Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
42,616
|
|
$
|
39,123
|
|
Pre-funded social welfare grants
receivable (Note 3)
|
|
6,954
|
|
|
9,684
|
|
Accounts receivable,
net of allowances of March: $3,272; June: $788
|
|
101,609
|
|
|
101,918
|
|
Finance loans receivable
|
|
8,773
|
|
|
8,141
|
|
Deferred expenditure on
smart cards
|
|
3,915
|
|
|
4,587
|
|
Inventory (Note 4)
|
|
8,415
|
|
|
6,192
|
|
Deferred income taxes
|
|
6,927
|
|
|
5,591
|
|
Total
current assets before settlement assets
|
|
179,209
|
|
|
175,236
|
|
Settlement assets (Note 5)
|
|
538,318
|
|
|
409,166
|
|
Total current assets
|
|
717,527
|
|
|
584,402
|
|
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF March: $85,318; June: $74,242
|
|
50,682
|
|
|
52,616
|
|
EQUITY-ACCOUNTED INVESTMENTS (Note 6)
|
|
1,112
|
|
|
1,508
|
|
GOODWILL (Note 7)
|
|
182,066
|
|
|
182,737
|
|
INTANGIBLE ASSETS, net (Note 7)
|
|
83,193
|
|
|
93,930
|
|
OTHER LONG-TERM ASSETS, including
reinsurance assets (Note 8)
|
|
38,426
|
|
|
40,700
|
|
TOTAL ASSETS
|
|
1,073,006
|
|
|
955,893
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
18,681
|
|
|
13,172
|
|
Other payables (Note 1)
|
|
33,324
|
|
|
40,167
|
|
Current portion of
long-term borrowings (Note 10)
|
|
14,502
|
|
|
14,019
|
|
Income taxes payable
|
|
5,879
|
|
|
6,019
|
|
Total current liabilities before settlement obligations
|
|
72,386
|
|
|
73,377
|
|
Settlement obligations (Note 5)
|
|
538,318
|
|
|
409,166
|
|
Total current liabilities
|
|
610,704
|
|
|
482,543
|
|
DEFERRED INCOME TAXES
|
|
20,033
|
|
|
20,988
|
|
LONG-TERM BORROWINGS (Note 10)
|
|
75,255
|
|
|
79,760
|
|
OTHER LONG-TERM LIABILITIES, including insurance policy
liabilities (Note 8)
|
|
23,331
|
|
|
25,791
|
|
TOTAL
LIABILITIES
|
|
729,323
|
|
|
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 - March: 45,742,707; 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: March:
-; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL (Note 1)
|
|
160,094
|
|
|
155,350
|
|
TREASURY SHARES, AT
COST: March: 13,455,090; June: 13,455,090
|
|
(175,823
|
)
|
|
(175,823
|
)
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
(88,275
|
)
|
|
(75,722
|
)
|
RETAINED EARNINGS
|
|
444,333
|
|
|
439,641
|
|
TOTAL NET1
EQUITY
|
|
340,388
|
|
|
343,505
|
|
NON-CONTROLLING INTEREST
|
|
3,295
|
|
|
3,306
|
|
TOTAL EQUITY
|
|
343,683
|
|
|
346,811
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
$
|
1,073,006
|
|
$
|
955,893
|
|
(A) Derived from audited financial statements (see Note 1)
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,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands, except per share data)
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
111,141
|
|
$
|
90,664
|
|
$
|
334,265
|
|
$
|
282,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, IT processing, servicing and support
|
|
51,461
|
|
|
32,493
|
|
|
143,789
|
|
|
99,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
|
53,846
|
|
|
36,368
|
|
|
149,854
|
|
|
92,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
10,560
|
|
|
9,325
|
|
|
31,051
|
|
|
27,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
(4,726
|
)
|
|
12,478
|
|
|
9,571
|
|
|
63,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
2,515
|
|
|
2,164
|
|
|
8,195
|
|
|
5,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
2,023
|
|
|
2,244
|
|
|
6,117
|
|
|
7,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
|
|
(4,234
|
)
|
|
12,398
|
|
|
11,649
|
|
|
62,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (note 16)
|
|
472
|
|
|
4,611
|
|
|
7,172
|
|
|
9,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME BEFORE EARNINGS (LOSS)
FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
(4,706
|
)
|
|
7,787
|
|
|
4,477
|
|
|
52,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM EQUITY- ACCOUNTED
INVESTMENTS (note 6)
|
|
22
|
|
|
(4
|
)
|
|
204
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
(4,684
|
)
|
|
7,783
|
|
|
4,681
|
|
|
52,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ADD) LESS NET (LOSS) INCOME ATTRIBUTABLE
TO NON-CONTROLLING INTEREST
|
|
(3
|
)
|
|
17
|
|
|
(11
|
)
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO NET1
|
$
|
(4,681
|
)
|
$
|
7,766
|
|
$
|
4,692
|
|
$
|
52,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, in United
States
dollars
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings attributable to Net1 shareholders
|
$
|
(0.10
|
)
|
$
|
0.17
|
|
$
|
0.10
|
|
$
|
1.17
|
|
Diluted
(loss) earnings attributable to Net1 shareholders
|
$
|
(0.10
|
)
|
$
|
0.17
|
|
$
|
0.10
|
|
$
|
1.17
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(4,684
|
)
|
$
|
7,783
|
|
$
|
4,681
|
|
$
|
52,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in assets available for
sale
|
|
-
|
|
|
-
|
|
|
258
|
|
|
|
|
Movement in
foreign currency translation reserve
|
|
(22,993
|
)
|
|
14,002
|
|
|
(12,811
|
)
|
|
(26,180
|
)
|
Total
other comprehensive (loss) income, net of taxes
|
|
(22,993
|
)
|
|
14,002
|
|
|
(12,553
|
)
|
|
(26,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
(27,677
|
)
|
|
21,785
|
|
|
(7,872
|
)
|
|
26,453
|
|
Less
(Add) comprehensive loss
(income)
attributable
to non-controlling interest
|
|
3
|
|
|
(17
|
)
|
|
11
|
|
|
122
|
|
Comprehensive (loss)
income
attributable to Net1
|
$
|
(27,674
|
)
|
$
|
21,768
|
|
$
|
(7,861
|
)
|
$
|
26,575
|
|
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. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
(loss)
|
|
|
Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,325
|
|
|
|
|
|
|
|
|
3,325
|
|
|
|
|
|
3,325
|
|
Utilization of APIC pool
related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vested restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
(5
|
)
|
Pbel acquisition (Note 2)
|
|
142,236
|
|
|
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
|
|
1,184
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,692
|
|
|
|
|
|
4,692
|
|
|
(11
|
)
|
|
4681
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,553
|
)
|
|
(12,553
|
)
|
|
|
|
|
(12,553
|
)
|
Balance March 31, 2013
|
|
59,197,797
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
$
|
160,094
|
|
$
|
444,333
|
|
$
|
(88,275
|
)
|
$
|
340,388
|
|
$
|
3,295
|
|
$
|
343,683
|
|
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,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(4,684
|
)
|
$
|
7,783
|
|
$
|
4,681
|
|
$
|
52,633
|
|
Depreciation and amortization
|
|
10,560
|
|
|
9,325
|
|
|
31,051
|
|
|
27,194
|
|
Earnings (Loss) from equity-accounted
investments
|
|
(22
|
)
|
|
4
|
|
|
(204
|
)
|
|
(100
|
)
|
Fair value adjustments
|
|
(299
|
)
|
|
(1,211
|
)
|
|
408
|
|
|
(1,983
|
)
|
Interest payable
|
|
1,054
|
|
|
694
|
|
|
3,363
|
|
|
4,469
|
|
Loss (Profit) on disposal of plant and equipment
|
|
3
|
|
|
(23
|
)
|
|
(83
|
)
|
|
(57
|
)
|
Net loss on sale of 10% of Smart Life
|
|
-
|
|
|
-
|
|
|
-
|
|
|
81
|
|
Profit on liquidation of SmartSwitch Nigeria
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,994
|
)
|
Realized loss on sale of Smart Life
investments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25
|
|
Stock-based compensation charge
|
|
1,092
|
|
|
843
|
|
|
3,325
|
|
|
1,882
|
|
Facility fee amortized
|
|
71
|
|
|
316
|
|
|
235
|
|
|
515
|
|
(Increase) Decrease in accounts receivable, pre- funded
social welfare grants receivable and finance loans receivable
|
|
(4,818
|
)
|
|
474
|
|
|
(3,987
|
)
|
|
(15,321
|
)
|
Decrease (Increase) in deferred expenditure
on smart cards
|
|
3,800
|
|
|
(56
|
)
|
|
99
|
|
|
(70
|
)
|
Decrease (Increase) in inventory
|
|
1,149
|
|
|
(862
|
)
|
|
(2,359
|
)
|
|
(261
|
)
|
Increase (Decrease) in accounts payable and
other payables
|
|
4,533
|
|
|
583
|
|
|
(1,755
|
)
|
|
(1,765
|
)
|
Increase (Decrease) in taxes payable
|
|
948
|
|
|
5,626
|
|
|
354
|
|
|
(5,336
|
)
|
Decrease in deferred taxes
|
|
(1,201
|
)
|
|
(1,532
|
)
|
|
(4,133
|
)
|
|
(14,928
|
)
|
Net cash provided by operating
activities
|
|
12,186
|
|
|
21,964
|
|
|
30,995
|
|
|
42,984
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(5,053
|
)
|
|
(13,879
|
)
|
|
(17,103
|
)
|
|
(23,465
|
)
|
Proceeds from disposal of property, plant
and equipment
|
|
31
|
|
|
117
|
|
|
387
|
|
|
385
|
|
Acquisitions, net of cash acquired (Note 2)
|
|
-
|
|
|
-
|
|
|
(2,143
|
)
|
|
-
|
|
Acquisition of prepaid business, net of
cash acquired
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,481
|
)
|
Acquisition of Smart Life, net of cash acquired
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,673
|
)
|
Acquisition of available for sale
securities
|
|
-
|
|
|
(948
|
)
|
|
-
|
|
|
(948
|
)
|
Settlement from former shareholders of KSNET
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,945
|
|
Repayment of loan by equity-accounted
investment
|
|
-
|
|
|
30
|
|
|
3
|
|
|
93
|
|
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
|
|
(156,363
|
)
|
|
95,165
|
|
|
(168,419
|
)
|
|
128,961
|
|
Net cash (used in) provided by
investing
activities
|
|
(161,385
|
)
|
|
80,485
|
|
|
(186,730
|
)
|
|
103,818
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term borrowings
|
|
-
|
|
|
(4,842
|
)
|
|
(7,307
|
)
|
|
(12,027
|
)
|
Proceeds from issue of common stock
|
|
-
|
|
|
-
|
|
|
240
|
|
|
-
|
|
Proceeds on sale of 10% of Smart Life
|
|
-
|
|
|
-
|
|
|
-
|
|
|
107
|
|
Acquisition of treasury stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,129
|
)
|
Net change in settlement obligations
|
|
156,363
|
|
|
(95,165
|
)
|
|
168,419
|
|
|
(128,961
|
)
|
Net cash provided by
(used in) financing
activities
|
|
156,363
|
|
|
(100,007
|
)
|
|
161,352
|
|
|
(142,010
|
)
|
Effect of exchange rate changes on cash
|
|
(2,664
|
)
|
|
4,944
|
|
|
(2,124
|
)
|
|
(11,805
|
)
|
Net increase (decrease) in cash and
cash
equivalents
|
|
4,500
|
|
|
7,386
|
|
|
3,493
|
|
|
(7,013
|
)
|
Cash and cash equivalents beginning of period
|
|
38,116
|
|
|
80,864
|
|
|
39,123
|
|
|
95,263
|
|
Cash and cash equivalents end of
period
|
$
|
42,616
|
|
$
|
88,250
|
|
$
|
42,616
|
|
$
|
88,250
|
|
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, 2013 and 2012
(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, 2013 and 2012, 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 its condensed consolidated balance sheet as of June 30, 2012, and the
opening balance as of July 1, 2012, on its condensed consolidated statement of
changes in equity included in this quarterly report on Form 10-Q for this
misclassification. 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 2012, the Financial
Accounting Standards Board (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 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 March 31, 2013
In February 2013, the FASB issued
guidance regarding
Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income
. This guidance requires entities to present (either on
the face of the statement of operations or in the notes) the effects on the line
items of the statement of operations for amounts reclassified out of accumulated
other comprehensive income. The guidance is effective for the Company beginning
July 1, 2013. Early adoption is permitted. Other than requiring additional
disclosures, the Company does not anticipate a material impact on its financial
statements upon adoption.
