NET 1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated
Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
38,116
|
|
$
|
39,123
|
|
Pre-funded social welfare grants
receivable (Note 3)
|
|
8,024
|
|
|
9,684
|
|
Accounts receivable,
net of allowances of December: $1,027; June: $788
|
|
105,104
|
|
|
101,918
|
|
Finance loans receivable
|
|
6,979
|
|
|
8,141
|
|
Deferred expenditure on
smart cards
|
|
8,306
|
|
|
4,587
|
|
Inventory (Note 4)
|
|
9,869
|
|
|
6,192
|
|
Deferred income taxes
|
|
5,976
|
|
|
5,591
|
|
Total
current assets before settlement assets
|
|
182,374
|
|
|
175,236
|
|
Settlement assets (Note 5)
|
|
414,621
|
|
|
409,166
|
|
Total current assets
|
|
596,995
|
|
|
584,402
|
|
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF December: $85,023; June: $74,242
|
|
55,746
|
|
|
52,616
|
|
EQUITY-ACCOUNTED INVESTMENTS (Note 6)
|
|
1,192
|
|
|
1,508
|
|
GOODWILL (Note 7)
|
|
193,133
|
|
|
182,737
|
|
INTANGIBLE ASSETS, net (Note 7)
|
|
92,287
|
|
|
93,930
|
|
OTHER LONG-TERM ASSETS, including
reinsurance assets (Note 8)
|
|
41,010
|
|
|
40,700
|
|
TOTAL ASSETS
|
|
980,363
|
|
|
955,893
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
12,881
|
|
|
13,172
|
|
Other payables (Note 1)
|
|
36,960
|
|
|
40,167
|
|
Current portion of
long-term borrowings (Note 10)
|
|
15,221
|
|
|
14,019
|
|
Income taxes payable
|
|
5,317
|
|
|
6,019
|
|
Total current liabilities before settlement obligations
|
|
70,379
|
|
|
73,377
|
|
Settlement obligations (Note 5)
|
|
414,621
|
|
|
409,166
|
|
Total current liabilities
|
|
485,000
|
|
|
482,543
|
|
DEFERRED INCOME TAXES
|
|
20,999
|
|
|
20,988
|
|
LONG-TERM BORROWINGS (Note 10)
|
|
78,989
|
|
|
79,760
|
|
OTHER LONG-TERM LIABILITIES, including insurance policy
liabilities (Note 8)
|
|
25,107
|
|
|
25,791
|
|
TOTAL
LIABILITIES
|
|
610,095
|
|
|
609,082
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
NET1 EQUITY:
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
Authorized: 200,000,000 with $0.001 par
value;
Issued
and outstanding shares, net of treasury - December: 45,600,471;
June: 45,548,902
|
|
59
|
|
|
59
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL
PAID-IN-CAPITAL (Note 1)
|
|
159,002
|
|
|
155,350
|
|
TREASURY SHARES, AT COST: December:
13,455,090; June: 13,455,090
|
|
(175,823
|
)
|
|
(175,823
|
)
|
ACCUMULATED OTHER
COMPREHENSIVE LOSS
|
|
(65,282
|
)
|
|
(75,722
|
)
|
RETAINED EARNINGS
|
|
449,014
|
|
|
439,641
|
|
TOTAL NET1 EQUITY
|
|
366,970
|
|
|
343,505
|
|
NON-CONTROLLING INTEREST
|
|
3,298
|
|
|
3,306
|
|
TOTAL EQUITY
|
|
370,268
|
|
|
346,811
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
$
|
980,363
|
|
$
|
955,893
|
|
(A) Derived from audited financial
statements
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Operations
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands, except per share
data)
|
|
|
(In thousands, except per share
data)
|
|
REVENUE
|
$
|
111,442
|
|
$
|
92,058
|
|
$
|
223,124
|
|
$
|
191,984
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold, IT processing, servicing and support
|
|
47,227
|
|
|
34,168
|
|
|
92,328
|
|
|
67,112
|
|
Selling, general and
administration
|
|
48,756
|
|
|
28,872
|
|
|
96,008
|
|
|
55,929
|
|
Depreciation and amortization
|
|
10,487
|
|
|
8,790
|
|
|
20,491
|
|
|
17,869
|
|
OPERATING INCOME
|
|
4,972
|
|
|
20,228
|
|
|
14,297
|
|
|
51,074
|
|
INTEREST INCOME
|
|
2,589
|
|
|
1,820
|
|
|
5,680
|
|
|
3,817
|
|
INTEREST EXPENSE
|
|
2,023
|
|
|
2,355
|
|
|
4,094
|
|
|
4,971
|
|
INCOME BEFORE INCOME TAXES
|
|
5,538
|
|
|
19,693
|
|
|
15,883
|
|
|
49,920
|
|
INCOME TAX EXPENSE (BENEFIT) (note 16)
|
|
2,971
|
|
|
(5,378
|
)
|
|
6,700
|
|
|
5,174
|
|
NET INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS
|
|
2,567
|
|
|
25,071
|
|
|
9,183
|
|
|
44,746
|
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS (note 6)
|
|
54
|
|
|
19
|
|
|
182
|
|
|
104
|
|
NET INCOME
|
|
2,621
|
|
|
25,090
|
|
|
9,365
|
|
|
44,850
|
|
ADD NET LOSS ATTRIBUTABLE TO NON- CONTROLLING INTEREST
|
|
(8
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(12
|
)
|
NET INCOME ATTRIBUTABLE TO NET1
|
$
|
2,629
|
|
$
|
25,094
|
|
$
|
9,373
|
|
$
|
44,862
|
|
Net income per share, in United States dollars
(
note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
attributable to Net1 shareholders
|
$
|
0.06
|
|
$
|
0.56
|
|
$
|
0.21
|
|
$
|
1.00
|
|
Diluted
earnings attributable to Net1 shareholders
|
$
|
0.06
|
|
$
|
0.56
|
|
$
|
0.21
|
|
$
|
1.00
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,621
|
|
$
|
25,090
|
|
$
|
9,365
|
|
$
|
44,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in assets available for
sale
|
|
258
|
|
|
-
|
|
|
258
|
|
|
-
|
|
Movement in foreign currency translation reserve
|
|
5,927
|
|
|
(2,577
|
)
|
|
10,182
|
|
|
(40,182
|
)
|
Total
other comprehensive income (loss), net of taxes
|
|
6,185
|
|
|
(2,577
|
)
|
|
10,440
|
|
|
(40,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
8,806
|
|
|
22,513
|
|
|
19,805
|
|
|
4,668
|
|
Add comprehensive loss attributable to non-controlling interest
|
|
8
|
|
|
4
|
|
|
8
|
|
|
139
|
|
Comprehensive income attributable to Net1
|
$
|
8,814
|
|
$
|
22,517
|
|
$
|
19,813
|
|
$
|
4,807
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statement of Changes in Equity (dollar amounts in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Total Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
(loss) income
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2012 (Note 1)
|
|
59,003,992
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
155,350
|
|
$
|
439,641
|
|
$
|
(75,722
|
)
|
$
|
343,505
|
|
$
|
3,306
|
|
$
|
346,811
|
|
Restricted stock granted
|
|
21,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
