SAPPI LIMITED

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<strong>SAPPI</strong> NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) for the year ended September 2010 20. INTEREST-BEARING BORROWINGS (Continued) Local currency million US$ million The analysis of the currency per debt is: US$ (8) ................................... 1,151 1,151 EURO ................................... 979 1,321 ZAR .................................... 3,766 536 3,008 (1) The value outstanding equals the total facility available. (2) In terms of the agreement, limitations exist on liens, sale and leaseback transactions and mergers and consolidation. Sappi Limited must maintain a majority holding in Sappi Papier Holding GmbH Group. (3) Sappi Papier Holding GmbH, Sappi Limited or Sappi International SA may at any time redeem the June 2012 and 2032 public bonds (the ‘‘Securities’’) in whole or in part at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) a make-whole amount based upon the present values of remaining payments at a rate based upon yields of specified US treasury securities plus 25 basis points, with respect to the 2012 Securities, and 30 basis points, with respect to the 2032 Securities, together with, in each case, accrued interest on the principal amount of the securities to be redeemed to the date of redemption. (4) The financial covenant relates to the financial position of Sappi Southern Africa (Pty) Ltd., a wholly owned subsidiary of Sappi Limited. (5) Financial covenants relate to the Sappi Limited Group. (6) The principal value of the loans/bonds corresponds to the amount of the facility, however, the outstanding amount has been adjusted by the discounts paid upfront and the fair value adjustments relating to hedge accounting. (7) USD Fixed rates have been swapped into EUR fixed rates. These swaps are subject to hedge accounting in order to reduce as far as possible the foreign exchange exposure. (8) This amount includes debt of US$300 million that is swapped into Euro. A detailed reconciliation of total interest-bearing borrowings has been performed in note 29. Other restrictions As is the norm for bank loan debt, a portion of Sappi Limited’s financial indebtedness is subject to cross default provisions. Breaches in bank covenants in certain subsidiaries, if not corrected in time, might result in a default in group debt, and in this case, a portion of Sappi Limited consolidated liabilities might eventually become payable on demand. During fiscal 2010 and 2009 we were in compliance with the financial covenants relating to all loans payable. Regular monitoring of compliance with applicable covenants occurs. If there is a possible breach of a financial covenant in the future, negotiations would commence with the applicable institutions before such breach occurs. Borrowing facilities secured by trade receivables The group undertakes several trade receivable securitization programs due to the cost effectiveness of such structures. These structures, with the exception of the South African scheme, are F-55
<strong>SAPPI</strong> NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) for the year ended September 2010 20. INTEREST-BEARING BORROWINGS (Continued) accounted as on balance sheet, with a corresponding liability (external loan) being recognized and corresponding interest is recognized as finance cost. The trade receivables are legally transferred, however most of the market risk (foreign exchange risk and interest rate risk) and the credit risk is retained by Sappi. As a consequence, based on the risks and rewards evaluation, these securitized receivables do not qualify for de-recognition under IAS 39. Further detail of the value of trade receivables pledged as security for these loans is included in note 16. Sappi Fine Paper North America Sappi sells the majority of its US$ receivables to Galleon Capital LLC on a non-recourse basis. Credit enhancement includes a 3% deferred purchase price plus a letter of credit in the amount of US$18 million that relates to the uninsured portion of those obligors with concentrations above 3% (Sappi, as servicer of the receivables, is responsible for the collection of all amounts that are due from the customer). The rate of discounting charged on the receivables is LIBOR (London Inter Bank Offered Rate) plus a margin for receivables to customers located in Organization for Economic Co-operation and Development (‘‘OECD’’) countries. Sappi Fine Paper Europe and Sappi Trading Under a combined securitization arrangement for Sappi Fine Paper Europe and Sappi Trading, Sappi sells receivables to Galleon Capital LLC on a non-recourse basis. Credit enhancement is calculated by deducting a deferred purchase price of 14%. Sappi is responsible for the collection of all amounts that are due from the customer. The rate of discounting that is charged on the receivables is LIBOR (London Inter Bank Offered Rate) plus a margin for receivables to customers located in OECD countries plus a further margin for receivables to customers located in non-OECD countries. Unutilized facilities The group monitors its availability of funds on a weekly basis. The group treasury committee determines the amount of unutilized facilities to determine the headroom which it currently operates in. The net cash balances included in current assets and current liabilities are included in the determination of the headroom available. Unutilized committed facilities Currency Interest rate 2010 2009 (US$ million) Syndicated loan* ......................... EUR Variable (EURIBOR) 282 307 * Syndicated loan with a consortium of banks with JP Morgan Europe Limited as facility agent with a remaining revolving facility available of EUR209 million, which is subject to financial covenants relating to the Sappi Limited Group and is secured by the same assets as the public bonds maturing in 2014. These committed facilities represent amounts that the group could utilize. The syndicated loan facility matures in May 2012. F-56
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As filed with the Securities and Ex
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Item 7. Major Shareholders and Rela
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References to ‘‘NBSK’’ are
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PART I ITEM 1. IDENTITY OF DIRECTOR
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Risk Factors In addition to other i
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For further information, see ‘‘
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terms of the debt being refinanced.
