2006 20-F - Sappi

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SAPPI NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) for the year ended September 2006 14. EQUITY INVESTMENTS (Continued) debt or the Plum Creek Timberlands LLP notes being reflected on balance sheet. This would not be the case if we monetised the promissory notes through an issuance of secured notes directly or by an entity that was required to be consolidated in our financial statements under the applicable accounting principles. The financial statements of Timber IV are to the 31 December of each year which is the year end of our associate. The last audited financials were to the 31 December 2005. 15. OTHER NON-CURRENT ASSETS 2006 2005 US$ million Loans to the Sappi Limited Share Incentive Trust participants.......................... 8 12 Financial assets................................................................... 31 34 Post-employment benefits—pension asset (refer note 28).............................. 18 — Other loans...................................................................... 4 4 61 50 Details of investments are available at the registered offices of the respective companies 16. INVENTORIES 2006 2005 US$ million Raw materials................................................................... 138 150 Work in progress ................................................................ 53 58 Finished goods.................................................................. 346 346 Consumable stores and spares..................................................... 162 157 699 711 Included in the above are raw materials of US$12 million (September 2005: US$11 million), work in progress of US$9 million (September 2005: US$17 million), finished goods of US$47 million (September 2005: US$94 million) and consumable stores of US$98 million (September 2005: US$85 million) which have been written down to net realisable value. An amount of US$1 million (September 2005: US$2 million) in respect of the finished goods inventory write-down for the prior year was reversed in the current year. The cost of inventories recognised as an expense and included in cost of sales amounted to US$3 788 million (September 2005: US$3 840 million). F-58
SAPPI NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) 17. TRADE AND OTHER RECEIVABLES for the year ended September 2006 2006 2005 US$ million Trade accounts receivable, gross................................................. 497 479 Provision for impairment....................................................... (17 ) (17) Trade accounts receivable, net................................................... 480 462 Prepayments and other receivables............................................... 93 100 573 562 Prepayments and other receivables primarily represent prepaid insurance and other sundry receivables. An allowance has been made for estimated irrecoverable amounts from the sale of goods of US$17 million (2005: US$17 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade Receivables Securitisation To improve our cash flows in a cost-effective manner, we sell between 86% and 99% of our eligible trade receivables on a non-recourse basis to special purpose entities (“SPEs”) that are owned and controlled by third party financial institutions. These SPEs are funded in the commercial paper market and are not limited to transactions with us but securitise assets on behalf of their sponsors for a diverse range of unrelated parties. We have a servicing agreement with the entities acquiring our receivables, acting as agent for the collection of cash and administration of the trade receivables sold. Sappi sells the majority of its ZAR receivables to a SPE that is managed by Rand Merchant Bank, that issues commercial paper to finance the purchase of the receivables. Sappi retains a small proportion of the credit risk attached to each underlying receivable. Sappi is responsible for the collection of all amounts that are due from the customer. The purchase price of these receivables is adjusted dependant on the timing of the payment received for the client. The rate of discounting that is charged on the receivables is JIBAR (Johannesburg Inter Bank Asking Rate) plus 93 basis points spread. This structure is currently treated as an off balance sheet arrangement. We have no obligation to repurchase any receivables which may default and do not guarantee the recoverability of any amounts over and above the first tier loss provisions. The total amount of trade receivables sold at the end of September 2006 amounted to US$107 million (September 2005: US$129 million). Details of the securitisation programme at the end of fiscal 2006 and 2005 are disclosed in the tables below. If this securitisation facility was to be terminated, we would discontinue further sales of trade receivables and would not incur any losses in respect of receivables previously sold in excess of our first tier loss amounts. There are a number of events which may trigger termination of the facility, amongst others, an unacceptable amount of defaults; terms and conditions of the agreements not being met; or breaches of F-59
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As filed with the Securities and Ex
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OUR USE OF TERMS AND CONVENTIONS IN
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FORWARD-LOOKING STATEMENTS In order
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2 Year Ended September 2006 2005 (U
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Risk Factors In addition to other i
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New technologies or changes in cons
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Several customers account for a sig
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Maintain a global presence. One of
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Major Product Categories Descriptio
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market share was negatively affecte
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The chart below represents the oper
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The following table sets forth appr
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Paper North America’s on-line fin
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of 860,000 metric tonnes of triple-
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a capacity of 60,000 metric tonnes
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customers use our products in the p
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(1) The following table sets forth
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The mill markets paper and excess p
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Pulp Sappi Fine Paper North America
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equired for its operations. Sappi F
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• The National Environmental Mana
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PROPERTY, PLANT AND EQUIPMENT For a
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ITEM 5. OPERATING AND FINANCIAL REV
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) Movement in market prices for our
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The recent price history for benchm
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Demand from all of the market segme
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Raw Material and Other Input Costs
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The exchange rate impact on raw mat
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Our South African businesses have f
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• Any debtors or creditors not in
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Year Ended September 2006 Compared
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US$28 million. Decreased selling pr
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enefit of the reversal of the Usutu
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accounting mismatch, as a result of
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South African residents, who are na
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The increase of US$11 million in fi
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June 2010. The OeKB A tranche and t
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impact on liquidity varies accordin
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Contractual Obligations We have var
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mill is located in Nanchang, the ca
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product pricing, raw material costs
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flows of the related underlying exp
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increases, health care cost trends,
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alance sheet date. Risks, uncertain
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If the Group had applied IFRS 3 ret
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IFRS. The Group did not apply the e
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Where BEE equity credentials are ob
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Environmental Matters We operate in
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Klaas de Kluis (70) (independent).
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Mark Richard Thompson (54) BCom, BA
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Audit Committee An Audit Committee
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estructuring initiatives that occur
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Levies Act, was paid via Internal R
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Pursuant to the Companies Amendment
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on Restitution of Land Rights and a
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(“the Depositary”) with respect
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• any proposal concerning the ado
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Voting Rights Subject to any rights
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equest not less than one-twentieth
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Financial Assistance The Bill enhan
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At the Annual General Meeting of Sh
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African shareholders will be paid t
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purpose of Capital Gains Tax in Sou
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Distributions. The gross amount of
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US Federal Income Tax Consequences
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PART II ITEM 13. DEFAULTS, DIVIDEND
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the controls may become inadequate
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ITEM 16E. PURCHASES OF EQUITY SECUR
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4.10 Credit Facility, dated May 7,
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SAPPI Group Annual Financial Statem
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SAPPI GROUP INCOME STATEMENT for th
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SAPPI GROUP CASH FLOW STATEMENT for
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SAPPI NOTES TO THE GROUP ANNUAL FIN
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SAPPI CONDENSED COMPANY BALANCE SHE
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SAPPI CONDENSED COMPANY STATEMENT O
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5. OTHER INCOME 2006 2005 ZAR milli
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2006 20-F - Sappi

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