Exercise of options by holders
|
|
30,000
|
|
|
-
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
240
|
|
Stock-based compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,233
|
|
|
|
|
|
|
|
|
2,233
|
|
|
|
|
|
2,233
|
|
Utilization of APIC pool related to vested
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
(5
|
)
|
Pbel acquisition (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
1,184
|
|
Comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,373
|
|
|
|
|
|
9,373
|
|
|
(8
|
)
|
|
9,365
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in assets available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
258
|
|
|
|
|
|
258
|
|
Movement in foreign currency
translation reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,182
|
|
|
10,182
|
|
|
|
|
|
10,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
59,055,561
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
159,002
|
|
$
|
449,014
|
|
$
|
(65,282
|
)
|
$
|
366,970
|
|
$
|
3,298
|
|
$
|
370,268
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,621
|
|
$
|
25,090
|
|
$
|
9,365
|
|
$
|
44,850
|
|
Depreciation and amortization
|
|
10,487
|
|
|
8,790
|
|
|
20,491
|
|
|
17,869
|
|
Earnings from equity-accounted investments
|
|
(54
|
)
|
|
(19
|
)
|
|
(182
|
)
|
|
(104
|
)
|
Fair value adjustments
|
|
1,000
|
|
|
(551
|
)
|
|
707
|
|
|
(772
|
)
|
Interest payable
|
|
1,117
|
|
|
2,113
|
|
|
2,309
|
|
|
3,775
|
|
Profit on disposal of property, plant and
equipment
|
|
(86
|
)
|
|
(26
|
)
|
|
(86
|
)
|
|
(34
|
)
|
Net loss on sale of 10% of Smart Life
|
|
-
|
|
|
81
|
|
|
-
|
|
|
81
|
|
Profit on liquidation of SmartSwitch
Nigeria
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,994
|
)
|
Realized loss on sale of Smart Life investments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25
|
|
Stock-based compensation charge
|
|
1,117
|
|
|
543
|
|
|
2,233
|
|
|
1,039
|
|
Facility fee amortized
|
|
76
|
|
|
83
|
|
|
164
|
|
|
199
|
|
(Increase) Decrease in accounts receivable,
pre- funded social welfare grants receivable and finance loans receivable
|
|
(5,061
|
)
|
|
(19,044
|
)
|
|
831
|
|
|
(15,795
|
)
|
Increase in deferred expenditure on smart cards
|
|
(3,668
|
)
|
|
(58
|
)
|
|
(3,701
|
)
|
|
(14
|
)
|
(Increase) Decrease in inventory
|
|
(2,582
|
)
|
|
920
|
|
|
(3,508
|
)
|
|
601
|
|
Decrease in accounts payable and other payables
|
|
(4,939
|
)
|
|
(2,679
|
)
|
|
(6,288
|
)
|
|
(2,348
|
)
|
Decrease in taxes payable
|
|
(6,032
|
)
|
|
(7,355
|
)
|
|
(594
|
)
|
|
(10,962
|
)
|
Decrease in deferred taxes
|
|
(916
|
)
|
|
(14,088
|
)
|
|
(2,932
|
)
|
|
(13,396
|
)
|
Net cash (used in )
provided by operating
activities
|
|
(6,920
|
)
|
|
(6,200
|
)
|
|
18,809
|
|
|
21,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(5,597
|
)
|
|
(5,120
|
)
|
|
(12,050
|
)
|
|
(9,586
|
)
|
Proceeds from disposal of property, plant
and equipment
|
|
251
|
|
|
174
|
|
|
356
|
|
|
268
|
|
Acquisitions, net of cash acquired (Note 2)
|
|
(230
|
)
|
|
-
|
|
|
(2,143
|
)
|
|
-
|
|
Acquisition of prepaid business, net of
cash acquired
|
|
-
|
|
|
(4,481
|
)
|
|
-
|
|
|
(4,481
|
)
|
Acquisition of Smart Life, net of cash acquired
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,673
|
)
|
Settlement from former shareholders of
KSNET
|
|
-
|
|
|
4,945
|
|
|
-
|
|
|
4,945
|
|
Repayment of loan by equity-accounted investment
|
|
-
|
|
|
30
|
|
|
3
|
|
|
63
|
|
Purchase of investments related to
insurance business
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,320
|
)
|
Proceeds from maturity of investments related to insurance
business
|
|
-
|
|
|
-
|
|
|
545
|
|
|
2,321
|
|
Net change in settlement assets
|
|
(72,835
|
)
|
|
30,349
|
|
|
(12,056
|
)
|
|
33,796
|
|
Net cash (used in) provided by
investing
activities
|
|
(78,411
|
)
|
|
25,897
|
|
|
(25,345
|
)
|
|
23,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term borrowings
|
|
(7,307
|
)
|
|
(7,185
|
)
|
|
(7,307
|
)
|
|
(7,185
|
)
|
Proceeds from issue of common stock
|
|
-
|
|
|
-
|
|
|
240
|
|
|
-
|
|
Proceeds on sale of 10% of Smart Life
|
|
-
|
|
|
107
|
|
|
-
|
|
|
107
|
|
Acquisition of treasury stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,129
|
)
|
Net change in settlement obligations
|
|
72,835
|
|
|
(30,349
|
)
|
|
12,056
|
|
|
(33,796
|
)
|
Net cash provided by (used in)
financing
activities
|
|
65,528
|
|
|
(37,427
|
)
|
|
4,989
|
|
|
(42,003
|
)
|
Effect of exchange rate changes on cash
|
|
375
|
|
|
(3,389
|
)
|
|
540
|
|
|
(16,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
(19,428
|
)
|
|
(21,119
|
)
|
|
(1,007
|
)
|
|
(14,399
|
)
|
Cash and cash equivalents beginning of period
|
|
57,544
|
|
|
101,983
|
|
|
39,123
|
|
|
95,263
|
|
Cash and cash equivalents end of
period
|
$
|
38,116
|
|
$
|
80,864
|
|
$
|
38,116
|
|
$
|
80,864
|
|
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 Six Months Ended December 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 six
months ended December 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, 2012. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments), which are
necessary for a fair representation of financial results for the interim periods
presented. During the three months ended December 31, 2012, the Company
identified an immaterial balance sheet misclassification related to prior
periods that involved an overstatement of other payables and an understatement
of additional paid-in capital of $2.0 million, respectively. The Company has
corrected these amounts in the current period effective June 30, 2012. This
reclassification has no impact on the Companys previously reported consolidated
income, comprehensive income or cash flows.
