SAPPI LTD (SAP) 6-K

Future minimum obligations under operating leases include the following two significant arrangements:
Sale and Lease Back of the Somerset Paper Machine: In 1997 Sappi sold one of its paper machines at its Somerset Mill for USD150 million and entered into
a leaseback arrangement. This transaction diversified its sources of funding and provides a longer-term horizon to their repayment profile. This qualifies as an
operating lease under the applicable accounting principles. The lease term expires after 15 years, and they have an option to either return the paper machine;
renew the lease for at least 2 years, but for no longer than 80% of its remaining useful life; or repurchase it at its fair market value at the end of the lease term.
An option exists to repurchase the paper machine at an earlier date of 29 January 2008 for the original purchase price multiplied by a factor of 50.10%. To
exercise the option, they must provide notice of between 180 and 360 days prior to the early buy-out date. Sappi has notified the lessor of its intent to exercise
the buy-out option under the lease agreement on 29 January 2008 at the stipulated amount of USD75 million. There is no right of refusal associated with the
early buy-out option. The future minimum obligations under this lease are included in the amounts presented above. These leases have subsequently been
settled.
CONTINGENT LIABILITIES
US$ million 2007 2006
Guarantees and suretyships 43 52
Other contingent liabilities 26 11
Included under guarantees are bills of exchange where Sappi has guaranteed third party funding of payments to Sappi for certain German accounts
receivables.
Other contingent liabilities mainly relate to taxation queries to which certain group companies are subject. The increase in other contingent liabilities reflects
management’s revised estimate of reasonably possible losses which could arise from taxation queries to which certain group companies are subject (this
includes an amount of US$16 million relating to the tax status of Sappi’s Belgian coordination centre). These could give rise to additional taxation costs.
Management does not currently expect further material costs to arise.
The group is involved in various lawsuits and administrative proceedings. The relief sought in such lawsuits and proceedings includes injunctions, damages
and penalties. Although the final results in these suits and proceedings cannot be predicted with certainty, it is the present opinion of management, after
consulting with legal counsel, that they are not expected to have a material effect on the group’s consolidated financial position, results of operations or cash
flows.
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