SAPPI LTD (SAP) 6-K

Interest rate risk:
As the sensitivity analysis does not take into account the M-real Group’s hedging activities, it only reflects the effects on the variable interest rate liabilities
from related parties. At 31 December 2007, if interest rates at that date had been 10 basis points lower (higher) with all other variables held constant, post-tax
result of the carve-out Graphic Papers Business for the year 2007 would have been EUR 356,000 (2006: EUR 238,000) higher (lower), arising mainly as a
result of lower (higher) interest expense on variable interest rate borrowings. Cash pooling balances have been excluded as their balances constantly change in
between positive and negative.
Fair value disclosures
The carrying value of receivables, prepaid expenses, and current liabilities approximates fair value because of the short maturity of these instruments. Noncurrent
assets and liabilities are valued pursuant to their applicable guidance as disclosed elsewhere throughout these combined financial statements.
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial
instruments that are not traded in an active market is determined by using different valuation techniques. The group uses a variety of methods and makes
assumptions that are based on market conditions existing at each balance sheet date. Valuation techniques, such as estimated discounted cash flows, are used
to determine fair values for the financial instruments.
Fair values are presented in note 21 – Financial receivables and borrowing.
Note 4•Related parties
These combined financial statements include transactions with M-real, its subsidiaries and M-real’s parent company Metsäliitto Cooperative and its other
subsidiaries that are considered to be related parties in respect to the Carve-out Graphic Papers Business. The Company enters into a significant number of
transactions with related parties for the purchases of inventory, sale of goods, as well as corporate services. Product and services transfers between the
Company and related parties have been made at arms length prices.
Further described in Note 2, Metsä Finance operates a cash pooling arrangement whereby each of the Company’s businesses participate. As of 31 December
2007, 2006 and 2005 the Company included EUR 24,538, EUR 46,725 and EUR 36,650, respectively, of amounts due from the cash pooling arrangement as
cash and cash equivalents. Interest income on these balances is presented as other financial income in the combined income statements. For the periods
ended 31 December 2007, 2006 and 2005 the Company included EUR 972, EUR 1,574 and EUR 1,386, respectively, as interest income on cash pooling
balances held by Metsä Finance in other financial income.
Sales to related parties amounted to EUR 73,811, EUR 101,268 and EUR 89,468 for the years ended 31 December 2007, 2006 and 2005, respectively and are
reported as sales to related parties in the combined income statements. Sales to related parties accounted for approximately 5.5%, 7.7% and 7.3% of combined
total net sales of the Company for the years ended 31 December 2007, 2006 and 2005, respectively. The majority of such sales to related parties were made at
market prices during all periods presented. Purchases of goods from related parties amounted to EUR 462,568, EUR 421,475 and EUR 338,573 for the years
ended 31 December 2007, 2006 and 2005, respectively, which are reported as part of purchases during the financial period in the combined income
statements.
At 31 December 2007, 2006 and 2005, the Company recognised receivables from related parties totaling EUR 33,267, EUR 40,706 and EUR 60,163,
respectively, and payables and other non-interest bearing liabilities to related parties totaling EUR 21,693, EUR 17,220 and EUR 20,571, respectively. All
related party accounts receivable and accounts payable are regularly settled and thus presented as components of accounts receivable and accounts payable,
respectively, on the face of the combined balance sheets.
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