References to the Company refer
to Net1 and its consolidated subsidiaries, unless the context otherwise
requires. References to Net1 are references solely to Net 1 UEPS Technologies,
Inc.
Recent accounting
pronouncements adopted
In September 2011, the Financial
Accounting Standards Board issued guidance regarding
Testing Goodwill for
Impairment
. The guidance allows an entity to first assess qualitative
factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Under this guidance, an entity is not
required to calculate the fair value of a reporting unit unless the entity
determines, based on a qualitative assessment, that it is more likely than not
that its fair value is less than its carrying amount. The guidance includes a
number of events and circumstances for an entity to consider in conducting the
qualitative assessment. The Company adopted this guidance beginning July 1,
2012. The adoption of this guidance did not have a significant impact on the
Companys condensed consolidated financial statements.
Recent accounting
pronouncements not yet adopted as of December 31, 2012
There were no new accounting
pronouncements not yet adopted by the Company during the three and six months
ended December 31, 2012.
2. Acquisitions
The net cash paid related to the
Companys various acquisitions that are discussed below during the six months
ended December 31, 2012 are summarized in the table below:
|
|
2012
|
|
Pbel (Proprietary) Limited (Pbel)
|
$
|
1,913
|
|
SmartSwitch Botswana (Proprietary) Limited (SmartSwitch
Botswana)
|
|
230
|
|
Total cash paid, net of cash received
|
$
|
2,143
|
|
SmartSwitch Botswana
(Proprietary) Limited
On December 7, 2012, the Company
acquired 50% of the outstanding and issued ordinary shares in SmartSwitch
Botswana, a Botswana private company, for BWP 6.3 million (approximately $0.8
million) in cash. As a result of this transaction, SmartSwitch Botswana is now a
wholly-owned subsidiary and is consolidated in the Companys financial
statements. SmartSwitch Botswana had previously been recorded as an
equity-accounted investment (see Note 6).
The Company believes that the
acquisition of the remaining 50% of SmartSwitch Botswana will allow it to
directly pursue its growth strategy in Botswana, which includes the introduction
of additional services in that country.
7
2. Acquisitions (continued)
SmartSwitch Botswana
(Proprietary) Limited (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
|
$
|
584
|
|
Inventory
|
|
150
|
|
Property, plant and equipment, net
|
|
472
|
|
Goodwill (Note 7)
|
|
657
|
|
Other payables
|
|
(218
|
)
|
Deferred tax liabilities
|
|
(17
|
)
|
Fair value of
SmartSwitch Botswana on acquisition
|
|
1,628
|
|
Less: gain on fair value of SmartSwitch
Botswana
|
|
(328
|
)
|
Less: carrying
value of equity-accounted investment at the acquisition date (note 6)
|
|
(486
|
)
|
Total purchase price
|
$
|
814
|
|
The preliminary purchase price
allocation is based on management estimates as of December 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 September 30, 2013.
Pbel (Proprietary)
Limited
On September 14, 2012, the
Company acquired all of the outstanding and issued ordinary shares in Pbel, a
South African private company, for ZAR 33 million (approximately $3.8 million).
ZAR 23 million of the purchase price was paid in cash and the remaining ZAR 10
million will be paid in 142,236 shares of the Companys common stock, subject to
the achievement of pre-defined Pbel financial performance milestones over the
next three years. The Company is entitled to vote 100% of the outstanding and
issued shares of Pbel. The 142,236 shares are divided into three equal tranches
of 47,412 shares and the sellers will be entitled to receive the shares for each
tranche only if the milestones for that particular tranche are achieved.
However, the sellers will be entitled to receive all 142,236 shares if the
cumulative pre-defined Pbel projected profit over the next three years is
achieved or if the Company decides to abandon its Mobile Virtual Card
initiative.
The Company had historically
engaged the services of Pbel to perform software development services, primarily
software utilized on mobile phones and by cash-accepting kiosks. All software
developed was the Companys property. Prior to the acquisition, Pbel was jointly
owned by the Companys chief executive officer, Dr. Serge Belamant and his son,
Mr. Philip Marc Belamant. Dr. Belamant is a non-employee director of Pbel and
Mr. Philip Marc Belamant is its chief executive officer. Prior to the
acquisition, Mr. Philip Marc Belamant was not employed by the Company.
The Company believes that the
acquisition of Pbel is important in the execution of its strategy to
commercialize and develop its world-wide virtual card patents and to supply
secure, leading edge technological solutions to the global payments market with
particular focus on mobile-based payment solutions. Mr. Philip Marc Belamant, in
his new position as Managing Director of Mobile Solutions, will oversee the
Companys Mobile Virtual Card, Kiosk, Web and WAP application research and
development activities as well as related global business development
initiatives.
The preliminary purchase price
allocation, translated at the foreign exchange rates applicable on the date of
acquisition, is provided in the table below:
Cash and cash equivalents
|
$
|
731
|
|
Accounts receivable, net
|
|
152
|
|
Other current assets
|
|
10
|
|
Property, plant and equipment, net
|
|
92
|
|
Intangible assets (Note 7)
|
|
1,785
|
|
Goodwill (Note 7)
|
|
1,691
|
|
Other payables
|
|
(41
|
)
|
Income taxes payable
|
|
(91
|
)
|
Deferred tax liabilities
|
|
(500
|
)
|
Total purchase price
|
$
|
3,829
|
|
8
2. Acquisitions (continued)
Pbel (Proprietary)
Limited (continued)
The preliminary purchase price
allocation is based on management estimates as of December 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, 2013.
Pro forma results of operations
have not been presented because the effect of the SmartSwitch and Pbel
acquisitions, individually and in the aggregate, were not material to the
Company. During the three and six months ended December 31, 2012, the Company
incurred acquisition-related expenditure of $0.03 million and $0.1 million,
respectively, related to these acquisitions. Since the closing of the
SmartSwitch Botswana acquisition, it has contributed revenue and generated a net
income of $0.1 million and $0.01 million, respectively. Since the closing of the
Pbel acquisition, it has contributed revenue and incurred a net loss, after
acquired intangible asset amortization, net of taxation, of $0.3 million and
$0.2 million, respectively, for the three months ended December 31, 2012, and
revenue and net loss of $0.4 million and $0.2 million, respectively, for the six
months ended December 31, 2012.
