NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
57,544
|
|
$
|
39,123
|
|
Pre-funded social welfare grants receivable
(Note 3)
|
|
8,971
|
|
|
9,684
|
|
Accounts receivable, net
of allowances of September: $955; June: $788
|
|
99,703
|
|
|
101,918
|
|
Finance loans receivable
|
|
6,787
|
|
|
8,141
|
|
Deferred expenditure on
smart cards
|
|
4,604
|
|
|
4,587
|
|
Inventory (Note 4)
|
|
7,129
|
|
|
6,192
|
|
Deferred income taxes
|
|
6,223
|
|
|
5,591
|
|
Total current
assets before settlement assets
|
|
190,961
|
|
|
175,236
|
|
Settlement assets (Note 5)
|
|
347,672
|
|
|
409,166
|
|
Total current assets
|
|
538,633
|
|
|
584,402
|
|
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
|
|
|
|
|
|
|
DEPRECIATION OF September: $80,058; June: $74,242
|
|
54,475
|
|
|
52,616
|
|
EQUITY-ACCOUNTED INVESTMENTS (Note 6)
|
|
1,571
|
|
|
1,508
|
|
GOODWILL (Note 7)
|
|
187,570
|
|
|
182,737
|
|
INTANGIBLE ASSETS, net (Note 7)
|
|
93,327
|
|
|
93,930
|
|
OTHER LONG-TERM ASSETS, including reinsurance assets (Note
8)
|
|
40,570
|
|
|
40,700
|
|
TOTAL ASSETS
|
|
916,146
|
|
|
955,893
|
|
LIABILITIES
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
14,722
|
|
|
13,172
|
|
Other payables
|
|
40,209
|
|
|
42,157
|
|
Current portion of long-term borrowings
(Note 10)
|
|
14,438
|
|
|
14,019
|
|
Income taxes payable
|
|
11,542
|
|
|
6,019
|
|
Total current
liabilities before settlement obligations
|
|
80,911
|
|
|
75,367
|
|
Settlement obligations (Note 5)
|
|
347,672
|
|
|
409,166
|
|
Total current liabilities
|
|
428,583
|
|
|
484,533
|
|
DEFERRED INCOME TAXES
|
|
21,065
|
|
|
20,988
|
|
LONG-TERM BORROWINGS (Note 10)
|
|
82,145
|
|
|
79,760
|
|
OTHER LONG-TERM LIABILITIES, including insurance
policy liabilities (Note 8)
|
|
25,998
|
|
|
25,791
|
|
TOTAL LIABILITIES
|
|
557,791
|
|
|
611,072
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
EQUITY
|
|
NET1 EQUITY:
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
Authorized:
200,000,000 with $0.001 par value;
Issued
and outstanding shares, net of treasury - September: 45,600,471;
June:
45,548,902
|
|
59
|
|
|
59
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
Authorized
shares: 50,000,000 with $0.001 par value;
Issued
and outstanding shares, net of treasury: September: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL
|
|
155,895
|
|
|
153,360
|
|
TREASURY SHARES, AT COST:
September: 13,455,090; June: 13,455,090
|
|
(175,823
|
)
|
|
(175,823
|
)
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
(71,467
|
)
|
|
(75,722
|
)
|
RETAINED EARNINGS
|
|
446,385
|
|
|
439,641
|
|
TOTAL NET1
EQUITY
|
|
355,049
|
|
|
341,515
|
|
NON-CONTROLLING
INTEREST
|
|
3,306
|
|
|
3,306
|
|
TOTAL EQUITY
|
|
358,355
|
|
|
344,821
|
|
TOTAL LIABILITIES
AND SHAREHOLDERS EQUITY
|
$
|
916,146
|
|
$
|
955,893
|
|
(A) Derived from audited financial statements
See Notes
to Unaudited Condensed Consolidated Financial Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
111,682
|
|
$
|
99,926
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, IT processing, servicing and support
|
|
45,101
|
|
|
32,944
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
|
47,252
|
|
|
27,057
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
10,004
|
|
|
9,079
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
9,325
|
|
|
30,846
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
3,091
|
|
|
1,997
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
2,071
|
|
|
2,616
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
10,345
|
|
|
30,227
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (note 16)
|
|
3,729
|
|
|
10,552
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE EARNINGS FROM EQUITY- ACCOUNTED
INVESTMENTS
|
|
6,616
|
|
|
19,675
|
|
|
|
|
|
|
|
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS
(note 6)
|
|
128
|
|
|
85
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
6,744
|
|
|
19,760
|
|
|
|
|
|
|
|
|
LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
-
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO NET1
|
$
|
6,744
|
|
$
|
19,768
|
|
|
|
|
|
|
|
|
Net income per share, in United States
dollars
(note 13)
|
|
|
|
|
|
|
Basic earnings attributable
to Net1 shareholders
|
$
|
0.15
|
|
$
|
0.44
|
|
Diluted earnings
attributable to Net1 shareholders
|
$
|
0.15
|
|
$
|
0.44
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net income
|
$
|
6,744
|
|
$
|
19,760
|
|
|
|
|
|
|
|
|
Movement in
foreign currency translation reserve
|
|
4,255
|
|
|
(37,605
|
)
|
Total other comprehensive income (loss), net of taxes
|
|
4,255
|
|
|
(37,605
|
)
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
10,999
|
|
|
(17,845
|
)
|
Less: (Less) Add comprehensive (gain) loss attributable to non-controlling
interest
|
|
-
|
|
|
135
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Net1
|
$
|
10,999
|
|
$
|
(17,710
|
)
|
Certain amounts for the three months ended September 30, 2011,
have been reclassified to reflect the appropriate attribution of net income and
other movements between Net1 and its non-controlling interest.
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS
TECHNOLOGIES,
INC.
