determining
pumping limits as part of the production licenses and imposition of production levies.
ICL estimates that the chances that the petition will be accepted are lower than chances
its will be rejected.
6.
In August 2015, as further updated in September 2015, the Israeli Public Utilities
Authority ("PUA") resolved to impose certain electricity system management services
charges also on private electricity producers as opposed to only on private consumers,
this being retroactively from June 2013. On September 13, 2015, ICL, DSW and Rotem
filed a motion against the PUA's resolution claiming that it suffers from fundamental
flaws and requesting an intermediary injunction until the motion is clarified.
In light of the PUA resolution, in the third quarter of 2015, ICL recognized a provision
in the amount of about $18 million, of which about $12 million is in respect of previous
years which was included under “other expenses” and about $6 million relates to the
nine-month period ended September 30, 2015, which was included under “cost of sales”
in the statement of income.
7.
Further to Note 20B(2)(e) to the annual financial statements, on September 23, 2015,
ICL’s subsidiary in Spain (ICL Iberia/IBP) was notified of the judgment issued by the
Spanish Supreme Court, which declares that the environmental authorization of the
Sallent site is null and void. Subsequent to the date of the report, ICL Iberia (IBP), a
subsidiary of ICL in Spain, and the Government of Catalonia signed an agreement that is
expected to assure continuation of the potash mining activities in Catalonia (the Bages
region), and that will cover all the mining activities, including the matter of
environmental protection and support of regulatory, transportation and infrastructure
matters.
44
B.
ICL (Cont.)
3. (Cont.)
The agreement sets down in writing the position of the Government of Catalonia, which
views the potash industry as a public strategic interest and by means of which it ensures
the existence of this industry in this region over the long run. In addition, the agreement
arranges the removal of the salt pile on the company’s site in Sallent including
completion of the plan for restoration of the site, and which is to be completed by 2065.
8.
Further to Note 20B(2)(f) to the annual financial statements, in connection with a
request for certification of a class action against Dead Sea Works regarding charging a
price for potash in violation of the Restrictive Business Practices laws in Israel, the
parties are currently negotiating a settlement agreement which is expected to result in an
immaterial effect on the financial statements. ICL estimates that the chances that the
negotiations will succeed are higher than the chances that they will fail. As at September
30, 2015, ICL has a sufficient provision in its financial statements.
9.
Further to Note 20A(1)(b) to the annual financial statements, in connection with the
agreement with Albemarle to establish a joint venture for FR122P manufacturing, during
the third quarter of 2015, Albemarle and ICL terminated their agreement for the
proposed joint venture and are, instead, discussing a long-term supply arrangement
pursuant to which ICL will supply to Albemarle polymeric flame retardants.
10. Further to Note 20B(2)(b)(i) to the annual financial statements, in connection with the
pending proceedings relating to the Kishon River, on September 29, 2015, the Supreme
Court issued its ruling whereby it rejected both the fishermen's appeal as well as the
soldiers' appeal.
11. Further to that stated in Note 20B(2)(d) to the annual financial statements, as part of the
second stage of the royalties’ arbitration with respect to the principles according to
which the monetary calculations will be made, subsequent to the date of the report, on
November 1, 2015, the State submitted opinions on its behalf relating, mainly, to the
principles whereby the interest to be added to the royalties' payment in the relevant
arbitration period is to be calculated.
As part of the said opinions, the State presented two optional calculation methods, the
results of which yield the amounts of NIS 230 million (about $59 million) and NIS 460
million (about $118 million). ICL disagrees with the State's position and calculations,
and it is expected to submit its position in accordance with the timetables set by the
arbitrators.
ICL estimates that the probability that its interest calculations will be accepted by the
arbitrators is more likely than not and, accordingly, it did not increase the interest
provision in its books, which presently stands at the amount of about $31 million.
45
B.
ORL
1.
Further to that stated in Note 20B(3)(G) to the annual financial statements, ORL and the
ORL Group companies have submitted an detailed response to the warning received
from the Ministry of Environmental Protection.
2.
