UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2012
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________________ To
_________________
Commission file number:
000-31203
NET 1 UEPS TECHNOLOGIES,
INC.
(Exact name of registrant as specified in its
charter)
Florida
|
98-0171860
|
(State or other jurisdiction
|
(IRS Employer
|
of incorporation or organization)
|
Identification No.)
|
President Place, 4
th
Floor, Cnr. Jan
Smuts Avenue and Bolton Road
Rosebank, Johannesburg 2196, South
Africa
(Address of principal executive offices, including zip code)
Registrants telephone number, including area code:
27-11-343-2000
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO
[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):
[ ] Large accelerated filer
|
[X] Accelerated filer
|
|
|
[ ] Non-accelerated filer
|
[ ] Smaller reporting company
|
(do not check if a smaller reporting company)
|
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
YES [
] NO [X]
As of May 8, 2012 (the latest practicable date), 45,552,304
shares of the registrants common stock, par value $0.001 per share, net of
treasury shares, were outstanding.
Form 10-Q
NET 1 UEPS TECHNOLOGIES, INC.
Table of Contents
1
Part I. Financial Information
Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
88,250
|
|
$
|
95,263
|
|
Pre-funded
social welfare grants receivable (note 3)
|
|
2,741
|
|
|
4,579
|
|
Accounts receivable, net of allowances of March: $841; June:
$728
|
|
98,159
|
|
|
82,780
|
|
Finance
loans receivable
|
|
8,720
|
|
|
8,141
|
|
Deferred expenditure on smart cards
|
|
115
|
|
|
51
|
|
Inventory
(note 4)
|
|
6,157
|
|
|
6,725
|
|
Deferred income taxes
|
|
7,590
|
|
|
15,882
|
|
Total current assets before settlement assets
|
|
211,732
|
|
|
213,421
|
|
Settlement assets (note 5)
|
|
39,408
|
|
|
186,668
|
|
Total current assets
|
|
251,140
|
|
|
400,089
|
|
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
|
|
|
|
|
|
|
DEPRECIATION OF March: $77,519; June: $50,007
|
|
44,167
|
|
|
35,807
|
|
EQUITY-ACCOUNTED INVESTMENTS (note 6)
|
|
1,552
|
|
|
1,860
|
|
GOODWILL (note 7)
|
|
190,149
|
|
|
209,570
|
|
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF March: $48,722; June: $37,118 (note 7)
|
|
101,172
|
|
|
119,856
|
|
OTHER LONG-TERM ASSETS, including reinsurance assets (note
8)
|
|
42,148
|
|
|
14,463
|
|
TOTAL ASSETS
|
|
630,328
|
|
|
781,645
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts
payable
|
|
11,817
|
|
|
11,360
|
|
Other payables
|
|
62,145
|
|
|
71,265
|
|
Current
portion of long-term borrowings (note 10)
|
|
14,316
|
|
|
15,062
|
|
Income taxes payable
|
|
8,975
|
|
|
6,709
|
|
Total current liabilities before settlement obligations
|
|
97,253
|
|
|
104,396
|
|
Settlement obligations (note 5)
|
|
39,408
|
|
|
186,668
|
|
Total current liabilities
|
|
136,661
|
|
|
291,064
|
|
DEFERRED INCOME TAXES
|
|
24,425
|
|
|
52,785
|
|
LONG-TERM BORROWINGS (note 10)
|
|
88,610
|
|
|
110,504
|
|
OTHER LONG-TERM LIABILITIES, including insurance
policy liabilities (note 8)
|
|
27,024
|
|
|
1,272
|
|
TOTAL LIABILITIES
|
|
276,720
|
|
|
455,625
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
NET1 EQUITY:
|
|
|
|
|
|
|
COMMON STOCK
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - March: 45,552,304;
June: 45,152,805
|
|
59
|
|
|
59
|
|
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: 2011: -; 2010: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL
|
|
138,289
|
|
|
136,430
|
|
TREASURY SHARES,
AT COST: March: 13,455,090; June: 13,274,434
|
|
(175,823
|
)
|
|
(174,694
|
)
|
ACCUMULATED OTHER COMPREHENSIVE
LOSS
|
|
(59,832
|
)
|
|
(33,779
|
)
|
RETAINED EARNINGS
|
|
447,618
|
|
|
394,990
|
|
TOTAL NET1 EQUITY
|
|
350,311
|
|
|
323,006
|
|
NON-CONTROLLING INTEREST
|
|
3,297
|
|
|
3,014
|
|
TOTAL EQUITY
|
|
353,608
|
|
|
326,020
|
|
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
|
$
|
630,328
|
|
$
|
781,645
|
|
(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
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except per share data)
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
90,664
|
|
$
|
92,758
|
|
$
|
282,648
|
|
$
|
246,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold,
IT processing, servicing and support
|
|
32,493
|
|
|
29,302
|
|
|
99,605
|
|
|
76,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administration
|
|
36,368
|
|
|
32,618
|
|
|
92,297
|
|
|
91,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
9,325
|
|
|
11,192
|
|
|
27,194
|
|
|
25,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangibles
|
|
-
|
|
|
41,771
|
|
|
-
|
|
|
41,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
12,478
|
|
|
(22,125
|
)
|
|
63,552
|
|
|
10,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
2,164
|
|
|
1,516
|
|
|
5,981
|
|
|
5,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
2,244
|
|
|
2,471
|
|
|
7,215
|
|
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
12,398
|
|
|
(23,080
|
)
|
|
62,318
|
|
|
10,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (BENEFIT) (note 16)
|
|
4,611
|
|
|
(1,603
|
)
|
|
9,785
|
|
|
14,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE (LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
7,787
|
|
|
(21,477
|
)
|
|
52,533
|
|
|
(3,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS FROM EQUITY- ACCOUNTED INVESTMENTS
(note 6)
|
|
(4
|
)
|
|
(127
|
)
|
|
100
|
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
7,783
|
|
|
(21,604
|
)
|
|
52,633
|
|
|
(4,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
17
|
|
|
(42
|
)
|
|
5
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO NET1
|
$
|
7,766
|
|
$
|
(21,562
|
)
|
$
|
52,628
|
|
$
|
(4,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, in United States
dollars (
note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable to Net1
shareholders
|
$
|
0.17
|
|
|
($0.47
|
)
|
$
|
1.17
|
|
|
($0.09
|
)
|
Diluted earnings attributable
to Net1 shareholders
|
$
|
0.17
|
|
|
($0.47
|
)
|
$
|
1.17
|
|
|
($0.09
|
)
|
See Notes to Unaudited Condensed
Consolidated Financial Statements
3
NET 1 UEPS
TECHNOLOGIES,
INC.
Unaudited
Condensed
Consolidated
Statement
of Changes in Equity (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
(loss) income
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2011
|
|
58,427,239
|
|
$
|
59
|
|
|
(13,274,434
|
)
|
$
|
(174,694
|
)
|
$
|
136,430
|
|
$
|
394,990
|
|
$
|
(33,779
|
)
|
$
|
323,006
|
|
$
|
3,014
|
|
$
|
326,020
|
|
Restricted stock granted
|
|
580,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
|
|
1,882
|
|
Treasury shares acquired (note 11)
|
|
|
|
|
|
|
|
(180,656
|
)
|
|
(1,129
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,129
|
)
|
|
|
|
|
(1,129
|
)
|
Utilization of APIC pool related to vested
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
(23
|
)
|
Liquidation of SmartSwitch Nigeria (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280
|
|
|
280
|
|
Sale of 10% of SmartLife (note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KSNET purchase accounting adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,628
|
|
|
|
|
|
52,628
|
|
|
5
|
|
|
52,633
|
|
Other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign currency
translation reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,053
|
)
|
|
(26,053
|
)
|
|
(127
|
)
|
|
(26,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2012
|
|
59,007,394
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
138,289
|
|
$
|
447,618
|
|
$
|
(59,832
|
)
|
$
|
350,311
|
|
$
|
3,297
|
|
$
|
353,608
|
|
See Notes to Unaudited Condensed
Consolidated Financial Statements
4
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
7,783
|
|
$
|
(21,604
|
)
|
$
|
52,633
|
|
$
|
(4,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign currency translation reserve
|
|
14,002
|
|
|
1,499
|
|
|
(26,180
|
)
|
|
30,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net
of taxes
|
|
14,002
|
|
|
1,499
|
|
|
(26,180
|
)
|
|
30,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
21,785
|
|
|
(20,105
|
)
|
|
26,453
|
|
|
25,888
|
|
Less: (Less) Add comprehensive (gain) loss
attributable to non-controlling interest
|
|
(17
|
)
|
|
24
|
|
|
122
|
|
|
(287
|
)
|
Comprehensive income (loss) attributable to
Net1
|
$
|
21,768
|
|
$
|
(20,129
|
)
|
$
|
26,575
|
|
$
|
25,601
|
|
Certain amounts for the three and
nine months ended March 31, 2011, have been reclassified to reflect the
appropriate attribution of net income (loss) and other movements between Net1
and its non-controlling interest.
See Notes to Unaudited Condensed
Consolidated Financial Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
7,783
|
|
$
|
(21,604
|
)
|
$
|
52,633
|
|
$
|
(4,313
|
)
|
Depreciation and amortization
|
|
9,325
|
|
|
11,192
|
|
|
27,194
|
|
|
25,188
|
|
Impairment loss
|
|
-
|
|
|
41,771
|
|
|
-
|
|
|
41,771
|
|
Loss (Earnings) from equity-accounted investments
|
|
4
|
|
|
127
|
|
|
(100
|
)
|
|
509
|
|
Fair value adjustments
|
|
(1,211
|
)
|
|
417
|
|
|
(1,983
|
)
|
|
655
|
|
Interest payable
|
|
694
|
|
|
1,406
|
|
|
4,469
|
|
|
1,546
|
|
Profit on disposal of property, plant and equipment
|
|
(23
|
)
|
|
(2
|
)
|
|
(57
|
)
|
|
(10
|
)
|
Net loss on sale of 10% of SmartLife (note 2)
|
|
-
|
|
|
-
|
|
|
81
|
|
|
-
|
|
Profit on liquidation of subsidiary (note 13)
|
|
-
|
|
|
-
|
|
|
(3,994
|
)
|
|
-
|
|
Realized loss on sale of SmartLife investments
|
|
-
|
|
|
-
|
|
|
25
|
|
|
-
|
|
Stock-based compensation charge
|
|
843
|
|
|
1,597
|
|
|
1,882
|
|
|
4,593
|
|
Facility fee amortized
|
|
316
|
|
|
113
|
|
|
515
|
|
|
1,841
|
|
Decrease (Increase) in accounts and finance
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable, and pre-funded grants receivable
|
|
474
|
|
|
3,896
|
|
|
(15,321
|
)
|
|
2,648
|
|
Increase in deferred expenditure on smart cards
|
|
(56
|
)
|
|
-
|
|
|
(70
|
)
|
|
-
|
|
Increase in inventory
|
|
(862
|
)
|
|
(229
|
)
|
|
(261
|
)
|
|
(163
|
)
|
Increase (Decrease) in accounts and other payables
|
|
583
|
|
|
(6,060
|
)
|
|
(1,765
|
)
|
|
(2,283
|
)
|
Increase (Decrease) in taxes payable
|
|
5,626
|
|
|
7,140
|
|
|
(5,336
|
)
|
|
5,910
|
|
Decrease in deferred taxes
|
|
(1,532
|
)
|
|
(11,500
|
)
|
|
(14,928
|
)
|
|
(24,438
|
)
|
Net cash provided by operating
activities
|
|
21,964
|
|
|
28,264
|
|
|
42,984
|
|
|
53,454
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(13,879
|
)
|
|
(4,679
|
)
|
|
(23,465
|
)
|
|
(9,458
|
)
|
Proceeds from disposal of property, plant and
equipment
|
|
117
|
|
|
10
|
|
|
385
|
|
|
28
|
|
Acquisition of SmartLife, net of cash acquired
|
|
-
|
|
|
-
|
|
|
(1,673
|
)
|
|
-
|
|
Acquisition of prepaid business
|
|
-
|
|
|
-
|
|
|
(4,481
|
)
|
|
-
|
|
Settlement from former shareholders of KSNET
|
|
|
|
|
|
|
|
|
|
|
|
|
(Acquisition of KSNET, net of cash acquired)
|
|
-
|
|
|
-
|
|
|
4,945
|
|
|
(230,225
|
)
|
Advance of loans to equity-accounted investment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(375
|
)
|
Repayment of loan by equity-accounted investment
|
|
30
|
|
|
33
|
|
|
93
|
|
|
440
|
|
Acquisition of available for sale securities
|
|
(948
|
)
|
|
-
|
|
|
(948
|
)
|
|
-
|
|
Purchase of investments related to SmartLife
|
|
-
|
|
|
-
|
|
|
(2,320
|
)
|
|
-
|
|
Proceeds from maturity of investments related to SmartLife
|
|
-
|
|
|
-
|
|
|
2,321
|
|
|
-
|
|
Net change in settlement assets
|
|
95,165
|
|
|
7,397
|
|
|
128,961
|
|
|
(39,788
|
)
|
Net cash generated from
(used in) investing
activities
|
|
80,485
|
|
|
2,761
|
|
|
103,818
|
|
|
(279,378
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portion related to options
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20
|
|
Long-term borrowings obtained
|
|
-
|
|
|
-
|
|
|
-
|
|
|
116,353
|
|
Repayment of long-term borrowings
|
|
(4,842
|
)
|
|
-
|
|
|
(12,027
|
)
|
|
-
|
|
Payment of facility fee
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,088
|
)
|
Proceeds on sale of 10% of SmartLife
|
|
-
|
|
|
-
|
|
|
107
|
|
|
-
|
|
Acquisition of remaining 19.9% of Net1 UTA
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(594
|
)
|
Acquisition of treasury stock
|
|
-
|
|
|
-
|
|
|
(1,129
|
)
|
|
-
|
|
Repayment of short-term borrowings
|
|
-
|
|
|
(7,124
|
)
|
|
-
|
|
|
(6,705
|
)
|
Net change in settlement obligations
|
|
(95,165
|
)
|
|
(7,397
|
)
|
|
(128,961
|
)
|
|
39,788
|
|
Net cash
(used in) generated from financing
activities
|
|
(100,007
|
)
|
|
(14,521
|
)
|
|
(142,010
|
)
|
|
145,774
|
|
Effect of exchange rate changes on cash
|
|
4,944
|
|
|
1,003
|
|
|
(11,805
|
)
|
|
15,298
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
7,386
|
|
|
17,507
|
|
|
(7,013
|
)
|
|
(64,852
|
)
|
Cash and cash equivalents beginning of period
|
|
80,864
|
|
|
71,383
|
|
|
95,263
|
|
|
153,742
|
|
Cash and cash equivalents end of
period
|
$
|
88,250
|
|
$
|
88,890
|
|
$
|
88,250
|
|
$
|
88,890
|
|
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
and nine months ended March 31, 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 and nine months ended March 31, 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, 2011. In
addition, please refer to note 1 to the unaudited condensed consolidated
financial statements included in the Companys Form 10-Q for the quarter ended
September 30, 2011, for a summary of accounting policies relating to the
Companys life insurance business acquired during that quarter. 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
No
new accounting pronouncements were adopted by the Company during the three
months ended March 31, 2012.
Recent
accounting pronouncements not yet adopted as of March 31, 2012
In
June 2011, the FASB issued guidance regarding the presentation of comprehensive
income. The guidance improves the comparability, consistency, and transparency
of financial reporting and increases the prominence of items reported in other
comprehensive income. The amendments to the guidance requires entities to
present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement
of comprehensive income or in two separate but consecutive statements. Entities
are no longer permitted to present components of other comprehensive income as
part of the statement of changes in equity. Any adjustments for items that are
reclassified from other comprehensive income to net income are to be presented
on the face of the entities' financial statement regardless of the method of
presentation for comprehensive income. The amendments do not change items to be
reported in comprehensive income or when an item of other comprehensive income
must be reclassified to net income, nor do the amendments change the option to
present the components of other comprehensive income either net of related tax
effects or before related tax effects. This guidance is effective for fiscal
years, and interim periods within those years, beginning on or after December
15, 2011. The Company currently presents its comprehensive income in a single
continuous statement of comprehensive income and therefore the adoption of this
guidance will not impact its presentation of comprehensive income.
In
September 2011, the FASB 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 would not
be 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 guidance is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December
15, 2011. Early adoption is permitted. The Company is currently evaluating the
impact of this guidance on its goodwill impairment testing process.
7
2.
Acquisitions
KSNET
During
the three months ended December 31, 2011, the Company received $4.9 million, in
cash, in final settlement of any and all claims and contractual adjustments
between the Company and the former shareholders of KSNET. This amount has been
applied against the goodwill recognized on the acquisition of KSNET and has
reduced the goodwill balance. As required by the Companys Korean debt
agreement, the Company has used the settlement proceeds to prepay a portion of
its outstanding debt thereunder. The prepayment was made on January 30, 2012.