In March 2013, the FASB issued
guidance regarding
Parents Accounting for the Cumulative Translation
Adjustment Upon Derecognition of Certain Subsidiaries or Group of Assets Within
a Foreign Entity or of an Investment in a Foreign Entity
. This guidance
requires that the parent release any related cumulative translation adjustment
into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary
or group of assets had resided. The guidance is effective for the Company
beginning July 1, 2014. Early adoption is permitted. The Company is currently
evaluating the impact of this guidance on its financial statements on adoption.
7
2. Acquisitions
The net cash paid related to the
Companys various acquisitions that are discussed below during the nine months
ended March 31, 2013 are summarized in the table below:
|
|
2013
|
|
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.
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 re-measurement of
previously held interest in 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 March 31, 2013, 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 was paid by issuing 142,236 shares of the Companys common stock, which
are earned by the sellers to the extent that Pbel achieves certain pre-defined
financial performance milestones over the next three years. The 142,236 shares
are divided into three equal tranches of 47,412 shares and the sellers earn the
shares for each tranche only if the milestones for that particular tranche are
achieved. However, the sellers will be entitled to earn 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. During the three months ended March 31, 2013, Pbel achieved its
predefined financial performance milestones for the first year and the sellers
earned 47,412 shares of the Companys common stock.
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.
8
2. Acquisitions (continued)
Pbel (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
|
$
|
731
|
|
Accounts receivable, net
|
|
152
|
|
Other current assets
|
|
10
|
|
Property, plant and equipment, net
|
|
92
|
|
Intangible assets (Note 7)
|
|
1,785
|
|
Goodwill (Note 7)
|
|
1,691
|
|
Other payables
|
|
(41
|
)
|
Income taxes payable
|
|
(91
|
)
|
Deferred tax liabilities
|
|
(500
|
)
|
Total purchase price
|
$
|
3,829
|
|
The preliminary purchase price
allocation is based on management estimates as of March 31, 2013, 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 nine months ended March 31, 2013, 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 incurred a net
loss, after acquired intangible asset amortization, net of taxation, of $0.3
million and $0.01 million, respectively, for the three months ended March 31,
2013, and revenue and net income of $0.4 million and $0.01 million,
respectively, for the nine months ended March 31, 2013. 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 $0.4 million and
$0.1 million, respectively, for the three months ended March 31, 2013, and
revenue and net loss of $0.7 million and $0.2 million, respectively, for the
nine months ended March 31, 2013.
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 2013 payment service
commenced on April 1, 2013, but the Company pre-funded certain merchants
participating in the merchant acquiring system during the last two days of March
2013.
4. Inventory
The Companys inventory comprised the following categories as
of March 31, 2013 and June 30, 2012.
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Raw materials
|
$
|
14
|
|
$
|
30
|
|
Finished goods
|
|
8,401
|
|
|
6,162
|
|
|
$
|
8,415
|
|
$
|
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.
9
5. Settlement assets and settlement obligations (continued)
Settlement obligations comprise
(1) amounts that the Company is obligated to disburse to beneficiaries of social
welfare grants, (2) amounts which are due to health care service providers after
claims have been adjudicated and reconciled, provided that the Company shall
have previously received such funds from health care plan customers and (3)
amounts that the Company is obligated to pay to customer employees,
payroll-related payees and other payees designated by the customer.
The balances at each reporting
date may vary widely depending on the timing of the receipts and payments of
these assets and obligations
6. Fair value of financial instruments and equity-accounted
investments
Fair value of financial
instruments
Risk
management
The Company seeks to reduce its
exposure to currencies other than the South African rand through a policy of
matching, to the extent possible, assets and liabilities denominated in those
currencies. In addition, the Company uses financial instruments in order to
economically hedge its exposure to exchange rate and interest rate fluctuations
arising from its operations. The Company is also exposed to equity price and
liquidity risks as well as credit risks.
Currency
exchange risk
The Company is subject to
currency exchange risk because it generates the majority of its cash in South
African rand and purchases inventories and services 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 Company had no outstanding
foreign exchange contracts as of March 31, 2013, and June 30, 2012.
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.
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 156,788,712 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. Finbond was recently
issued a mutual banking licence and intends to offer financial products under
this licence. 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 March 31, 2013, 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 March 31, 2013 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
|
$
|
1,938
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,938
|
|
Investment in Finbond (available for sale assets included
in other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,027
|
|
|
8,027
|
|
Other
|
|
-
|
|
|
271
|
|
|
-
|
|
|
271
|
|
Total assets at fair value
|
$
|
1,938
|
|
$
|
271
|
|
$
|
8,027
|
|
$
|
10,236
|
|
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 when they are
deemed to be other-than-temporarily impaired. The Company has no liabilities
that are measured at fair value on a nonrecurring basis.
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 nine months ended
March 31, 2013, 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 nine months
ended March 31, 2013.
During the nine months ended
March 31, 2013, 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 nine months ended March 31, 2013, 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 March 31, 2013:
|
|
Loss
|
|
|
Elimination
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from equity- accounted
investments
|
$
|
17
|
|
$
|
5
|
|
|
$
|
22
|
|
SmartSwitch Namibia
|
|
50
|
|
|
5
|
|
|
|
55
|
|
Netpay
|
$
|
(33
|
)
|
$
|
-
|
|
|
$
|
(33
|
)
|
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 March 31, 2013:
|
|
|
|
|
|
|
|
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 (loss) from equity- accounted
investments
|
|
-
|
|
|
-
|
|
|
189
|
|
|
15
|
|
|
|
204
|
|
SmartSwitch Namibia
(1)
|
|
-
|
|
|
-
|
|
|
185
|
|
|
15
|
|
|
|
200
|
|
SmartSwitch
Botswana
(1)
|
|
-
|
|
|
-
|
|
|
37
|
|
|
-
|
|
|
|
37
|
|
Netpay
(1)
|
|
-
|
|
|
-
|
|
|
(33
|
)
|
|
-
|
|
|
|
(33
|
)
|
Foreign currency adjustment
(2)
|
|
(195
|
)
|
|
1
|
|
|
49
|
|
|
7
|
|
|
|
(138
|
)
|
Consolidation of SmartSwitch Botswana (Note 2)
|
|
(1,161
|
)
|
|
-
|
|
|
675
|
|
|
-
|
|
|
|
(486
|
)
|
Balance as of March 31, 2013
|
$
|
2,242
|
|
$
|
1,417
|
|
$
|
(2,498
|
)
|
$
|
(49
|
)
|
|
$
|
1,112
|
|
(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 nine months
ended March 31, 2013 and 2012.
7. Goodwill and intangible assets
Goodwill
Summarized below is the movement
in the carrying value of goodwill for the nine months ended March 31, 2013:
|
|
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)
|
|
(3,019
|
)
|
Balance as of March 31, 2013
|
$
|
182,066
|
|
(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
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
32,665
|
|
$
|
34,692
|
|
International transaction-based activities
|
|
116,304
|
|
|
111,798
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
33,097
|
|
|
36,247
|
|
Total
|
$
|
182,066
|
|
$
|
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 March 31, 2013
and June 30, 2012:
|
|
As
of March 31, 2013
|
|
|
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)
|
$
|
93,182
|
|
$
|
(28,675
|
)
|
$
|
64,507
|
|
$
|
91,692
|
|
$
|
(22,617
|
)
|
$
|
69,075
|
|
Software and unpatented technology(1)
|
|
36,216
|
|
|
(21,628
|
)
|
|
14,588
|
|
|
36,082
|
|
|
(15,968
|
)
|
|
20,114
|
|
FTS patent
|
|
4,144
|
|
|
(4,144
|
)
|
|
-
|
|
|
4,623
|
|
|
(4,623
|
)
|
|
-
|
|
Exclusive
licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
Trademarks
|
|
6,891
|
|
|
(2,793
|
)
|
|
4,098
|
|
|
7,125
|
|
|
(2,507
|
)
|
|
4,618
|
|
Customer
database
|
|
657
|
|
|
(657
|
)
|
|
-
|
|
|
734
|
|
|
(611
|
)
|
|
123
|
|
Total finite-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangible assets
|
$
|
145,596
|
|
$
|
(62,403
|
)
|
$
|
83,193
|
|
$
|
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 nine months ended March 31,
2013, was approximately $4.4 million and $14.0 million, respectively (three and
nine months ended March 31, 2012, was approximately $5.0 million and $14.1
million, respectively).
Future estimated annual
amortization expense for the next five fiscal years and thereafter, assuming
exchange rates prevailing on March 31, 2013, is presented in the table below.
Actual amortization expense in future periods could differ from this estimate as
a result of acquisitions, changes in useful lives, exchange rate fluctuations
and other relevant factors.
2013
|
$
|
17,369
|
|
2014
|
|
15,412
|
|
2015
|
|
15,354
|
|
2016
|
|
11,019
|
|
2017
|
|
8,684
|
|
Thereafter
|
$
|
28,868
|
|
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, 2013:
|
|
March 31, 2013
|
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
Balance as of June 30, 2012
|
$
|
23,595
|
|
|
($23,701
|
)
|
Foreign currency adjustment
(3)
|
|
(2,443
|
)
|
|
2,454
|
|
Balance
as of March 31, 2013
|
$
|
21,152
|
|
|
($21,247
|
)
|
|
(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 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.
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 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
nine months ended March 31, 2013:
|
|
March 31, 2013
|
|
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balances as of June 30, 2012
|
$
|
1,109
|
|
|
($1,109
|
)
|
Foreign currency adjustment
(3)
|
|
(115
|
)
|
|
115
|
|
Balance
as of March 31, 2013
|
$
|
994
|
|
|
($994
|
)
|
(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
($27 million, translated at exchange rates applicable as of March 31, 2013)
short-term South African credit facility. As of March 31, 2013, 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 March 31, 2013, 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
($89.8 million, translated at exchange rates applicable as of March 31, 2013)
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 March
31, 2013, is $89.8 million. As of March 31, 2013, the carrying amount of the
long-term borrowings approximated fair value. The interest rate in effect on
March 31, 2013, was 6.94%. Interest expense during the three and nine months
ended March 31, 2013 and 2012, was $1.7 million and $5.3 million; and $2.1
million and $6.7 million, respectively.
