Telkom AR front.qxp

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Telkom Annual Report 2009
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
34. COMMITMENTS (continued)
Finance lease commitments (continued)
Equipment (continued)
Total 5 years
Rm Rm Rm Rm
2008
Minimum lease payments 16 – 16 –
Finance charges (2) – (2) –
Finance lease obligation 14 – 14 –
2007
Minimum lease payments 6 – 6 –
Finance charges – – – –
Finance lease obligation 6 – 6 –
Finance leases
Finance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies is April 2008 to April 2013.
A major portion of the finance leases on buildings relates to the sale and lease-back of the Company’s office buildings. The lease term
negotiated for the buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation
of 10% p.a. Telkom has the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease
agreement and claim damages.
Finance charges accruing on one of the Company’s building leases exceed the lease payments for the next three years. Minimum lease
payments for the next five years do not result in any income accruing to the Company.
Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for the period of three
years ending in 2011.
35. CONTINGENCIES
Supplier dispute
Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,
operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million
for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to
US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration
proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development
and supply of an integrated end-to-end customer assurance and activation system by Telcordia.
In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the
arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial
award.
On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom. On
May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay the
legal costs of Telkom.
On November 29, 2004, the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also
petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along
with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New
Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District
Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.