The KSNET purchase price allocation is described in note 3 to the Companys
audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended June 30, 2011.
Acquisition
of prepaid airtime and electricity business in October 2011
On
October 3, 2011, the Company acquired the South African prepaid airtime and
electricity businesses of Eason & Son, Ltd (Eason), an Irish private
limited company, for approximately $4.5 million in cash. The principal assets
acquired comprise prepaid airtime and electricity businesses customer list,
accounts receivable books, inventory and a perpetual license to utilize Easons
internally developed transaction-based system software (EBOS).
The
business has been integrated with EasyPay and allocated to the Companys South
African transaction-based activities operating segment. The Company believes
that the acquisition will enable it to expand its prepaid customer base and over
time integrate all of its prepaid offerings onto the EBOS system.
The
preliminary purchase price allocation, translated at the foreign exchange rates
applicable on the date of acquisition, is provided in the table below:
Accounts receivable, net
|
$
|
1,226
|
|
Inventory
|
|
297
|
|
Customer relationships (amortized over 0.75
years)
|
|
870
|
|
Software and unpatented technology (amortized over three
years)
|
|
2,332
|
|
Deferred tax liability
|
|
(244
|
)
|
Total purchase price
|
$
|
4,481
|
|
The
preliminary purchase price allocation is based on management estimates as of
March 31, 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,
2012.
Pro
forma results of operations have not been presented because the effect of the
acquisition, individually and in the aggregate with other acquisitions during
fiscal 2012, was not material. During the three and nine months ended March 31,
2012, the Company did not incur any acquisition-related expenditure. Since the
closing of the acquisition, the acquisition has contributed revenue of $10.1
million and a net loss of $0.4 million. During the three months ended March 31,
2012 the acquisition contributed revenue of $4.8 million and a net profit of
$0.1 million.
SmartLife
On
July 1, 2011, the Company acquired SmartLife (formerly known as Saambou Life
Assurers Limited), a South African long-term insurance company, for ZAR 13
million (approximately $1.8 million) in cash. Prior to its acquisition by the
Company, SmartLife had been administered as a ring-fenced life-insurance license
by a large South African insurance company, had not written any new insurance
business for a number of years and had reinsured all of its risk exposure under
its life insurance products. SmartLife has been allocated to the Companys
financial services operating segment.
The
acquisition of SmartLife provides the Company with an opportunity to offer
relevant insurance products directly to its existing customer and employee base
in South Africa. The Company intends to offer this customer base a full spectrum
of products applicable to this market segment, including credit life, group
life, funeral and education insurance policies.
8
2.
Acquisitions
(continued)
SmartLife
(continued)
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
|
$
|
168
|
|
Accounts receivable, net
|
|
150
|
|
Financial investments (allocated to other
long-term assets)
|
|
3,059
|
|
Reinsurance assets (allocated to other long-term assets)
|
|
28,492
|
|
Other payables
|
|
(189
|
)
|
Policy holder liabilities (allocated to other long-term
liabilities)
|
|
(29,838
|
)
|
Total
purchase price
|
$
|
1,842
|
|
The
preliminary purchase price allocation is based on management estimates as of
March 31, 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,
2012.
Pro
forma results of operations have not been presented because the effect of the
SmartLife acquisition, individually and in the aggregate with other acquisitions
during fiscal 2012, was not material. During the three and nine months ended
March 31, 2012, the Company did not incur any acquisition-related expenditure.
Since the closing of the acquisition, SmartLife has contributed revenue of $0.5
million and net loss of $0.3 million. During the three months ended March 31,
2012 Smartlife contributed revenue of $0.3 million and a net loss of $0.1
million.
In
November 2011, the Company sold 10% of SmartLife to a strategic partner for $0.1
million and recognized a loss on sale of $0.07 million.
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 April 2012
payment service commenced during the last six days of March 2012 and was offered
at merchant locations only.
4.
Inventory
The
Companys inventory comprised the following categories as of March 31, 2012 and
June 30, 2011.
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
32
|
|
$
|
24
|
|
|
Finished goods
|
|
6,125
|
|
|
6,701
|
|
|
|
$
|
6,157
|
|
$
|
6,725
|
|
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
9
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 March 31, 2012
Notional amount
|
Strike price
|
Fair
market
value price
|
Maturity
|
USD 821,620
|
ZAR
8.4450
|
ZAR
7.6943
|
April 13, 2012
|
As
of June 30, 2011
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.
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.
10
6.
Fair
value of financial instruments and equity-accounted investments
(continued)
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 156,778,712 shares of common
stock of Finbond. In March 2012, Finbond completed a rights issue and the
Company acquired an additional 72,156,187 shares for approximately $1 million.
The Companys ownership interest in Finbond as of March 31, 2012, is
approximately 27%. The Company has no rights to participate in the financial,
operating, or governance decisions made by Finbond. The Company also has no
participation on Finbonds board of directors whether through contractual
agreement or otherwise. Consequently, the Company has concluded that it does not
have significant influence over Finbond and therefore equity accounting is not
appropriate.
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 include property investment and
microlending. 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
following table presents the Companys assets and liabilities measured at fair
value on a recurring basis as of March 31, 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
|
$
|
2,793
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,793
|
|
Mutual funds: interest-bearing
instruments
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Investment in Finbond (available for
sale assets included in
other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,199
|
|
|
8,199
|
|
Other
|
|
-
|
|
|
449
|
|
|
-
|
|
|
449
|
|
Total
assets at fair value
|
$
|
2,794
|
|
$
|
449
|
|
$
|
8,199
|
|
$
|
11,442
|
|
11
6.
Fair
value of financial instruments and equity-accounted investments
(continued)
Financial
instruments (continued)
The
following table presents the Companys assets and liabilities measured at fair
value on a recurring basis as of June 30, 2011 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in
Finbond (available for sale
assets
included in other long-term assets)
|
|
-
|
|
|
-
|
|
$
|
8,161
|
|
$
|
8,161
|
|
Other
|
|
-
|
|
$
|
275
|
|
|
-
|
|
|
275
|
|
Total assets at
fair value
|
|
-
|
|
$
|
275
|
|
$
|
8,161
|
|
$
|
8,436
|
|
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.
During
the three and nine months ended March 31, 2012, SmartSwitch Namibia repaid
outstanding loans, including outstanding interest. The repayments received have
been allocated to the equity-accounted investments presented in the Companys
condensed consolidated balance sheet as of March 31, 2012, and reduced this
balance. 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 and nine months
ended March 31, 2012.
The
Company has sold hardware, software and/or licenses to SmartSwitch Namibia and
SmartSwitch Botswana and defers recognition of 50% of the net income after tax
related to these sales until the purchaser has used the purchased asset or has
sold it to a third party. The deferral of the net income after tax is shown in
the Elimination column in the table below.
The
functional currency of the Companys equity-accounted investments is not the US
dollar and thus the investments are restated at the period end US dollar/foreign
currency exchange rate with an entry against accumulated other comprehensive
loss. The functional currency of SmartSwitch Namibia is the Namibian dollar and
the functional currency of SmartSwitch Botswana is the Botswana pula.
12
6.
Fair
value of financial instruments and equity-accounted investments
(continued)
Financial
instruments (continued)
Assets and liabilities measured at fair value on a nonrecurring
basis (continued)
Summarized
below is the Companys interest in equity-accounted investments as of June 30,
2011 and March 31, 2012:
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Loans
|
|
|
(Loss)
|
|
|
Elimination
|
|
|
|
Total
|
|
Balance as of June 30, 2011
|
$
|
4,051
|
|
$
|
1,630
|
|
$
|
(3,828
|
)
|
$
|
7
|
|
|
$
|
1,860
|
|
Loan repaid
|
|
-
|
|
|
(100
|
)
|
|
-
|
|
|
-
|
|
|
|
(100
|
)
|
Interest repaid
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(105
|
)
|
|
|
(105
|
)
|
Earnings (loss) from equity- accounted investments
|
|
-
|
|
|
-
|
|
|
55
|
|
|
45
|
|
|
|
100
|
|
SmartSwitch
Namibia
(1)
|
|
-
|
|
|
-
|
|
|
128
|
|
|
24
|
|
|
|
152
|
|
SmartSwitch Botswana
(1)
|
|
-
|
|
|
-
|
|
|
(73
|
)
|
|
21
|
|
|
|
(52
|
)
|
Foreign currency adjustment
(2)
|
|
(358
|
)
|
|
(80
|
)
|
|
175
|
|
|
60
|
|
|
|
(203
|
)
|
Balance as of March 31, 2012
|
$
|
3,693
|
|
$
|
1,450
|
|
$
|
(3,598
|
)
|
$
|
7
|
|
|
$
|
1,552
|
|
(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.
Summarized below is the Companys equity-accounted (loss) earnings for the three
months ended March 31, 2012:
|
|
Loss
|
|
|
Elimination
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from equity- accounted
investments
|
$
|
(10
|
)
|
$
|
6
|
|
|
$
|
(4
|
)
|
SmartSwitch Namibia
|
|
15
|
|
|
6
|
|
|
|
21
|
|
SmartSwitch Botswana
|
$
|
(25
|
)
|
$
|
-
|
|
|
$
|
(25
|
)
|
There
were no significant sales to these investees that require elimination during
the three and nine months ended March 31, 2012 and 2011.
7.
Goodwill
and intangible assets
Goodwill
Summarized below is the movement in the carrying value of goodwill for the nine
months ended March 31, 2012:
|
|
Carrying
|
|
|
|
value
|
|
|
|
|
|
Balance as of June 30, 2011
|
$
|
209,570
|
|
Reduction in goodwill related to net
settlement (note 2)
|
|
(4,945
|
)
|
Foreign currency
adjustment
(1)
|
|
(14,476
|
)
|
Balance as
of March 31, 2012
|
$
|
190,149
|
|
(1) the foreign currency adjustment represents the effects of the fluctuations
between the ZAR against the US dollar and the KRW against the US dollar.
Goodwill
has been allocated to the Companys reportable segments as follows:
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
37,376
|
|
$
|
42,005
|
|
International transaction-based activities
|
|
114,170
|
|
|
124,895
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and related technology
sales
|
|
38,603
|
|
|
42,670
|
|
Total
|
$
|
190,149
|
|
$
|
209,570
|
|
13
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 March 31, 2012 and June 30, 2011:
|
|
As
of March 31, 2012
|
|
|
As
of June 30, 2011
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships(1)
|
$
|
94,730
|
|
$
|
(21,171
|
)
|
$
|
73,559
|
|
$
|
100,155
|
|
$
|
(15,283
|
)
|
$
|
84,872
|
|
Software and
unpatented
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
technology(1)
|
|
37,414
|
|
|
(14,963
|
)
|
|
22,451
|
|
|
37,697
|
|
|
(8,999
|
)
|
|
28,698
|
|
FTS patent
|
|
4,981
|
|
|
(4, 981
|
)
|
|
-
|
|
|
5,598
|
|
|
(5,598
|
)
|
|
-
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
Trademarks
|
|
7,472
|
|
|
(2,508
|
)
|
|
4,964
|
|
|
8,130
|
|
|
(2,288
|
)
|
|
5,842
|
|
Customer database
|
|
791
|
|
|
(593
|
)
|
|
198
|
|
|
888
|
|
|
(444
|
)
|
|
444
|
|
Total finite-lived intangible assets
|
$
|
149,894
|
|
$
|
(48,722
|
)
|
$
|
101,172
|
|
$
|
156,974
|
|
$
|
(37,118
|
)
|
$
|
119,856
|
|
(1) Includes the customer relationships and software and unpatented
technology acquired as part of the Eason acquisition in October 2011.
Aggregate
amortization expense on the finite-lived intangible assets for the three and
nine months ended March 31, 2012, was approximately $5.0 million and $14.1
million, respectively (three and nine months ended March 31, 2011, was
approximately $7.3 million and $17.3 million, respectively).
Future
estimated annual amortization expense for the next five fiscal years, assuming
exchange rates prevailing on March 31, 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.
2012
|
$
|
17,529
|
|
2013
|
|
15,071
|
|
2014
|
|
14,488
|
|
2015
|
|
11,081
|
|
2016
|
$
|
8,732
|
|
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 nine months ended March 31, 2012:
|
|
March 31, 2012
|
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
Balances acquired on July 1, 2011
|
$
|
28,492
|
|
$
|
(28,492
|
)
|
Insurance premiums
|
|
-
|
|
|
-
|
|
Claims and policyholders benefits under
insurance contracts
|
|
-
|
|
|
-
|
|
Foreign currency adjustment
(3)
|
|
(3,346
|
)
|
|
3,346
|
|
Balance as of March 31,
2012
|
$
|
25,146
|
|
$
|
(25,146
|
)
|
|
(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.
|
14
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), and 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).
Assets and policy holder liabilities under investment contracts
Summarized
below is the movement in assets and policy holder liabilities under investment
contracts during the nine months ended March 31, 2012:
|
|
March 31, 2012
|
|
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balances acquired on July 1, 2011
|
$
|
1,346
|
|
$
|
(1,346
|
)
|
Insurance premiums
|
|
-
|
|
|
-
|
|
Claims and policyholders benefits under
insurance contracts
|
|
-
|
|
|
-
|
|
Foreign currency adjustment
(3)
|
|
(158
|
)
|
|
158
|
|
Balance as of March 31,
2012
|
$
|
1,188
|
|
$
|
(1,188
|
)
|
|
(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 facilities
The
Company has a ZAR 250 million ($32.5 million, translated at exchange rates
applicable as of March 31, 2012) short-term South African credit facility. As of
March 31, 2012, the overdraft rate on this facility was 7.85% . Certain South
African subsidiaries have ceded trade receivables with an aggregate value of
approximately $16.5 million, translated at exchange rates applicable as of March
31, 2012, as security for the facility as well as the Companys investment in
Cash Paymaster Services (Proprietary) Limited, a wholly owned South African
subsidiary. As of March 31, 2012 and June 30, 2011, 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 130.5 billion ($114.5 million, translated at exchange rates
applicable as of March 31, 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, 2011. The
current carrying value as of March 31, 2012, is $102.9 million. The interest
rate in effect on March 31, 2012 was 7.64% . Interest expense during the three
and nine months ended March 31, 2012, was $2.1 million and $6.7 million,
respectively. Total interest expense for the three and nine months ended March
31, 2011, was $2.0 million and $3.4 million, respectively.
The
second and third scheduled principal repayment are each $7.2 million,
respectively, translated at exchange rates applicable as of March 31, 2012, and
have been classified as current in the Companys condensed consolidated balance
sheet. The second repayment is due on April 29, 2012 and the third repayment is
due on October 29, 2012. During the three months ended March 31, 2012, the
Company made an unscheduled $4.8 million principal payment with the proceeds of
the net settlement received from the former shareholders of KSNET.
15
11.
Capital
structure
Common stock repurchases
The
Company repurchased 180,656 shares during the nine months ended March 31, 2012,
for approximately $1.1 million. The Company did not repurchase any of its shares
during the three months ended March 31, 2012 or the three and nine months ended
March 31, 2011.
12.
Stock-based
compensation
Stock option and restricted stock activity
Options
The
following table summarizes stock option activity for the three and nine months
ended March 31, 2012 and 2011:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
Grant
|
|
|
|
Number
|
|
|
exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
Date Fair
|
|
|
|
of shares
|
|
|
price
|
|
|
(in years)
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding July 1, 2011
|
|
2,120,656
|
|
$
|
18.44
|
|
|
6.82
|
|
$
|
243
|
|
|
|
|
Granted under Plan
in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2011
|
|
165,000
|
|
|
6.59
|
|
|
10.00
|
|
|
|
|
$
|
297
|
|
Granted
under Plan in October 2011
|
|
202,000
|
|
|
7.98
|
|
|
10.00
|
|
|
|
|
$
|
442
|
|
Outstanding March 31, 2012
|
|
2,487,656
|
|
$
|
16.81
|
|
|
6.55
|
|
$
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding July 1, 2010
|
|
1,813,656
|
|
$
|
19.76
|
|
|
7.41
|
|
$
|
585
|
|
|
|
|
Granted
under Plan in November 2010
|
|
307,000
|
|
|
10.59
|
|
|
10.00
|
|
|
|
|
$
|
801
|
|
Outstanding March 31, 2011
|
|
2,120,656
|
|
$
|
18.44
|
|
|
7.08
|
|
$
|
239
|
|
|
|
|
During
the nine months ended March 31, 2012, 102,333 stock options became exercisable.
No stock options became exercisable during the three months ended March 31, 2012
or the three and nine months ended March 31, 2011. As of March 31, 2012,
1,355,989 stock options were exercisable.
No
stock options were exercised during the three and nine months ended March 31,
2012 or during the three months ended March 31, 2011. During the nine months
ended March 31, 2011, the Company received approximately $0.02 million from
repayment of stock option-related loans. The Company issues new shares to
satisfy stock option exercises.