The fourth and fifth scheduled
principal repayments are $7.3 million each, translated at exchange rates
applicable as of March 31, 2013, 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 and
an unscheduled $4.8 million principal payment was paid in on January 30, 2012,
with the proceeds of the net settlement received from the former shareholders of
KSNET
11. Capital structure
Common stock repurchases
The Company did not repurchase
any of its shares during the three and nine months ended March 31, 2013, and
during the three months ended March 31, 2012, respectively. The Company
repurchased 180,656 shares during the nine months ended March 31, 2012, 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 nine months ended March 31, 2013 and 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
|
|
|
10.00
|
|
|
1,249
|
|
$
|
2.90
|
|
Exercised
|
|
(30,000
|
)
|
|
7.98
|
|
|
|
|
|
24
|
|
|
|
|
Outstanding March 31, 2013
|
|
2,648,583
|
|
$
|
15.15
|
|
|
6.23
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
March 31, 2012
|
|
2,487,656
|
|
$
|
16.81
|
|
|
6.55
|
|
$
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These options have an
exercise price range of $6.59 to $24.46.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
1,588,583
|
|
$
|
18.00
|
|
|
5.09
|
|
$
|
233
|
|
|
|
|
During the nine months ended
March 31, 2013 and 2012, respectively, 244,666 and 102,333 stock options became
exercisable. No stock options became exercisable during the three months ended
March 31, 2013 and 2012, respectively. 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 nine months ended March 31, 2013, 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 March 31, 2013 or during the three and nine months
ended March 31, 2012. 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, 2013 and 2012:
|
|
|
|
|
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
|
)
|
|
|
|
Vested February 2013
|
|
(183,333
|
)
|
|
|
|
Non-vested March 31, 2013
|
|
465,138
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested June 30, 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
|
|
|
-
|
|
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, 2013 and 2012,
respectively, was $1.0 million and $1.2 million and $0.0 million and $0.3
million. Included in the 19,715 shares of restricted stock that vested in August
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 $0.8 million for the three months ended
March 31, 2013 and 2012, 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 March 31,
2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
1,092
|
|
$
|
-
|
|
$
|
1,092
|
|
|
Total
three months ended March 31, 2013
|
$
|
1,092
|
|
$
|
-
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
843
|
|
$
|
-
|
|
$
|
843
|
|
|
Total
three months ended March 31, 2012
|
$
|
843
|
|
$
|
-
|
|
$
|
843
|
|
The Company has recorded a stock
compensation charge of $3.3 million and $1.9 million for the nine months ended
March 31, 2013 and 2012, respectively, which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Nine months ended March 31,
2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation charge
|
$
|
3,325
|
|
$
|
-
|
|
$
|
3,325
|
|
|
Total
nine months ended March 31, 2013
|
$
|
3,325
|
|
$
|
-
|
|
$
|
3,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 March 31, 2013, the total
unrecognized compensation cost related to stock options was approximately $1.5
million, which the Company expects to recognize over approximately three years.
As of March 31, 2013, the total unrecognized compensation cost related to
restricted stock awards was approximately $4.2 million, which the Company
expects to recognize over approximately two years.
As of March 31, 2013, the Company
has recorded a deferred tax asset of approximately $1.3 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 nine months ended March 31, 2013 and 2012, 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 nine months ended March 31, 2013 and 2012, 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, 2013
and 2012, the vesting conditions in respect of a portion of the awards had not
been satisfied.
Options to purchase 11,560,863
and 11,505,863 shares of the Companys common stock at prices ranging from $6.59
to $24.46 per share were outstanding during the three and nine months ended
March 31, 2013, respectively, 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 March 31, 2013.
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, 2013 and 2012:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
Weighted average number of outstanding
shares of common stock basic
|
|
45,561
|
|
|
45,268
|
|
|
45,541
|
|
|
45,084
|
|
Weighted average effect of dilutive securities: equity
instruments
|
|
48
|
|
|
107
|
|
|
47
|
|
|
56
|
|
Weighted average number of outstanding
shares of common stock diluted
|
|
45,609
|
|
|
45,375
|
|
|
45,588
|
|
|
45,140
|
|
14. Supplemental cash flow information
The following table presents the
supplemental cash flow disclosures for the three and nine months ended March 31,
2013 and 2012:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Cash received from interest
|
$
|
2,395
|
|
$
|
2,169
|
|
$
|
8,104
|
|
$
|
6,658
|
|
Cash paid for interest
|
$
|
2,020
|
|
$
|
2,202
|
|
$
|
6,073
|
|
$
|
7,716
|
|
Cash paid for income taxes
|
$
|
1,701
|
|
$
|
503
|
|
$
|
12,180
|
|
$
|
21,258
|
|
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
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
59,009
|
|
$
|
46,423
|
|
$
|
181,137
|
|
$
|
142,773
|
|
International
transaction-based activities
|
|
33,119
|
|
|
28,188
|
|
|
97,881
|
|
|
87,278
|
|
Smart card accounts
|
|
8,657
|
|
|
7,558
|
|
|
25,240
|
|
|
23,074
|
|
Financial services
|
|
1,651
|
|
|
2,289
|
|
|
4,483
|
|
|
6,344
|
|
Hardware, software and related
technology sales
|
|
8,705
|
|
|
6,206
|
|
|
25,524
|
|
|
23,179
|
|
Total
|
$
|
111,141
|
|
$
|
90,664
|
|
$
|
334,265
|
|
$
|
282,648
|
|
18
15. Operating segments (continued)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-company revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
$
|
1,492
|
|
$
|
993
|
|
$
|
9,360
|
|
$
|
2,970
|
|
International
transaction-based activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
308
|
|
|
390
|
|
|
1,095
|
|
|
671
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and related
technology sales
|
|
135
|
|
|
362
|
|
|
722
|
|
|
1,145
|
|
Total
|
|
1,935
|
|
|
1,745
|
|
|
11,177
|
|
|
4,786
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
(4,197
|
)
|
|
8,694
|
|
|
4,136
|
|
|
44,643
|
|
International transaction-based
activities
|
|
(1,362
|
)
|
|
195
|
|
|
(1,331
|
)
|
|
1,120
|
|
Smart card accounts
|
|
2,467
|
|
|
3,435
|
|
|
7,194
|
|
|
10,487
|
|
Financial services
|
|
1,147
|
|
|
1,248
|
|
|
3,292
|
|
|
3,685
|
|
Hardware, software and
related technology sales
|
|
1,699
|
|
|
(1,301
|
)
|
|
4,478
|
|
|
1,545
|
|
Corporate/Eliminations
|
|
(4,480
|
)
|
|
207
|
|
|
(8,198
|
)
|
|
2,072
|
|
Total
|
|
(4,726
|
)
|
|
12,478
|
|
|
9,571
|
|
|
63,552
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate/Eliminations
|
|
2,515
|
|
|
2,164
|
|
|
8,195
|
|
|
5,981
|
|
Total
|
|
2,515
|
|
|
2,164
|
|
|
8,195
|
|
|
5,981
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
244
|
|
|
125
|
|
|
589
|
|
|
313
|
|
International transaction-based
activities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
44
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2
|
|
Hardware, software and
related technology sales
|
|
81
|
|
|
3
|
|
|
207
|
|
|
26
|
|
Corporate/Eliminations
|
|
1,698
|
|
|
2,116
|
|
|
5,321
|
|
|
6,830
|
|
Total
|
|
2,023
|
|
|
2,244
|
|
|
6,117
|
|
|
7,215
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
3,198
|
|
|
2,172
|
|
|
9,628
|
|
|
6,423
|
|
International transaction-based
activities
|
|
7,049
|
|
|
6,746
|
|
|
20,753
|
|
|
19,665
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
163
|
|
|
78
|
|
|
347
|
|
|
269
|
|
Hardware, software and
related technology sales
|
|
150
|
|
|
153
|
|
|
323
|
|
|
474
|
|
Corporate/Eliminations
|
|
-
|
|
|
176
|
|
|
-
|
|
|
363
|
|
Total
|
|
10,560
|
|
|
9,325
|
|
|
31,051
|
|
|
27,194
|
|
Income taxation (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
(1,245
|
)
|
|
2,526
|
|
|
991
|
|
|
12,540
|
|
International transaction-based
activities
|
|
(587
|
)
|
|
(88
|
)
|
|
(1,167
|
)
|
|
538
|
|
Smart card accounts
|
|
691
|
|
|
962
|
|
|
2,014
|
|
|
2,937
|
|
Financial services
|
|
327
|
|
|
349
|
|
|
937
|
|
|
1,025
|
|
Hardware, software and
related technology sales
|
|
409
|
|
|
(339
|
)
|
|
1,039
|
|
|
317
|
|
Corporate/Eliminations
|
|
877
|
|
|
1,201
|
|
|
3,358
|
|
|
(7,572
|
)
|
Total
|
|
472
|
|
|
4,611
|
|
|
7,172
|
|
|
9,785
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
(3,199
|
)
|
|
6,044
|
|
|
2,552
|
|
|
31,791
|
|
International transaction-based
activities
|
|
(642
|
)
|
|
405
|
|
|
193
|
|
|
958
|
|
Smart card accounts
|
|
1,776
|
|
|
2,473
|
|
|
5,178
|
|
|
7,550
|
|
Financial services
|
|
839
|
|
|
898
|
|
|
2,409
|
|
|
2,638
|
|
Hardware, software and
related technology sales
|
|
1,210
|
|
|
(963
|
)
|
|
3,239
|
|
|
1,201
|
|
Corporate/Eliminations
|
|
(4,665
|
)
|
|
(1,091
|
)
|
|
(8,879
|
)
|
|
8,490
|
|
Total
|
$
|
(4,681
|
)
|
$
|
7,766
|
|
$
|
4,692
|
|
$
|
52,628
|
|
19
15. Operating segments (continued)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based
activities
|
$
|
2,583
|
|
$
|
10,185
|
|
$
|
7,552
|
|
$
|
11,969
|
|
International transaction-based activities
|
|
2,074
|
|
|
3,587
|
|
|
8,844
|
|
|
11,042
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Financial services
|
|
357
|
|
|
97
|
|
|
629
|
|
|
314
|
|
Hardware, software and related
technology sales
|
|
39
|
|
|
10
|
|
|
78
|
|
|
140
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
5,053
|
|
$
|
13,879
|
|
$
|
17,103
|
|
$
|
23,465
|
|
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 nine months
ended March 31, 2013, the tax charge was calculated using the expected effective
tax rate for the year. The Companys effective tax rate for the three months
ended March 31, 2013, was (11.1%) and is negative as a result of the loss before
income taxes and differed from the South African statutory rate primarily as a
result of a valuation allowance for foreign tax credits, 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 nine months ended March 31,
2013, was 61.6% and was higher than the South African statutory rate primarily
as a result of a valuation allowance for foreign tax credits, 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 months ended March 31, 2012, was 37.19% and was higher than the
South African statutory rate as a result of non-deductible expenses (including
interest expense related to the Companys long-term Korean borrowings and
stock-based compensation charges). The Companys effective tax rate for the nine
months ended March 31, 2012, was 15.7% 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, 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 nine months ended March 31,
2013. There were no changes during the three months ended March 31, 2013. As of
March 31, 2013, 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.
20
16. Income tax (continued)
Uncertain tax positions (continued)
The Company files income tax
returns mainly in South Africa, Korea, Austria, Botswana, the Russian Federation
and in the US federal jurisdiction. As of March 31, 2013, the Company is no
longer subject to any new income tax examination by the South African Revenue
Service for years before March 31, 2009. In 2011, the Korea National Tax Service
had 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.