Unaudited
Condensed
Consolidated
Statement
of Changes in Equity (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
(loss) income
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2012
|
|
59,003,992
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
153,360
|
|
$
|
439,641
|
|
$
|
(75,722
|
)
|
$
|
341,515
|
|
$
|
3,306
|
|
$
|
344,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock granted
|
|
21,569
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options by holders
|
|
30,000
|
|
|
-
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
1,116
|
|
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization of APIC pool related to vested
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pbel acquisition (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,744
|
|
|
|
|
|
6,744
|
|
|
-
|
|
|
6,744
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign
currency translation reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,255
|
|
|
4,255
|
|
|
|
|
|
4,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2012
|
|
59,055,561
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
155,895
|
|
$
|
446,385
|
|
$
|
(71,467
|
)
|
$
|
355,049
|
|
$
|
3,306
|
|
$
|
358,355
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
$
|
6,744
|
|
$
|
19,760
|
|
Depreciation and amortization
|
|
10,004
|
|
|
9,079
|
|
Loss from equity-accounted investments
|
|
(128
|
)
|
|
(85
|
)
|
Fair value adjustments
|
|
(293
|
)
|
|
(221
|
)
|
Interest payable
|
|
1,192
|
|
|
1,662
|
|
Profit on disposal of property, plant and equipment
|
|
-
|
|
|
(8
|
)
|
Profit on liquidation of SmartSwitch Nigeria
|
|
-
|
|
|
(3,994
|
)
|
Realized loss on sale of investments related to insurance business
|
|
-
|
|
|
25
|
|
Stock-based compensation charge
|
|
1,116
|
|
|
496
|
|
Facility fee amortized
|
|
88
|
|
|
116
|
|
Decrease in accounts receivable, pre-funded
social welfare grants receivable and finance loans receivable
|
|
5,892
|
|
|
3,248
|
|
(Increase) Decrease in deferred expenditure on smart cards
|
|
(33
|
)
|
|
44
|
|
Increase in inventory
|
|
(926
|
)
|
|
(319
|
)
|
(Decrease ) Increase in accounts payable and other payables
|
|
(1,349
|
)
|
|
331
|
|
Increase (Decrease) in taxes payable
|
|
5,438
|
|
|
(3,607
|
)
|
(Decrease) Increase in deferred taxes
|
|
(2,016
|
)
|
|
692
|
|
Net cash provided by operating
activities
|
|
25,729
|
|
|
27,219
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(6,453
|
)
|
|
(4,466
|
)
|
Proceeds from disposal of property, plant and
equipment
|
|
105
|
|
|
94
|
|
Acquisition of Pbel, net of cash acquired
|
|
(1,913
|
)
|
|
-
|
|
Acquisition of Smart Life, net of cash acquired
|
|
-
|
|
|
(1,673
|
)
|
Repayment of loan by equity-accounted investment
|
|
3
|
|
|
33
|
|
Purchase of investments related to insurance
business
|
|
-
|
|
|
(2,320
|
)
|
Proceeds from maturity of investments related to insurance
business
|
|
545
|
|
|
2,321
|
|
Net change in settlement assets
|
|
60,779
|
|
|
3,447
|
|
Net cash provided by (used in) investing activities
|
|
53,066
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from issue of common stock
|
|
240
|
|
|
-
|
|
Acquisition of treasury stock
|
|
-
|
|
|
(1,129
|
)
|
Net change in settlement obligations
|
|
(60,779
|
)
|
|
(3,447
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
(60,539
|
)
|
|
(4,576
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
165
|
|
|
(13,360
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
18,421
|
|
|
6,719
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning
of period
|
|
39,123
|
|
|
95,264
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of
period
|
$
|
57,544
|
|
$
|
101,983
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the
Unaudited Condensed Consolidated Financial Statements
for the Three
Months Ended September 30, 2012 and 2011
(All amounts in tables stated in thousands or thousands of United States
Dollars, unless otherwise stated)
1.
Basis
of Presentation and Summary of Significant Accounting Policies
Unaudited Interim
Financial Information
The
accompanying unaudited condensed consolidated financial statements include all
majority-owned subsidiaries over which the Company exercises control and have
been prepared in accordance with US generally accepted accounting principles
(GAAP) and the rules and regulations of the Securities and Exchange Commission
for quarterly reports on Form 10-Q and include all of the information and
disclosures required for interim financial reporting. The results of operations
for the three months ended September 30, 2012 and 2011, are not necessarily
indicative of the results for the full year. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These
financial statements should be read in conjunction with the financial
statements, accounting policies and financial notes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments), which are necessary for a fair representation of
financial results for the interim periods presented.
References
to the Company refer to Net1 and its consolidated subsidiaries, unless the
context otherwise requires. References to Net1 are references solely to Net 1
UEPS Technologies, Inc.
Recent
accounting pronouncements adopted
In
September 2011, the Financial Accounting Standards Board issued guidance
regarding
Testing Goodwill for Impairment
. The guidance allows an entity
to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. Under this guidance,
an entity is not required to calculate the fair value of a reporting unit unless
the entity determines, based on a qualitative assessment, that it is more likely
than not that its fair value is less than its carrying amount. The guidance
includes a number of events and circumstances for an entity to consider in
conducting the qualitative assessment. The Company adopted this guidance
beginning July 1, 2012. The adoption of this guidance did not have a significant
impact on the Companys condensed consolidated financial statements.
Recent
accounting pronouncements not yet adopted as of September 30, 2012
There
were no new accounting pronouncements not yet adopted by the Company during the
three months ended September 30, 2012.
7
2.