Restricted stock
The
following table summarizes restricted stock activity for the nine months ended
March 31, 2012 and 2011:
|
|
Number of Shares
|
|
|
Weighted Average
|
|
|
|
of Restricted Stock
|
|
|
Grant Date Fair Value
|
|
Non-vested July 1, 2011
|
|
103,672
|
|
|
-
|
|
Granted August
2011
|
|
30,155
|
|
$
|
199
|
|
Granted February 2012
|
|
550,000
|
|
$
|
6,111
|
|
Vested August
2011
|
|
(6,157
|
)
|
|
-
|
|
Vested November 2011
|
|
(27,667
|
)
|
|
-
|
|
Non-vested March 31, 2012
|
|
650,003
|
|
|
-
|
|
|
|
|
|
|
|
|
Non-vested July 1, 2010
|
|
407,828
|
|
|
-
|
|
Granted August 2010
|
|
13,956
|
|
$
|
185
|
|
Granted October
2010
|
|
60,000
|
|
$
|
740
|
|
Granted November 2010
|
|
83,000
|
|
$
|
879
|
|
Vested September
2010
|
|
(201,704
|
)
|
|
-
|
|
Vested February 2011
|
|
(1,094
|
)
|
|
-
|
|
Non-vested March 31, 2011
|
|
361,986
|
|
|
-
|
|
16
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 and nine months ended
March 31, 2012, was $0.0 million and $0.3 million, respectively. The fair value
of restricted stock vested during the nine months ended March 31, 2011, was
$0.01 million and $2.3 million, respectively.
Stock-based compensation charge and unrecognized compensation
cost
The
Company has recorded a stock compensation charge of $0.8 million and $1.6
million for the three months ended March 31, 2012 and 2011, respectively, which
comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
|
|
|
|
|
|
|
processing,
|
|
|
Allocated to
|
|
|
|
Total
|
|
|
servicing and
|
|
|
selling, general and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Three months ended March 31,
2012
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
844
|
|
$
|
-
|
|
$
|
844
|
|
Total three months ended March 31, 2012
|
$
|
844
|
|
$
|
-
|
|
$
|
844
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
2011
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,595
|
|
$
|
50
|
|
$
|
1,545
|
|
Total three months ended March 31, 2011
|
$
|
1,595
|
|
$
|
50
|
|
$
|
1,545
|
|
The
Company has recorded a stock compensation charge of $1.9 million and $4.6
million for the nine months ended March 31, 2012 and 2011, respectively, which
comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
|
|
|
|
|
|
|
processing,
|
|
|
Allocated to
|
|
|
|
Total
|
|
|
servicing and
|
|
|
selling, general and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Nine months ended March 31,
2012
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,882
|
|
$
|
-
|
|
$
|
1,882
|
|
Total Nine months ended March 31, 2012
|
$
|
1,882
|
|
$
|
-
|
|
$
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31,
2011
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
4,592
|
|
$
|
152
|
|
$
|
4,440
|
|
Total Nine months ended March 31, 2011
|
$
|
4,592
|
|
$
|
152
|
|
$
|
4,440
|
|
The
stock-based compensation charges have been allocated to cost of goods sold, IT
processing, servicing and support and selling, general and administration based
on the allocation of the cash compensation paid to the employees.
As
of March 31, 2012, the total unrecognized compensation cost related to stock
options was approximately $1.0 million, which the Company expects to recognize
over approximately three years. As of March 31, 2012, the total unrecognized
compensation cost related to restricted stock awards was approximately $6.6
million, which the Company expects to recognize over approximately three years.
As
of March 31, 2012, the Company has recorded a deferred tax asset of
approximately $0.3 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.
17
13.
Profit on
liquidation of SmartSwitch Nigeria
The
Company has ceased operations in the Federation of Nigeria due to an inability
to implement its technology on a profitable basis. During the three months ended
September 30, 2011, the Company, together with the other shareholders, agreed to
liquidate SmartSwitch Nigeria, the company through which operating activities in
Nigeria were performed. SmartSwitch Nigeria was capitalized primarily with
shareholder loans. The Company eliminated its portion of the loan funding on
consolidation, and included the loans due to the non-controlling interest in
long-term borrowings on its June 30, 2011, consolidated balance sheet. The
shareholders of SmartSwitch Nigeria have agreed to waive all outstanding capital
and interest repayments related to the loan funding initially provided as part
of the liquidation processes. The non-cash profit on liquidation of SmartSwitch
Nigeria of $4.0 million includes the write back of all assets and liabilities,
including non-controlling interest loans, of SmartSwitch Nigeria, except for
expected liabilities related to the liquidation of SmartSwitch Nigeria. The
profit has been allocated to corporate/eliminations.
14.
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 and nine months ended March 31, 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 and nine months ended March 31, 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 March 31, 2012 and 2011, the vesting conditions in respect
of a portion of the awards had not been satisfied.
The
following table details the weighted average number of outstanding shares used
for the calculation of earnings per share for the three and nine months ended
March 31, 2012 and 2011.
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
Weighted average number of outstanding shares
of
common stock basic
|
|
45,268
|
|
|
45,452
|
|
|
45,084
|
|
|
45,423
|
|
Weighted average effect of dilutive securities: employee
share-based awards
|
|
107
|
|
|
107
|
|
|
56
|
|
|
66
|
|
Weighted average number of outstanding shares
of
common stock diluted
|
|
45,375
|
|
|
45,559
|
|
|
45,140
|
|
|
45,489
|
|
18
15.
Operating
segments
A
description of the Companys operating segments is contained in note 19 to the
Companys audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended June 30, 2011.
The
Company has reallocated its EP Kiosk business unit to the South African
transaction-based activities segment from the hardware, software and related
technology segment, as the unit is no longer in pilot phase and now forms part
of EasyPay. Following XeoHealths first contract signing, the Company has
allocated its revenue and costs to the international transaction-based
activities segment, which were previously included in the South African
transaction-based activities segment. Revenue and administration costs related
to the Companys comprehensive financial services offerings are all included in
the financial services segment. The effect of these reallocations has not
significantly impacted the Companys reported results. Restated amounts for the
three months ended March 31, 2011, also include the effects of reallocating the
Companys initiatives in Iraq, Nigeria and Net1 VCC. The impact of these
reallocations on the Companys revenue, operating income (loss) and net income
(loss) for the three months ended March 31, 2011, is presented in the table
below:
|
|
Three months ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
previously
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
reported
|
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
47,313
|
|
$
|
47,313
|
|
$
|
-
|
|
|
|
|
International transaction-based activities
|
|
24,627
|
|
|
24,627
|
|
|
-
|
|
|
|
|
Smart card accounts
|
|
8,288
|
|
|
8,288
|
|
|
-
|
|
|
|
|
Financial services
|
|
2,171
|
|
|
2,168
|
|
|
3
|
|
|
|
|
Hardware, software and
related technology sales
|
|
10,359
|
|
|
10,362
|
|
|
(3
|
)
|
|
|
|
Total
|
|
92,758
|
|
|
92,758
|
|
|
-
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
18,566
|
|
|
18,309
|
|
|
257
|
|
|
|
|
International transaction-based
activities
|
|
274
|
|
|
780
|
|
|
(506
|
)
|
|
|
|
Smart card accounts
|
|
3,767
|
|
|
3,767
|
|
|
-
|
|
|
|
|
Financial services
|
|
1,540
|
|
|
1,701
|
|
|
(161
|
)
|
|
|
|
Hardware, software and related technology
sales
|
|
(44,086
|
)
|
|
(44,584
|
)
|
|
498
|
|
|
|
|
Corporate/Eliminations
|
|
(2,186
|
)
|
|
(2,098
|
)
|
|
(88
|
)
|
|
|
|
Total
|
|
(22,125
|
)
|
|
(22,125
|
)
|
|
-
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
13,380
|
|
|
13,054
|
|
|
326
|
|
|
|
|
International transaction-based
activities
|
|
394
|
|
|
899
|
|
|
(505
|
)
|
|
|
|
Smart card accounts
|
|
2,712
|
|
|
2,712
|
|
|
-
|
|
|
|
|
Financial services
|
|
1,099
|
|
|
1,214
|
|
|
(115
|
)
|
|
|
|
Hardware, software and related technology
sales
|
|
(33,080
|
)
|
|
(36,561
|
)
|
|
3,481
|
|
|
|
|
Corporate/Eliminations
|
|
(6,067
|
)
|
|
(2,880
|
)
|
|
(3,187
|
)
|
|
|
|
Total
|
$
|
(21,562
|
)
|
$
|
(21,562
|
)
|
$
|
-
|
|
|
|
|
The
impact of these reallocations on the Companys revenue, operating income (loss)
and net income (loss) for the nine months ended March 31, 2011, is presented in
the table below:
|
|
Nine months ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
previously
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
reported
|
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
138,939
|
|
$
|
138,793
|
|
$
|
146
|
|
|
|
|
International transaction-based activities
|
|
42,482
|
|
|
41,577
|
|
|
905
|
|
|
|
|
Smart card accounts
|
|
24,692
|
|
|
24,692
|
|
|
-
|
|
|
|
|
Financial services
|
|
5,072
|
|
|
5,039
|
|
|
33
|
|
|
|
|
Hardware, software and
related technology sales
|
|
34,867
|
|
|
35,951
|
|
|
(1,084
|
)
|
|
|
|
Total
|
$
|
246,052
|
|
$
|
246,052
|
|
$
|
-
|
|
|
|
|
19
15. Operating segments
(continued)
|
|
Nine months ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
|
previously
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
reported
|
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
54,892
|
|
$
|
54,632
|
|
$
|
260
|
|
|
|
|
International transaction-based activities
|
|
(295
|
)
|
|
1,107
|
|
|
(1,402
|
)
|
|
|
|
Smart card accounts
|
|
11,221
|
|
|
11,221
|
|
|
-
|
|
|
|
|
Financial services
|
|
3,365
|
|
|
3,861
|
|
|
(496
|
)
|
|
|
|
Hardware, software and
related technology sales
|
|
(46,474
|
)
|
|
(47,563
|
)
|
|
1,089
|
|
|
|
|
Corporate/Eliminations
|
|
(11,874
|
)
|
|
(12,423
|
)
|
|
549
|
|
|
|
|
Total
|
|
10,835
|
|
|
10,835
|
|
|
-
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
39,597
|
|
|
38,892
|
|
|
705
|
|
|
|
|
International transaction-based activities
|
|
(779
|
)
|
|
902
|
|
|
(1,681
|
)
|
|
|
|
Smart card accounts
|
|
8,081
|
|
|
8,081
|
|
|
-
|
|
|
|
|
Financial services
|
|
2,411
|
|
|
2,768
|
|
|
(357
|
)
|
|
|
|
Hardware, software and
related technology sales
|
|
(35,085
|
)
|
|
(39,057
|
)
|
|
3,972
|
|
|
|
|
Corporate/Eliminations
|
|
(18,410
|
)
|
|
(15,771
|
)
|
|
(2,639
|
)
|
|
|
|
Total
|
$
|
(4,185
|
)
|
$
|
(4,185
|
)
|
$
|
-
|
|
|
|
|
The
following tables summarize segment information which is prepared in accordance
with GAAP:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
46,423
|
|
$
|
47,313
|
|
$
|
142,773
|
|
$
|
138,939
|
|
International transaction-based activities
|
|
28,188
|
|
|
24,627
|
|
|
87,278
|
|
|
42,482
|
|
Smart card accounts
|
|
7,558
|
|
|
8,288
|
|
|
23,074
|
|
|
24,692
|
|
Financial services
|
|
2,289
|
|
|
2,171
|
|
|
6,344
|
|
|
5,072
|
|
Hardware, software and
related technology sales
|
|
6,206
|
|
|
10,359
|
|
|
23,179
|
|
|
34,867
|
|
Total
|
|
90,664
|
|
|
92,758
|
|
|
282,648
|
|
|
246,052
|
|
Inter-company revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
993
|
|
|
985
|
|
|
2,970
|
|
|
2,923
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
390
|
|
|
-
|
|
|
671
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and related technology
sales
|
|
362
|
|
|
517
|
|
|
1,145
|
|
|
1,509
|
|
Total
|
|
1,745
|
|
|
1,502
|
|
|
4,786
|
|
|
4,432
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
8,694
|
|
|
18,566
|
|
|
44,643
|
|
|
54,892
|
|
International transaction-based activities
|
|
195
|
|
|
274
|
|
|
1,120
|
|
|
(295
|
)
|
Smart card accounts
|
|
3,435
|
|
|
3,767
|
|
|
10,487
|
|
|
11,221
|
|
Financial services
|
|
1,248
|
|
|
1,540
|
|
|
3,685
|
|
|
3,365
|
|
Hardware, software and
related technology sales
|
|
(1,301
|
)
|
|
(44,086
|
)
|
|
1,545
|
|
|
(46,474
|
)
|
Corporate/Eliminations
|
|
207
|
|
|
(2,186
|
)
|
|
2,072
|
|
|
(11,874
|
)
|
Total
|
|
12,478
|
|
|
(22,125
|
)
|
|
63,552
|
|
|
10,835
|
|
Interest earned
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
International transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate/Eliminations
|
|
2,164
|
|
|
1,516
|
|
|
5,981
|
|
|
5,950
|
|
Total
|
$
|
2,164
|
|
$
|
1,516
|
|
$
|
5,981
|
|
$
|
5,950
|
|
20
15.
Operating
segments (continued)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
125
|
|
$
|
178
|
|
$
|
313
|
|
$
|
526
|
|
International transaction-based activities
|
|
-
|
|
|
156
|
|
|
44
|
|
|
335
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
15
|
|
|
2
|
|
|
15
|
|
Hardware, software and related
technology sales
|
|
3
|
|
|
15
|
|
|
26
|
|
|
43
|
|
Corporate/Eliminations
|
|
2,116
|
|
|
2,107
|
|
|
6,830
|
|
|
5,230
|
|
Total
|
|
2,244
|
|
|
2,471
|
|
|
7,215
|
|
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
2,172
|
|
|
2,237
|
|
|
6,423
|
|
|
6,711
|
|
International transaction-based
activities
|
|
6,746
|
|
|
6,047
|
|
|
19,665
|
|
|
9,946
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
78
|
|
|
131
|
|
|
269
|
|
|
402
|
|
Hardware, software and related technology sales
|
|
153
|
|
|
2,568
|
|
|
474
|
|
|
7,550
|
|
Corporate/Eliminations
|
|
176
|
|
|
209
|
|
|
363
|
|
|
579
|
|
Total
|
|
9,325
|
|
|
11,192
|
|
|
27,194
|
|
|
25,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxation expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
2,526
|
|
|
5,007
|
|
|
12,540
|
|
|
14,766
|
|
International transaction-based activities
|
|
(88
|
)
|
|
(55
|
)
|
|
538
|
|
|
369
|
|
Smart card accounts
|
|
962
|
|
|
1,055
|
|
|
2,937
|
|
|
3,142
|
|
Financial services
|
|
349
|
|
|
427
|
|
|
1,025
|
|
|
937
|
|
Hardware, software and related
technology sales
|
|
(339
|
)
|
|
(10,925
|
)
|
|
317
|
|
|
(11,311
|
)
|
Corporate/Eliminations
|
|
1,201
|
|
|
2,888
|
|
|
(7,572
|
)
|
|
6,537
|
|
Total
|
|
4,611
|
|
|
(1,603
|
)
|
|
9,785
|
|
|
14,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
6,044
|
|
|
13,380
|
|
|
31,791
|
|
|
39,597
|
|
International transaction-based
activities
|
|
405
|
|
|
394
|
|
|
958
|
|
|
(779
|
)
|
Smart card accounts
|
|
2,473
|
|
|
2,712
|
|
|
7,550
|
|
|
8,081
|
|
Financial services
|
|
898
|
|
|
1,099
|
|
|
2,638
|
|
|
2,411
|
|
Hardware, software and related technology sales
|
|
(963
|
)
|
|
(33,080
|
)
|
|
1,201
|
|
|
(35,085
|
)
|
Corporate/Eliminations
|
|
(1,091
|
)
|
|
(6,067
|
)
|
|
8,490
|
|
|
(18,410
|
)
|
Total
|
|
7,766
|
|
|
(21,562
|
)
|
|
52,628
|
|
|
(4,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
10,185
|
|
|
649
|
|
|
11,969
|
|
|
1,933
|
|
International transaction-based activities
|
|
3,587
|
|
|
3,848
|
|
|
11,042
|
|
|
7,086
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
97
|
|
|
124
|
|
|
314
|
|
|
340
|
|
Hardware, software and related
technology sales
|
|
10
|
|
|
58
|
|
|
140
|
|
|
99
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
13,879
|
|
$
|
4,679
|
|
$
|
23,465
|
|
$
|
9,458
|
|
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.
21
16.