17. Subsequent events
On April 19, 2013, the one-year
option granted to a black economic empowerment consortium pursuant to a
broad-based black economic empowerment transaction that the Company entered into
on January 25, 2012, to purchase 8,955,000 shares of Company common stock at an
exercise price of $8.96 per share expired unexercised. The fair value of the
option was determined as approximately $14.2 million and was expensed in full
during the year ended June 30, 2012 because the option vested immediately on the
grant date. Accordingly, the expense recorded during the year ended June 30,
2012, will not be reversed during the year ended June 30, 2013, because the
option had vested in full on the grant date.
21
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, 2012, 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, 2012 and in our Form 10-Q for the quarters ended September 30, 2012 and
December 31, 2012, and Item 1ARisk Factors and elsewhere in those Form 10-Qs.
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 African Supreme
Court of Appeal ruling
On March 27, 2013, a full bench
of the South African Supreme Court of Appeal dismissed the appeal by AllPay
Consolidated Investment Holdings (Pty) Ltd, or AllPay, against the earlier
ruling by the North Gauteng High Court that the award to us of the tender by the
South African Social Security Agency, or SASSA, would not be set aside. The
Supreme Court also upheld our and SASSAs appeal against the High Courts orders
that the process conducted in awarding the contract was illegal and invalid and
that we and SASSA pay AllPays costs occasioned by the court proceedings. The
Supreme Court also ordered AllPay to pay our and SASSAs costs occasioned by the
court proceedings, including the cost of three counsel. The judges presiding at
the Supreme Court hearing unanimously ruled that there were no unlawful
irregularities in the tender process followed by SASSA. Accordingly, our SASSA
contract to distribute social welfare grants to ten million South Africans every
month, for a period of five years, remains in full force and effect. On April
18, 2013, AllPay applied for leave to appeal to the South African Constitutional
Court, the highest court in the country, against the judgment of the Supreme
Court. We and SASSA have opposed AllPays application. AllPays previous
approach to the Constitutional Court, before the Supreme Court hearing and
ruling, was rejected at that time. We cannot predict if AllPays leave to appeal
will be granted or if it is granted, when or how the Constitutional Court would
rule on the matter. See Part II, Item 1Legal Proceedings.
Government
investigations
We are continuing to cooperate
with the investigations being conducted by the U.S. Department of Justice, or
DOJ, and the Securities and Exchange Commission, or SEC, that we have previously
disclosed. We have produced documents and information to the DOJ and the SEC
relating to their investigations and expect to continue to produce documents
over the coming months. We also expect that the DOJ and the SEC will conduct
interviews of some of our personnel as part of their investigations. See also
Part II, Item 1ARisk Factors.
In addition, on February 14,
2013, we filed an application pursuant to Section 34 of the South African
Prevention of Corrupt Activities Act in South Africa with the South African
Police Service. Section 34 deals with the reporting of suspected fraud, theft,
extortion and forgery. Matters reported under Section 34 are usually referred
for investigation to the South African Directorate for Priority Crime
Investigation, known as the Hawks. We filed the Section 34 application to prompt
the Hawks to conduct an investigation into who may have made corruption
allegations that appeared in the South African media after we were awarded the
SASSA tender in January 2012. The Hawks have confirmed to us that our Section 34
application has been accepted for investigation. We have provided certain
electronic information to the Hawks at their request and we will cooperate with
the Hawks in their investigation.
22
Suit against AllPay
We have sued AllPay alleging
unlawful competition, and are seeking damages. See Part II, Item 1Legal
Proceedings.
South Africa
SASSA
We commenced the second phase of
the enrollment process in early July 2012 and substantially completed bulk
enrollment by March 31, 2013, in accordance with the implementation plan agreed
with SASSA. Under our agreement with SASSA, we have to enroll both the grant
recipients (those individuals who receive the actual payment and are issued with
our UEPS/EMV smart card), as well as the grant beneficiaries (those individuals
who have qualified for the social grant, but are not necessarily the recipient
of the grant). By way of example, a parent who has three children and receives a
grant for all three children is the grant recipient, while the three children
are each classified individually as grant beneficiaries. In this case, we
capture the personal and biometric information of the parent and three children,
but only the parent is issued with an UEPS/EMV smart card.
While the number of grant
recipients on a national basis has consistently been quantified by SASSA at
approximately 9.4 million individuals, the number of beneficiaries was revised
higher by SASSA from an initial estimate of approximately 15.5 million, to the
current estimate of approximately 21.6 million. In order to complete the second
phase of the implementation on time, and given the significantly higher number
of beneficiaries, we increased the number of temporary employees that we hired
in the second quarter of fiscal 2013 from 2,500 to approximately 5,500 and
retained the higher employee base through all of the third quarter of fiscal
2013. Having substantially concluded bulk enrollment by March 31, 2013, our
temporary employee headcount has since declined to approximately 3,000 at April
30, 2013.
During the third quarter of
fiscal 2013, we enrolled a further 5.8 million grant recipients and an
additional 6.7 million beneficiaries. Accordingly, as of March 31, 2013, we had
enrolled a total of 19.0 million people which comprises approximately 8.5
million grant recipients and 10.5 million beneficiaries associated with these
recipients in accordance with our second phase enrollment schedule, and issued
them our UEPS/EMV smart card.
During March 2013, the Minister
of Social Development and SASSA announced that the deadline for the enrollment
of grant recipients would be extended to April 30, 2013. We therefore continued
with the enrollment process for the month of April 2013 and expect no further
extensions to be granted by the Minister and SASSA. Those beneficiaries who have
not presented themselves for enrollment at the end of April 2013 will receive
grant cancellation notices. This may result in the final total number of
enrolled grant recipients and cardholders being less than the numbers provided
in the original database.
The graph below presents our
enrollment progress from inception to April 30, 2013:
23
There is a time lag between when
a current grant recipient is issued a UEPS/EMV card and when the recipient
receives grants onto the UEPS/EMV smart card. For instance, recipients enrolled
in March 2013 and issued a UEPS/EMV smart card were only paid onto that card in
the April 2013 pay cycle. When a new grant recipient is approved by SASSA, the
recipient is enrolled, issued a UEPS/EMV smart card and immediately paid on this
card. We are paid by SASSA for each recipient paid by us, regardless of type of
card or channel and therefore for the month of March 2013, we earned revenue
from SASSA based on the distribution of grants to 9,602,639 recipients.
During the third quarter of
fiscal 2013, we incurred direct implementation expenses of approximately $16.1
million (ZAR 140.5 million), including staff, travel, temporary infrastructure
hire, fixed premises hire for enrollment and stationery 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 contract.
We also expensed $4.5 million
(ZAR 39.3 million) related to the cost of the UEPS/EMV smart cards issued during
the quarter, which is not included in the $16.1 million (ZAR 140.5 million) of
direct implementation expenses described above. During the year to date fiscal
2013, we have incurred direct implementation expenses of $48.2 million (ZAR
414.2 million) and UEPS/EMV smart card expenses of $9.2 million (ZAR 79.9
million).
We also incurred approximately
$1.4 million in capital expenditures related to the implementation during the
third quarter of fiscal 2013. Since inception of the implementation we have
incurred cumulative capital expenditures of $26.6 million. We have substantially
completed the bulk enrollment of recipients and beneficiaries and do not expect
any further significant capital expenditures related to this process and expect
our cumulative capital expenditure to remain below our prior estimate of $30
million.
See Part II, Item 1Legal Proceedings for an update on legal
proceedings associated with our SASSA contract.
Smart
Life life license
During January 2013, the South
African Financial Services Board, or FSB, suspended Smart Lifes life insurance
license and prohibited it from writing any new long-term insurance policies in
South Africa. We are currently preparing a submission to the FSB to uplift the
suspension, but we cannot predict what the outcome will be.
Outside South Africa
XeoHealth
The commencement of the recovery
audit contractor, or RAC, services and desk review recovery referrals identified
through our XeoRules
TM
engine for Cognosante in North Dakota has been
delivered and Cognosante has commenced issuing recovery letters to providers.
Under our contract, we are compensated based on a percentage of the final
recoveries identified by our XeoRules claim re-adjudicating service for the
audit period of five years, as well as the desk review recovery referrals
identified through our XeoRules engine. XeoHealth now expects to recognize
revenues related to these activities in the fourth quarter of fiscal 2013. We
are currently unable to quantify the value of RAC service revenues to be
recognized during any particular future quarter.
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. We
have recently completed the business rules and audit findings and received
approval from the State of Missouri Medicaid which enabled us to commence
performing the required services in the third quarter of fiscal 2013. The
results have been delivered to Cognosante for cycle 1 and recovery letters are
being issued to providers. Similar to North Dakota, 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.
XeoHealth has been requested by
the Department of Behavioral Health and Intellectual Disability Services of
Philadelphia, or DBHIDS, to expand the current services offered to Community
Behavioral Health, or CBH, to individual practices contracted to DBHIDS for
delivery of Office of Mental Health services as a result of the impact that
XeoRules has had on CBH. XeoHealth is currently engaging DBHIDS in this regard.
Mobile
Virtual Card
During the second quarter of
fiscal 2013, we integrated and combined some of our legacy business units with
Pbel to create our Mobile Solutions business unit. The Mobile Solutions unit is
responsible for the coordination, support and growth of our MVC activities
globally. We continue to engage with a number of interested parties regarding
our MVC technology and have commenced software and system development to
introduce VCPay in Spain and, along with our partners, in India.
24
The
African Continent and Iraq
During the third quarter of
fiscal 2013, NUETS was informed in writing by International Smart Card LLC, or
ISC, its customer in Iraq, that it would not renew its contracts with NUETS upon
their expiration. As a result, NUETS stopped processing transactions for its
Iraqi customer at the end of February 2013, but has some minor remaining
contractual commitments over the next several months. In addition, ISC has not
paid several outstanding invoices and we have provided an amount of $2.3 million
as doubtful debts. We have instituted debt recovery procedures to recover the
outstanding amounts but we cannot predict the outcome, or timing, of these
procedures. NUETS continued to service its current customers on the African
continent and continued its business development efforts, including responding
to a number of tenders, in multiple countries on the African continent during
the year.
Our partnership with MasterCard
may also bring us additional business development opportunities for current or
future MasterCard member banks who seek the offline and additional functionality
incorporated in our new UEPS/EMV payment technology.
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, 2012:
-
Deferred taxation;
-
Stock-based compensation and equity instrument issued pursuant to BBBEE
transaction;
-
Intangible assets acquired through acquisitions;
-
Business combinations and the recoverability of goodwill;
-
Accounts receivable and provision for doubtful debts; and
-
Research and development.
Recent accounting
pronouncements adopted
Refer to Note 1 of our condensed
consolidated financial statements for a full description of recent accounting
pronouncements adopted, including the dates of adoption and the effects on our
condensed consolidated financial statements.
Recent accounting
pronouncements not yet adopted as of March 31, 2013
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, 2013, including the
expected dates of adoption and effects on financial condition, results of
operations and cash flows.