Further to that stated in Note 20B(3)(D) to the annual financial statements, regarding the
investigation by the Ministry of Environmental Affairs, during the period of the report,
indictments were filed against ORL, Carmel Olefins and Gadiv, former officers of ORL
and against other managers at the relevant dates. The indictments attribute to the
defendants a violation of the provisions of the personal orders issued to the companies in
2009-2010, alleged violations of the Prevention of Nuisances Law, 1961 and the Clean
Air Law, 2008, for the alleged results of certain stack tests in 2011, and in respect of
ORL and its managers, also for allegedly delaying the installation of means to control
emissions from the storage container on its premises; in respect of ORL and its officers,
a violation of the Hazardous Substances Law, 1993, for the date that accumulated sludge
was removed from ORL’s premises. Pursuant to ORL’s estimation, which is based on
the assessment of its legal advisors that are representing it in this claim, ORL included a
provision that properly reflects the costs in respect of the said claim that may be
incurred, with a probability of more than 50%.
3.
In the period of the report, ORL, Carmel Olefins, and Gadiv were served with a claim
and a request for certification of the claim a class action suit, which were filed against
11 defendants. According to the claim, the defendants caused prohibited air pollution in
Haifa Bay, which resulted in a higher morbidity rate in Haifa Bay compared to the rest
of the country, and caused a higher risk of sickness and even a risk to the lives of Haifa
Bay residents, thereby allegedly infringing on the right of autonomy of each resident in
the area. The extent of the compensation claimed from all the defendants, amounts to
about NIS 14.4 billion. Due to the early stage of the proceeding and the complexity
thereof, along with the fact that an experts’ opinion has not yet been received on behalf
of the defendants, it is difficult to predict the outcome. Nonetheless, in light of the
request and the preparation thereof, and the assessment of the legal advisors of the legal
situation and the factual material they have received up to now, ORL’s management
believes, at this stage, based on its legal counsel, that the chances that the request for
certification will be rejected exceed the chances that it will be accepted. Accordingly, no
provision has been including in the financial statements. (Regarding this claim against a
subsidiary of ICL – see Section B3 above).
4.
On August 13, 2015 or proximate thereto, a discharge of liquid waste was discovered
east of Gadiv’s plant. Examinations performed indicated that it is possible that the
sewage line that connects Gadiv’s plant to the sewage conductor located east of the sites
of companies in the ORL Group was not connected by Gadiv’s sewage service provider
to the new sewage conductor that was installed in 2014. Gadiv contacted its sewage
service provider with respect to this matter and requested that it examine the matter and
complete performance of the work if such work was not performed as required.
Commencing from the discovery date of the new waste discharge, Gadiv has refrained
from discharging waste into the said sewage line, while finding a temporary solution for
discharging the waste without incurring significant additional costs. The Ministry of
Environmental Protection has started an investigation of the matter.
46
C.
C.
ORL (Cont.)
5.
As detailed in Note 20B(3) to the annual financial statements, legal and administrative
proceedings are being carried on against the ORL Group regarding environmental
protection. In the estimation of ORL’s management, based on an opinion of its legal
advisors and the legal advisors of ORL’s subsidiaries, at this stage, it is not possible to
estimate the impact of that stated above, if any, on the financial statements as at
September 30, 2015 and, accordingly, no provisions in respect thereof have been
included in the financial statements.
Regarding liabilities outstanding against the Corporation and investee companies – see Note 20 to
the Corporation’s annual financial statements.
Note 8 – Financial Instruments
Fair value
Fair value compared with book value
The Corporation’s financial instruments include mainly: cash and cash equivalents,
investments, deposits and short-term loans, receivables and debit balances, investments and
long-term receivables, short-term credit, payables and credit balances, long-term loans and
other liabilities, as well as derivative financial instruments.
Due to their nature, the fair value of the financial instruments included in the Corporation’s
working capital is generally identical or approximates the value, according to which they are
stated in the accounts. The fair value of the deposits and the long-term receivables and other
debit balances and the other long-term liabilities, also usually approximate their book values
since these financial instruments bear interest at a rate that is roughly the same as the
customary interest rate in the market.
The following table details the book value and fair value of groups of financial instruments
bearing fixed interest where their book values do not equal or approximate their fair values.