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The inability to recover increasing
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A large percentage of our employees
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merge or consolidate with other com
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we operate. The transaction was app
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currencies as we can benefit from i
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Major Product Categories Pulp: Desc
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for coated mechanical paper decline
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The chart below represents our oper
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The following table sets out the ap
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The following table sets forth sale
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Kangas. As a direct result of the g
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Customers Sappi Fine Paper sells it
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The following chart sets forth cert
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Construction on the expansion proje
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lease extendable to 2089. The locat
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North America Wood In connection wi
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Pulp Sappi Fine Paper Europe produc
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ENVIRONMENTAL AND SAFETY MATTERS En
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and management of forests are all r
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ORGANIZATIONAL STRUCTURE Sappi Limi
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Approximate Secured / Location Use
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than we use. By region, the South A
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‘‘—Markets’’ for a furthe
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'000 metric tonnes 8,000 7,000 6,00
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The price of NBSK and Bleached Hard
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ZAR/US$ 16.00 14.00 12.00 10.00 8.0
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The fiscal period average three-mon
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employees from the beginning of 200
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The Sappi Southern Africa reportabl
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Movements in operating profit and o
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Operating profit in fiscal 2009 was
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Sappi Southern Africa Key figures:
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Comparing fiscal 2010 with fiscal 2
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This comparison includes the closur
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African operations into the US doll
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Sappi Fine Paper North America Comp
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Taxation 2010 2009 (US$ million) 20
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elation to inventory levels and rec
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Capital expenditure by region is as
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Over the past three years the relat
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Group’s securitization programs,
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Credit Facility terminate on May 31
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quarters ending from January 2012 t
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As no default event has occurred, n
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In addition, Sappi Fine Paper North
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areas where our South African busin
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Recoveries in equity markets couple
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Impairment of assets other than goo
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The gains or losses, which are reco
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The Group’s policy is to recogniz
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ITEM 6. DIRECTORS, SENIOR MANAGEMEN
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Deenadayalen (Len) Konar Sappi boar
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Mohammed Valli (Valli) Moosa Other
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Rudolf Thummer Sappi board committe
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Executive Officers The Executive Di
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companies have to comply with domes
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average more than 45% of the employ
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For a detailed description of the S
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Pursuant to the Companies Amendment
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Post transaction shareholding struc
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Dividends We consider dividends on
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ITEM 9. THE OFFER AND LISTING Offer
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ITEM 10. ADDITIONAL INFORMATION Mem
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holder of the beneficial interest i
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Voting Rights Subject to any rights
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provision of the New Act by any oth
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South African Companies Act, 2008 A
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state securities laws. The securiti
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documents are the agent for the new
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Dividends There are no restrictions
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STC STC is imposed on South African
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with any connected persons) held mo
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of our ordinary shares or ADSs, as
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of gain recognized on a sale or oth
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integrated operations could be adve
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PART II ITEM 13. DEFAULTS, DIVIDEND
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(d) Changes in Internal Control ove
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PART III ITEM 17. FINANCIAL STATEME
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4.13 Credit Agreement, dated August
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SIGNATURES The registrant hereby ce
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REPORT OF THE INDEPENDENT REGISTERE
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SAPPI NOTES TO THE GROUP ANNUAL FIN
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SAPPI CONDENSED SAPPI LIMITED COMPA
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SAPPI NOTES TO THE CONDENSED SAPPI
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SAPPI LIMITED

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