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
|
|
|
Nine months ended
|
|
|
Year ended
|
|
|
|
ended March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
ZAR : $ average exchange rate
|
|
8.9461
|
|
|
7.7822
|
|
|
8.6355
|
|
|
7.6771
|
|
|
7.7920
|
|
Highest ZAR : $ rate during period
|
|
9.3645
|
|
|
8.2333
|
|
|
9.3645
|
|
|
8.6005
|
|
|
8.6987
|
|
Lowest ZAR : $ rate during
period
|
|
8.4067
|
|
|
7.4001
|
|
|
8.0444
|
|
|
6.6096
|
|
|
6.6096
|
|
Rate at end of period
|
|
9.2451
|
|
|
7.693
|
|
|
9.2451
|
|
|
7.693
|
|
|
8.2881
|
|
KRW : $ average exchange rate
|
|
1,090
|
|
|
1,133
|
|
|
1,107
|
|
|
1,121
|
|
|
1,130
|
|
Highest KRW : $ rate during period
|
|
1,126
|
|
|
1,165
|
|
|
1,156
|
|
|
1,202
|
|
|
1,202
|
|
Lowest KRW : $ rate during
period
|
|
1,019
|
|
|
1,090
|
|
|
1,019
|
|
|
1,029
|
|
|
1,029
|
|
Rate at end of period
|
|
1,121
|
|
|
1,135
|
|
|
1,121
|
|
|
1,135
|
|
|
1,159
|
|
25
26
Translation exchange
rates for financial reporting purposes
For financial reporting purposes
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, 2013 and 2012, vary from the
averages shown in the table above. The average rate for the three and nine
months ended March 31, 2013, is significantly lower than the actual average
exchange rate because we incurred a loss in one month at a higher actual rate
which results in an overall lower average rate for financial reporting purposes.
The translation rates we use in presenting our results of operations are the
rates shown in the following table:
Table 2
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
Year ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
Income and expense items: $1
= ZAR
|
|
8.4662
|
|
|
7.8521
|
|
|
8.4578
|
|
|
7.8245
|
|
|
7.7186
|
|
Income and expense items: $1 = KRW
|
|
1,113
|
|
|
1,126
|
|
|
1,112
|
|
|
1,119
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items: $1 = ZAR
|
|
9.2451
|
|
|
7.693
|
|
|
9.2451
|
|
|
7.693
|
|
|
8.2881
|
|
Balance sheet items: $1 = KRW
|
|
1,121
|
|
|
1,135
|
|
|
1,121
|
|
|
1,135
|
|
|
1,159
|
|
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 months ended March 31,
2013, includes SmartSwitch Botswana, Pbel and Eason for the entire period. Nine
months ended March 31, 2013, includes SmartSwitch Botswana from December 1,
2012, Pbel from September 1, 2012, and Eason for the entire period. Three and
nine months ended March 31, 2012, do not include SmartSwitch Botswana or Pbel,
and include Eason from October 1, 2011.
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
2013 compared to third quarter of fiscal 2012
The following factors had an
influence on our results of operations during the third quarter of fiscal 2013
as compared with the same period in the prior year:
-
Unfavorable impact from the strengthening of the US dollar:
The US dollar appreciated by 8% against the ZAR during the third
quarter of fiscal 2013 which negatively impacted our reported results;
-
SASSA implementation costs:
We substantially completed the
implementation of our SASSA contract during the third quarter of fiscal 2013
and incurred additional implementation and staff costs;
-
DOJ and SEC investigation-related expenses:
We incurred DOJ
and SEC investigation-related expenses of $4.2 million; and
-
Bad debt provision for amounts due under expired Iraqi contracts:
We have provided $2.3 million related to the expired NUETS Iraqi
customer contracts.
Consolidated overall
results of operations
This discussion is based on the
amounts which were prepared in accordance with US GAAP.
27
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,
|
|
|
|
2013
|
|
|
2012
|
|
|
$ %
|
|
|
|
$ 000
|
|
|
$ 000
|
|
|
change
|
|
Revenue
|
|
111,141
|
|
|
90,664
|
|
|
23%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
51,461
|
|
|
32,493
|
|
|
58%
|
|
Selling, general and administration
|
|
53,846
|
|
|
36,368
|
|
|
48%
|
|
Depreciation and amortization
|
|
10,560
|
|
|
9,325
|
|
|
13%
|
|
Operating (loss) income
|
|
(4,726
|
)
|
|
12,478
|
|
|
nm
|
|
Interest income
|
|
2,515
|
|
|
2,164
|
|
|
16%
|
|
Interest expense
|
|
2,023
|
|
|
2,244
|
|
|
(10%
|
)
|
(Loss) Income before income tax expense
|
|
(4,234
|
)
|
|
12,398
|
|
|
nm
|
|
Income tax expense
|
|
472
|
|
|
4,611
|
|
|
(90%
|
)
|
Net (loss) income before earnings (loss) from
equity-accounted
|
|
|
|
|
|
|
|
|
|
investments
|
|
(4,706
|
)
|
|
7,787
|
|
|
nm
|
|
Earnings (Loss) from equity-accounted investments
|
|
22
|
|
|
(4
|
)
|
|
nm
|
|
Net (loss) income
|
|
(4,684
|
)
|
|
7,783
|
|
|
nm
|
|
(Add) Less net (loss) income attributable to
non-controlling interest
|
|
(3
|
)
|
|
17
|
|
|
nm
|
|
Net (loss) income attributable to us
|
|
(4,681
|
)
|
|
7,766
|
|
|
nm
|
|
|
|
In South African Rand
|
|
Table 4
|
|
(US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
ZAR %
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
940,942
|
|
|
711,902
|
|
|
32%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
435,680
|
|
|
255,139
|
|
|
71%
|
|
Selling, general and administration
|
|
455,871
|
|
|
285,566
|
|
|
60%
|
|
Depreciation and amortization
|
|
89,403
|
|
|
73,220
|
|
|
22%
|
|
Operating (loss) income
|
|
(40,012
|
)
|
|
97,977
|
|
|
nm
|
|
Interest income
|
|
21,292
|
|
|
16,992
|
|
|
25%
|
|
Interest expense
|
|
17,127
|
|
|
17,620
|
|
|
(3%
|
)
|
(Loss) Income before income tax expense
|
|
(35,847
|
)
|
|
97,349
|
|
|
nm
|
|
Income tax expense
|
|
3,996
|
|
|
36,206
|
|
|
(89%
|
)
|
Net (loss) income before earnings (loss) from
equity-accounted
|
|
|
|
|
|
|
|
|
|
investments
|
|
(39,843
|
)
|
|
61,143
|
|
|
nm
|
|
Earnings (Loss) from equity-accounted investments
|
|
186
|
|
|
(31
|
)
|
|
nm
|
|
Net (loss) income
|
|
(39,657
|
)
|
|
61,112
|
|
|
nm
|
|
(Add) Less net (loss) income attributable to
non-controlling interest
|
|
(25
|
)
|
|
133
|
|
|
nm
|
|
Net (loss) income attributable to us
|
|
(39,632
|
)
|
|
60,979
|
|
|
nm
|
|
The increase in revenue was
primarily due to incremental revenue resulting from our new SASSA contract and a
higher contribution from KSNET.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
related to the implementation of our new SASSA contract which includes the
UEPS/EMV smart cards issued to recipients during the third quarter of fiscal
2013.
Our selling, general and
administration expense increased primarily due to the SASSA contract
implementation costs described above, legal fees of approximately $4.2 million
(ZAR 35.7 million) in connection with the government investigations and the bad
debt provision for amounts owed to NUETS by ISC, its Iraqi customer. As of March
31, 2013, ISC owed NUETS $2.3 million, primarily for transaction processing
fees. NUETS attempts to contact the Iraqi consortium have failed and we believe
that a provision is required for the full amount outstanding. We have instituted
debt recovery procedures and fully intend to pursue the recovery of the
outstanding amounts, but believe that a full provision is required because we
have been unable to contact the Iraqi consortium members and due to the
difficulty of recovering funds from a foreign jurisdiction in which we do not
have a presence. Our selling, general and administration expense for fiscal 2012
included SASSA contract implementation costs of $1.3 million and cash bonuses of
$5.4 million related to our SASSA tender award.
28
Our operating (loss) income
margin for the third quarter of fiscal 2013 and 2012, was (4)% and 14%,
respectively. We discuss the components of operating income margin under
Results of operations by operating segment. The decrease is primarily
attributable to higher implementation costs related to the SASSA contract, DOJ
and SEC investigation costs and the provision for the amount owed by ISC, NUETS
Iraqi customer, in fiscal 2013.
In ZAR, depreciation and
amortization increased primarily as a result of an increase in depreciation
related to assets used to service our obligations under our SASSA contract,
partially offset by no MediKredit intangible asset amortization as the
MediKredit intangible assets were fully amortized at the end of December 2012.
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,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
$000
|
|
|
|
$ 000
|
|
Amortization included in depreciation and
amortization expense:
|
|
4,384
|
|
|
|
5,042
|
|
South African transaction-based
activities
|
|
1,070
|
|
|
|
1,758
|
|
International
transaction-based activities
|
|
3,228
|
|
|
|
3,192
|
|
Hardware, software and related
technology sales
|
|
86
|
|
|
|
92
|
|
|
|
Three months ended
|
|
Table 6
|
|
March 31,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
Amortization included in depreciation and
amortization expense:
|
|
37,113
|
|
|
|
39,594
|
|
South African transaction-based
activities
|
|
9,067
|
|
|
|
13,813
|
|
International
transaction-based activities
|
|
27,329
|
|
|
|
25,064
|
|
Hardware, software and related
technology sales
|
|
717
|
|
|
|
717
|
|
Interest on surplus cash
increased to $2.5 million (ZAR 21.3 million) from $2.2 million (ZAR 17.0
million). The increase resulted primarily from higher average daily ZAR cash
balances.
Interest expense decreased to
$2.0 million (ZAR 17.1 million) from $2.2 million (ZAR 17.6 million) due to a
lower average long-term debt balance.
Total fiscal 2013 tax expense was
$0.5 million (ZAR 4.0 million) compared to $4.6 million (ZAR 36.2 million) in
fiscal 2012. Our effective tax rate for the three months ended March 31, 2013,
was (11.1)% and is negative as a result of the loss before income taxes and
differed from the South African statutory rate primarily as a result of a
valuation allowance for foreign tax credits, non-deductible expenses (including
interest expense related to our long-term Korean borrowings and stock-based
compensation charges) and South African dividend withholding taxes. Our
effective tax rate for the three months ended March 31, 2012, was 37% and was
higher than the South African statutory rate as a result of non-deductible
expenses (including interest expense related to our long-term Korean borrowings
and stock-based compensation charges).
29
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.