Income
tax
Change
in South African tax law
On
December 20, 2011, there was a change in South African tax law to impose a 15%
dividends withholding tax (a tax levied and withheld by a company on
distributions to its shareholders) to replace the 10% Secondary Taxation on
Companies (a tax levied directly on a company on dividend distributions)
(STC). The change becomes effective on April 1, 2012. The withholding tax rate
applicable to the Company is reduced to 5% under the U.S. / South Africa double
taxation treaty. As a result, the Company has recorded a net deferred taxation
benefit of approximately $18.3 million in income taxation expense in its
condensed consolidated statements of operations during the nine months ended
March 31, 2012. There were no changes to the enacted tax rate during the three
and nine months ended March 31, 2011.
Currently,
the Company intends to permanently reinvest its undistributed South African
earnings in South Africa. Accordingly, the Company has not recognized a deferred
tax liability related to any future distributions of these undistributed
earnings. The Company will be required to record a taxation charge related to
any change in its distribution of undistributed earnings if it decides not to
permanently reinvest its undistributed earnings. This may result in an increase
in the Companys effective tax rate in future periods.
Foreign
tax credits and change in valuation allowance
As
a result of the change in South African tax law and the Companys intention to
permanently reinvest its undistributed earnings in South Africa, the Company
does not believe it will be able to recover foreign tax credits previously
recognized of $8.2 million. The Company has recorded this charge of $8.2 million
in its income taxation expense in its condensed consolidated statements of
operations for the nine months ended March 31, 2012.
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 and nine months ended March 31, 2012, the tax charge was calculated
using the expected effective tax rate for the year. The Companys effective tax
rate for the three and nine months ended March 31, 2012, was 37.19% and 15.7%,
respectively, as a result of a change in tax law in South Africa, non-taxable
profit on liquidation of SmartSwitch Nigeria, fewer non-deductible expenses,
offset by increased interest expense related to the Companys long-term Korean
borrowings and the creation of a valuation allowance The Companys effective tax
rate for the three and nine months ended March 31, 2011, was 7% and 135.8%,
respectively, as a result of non-deductible expenses, including
transaction-related expenses and interest expense related to the acquisition of
KSNET.
Uncertain
tax positions
The
Company increased its unrecognized tax benefits by $0.04 million and $0.1
million, respectively, during the three and nine months ended March 31, 2012. As
of March 31, 2012, the Company had accrued interest related to uncertain tax
positions of approximately $0.3 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 March 31, 2012, the
Company is no longer subject to income tax examination by the South African
Revenue Service for years before March 31, 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, statement of cash flows, or
results of operations.
22
17.
Subsequent
events
On April
19, 2012, the Company issued an option to purchase 8,955,000 shares of its
common stock to a BEE consortium pursuant to the previously-announced BEE
transaction that it entered into on January 25, 2012. The grant date fair value
of the option was $11.7 million and the Company expects to expense this amount
in full during the three months ended June 30, 2012.
23
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should
be read in conjunction with our Annual Report on Form 10-K for the year ended
June 30, 2011 and the unaudited condensed consolidated financial statements and
the accompanying notes included in this Form 10-Q.
Forward-looking statements
Some of the statements in this
Form 10-Q constitute forward-looking statements. These statements relate to
future events or our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our or our industrys
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed, implied or inferred by these forward-looking statements.
Such factors include, among other things, those listed under Item 1A.Risk
Factors and elsewhere in our Annual Report on Form 10-K for the year ended June
30, 2011 and Item IARisk Factors and elsewhere in this Form 10-Q. In some
cases, you can identify forward-looking statements by terminology such as may,
will, should, could, would, expects, plans, intends,
anticipates, believes, estimates, predicts, potential or continue or
the negative of such terms and other comparable terminology.
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we do
not know whether we can achieve positive future results, levels of activity,
performance, or goals. Actual events or results may differ materially. We
undertake no obligation to update any of the forward-looking statements after
the date of this Form 10-Q to conform those statements to reflect the occurrence
of unanticipated events, except as required by applicable law.
You should read this Form 10-Q
and the documents that we reference herein and the documents we have filed as
exhibits hereto and which we have filed with the Securities and Exchange
Commission completely and with the understanding that our actual future results,
levels of activity, performance and achievements may be materially different
from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
Recent Developments
South Africa
New
SASSA contract
On January 17, 2012, SASSA
awarded us a tender to provide payment services for social grants in all of
South Africas nine provinces for a period of five years. On February 3, 2012,
we entered into a new contract, together with a related service level agreement,
with SASSA pursuant to which we pay, on behalf of SASSA, social grants to all
persons nationally who are entitled to receive such grants, for a firm price of
ZAR16.44 per beneficiary paid, or ZAR 14.42 net of VAT. On March 31, 2012, our
then-existing contract with SASSA to provide social grant distribution in five
provinces expired. We are now operating under the new contract.
We commenced the implementation of our new contract during the third quarter of fiscal 2012. The implementation will be conducted in two phases. The first phase involved issuing approximately 2.5 million MasterCard-branded debit cards to beneficiaries that we did not serve under our previous contract in order to establish the payment process to pay all social grants in the country. We successfully commenced the national grant payment process for approximately 9.2 million beneficiaries on April 2, 2012.
The second phase will require us
to re-enroll all social grant beneficiaries in South Africa. This enrollment
process will require us to capture the personal and biometric information of
each beneficiary and issue each grant recipient with our latest
MasterCard-branded EMV/UEPS combination smart cards. These smart cards can be
used across all elements of the South African National Payment System, including
at ATMs and POSs, in addition to our current UEPS merchant acquiring system and
mobile pay points. We expect to commence the second phase of the enrollment
process in June 2012 and plan to be substantially complete by March 2013.
Following the conclusion of the
new service level agreement, we paid certain of our executives and key employees
special bonuses of $5.4 million (ZAR 41.8 million) in recognition of their
contributions to the compilation of the successful SASSA tender, the development
of the new technologies and the support provided for the implementation of the
tender award. In order to complete the first phase of the implementation on
time, we hired approximately 2,200 of the estimated 2,600 temporary employees
required to assist with the first phase of the beneficiary enrollment process.
Once we have completed the second phase, we expect our permanent employee base
to increase from pre-new contract levels by approximately 900 people.
24
During the third quarter of
fiscal 2012 we incurred direct implementation expenses of approximately $1.3
million (ZAR10 million) including staff, travel (excluding the bonuses discussed
above), premises hire for enrollment, stationery, delivery and advertising
costs. We are unable to quantify the value of time spent by our executives and
pension and welfare operations managers and staff that service the five
provinces in which we operated under the previous contract and that have
assisted in the implementation of the national award. During the third quarter,
we also incurred approximately $7.0 million in capital expenditures, primarily
to acquire payment vehicles required for the national implementation. We
anticipate cumulative capital expenditures related to the ramp of our national
contract to remain in the $45 to $50 million range, of which roughly two-thirds
should be incurred by the end of the first quarter of fiscal 2013.
See Item 1ARisk Factors in
this Form 10-Q for more information about and the risks associated with our
SASSA contract.
Issue of option pursuant to Broad Based Black Economic Empowerment
transaction
On April 19, 2012, we issued an
option to purchase 8,955,000 shares of our common stock to a BEE consortium
pursuant to the previously-announced BEE transaction that we entered into on
January 25, 2012. While we believe that this transaction will improve our BEE
rating, and therefore provide us with additional business opportunities in South
Africa, additional steps may become necessary to achieve these goals.
For a discussion of additional
risks associated with compliance with the South African Broad Based Black
Economic Empowerment Act, please see the risk factor entitled If we do not
achieve applicable black economic empowerment objectives in our South African
businesses, we risk losing our government and private contracts. In addition, it
is possible that we may be required to achieve black shareholding of our company
in a manner that could dilute your ownership. in Item 1A of our Form 10-K for
the year ended June 30, 2011.
South
African transaction processors
The revenue of our social grant
payment activities for the third quarter is recorded in terms of our previous
contract which terminated on March 31, 2012. FIHRST continues to expand its
market share in the third-party payroll payment processing space through its
existing customers embracing additional services and an increase in new
customers. MediKredit signed agreements with new providers, including public
hospitals, private hospitals and specialist doctors, and has commenced
adjudication and processing activities for these providers.
Outside South Africa
KSNET
The KSNET management team has
commenced a number of strategic initiatives in the Republic of Korea to maintain
and expand our current market share and to grow into adjacent markets. We have
embarked on a number of medium-term initiatives which will be funded from our
existing Korean cash reserves. We do not expect to use funds generated by our
other operations to fund these initiatives in Korea. These initiatives are
beginning to yield positive results as we expanded our product offering and
customer base, however, the competitive value added network environment in Korea
has resulted in a nominal anticipated loss of operation margin. We expect this
competitive environment to continue for the foreseeable future, and expect
further nominal margin loss in the short to medium-term. However, management
expects that its efforts to penetrate the small and medium sized merchant base
as well as the introduction of additional services that leverage the existing
infrastructure may be able improve the units margin profile over time.
XeoHealth
During the second quarter of
fiscal 2012, we commenced processing 4010 and 5010 data, including capitation
information and creating state reporting claims files for Community Behavioral
Health, or CBH, a not-for-profit corporation contracted by the City of
Philadelphia to provide behavioral health services for Philadelphia Medicaid
recipients. XeoHealth licenses its XeoRules
TM
SaaS offering to CBH
including implementation services. XeoHealth has recognized implementation
revenue during the implementation phase and recurring transaction-based revenue
from December 2011 from this contract.
Additionally, XeoHealth has been
subcontracted by Cognosante LLC, a U.S. provider of health IT services to state
and federal agencies and regional health organizations, to assist with the
provision of recovery audit contractor, or RAC, services to the North Dakota
Department of Human Services, Medical Services Division. XeoHealth will earn a
fee based on a percentage of the final recoveries identified by our XeoRules
claims auditing service for the past five years, as well as the desk review
recovery referrals identified through our XeoRules engine until June 30, 2013.
In addition to the North Dakota RAC, XeoHealth has also been subcontracted by
Cognosante to provide both the automated audit as well the analysis services as
required by the RAC for the State of Missouri Medicaid.
25
XeoHealth will be compensated
based on a percentage of the final recoveries identified by our XeoRules claims
re-adjudicating service for the audit period of three years, as well as the desk
review recovery referrals identified through our XeoRules engine. We expect
XeoHealth to commence providing RAC services by September 2012.
XeoRules is XeoHealths
internally developed 5010 and ICD-10 enabled real-time claims adjudication
engine. XeoRules significantly reduces the time and radically improves the
efficiency and accuracy of healthcare claims adjudication and data processing.
We continue to enjoy significant interest from various participants in the U.S.
healthcare industry in our solution for the current and newly updated Health
Insurance Portability and Accountability Act-mandated electronic data
interchange transactions.
Mobile
Virtual Card
We launched our
VCPay
TM
offering in the United States during fiscal 2011. Our mobile
phone-based virtual payment card application is designed to eliminate fraud in
card not present transactions. During the first quarter of fiscal 2012, we
engaged the services of a specialist advisory firm to assist us with the general
management of our VCPay initiatives in the USA, the identification of the
various strategic channels for VCPay deployment and the commercialization of
VCPay in our targeted industry verticals.
The Banamex VCPay initiative in
Mexico is currently in the system integration testing phase, with hardware
having been deployed and prepared for launch in the second quarter of fiscal
2013. We believe that this first implementation of our VCPay technology in
Latin America, spearheaded by one of the largest financial institutions in the
region, as a catalyst to increase the footprint of VCPay services in the
region.
The
African Continent and Iraq
During fiscal 2012, NUETS
recorded revenue from transaction fees under its contract with the government of
Iraq. NUETS has entered the second phase of its initiative in Ghana and now
generates recurring income in the form of hardware and software maintenance
fees.
NUETS continued to service its
current customers on the African continent and in Iraq and continued its
business development efforts, including responding to a number of tenders, in
multiple countries on the African continent during the year. In addition, NUETS
has developed a limited investment / software as a service business model and we
expect to deploy the UEPS technology in selected African markets using this
approach during the second half of fiscal 2012.
Critical Accounting Policies
Our unaudited condensed
consolidated financial statements have been prepared in accordance with US GAAP,
which requires management to make estimates and assumptions about future events
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities. As future events and their effects cannot be
determined with absolute certainty, the determination of estimates requires
managements judgment based on a variety of assumptions and other determinants
such as historical experience, current and expected market conditions and
certain scientific evaluation techniques.
Critical accounting policies are
those that reflect significant judgments or uncertainties, and potentially may
result in materially different results under different assumptions and
conditions. Management has identified the following critical accounting policies
that are described in more detail in our Annual Report on Form 10-K for the year
ended June 30, 2011:
-
Deferred taxation;
-
Stock-based compensation;
-
Intangible assets acquired through acquisitions;
-
Accounts receivable and provision for doubtful debts; and
-
Research and development.
Recent accounting pronouncements
adopted
No new accounting pronouncements were
adopted by us during the three months ended March 31, 2012.
Recent accounting
pronouncements not yet adopted as of March 31, 2012
Refer to note 1 to the unaudited
condensed consolidated financial statements for a full description of recent
accounting pronouncements not yet adopted as of March 31, 2012, including the
expected dates of adoption and effects on financial condition, results of
operations and cash flows.
26
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at
the end of the periods presented were as follows:
Table 1
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
Year ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
(1)
|
|
|
2011
(2)
|
|
ZAR : $ average exchange rate
|
|
7.7822
|
|
|
7.0160
|
|
|
7.6771
|
|
|
7.1017
|
|
|
7.0286
|
|
Highest ZAR : $ rate during period
|
|
8.2333
|
|
|
7.3457
|
|
|
8.6005
|
|
|
7.7809
|
|
|
7.7809
|
|
Lowest ZAR : $ rate during period
|
|
7.4001
|
|
|
6.4925
|
|
|
6.6096
|
|
|
6.4925
|
|
|
6.4925
|
|
Rate at end of period
|
|
7.6930
|
|
|
6.8456
|
|
|
7.6930
|
|
|
6.8456
|
|
|
6.8449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW : $ average exchange rate
|
|
1,133
|
|
|
1,122
|
|
|
1,121
|
|
|
1,129
|
|
|
1,113
|
|
Highest KRW : $ rate during period
|
|
1,165
|
|
|
1,140
|
|
|
1,202
|
|
|
1,169
|
|
|
1,169
|
|
Lowest KRW : $ rate during period
|
|
1,090
|
|
|
1,089
|
|
|
1,029
|
|
|
1,089
|
|
|
1,059
|
|
Rate at end of period
|
|
1,135
|
|
|
1,106
|
|
|
1,135
|
|
|
1,106
|
|
|
1,079
|
|
(1)
|
KRW : $ average, highest and lowest exchange rates are
from November 1, 2010 to March 31, 2011;
|
(2)
|
KRW : $ average, highest and lowest exchange rates are
from November 1, 2010 to June 30, 2011.
|
27
Translation exchange
rates
We are required to translate our
results of operations from ZAR and KRW to US dollars on a monthly basis. Thus,
the average rates used to translate this data for the three and nine months
ended March 31, 2012 and 2011, vary slightly from the averages shown in the
table above. The translation rates we use in presenting our results of
operations are the rates shown in the following table:
Table 2
|
|
Three months
|
|
|
Nine months ended
|
|
|
Year ended
|
|
|
|
ended March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
Income and expense items: $1 = ZAR .
|
|
7.8521
|
|
|
6.9853
|
|
|
7.8245
|
|
|
7.0891
|
|
|
6.9962
|
|
Income and expense items: $1 = KRW
|
|
1,126
|
|
|
1,122
|
|
|
1,119
|
|
|
1,118
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items: $1 = ZAR
|
|
7.6930
|
|
|
6.8456
|
|
|
7.6930
|
|
|
6.8456
|
|
|
6.8449
|
|
Balance sheet items: $1 = KRW
|
|
1,135
|
|
|
1,106
|
|
|
1,135
|
|
|
1,106
|
|
|
1,079
|
|
Results of operations
The discussion of our
consolidated overall results of operations is based on amounts as reflected in
our unaudited condensed consolidated financial statements which are prepared in
accordance with US GAAP. We analyze our results of operations both in US
dollars, as presented in the consolidated financial statements, and
supplementally in ZAR, because ZAR is the functional currency of the entities
which contribute the majority of our profits and is the currency in which the
majority of our transactions are initially incurred and measured. Due to the
significant impact of currency fluctuations between the US dollar and ZAR on our
reported results and because we use the US dollar as our reporting currency, we
believe that the supplemental presentation of our results of operations in ZAR
is useful to investors to understand the changes in the underlying trends of our
business.
Three and nine months ended March
31, 2011, results do not include Eason and SmartLife but do include KSNET from
November 1, 2010. In addition, the following discussion gives effect to the
reallocation of certain activities among our business segments as described in
note 15 to the unaudited condensed consolidated financial statements.
28
We analyze our business and
operations in terms of five inter-related but independent operating segments:
(1) South African transaction-based activities, (2) international
transaction-based activities, (3) smart card accounts, (4) financial services,
and (5) hardware, software and related technology sales. In addition, corporate
and corporate office activities that are impracticable to ascribe directly to
any of the other operating segments, as well as any inter-segment eliminations,
are included in corporate/eliminations.