Acquisitions
Pbel
Proprietary Limited (Pbel)
On
September 14, 2012, the Company acquired all of the outstanding and issued
ordinary shares in Pbel, a South African private company, for ZAR 33 million
(approximately $3.8 million). ZAR 23 million of the purchase price was paid in
cash and the remaining ZAR 10 million will be paid in 142,236 shares of the
Companys common stock, subject to the achievement of predefined Pbel financial
performance milestones over the next three years. The Company is entitled to
vote 100% of the outstanding and issued shares of Pbel. The 142,236 shares are
divided into three equal tranches of 47,412 shares and the sellers will be
entitled to receive the shares for each tranche only if the milestones for that
particular tranche are achieved. However, the sellers will be entitled to
receive all 142,236 shares if the cumulative predefined Pbel projected profit
over the next three years is achieved or if the Company decides to abandon its
Mobile Virtual Card initiative.
The
Company had historically engaged the services of Pbel to perform software
development services, primarily software utilized on mobile phones and by
cash-accepting kiosks. All software developed was the Companys property. Prior
to the acquisition, Pbel was jointly owned by the Companys chief executive
officer, Dr. Serge Belamant and his son, Mr. Philip Marc Belamant. Dr. Belamant
is a non-employee director of Pbel and Mr. Philip Marc Belamant is its chief
executive officer. Prior to the acquisition, Mr. Philip Marc Belamant was not
employed by the Company.
The
Company believes that the acquisition of Pbel is important in the execution of
its strategy to commercialize and develop its world-wide virtual card patents
and to supply secure, leading edge technological solutions to the global
payments market with particular focus on mobile-based payment solutions. Mr.
Philip Marc Belamant, in his new position as Managing Director of Mobile
Solutions, will oversee the Companys Mobile Virtual Card, Kiosk, Web and WAP
application research and development activities as well as related global
business development initiatives.
The
preliminary purchase price allocation, translated at the foreign exchange rates
applicable on the date of acquisition, is provided in the table below:
Cash and cash equivalents
|
$
|
731
|
|
Accounts receivable, net
|
|
152
|
|
Other current assets
|
|
10
|
|
Property, plant and equipment, net
|
|
92
|
|
Intangible assets (Note 7)
|
|
1,785
|
|
Goodwill (Note 7)
|
|
1,691
|
|
Other payables
|
|
(41
|
)
|
Income taxes payable
|
|
(91
|
)
|
Deferred tax liabilities
|
|
(500
|
)
|
Total
purchase price
|
$
|
3,829
|
|
The
preliminary purchase price allocation is based on management estimates as of
September 30, 2012, and may be adjusted up to one year following the closing of
the acquisition. The purchase price allocation has not been finalized, as
management has not yet analyzed in detail the assets acquired and liabilities
assumed. The Company expects to finalize the purchase price allocation on or
before June 30, 2013.
Pro
forma results of operations have not been presented because the effect of the
Pbel acquisition, individually and in the aggregate, was not material to the
Companys results of operations. During the three months ended September 30,
2012, the Company incurred acquisition-related expenditure of $0.05 million.
Since the closing of the acquisition, Pbel has contributed revenue and incurred
a net loss, after acquired intangible asset amortization, net of taxation, of
$0.1 million and 0.02 million, respectively.
3.
Pre-funded social welfare grants receivable
Pre-funded
social welfare grants receivable represents amounts pre-funded by the Company to
certain merchants participating in the merchant acquiring system. The October
2012 payment service commenced on October 1, 2012, but the Company pre-funded
certain merchants participating in the merchant acquiring systems in the last
two days of September 2012.
8
4.
Inventory
The
Companys inventory comprised the following categories as of September 30, 2012
and June 30, 2012.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
Raw materials
|
$
|
30
|
|
$
|
30
|
|
Finished goods
|
|
7,099
|
|
|
6,162
|
|
|
$
|
7,129
|
|
$
|
6,192
|
|
5.
Settlement
assets and settlement obligations
Settlement
assets comprise (1) cash received from the South African government that the
Company holds pending disbursement to beneficiaries of social welfare grants,
(2) cash received from health care plans which the Company disburses to health
care service providers once it adjudicates claims and (3) cash received from
customers on whose behalf the Company processes payroll payments that the
Company will disburse to customer employees, payroll-related payees and other
payees designated by the customer.
Settlement
obligations comprise (1) amounts that the Company is obligated to disburse to
beneficiaries of social welfare grants, (2) amounts which are due to health care
service providers after claims have been adjudicated and reconciled, provided
that the Company shall have previously received such funds from health care plan
customers and (3) amounts that the Company is obligated to pay to customer
employees, payroll-related payees and other payees designated by the customer.
The
balances at each reporting date may vary widely depending on the timing of the
receipts and payments of these assets and obligations
6.
Fair
value of financial instruments and equity-accounted investments
Fair value of
financial instruments
Risk
management
The
Company seeks to reduce its exposure to currencies other than the South African
rand through a policy of matching, to the extent possible, assets and
liabilities denominated in those currencies. In addition, the Company uses
financial instruments in order to economically hedge its exposure to exchange
rate and interest rate fluctuations arising from its operations. The Company is
also exposed to equity price and liquidity risks as well as credit risks.
Currency
exchange risk
The
Company is subject to currency exchange risk because it purchases inventories
that it is required to settle in other currencies, primarily the euro and US
dollar. The Company uses foreign exchange forward contracts in order to limit
its exposure in these transactions to fluctuations in exchange rates between the
South African rand, on the one hand, and the US dollar and the euro, on the
other hand.
The
Companys outstanding foreign exchange contracts are as follows:
As of September
30, 2012
None.
As
of June 30, 2012
None.
Translation
risk
Translation
risk relates to the risk that the Companys results of operations will vary
significantly as the US dollar is its reporting currency, but it earns most of
its revenues and incurs most of its expenses in ZAR. The US dollar to ZAR
exchange rate has fluctuated significantly over the past two years. As exchange
rates are outside the Companys control, there can be no assurance that future
fluctuations will not adversely affect the Companys results of operations and
financial condition.