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 January 2013 payment service
commenced on January 1, 2013, but the Company pre-funded certain merchants
participating in the merchant acquiring systems in the last two days of December
2012.
4. Inventory
The Companys inventory comprised the following categories as
of December 31, 2012 and June 30, 2012.
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
Raw materials
|
$
|
29
|
|
$
|
30
|
|
Finished goods
|
|
9,840
|
|
|
6,162
|
|
|
$
|
9,869
|
|
$
|
6,192
|
|
5. Settlement assets and settlement obligations
Settlement assets comprise (1)
cash received from the South African government that the Company holds pending
disbursement to beneficiaries of social welfare grants, (2) cash received from
health care plans which the Company disburses to health care service providers
once it adjudicates claims and (3) cash received from customers on whose behalf
the Company processes payroll payments that the Company will disburse to
customer employees, payroll-related payees and other payees designated by the
customer.
Settlement obligations comprise
(1) amounts that the Company is obligated to disburse to beneficiaries of social
welfare grants, (2) amounts which are due to health care service providers after
claims have been adjudicated and reconciled, provided that the Company shall
have previously received such funds from health care plan customers and (3)
amounts that the Company is obligated to pay to customer employees,
payroll-related payees and other payees designated by the customer.
The balances at each reporting
date may vary widely depending on the timing of the receipts and payments of
these assets and obligations
6. Fair value of financial instruments and equity-accounted
investments
Fair value of financial
instruments
Risk
management
The Company seeks to reduce its
exposure to currencies other than the South African rand through a policy of
matching, to the extent possible, assets and liabilities denominated in those
currencies. In addition, the Company uses financial instruments in order to
economically hedge its exposure to exchange rate and interest rate fluctuations
arising from its operations. The Company is also exposed to equity price and
liquidity risks as well as credit risks.
9
6. Fair value of financial instruments and equity-accounted
investments (continued)
Fair value of financial
instruments (continued)
Risk
management (continued)
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 December 31, 2012
None.
As of June 30, 2012
None.
Translation
risk
Translation risk relates to the
risk that the Companys results of operations will vary significantly as the US
dollar is its reporting currency, but it earns most of its revenues and incurs
most of its expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated
significantly over the past two years. As exchange rates are outside the
Companys control, there can be no assurance that future fluctuations will not
adversely affect the Companys results of operations and financial
condition.
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 insurance business, maintains investments in fixed maturity
investments which are exposed to fluctuations in interest rates.
Credit
risk
Credit risk relates to the risk
of loss that the Company would incur as a result of non-performance by
counterparties. The Company maintains credit risk policies with regard to its
counterparties to minimize overall credit risk. These policies include an
evaluation of a potential counterpartys financial condition, credit rating, and
other credit criteria and risk mitigation tools as the Companys management
deems appropriate.
With respect to credit risk on
financial instruments, the Company maintains a policy of entering into such
transactions only with South African and European financial institutions that
have a credit rating of BBB or better, as determined by credit rating agencies
such as Standard & Poors, Moodys and Fitch Ratings.
Equity
price and liquidity risk
Equity price risk relates to the
risk of loss that the Company would incur as a result of the volatility in the
exchange-traded price of equity securities that it holds and the risk that it
may not be able to liquidate these securities. Liquidity risk relates to the
risk of loss that the Company would incur as a result of the lack of liquidity
on the exchange on which these securities are listed. The Company may not be
able to sell some or all of these securities at one time, or over an extended
period of time without influencing the exchange-traded price, or at all.
Financial
instruments
The following section describes
the valuation methodologies the Company uses to measure its significant
financial assets and liabilities at fair value.
10
6. Fair value of financial instruments and equity-accounted
investments (continued)
Financial instruments
(continued)
In general, and where applicable,
the Company uses quoted prices in active markets for identical assets or
liabilities to determine fair value. This pricing methodology applies to Level 1
investments. If quoted prices in active markets for identical assets or
liabilities are not available to determine fair value, then the Company uses
quoted prices for similar assets and liabilities or inputs other than the quoted
prices that are observable either directly or indirectly. These investments are
included in Level 2 investments. In circumstances in which inputs are generally
unobservable, values typically reflect managements estimates of assumptions
that market participants would use in pricing the asset or liability. The fair
values are therefore determined using model-based techniques that include option
pricing models, discounted cash flow models, and similar techniques. Investments
valued using such techniques are included in Level 3 investments.
Asset measured at fair
value using significant unobservable inputs investment in Finbond Group
Limited (Finbond)
The Company's Level 3 asset
represents an investment of 156,788,712 shares of common stock of Finbond, which
are exchange-traded equity securities. Finbonds shares are traded on the JSE
Limited (JSE) and the Company has designated such shares as available for sale
investments. The Company has concluded that the market for Finbond shares is not
active and consequently has employed alternative valuation techniques in order
to determine the fair value of such stock. Currently, the operations of Finbond
relate primarily to the provision of microlending products. In determining the
fair value of Finbond, the Company has considered amongst other things Finbonds
historical financial information (including its most recent public accounts),
press releases issued by Finbond and its published net asset value. The Company
believes that the best indicator of fair value of Finbond is its published net
asset value and has used this value to determine the fair value.
The fair value of these
securities as of December 31, 2012, represented approximately 1% of the
Companys total assets, including these securities.
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of December 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
|
$
|
2,086
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,086
|
|
Investment in Finbond (available for sale assets
included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,743
|
|
|
8,743
|
|
Other
|
|
-
|
|
|
1,168
|
|
|
-
|
|
|
1,168
|
|
Total assets at fair value
|
$
|
2,086
|
|
$
|
1,168
|
|
$
|
8,743
|
|
$
|
11,997
|
|
11
6. Fair value of financial instruments and equity-accounted
investments (continued)
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of June 30, 2012, according to the fair value hierarchy:
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Price in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to insurance business (included in other
long-term assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
2,628
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,628
|
|
Investment in Finbond (available for sale assets
included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,679
|
|
|
8,679
|
|
Other
|
|
-
|
|
|
262
|
|
|
-
|
|
|
262
|
|
Total assets at fair value
|
$
|
2,628
|
|
$
|
262
|
|
$
|
8,679
|
|
$
|
11,569
|
|
Assets and
liabilities measured at fair value on a nonrecurring basis
The Company measures its
equity-accounted investments at fair value on a nonrecurring basis. The Company
has no liabilities that are measured at fair value on a nonrecurring basis.