Non-convertible debentures
Loans from banks and
others
September 30, 2015
Book
Market
value
value
Unaudited
As at
September 30, 2014
Book
Market
value
value
Unaudited
Millions of dollars
December 31, 2014
Book
Market
value
value
Audited
2,014
2,083
2,032
2,247
2,075
2,187
926
961
2,370
2,517
1,579
1,656
47
(1)
Note 8 – Financial Instruments (Cont.)
(2)
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 that is not based on observed market data.
September 30
2015
(Unaudited)
September 30
2014
(Unaudited)
Book Value
$ millions
December 31
2014
(Audited)
26
8
23
51
108
37
22
89
–
148
45
9
53
–
107
1
70
–
71
32
59
7
98
34
141
8
183
Assets
Marketable securities held for trade (1)
Derivatives used for accounting hedge (2)
Derivatives used for economic hedge (2)
Collar options (3)
Liabilities
Derivatives used for accounting hedge (2)
Derivatives used for economic hedge (2)
Collar options (3)
(3)
Financial instruments measured at fair value at Level 3
The following table presents a reconciliation between the opening balance and the closing
balance with respect to financial instruments measured at fair value at Level 3 in the fair
value hierarchy:
Nine Months Ended
September 30
2015
2014
(Unaudited)
Opening balance
Sales, net
Settlements
Total gain (loss) recognized
in the statement of income
Closing balance
For the
Three Months Ended
September 30
2015
2014
(Unaudited)
Year Ended
December 31
2014
(Audited)
(8)
–
5
–
(3)
–
3
–
1
–
(3)
–
–
(3)
(2)
54
51
(5)
(8)
47
51
(5)
(8)
(2)
(7)
48
(1) Level 1.
(2) Level 2.
(3) Level 3.
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 rate and the appropriate interest coefficient for the period of the transaction
along with an index of the relevant currencies.
The fair value currency options and options on energy prices is determined using trading
programs that are based on the customer model in the account, internal value, standard
deviation, interest and period of the option.
The fair value of contracts for exchange (SWAP) of interest rates and energy prices is
determined using trading programs and is based on the market prices, period up to settlement
of the contract and the credit risks of the parties to the contract.
The fair value of currency and interest exchange (SWAP) transactions is based on the market
interest rates for discounting the future cash flows on the basis of the terms and length of the
period up to maturity of each transaction and using market interest rates.
Level 3
The fair value of derivate assets at Level 3 is measured every quarter by an external appraiser
using the “Black and Scholes” model, which is used for measuring options. Measurement of
the value is examined by professional parties in the Corporation. Despite the fact that the
Corporation believes that the fair values determined for purposes of measurement and/or
disclosure are appropriate, use of different assumptions or measurement methods could
change the fair value. Regarding measurement of fair value, a possible reasonable change of
one or more of the assumptions could increase (decrease) the income loss and the equity, as
shown below:
49
(4)
Data regarding measurement of fair value at Level 2 and Level 3 (Cont.)
Level 3 (Cont.)
Change in income (loss) and equity
$ millions
$ millions
$ millions
$ millions
Rise of 100
Rise of 50
Fall of 50
Fall of 100
base points
base points
base points
base points
Change in interest rate*
(5)
(2)
2
4
Change in income (loss) and equity
$ millions
$ millions
$ millions
$ millions
Increase of
Increase of
Decrease of Decrease of
10%
5%
5%
10%
Change in the fluctuations of the
price of an ICL share**
3
2
(3)
(6)
* Based on a risk free interest curve.