Table 7
|
|
In United States Dollars (US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
% of
|
|
|
2012
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$000
|
|
|
total
|
|
|
$000
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
59,009
|
|
|
53%
|
|
|
46,423
|
|
|
51%
|
|
|
27%
|
|
International transaction-based activities
|
|
33,119
|
|
|
30%
|
|
|
28,188
|
|
|
31%
|
|
|
17%
|
|
Smart card accounts
|
|
8,657
|
|
|
8%
|
|
|
7,558
|
|
|
8%
|
|
|
15%
|
|
Financial services
|
|
1,651
|
|
|
1%
|
|
|
2,289
|
|
|
3%
|
|
|
(28%
|
)
|
Hardware, software and related technology sales
|
|
8,705
|
|
|
8%
|
|
|
6,206
|
|
|
7%
|
|
|
40%
|
|
Total consolidated
revenue
|
|
111,141
|
|
|
100%
|
|
|
90,664
|
|
|
100%
|
|
|
23%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
(4,197
|
)
|
|
89%
|
|
|
8,694
|
|
|
70%
|
|
|
nm
|
|
Operating (loss) income before
amortization
|
|
(3,127
|
)
|
|
|
|
|
10,452
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(1,070
|
)
|
|
|
|
|
(1,758
|
)
|
|
|
|
|
|
|
International transaction-based activities
|
|
(1,362
|
)
|
|
29%
|
|
|
195
|
|
|
2%
|
|
|
nm
|
|
Operating income before
amortization
|
|
1,866
|
|
|
|
|
|
3,387
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(3,228
|
)
|
|
|
|
|
(3,192
|
)
|
|
|
|
|
|
|
Smart card accounts
|
|
2,467
|
|
|
(52%
|
)
|
|
3,435
|
|
|
28%
|
|
|
(28%
|
)
|
Financial services
|
|
1,147
|
|
|
(24%
|
)
|
|
1,248
|
|
|
10%
|
|
|
(8%
|
)
|
Hardware, software and related technology
sales
|
|
1,699
|
|
|
(36%
|
)
|
|
(1,301
|
)
|
|
(10%
|
)
|
|
nm
|
|
Operating income (loss) before
amortization
|
|
1,785
|
|
|
|
|
|
(1,209
|
)
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(86
|
)
|
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(4,480
|
)
|
|
94%
|
|
|
207
|
|
|
-%
|
|
|
nm
|
|
Total consolidated
operating (loss) income
|
|
(4,726
|
)
|
|
100%
|
|
|
12,478
|
|
|
100%
|
|
|
(138%
|
)
|
Table 8
|
|
In South African Rand (US GAAP)
|
|
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
% of
|
|
|
ZAR
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
total
|
|
|
000
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
499,582
|
|
|
53%
|
|
|
364,518
|
|
|
51%
|
|
|
37%
|
|
International transaction-based activities
|
|
280,392
|
|
|
30%
|
|
|
221,335
|
|
|
31%
|
|
|
27%
|
|
Smart card accounts
|
|
73,292
|
|
|
8%
|
|
|
59,346
|
|
|
8%
|
|
|
23%
|
|
Financial services
|
|
13,978
|
|
|
1%
|
|
|
17,973
|
|
|
3%
|
|
|
(22%
|
)
|
Hardware, software and related technology
sales
|
|
73,698
|
|
|
8%
|
|
|
48,730
|
|
|
7%
|
|
|
51%
|
|
Total consolidated
revenue
|
|
940,942
|
|
|
100%
|
|
|
711,902
|
|
|
100%
|
|
|
32%
|
|
Consolidated operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
(35,533
|
)
|
|
89%
|
|
|
68,266
|
|
|
70%
|
|
|
nm
|
|
Operating (loss) income
before amortization
|
|
(26,466
|
)
|
|
|
|
|
82,079
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(9,067
|
)
|
|
|
|
|
(13,813
|
)
|
|
|
|
|
|
|
International transaction-based activities
|
|
(11,531
|
)
|
|
29%
|
|
|
1,531
|
|
|
2%
|
|
|
nm
|
|
Operating income before
amortization
|
|
15,798
|
|
|
|
|
|
26,595
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(27,329
|
)
|
|
|
|
|
(25,064
|
)
|
|
|
|
|
|
|
Smart card accounts
|
|
20,886
|
|
|
(52%
|
)
|
|
26,972
|
|
|
28%
|
|
|
(23%
|
)
|
Financial services
|
|
9,711
|
|
|
(24%
|
)
|
|
9,799
|
|
|
10%
|
|
|
(1%
|
)
|
Hardware, software and related technology
sales
|
|
14,384
|
|
|
(36%
|
)
|
|
(10,216
|
)
|
|
(10%
|
)
|
|
nm
|
|
Operating income (loss)
before amortization
|
|
15,101
|
|
|
|
|
|
(9,499
|
)
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(717
|
)
|
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(37,929
|
)
|
|
94%
|
|
|
1,625
|
|
|
-%
|
|
|
nm
|
|
Total consolidated
operating (loss) income
|
|
(40,012
|
)
|
|
100%
|
|
|
97,977
|
|
|
100%
|
|
|
(141%
|
)
|
30
South
African transaction-based activities
In ZAR, the increases in segment
revenue were primarily due to higher revenues earned under our new SASSA
contract. Segment revenues include the transaction fees we earn through our
merchant acquiring system and reflect the elimination of inter-company
transactions.
Our operating (loss) income
margin for 2013 and 2012 was (7)% and 19%, respectively, and has declined
primarily due to the higher SASSA implementation costs.
Pension
and welfare operations:
Our pension and welfare
operations continue to generate the majority of our revenues and operating
income in this segment. See discussion under Recent DevelopmentsSouth
AfricaSASSA for a discussion of the implementation status of our SASSA
contract.
South
African transaction processors:
The table below presents the
total volume and value processed during the third quarter of fiscal 2013 and
2012:
Table 9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
Total volume (000s)
|
|
|
Total value $ (000)
|
|
|
Total value ZAR (000)
|
|
processor
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
CPS
|
|
28,727
|
|
|
9,460
|
|
|
3,031,625
|
|
|
1,139,595
|
|
|
25,666,342
|
|
|
8,948,214
|
|
EasyPay
|
|
105,708
|
|
|
96,139
|
|
|
2,815,953
|
|
|
2,519,319
|
|
|
23,840,425
|
|
|
19,781,946
|
|
MediKredit
|
|
2,706
|
|
|
2,733
|
|
|
175,651
|
|
|
147,120
|
|
|
1,487,096
|
|
|
1,155,201
|
|
FIHRST
|
|
5,933
|
|
|
5,951
|
|
|
2,381,514
|
|
|
2,411,275
|
|
|
20,162,374
|
|
|
18,933,574
|
|
EasyPay has recently signed
agreements with two large retailers in South Africa and commenced processing
transactions for one of them during the second quarter of fiscal 2013 which
resulted in an increase in transaction volumes this quarter. EasyPay values
processed have increased primarily due to inflationary increases in the
underlying average transaction values and the new retailer.
MediKredits total volumes
processed decreased moderately due to the on-going consolidation in the medical
scheme industry in South Africa which has resulted in MediKredit losing
adjudication and processing business as its providers are obligated to outsource
these services to their parents processor. This moderate decrease in volumes
has been offset by commencing adjudication and processing activities for new
providers, including public hospitals, private hospitals and specialist doctors.
MediKredits total value processed has increased due to the significant increase
in the underlying cost of medical services and products in the South African
medical scheme industry.
FIHRST volumes modestly decreased
due to on-going labor strikes in the South African mining industry during the
quarter. As a result of the on-going strikes, some of FIHRSTs mining industry
customers temporarily suspended wage payments which resulted in a lower number
of transactions processed during the third quarter of fiscal 2013. However, as
and when the strikes were settled, FIHRSTs customers requested FIHRST to
process one transaction which included a catch up payment of all missed wages
and any other benefits. While volumes have decreased due to the strikes, total
transaction values have increased due to a higher number of customers and
inflationary-related increases to the underlying transaction values. Strike
activity has continued through to the fourth quarter of fiscal 2013 and we
expect a similar reduction in our transaction volumes as a result of the
practice of processing one transaction to catch up payment of all missed wages
and any other benefits.
International
transaction-based activities
KSNET continues to contribute the
majority of our revenues and operating income in this operating segment. Revenue
was modestly impacted by ISC notifying NUETS that it would not renew its
contracts upon their expiration. Operating margin for the segment is lower than
most of our South African transaction-based businesses and was negatively
impacted by the expiration of the Iraqi contracts with ISC and the related bad
debt provision required as well as on-going competition in the Korean
marketplace, but was partially offset by increased revenue contributions from
KSNET.
Smart
card accounts
In ZAR, our revenue from this
operating segment was higher because the number of smart card-based accounts has
increased as a result of the new SASSA contract, however, our revenue per
account has decreased in fiscal 2013. We reduced our pricing for smart card
accounts after taking into consideration the lower price and higher volumes
under the new contract.
31
The new pricing, effective from
April 1, 2012, reduced the average monthly revenue per smart card from ZAR5.50
to ZAR4.00 and the operating income margin from 45% to 28%. Operating income
margin from providing smart card accounts for the third quarter of fiscal 2013
and 2012 was 28% and 45%, respectively.
In ZAR, revenue from the
provision of smart card-based accounts increased in proportion to the increased
number of recipients serviced through our SASSA contract. Approximately 6.6
million smart card-based accounts were active at March 31, 2013 compared to
approximately 3.5 million active accounts as at March 31, 2012.
Financial
services
UEPS-based lending contributes
the majority of the revenue and operating income in this operating segment. 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 no longer insure our UEPS-based lending book. Revenue decreased
primarily due to a decrease in the number of loans granted. Operating income
decreased primarily as a result of on-going start-up expenditure incurred to
establish our Smart Life insurance business and a lower contribution from our
UEPS-based lending business. Smart Life did not contribute to operating income
in the third quarter of fiscal 2013 and is currently unable to issue new
insurance policies as a result of the suspension of its license.
Operating income margin for the
financial services segment increased to 69% from 55%, primarily as a result of
an improved margin in our UEPS-based lending book resulting from a better loss
experience, offset by start-up expenditures related to Smart Life and other
financial services offerings. We are not able to accurately quantify the
corporate administration and overhead expenses related to this segment and
therefore do not allocate such costs to this segment.
Hardware,
software and related technology sales
In ZAR, the increase in revenue
resulted primarily from an increase in royalty fees and ad hoc hardware sales,
offset by a lower contribution from most other major contributors to hardware
and software sales. Operating income increased due the higher royalty fees and
ad hoc hardware sales, offset by the lower contribution from most key
contributors to the operating segment. 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 or through joint ventures (such as with SmartSwitch
Namibia), 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 increase in our corporate
expenses resulted primarily from legal fees we incurred in connection with the
DOJ and SEC investigations, stock-based compensation and other corporate head
office-related expenses.
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.
32
Year to date fiscal 2013
compared to year to date fiscal 2012
The following factors had an
influence on our results of operations during the year to date fiscal 2013 as
compared with the same period in the prior year:
-
Unfavorable impact from the strengthening of the US dollar:
The US dollar appreciated by 8% against the ZAR during the year to
date fiscal 2013 which negatively impacted our reported results;
-
SASSA implementation costs:
We continued implementing our
SASSA contract during the year to date fiscal 2013 and incurred higher
implementation and staff costs compared with fiscal 2012;
-
DOJ and SEC investigation-related expenses:
We incurred DOJ
and SEC investigation-related expenses of $4.8 million; and
-
Bad debt provision for amounts due under expired Iraqi contracts:
We have provided $2.3 million related to the expired NUETS Iraqi
customer contracts;
-
Fiscal 2012 impacted by change in South African tax law:
As
a result of the change in South African tax law that replaced STC with a
dividends withholding tax, fiscal 2012 tax expense included a net taxation
benefit of $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;
and
-
Profit on liquidation of SmartSwitch Nigeria
: In fiscal
2012, we recorded a non-cash profit of $4.0 million on the liquidation of
SmartSwitch Nigeria.