These equity-accounted investments are recognized at fair value when they are
deemed to be other-than-temporarily impaired.
The Company reviews the carrying
values of its investments when events and circumstances warrant and considers
all available evidence in evaluating when declines in fair value are
other-than-temporary. The fair values of the Companys investments are
determined using the best information available, and may include quoted market
prices, market comparables, and discounted cash flow projections. An impairment
charge is recorded when the cost of the investment exceeds its fair value and
the excess is determined to be other-than-temporary. The Company has not
recorded any impairment charges during the reporting periods presented herein.
Equity-accounted
investments
During the six months ended
December 31, 2012, SmartSwitch Namibia repaid its final installment related to
its outstanding loans and interest. The repayments received have been allocated
to the equity-accounted investments presented in the Companys condensed
consolidated balance sheet. The cash inflow from principal repayments have been
allocated to cash flows from investing activities and the cash inflow from the
interest repayments have been included in cash flow from operating activities in
the Companys condensed consolidated statement of cash flows for the six months
ended December 31, 2012.
During the three months ended
December 31, 2012, the Company acquired the remaining 50% of SmartSwitch
Botswana as described in Note 2. The Company was required to remeasure the
carrying value of its investment in SmartSwitch Botswana to its fair value prior
to consolidation and recognized a gain of approximately $0.3 million. In
addition, during the three months ended December 31, 2012, the Company acquired
a 50% interest in the ordinary shares of Netpay Solutions Private Limited
(Netpay), a private Indian company, for $0.08 million. The Company has
accounted for this investment using the equity method.
Summarized below is the Companys equity-accounted (loss)
earnings for the three months ended December 31, 2012:
|
|
Loss
|
|
|
Elimination
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from equity- accounted
investments
|
$
|
49
|
|
$
|
5
|
|
$
|
54
|
|
SmartSwitch Namibia
|
|
52
|
|
|
5
|
|
|
57
|
|
SmartSwitch Botswana
|
$
|
(3
|
)
|
$
|
-
|
|
$
|
(3
|
)
|
12
6. Fair value of financial instruments and equity-accounted
investments (continued)
Equity-accounted
investments (continued)
Summarized below is the Companys
interest in equity-accounted investments as of June 30, 2012 and December 31,
2012:
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Loans
|
|
|
(Loss)
|
|
|
Elimination
|
|
|
Total
|
|
Balance as of June 30, 2012
|
$
|
3,518
|
|
$
|
1,419
|
|
$
|
(3,411
|
)
|
$
|
(18
|
)
|
$
|
1,508
|
|
Netpay contribution
|
|
80
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
80
|
|
Loan repaid
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
Interest repaid
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(53
|
)
|
|
(53
|
)
|
Earnings from equity-accounted investments
|
|
-
|
|
|
-
|
|
|
172
|
|
|
10
|
|
|
182
|
|
SmartSwitch Namibia
(1)
|
|
-
|
|
|
-
|
|
|
135
|
|
|
10
|
|
|
145
|
|
SmartSwitch
Botswana
(1)
|
|
-
|
|
|
-
|
|
|
37
|
|
|
-
|
|
|
37
|
|
Foreign currency adjustment
(2)
|
|
(69
|
)
|
|
1
|
|
|
30
|
|
|
2
|
|
|
(36
|
)
|
Consolidation of SmartSwitch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Botswana (Note 2)
|
|
(1,161
|
)
|
|
-
|
|
|
675
|
|
|
-
|
|
|
(486
|
)
|
Balance as of December 31, 2012
|
$
|
2,368
|
|
$
|
1,417
|
|
$
|
(2,534
|
)
|
$
|
(59
|
)
|
$
|
1,192
|
|
(1) includes the recognition of
realized net income.
(2) the foreign currency
adjustment represents the effects of the combined net currency fluctuations
between the functional currency of the equity-accounted investments and the US
dollar.
There were no significant sales
to these investees that require elimination during the three and six months
ended December 31, 2012 and 2011.
7. Goodwill and intangible assets
Goodwill
Summarized below is the movement
in the carrying value of goodwill for the six months ended December 31, 2012:
|
|
Carrying
|
|
|
|
value
|
|
|
|
|
|
Balance as of June 30, 2012
|
$
|
182,737
|
|
Acquisition of Pbel (Note 2)
|
|
1,691
|
|
Acquisition of
SmartSwitch Botswana (Note 2)
|
|
657
|
|
Foreign currency adjustment
(1)
|
|
8,048
|
|
Balance as of December 31, 2012
|
$
|
193,133
|
|
(1) the foreign currency
adjustment represents the effects of the fluctuations between the South African
rand and the Korean won, and the US dollar on the carrying value.
Goodwill associated with the
acquisition of Pbel and SmartSwitch Botswana represents the excess of cost over
the fair value of acquired net assets. The Pbel and SmartSwitch Botswana
goodwill is not deductible for tax purposes. See Note 2 for the allocation of
the purchase price to the fair value of acquired net assets. Pbel has been
allocated to the Companys South African transaction-based activities operating
segment and SmartSwitch Botswana to the international transaction-based
activities operating segment.
Goodwill has been allocated to the Companys reportable
segments as follows:
|
|
As of
|
|
|
As of
|
|
|
|
December
|
|
|
June 30,
|
|
|
|
31, 2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
35,557
|
|
$
|
34,692
|
|
International transaction-based activities
|
|
122,042
|
|
|
111,798
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and related technology
sales
|
|
35,534
|
|
|
36,247
|
|
Total
|
$
|
193,133
|
|
$
|
182,737
|
|
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 December 31,
2012 and June 30, 2012:
|
|
As of December 31, 2012
|
|
|
As of June 30, 2012
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships(1)
|
$
|
98,537
|
|
$
|
(28,126
|
)
|
$
|
70,411
|
|
$
|
91,692
|
|
$
|
(22,617
|
)
|
$
|
69,075
|
|
Software and unpatented technology(1)
|
|
38,481
|
|
|
(21,120
|
)
|
|
17,361
|
|
|
36,082
|
|
|
(15,968
|
)
|
|
20,114
|
|
FTS patent
|
|
4,514
|
|
|
(4,514
|
)
|
|
-
|
|
|
4,623
|
|
|
(4,623
|
)
|
|
-
|
|
Exclusive
licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
Trademarks
|
|
7,357
|
|
|
(2,842
|
)
|
|
4,515
|
|
|
7,125
|
|
|
(2,507
|
)
|
|
4,618
|
|
Customer
database
|
|
716
|
|
|
(716
|
)
|
|
-
|
|
|
734
|
|
|
(611
|
)
|
|
123
|
|
Total finite-lived intangible assets
|
$
|
154,111
|
|
$
|
(61,824
|
)
|
$
|
92,287
|
|
$
|
144,762
|
|
$
|
(50,832
|
)
|
$
|
93,930
|
|
(1) Includes the customer
relationships and software and unpatented technology acquired as part of the
Pbel acquisition in September 2012.
