Delek Group Ltd 7, Giborei Israel St., P.O.B 8464, Industrial Zone South, Netanya 42504, Israel Tel: 972 9 8638444, 972 9 8638555 Fax: 972 9 8854955 www.delek-group.com ANNUAL REPORT 2010 ANNUAL ANNUAL REPORT 2010 DelekDelek Group Group Ltd Ltd 7,7, Giborei Giborei Israel Israel St., St., P.O.B P.O.B 8464, 8464, Industrial Industrial Zone Zone South, South, Netanya Netanya 42504, 42504, Israel Israel Tel:Tel: 972 972 9 98638444, 8638444, 972 972 9 98638555 8638555 Fax: Fax: 972 972 9 98854955 8854955 www.delek-group.comwww.delek-group.com WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 IMPORTANT This document is an unofficial translation for convenience only of the Hebrew original of December 31, 2010 financial report of Delek Group Ltd. that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on March 31, 2010. The Hebrew version submitted to the TASE and the Israeli Securities Authority shall be the sole binding legal version. WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Table of Contents Chapter A | Corporate Description Chapter B | Board of Directors Report on the State of the Company’s Affairs Chapter C | Financial Statements for December 31, 2010 Chapter D | Additional Information on the Corporation Chapter E | Annual report for 2010 on the Effectiveness of Internal Controls for Financial Reporting and Disclosure WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter A Corporate Description WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Chapter A – Description of the Corporation's Business Table of Contents Chapter A – Description of the Corporation's Business ......................................................... 1 Part One – Description of the Corporation's Business ........................................................... 2 1.1 Company operations and business developments ..................................................... 3 1.2 Operating Segments .................................................................................................. 8 1.3 Equity investments in the Company and transactions in its shares ............................ 8 1.4 Distribution of dividends ............................................................................................. 9 Part Two – Other Information .................................................................................................. 11 1.5 Financial information related to the Group's operating segments ............................ 11 1.6 General environment and impact of external factors ................................................ 14 Part Three - Description of the Corporation's Business by Operating Segment ................ 19 1.7 Refining and Fuels in the USA ................................................................................. 19 1.8 Fuel Product Segment in Israel ................................................................................ 49 1.9 Fuel products in Europe ........................................................................................... 94 1.10 Motorway Service Areas in the UK ......................................................................... 123 1.11 The Energy Sector ................................................................................................. 146 1.12 Insurance and Finance in Israel ............................................................................. 259 1.13 The Insurance segment in the U.S. ........................................................................ 305 1.14 The Automotive Segment ....................................................................................... 326 1.15 Additional operations .............................................................................................. 348 Part Four – Matters Pertaining to the Group as a Whole ........................................................ 364 1.16 Property, plant and equipment ............................................................................... 364 1.17 Human Capital ........................................................................................................ 364 1.18 Financing ................................................................................................................ 365 1.19 Taxation .................................................................................................................. 368 1.20 Company liens, loans and guarantees ................................................................... 368 1.21 Restrictions and Supervision of the Corporation’s Operations ............................... 369 1.22 Material Agreements .............................................................................................. 370 1.23 Legal proceedings and insurance .......................................................................... 370 1.24 Business goals and strategy .................................................................................. 370 1.25 Financial information concerning geographic regions ............................................ 372 1.26 Discussion of Risk Factors ..................................................................................... 372 A-1 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 Part One – Description of the Corporation's Business Key: In this report the following abbreviations have the following meanings: Company or Delek Group - Delek Group Ltd. IDE - IDE Technologies Ltd Excellence - Excellence Investments Ltd. Barak Capital - Barak Capital Ltd. Gadot - Gadot Biochemical Industries Ltd. Delek Ashkelon - I.P.P. Delek Ashkelon Ltd. Delek Europe - Delek Europe Holdings Ltd. Delek Energy - Delek Energy Systems Ltd. Delek Benelux - Delek Benelux B.V. Delek Investments - Delek Investments and Properties Ltd. Delek Refining - Delek Refining Inc. Delek Israel - Delek The Israel Fuel Corporation Ltd. Delek Real Estate - Delek Real Estate Ltd. Delek Petroleum - Delek Petroleum Ltd. Delek Infrastructure - Delek Infrastructure Ltd. Delek Automotive - Delek Automotive Systems Ltd. Delek Capital - Delek Capital Ltd. Delek USA - Delek US Holdings Inc. HOT - HOT Cable Media Systems Ltd. The Phoenix - The Phoenix Holdings Ltd. Roadchef - Roadchef Ltd. Republic - Republic Companies Group Inc. Avner Partnership - Avner Oil and Gas Exploration – Limited Partnership Delek Drilling Partnership - Delek Drilling – Limited Partnership The Partnerships - Avner Partnership and Delek Drilling Partnership A-2 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 1.1 Company operations and business developments 1.1.1 Delek Group Ltd. ( "the Company") is a holding company controlling numerous corporations (the Company and the companies it controls are hereinafter referred to, for the sake of convenience as "the Group" or "Delek Group"). 1.1.2 The Company was incorporated on October 26, 1999 as a public company.1 1.1.3 The following chart illustrates the Group's major holdings as of March 28, 2011: 1 The Company was incorporated as part of the Group's reorganization in 1999, in which Group operations were separated and divided into three main subsidiaries, with the Company established as a parent company. Prior to reorganization, Group operations were included under Delek, The Israel Fuel Corporation Ltd., which was incorporated on December 12, 1951 and is currently, following the reorganization, responsible for the fuel products in Israel segment. A-3 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 DELEK GROUP LTD. 100% 100% Delek Investments and Properties Delek Petroleum 54.2% 32.42% 79.67% 63.92% 100% 77.2% 96.7% 100% Delek Delek Gadot Delek the 3.3% Delek Delek Roadchef Phoenix Automotive Energy Biochemical Israel Fuel Infrastructure 80% Hungary Ltd. Ltd. *** Systems Systems Industries Corporation 20% Delek Europe 99% 73.32% 100% **51% **69% 49.8% 25% 75% 100% 73.4% Held Delek Drilling IDE Delek Avner Oil Delek companies in Republic Excellence – Limited Technologies 100% 100% Delek USA Motors Exploration Ashkelon fuel segment Partnership Ltd. in Israel Delek Delek France Benelux 100% 34.6% MAPCO Express ** Holdings in the Delek Drilling Partnership and the Avner Partnership are aggregate holdings for (the Fuel Delek Delek Investments, which holds 80% of Delek Energy's shares, and Delek Energy. For details Product Refinery concerning these holdings, see Section 1.11 below. Segment in the *** Through foreign subsidiaries (100%) USA) . A-4 WorldReginfo - dd8f0e77-e950-4954-a47f-a98641dde1c8 1.1.4 The Delek Group is one of the largest, most dynamic investment companies operating in Israel. The Group is holdings company with a variety of investments in Israel and abroad, with operations including, gas and oil, refining, gas stations, motorway service areas, automotive, finance and insurance, desalination, power generation, and biochemicals. In recent years, inter alia due to natural gas discoveries off the coasts of Israel in which the company is involved, and the Group's acquisition of gas stations in Europe, the Company's operations are more energy-focused - exploration, production and sale of natural gas and oil (Upstream Energy) and refining and gas stations (Downstream Energy). Concurrently, and as part of the Company focusing its operations as aforesaid, the Group disposed of real estate holdings (by way of distributing dividends in kind), and of part of its automotive holdings. Milestones in the Group's operations in the past decade: 1999 - 20000 Discovery of significant quantities of natural gas by the partners in the Yam Tethys project