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 10
|
|
(US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
$ %
|
|
|
|
$000
|
|
|
$ 000
|
|
|
change
|
|
Revenue
|
|
334,265
|
|
|
282,648
|
|
|
18%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
143,789
|
|
|
99,605
|
|
|
44%
|
|
Selling, general and administration
|
|
149,854
|
|
|
92,297
|
|
|
62%
|
|
Depreciation and amortization
|
|
31,051
|
|
|
27,194
|
|
|
14%
|
|
Operating income
|
|
9,571
|
|
|
63,552
|
|
|
(85%
|
)
|
Interest income
|
|
8,195
|
|
|
5,981
|
|
|
37%
|
|
Interest expense
|
|
6,117
|
|
|
7,215
|
|
|
(15%
|
)
|
Income before income tax expense
|
|
11,649
|
|
|
62,318
|
|
|
(81%
|
)
|
Income tax expense
|
|
7,172
|
|
|
9,785
|
|
|
(27%
|
)
|
Net income before earnings from equity-accounted
investments
|
|
4,477
|
|
|
52,533
|
|
|
(91%
|
)
|
Earnings from equity-accounted investments
|
|
204
|
|
|
100
|
|
|
104%
|
|
Net income
|
|
4,681
|
|
|
52,633
|
|
|
(91%
|
)
|
(Add) Less net (loss) income attributable
to non-controlling interest
|
|
(11
|
)
|
|
5
|
|
|
nm
|
|
Net income attributable to us
|
|
4,692
|
|
|
52,628
|
|
|
(91%
|
)
|
33
|
|
In South African Rand
|
|
Table 11
|
|
(US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
ZAR
|
|
|
|
ZAR
|
|
|
ZAR
|
|
|
%
|
|
|
|
000
|
|
|
000
|
|
|
change
|
|
Revenue
|
|
2,827,147
|
|
|
2,211,580
|
|
|
28%
|
|
Cost of goods sold, IT processing, servicing and support
|
|
1,216,139
|
|
|
779,360
|
|
|
56%
|
|
Selling, general and administration
|
|
1,267,435
|
|
|
722,178
|
|
|
76%
|
|
Depreciation and amortization
|
|
262,624
|
|
|
212,780
|
|
|
23%
|
|
Operating income
|
|
80,949
|
|
|
497,262
|
|
|
(84%
|
)
|
Interest income
|
|
69,312
|
|
|
46,799
|
|
|
48%
|
|
Interest expense
|
|
51,736
|
|
|
56,454
|
|
|
(8%
|
)
|
Income before income tax expense
|
|
98,525
|
|
|
487,607
|
|
|
(80%
|
)
|
Income tax expense
|
|
60,659
|
|
|
76,563
|
|
|
(21%
|
)
|
Net income before earnings from equity-accounted
investments
|
|
37,866
|
|
|
411,044
|
|
|
(91%
|
)
|
Earnings from equity-accounted investments
|
|
1,725
|
|
|
782
|
|
|
121%
|
|
Net income
|
|
39,591
|
|
|
411,826
|
|
|
(90%
|
)
|
(Add) Less net (loss) income attributable
to non-controlling interest
|
|
(93
|
)
|
|
39
|
|
|
nm
|
|
Net income attributable to us
|
|
39,684
|
|
|
411,787
|
|
|
(90%
|
)
|
The increase in revenue was
primarily due to incremental revenue resulting from our new SASSA contract and a
higher contribution from KSNET.
The increase in cost of goods
sold, IT processing, servicing and support was primarily due to higher expenses
related to the implementation of our new SASSA contract which includes the
UEPS/EMV smart cards issued to recipients during fiscal 2013.
Our selling, general and
administration expense increased primarily due to the SASSA contract
implementation costs described above, legal fees of approximately $4.8 million
(ZAR 40.4 million) in connection with the government investigations and the bad
debt provision bad debt provision for amounts owed to NUETS by ISC, its Iraqi
customer. Our selling, general and administration expense for fiscal 2012
included SASSA contract implementation costs of $1.3 million and cash bonuses of
$5.4 million related to our SASSA tender award and a non-cash profit related to
the liquidation of SmartSwitch Nigeria of $4.0 million.
Our operating income margin for
the year to date fiscal 2013 and 2012, was 3% and 22%, respectively. We discuss
the components of operating income margin under Results of operations by
operating segment. The decrease is primarily attributable to higher
implementation costs related to the SASSA contract, DOJ and SEC investigation
costs and the provision for the amount owed by ISC, NUETS Iraqi customer, in
fiscal 2013.
In ZAR, depreciation and
amortization increased primarily as a result of an increase in depreciation
related to assets used to service our obligations under our SASSA. 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 12
|
|
March 31,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
$ 000
|
|
|
|
$ 000
|
|
Amortization included in depreciation and
amortization expense:
|
|
13,954
|
|
|
|
14,709
|
|
South African transaction-based
activities
|
|
4,003
|
|
|
|
4,805
|
|
International
transaction-based activities
|
|
9,697
|
|
|
|
9,630
|
|
Hardware, software and related
technology sales
|
|
254
|
|
|
|
274
|
|
|
|
Nine months ended
|
|
Table 13
|
|
March 31,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
ZAR 000
|
|
|
|
ZAR 000
|
|
Amortization included in depreciation and
amortization expense:
|
|
118,024
|
|
|
|
115,096
|
|
South African transaction-based
activities
|
|
33,857
|
|
|
|
37,594
|
|
International
transaction-based activities
|
|
82,015
|
|
|
|
75,350
|
|
Hardware, software and related
technology sales
|
|
2,152
|
|
|
|
2,152
|
|
34
Interest on surplus cash
increased to $8.2 million (ZAR 69.3 million) from $6.0 million (ZAR 46.8
million). The increase resulted primarily from higher average daily ZAR cash
balances.
Interest expense decreased to
$6.1 million (ZAR 51.7 million) from $7.2 million (ZAR 56.5 million) due to a
lower average long-term debt balance.
Total fiscal 2013 tax expense was
$7.2 million (ZAR 60.7 million) compared to $9.8 million (ZAR 76.6 million) in
fiscal 2013. Our fiscal 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. Our effective tax rate for fiscal
2013, was 61.6% and was higher than the South African statutory rate primarily
as a result of a valuation allowance for foreign tax credits, non-deductible
expenses (including interest expense related to our long-term Korean borrowings
and stock-based compensation charges) and South African dividend withholding
taxes. Our effective tax rate for fiscal 2012, was 15.7% 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 a non-taxable profit on
liquidation of SmartSwitch Nigeria, which was partially offset by non-deductible
expenses (including interest expense related to our long-term Korean borrowings
and stock-based compensation charges) and the creation of a valuation allowance.
Results of operations by
operating segment
The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.
Table 14
|
|
In United States Dollars (US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2013
|
|
|
|
% of
|
|
|
|
2012
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
$000
|
|
|
|
total
|
|
|
|
$000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
181,137
|
|
|
|
54%
|
|
|
|
142,773
|
|
|
|
51%
|
|
|
27%
|
|
International transaction-based activities
|
|
97,881
|
|
|
|
29%
|
|
|
|
87,278
|
|
|
|
31%
|
|
|
12%
|
|
Smart card accounts
|
|
25,240
|
|
|
|
8%
|
|
|
|
23,074
|
|
|
|
8%
|
|
|
9%
|
|
Financial services
|
|
4,483
|
|
|
|
1%
|
|
|
|
6,344
|
|
|
|
2%
|
|
|
(29%
|
)
|
Hardware, software and related technology sales
|
|
25,524
|
|
|
|
8%
|
|
|
|
23,179
|
|
|
|
8%
|
|
|
10%
|
|
Total consolidated
revenue
|
|
334,265
|
|
|
|
100%
|
|
|
|
282,648
|
|
|
|
100%
|
|
|
18%
|
|
Consolidated operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
4,136
|
|
|
|
43%
|
|
|
|
44,643
|
|
|
|
70%
|
|
|
(91%
|
)
|
Operating income before amortization
|
|
8,139
|
|
|
|
|
|
|
|
49,448
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(4,003
|
)
|
|
|
|
|
|
|
(4,805
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
(1,331
|
)
|
|
|
(14%
|
)
|
|
|
1,120
|
|
|
|
2%
|
|
|
(219%
|
)
|
Operating income before
amortization
|
|
8,366
|
|
|
|
|
|
|
|
10,750
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(9,697
|
)
|
|
|
|
|
|
|
(9,630
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
7,194
|
|
|
|
75%
|
|
|
|
10,487
|
|
|
|
17%
|
|
|
(31%
|
)
|
Financial services
|
|
3,292
|
|
|
|
34%
|
|
|
|
3,685
|
|
|
|
6%
|
|
|
(11%
|
)
|
Hardware, software and related technology
sales
|
|
4,478
|
|
|
|
47%
|
|
|
|
1,545
|
|
|
|
2%
|
|
|
190%
|
|
Operating (loss) income before
amortization
|
|
4,732
|
|
|
|
|
|
|
|
1,819
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(254
|
)
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(8,198
|
)
|
|
|
(85%
|
)
|
|
|
2,072
|
|
|
|
3%
|
|
|
nm
|
|
Total consolidated
operating income
|
|
9,571
|
|
|
|
100%
|
|
|
|
63,552
|
|
|
|
100%
|
|
|
(85%
|
)
|
35
Table 15
|
|
In South African Rand (US GAAP)
|
|
|
|
Nine months ended March 31,
|
|
|
|
2013
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
|
ZAR
|
|
|
|
% of
|
|
|
%
|
|
Operating Segment
|
|
000
|
|
|
|
total
|
|
|
|
000
|
|
|
|
total
|
|
|
change
|
|
Consolidated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
1,532,021
|
|
|
|
54%
|
|
|
|
1,117,127
|
|
|
|
51%
|
|
|
37%
|
|
International transaction-based activities
|
|
827,858
|
|
|
|
29%
|
|
|
|
682,907
|
|
|
|
31%
|
|
|
21%
|
|
Smart card accounts
|
|
213,475
|
|
|
|
8%
|
|
|
|
180,543
|
|
|
|
8%
|
|
|
18%
|
|
Financial services
|
|
37,916
|
|
|
|
1%
|
|
|
|
49,639
|
|
|
|
2%
|
|
|
(24%
|
)
|
Hardware, software and related technology sales
|
|
215,877
|
|
|
|
8%
|
|
|
|
181,364
|
|
|
|
8%
|
|
|
19%
|
|
Total consolidated
revenue
|
|
2,827,147
|
|
|
|
100%
|
|
|
|
2,211,580
|
|
|
|
100%
|
|
|
28%
|
|
Consolidated operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SA transaction-based activities
|
|
34,981
|
|
|
|
43%
|
|
|
|
349,309
|
|
|
|
70%
|
|
|
(90%
|
)
|
Operating income before amortization
|
|
68,838
|
|
|
|
|
|
|
|
386,903
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(33,857
|
)
|
|
|
|
|
|
|
(37,594
|
)
|
|
|
|
|
|
|
|
International transaction-based activities
|
|
(11,257
|
)
|
|
|
(14%
|
)
|
|
|
8,763
|
|
|
|
2%
|
|
|
(228%
|
)
|
Operating income before
amortization
|
|
70,758
|
|
|
|
|
|
|
|
84,113
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
(82,015
|
)
|
|
|
|
|
|
|
(75,350
|
)
|
|
|
|
|
|
|
|
Smart card accounts
|
|
60,845
|
|
|
|
75%
|
|
|
|
82,056
|
|
|
|
17%
|
|
|
(26%
|
)
|
Financial services
|
|
27,843
|
|
|
|
34%
|
|
|
|
28,833
|
|
|
|
6%
|
|
|
(3%
|
)
|
Hardware, software and related technology
sales
|
|
37,874
|
|
|
|
47%
|
|
|
|
12,089
|
|
|
|
2%
|
|
|
213%
|
|
Operating (loss) income before
amortization
|
|
40,026
|
|
|
|
|
|
|
|
14,241
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
(2,152
|
)
|
|
|
|
|
|
|
(2,152
|
)
|
|
|
|
|
|
|
|
Corporate/eliminations
|
|
(69,337
|
)
|
|
|
(85%
|
)
|
|
|
16,212
|
|
|
|
3%
|
|
|
nm
|
|
Total consolidated
operating income
|
|
80,949
|
|
|
|
100%
|
|
|
|
497,262
|
|
|
|
100%
|
|
|
(84%
|
)
|
South
African transaction-based activities
In ZAR, the increases in segment
revenue were primarily due to higher revenues earned under our new SASSA
contract. 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
2013 and 2012 was 2% and 31%, respectively, and has declined primarily due to
SASSA implementation costs.
