SAPPI LTD (SAP) 6-K

Note 8•Depreciation, amortisation and impairment charges
The following shows the split of the Company’s depreciation, amortisation and impairment charges for the years ended 31 December:
2007 2006 2005
Straight-line depreciation
Other intangible assets 1,378 1,381 1,174
Buildings 11,661 4,882 9,714
Machinery and equipment 78,984 49,046 62,802
Other property, plant and equipment 3,639 3,712 3,927
Total 95,662 59,021 77,617
Impairment charges and reversal of impairment charges
Goodwill 83,000
Buildings (30,955) 4,100 34,700
Machinery and equipment (120,045) 15,900 133,300
Total (151,000) 20,000 251,000
Straight-line depreciation, impairment charges
and reversal of impairment charges, total (55,338) 79,021 328,617
The Company prepares impairment test calculations annually. In accordance with IAS 36 “Impairment of Assets”, the carrying amount of asset items or so
called cash generating units (CGUs) are evaluated for indications of impairment. If there are indications of impairment of an asset item or the CGU the
recoverable amount of the asset item or CGU shall be estimated. The Company is tested as one cash generating unit. The recoverable amount is based
principally on estimated future cash flows.
The recoverable cash flows of the CGU are based on 5-year projections and consequent cash flows growing at a fixed annual growth rate. The key
assumptions used in the projections are management’s estimates and estimates from Pöyry Forest Industry Consulting Ltd. The key factors affecting the
projections are the development of the average paper and board prices, delivery volumes, foreign exchange rates, and capacity utilisation rates, the cost
development of key raw materials such as wood, pulp, chemicals and energy as well as the development of personnel costs and other fixed costs. In the
impairment tests the cash flows consequent to the 5-year projected cash flows are based on a 2 per cent fixed annual growth rate, which corresponds to the
realised long term growth of the CGU.
Furthermore, the average values for the key assumptions (price, volume, variable costs) during the projection period have been used as starting point. The
starting point for fixed costs is the projected costs for the fifth year. Both the future cash flows as well as the discount rate are calculated after tax e.g. the
consequent discounted cash flows and values in use are before tax as required in IAS 36. The after tax WACC used in the impairment tests was 7.74%,
7.09% and 6.74% in the years ended 31 December 2007, 2006 and 2005, respectively.
In 2005, mostly because of higher pulp prices, increasing energy costs and reduced price estimates for the next 5 years the recoverable amount had fallen
below the carrying amount of the CGU, an impairment charge of EUR 251,000 was recognised in the Company’s combined income statement. In 2006,
mostly because of higher SW pulp price estimates and lower magazine paper price estimates for the next 5 years, an additional impairment charge of EUR
20,000 was recognised in the Company’s combined income statement. In 2007, primarily because of a significant increase in the estimated long term sales
prices of wood free coated paper, uncoated paper and magazine paper, partially resulting from a decrease in excess paper capacity during the year, the
Company recognised reversal of impairment losses previously recognised on long lived assets other than goodwill in the amount of EUR 151,000.
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