Aggregate amortization expense on
the finite-lived intangible assets for the three and six months ended December
31, 2012, was approximately $4.9 million and $9.6 million, respectively (three
and six months ended December 31, 2011, was approximately $4.9 million and $9.6
million, respectively).
Future estimated annual
amortization expense for the next five fiscal years, assuming exchange rates
prevailing on December 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.
2013
|
$
|
18,410
|
|
2014
|
|
16,278
|
|
2015
|
|
16,217
|
|
2016
|
|
11,625
|
|
2017
|
|
9,145
|
|
Thereafter
|
$
|
30,434
|
|
8. Reinsurance assets and policy holder liabilities under
insurance and investment contracts
Reinsurance assets and
policy holder liabilities under insurance contracts
Summarized below is the movement
in reinsurance assets and policy holder liabilities under insurance contracts
during the three and six months ended December 31, 2012:
|
|
December 31, 2012
|
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
Balance as of June 30, 2012
|
$
|
23,595
|
|
$
|
(23,701
|
)
|
Foreign currency adjustment
(3)
|
|
(555
|
)
|
|
557
|
|
Balance as of December
31, 2012
|
$
|
23,040
|
|
$
|
(23,144
|
)
|
(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), expense inflation (based on a 10 year real return on CPI-linked
government bonds from the risk-free rate and adding an allowance for salary
inflation and book shrinkage of 1% per annum) and claim reporting delays (based
on average industry experience).
Assets and policy holder
liabilities under investment contracts
Summarized below is the movement
in assets and policy holder liabilities under investment contracts during the
three and six months ended December 31, 2012:
|
|
December 31, 2012
|
|
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balances as of June 30, 2012
|
$
|
1,109
|
|
$
|
(1,109
|
)
|
Foreign currency adjustment
(3)
|
|
(26
|
)
|
|
26
|
|
Balance as of December
31, 2012
|
$
|
1,083
|
|
$
|
(1,083
|
)
|
(1) Included in other long-term
assets;
(2) Included in other long-term
liabilities;
(3) The foreign currency
adjustment represents the effects of the fluctuations between the ZAR against
the US dollar.
The Company does not offer any
investment products with guarantees related to capital or returns.
9. Short-term credit facility
The Company has a ZAR 250 million
($29.5 million, translated at exchange rates applicable as of December 31, 2012)
short-term South African credit facility. As of December 31, 2012, the overdraft
rate on this facility was 7.85% . The Company has ceded its investment in Cash
Paymaster Services (Proprietary) Limited, a wholly owned South African
subsidiary, as security for the facility. As of December 31, 2012, and June 30,
2012, the Company had utilized none of its South African short-term
facility.
Management believes that this
facility is sufficient in order to meet the Companys future obligations as they
arise.
10. Long-term borrowings
The Companys KRW 100.6 billion
($94.2 million, translated at exchange rates applicable as of December 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, 2012. The current carrying value as of December
31, 2012, is $94.2 million. As of December 31, 2012, the carrying amount of the
long-term borrowings approximated fair value. The interest rate in effect on
December 31, 2012, was 6.95% . Interest expense during the three and six months
ended December 31, 2012 and 2011, was $1.8 million and $2.2 million; and $3.6
million and $4.6 million, respectively.
The fourth and fifth scheduled
principal repayments are $7.6 million each, translated at exchange rates
applicable as of December 31, 2012, and have been classified as current in the
Companys condensed consolidated balance sheet. The third repayment of $7.3
million was paid on October 29, 2012 and the fourth repayment is due on April
29, 2013. The first repayment of $7.2 million was paid on November 1, 2011.
11. Capital structure
Common stock
repurchases
The Company did not repurchase
any of its shares during the three and six months ended December 31, 2012, and
during the three months ended December 31, 2011, respectively. The Company
repurchased 180,656 shares during the six months ended December 31, 2011, for
approximately $1.1 million.
15
12. Stock-based compensation
Stock option and
restricted stock activity
Options
The following table summarizes
stock option activity for the six months ended December 31, 2012:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Grant
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Date Fair
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
Value
|
|
|
|
shares
|
|
|
price
|
|
|
(in years)
|
|
|
($000)
|
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2012
|
|
2,247,583
|
|
$
|
16.28
|
|
|
6.43
|
|
$
|
602
|
|
|
|
|
Granted under Plan: August 2012
|
|
431,000
|
|
|
8.75
|
|
|
10.0
|
|
|
1,249
|
|
$
|
2.90
|
|
Exercised
|
|
(30,000
|
)
|
|
7.98
|
|
|
|
|
|
24
|
|
|
|
|
Outstanding December 31, 2012
|
|
2,648,583
|
|
|
15.15
|
|
|
6.48
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2011
|
|
2,120,656
|
|
$
|
18.44
|
|
|
6.82
|
|
$
|
243
|
|
|
|
|
Granted under Plan: August 2011
|
|
165,000
|
|
|
6.59
|
|
|
10.00
|
|
|
297
|
|
$
|
1.80
|
|
Granted under Plan: October 2011
|
|
202,000
|
|
|
7.98
|
|
|
10.00
|
|
|
442
|
|
$
|
2.19
|
|
Outstanding December 31, 2011
|
|
2,487,656
|
|
$
|
16.81
|
|
|
6.81
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options have an exercise
price range of $6.59 to $24.46.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
1,588,583
|
|
|
18.00
|
|
|
5.34
|
|
|
90
|
|
|
|
|
During the three and six months
ended December 31, 2012, respectively, 159,666 and 244,666 stock options became
exercisable. During each of the three and six months ended December 31, 2011,
respectively, 102,333 stock options became exercisable. Included in the 244,666
stock options are 30,000 stock options with respect to which the Remuneration
Committee of the Board agreed to accelerate vesting, in August 2012, prior to
the resignation of a non-employee director. During the six months ended December
31, 2012, the Company received approximately $0.2 million from 30,000 stock
options exercised by the non-employee director that resigned. No stock options
were exercised during the three months ended December 31, 2012 or during the
three and six months ended December 31, 2011. The Company issues new shares to
satisfy stock option exercises.