** As at September 30, 2015. The standard deviation is about 27.5%.
50
(4)
Condensed separate information
provided in accordance with
Regulation 38D of the Securities
Regulations (Periodic and Immediate
Reports), 1970
(Unaudited)
Condensed Separate Information provided in
accordance with Regulation 38D of the Securities Regulations
(Periodic and Immediate Reports), 1970
Unaudited
Contents
Page
Condensed Interim Statement of Financial Position Information
2
3–4
Condensed Interim Statement of Income Information
5
Condensed Interim Statement of Comprehensive Income Information
6
Condensed Interim Statement of Cash Flows Information
7–8
Additional Information to the Condensed Interim Separate-Company Financial Information
9 – 10
Special Report of the Auditors’ with respect to Separate-Company Financial Information
Somekh Chaikin
Telephone
Fax
Internet
KPMG Millennium Tower
17 Ha'arba'a Street, PO Box 609
Tel Aviv 61006 Israel
972 3 684 8000
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, 2015 and for the nine-month and the three-month periods then ended. The
separate-company interim financial information is the responsibility of the Corporation’s Board of Directors and
Management. Our responsibility is to express a conclusion on the separate-company interim financial information for
these periods based on our review.
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.
That stated in Notes 7.C.1 and 5 to the Corporation’s consolidated financial statements regarding certain legal
proceedings and other contingencies against ORL and its subsidiaries, 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 25, 2015
Somekh Chaikin, a partnership registered under the Israeli Partnership
Ordinance, is the Israeli member firm of KPMG International, a Swiss
cooperative.
2
Without qualifying our above-mentioned conclusion, we direct attention to:
Condensed Interim Separate-Company Financial Information as at September 30, 2015
Condensed Interim Statements of Financial Position Information
Current Assets
Short-term deposits
Loans to investee companies
Other receivables and debit balances
Income tax receivable
Assets of disposal group classified as designated for
distribution
Total current assets
Non-Current Assets
Investments in investee companies
Loans to investee companies and to a related company
Debit balances, including derivative instruments
Total non-current assets
Total assets
3
247
72
162
1
15
154
196
970
61
–
34
–
464
664
63
2
22
–
–
651
--------
–
1,261
--------
936
2,151
--------
1,832
154
59
2,045
--------
2,576
637
62
3,275
--------
1,764
39
26
1,829
--------
2,696
4,536
3,980
At September 30
At December 31
2015
2014
2014
(Unaudited)
(Audited)
Condensed Interim Statements of Financial Position Information
Current Liabilities
Current maturities in respect of non-current liabilities
Other payables and credit balances
Income tax payable
Liabilities of disposal group classified as designated for
distribution
Total current liabilities
Non-Current Liabilities
Loans from banks and others
Debentures
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
350
7
11
–
161
11
10
6
220
31
10
6
–
368
--------
–
188
--------
21
288
--------
638
768
11
–
3
1,420
--------
1,100
870
7
52
9
2,038
--------
1,059
769
27
–
4
1,859
--------
1,788
--------
2,226
--------
2,147
--------
314
(116)
190
520
908
--------
308
25
176
1,801
2,310
--------
308
(25)
190
1,360
1,833
--------
2,696
4,536
3,980
___________________________
Avisar Paz
CEO
Approval date of the financial statements: November 25, 2015
4
__________________________
Natan Yalovsky
Acting CFO
At September 30
At December 31
2015
2014
2014
(Unaudited)
(Audited)
Condensed Interim Statements of Income Information
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
*2014
2015
*2014
(Unaudited)
(Unaudited)
Other income (expenses)
Year Ended
December 31
2014
(Audited)
(8)
54
(12)
(3)
(2)
47
(3)
–
(16)
(11)
Operating income (loss)
46
-----
(15)
-----
45
----
(3)
-----
(27)
-----
Financing expenses
Financing income
(86)
22
(128)
54
(19)
(5)
(67)
28
(209)
104
(64)
-----
(74)
-----
(24)
----
(39)
-----
(105)
-----
257
-----
183
----
64
----
91
-----
166
-----
239
94
85
49
34
(151)
11
9
8
14
Income from continuing operations
(after tax)
390
83
76
41
20
Income from discontinued operations
(after tax)
–
554
–
678
153
390
637
76
719
173
Share in income of investee companies,
net
Income for the period attributable to
the owners of the Corporation
5
* Reclassified – see Note 5 to the consolidated financial statements.