9
6.
Fair
value of financial instruments and equity-accounted investments (continued)
Fair
value of financial instruments (continued)
Risk
management (continued)
Interest
rate risk
As
a result of its normal borrowing and leasing activities, the Companys operating
results are exposed to fluctuations in interest rates, which it manages
primarily through regular financing activities. The Company generally maintains
limited investment in cash equivalents and has occasionally invested in
marketable securities. The Company, through its recently acquired insurance
business, maintains investments in fixed maturity investments which are exposed
to fluctuations in interest rates.
Credit
risk
Credit
risk relates to the risk of loss that the Company would incur as a result of
non-performance by counterparties. The Company maintains credit risk policies
with regard to its counterparties to minimize overall credit risk. These
policies include an evaluation of a potential counterpartys financial
condition, credit rating, and other credit criteria and risk mitigation tools as
the Companys management deems appropriate.
With
respect to credit risk on financial instruments, the Company maintains a policy
of entering into such transactions only with South African and European
financial institutions that have a credit rating of BBB or better, as determined
by credit rating agencies such as Standard & Poors, Moodys and Fitch
Ratings.
Equity
price and liquidity risk
Equity
price risk relates to the risk of loss that the Company would incur as a result
of the volatility in the exchange-traded price of equity securities that it
holds and the risk that it may not be able to liquidate these securities.
Liquidity risk relates to the risk of loss that the Company would incur as a
result of the lack of liquidity on the exchange on which these securities are
listed. The Company may not be able to sell some or all of these securities at
one time, or over an extended period of time without influencing the
exchange-traded price, or at all.
Financial
instruments
The
following section describes the valuation methodologies the Company uses to
measure its significant financial assets and liabilities at fair value.
In
general, and where applicable, the Company uses quoted prices in active markets
for identical assets or liabilities to determine fair value. This pricing
methodology applies to Level 1 investments. If quoted prices in active markets
for identical assets or liabilities are not available to determine fair value,
then the Company uses quoted prices for similar assets and liabilities or inputs
other than the quoted prices that are observable either directly or indirectly.
These investments are included in Level 2 investments. In circumstances in which
inputs are generally unobservable, values typically reflect managements
estimates of assumptions that market participants would use in pricing the asset
or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models, and
similar techniques. Investments valued using such techniques are included in
Level 3 investments.
Asset
measured at fair value using significant unobservable inputs investment in
Finbond Group Limited (Finbond)
The
Company's Level 3 asset represents an investment of 156,788,712 shares of common
stock of Finbond, which are exchange-traded equity securities. Finbonds shares
are traded on the JSE Limited (JSE) and the Company has designated such shares
as available for sale investments. The Company has concluded that the market for
Finbond shares is not active and consequently has employed alternative valuation
techniques in order to determine the fair value of such stock. Currently, the
operations of Finbond relate primarily to the provision of microlending
products. In determining the fair value of Finbond, the Company has considered
amongst other things Finbonds historical financial information (including its
most recent public accounts), press releases issued by Finbond and its published
net asset value. The Company believes that the best indicator of fair value of
Finbond is its published net asset value and has used this value to determine
the fair value.
The
fair value of these securities as of September 30, 2012, represented
approximately 1% of the Companys total assets, including these securities.
10
6.
Fair
value of financial instruments and equity-accounted investments (continued)
The
following table presents the Companys assets and liabilities measured at fair
value on a recurring basis as of September 30, 2012 according to the fair value
hierarchy:
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to insurance
business (included in
other long-term
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,111
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,111
|
|
|
Investment in Finbond
(available for sale assets
included in other
long-term assets)
|
|
-
|
|
|
-
|
|
|
8,648
|
|
|
8,648
|
|
|
Other
|
|
-
|
|
|
880
|
|
|
-
|
|
|
880
|
|
|
Total
assets at fair value
|
$
|
2,111
|
|
$
|
880
|
|
$
|
8,648
|
|
$
|
11,639
|
|
The
following table presents the Companys assets and liabilities measured at fair
value on a recurring basis as of June 30, 2012, according to the fair value
hierarchy:
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to insurance
business (included in other
long-term assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,628
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,628
|
|
|
Investment in Finbond
(available for sale assets
included in other
long-term assets)
|
|
-
|
|
|
-
|
|
|
8,679
|
|
|
8,679
|
|
|
Other
|
|
-
|
|
|
262
|
|
|
-
|
|
|
262
|
|
|
Total
assets at fair value
|
$
|
2,628
|
|
$
|
262
|
|
$
|
8,679
|
|
$
|
11,569
|
|
Assets
and liabilities measured at fair value on a nonrecurring basis
The
Company measures its equity-accounted investments at fair value on a
nonrecurring basis. The Company has no liabilities that are measured at fair
value on a nonrecurring basis. These equity-accounted investments are recognized
at fair value when they are deemed to be other-than-temporarily impaired.
The
Company reviews the carrying values of its investments when events and
circumstances warrant and considers all available evidence in evaluating when
declines in fair value are other-than-temporary. The fair values of the
Companys investments are determined using the best information available, and
may include quoted market prices, market comparables, and discounted cash flow
projections. An impairment charge is recorded when the cost of the investment
exceeds its fair value and the excess is determined to be other-than-temporary.
The Company has not recorded any impairment charges during the reporting periods
presented herein.
Equity-accounted
investments
During
the three months ended September 30, 2012, SmartSwitch Namibia repaid its final
installment related to its outstanding loans and interest. The repayments
received have been allocated to the equity-accounted investments presented in
the Companys condensed consolidated balance sheet. The cash inflow from
principal repayments have been allocated to cash flows from investing activities
and the cash inflow from the interest repayments have been included in cash flow
from operating activities in the Companys condensed consolidated statement of
cash flows for the three months ended September 30, 2012.