Restricted
stock
The following table summarizes
restricted stock activity for the six months ended December 31, 2012 and
2011:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock
|
|
|
($000)
|
|
Non-vested June 30, 2012
|
|
646,617
|
|
|
|
|
Granted August 2012
|
|
21,569
|
|
$
|
189
|
|
Vested August 2012
|
|
(19,715
|
)
|
|
|
|
Forfeitures
|
|
(0
|
)
|
|
|
|
Non-vested December
31, 2012
|
|
648,471
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2011
|
|
103,672
|
|
|
-
|
|
Granted August 2011
|
|
30,155
|
|
$
|
199
|
|
Vested August 2011
|
|
(6,157
|
)
|
|
-
|
|
Vested November 2011
|
|
(27,667
|
)
|
|
-
|
|
Non-vested December
31, 2011
|
|
100,003
|
|
|
-
|
|
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 six months ended December 31, 2012 and 2011,
respectively, was $0 million and $0.2 million and $0.2 million and $0.3 million.
Included in the 19,715 shares of restricted stock that vested during the six
months ended December 31, 2012, are 8,547 shares with respect to which the
Remuneration Committee of the Board agreed to accelerate vesting prior to the
resignation of a non-employee director.
Stock-based compensation
charge and unrecognized compensation cost
The Company has recorded a stock
compensation charge of $1.1 million and $0.5 million for the three months ended
December 31, 2012 and 2011, respectively, which comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Three months ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,117
|
|
$
|
-
|
|
$
|
1,117
|
|
Total three months ended December 31, 2012 .
|
$
|
1,117
|
|
$
|
-
|
|
$
|
1,117
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
543
|
|
$
|
-
|
|
$
|
543
|
|
Total three months ended December 31, 2011 .
|
$
|
543
|
|
$
|
-
|
|
$
|
543
|
|
The Company has recorded a stock
compensation charge of $2.2 million and $1.0 million for the six months ended
December 31, 2012 and 2011, respectively, which comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Six months ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
2,233
|
|
$
|
-
|
|
$
|
2,233
|
|
Total six months ended December 31, 2012
|
$
|
2,233
|
|
$
|
-
|
|
$
|
2,233
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,039
|
|
$
|
-
|
|
$
|
1,039
|
|
Total six months ended December 31, 2011
|
$
|
1,039
|
|
$
|
-
|
|
$
|
1,039
|
|
The stock-based compensation
charges have been allocated to selling, general and administration based on the
allocation of the cash compensation paid to the employees.
As of December 31, 2012, the
total unrecognized compensation cost related to stock options was approximately
$1.7 million, which the Company expects to recognize over approximately three
years. As of December 31, 2012, the total unrecognized compensation cost related
to restricted stock awards was approximately $4.8 million, which the Company
expects to recognize over approximately three years.
As of December 31, 2012, the
Company has recorded a deferred tax asset of approximately $1.2 million related
to the stock-based compensation charge recognized related to employees and
directors of Net1 as it is able to deduct the grant date fair value for taxation
purposes in the United States.
13. Earnings per share
Basic earnings per share include
restricted stock awards that meet the definition of a participating security.
Restricted stock awards are eligible to receive non-forfeitable dividend
equivalents at the same rate as common stock. Basic earnings per share have been
calculated using the two-class method and basic earnings per share for the three
and six months ended December 31, 2012 and 2011, reflects only undistributed
earnings.
17
13. Earnings per share (continued)
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 six months ended December 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 December 31,
2012 and 2011, the vesting conditions in respect of a portion of the awards had
not been satisfied.
Options to purchase 11,560,863
shares of the Companys common stock at prices ranging from $6.59 to $24.46 per
share were outstanding during the three and six months ended December 31, 2012,
but have not been included in the computation of diluted earnings per share
because the options exercise prices were greater than the average market price
of the Companys common stock during the period. The options, which expire at
various dates through August 22, 2022, and include the 8,955,000 equity
instrument issued pursuant to BBBEE transaction, remained outstanding as of
December 31, 2012.
The following table details the
weighted average number of outstanding shares used for the calculation of
earnings per share for the three and six months ended December 31, 2012 and
2011:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
Weighted average number of outstanding
shares of common stock basic
|
|
45,545
|
|
|
44,935
|
|
|
45,530
|
|
|
44,996
|
|
Weighted average effect of dilutive securities: equity
instruments
|
|
22
|
|
|
32
|
|
|
48
|
|
|
30
|
|
Weighted average number of outstanding
shares of common stock diluted
|
|
45,567
|
|
|
44,967
|
|
|
45,578
|
|
|
45,026
|
|
14. Supplemental cash flow information
The following table presents the
supplemental cash flow disclosures for the three and six months ended December
31, 2012 and 2011:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Cash received from interest
|
$
|
2,584
|
|
$
|
1,780
|
|
$
|
5,709
|
|
$
|
4,489
|
|
Cash paid for interest
|
$
|
2,053
|
|
$
|
2,386
|
|
$
|
4,053
|
|
$
|
5,514
|
|
Cash paid for income taxes
|
$
|
10,137
|
|
$
|
16,974
|
|
$
|
10,479
|
|
$
|
20,755
|
|
15. Operating segments
The Company discloses segment
information as reflected in the management information systems reports that its
chief operating decision maker uses in making decisions and to report certain
entity-wide disclosures about products and services, major customers, and the
countries in which the entity holds material assets or reports material
revenues. A description of the Companys operating segments is contained in note
22 to the Companys audited consolidated financial statements included in its
Annual Report on Form 10-K for the year ended June 30, 2012.