Third quarter of fiscal
2012 compared to third quarter of fiscal 2011
The following factors had an
influence on our results of operations during the third quarter of fiscal 2012
as compared with the same period in the prior year:
-
Unfavorable impact from the strengthening of the US dollar:
The US dollar appreciated by 12% against the ZAR during the third
quarter of fiscal 2012 which negatively impacted our reported results;
-
SASSA implementation costs and cash bonuses paid as a result of our
recent SASSA tender award:
We commenced implementing our new SASSA
contract during the third quarter of fiscal 2012 and incurred additional
implementation and staff costs, including cash bonuses of $5.4 million which
were paid as a result of the award;
-
Lower effective tax rate due to the replacement of STC with a
dividends withholding tax in South Africa:
As a result of a recent
change in South African tax law that replaced STC with a dividends withholding
tax, our fully distributed tax rate decreased to 28% from 34.55% which
positively impacted our results; and
-
Fiscal 2011 intangible asset impairment and transaction-related
expenses:
During the third quarter of fiscal 2011, we impaired
intangible assets related to the Net1 UTA acquisition of $41.8 million and
incurred transaction- related expenses of $0.5 million, primarily for the
acquisition of KSNET.
Consolidated overall results
of operations
This discussion is based on the
amounts which were prepared in accordance with US GAAP.
The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:
|
|
In United States Dollars
|
|
Table 3
|
|
(US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
$ %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
90,664
|
|
|
92,758
|
|
|
(2%
|
)
|
Cost of goods sold, IT processing, servicing and support
|
|
32,493
|
|
|
29,302
|
|
|
11%
|
|
Selling, general and administration
|
|
36,368
|
|
|
32,618
|
|
|
12%
|
|
Depreciation and amortization
|
|
9,325
|
|
|
11,192
|
|
|
(17%
|
)
|
Impairment of intangible assets
|
|
-
|
|
|
41,771
|
|
|
nm
|
|
Operating income (loss)
|
|
12,478
|
|
|
(22,125
|
)
|
|
nm
|
|
Interest income
|
|
2,164
|
|
|
1,516
|
|
|
43%
|
|
Interest expense
|
|
2,244
|
|
|
2,471
|
|
|
(9%
|
)
|
Income (Loss) before income taxes
|
|
12,398
|
|
|
(23,080
|
)
|
|
nm
|
|
Income tax expense (benefit)
|
|
4,611
|
|
|
(1,603
|
)
|
|
nm
|
|
Net income (loss) before loss from equity-accounted
investments
|
|
7,787
|
|
|
(21,477
|
)
|
|
nm
|
|
Loss from equity-accounted investments
|
|
(4
|
)
|
|
(127
|
)
|
|
(97%
|
)
|
Net income (loss)
|
|
7,783
|
|
|
(21,604
|
)
|
|
nm
|
|
Less (Add) net income (loss) attributable to non-controlling
interest
|
|
17
|
|
|
(42
|
)
|
|
nm
|
|
Net income (loss) attributable to us
|
|
7,766
|
|
|
(21,562
|
)
|
|
nm
|
|
29
|
|
In South African Rand
|
|
Table 4
|
|
(US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
ZAR
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
%
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
711,902
|
|
|
647,942
|
|
|
10%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
255,139
|
|
|
204,683
|
|
|
25%
|
|
Selling, general and administration
|
|
285,566
|
|
|
227,846
|
|
|
25%
|
|
Depreciation and amortization
|
|
73,220
|
|
|
78,179
|
|
|
(6%
|
)
|
Impairment of intangible assets
|
|
0
|
|
|
291,783
|
|
|
nm
|
|
Operating income (loss)
|
|
97,977
|
|
|
(154,549
|
)
|
|
nm
|
|
Interest income
|
|
16,992
|
|
|
10,590
|
|
|
60%
|
|
Interest expense
|
|
17,620
|
|
|
17,261
|
|
|
2%
|
|
Income (Loss) before income taxes
|
|
97,349
|
|
|
(161,220
|
)
|
|
nm
|
|
Income tax expense (benefit)
|
|
36,206
|
|
|
(11,197
|
)
|
|
nm
|
|
Net income (loss) before loss from equity-accounted
investments
|
|
61,143
|
|
|
(150,023
|
)
|
|
nm
|
|
Loss from equity-accounted investments
|
|
(31
|
)
|
|
(887
|
)
|
|
(97%
|
)
|
Net income (loss)
|
|
61,112
|
|
|
(150,910
|
)
|
|
nm
|
|
Less (Add) net income (loss) attributable to non-controlling
interest
|
|
133
|
|
|
(293
|
)
|
|
nm
|
|
Net income (loss) attributable to us
|
|
60,979
|
|
|
(150,617
|
)
|
|
nm
|
|
Analyzed in ZAR, the increase in
revenue was primarily due to higher prepaid airtime sales resulting from the
Eason acquisition, higher KSNET revenues, an increase in the number of
UEPS-based loans made, and higher utilization of our UEPS system in Iraq. The
revenue contribution from our pension and welfare operation was relatively flat
as we commenced the April 2012 payment cycle in late March 2012 and generated
revenue at the new lower contract rate.
Analyzed in ZAR, the increase in
cost of goods sold, IT processing, servicing and support was primarily due to
higher prepaid airtime sales resulting from the Eason acquisition, increased
expenditure by KSNET and expenses related to the implementation of our new SASSA
contract.
Our selling, general and
administration expense increased as a result of contract implementation costs of
$1.3 million and cash bonuses of $5.4 million paid related to our recent SASSA
tender award as well as increases in goods and services purchased from third
parties. During the third quarter of fiscal 2011, selling, general and
administration expense included transaction-related costs of $0.5 million (ZAR
3.7 million), primarily for the KSNET acquisition.
Our operating income margin for
the third quarter of fiscal 2012 and 2011, before the impairment loss discussed
below, was 14% and 21%, respectively. We discuss the components of the operating
income margin under Results of operations by operating segment. The decrease
is primarily attributable to implementation costs and cash bonuses paid related
to our recent SASSA tender award and a lower operating margin from our South
African transaction-based activities (primarily as a result of the inclusion of
Eason).
In ZAR, depreciation and
amortization decreased primarily as a result of the full impairment of Net1 UTA
intangibles in 2011, offset by higher KSNET depreciation and acquisition-related
intangible asset amortization. The intangible asset amortization related to our
various acquisitions has been allocated to our operating segments as presented
in the tables below:
|
|
Three months ended
|
|
Table 5
|
|
March 31,
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
$000
|
|
|
|
$000
|
|
Amortization included in depreciation and amortization
expense:
|
|
5,042
|
|
|
|
7,007
|
|
South African transaction-based activities
|
|
1,758
|
|
|
|
1,428
|
|
International transaction-based
activities
|
|
3,192
|
|
|
|
3,124
|
|
Hardware, software and related technology
sales (1)
|
|
92
|
|
|
|
2,455
|
|
|
(1)
|
Three months ended March 31, 2011, includes Net1 UTA
customer relationship amortization of $2.3
million.
|
30
|
|
Three months ended
|
|
Table 6
|
|
March 31,
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
Amortization included in depreciation and amortization
expense:
|
|
39,594
|
|
|
|
48,946
|
|
South African transaction-based activities
|
|
13,813
|
|
|
|
9,973
|
|
International transaction-based
activities
|
|
25,064
|
|
|
|
21,822
|
|
Hardware, software and related technology
sales (1)
|
|
717
|
|
|
|
17,151
|
|
(1) Three months ended March 31,
2011, includes Net1 UTA customer relationship amortization of ZAR 16.0 million.
During 2011, customer
relationships acquired as part of the Net1 UTA acquisition were reviewed for
impairment following deteriorating trading conditions and uncertainty
surrounding the timing and quantum of future net cash inflows. As a consequence
of this review, we recognized an impairment loss of approximately $41.8 million
related to the entire carrying value of customer relationships acquired in the
Net1 UTA acquisition in August 2008. In addition, we reversed the deferred tax
liability of $10.4 million associated with this intangible asset.
Interest on surplus cash
increased to $2.2 million (ZAR 17.0 million) from $1.5 million (ZAR 10.6
million). The increase resulted primarily from higher average daily ZAR cash
balances.
In US dollars, interest expense
decreased to $2.2 million (ZAR 17.6 million) from $2.5 million (ZAR 17.3
million) due to a lower average long-term debt balance.
As a result of the change in
South African tax law in the second quarter of fiscal 2012, we no longer accrue
for STC on undistributed earnings because STC has been replaced with a dividends
withholding tax. Our fully distributed tax rate for the third quarter of fiscal
2012 was 28%. Our effective tax rate is higher than our fully distributed rate
due to non-deductible expenses, including stock-based compensation charges and
interest expense related to our Korean loan term debt and in fiscal 2011,
acquisition-related expenses.
Total 2012 tax expense was $4.6
million (ZAR 36.2 million) compared to total tax benefit of $1.6 million (ZAR
11.2 million) in 2011 and our effective tax rate increased to 37% from 7% (47%
excluding the impact of the deferred tax liability adjustment). Our 2011 tax
benefit resulted from the reversal of deferred tax liabilities associated with
the Net1 UTA intangible assets impaired. The reduction in our effective tax rate
in fiscal 2012 was primarily due to the tax law change and fewer non-deductible
expenses, including stock-based compensation charges and acquisition-related
expenses.
31
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income (loss) are
illustrated below.
Table 7
|
|
In United States
Dollars (US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2012
|
|
|
|
% of
|
|
|
2011
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$000
|
|
|
|
total
|
|
|
$000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
46,423
|
|
|
|
51%
|
|
|
47,313
|
|
|
|
51%
|
|
|
(2%
|
)
|
International transaction-based activities
|
|
28,188
|
|
|
|
31%
|
|
|
24,627
|
|
|
|
27%
|
|
|
14%
|
|
Smart card accounts
|
|
7,558
|
|
|
|
8%
|
|
|
8,288
|
|
|
|
9%
|
|
|
(9%
|
)
|
Financial services
|
|
2,289
|
|
|
|
3%
|
|
|
2,171
|
|
|
|
2%
|
|
|
5%
|
|
Hardware, software and related technology
sales
|
|
6,206
|
|
|
|
7%
|
|
|
10,359
|
|
|
|
11%
|
|
|
(40%
|
)
|
Total consolidated revenue
|
|
90,664
|
|
|
|
100%
|
|
|
92,758
|
|
|
|
100%
|
|
|
(2%
|
)
|
Consolidated operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
8,694
|
|
|
|
70%
|
|
|
18,566
|
|
|
|
(84%
|
)
|
|
(53%
|
)
|
Operating income before
amortization
|
|
10,452
|
|
|
|
|
|
|
19,994
|
|
|
|
|
|
|
(48%
|
)
|
Amortization of intangible assets
|
|
(1,758
|
)
|
|
|
|
|
|
(1,428
|
)
|
|
|
|
|
|
23%
|
|
International transaction-based activities
|
|
195
|
|
|
|
2%
|
|
|
274
|
|
|
|
(1%
|
)
|
|
(29%
|
)
|
Operating income before amortization
|
|
3,387
|
|
|
|
|
|
|
3,398
|
|
|
|
|
|
|
-
|
|
Amortization of intangible
assets
|
|
(3,192
|
)
|
|
|
|
|
|
(3,124
|
)
|
|
|
|
|
|
2%
|
|
Smart card accounts
|
|
3,435
|
|
|
|
28%
|
|
|
3,767
|
|
|
|
(17%
|
)
|
|
(9%
|
)
|
Financial services
|
|
1,248
|
|
|
|
10%
|
|
|
1,540
|
|
|
|
(7%
|
)
|
|
(19%
|
)
|
Hardware, software and related technology sales
|
|
(1,301
|
)
|
|
|
(10%
|
)
|
|
(44,086
|
)
|
|
|
199%
|
|
|
(97%
|
)
|
Operating (loss) income
before amortization .
|
|
(1,209
|
)
|
|
|
|
|
|
140
|
|
|
|
|
|
|
nm
|
|
Impairment loss
|
|
-
|
|
|
|
|
|
|
(41,771
|
)
|
|
|
|
|
|
nm
|
|
Amortization of intangible
assets
|
|
(92
|
)
|
|
|
|
|
|
(2,455
|
)
|
|
|
|
|
|
(96%
|
)
|
Corporate/eliminations
|
|
207
|
|
|
|
-
|
|
|
(2,186
|
)
|
|
|
10%
|
|
|
nm
|
|
Total consolidated
operating income (loss)
|
|
12,478
|
|
|
|
100%
|
|
|
(22,125
|
)
|
|
|
100%
|
|
|
nm
|
|
Table 8
|
|
In South African
Rand (US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2012
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
ZAR
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
|
total
|
|
|
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
364,518
|
|
|
|
51%
|
|
|
330,495
|
|
|
|
51%
|
|
|
10%
|
|
International transaction-based activities
|
|
221,335
|
|
|
|
31%
|
|
|
172,027
|
|
|
|
27%
|
|
|
29%
|
|
Smart card accounts
|
|
59,346
|
|
|
|
8%
|
|
|
57,894
|
|
|
|
9%
|
|
|
3%
|
|
Financial services
|
|
17,973
|
|
|
|
3%
|
|
|
15,165
|
|
|
|
2%
|
|
|
19%
|
|
Hardware, software and related technology
sales
|
|
48,730
|
|
|
|
7%
|
|
|
72,361
|
|
|
|
11%
|
|
|
(33%
|
)
|
Total consolidated revenue
|
|
711,902
|
|
|
|
100%
|
|
|
647,942
|
|
|
|
100%
|
|
|
10%
|
|
Consolidated operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
68,266
|
|
|
|
70%
|
|
|
129,689
|
|
|
|
(84%
|
)
|
|
(47%
|
)
|
Operating income before
amortization
|
|
82,079
|
|
|
|
|
|
|
139,662
|
|
|
|
|
|
|
(41%
|
)
|
Amortization of intangible assets
|
|
(13,813
|
)
|
|
|
|
|
|
(9,973
|
)
|
|
|
|
|
|
39%
|
|
International transaction-based activities
|
|
1,531
|
|
|
|
2%
|
|
|
1,913
|
|
|
|
(1%
|
)
|
|
(20%
|
)
|
Operating income before amortization
|
|
26,595
|
|
|
|
|
|
|
23,735
|
|
|
|
|
|
|
12%
|
|
Amortization of intangible
assets
|
|
(25,064
|
)
|
|
|
|
|
|
(21,822
|
)
|
|
|
|
|
|
15%
|
|
Smart card accounts
|
|
26,972
|
|
|
|
28%
|
|
|
26,314
|
|
|
|
(17%
|
)
|
|
3%
|
|
Financial services
|
|
9,799
|
|
|
|
10%
|
|
|
10,758
|
|
|
|
(7%
|
)
|
|
(9%
|
)
|
Hardware, software and related technology sales
|
|
(10,216
|
)
|
|
|
(10%
|
)
|
|
(307,953
|
)
|
|
|
199%
|
|
|
(97%
|
)
|
Operating (loss) income
before amortization .
|
|
(9,499
|
)
|
|
|
|
|
|
981
|
|
|
|
|
|
|
nm
|
|
Impairment loss
|
|
-
|
|
|
|
|
|
|
(291,783
|
)
|
|
|
|
|
|
nm
|
|
Amortization of intangible
assets
|
|
(717
|
)
|
|
|
|
|
|
(17,151
|
)
|
|
|
|
|
|
(96%
|
)
|
Corporate/eliminations
|
|
1,625
|
|
|
|
-
|
|
|
(15,270
|
)
|
|
|
10%
|
|
|
nm
|
|
Total consolidated
operating income (loss)
|
|
97,977
|
|
|
|
100%
|
|
|
(154,549
|
)
|
|
|
100%
|
|
|
nm
|
|
32
South
African transaction-based activities
In ZAR, increases in segment
revenue were primarily due to higher prepaid airtime sales resulting mainly from
the Eason acquisition and increased transaction volumes in merchant acquiring
and FIHRST. Revenue from our pension and welfare operations was relatively
stable on a year-over-year basis. Segment revenues include the transaction fees
we earn through our merchant acquiring system and reflect the elimination of
inter-company transactions.
Our operating income margin for
the third quarter of fiscal 2012 and 2011 was 19% and 39%, respectively, and
declined primarily due to SASSA implementation costs and cash bonuses paid and
the inclusion of increased low-margin prepaid airtime sales as well as Eason
intangible asset amortization.
We operate as a reseller of
non-refundable virtual prepaid airtime vouchers that we purchase from
mobile-phone operators and sell to retailers; and earn a commission from the
sale of prepaid electricity. The cost of the prepaid airtime vouchers is
recorded in cost of goods sold, IT processing, servicing and support. Margins on
the sale of prepaid airtime vouchers are significantly lower than those
generated by our other business in this segment and therefore, as we expand into
the prepaid airtime market in South Africa, we expect higher revenue and cost of
goods sold, IT processing, servicing and support in this operating segment.