11
6.
Fair
value of financial instruments and equity-accounted investments (continued)
Equity-accounted
investments (continued)
Summarized
below is the Companys interest in equity-accounted investments as of June 30,
2012 and September 30, 2012:
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Loans
|
|
|
(Loss)
|
|
|
Elimination
|
|
|
|
Total
|
|
Balance as of June 30, 2012
|
$
|
3,518
|
|
$
|
1,419
|
|
$
|
(3,411
|
)
|
$
|
(18
|
)
|
|
$
|
1,508
|
|
Loan repaid
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
|
(3
|
)
|
Interest repaid
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(53
|
)
|
|
|
(53
|
)
|
Earnings from equity-accounted investments
|
|
-
|
|
|
-
|
|
|
123
|
|
|
5
|
|
|
|
128
|
|
SmartSwitch
Namibia
(1)
|
|
-
|
|
|
-
|
|
|
83
|
|
|
5
|
|
|
|
88
|
|
SmartSwitch
Botswana
(1)
|
|
-
|
|
|
-
|
|
|
40
|
|
|
-
|
|
|
|
40
|
|
Foreign currency
adjustment
(2)
|
|
(14
|
)
|
|
1
|
|
|
3
|
|
|
1
|
|
|
|
(9
|
)
|
Balance as of September 30, 2012
|
$
|
3,504
|
|
$
|
1,417
|
|
$
|
(3,285
|
)
|
$
|
(65
|
)
|
|
$
|
1,571
|
|
(1)
includes the recognition of realized net income.
(2)
the foreign currency adjustment represents the effects of the combined net
currency fluctuations between the functional currency of the equity-accounted
investments and the US dollar.
There
were no significant sales to these investees that require elimination during
the three months ended September 30, 2012 and 2011.
7.
Goodwill
and intangible assets
Goodwill
Summarized
below is the movement in the carrying value of goodwill for the three months
ended September 30, 2012:
|
|
Carrying
|
|
|
|
value
|
|
|
|
|
|
Balance as of June 30, 2012
|
$
|
182,737
|
|
Acquisition of Pbel (Note 2)
|
|
1,691
|
|
Foreign currency
adjustment
(1)
|
|
3,142
|
|
Balance as
of September 30, 2012
|
$
|
187,570
|
|
(1) the foreign currency adjustment represents the effects of the fluctuations
between the South African rand and the Korean won, and the US dollar on the
carrying value.
Goodwill
associated with the acquisition of Pbel represents the excess of cost over the
fair value of acquired net assets. The Pbel goodwill is not deductible for tax
purposes. See Note 2 for the allocation of the purchase price to the fair value
of acquired net assets. Pbel has been allocated to our South African
transaction-based activities operating segment.
Goodwill
has been allocated to the Companys reportable segments as follows:
|
|
As of
|
|
|
As of
|
|
|
|
September
|
|
|
June 30,
|
|
|
|
30, 2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
36,286
|
|
$
|
34,692
|
|
International transaction-based activities
|
|
115,142
|
|
|
111,798
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
36,142
|
|
|
36,247
|
|
Total
|
$
|
187,570
|
|
$
|
182,737
|
|
12
7.
Goodwill
and intangible assets (continued)
Intangible
assets
Carrying
value and amortization of intangible assets
Summarized
below is the carrying value and accumulated amortization of the intangible
assets as of September 30, 2012 and June 30, 2012:
|
|
|
As
of September 30, 2012
|
|
|
As
of June 30, 2012
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships(1)
|
$
|
94,915
|
|
$
|
(25,178
|
)
|
$
|
69,737
|
|
$
|
91,692
|
|
$
|
(22,617
|
)
|
$
|
69,075
|
|
|
Software and unpatented
technology(1)
|
|
37,427
|
|
|
(18,445
|
)
|
|
18,982
|
|
|
36,082
|
|
|
(15,968
|
)
|
|
20,114
|
|
|
FTS patent
|
|
4,607
|
|
|
(4,607
|
)
|
|
-
|
|
|
4,623
|
|
|
(4,623
|
)
|
|
-
|
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks
|
|
7,222
|
|
|
(2,675
|
)
|
|
4,547
|
|
|
7,125
|
|
|
(2,507
|
)
|
|
4,618
|
|
|
Customer database
|
|
731
|
|
|
(670
|
)
|
|
61
|
|
|
734
|
|
|
(611
|
)
|
|
123
|
|
|
Total finite-lived intangible assets
|
$
|
149,408
|
|
$
|
(56,081
|
)
|
$
|
93,327
|
|
$
|
144,762
|
|
$
|
(50,832
|
)
|
$
|
93,930
|
|
(1)
Includes the customer relationships and software and unpatented technology
acquired as part of the Pbel acquisition in September 2012.
Aggregate
amortization expense on the finite-lived intangible assets for the three months
ended September 30, 2012, was approximately $4.7 million (three months ended
September 30, 2011, was approximately $4.8, respectively).
Future
estimated annual amortization expense for the next five fiscal years, assuming
exchange rates prevailing on September 30, 2012, is presented in the table
below. Actual amortization expense in future periods could differ from this
estimate as a result of acquisitions, changes in useful lives, exchange rate
fluctuations and other relevant factors.
2013
|
$
|
17,815
|
|
2014
|
|
15,644
|
|
2015
|
|
15,583
|
|
2016
|
|
11,141
|
|
2017
|
|
8,733
|
|
Thereafter
|
$
|
29,128
|
|
8.