The following tables summarize
segment information which is prepared in accordance with GAAP:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
60,764
|
|
$
|
46,448
|
|
$
|
122,128
|
|
$
|
96,350
|
|
International
transaction-based activities
|
|
33,113
|
|
|
28,835
|
|
|
64,762
|
|
|
59,090
|
|
Smart card accounts
|
|
8,219
|
|
|
7,264
|
|
|
16,583
|
|
|
15,516
|
|
Financial services
|
|
1,448
|
|
|
1,944
|
|
|
2,832
|
|
|
4,055
|
|
Hardware, software and related
technology sales
|
|
7,898
|
|
|
7,567
|
|
|
16,819
|
|
|
16,973
|
|
Total
|
$
|
111,442
|
|
$
|
92,058
|
|
$
|
223,124
|
|
$
|
191,984
|
|
18
15. Operating segments (continued)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-company revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
3,885
|
|
$
|
864
|
|
$
|
7,868
|
|
$
|
1,977
|
|
International
transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
401
|
|
|
281
|
|
|
787
|
|
|
281
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and related
technology sales
|
|
379
|
|
|
465
|
|
|
587
|
|
|
783
|
|
Total
|
|
4,665
|
|
|
1,610
|
|
|
9,242
|
|
|
3,041
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
1,933
|
|
|
15,766
|
|
|
8,333
|
|
|
35,949
|
|
International transaction-based
activities
|
|
202
|
|
|
241
|
|
|
31
|
|
|
925
|
|
Smart card accounts
|
|
2,342
|
|
|
3,302
|
|
|
4,727
|
|
|
7,052
|
|
Financial services
|
|
1,048
|
|
|
1,026
|
|
|
2,145
|
|
|
2,437
|
|
Hardware, software and
related technology sales
|
|
795
|
|
|
909
|
|
|
2,779
|
|
|
2,846
|
|
Corporate/Eliminations
|
|
(1,348
|
)
|
|
(1,016
|
)
|
|
(3,718
|
)
|
|
1,865
|
|
Total
|
|
4,972
|
|
|
20,228
|
|
|
14,297
|
|
|
51,074
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate/Eliminations
|
|
2,589
|
|
|
1,820
|
|
|
5,680
|
|
|
3,817
|
|
Total
|
|
2,589
|
|
|
1,820
|
|
|
5,680
|
|
|
3,817
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
202
|
|
|
112
|
|
|
345
|
|
|
188
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
44
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
2
|
|
|
-
|
|
|
2
|
|
Hardware, software and
related technology sales
|
|
56
|
|
|
13
|
|
|
126
|
|
|
23
|
|
Corporate/Eliminations
|
|
1,765
|
|
|
2,228
|
|
|
3,623
|
|
|
4,714
|
|
Total
|
|
2,023
|
|
|
2,355
|
|
|
4,094
|
|
|
4,971
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
3,289
|
|
|
2,109
|
|
|
6,430
|
|
|
4,251
|
|
International transaction-based
activities
|
|
7,025
|
|
|
6,270
|
|
|
13,704
|
|
|
12,919
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
97
|
|
|
74
|
|
|
184
|
|
|
191
|
|
Hardware, software and
related technology sales
|
|
76
|
|
|
150
|
|
|
173
|
|
|
321
|
|
Corporate/Eliminations
|
|
-
|
|
|
187
|
|
|
-
|
|
|
187
|
|
Total
|
|
10,487
|
|
|
8,790
|
|
|
20,491
|
|
|
17,869
|
|
Income taxation expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
483
|
|
|
4,383
|
|
|
2,236
|
|
|
10,014
|
|
International transaction-based
activities
|
|
(147
|
)
|
|
291
|
|
|
(580
|
)
|
|
626
|
|
Smart card accounts
|
|
655
|
|
|
924
|
|
|
1,323
|
|
|
1,975
|
|
Financial services
|
|
298
|
|
|
282
|
|
|
610
|
|
|
676
|
|
Hardware, software and
related technology sales
|
|
192
|
|
|
216
|
|
|
630
|
|
|
656
|
|
Corporate/Eliminations
|
|
1,490
|
|
|
(11,474
|
)
|
|
2,481
|
|
|
(8,773
|
)
|
Total
|
|
2,971
|
|
|
(5,378
|
)
|
|
6,700
|
|
|
5,174
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
1,247
|
|
|
11,270
|
|
|
5,751
|
|
|
25,747
|
|
International transaction-based
activities
|
|
492
|
|
|
120
|
|
|
835
|
|
|
553
|
|
Smart card accounts
|
|
1,686
|
|
|
2,377
|
|
|
3,402
|
|
|
5,077
|
|
Financial services
|
|
769
|
|
|
724
|
|
|
1,570
|
|
|
1,740
|
|
Hardware, software and
related technology sales
|
|
552
|
|
|
678
|
|
|
2,029
|
|
|
2,164
|
|
Corporate/Eliminations
|
|
(2,117
|
)
|
|
9,925
|
|
|
(4,214
|
)
|
|
9,581
|
|
Total
|
$
|
2,629
|
|
$
|
25,094
|
|
$
|
9,373
|
|
$
|
44,862
|
|
19
15. Operating segments (continued)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
1,375
|
|
$
|
1,196
|
|
$
|
4,969
|
|
$
|
1,784
|
|
International
transaction-based activities
|
|
4,067
|
|
|
3,704
|
|
|
6,770
|
|
|
7,455
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
127
|
|
|
144
|
|
|
272
|
|
|
217
|
|
Hardware, software and related technology
sales
|
|
28
|
|
|
76
|
|
|
39
|
|
|
130
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
5,597
|
|
$
|
5,120
|
|
$
|
12,050
|
|
$
|
9,586
|
|
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.
16. Income tax
Income tax in interim
periods
For the purposes of interim
financial reporting, the Company determines the appropriate income tax provision
by first applying the effective tax rate expected to be applicable for the full
fiscal year to ordinary income. This amount is then adjusted for the tax effect
of significant unusual or extraordinary items, for instance, changes in tax law,
valuation allowances and non-deductible transaction-related expenses that are
reported separately, and have an impact on the tax charge. The cumulative effect
of any change in the enacted tax rate, if and when applicable, on the opening
balance of deferred tax assets and liabilities is also included in the tax
charge as a discrete event in the interim period in which the enactment date
occurs.
For the three and six months
ended December 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 six months ended December 31, 2012, was 53.6% and 42.2%, respectively, and
was higher than the South African statutory rate primarily as a result of
non-deductible expenses (including interest expense related to the Companys
long-term Korean borrowings and stock-based compensation charges) and South
African dividend withholding taxes. The Companys effective tax rate for the
three and six months ended December 31, 2011, was -27.3% and 10.3%,
respectively, and was lower than the South African statutory rate as a result of
a change in South African tax law which resulted in a net deferred taxation
benefit and, related to the six months only, a non-taxable profit on liquidation
of SmartSwitch Nigeria, which was partially offset by non-deductible expenses
(including interest expense related to the Companys long-term Korean borrowings
and stock-based compensation charges) and the creation of a valuation
allowance.
Uncertain tax
positions
The Company decreased its
unrecognized tax benefits by $0.2 million during the six months ended December
31, 2012. There were no changes during the three months ended December 31, 2012.
As of December 31, 2012, the Company had accrued interest related to uncertain
tax positions of approximately $0.2 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, Botswana, the Russian Federation
and in the US federal jurisdiction. As of December 31, 2012, the Company is no
longer subject to any new income tax examination by the South African Revenue
Service for years before December 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, cash flows, or results of
operations.
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