Pension
and welfare operations:
Our pension and welfare
operations continue to generate the majority of our revenues and operating
income in this operating segment. See also discussion under Recent
DevelopmentsSouth AfricaNew SASSA contract for a description of our new SASSA
contract, the status of our implementation and the costs we have incurred to
date and expect to incur during the next four quarters as we continue the
implementation process.
South
African transaction processors:
The table below presents the
total volume and value processed during the third quarter of fiscal 2012 and
2011:
Table 9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume (000s)
|
|
|
Total value $(000)
|
|
|
Total value ZAR
(000)
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
Three months ended
|
|
Transaction
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
processor
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
EasyPay(1)
|
|
|
96,139
|
|
|
172,821
|
|
|
2,519,319
|
|
|
5,804,242
|
|
|
19,781,946
|
|
|
40,544,369
|
|
Remaining core
|
|
|
96,139
|
|
|
119,166
|
|
|
2,519,319
|
|
|
3,762,555
|
|
|
19,781,946
|
|
|
26,282,575
|
|
Discontinued
|
|
|
-
|
|
|
53,655
|
|
|
-
|
|
|
2,041,687
|
|
|
-
|
|
|
14,261,794
|
|
MediKredit
|
|
|
2,733
|
|
|
2,507
|
|
|
147,120
|
|
|
132,370
|
|
|
1,155,201
|
|
|
924,647
|
|
FIHRST
|
|
|
5,951
|
|
|
5,281
|
|
|
2,411,275
|
|
|
2,387,363
|
|
|
18,933,574
|
|
|
16,676,447
|
|
(1)
|
includes Eason prepaid airtime and electricity volume
and value from October 1, 2011 and reclassified to reflect the
consolidation of value-added services through EasyPay and to reflect the
remaining core processing activities.
|
During the second quarter of
fiscal 2012, one of EasyPays large customers decided to perform its
EFT/switching activities in-house, which had an adverse impact on our volumes
this quarter. EasyPay has retained its value-added services relationship with
this customer and therefore the overall impact to revenue and profitability is
modest. EasyPay volumes and values were impacted by its focus on higher-margin
value-added services and termination of certain inefficient activities such as
the hosting of processing servers for financial institutions. MediKredit volumes
and values were higher due to increased adjudication and processing activities
for new providers, including public hospitals, private hospitals and specialist
doctors. FIHRST volumes and values increased due to an increased number of
customers.
33
Key
statistics of our merchant acquiring system:
The key statistics and indicators
of our merchant acquiring system during the third quarter of fiscal 2012 and
2011, in each of the five South African provinces where we distributed social
welfare grants during the quarter are summarized in the table below:
Table 10
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Total POS devices installed as of period end
|
|
4,976
|
|
|
4,835
|
|
Number of participating UEPS retail locations as of period
end
|
|
2,416
|
|
|
2,541
|
|
Value of transactions processed through POS
devices during the quarter (1) (in $ 000)
|
|
484,862
|
|
|
411,233
|
|
Value of transactions processed through POS devices during
the completed pay cycles for the quarter (2) (in $ 000)
|
|
459,495
|
|
|
401,723
|
|
Value of transactions processed through POS
devices during the quarter (1) (in ZAR 000)
|
|
3,773,295
|
|
|
2,920,454
|
|
Value of transactions processed through POS devices during
the completed pay cycles for the quarter (2) (in ZAR 000)
|
|
3,575,890
|
|
|
2,852,913
|
|
Number of grants paid through POS devices during
the quarter (1)
|
|
5,320,585
|
|
|
4,804,540
|
|
Number of grants paid through POS devices during the completed
pay cycles for the quarter (2)
|
|
5,088,020
|
|
|
4,739,062
|
|
Average number of grants processed per terminal
during the quarter (1)
|
|
1,063
|
|
|
995
|
|
Average number of grants processed per terminal during the
completed pay cycles for the quarter (2)
|
|
1,017
|
|
|
981
|
|
|
(1)
|
Refers to events occurring during the quarter (i.e.,
based on three calendar months)
|
|
(2)
|
Refers to events occurring during the completed pay
cycle.
|
International
transaction-based activities
KSNET continues to contribute the
majority of our revenues in this operating segment. Operating margin for the
segment is lower than most of our South African transaction-based businesses and
was negatively impacted by start-up expenditures related to our XeoHealth launch
in the United States, MVC activities at Net1 UTA and on-going losses at Net1
Virtual Card, but these expenses were partially offset by revenue contributions
from KSNET, and to a lesser extent from XeoHealth and NUETS initiative in Iraq.
Smart
card accounts
Operating income margin from
providing smart card accounts was constant at 45%.
In ZAR, revenue from the
provision of smart card accounts was relatively constant on a year-over-year
basis. A total number of 3,549,030 smart card accounts were active at March 31,
2012, compared to 3,537,126 active accounts as at March 31, 2011.
Financial
services
UEPS-based lending contributes
the majority of the revenue and operating income in this operating segment.
Revenue increased primarily due to an increase in the number of loans granted.
Our current UEPS-based lending portfolio comprises loans made to qualifying old
age grant recipients in some of the provinces where we distribute social welfare
grants. We continue to incur start-up expenditures related to our SmartLife
business and other financial services offerings. SmartLife did not contribute
significantly to our operating income in the third quarter of fiscal 2012 as it
had not commenced operating activities under its new business model.
Operating income margin for the
financial services segment decreased to 55% from 71%, primarily as a result of
startup expenditures related to SmartLife and other financial services
offerings, which was offset by increased UEPS-based lending activities.
34
Hardware,
software and related technology sales
The decrease in revenue and
operating income was due to a lower contribution from all contributors to
hardware and software sales. Significant quarter over quarter fluctuations in
revenue, operating income and operating margin are expected due to ad hoc orders
in this operating segment.
As we expand internationally,
whether through traditional selling arrangements to provide products and
services (such as in Ghana and Iraq) or through joint ventures (such as with
SmartSwitch Namibia and SmartSwitch Botswana), we expect to receive revenues
from sales of hardware and from software customization and licensing to
establish the infrastructure of POS terminals and smart cards necessary to
enable utilization of the UEPS technology in a particular country. To the extent
that we enter into joint ventures and account for the investment as an equity
investment, we are required to eliminate our portion of the sale of hardware,
software and licenses to the investees. The sale of hardware, software and
licenses under these arrangements occur on an ad hoc basis as new arrangements
are established, which can materially affect our revenues and operating income
in this segment from period to period.
Corporate/eliminations
The decrease in our corporate
expenses resulted primarily from lower stock-based compensation charges,
primarily because the performance-based restricted stock granted in August 2007
was fully expensed in prior periods. These expense reductions were offset by
higher corporate head office-related expenses. In addition, our third quarter of
fiscal 2011 results include transaction related expenditures of $0.5 million
(ZAR 3.7 million.)
Our corporate expenses also
include expenditure related to compliance with Sarbanes; non-executive
directors fees; employee and executive salaries and bonuses; stock-based
compensation; legal and audit fees; directors and officers insurance premiums;
telecommunications expenses; property-related expenditures including utilities,
rental, security and maintenance; and elimination entries.
Year to date fiscal 2012 compared to year to date 2011
The following factors had an
influence on our results of operations during the year to date fiscal 2012 as
compared with the same period in the prior year:
-
Unfavorable impact from the strengthening of the US dollar:
The US dollar appreciated by 10% against the ZAR during the year to
date fiscal 2012 which negatively impacted our reported results;
-
Net taxation benefit related to the replacement of STC with a
dividends withholding tax in South Africa:
As a result of a recent
change in South African tax law that will replace STC with a dividends
withholding tax, our tax expense decreased by $10.1 million, as we recorded a
$18.3 million deferred tax benefit which was offset by an $8.2 million foreign
tax credit valuation allowance;
-
Inclusion of revenue contribution from KSNET at lower operating
margin (before acquired intangible asset
amortization) than our
legacy business:
The inclusion of KSNET contributed to an increase in
revenues for fiscal 2012; however, because KSNET has an operating margin
(before acquired intangible asset amortization) that is lower than our legacy
businesses, it reduced our overall operating margin. KSNET also contributed to
the increase in selling, general and administration and depreciation and
amortization expenses;
-
Lower revenues from hardware, software and related technology sales
segment:
Hardware, software and related technology sales were
adversely impacted by lower revenues from all major segment contributors;
-
Intangible asset amortization related to acquisition:
Additional intangible asset amortization related to the acquisition of
KSNET and Eason was offset by the full impairment of Net1 UTAs intangibles in
2011;
-
Profit on liquidation of SmartSwitch Nigeria:
We recorded a
non-cash profit of $4.0 million on the liquidation of SmartSwitch Nigeria in
fiscal 2012; and
-
Fiscal 2011 intangible asset impairment and transaction-related
expenses:
During 2011, we impaired intangible assets related to the
Net1 UTA acquisition of $41.8 million and incurred transaction-related
expenses of $5.7 million, primarily for the acquisition of KSNET.
35
Consolidated overall
results of operations
This discussion is based on the
amounts which were prepared in accordance with US GAAP.
The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:
|
|
In United States Dollars
|
|
Table 11
|
|
|
|
|
(US GAAP)
|
|
|
|
|
|
|
Nine months ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
%
|
|
|
|
$000
|
|
|
$000
|
|
|
change
|
|
Revenue
|
|
282,648
|
|
|
246,052
|
|
|
15%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
99,605
|
|
|
76,551
|
|
|
30%
|
|
Selling, general and administration
|
|
92,297
|
|
|
91,707
|
|
|
1%
|
|
Depreciation and amortization
|
|
27,194
|
|
|
25,188
|
|
|
8%
|
|
Impairment of intangible assets
|
|
-
|
|
|
41,771
|
|
|
nm
|
|
Operating income
|
|
63,552
|
|
|
10,835
|
|
|
487%
|
|
Interest income
|
|
5,981
|
|
|
5,950
|
|
|
1%
|
|
Interest expense
|
|
7,215
|
|
|
6,149
|
|
|
17%
|
|
Income before income taxes
|
|
62,318
|
|
|
10,636
|
|
|
486%
|
|
Income tax expense
|
|
9,785
|
|
|
14,440
|
|
|
(32%
|
)
|
Net income (loss) before loss from equity-accounted
investments
|
|
52,533
|
|
|
(3,804
|
)
|
|
nm
|
|
Income (Loss) from equity-accounted investments
|
|
100
|
|
|
(509
|
)
|
|
nm
|
|
Net income (loss)
|
|
52,633
|
|
|
(4,313
|
)
|
|
nm
|
|
Less (Add) net income (loss) attributable to non-controlling
interest
|
|
5
|
|
|
(128
|
)
|
|
nm
|
|
Net income (loss) attributable to us
|
|
52,628
|
|
|
(4,185
|
)
|
|
nm
|
|
|
|
In South African Rand
|
|
Table 12
|
|
(US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
ZAR
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
%
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
2,211,580
|
|
|
1,744,287
|
|
|
27%
|
|
Cost of goods sold, IT processing, servicing
and support
|
|
779,360
|
|
|
542,677
|
|
|
44%
|
|
Selling, general and administration
|
|
722,178
|
|
|
650,120
|
|
|
11%
|
|
Depreciation and amortization
|
|
212,780
|
|
|
178,560
|
|
|
19%
|
|
Impairment of intangible assets
|
|
0
|
|
|
296,119
|
|
|
nm
|
|
Operating income
|
|
497,262
|
|
|
76,811
|
|
|
547%
|
|
Interest income
|
|
46,799
|
|
|
42,180
|
|
|
11%
|
|
Interest expense
|
|
56,454
|
|
|
43,591
|
|
|
30%
|
|
Income before income taxes
|
|
487,607
|
|
|
75,400
|
|
|
547%
|
|
Income tax expense
|
|
76,563
|
|
|
102,367
|
|
|
(25%
|
)
|
Net income (loss) before loss from equity-accounted investments
|
|
411,044
|
|
|
(26,967
|
)
|
|
nm
|
|
Income (Loss) from equity-accounted investments
|
|
782
|
|
|
(3,608
|
)
|
|
nm
|
|
Net income (loss)
|
|
411,826
|
|
|
(30,575
|
)
|
|
nm
|
|
Less (Add) net income (loss) attributable to
non-controlling interest
|
|
39
|
|
|
(907
|
)
|
|
nm
|
|
Net income (loss) attributable to us
|
|
411,787
|
|
|
(29,668
|
)
|
|
nm
|
|
Analyzed in ZAR, the increase in
revenue was primarily due to the inclusion of KSNET, modest growth in our
pension and welfare business, higher prepaid airtime sales resulting from the
Eason acquisition, an increase in the number of UEPS-based loans made, and
higher utilization of our UEPS system in Iraq.
Analyzed in ZAR, cost of goods
sold, IT processing, servicing and support was higher primarily due to the
inclusion of KSNET.
The increase in selling, general
and administration expense is the result of the KSNET acquisition and SASSA
implementation costs of $1.3 million and cash bonuses of $5.4 million paid which
was offset by lower stock-based compensation charge, primarily because the
performance-based restricted stock granted in August 2007 was fully expensed in
prior periods and due to the non-cash profit related to the liquidation of
SmartSwitch Nigeria of $4.0 million. During the year to date fiscal 2011,
selling, general and administration expense included transaction-related costs
of $5.7 million (ZAR 40.1 million), primarily for the KSNET acquisition.
36
Our operating income margin for
the year to date fiscal 2012 and 2011 was 22% and 21%, respectively. We discuss
the components of the operating income margin under Results of operations by
operating segment, however the increase is attributable to lower stock-based
compensation charges and the non-cash profit related to the liquidation of
SmartSwitch Nigeria of $4.0 million in the year to date fiscal 2012 compared
with fiscal 2011 and transaction-related costs during fiscal 2011.
In ZAR, depreciation and
amortization increased primarily as a result of KSNET depreciation and
intangible asset amortization, but was partially offset by the full impairment
of Net1 UTA intangibles in 2011. The intangible asset amortization related to
our various acquisitions has been allocated to our operating segments as
presented in the tables below:
|
|
Nine months ended
|
|
Table 13
|
|
March 31,
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
$000
|
|
|
|
$ 000
|
|
Amortization included in depreciation and amortization
expense:
|
|
14,709
|
|
|
|
16,595
|
|
South African transaction-based activities
|
|
4,805
|
|
|
|
4,221
|
|
International transaction-based
activities
|
|
9,630
|
|
|
|
5,156
|
|
Hardware, software and related technology
sales (1)
|
|
274
|
|
|
|
7,218
|
|
|
(1)
|
Nine months ended March 31, 2011, includes Net1 UTA
customer relationship amortization of $6.7
million.
|
|
|
Nine months ended
|
|
Table 14
|
|
March 31,
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
Amortization included in depreciation and amortization
expense:
|
|
115,096
|
|
|
|
117,644
|
|
South African transaction-based activities
|
|
37,594
|
|
|
|
29,918
|
|
International transaction-based
activities
|
|
75,350
|
|
|
|
36,551
|
|
Hardware, software and related technology
sales (1)
|
|
2,152
|
|
|
|
51,175
|
|
|
(1)
|
Nine months ended March 31, 2011, includes Net1 UTA
customer relationship amortization of ZAR 47.8
million.
|
During the third quarter of
fiscal 2011, customer relationships acquired as part of the Net1 UTA acquisition
were reviewed for impairment following deteriorating trading conditions and
uncertainty surrounding the timing and quantum of future net cash inflows. As a
consequence of this review, we recognized an impairment loss of approximately
$41.8 million related to the entire carrying value of customer relationships
acquired in the Net1 UTA acquisition in August 2008. In addition, we reversed
the deferred tax liability of $10.4 million associated with this intangible
asset.
In ZAR, interest on surplus cash
increased to $6.0 million (ZAR 46.8 million) from $6.0 million (ZAR 42.2
million). The increase resulted primarily from higher average daily ZAR cash
balances offset by lower deposit rates resulting from the decrease in the South
African prime interest rate from an average of approximately 9.39% to 9.00% per
annum.
Interest expense increased to
$7.2 million (ZAR 56.5 million) from $6.1 million (ZAR 43.6 million) due to the
incurrence of long-term debt to fund a portion of the KSNET purchase price.
Interest expense for the year to date fiscal 2012 and 2011, includes amortized
debt facility fees of $0.5 million (ZAR 3.9 million) and $1.8 million (ZAR 12.8
million), respectively.
Total 2012 tax expense decreased
to$9.8 million (ZAR 76.6 million) from$14.4 million (ZAR 102.4 million) in 2011
and our effective tax rate decreased to 15.7% from 47.6% (before the effect of
the reversal of the impaired Net1 UTA intangible asset deferred tax liability).
Our 2012 tax expense includes $18.3 million related to a change in South African
tax law and the creation of a valuation allowance of $8.2 million related to
foreign tax credits. The reduction in our effective tax rate was primarily due
to the tax law change, a non-taxable profit on liquidation of SmartSwitch
Nigeria and fewer non-deductible expenses, including stock-based compensation
charges and acquisition-related expenses, which was offset by non-deductible
interest expenses related to our Korean long-term debt.