Reinsurance
assets and policy holder liabilities under insurance and investment contracts
Reinsurance
assets and policy holder liabilities under insurance contracts
Summarized
below is the movement in reinsurance assets and policy holder liabilities under
insurance contracts during the three months ended September 30, 2012:
|
|
|
September 30, 2012
|
|
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
|
Balance as of June 30, 2012
|
$
|
23,595
|
|
$
|
(23,701
|
)
|
|
Foreign currency adjustment
(3)
|
|
(83
|
)
|
|
83
|
|
|
Balance as of September
30, 2012
|
$
|
23,512
|
|
$
|
(23,618
|
)
|
|
(1)
|
Included in other long-term assets;
|
|
(2)
|
Included in other long-term liabilities;
|
|
(3)
|
The foreign currency adjustment represents the effects of
the fluctuations between the ZAR against the US
dollar.
|
13
8.
Reinsurance
assets and policy holder liabilities under insurance and investment contracts
(continued)
Reinsurance
assets and policy holder liabilities under insurance contracts (continued)
The
Company has agreements with reinsurance companies in order to limit its losses
from large insurance contracts, however, if the reinsurer is unable to meet its
obligations, the Company retains the liability.
The
value of insurance contract liabilities is based on best estimates assumptions
of future experience plus prescribed margins, as required in the markets in
which these products are offered, namely South Africa. The process of deriving
the best estimates assumptions plus prescribed margins includes assumptions
related to future mortality and morbidity (an appropriate base table of standard
mortality is chosen depending on the type of contract and class of business),
withdrawals (based on recent withdrawal investigations and expected future
trends), investment returns (based on government treasury rates adjusted by an
applicable margin), expense inflation (based on a 10 year real return on
CPI-linked government bonds from the risk-free rate and adding an allowance for
salary inflation and book shrinkage of 1% per annum) and claim reporting delays
(based on average industry experience).
Assets
and policy holder liabilities under investment contracts
Summarized
below is the movement in assets and policy holder liabilities under investment
contracts during the three months ended September 30, 2012:
|
|
September 30, 2012
|
|
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balances as of June 30, 2012
|
$
|
1,109
|
|
$
|
(1,109
|
)
|
Foreign currency adjustment
(3)
|
|
(4
|
)
|
|
4
|
|
Balance as of September
30, 2012
|
$
|
1,105
|
|
$
|
(1,105
|
)
|
|
(1)
|
Included in other long-term assets;
|
|
(2)
|
Included in other long-term liabilities;
|
|
(3)
|
The foreign currency adjustment represents the effects of
the fluctuations between the ZAR against the US
dollar.
|
The
Company does not offer any investment products with guarantees related to
capital or returns.
9.
Short-term
credit facility
The
Company has a ZAR 250 million ($30.1 million, translated at exchange rates
applicable as of September 30, 2012) short-term South African credit facility.
As of September 30, 2012, the overdraft rate on this facility was 7.85% . The
Company has ceded its investment in Cash Paymaster Services (Proprietary)
Limited, a wholly owned South African subsidiary, as security for the facility.
As of September 30, 2012, and June 30, 2012, the Company had utilized none of
its South African short-term facility.
Management
believes that this facility is sufficient in order to meet the Companys future
obligations as they arise.
10. Long-term borrowings
The
Companys KRW 108.7 billion ($96.6 million, translated at exchange rates
applicable as of September 30, 2012) Korean senior secured loan facility is
described in Note 12 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2012. The
current carrying value as of September 30, 2012, is $96.6 million. As of
September 30, 2012, the carrying amount of the long-term borrowings approximated
fair value. The interest rate in effect on September 30, 2012, was 7.64% .
Interest expense during the three months ended September 30, 2012 and 2011,
respectively, was $1.87 million and $2.4 million.
The
third and fourth scheduled principal repayments are $7.2 million each,
translated at exchange rates applicable as of September 30, 2012, and have been
classified as current in the Companys condensed consolidated balance sheet. The
third repayment was paid on October 29, 2012 and the fourth repayment is due on
April 29, 2013.
11. Capital structure
Common
stock repurchases
The
Company did not repurchase any of its shares during the three months ended September
30, 2012. The Company repurchased 180,656 shares during the three months ended
September 30, 2011, for approximately $1.1 million.
14
12. Stock-based compensation
Stock
option and restricted stock activity
Options
The
following table summarizes stock option activity for the three months ended
September 30, 2012:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Grant
|
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Date Fair
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
Value
|
|
|
|
|
shares
|
|
|
price
|
|
|
(in years)
|
|
|
($000)
|
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2012
|
|
2,247,583
|
|
$
|
16.28
|
|
|
6.43
|
|
$
|
602
|
|
|
|
|
|
Granted under Plan: August 2012
|
|
431,000
|
|
|
8.75
|
|
|
10.0
|
|
|
1,249
|
|
$
|
2.90
|
|
|
Exercised
|
|
(30,000
|
)
|
|
7.98
|
|
|
|
|
|
24
|
|
|
|
|
|
Outstanding September 30,
2012
|
|
2,648,583
|
|
$
|
15.15
|
|
|
6.74
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2011
|
|
2,120,656
|
|
$
|
18.44
|
|
|
6.82
|
|
$
|
243
|
|
|
|
|
|
Granted under Plan: August 2011
|
|
165,000
|
|
|
6.59
|
|
|
10.0
|
|
|
297
|
|
$
|
1.80
|
|
|
Outstanding September 30,
2011
|
|
2,285,656
|
|
$
|
17.58
|
|
|
6.80
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options have
an exercise price range of $6.59 to $24.46.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
1,428,916
|
|
$
|
18.93
|
|
|
5.3
|
|
$
|
394
|
|
|
|
|
During
the three months ended September 30, 2012, 85,000 stock options became
exercisable. Included in these 85,000 stock options are 30,000 stock options
with respect to which the Remuneration Committee of the Board agreed to
accelerate vesting prior to the resignation of a non-employee director. The
stock option vesting was accelerated in recognition of this directors long
service and valued contributions. No stock options became exercisable during the
three months ended September 30, 2011. During the three months ended September
30, 2012, the Company received approximately $0.2 million from 30,000 stock
options exercised by the non-employee director that resigned. No stock options
were exercised during the three months ended September 30, 2011. The Company
issues new shares to satisfy stock option exercises.