Condensed Interim Statements of Comprehensive Income Information
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
*2014
2015
*2014
(Unaudited)
(Unaudited)
Income for the period attributable to the
owners of the Corporation
Year Ended
December 31
2014
(Audited)
390
-----
637
-----
76
----
719
-----
173
-----
Effective portion of the change in fair value
of cash flow hedges
(2)
(4)
(9)
(11)
(18)
Net change in fair value of cash flow hedges
transferred to the statement of income
1
9
5
10
18
Other comprehensive loss in respect of
investee companies, net
Other comprehensive loss from discontinued
operations
Total other comprehensive loss for the
period, net of tax
Total comprehensive income (loss) for the
period attributable to the owners of the
Corporation
(71)
(121)
(23)
(90)
(163)
–
(44)
–
(34)
(49)
(72)
-----
(160)
-----
(27)
-----
(125)
-----
(212)
-----
318
477
49
594
(39)
* Reclassified – see Note 5 to the consolidated financial statements.
6
Components of other comprehensive
income (loss)
Condensed Interim Statements of Cash Flows Information
Cash flows from operating activities
Income for the period attributable to the
owners of the Corporation
Adjustments:
Share in income of investee companies, net
Capital gains, net
Share-based payment transactions
Gain on re-measurement to fair value of collar
options
Change in receivables
Income tax received (paid), net
Dividend received
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
Provision of long-term loan to related
company
Collection of long-term loans from investee
companies
Interest received
Receipts (payments) in respect of settlement
of hedging derivatives, net
activities
Year Ended
December 31
2014
(Audited)
390
637
76
719
173
64
(257)
–
2
37
(81)
(618)
5
24
(64)
–
–
37
(149)
(617)
1
94
(40)
(296)
6
(54)
(151)
(6)
(8)
(14)
–
11
(9)
(49)
(58)
(47)
9
(2)
1
(1)
–
8
(1)
(3)
(4)
7
14
(42)
(24)
(66)
(11)
121
96
-----
7
490
439
-----
(1)
28
26
-----
(5)
117
108
-----
7
542
483
-----
(128)
588
(203)
(455)
–
273
(203)
(441)
(204)
(154)
–
(123)
–
–
(188)
(110)
–
–
–
–
–
263
5
–
–
–
4
1
263
6
2
106
(4)
70
105
(573)
-----
(172)
-----
(407)
-----
356
-----
7
269
-----
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(Unaudited)
Condensed Interim Statements of Cash Flows Information
Cash flows from financing activities
Proceeds from sale of investment in investee
company
Dividend paid
Receipt of long-term loans and issuance of
debentures
Repayment of long-term loans and debentures
Interest paid
Payment for settlement of derivatives used for
hedging
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
2014
(Audited)
–
(300)
149
–
–
(100)
149
–
190
–
115
(403)
(82)
288
(393)
(90)
115
(100)
(32)
288
(244)
(35)
288
(427)
(106)
(1)
(1)
(1)
(671)
-----
(47)
-----
(118)
-----
158
-----
(57)
-----
(219)
(15)
177
(307)
254
464
215
71
508
215
(4)
2
196
247
8
(1)
247
–
(5)
196
(2)
(5)
464
For the
Nine Months Ended
Three Months Ended
September 30
September 30
2015
2014
2015
2014
(Unaudited)
(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, 2014 and for the year then ended
and together with the condensed consolidated financial statements as at September 30, 2015.
In this separate-company interim financial information:
The Corporation
–
B.
Subsidiaries
–
Companies the financial statements of which are fully consolidated,
directly or indirectly, with those of the Corporation.
C.
Investee companies
–
Companies where the Corporation’s investment therein is included,
directly or indirectly, in the financial statements using the equity
basis of accounting.
Set forth below are the results attributable to discontinued operations
For the
nine months
ended
September 30
2014
(Unaudited)
Other income
Gain on sale of discontinued activities due to debt
arrangement in ZIM
Loss from decline in value of transferred assets
Operating income
Financing income
Share in income (losses) of investee companies, net
Income for the period from discontinued operations
9
For the
three months
ended
September 30
2014
(Unaudited)
$ millions
For the
year
ended
December 31
2014
(Audited)
(2)
12
–
9
(29)
17
609
–
619
11
(76)
554
609
–
618
2
58
678
609
(329)
268
11
(126)
153
2.
A.