37
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income (loss) are
illustrated below.
Table 15
|
|
In United States
Dollars (US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2012
|
|
|
|
% of
|
|
|
2011
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$ 000
|
|
|
|
total
|
|
|
$ 000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
142,773
|
|
|
|
51%
|
|
|
138,939
|
|
|
|
56%
|
|
|
3%
|
|
International transaction-based activities
|
|
87,278
|
|
|
|
31%
|
|
|
42,482
|
|
|
|
17%
|
|
|
105%
|
|
Smart card accounts
|
|
23,074
|
|
|
|
8%
|
|
|
24,692
|
|
|
|
10%
|
|
|
(7%
|
)
|
Financial services
|
|
6,344
|
|
|
|
2%
|
|
|
5,072
|
|
|
|
2%
|
|
|
25%
|
|
Hardware, software and related technology
sales
|
|
23,179
|
|
|
|
8%
|
|
|
34,867
|
|
|
|
15%
|
|
|
(34%
|
)
|
Total consolidated revenue
|
|
282,648
|
|
|
|
100%
|
|
|
246,052
|
|
|
|
100%
|
|
|
15%
|
|
Consolidated operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
44,643
|
|
|
|
70%
|
|
|
54,892
|
|
|
|
507%
|
|
|
(19%
|
)
|
Operating income before
amortization
|
|
49,448
|
|
|
|
|
|
|
59,113
|
|
|
|
|
|
|
(16%
|
)
|
Amortization of intangible assets
|
|
(4,805
|
)
|
|
|
|
|
|
(4,221
|
)
|
|
|
|
|
|
14%
|
|
International transaction-based activities
|
|
1,120
|
|
|
|
2%
|
|
|
(295
|
)
|
|
|
(3%
|
)
|
|
nm
|
|
Operating income (loss) before amortization
.
|
|
10,750
|
|
|
|
|
|
|
4,861
|
|
|
|
|
|
|
121%
|
|
Amortization of intangible
assets
|
|
(9,630
|
)
|
|
|
|
|
|
(5,156
|
)
|
|
|
|
|
|
87%
|
|
Smart card accounts
|
|
10,487
|
|
|
|
17%
|
|
|
11,221
|
|
|
|
104%
|
|
|
(7%
|
)
|
Financial services
|
|
3,685
|
|
|
|
6%
|
|
|
3,365
|
|
|
|
31%
|
|
|
10%
|
|
Hardware, software and related technology sales
|
|
1,545
|
|
|
|
2%
|
|
|
(46,474
|
)
|
|
|
(429%
|
)
|
|
nm
|
|
Operating income (loss)
before amortization .
|
|
1,819
|
|
|
|
|
|
|
2,515
|
|
|
|
|
|
|
(28%
|
)
|
Impairment loss
|
|
-
|
|
|
|
|
|
|
(41,771
|
)
|
|
|
|
|
|
nm
|
|
Amortization of intangible
assets
|
|
(274
|
)
|
|
|
|
|
|
(7,218
|
)
|
|
|
|
|
|
(96%
|
)
|
Corporate/eliminations
|
|
2,072
|
|
|
|
3%
|
|
|
(11,874
|
)
|
|
|
(110%
|
)
|
|
nm
|
|
Total consolidated
operating income
|
|
63,552
|
|
|
|
100%
|
|
|
10,835
|
|
|
|
100%
|
|
|
487%
|
|
Table 16
|
|
In South African
Rand (US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2012
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
ZAR
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
|
total
|
|
|
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
1,117,127
|
|
|
|
51%
|
|
|
984,952
|
|
|
|
56%
|
|
|
13%
|
|
International transaction-based activities
|
|
682,907
|
|
|
|
31%
|
|
|
301,159
|
|
|
|
17%
|
|
|
127%
|
|
Smart card accounts
|
|
180,543
|
|
|
|
8%
|
|
|
175,044
|
|
|
|
10%
|
|
|
3%
|
|
Financial services
|
|
49,639
|
|
|
|
2%
|
|
|
35,956
|
|
|
|
2%
|
|
|
38%
|
|
Hardware, software and related technology
sales
|
|
181,364
|
|
|
|
8%
|
|
|
247,176
|
|
|
|
15%
|
|
|
(27%
|
)
|
Total consolidated revenue
|
|
2,211,580
|
|
|
|
100%
|
|
|
1,744,287
|
|
|
|
100%
|
|
|
27%
|
|
Consolidated operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
349,309
|
|
|
|
70%
|
|
|
389,135
|
|
|
|
507%
|
|
|
(10%
|
)
|
Operating income before
amortization
|
|
386,903
|
|
|
|
|
|
|
419,053
|
|
|
|
|
|
|
(8%
|
)
|
Amortization of intangible assets
|
|
(37,594
|
)
|
|
|
|
|
|
(29,918
|
)
|
|
|
|
|
|
26%
|
|
International transaction-based activities
|
|
8,763
|
|
|
|
2%
|
|
|
(2,091
|
)
|
|
|
(3%
|
)
|
|
nm
|
|
Operating income (loss) before amortization
.
|
|
84,113
|
|
|
|
|
|
|
34,460
|
|
|
|
|
|
|
144%
|
|
Amortization of intangible
assets
|
|
(75,350
|
)
|
|
|
|
|
|
(36,551
|
)
|
|
|
|
|
|
106%
|
|
Smart card accounts
|
|
82,056
|
|
|
|
17%
|
|
|
79,547
|
|
|
|
104%
|
|
|
3%
|
|
Financial services
|
|
28,833
|
|
|
|
6%
|
|
|
23,855
|
|
|
|
31%
|
|
|
21%
|
|
Hardware, software and related technology sales
|
|
12,089
|
|
|
|
2%
|
|
|
(329,459
|
)
|
|
|
(429%
|
)
|
|
nm
|
|
Operating income (loss)
before amortization .
|
|
14,241
|
|
|
|
|
|
|
17,835
|
|
|
|
|
|
|
(20%
|
)
|
Impairment loss
|
|
-
|
|
|
|
|
|
|
(296,119
|
)
|
|
|
|
|
|
nm
|
|
Amortization of intangible
assets
|
|
(2,152
|
)
|
|
|
|
|
|
(51,175
|
)
|
|
|
|
|
|
(96%
|
)
|
Corporate/eliminations
|
|
16,212
|
|
|
|
3%
|
|
|
(84,176
|
)
|
|
|
(110%
|
)
|
|
nm
|
|
Total consolidated
operating income
|
|
497,262
|
|
|
|
100%
|
|
|
76,811
|
|
|
|
100%
|
|
|
547%
|
|
38
South
African transaction-based activities
In ZAR, the increases in segment
revenue were primarily due to modest growth in our pension and welfare business,
higher prepaid airtime sales resulting primarily from the Eason acquisition and
increased transaction volumes at MediKredit. Segment revenues include the
transaction fees we earn through our merchant acquiring system and reflect the
elimination of inter-company transactions.
Our operating income margin for
the year to date fiscal 2012 and 2011 was 31% and 40%, respectively, and has
declined primarily due to SASSA implementation costs and cash bonuses paid and
higher low margin prepaid airtime sales and higher intangible asset amortization
attributable to the Eason acquisition.
Pension
and welfare operations:
Modest revenue growth as well as
operational efficiencies, before implementation activities, contributed directly
to the increase in our operating income.
South
African transaction processors:
The table below presents the
total volume and value processed during the year to date fiscal 2012 and
2011:
Table 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume (000s)
|
|
|
Total value $ (000)
|
|
|
Total value ZAR
(000)
|
|
|
|
|
Nine months ended
|
|
|
Nine months ended
|
|
|
Nine months ended
|
|
Transaction
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
processor
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
EasyPay (1)
|
|
|
347,161
|
|
|
539,021
|
|
|
9,460,086
|
|
|
17,405,932
|
|
|
74,020,446
|
|
|
121,585,660
|
|
Remaining core
|
|
|
322,765
|
|
|
370,333
|
|
|
8,682,822
|
|
|
11,060,275
|
|
|
67,938,741
|
|
|
77,259,342
|
|
Discontinued
|
|
|
24,396
|
|
|
168,688
|
|
|
777,264
|
|
|
6,345,657
|
|
|
6,081,705
|
|
|
44,326,318
|
|
MediKredit
|
|
|
7,913
|
|
|
7,221
|
|
|
443,550
|
|
|
359,236
|
|
|
3,470,559
|
|
|
2,546,663
|
|
FIHRST
|
|
|
18,046
|
|
|
16,349
|
|
|
7,348,474
|
|
|
6,981,903
|
|
|
57,498,134
|
|
|
49,495,412
|
|
(1)
|
includes Eason prepaid airtime and electricity volume
and value from October 1, 2011 and reclassified to reflect the
consolidation of value-added services through EasyPay and to reflect the
remaining core processing activities.
|
We are refocusing EasyPays
activities on higher-margin value-added services and have terminated certain
inefficient activities such as the hosting of processing servers for financial
institutions. We have reclassified the 2011 transaction volumes and values in
the table above to reflect the consolidation of value-added services through
EasyPay and to reflect the remaining core processing activities.
Activity in our South African
transaction processors volumes and values are discussed under Third quarter of
fiscal 2012 compared to the third quarter of fiscal 2011Results of operations
by operating segmentSouth African transaction-based activities South African
transaction processors:.
International
transaction-based activities
KSNET continues to
contribute the majority of our revenues in this operating segment. Operating
margin for the segment is lower than most of our South African transaction-based
businesses and was negatively impacted by start-up expenditures related to our
multiple XeoHealth launches in the United States, MVC activities at Net1 UTA and
on-going losses at Net1 Virtual Card, but these expenses were partially offset
by revenue contributions from KSNET, and to a lesser extent from XeoHealth and
NUETS initiative in Iraq.
Smart
card accounts
Operating income margin from
providing smart card accounts was constant at 45%.
In ZAR, revenue from the
provision of smart card accounts was relatively constant on a year-over-year
basis. A total number of 3,549,030 smart card accounts were active at March 31,
2012, compared to 3,537,126 active accounts as at March 31, 2011.
Financial
services
Revenue from UEPS-based lending
increased primarily due to an increase in the number of loans granted. Our
current UEPS-based lending portfolio comprises loans made to qualifying old age
grant recipients in some of the provinces where we distribute social welfare
grants.
39
Operating income margin for the
financial services segment decreased to 58% from 66%, primarily as a result of
startup expenditures related to our SmartLife business and other financial
services offerings, offset by increased UEPS-based lending activities.
Hardware,
software and related technology sales
The decrease in revenue and
operating income was due to a lower contribution from all contributors to
hardware and software sales. The increase in operating margin to 7% compared
with an operating loss margin of 13% (before the intangible asset impairment) is
attributable to the sale of more software and license revenues in 2012, which
contribute higher margins compared to hardware sales.
Corporate/eliminations
The decrease in our corporate
expenses resulted primarily from lower stock-based compensation charges,
primarily because the performance-based restricted stock granted in August 2007
was fully expensed in prior periods and due to the $4.0 million profit related
to the liquidation of SmartSwitch Nigeria. These expense reductions were offset
by higher corporate head office-related expenses. In addition, our year to date
fiscal 2011 results includes transaction related expenditures of $5.7 million
(ZAR 40.1 million).
Liquidity and Capital Resources
Our business has historically
generated and continues to generate high levels of cash. At March 31, 2012, our
cash balances were $88.3 million, which comprised mainly ZAR-denominated
balances of ZAR 509.2 million ($66.2 million), KRW-denominated balances of KRW
17.5 billion ($15.4 million) and US dollar-denominated balances of $4.9 million
and other currency deposits, primarily euro, of $1.8 million. The decrease in
our cash balances from June 30, 2011, has resulted primarily from capital
expenditures to expand operations as we implement our new SASSA contract,
repayment of our long-term debt and strengthening in the USD against the ZAR,
offset by an increase in cash generated from operations.
We currently believe that our
cash and credit facilities are sufficient to fund our future operations,
including our SASSA implementation, for at least the next four quarters.
We generally invest the surplus
cash held by our South African operations in overnight call accounts that we
maintain at South African banking institutions, and surplus cash held by our
non-South African companies in the US and European money markets. We have
invested surplus cash in Korea in short-term investment accounts at Korean
banking institutions. In addition, we are required to invest the interest
payable under our Korean debt facilities due in the next six months in an
interest reserve account in Korea.
Historically, we have financed
most of our operations, research and development, working capital, capital
expenditures and acquisitions through our internally generated cash. When
considering whether to borrow under our financing facilities, we consider the
cost of capital, cost of financing, opportunity cost of utilizing surplus cash
and availability of tax efficient structures to moderate financing costs.
We have a South African
short-term credit facility of approximately ZAR 250 million ($32.5 million)
which remained fully undrawn as of March 31, 2012.
During the second quarter of
fiscal 2012 we received $4.9 million, net, in cash, in final settlement of any
and all claims and contractual adjustments between us and the former
shareholders of KSNET. Our Korean debt agreement required us to use the
settlement proceeds to repay a portion of our outstanding debt thereunder. We
made the prepayment on January 30, 2012.
As of March 31, 2012, we had
outstanding long-term debt of 116.8 billion KRW (approximately $102.9 million
translated at exchange rates applicable as of March 31, 2012) under credit
facilities with a group of Korean banks. The loans bear interest at the Korean
CD rate in effect from time to time (3.54% as of March 31, 2012) plus a margin
of 4.10% . Semi-annual principal payments of approximately $7.2 million
(translated at exchange rates applicable as of March 31, 2012) were due starting
in October 2011, with final maturity scheduled for October 2015.
40
Cash flows from operating activities
Third
quarter of fiscal 2012
Net cash provided by operating
activities for the third quarter of fiscal 2012 was $22.0 million (ZAR 172.7
million) compared to $28.3 million (ZAR 197.4 million) for the third quarter of
fiscal 2011. Excluding the impact of interest paid under our Korean debt and
taxes presented in the table below, the decrease in cash provided by operating
activities resulted from timing of receipts of accounts receivable in our South
African transaction-based activities operating segment and the payment of SASSA
implementation costs and bonuses related to our recent SASSA award.
During the third quarter of
fiscal 2012 and 2011, we paid STC of $0.3 million (ZAR 3 million) and $1.1
million (ZAR 8 million), respectively, related to intercompany dividends paid
from South Africa to the United States.
Taxes paid during the third
quarter of fiscal 2012 and 2011 were as follows:
Table 18
|
|
Quarter ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
Taxation refunds received
|
|
-
|
|
|
(4
|
)
|
|
-
|
|
|
(25
|
)
|
Secondary taxation on companies
|
|
326
|
|
|
1,110
|
|
|
2,500
|
|
|
8,000
|
|
Total South African
taxes paid
|
|
326
|
|
|
1,106
|
|
|
2,500
|
|
|
7,975
|
|
Foreign
taxes paid: Korea
|
|
177
|
|
|
458
|
|
|
1,424
|
|
|
3,177
|
|
Total
tax paid
|
|
503
|
|
|
1,564
|
|
|
3,924
|
|
|
11,152
|
|
We expect to pay our second
provisional payments in South Africa related to our 2012 tax year in the fourth
quarter of fiscal 2012.
Year
to date fiscal 2012
Net cash provided by operating
activities for the year to date fiscal 2012 was $43.0 million (ZAR 336.5
million) compared to $53.4 million (ZAR 378.9 million) for the year to date
fiscal 2011. Excluding the impact of interest paid under our Korean debt and
taxes presented in the table below, the decrease in cash provided by operating
activities resulted from the timing of receipts of accounts receivable in our
South African transaction-based activities operating segment.
During the year to date fiscal
2012, we paid South African tax of $15.0 million (ZAR 123.3 million) related to
our 2012 tax year and $3.5 million (ZAR 26.3 million) related to our 2011 tax
year. We also paid provisional Korean taxes of $1.2 million. During the year to
date fiscal 2011, we made South African tax payments of $16.6 million (ZAR 113.7
million) related to our 2011 tax year and provisional Korean taxes of $1.0
million. In addition, during the year to date fiscal 2012 and 2011 we paid STC
of $1.8 million (ZAR 14.6 million) and $14.7 million (ZAR 103 million),
respectively, related to intercompany dividends paid from South Africa to the
United States.