Restricted
stock
The
following table summarizes restricted stock activity for the three months ended
September 30, 2012 and 2011:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock
|
|
|
($000)
|
|
Non-vested June 30, 2012
|
|
646,617
|
|
|
|
|
Granted August 2012
|
|
21,569
|
|
|
$189
|
|
Vested August 2012
|
|
(19,715
|
)
|
|
|
|
Non-vested - September
2012
|
|
648,471
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2011
|
|
103,672
|
|
|
|
|
Granted August 2011
|
|
30,155
|
|
|
$199
|
|
Vested August 2011
|
|
(6,157
|
)
|
|
|
|
Non-vested - September 2011
|
|
127,670
|
|
|
|
|
15
12. Stock-based compensation
(continued)
Stock
option and restricted stock activity (continued)
Restricted
stock (continued)
The
fair value of restricted stock vesting during the three months ended September
30, 2012 and 2011, respectively, was $0.2 million and $0.04 million. Included in
the 19,715 shares of restricted stock that vested during the three months ended
September 30, 2012, are 8,547 shares with respect to which the Remuneration
Committee of the Board agreed to accelerate vesting prior to the resignation of
a non-employee director. The restricted stock vesting was accelerated in
recognition of this directors long service and valued contributions.
Stock-based
compensation charge and unrecognized compensation cost
The
Company has recorded a stock compensation charge of $1.1 million and $0.5
million for the three months ended September 30, 2012 and 2011, respectively,
which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Three months ended September
30, 2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,116
|
|
$
|
-
|
|
$
|
1,116
|
|
|
Total three months ended September 30, 2012
|
$
|
1,116
|
|
$
|
-
|
|
$
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September
30, 2011
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
496
|
|
$
|
-
|
|
$
|
496
|
|
|
Total three months ended September 30, 2011
|
$
|
496
|
|
$
|
-
|
|
$
|
496
|
|
The
stock-based compensation charges have been allocated to selling, general and
administration based on the allocation of the cash compensation paid to the
employees.
As
of September 30, 2012, the total unrecognized compensation cost related to stock
options was approximately $1.9 million, which the Company expects to recognize
over approximately three years. As of September 30, 2012, the total unrecognized
compensation cost related to restricted stock awards was approximately $5.4
million, which the Company expects to recognize over approximately three years.
As
of September 30, 2012, the Company has recorded a deferred tax asset of
approximately $1.1 million related to the stock-based compensation charge
recognized related to employees of Net1 as it is able to deduct the grant date
fair value for taxation purposes in the United States.
13. Earnings per share
Basic
earnings per share include restricted stock awards that meet the definition of a
participating security. Restricted stock awards are eligible to receive
non-forfeitable dividend equivalents at the same rate as common stock. Basic
earnings per share have been calculated using the two-class method and basic
earnings per share for the three months ended September 30, 2012 and 2011,
reflects only undistributed earnings.
Diluted
earnings per share have been calculated to give effect to the number of
additional shares of common stock that would have been outstanding if the
potential dilutive instruments had been issued in each period. The calculation
of diluted earnings per share for the three months ended September 30, 2012 and
2011, includes the dilutive effect of a portion of the restricted stock awards
granted to employees as these restricted stock awards are considered
contingently issuable shares. For the purposes of the diluted earnings per share
calculation and as of September 30, 2012 and 2011, the vesting conditions in
respect of a portion of the awards had not been satisfied.
Options
to purchase 10,990,863 shares of the Companys common stock at prices ranging
from $7.98 to $24.46 per share were outstanding during the three months ended
September 30, 2012, but were not included in the computation of diluted earnings
per share because the options exercise prices were greater than the average
market price of the Companys common stock during the period. The options, which
expire at various dates through on August 22, 2022, and include the 8,955,000
equity instrument issued pursuant to BBBEE transaction, remained outstanding as
of September 30, 2012.
16
13. Earnings per share (continued)
The
following table details the weighted average number of outstanding shares used
for the calculation of earnings per share for the three months ended September
30, 2012 and 2011:
|
|
|
Three months ended
|
|
|
|
|
September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
000
|
|
|
000
|
|
|
Weighted average number of outstanding shares
of common stock basic
|
|
45,515
|
|
|
45,056
|
|
|
Weighted average effect of dilutive securities: equity instruments
|
|
75
|
|
|
29
|
|
|
Weighted average number of outstanding shares
of common stock diluted
|
|
45,590
|
|
|
45,085
|
|
14. Supplemental cash flow
information
The
following table presents the supplemental cash flow disclosures for the three
months ended September 30, 2012 and 2011:
|
|
|
2012
|
|
|
2011
|
|
|
Cash received from interest
|
$
|
3,125
|
|
$
|
2,709
|
|
|
Cash paid for interest
|
$
|
2,000
|
|
$
|
3,128
|
|
|
Cash paid for income taxes
|
$
|
342
|
|
$
|
3,781
|
|
15. Operating segments
The
Company discloses segment information as reflected in the management information
systems reports that its chief operating decision maker uses in making decisions
and to report certain entity-wide disclosures about products and services, major
customers, and the countries in which the entity holds material assets or
reports material revenues. A description of the Companys operating segments is
contained in note 22 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2012.