Additional Information
Cash flows from discontinued operations
Net cash provided by (used in) investing activities
Net cash provided by (used in) discontinued
operations
4.
For the
nine months
ended
September 30
2014
(Unaudited)
For the
three months
ended
September 30
2014
(Unaudited)
$ millions
For the
year
ended
December 31
2014
(Audited)
46
(63)
2
(202)
153
128
(17)
(200)
281
Distributions
A.
Upon completion of the transaction, the Corporation distributed a dividend in-kind, in the amount
of about $950 million, and cash dividend, in the amount of about $200 million, was also
distributed.
B.
On March 19, 2015, the Board of Directors of ICL decided to distribute a dividend, in the amount
of about $59.5 million (about $0.05 per share) (the Corporation’s share – about $28 million). The
dividend was distributed on April 29, 2015.
C.
On May 12, 2015, the Board of Directors of ICL decided to distribute a dividend, in the amount of
about $151 million (about $0.12 per share) (the Corporation’s share – about $71 million), was
distributed on September 23, 2015.
D.
On August 11, 2015, the Board of Directors of ICL decided to distribute a dividend, in the amount
of about $52.5 million (about $0.04 per share) (the Corporation’s share – about $25 million). The
dividend was distributed on September 10, 2015, where the effective date for determining
eligibility to the dividend is August 27, 2015.
E.
Subsequent to the date of the report, On August 20, 2015, the Corporation’s Board of Directors
decided to distribute a dividend, in the amount of $100 million, about $13.11 per share. The
dividend was distributed on September 17, 2015.
F.
On November 11, 2015, the Board of Directors of ICL decided to distribute a dividend, in the
amount of about $84 million (about $0.07 per share) (the Corporation’s share – about $39
million). The dividend is to be distributed on December 16, 2015, where the effective date for
determining eligibility to the dividend is December 1, 2015.
10
3.
Quarterly Report regarding
Effectiveness of the Internal Control
over the Financial Reporting and the
Disclosure in accordance with
Regulation 38C(a)
(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 Corporation’s
financial reporting and disclosure.
For this purpose, the members of management as at the approval date of the financial statements are:
Avisar Paz, CEO;
Natan Yalovsky, Acting CFO
Eran Sarig, EVP of Business and Strategic Development;
Maya Alscheich-Kaplan, In-House Counsel and Corporation Secretary;
Internal control over the financial reporting and disclosure includes the Corporation’s 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 Corporation’s
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, 2014 (hereinafter –
“the Latest Annual Report regarding the Internal Control”), the Board of Directors and Management evaluated
the Corporation’s internal control; based on this evaluation, the Corporation’s Board of Directors and
Management reached the conclusion that the internal control as stated, as at December 31, 2014, is effective.
Up to the date of the report, no event or matter was brought to the attention of the Board of Directors or
Management that is capable of changing the evaluation of the effectiveness of the Internal Control, as
presented in the framework of the Latest Annual Report regarding the Internal Control.
As at the date of the report, based on the Latest Annual 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.
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, Avisar Paz, declare that:
(1)
I have examined the interim financial statements of Israel Corporation Ltd. (hereinafter – “the Corporation”)
as at September 30, 2015 (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 Corporation’s 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 Corporation’s 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
Corporation’s 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
Corporation’s 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), 2010, 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)
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
Corporation’s financial reporting and disclosure.
Nothing in that stated above detracts from my responsibility or the responsibility of any other person under any law.
November 25, 2015
________________________
Avisar Paz, CEO
(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, Natan Yalovsky, declare that:
(1)
I have examined the interim financial statements and the other financial information included in in the
statements for interim periods of Israel Corporation Ltd. (hereinafter – “the Corporation”) as at September 30,
2015 (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 Corporation’s 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 Corporation’s 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
Corporation’s 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 Corporation’s 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)
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), 2010, 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)
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
Corporation’s financial reporting and disclosure.
Nothing in that stated above detracts from my responsibility or the responsibility of any other person under any law.
November 25, 2015
_________________________
Natan Yalovsky, Acting CFO
(5)
(a)

Ruson Sport Agencies Ltd

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