Taxes paid during the year to
date fiscal 2012 and 2011 were as follows:
Table 19
|
|
Quarter ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
15,014
|
|
|
16,565
|
|
|
123,271
|
|
|
113,708
|
|
Third provisional payments
|
|
-
|
|
|
335
|
|
|
-
|
|
|
2,296
|
|
Taxation paid related to prior years
|
|
3,504
|
|
|
1,774
|
|
|
26,303
|
|
|
12,716
|
|
Taxation refunds received
|
|
(284
|
)
|
|
(176
|
)
|
|
(2,096
|
)
|
|
(1,327
|
)
|
Secondary taxation on companies
|
|
1,811
|
|
|
14,702
|
|
|
14,615
|
|
|
103,000
|
|
Total South African taxes paid
|
|
20,045
|
|
|
33,200
|
|
|
162,093
|
|
|
230,393
|
|
Foreign
taxes paid: Korea
|
|
1,213
|
|
|
989
|
|
|
9,217
|
|
|
6,890
|
|
Total
tax paid
|
|
21,258
|
|
|
34,189
|
|
|
171,310
|
|
|
237,283
|
|
41
Cash flows from investing activities
Third
quarter of fiscal 2012
Cash used in investing activities
for the third quarter of fiscal 2012 includes capital expenditure of $13.9
million (ZAR 109.1 million), primarily for payment vehicles for of our new SASSA
contract, acquisition of payment processing terminals in Korea and POS devices
to service our merchant acquiring system in South Africa.
Cash used in investing activities
for the third quarter of fiscal 2011 includes capital expenditure of $4.7
million (ZAR 32.7 million), primarily for the acquisition of payment processing
terminals in Korea, kiosks to service our EasyPay Kiosk pilot project and the
acquisition of POS devices to service our merchant acquiring system.
Year
to date fiscal 2012
During the year to date fiscal
2012, we received a net settlement of $4.9 million from the former shareholders
of KSNET. During the year to date fiscal 2011, we paid approximately $230.2
million (ZAR 1.6 billion), net of cash received, for 98.73% of KSNET. We also
paid $4.5 million (ZAR 36.4 million) for the Eason prepaid electricity and
airtime business.
Cash used in investing activities
for the year to date fiscal 2012 includes capital expenditure of $23.5 million
(ZAR 183.9 million), primarily for payment vehicles for our SASSA contracts,
acquisition of payment processing terminals in Korea and POS devices to service
our merchant acquiring system in South Africa.
Cash used in investing activities
for the year to date fiscal 2011 includes capital expenditure of $9.5 million
(ZAR 67.0 million), primarily for the acquisition of payment processing
terminals in Korea, kiosks to service our EasyPay Kiosk pilot project, the
acquisition of POS devices to service our merchant acquiring system, the
replacement of computer and electronic hardware and the replacement of motor
vehicles.
Cash flows from financing activities
Third
quarter of fiscal 2012
During the third quarter of
fiscal 2012, we made an unscheduled $4.8 million long-term debt repayment.
During the third quarter of
fiscal 2011, we repaid KSNETs outstanding debt of $7.1 million.
Year
to date fiscal 2012
During the year to date fiscal
2012, we made long-term debt repayments of $12.0 million and acquired 180,656
shares of our common stock for $1.1 million.
During the year to date fiscal
2011 we obtained long-term debt to fund a portion of the KSNET purchase price.
In addition, we paid the facility fee of approximately $3.1 million in October
2010. In addition, we paid approximately $0.6 million for the remaining 19.9% of
Net1 UTA during the year to date of fiscal 2011.
During the year to date fiscal
2011, we repaid KSNETs outstanding debt of $7.1 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet
arrangements.
Capital Expenditures
We expect that our capital
expenditures will increase significantly over the next 12 months as we
transition into our new SASSA contract. In addition to these capital
expenditures, we expect that capital spending for the fourth quarter of fiscal
2012 will also relate to providing a switching service through EasyPay and
expanding our operations in Korea.
Our historical capital
expenditures for the third quarter of fiscal 2012 and 2011 are discussed under
Liquidity and Capital ResourcesCash flows from investing activities. All of
our capital expenditures for the past three fiscal years were funded through
internally-generated funds. We had outstanding capital commitments as of March
31, 2012, of $2.6 million related mainly to equipment and cards to implement our
new SASSA contract. We expect to fund these expenditures through
internally-generated funds.
42
Contingent Liabilities, Commitments and Contractual
Obligations
The following table sets forth
our contractual obligations as of March 31, 2012:
Table 20
|
|
Payments due by Period, as of March 31, 2012
(in $ 000s)
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
than 1
|
|
|
1-3
|
|
|
3-5
|
|
|
than 5
|
|
|
|
Total
|
|
|
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
Long-term debt obligations (A)
|
|
123,395
|
|
|
21,724
|
|
|
40,166
|
|
|
61,505
|
|
|
-
|
|
Operating lease obligations
|
|
9,717
|
|
|
5,793
|
|
|
1,963
|
|
|
1,441
|
|
|
521
|
|
Purchase obligations
|
|
3,872
|
|
|
3,872
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other long-term obligations (B)
|
|
27,024
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,024
|
|
Total
|
|
164,008
|
|
|
31,389
|
|
|
42,129
|
|
|
62,946
|
|
|
27,545
|
|
|
(A)
|
Includes $102.9 million of long-term debt discussed
under Liquidity and capital resources and includes interest payable at
the rate applicable as of March 31, 2012.
|
|
(B)
|
Includes policy holder liabilities $26.3 million
related to our insurance business.
|
43
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
In addition to the tables below,
see note 6 to the unaudited condensed consolidated financial statements for a
discussion of market risk.
The following table illustrates
the effect on our annual expected interest charge, translated at exchange rates
applicable as of March 31, 2012, as a result of a change in the Korean CD rate.
The effects of a hypothetical 1% increase and a 1% decrease in the Korean CD
rate as of March 31, 2012, is shown. The selected 1% hypothetical change does
not reflect what could be considered the best or worst case scenarios.
|
|
As of March 31, 2012
|
|
Table 21
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
annual
|
|
|
|
|
|
|
|
|
|
expected
|
|
|
|
Annual
|
|
|
|
|
|
interest charge
|
|
|
|
expected
|
|
|
Hypothetical
|
|
|
after change in
|
|
|
|
interest
|
|
|
change in
|
|
|
Korean CD
|
|
|
|
charge
|
|
|
Korean CD
|
|
|
rate
|
|
|
|
($ 000)
|
|
|
rate
|
|
|
($ 000)
|
|
Interest on Korean long-term debt
|
|
7,864
|
|
|
1%
|
|
|
8,893
|
|
|
|
|
|
|
(1)%
|
|
|
6,834
|
|
The following table summarizes
our exchange-traded equity securities with equity price risk as of March 31,
2012. The effects of a hypothetical 10% increase and a 10% decrease in market
prices as of March 31, 2012, is also shown. The selected 10% hypothetical change
does not reflect what could be considered the best or worst case scenarios.
Indeed, results could be far worse due both to the nature of equity markets and
the aforementioned liquidity risk.
|
|
As of March 31, 2012
|
|
Table 22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hypothetical
|
|
|
|
|
|
|
|
|
|
Estimated fair
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
value after
|
|
|
Increase
|
|
|
|
Fair
|
|
|
|
|
|
hypothetical
|
|
|
(Decrease) in
|
|
|
|
value
|
|
|
Hypothetical
|
|
|
change in price
|
|
|
Shareholders
|
|
|
|
($ 000)
|
|
|
price change
|
|
|
($ 000)
|
|
|
Equity
|
|
Exchange-traded equity securities
|
|
8,199
|
|
|
10%
|
|
|
9,019
|
|
|
0.23%
|
|
|
|
8,199
|
|
|
(10%
|
)
|
|
7,379
|
|
|
(0.23%
|
)
|
Item 4. Controls and Procedures
Evaluation of disclosure
controls and procedures
Under the supervision and with
the participation of our management, including our chief executive officer and
our chief financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as of March
31, 2012. Management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Based on this
evaluation, the chief executive officer and the chief financial officer
concluded that our disclosure controls and procedures were effective as of March
31, 2012.
Changes in Internal Control
over Financial Reporting
There have not been any changes
in our internal control over financial reporting during the fiscal quarter ended
March 31, 2012, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
44
Part II. Other Information
Item 1. Legal Proceedings
On February 8, 2012, AllPay
Consolidated Investment Holdings (Pty) Ltd filed an application in the North
Gauteng High Court of South Africa seeking to set aside the award of the SASSA
tender to us. AllPay was one of the unsuccessful bidders during the recent SASSA
tender process and was a former contractor to SASSA. We are included as one of
several respondents in this proceeding. As a respondent, we are entitled to
oppose the application, which we are doing. When SASSA publicly announced the
award of the tender to us in January 2012, it stated that it had conducted the
tender in accordance with all relevant legislation. The High Court is scheduled
to hear this matter commencing May 29, 2012, and we expect that it will hand
down a decision several weeks thereafter. Any of the parties to the proceeding
will thereafter be entitled to apply to the High Court for leave to appeal the
judgment and, provided that such leave is granted, the appeal process could take
several months to be finalized. We cannot predict when the proceeding will be
resolved or its ultimate outcome.
On February 3, 2012, another
unsuccessful bidder and former SASSA contractor, Empilweni Payout Services (Pty)
Ltd, requested SASSA to provide it with all reasons for the award and
information that we provided to SASSA in connection with the tender process.
Empilweni filed a High Court application to compel SASSA to provide such reasons
and information. We opposed the application but SASSA provided certain of the
requested information to Empilweni pursuant to an agreed court order. No further
action is expected in this proceeding.
In addition, on March 22, 2012,
Empilweni filed an urgent High Court application to interdict and restrain SASSA
from taking any steps to implement our appointment as a service provider of
SASSA in the province of Mpumalanga, pursuant to the award of the tender. On
March 27, 2012 the High Court ruled that the matter was not urgent and
accordingly it was struck from the court roll. If Empilweni wants to proceed, it
would have to do so on a non-urgent basis. Empilweni has taken no further steps
to advance this proceeding since March 27, 2012.
Item 1A. Risk Factors
See Item 1A RISK FACTORS in
Part I of our Annual Report on Form 10-K for the fiscal year ended June 30,
2011, for a discussion of risk factors relating to (i) our business, (ii)
operating in South Africa and other foreign markets, (iii) governmental
regulation, and (iv) our common stock. Except as set forth below, there have
been no material changes from the risk factors previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
We have recently signed a
new contract with SASSA for the distribution of pension and welfare benefits in
all of South Africas nine provinces. While the new contract will substantially
increase the number of beneficiaries to whom we distribute benefits, it will
also increase our dependence on our pension and welfare business while also
reducing our operating margins, at least in the near term. If we cannot
successfully leverage an expanded beneficiary base to provide recipients with
additional financial and other services, our financial performance may suffer.
On January 17, 2012, SASSA
awarded us a tender to provide payment services for social grants in all of
South Africas nine provinces for a period of five years. On February 3, 2012,
we entered into a new contract, together with a related service level agreement,
with SASSA.
Although we expect our revenues
from our new SASSA contract to increase as a result of the larger number of
beneficiaries we will serve as we roll out our distribution service to all
beneficiaries in all nine provinces, we also have incurred and will continue to
incur significant increases in operating expenses. We will also be required to
make significant capital expenditures to build out our infrastructure across
South Africa, primarily in the additional four provinces where we currently do
not provide a service. As a result, despite the higher volumes of payments, as
we implement the new contract, these additional expenses are likely to result in
lower operating margins in our pension and welfare business, both in the
short-term and perhaps on a longer term basis. We could also encounter delays or
unexpected expenses during the implementation phase of the contract, which could
adversely affect us and require additional management time and attention. While
we will seek to offset the additional increases in operating expenses and
capital expenditures throughout the implementation of our SASSA contract by
expanding the scope and volumes of financial and other services we can provide
to our new and existing beneficiaries, we may not be successful in doing so,
which could adversely affect our business, results of operations, operating cash
flow and financial condition.
45
Moreover, the expansion of our
service offering to all nine South African provinces will increase our
dependence on our contract with SASSA, which is and will continue to be our
largest customer. While for a number of years, we derived a majority of our
revenues from our SASSA contract, this percentage has been decreasing as a
result of our efforts to diversify our business in South Africa and expand
internationally. However, as we transition to our new SASSA contract, we expect
that our pension and welfare will once again account for a majority of our
revenues. If we were to lose all or part of these revenues for any reason, our
business would suffer.
In order to meet our
obligations under our new SASSA contract, we are required to deposit government
funds with financial institutions in South Africa before commencing the payment
cycle and are exposed to counterparty risk.
In order to meet our obligations
under our new SASSA contract, we are required to deposit government funds, which
will ultimately be used to pay social welfare grants, with financial
institutions in South Africa before commencing the payment cycle. If these
financial institutions are unable to meet their commitments to us, in a timely
manner or at all, we would be unable to discharge our obligations under our
SASSA contract and could be subject to penalties, loss of reputation and
potentially, the cancellation of our contract. As we are unable to influence
these financial institutions' operations, including their internal information
technology structures, capital structures, risk management, business continuity
and disaster recovery programs, or their regulatory compliance systems, we are
exposed to counterparty risk.
Two of the
unsuccessful tenderors have challenged SASSAs award of the tender to us.
On February 8, 2012, AllPay filed
an application in the North Gauteng High Court of South Africa seeking to set
aside the award of the SASSA tender to us. AllPay was one of the unsuccessful
bidders during the recent SASSA tender process and was a former contractor to
SASSA. We are included as one of several respondents in this proceeding. As a
respondent, we are entitled to oppose the application, which we are doing. When
SASSA publicly announced the award of the tender to us in January 2012, it
stated that it had conducted the tender in accordance with all relevant
legislation. The High Court is scheduled to hear this matter commencing May 29,
2012, and we expect that it will hand down a decision several weeks thereafter.
Any of the parties to the proceeding will thereafter be entitled to apply to the
High Court for leave to appeal the judgment and, provided that such leave is
granted, the appeal process could take several months to be finalized. We cannot
predict when the proceeding will be resolved or its ultimate outcome.
On February 3, 2012, another
unsuccessful bidder and former SASSA contractor, Empilweni Payout Services (Pty)
Ltd, requested SASSA to provide it with all reasons for the award and
information that we provided to SASSA in connection with the tender process.
Empilweni filed a High Court application to compel SASSA to provide such reasons
and information. We opposed the application but SASSA provided certain of the
requested information to Empilweni pursuant to an agreed court order. No further
action is expected in this proceeding.
In addition, on March 22, 2012,
Empilweni filed an urgent High Court application to interdict and restrain SASSA
from taking any steps to implement our appointment as a service provider of
SASSA in the province of Mpumalanga, pursuant to the award of the tender. On
March 27, 2012 the High Court ruled that the matter was not urgent and
accordingly it was struck from the court roll. If Empilweni wants to proceed, it
would have to do so on a non-urgent basis. Empilweni has taken no further steps
to advance this proceeding since March 27, 2012.
If AllPays challenge is
successful, the contract could be set aside. If Empilweni advances proceedings
and is successful a portion of the contract could be set aside. It is also
possible that other unsuccessful bidders may challenge the award. Our management
may be required to expend significant time and resources in an attempt to defeat
these challenges.
We have disclosed
competitively sensitive information as a result of the AllPay litigation, which
could adversely affect our competitive position in the future.
In connection with the AllPay
litigation discussed above challenging the award of the SASSA tender to us, we
have included our entire SASSA tender submission in the court record, which
court record is in the public domain. Our tender submission contains
competitively sensitive business information. As a result of this disclosure,
our existing and future competitors have access to this information which could
adversely affect our competitive position in any future similar tender
submissions to the extent that such information continues to remain
competitively sensitive.
46
Item 6. Exhibits
The following exhibits are filed as
part of this Form 10-Q:
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Incorporated by
Reference Herein
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Exhibit
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Included
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No.
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Description of Exhibit
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Herewith
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Form
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Exhibit
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Filing Date
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10.21
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Relationship Agreement dated January 25, 2012 by and among the
Company, Business Venture Investments No 1567 (Proprietary) Limited (RF),
Mosomo Investment Holdings (Proprietary) Limited and Brian Kgomotso Mosehla
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8-K
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99.1
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January 26, 2012
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10.22
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Form
of Option to be issued by the Company to Business Venture Investments
No 1567 (Proprietary) Limited (RF)
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8-K
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99.2
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January 26, 2012
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10.23
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Contract for the Payment of Social Grants dated February 3, 2012
between CPS and SASSA
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8-K
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99.1
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February 6, 2012
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10.24
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Service Level Agreement dated February 3, 2012 between CPS and
SASSA
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8-K
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99.2
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February 6, 2012
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31.1
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Certification of Principal Executive
Officer pursuant to Rule 13a-14(a) under the Exchange Act
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X
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31.2
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Certification of Principal Financial
Officer pursuant to Rule 13a-14(a) under the Exchange Act
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X
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32
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Certification pursuant to 18 USC Section
1350
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X
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101.INS
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XBRL
Instance Document
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X
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101.SCH
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XBRL Taxonomy Extension Schema
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X
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase
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X
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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X
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101.LAB
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XBRL
Taxonomy Extension Label Linkbase
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X
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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X
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SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on May 9,
2012.
NET 1 UEPS TECHNOLOGIES, INC.
By: /s/ Dr. Serge C.P. Belamant
Dr. Serge C.P. Belamant
Chief
Executive Officer, Chairman of the Board and Director
By: /s/ Herman Gideon Kotzé
Herman Gideon Kotzé
Chief
Financial Officer, Treasurer and Secretary, Director
47
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