The
following tables summarize segment information which is prepared in accordance
with GAAP:
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
61,364
|
|
$
|
49,902
|
|
International transaction-based activities
|
|
31,649
|
|
|
30,255
|
|
Smart card accounts
|
|
8,364
|
|
|
8,252
|
|
Financial services
|
|
1,384
|
|
|
2,111
|
|
Hardware, software and
related technology sales
|
|
8,921
|
|
|
9,406
|
|
Total
|
|
111,682
|
|
|
99,926
|
|
Inter-company revenues
|
|
|
|
|
|
|
SA transaction-based activities
|
|
3,983
|
|
|
1,113
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
386
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and related technology
sales
|
|
208
|
|
|
318
|
|
Total
|
|
4,577
|
|
|
1,431
|
|
Operating income (loss)
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
6,400
|
|
|
20,183
|
|
International transaction-based activities
|
|
(171
|
)
|
|
684
|
|
Smart card accounts
|
|
2,385
|
|
|
3,750
|
|
Financial services
|
|
1,097
|
|
|
1,411
|
|
Hardware, software and
related technology sales
|
|
1,984
|
|
|
1,937
|
|
Corporate/Eliminations
|
|
(2,370
|
)
|
|
2,881
|
|
Total
|
$
|
9,325
|
|
$
|
30,846
|
|
17
15. Operating segments (continued)
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Interest earned
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
-
|
|
$
|
-
|
|
International transaction-based activities
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
-
|
|
|
-
|
|
Corporate/Eliminations
|
|
3,091
|
|
|
1,997
|
|
Total
|
|
3,091
|
|
|
1,997
|
|
Interest expense
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
143
|
|
|
76
|
|
International transaction-based activities
|
|
-
|
|
|
44
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
70
|
|
|
10
|
|
Corporate/Eliminations
|
|
1,858
|
|
|
2,486
|
|
Total
|
|
2,071
|
|
|
2,616
|
|
Depreciation and amortization
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
3,141
|
|
|
2,142
|
|
International transaction-based activities
|
|
6,679
|
|
|
6,649
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
87
|
|
|
117
|
|
Hardware, software and
related technology sales
|
|
97
|
|
|
171
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
Total
|
|
10,004
|
|
|
9,079
|
|
Income taxation expense (benefit)
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
1,753
|
|
|
5,631
|
|
International transaction-based activities
|
|
(433
|
)
|
|
335
|
|
Smart card accounts
|
|
668
|
|
|
1,051
|
|
Financial services
|
|
312
|
|
|
394
|
|
Hardware, software and
related technology sales
|
|
438
|
|
|
440
|
|
Corporate/Eliminations
|
|
991
|
|
|
2,701
|
|
Total
|
|
3,729
|
|
|
10,552
|
|
Net income (loss)
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
4,504
|
|
|
14,477
|
|
International transaction-based activities
|
|
343
|
|
|
433
|
|
Smart card accounts
|
|
1,716
|
|
|
2,700
|
|
Financial services
|
|
801
|
|
|
1,016
|
|
Hardware, software and
related technology sales
|
|
1,477
|
|
|
1,486
|
|
Corporate/Eliminations
|
|
(2,097
|
)
|
|
(344
|
)
|
Total
|
|
6,744
|
|
|
19,768
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
3,594
|
|
|
588
|
|
International transaction-based activities
|
|
2,703
|
|
|
3,751
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
145
|
|
|
73
|
|
Hardware, software and
related technology sales
|
|
11
|
|
|
54
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
Total
|
$
|
6,453
|
|
$
|
4,466
|
|
The
segment information as reviewed by the chief operating decision maker does not
include a measure of segment assets per segment as all of the significant assets
are used in the operations of all, rather than any one, of the segments. The
Company does not have dedicated assets assigned to a particular operating segment.
Accordingly, it is not meaningful to attempt an arbitrary allocation and segment
asset allocation is therefore not presented.
It
is impractical to disclose revenues from external customers for each product and
service or each group of similar products and services.
18
16. Income tax
Income
tax in interim periods
For
the purposes of interim financial reporting, the Company determines the
appropriate income tax provision by first applying the effective tax rate
expected to be applicable for the full fiscal year to ordinary income. This
amount is then adjusted for the tax effect of significant unusual or
extraordinary items, for instance, changes in tax law, valuation allowances and
non-deductible transaction-related expenses that are reported separately, and
have an impact on the tax charge. The cumulative effect of any change in the
enacted tax rate, if and when applicable, on the opening balance of deferred tax
assets and liabilities is also included in the tax charge as a discrete event in
the interim period in which the enactment date occurs.
For
the three months ended September 30, 2012, the tax charge was calculated using
the expected effective tax rate for the year. The Companys effective tax rate
for the three months ended September 30, 2012, was 36.0%, as a result of an
increase in non-deductible expenses, including the transaction-related
expenditures, interest expense related to the Companys long-term Korean
borrowings and stock-based compensation charges. The Companys effective tax
rate for the three months ended September 30, 2011, was 34.9%, as a result of
the non-taxable profit on liquidation of SmartSwitch Nigeria and fewer
non-deductible expenses, including interest expense related to the Companys
long-term Korean borrowings.
Uncertain
tax positions
The
Company increased its unrecognized tax benefits by $1.1 million during the three
months ended September 30, 2012. As of September 30, 2012, the Company had
accrued interest related to uncertain tax positions of approximately $0.02
million on its balance sheet.
The
Company does not expect changes related to its unrecognized tax benefits will
have a significant impact on its results of operations or financial position in
the next 12 months.
The
Company files income tax returns mainly in South Africa, Korea, Austria, the
Russian Federation and in the US federal jurisdiction. As of September 30, 2012,
the Company is no longer subject to income tax examination by the South African
Revenue Service for years before September 30, 2009. In 2011, the Korea National
Tax Service had effectively completed the examination of the Companys returns
in Korea related to years 2006 through 2010. The Company is subject to income
tax in other jurisdictions outside South Africa and Korea, none of which are
individually material to its financial position, cash flows, or results of
operations.
19