Pension
and welfare operations:
Our pension and welfare
operations continue to generate the majority of our revenues and operating
income in this segment. See also discussion under Recent DevelopmentsSouth
AfricaSASSA for a discussion of the implementation status of our SASSA
contract.
South
African transaction processors:
The table below presents the
total volume and value processed during the year to date fiscal 2013 and 2012:
Table 16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
Total volume (000s)
|
|
|
Total value $ (000)
|
|
|
Total value ZAR (000)
|
|
processor
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
CPS
|
|
85,669
|
|
|
28,400
|
|
|
9,184,743
|
|
|
3,428,106
|
|
|
77,682,718
|
|
|
26,823,214
|
|
EasyPay(1)
|
|
319,508
|
|
|
347,161
|
|
|
8,525,275
|
|
|
9,460,086
|
|
|
72,105,069
|
|
|
74,020,446
|
|
Remaining
core
|
|
319,508
|
|
|
322,765
|
|
|
8,525,275
|
|
|
8,682,822
|
|
|
72,105,069
|
|
|
67,938,741
|
|
Discontinued
|
|
-
|
|
|
24,396
|
|
|
-
|
|
|
777,264
|
|
|
-
|
|
|
6,081,705
|
|
MediKredit
|
|
7,684
|
|
|
7,913
|
|
|
508,863
|
|
|
443,550
|
|
|
4,303,865
|
|
|
3,470,559
|
|
FIHRST
|
|
18,098
|
|
|
18,046
|
|
|
7,289,395
|
|
|
7,348,474
|
|
|
61,652,241
|
|
|
57,498,134
|
|
(1) includes Eason prepaid airtime
and electricity volume and value from October 1, 2012 and reclassified to
reflect the consolidation of value-added services through EasyPay and to reflect
the remaining core processing activities.
36
During the year to date fiscal
2012, one of EasyPays large customers decided to perform its EFT/switching
activities in-house, which had an adverse impact on our volumes in the year to
date fiscal 2012. 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.
EasyPay has signed contracts with two large retailers and commenced processing
transaction for one of them, with a modest impact on transaction volumes and
values.
MediKredits total volumes
processed decreased moderately due to the on-going consolidation in the medical
scheme industry in South Africa which has resulted in MediKredit losing
adjudication and processing business as its providers are obligated to outsource
these services to their parents processor. This moderate decrease in volumes
has been offset by commencing adjudication and processing activities for new
providers, including public hospitals, private hospitals and specialist doctors.
MediKredits total value processed has increased due to the significant increase
in the underlying cost of medical services and products in the South African
medical scheme industry.
FIHRST volumes modestly increased
due to labor strikes in the South African mining industry. As a result of the
strikes, some of FIHRSTs mining industry customers temporarily suspended wage
payments which resulted in a lower number of transactions processed during
fiscal 2013. However, as and when the strikes were settled, FIHRSTs customers
requested FIHRST to process one transaction which included a catch up payment of
all missed wages and any other benefits. While volumes are flat due to the
strikes, total transaction values have increased due to a higher number of
customers and inflationary-related increases to the underlying transaction
values.
International
transaction-based activities
KSNET continues to contribute the
majority of our revenues and operating income 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 the expiration of
the Iraqi contracts with ISC and the related bad debt provision required as well
as on-going competition in the Korean marketplace, but was partially offset by
increased revenue contributions from KSNET.
Smart
card accounts
In ZAR, our revenue from this
operating segment was higher because the number of smart card-based accounts has
increased as a result of the new SASSA contract. Operating income margin from
providing smart card accounts for the year to date fiscal 2013 and 2012 was 29%
and 45%, respectively.
In ZAR, revenue from the
provision of smart card-based accounts increased in proportion to the increased
number of recipients serviced through our SASSA contract. Approximately 6.6
million smart card-based accounts were active at March 31, 2013 compared to
approximately 3.5 million active accounts as at March 31, 2012.
Financial
services
UEPS-based lending contributes
the majority of the revenue and operating income in this operating segment.
Revenue decreased primarily due to a decrease in the number of loans granted.
Operating income decreased primarily as a result of on-going start-up
expenditure incurred to establish our Smart Life insurance business and as a
result of lower UEPS-based lending activity. Smart Life did not contribute to
operating income in the year to date fiscal 2013.
Operating income margin for the
financial services segment increased to 73% from 58%, primarily as a result of
an improved margin in our UEPS-based lending book resulting from a better loss
experience, offset by start-up expenditures related to Smart Life and other
financial services offerings.
Hardware,
software and related technology sales
In ZAR, the increase in revenue
and operating income resulted primarily from higher royalty fees, offset by a
lower contribution from most other 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.
Corporate/eliminations
Our year to date fiscal 2012
includes a non-cash profit related to the liquidation of SmartSwitch Nigeria of
$4.0 million. Excluding this non-cash profit, the increase in our corporate
expenses resulted primarily from an increase in expenses including legal fees we
incurred in connection with the DOJ and SEC investigations, stock-based
compensation and other corporate head office-related expenses.
37
Liquidity and Capital Resources
At March 31, 2013, our cash
balances were $42.6 million, which comprised mainly ZAR-denominated balances of
ZAR 110.1 million ($11.9 million), KRW-denominated balances of KRW 31.1 billion
($27.8 million) and US dollar-denominated balances of $2.1 million and other
currency deposits, primarily euro, of $0.9 million. The increase in our cash
balances from June 30, 2012 was primarily from cash generated from operations,
offset by implementation costs and capital expenditures incurred to implement
our SASSA contract, a scheduled repayment of our Korean debt and the acquisition
of Pbel and SmartSwitch Botswana.
We currently believe that our
cash and credit facilities are sufficient to fund our operations for at least
the next four quarters, including completion of the SASSA contract
implementation. However, substantially all of our business is conducted through
our South African and Korean subsidiaries and most of our cash reserves are in
the form of ZAR or KRW held by our South African and Korean subsidiaries. Most
of the legal costs relating to the DOJ and SEC investigations are incurred by us
in US dollars in the U.S. The majority of these legal costs had not yet been
paid as of March 31, 2013. Subsequently, we upstreamed cash from our South
African operations to fund a portion of these expenses, notwithstanding currency
conversion at adverse rates and the incurrence of dividend withholding taxes
that we would not have to pay absent such expenses.
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 nine 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 (approximately $27
million translated at exchange rates applicable as of March 31, 2013) which
remained fully undrawn as of March 31, 2013.
As of March 31, 2013, we had
outstanding long-term debt of KRW 100.6 billion (approximately $89.8 million
translated at exchange rates applicable as of March 31, 2013) under credit
facilities with a group of Korean banks. The loans bear interest at the Korean
CD rate in effect from time to time (2.84% as of March 31, 2013) plus a margin
of 4.10%. Semi-annual principal payments of approximately $7.3 million
(translated at exchange rates applicable as of March 31, 2013) were due starting
in October 2011, with final maturity scheduled for October 2015.
Cash flows from operating
activities
Third
quarter
Net cash provided by operating
activities for the third quarter of fiscal 2013 was $12.2 million (ZAR 103.2
million) compared to $22.0 million (ZAR 172.7 million) for the third quarter of
fiscal 2012. Excluding the impact of interest received, interest paid under our
Korean debt and taxes presented in the table below, the decrease in cash
provided by operating activities resulted from significant implementation costs
related to our SASSA contract, partially offset by cash generated from
operations.
During the third quarter of
fiscal 2013, we paid first and second provisional South African taxes of $0.5
million (ZAR 4.3 million) and $0.1 million (ZAR 0.7 million), respectively,
related to our 2013 tax year and dividend withholding tax of $0.2 million (ZAR
1.9 million). We also paid provisional Korean taxes of $0.9 million related to
our tax year ended December 31, 2012. During the third quarter of fiscal 2012,
we paid secondary taxation on companies of $0.3 million (ZAR 2.5 million). We
also paid provisional Korean taxes of $0.2 million related to our tax year ended
December 31, 2011.
38
Taxes paid during the third
quarter of fiscal 2013 and 2012 were as follows:
Table 17
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
473
|
|
|
-
|
|
|
4,339
|
|
|
-
|
|
Second provisional payments
|
|
82
|
|
|
-
|
|
|
728
|
|
|
-
|
|
Taxation refunds received
|
|
-
|
|
|
-
|
|
|
(4
|
)
|
|
-
|
|
Dividend withholding taxation
|
|
213
|
|
|
-
|
|
|
1,871
|
|
|
-
|
|
Secondary taxation on companies
|
|
-
|
|
|
326
|
|
|
-
|
|
|
2,500
|
|
Total South African taxes paid
|
|
768
|
|
|
326
|
|
|
6,934
|
|
|
2,500
|
|
Foreign taxes
paid: primarily Korea
|
|
933
|
|
|
177
|
|
|
8,180
|
|
|
1,424
|
|
Total
tax paid
|
|
1,701
|
|
|
503
|
|
|
15,114
|
|
|
3,924
|
|
We expect to pay our second
provisional payments in South Africa related to our 2013 tax year in the fourth
quarter of fiscal 2013.
Year
to date
Net cash provided by operating
activities for the year to date fiscal 2013 was $31.0 million (ZAR 262.1
million) compared to $43 million (ZAR 336.5 million) for the year to date fiscal
2012. Excluding the impact of interest received, interest paid under our Korean
debt and taxes presented in the table below, the decrease in cash provided by
operating activities resulted from significant implementation costs related to
our SASSA contract, partially offset by cash generated from operations.
During the year to date fiscal
2013, we paid first and second provisional South African taxes of $6.8 million
(ZAR 58.7 million) and $0.1 million (ZAR 0.7 million), respectively, related to
our 2013 tax year, $3.1 million (ZAR 27.0 million) related to prior tax years
and dividend withholding taxes of $0.6 million (ZAR 5.4 million). We also paid
provisional Korean taxes of $1.7 million related to our tax year ended December
31, 2012. 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, $3.5 million
(ZAR 26.3 million) related to our 2011 tax year and STC of $1.8 million (ZAR
14.6 million). We also paid provisional Korean taxes of $1.2 million.
Taxes paid during the year to
date fiscal 2013 and 2012 were as follows:
Table 18
|
|
Nine months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
$
|
|
|
$
|
|
|
ZAR
|
|
|
ZAR
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
First provisional payments
|
|
6,757
|
|
|
15,014
|
|
|
58,693
|
|
|
123,271
|
|
Second provisional payments
|
|
82
|
|
|
-
|
|
|
728
|
|
|
-
|
|
Taxation paid related to prior years
|
|
3,110
|
|
|
3,504
|
|
|
26,978
|
|
|
26,303
|
|
Taxation refunds received
|
|
(118
|
)
|
|
(284
|
)
|
|
(1,010
|
)
|
|
(2,096
|
)
|
Dividend withholding taxation
|
|
611
|
|
|
-
|
|
|
5,371
|
|
|
-
|
|
Secondary taxation on companies
|
|
-
|
|
|
1,811
|
|
|
-
|
|
|
14,615
|
|
Total South
African taxes paid
|
|
10,442
|
|
|
20,045
|
|
|
90,760
|
|
|
162,093
|
|
Foreign taxes paid: primarily
Korea
|
|
1,738
|
|
|
1,213
|
|
|
14,992
|
|
|
9,217
|
|
Total
tax paid
|
|
12,180
|
|
|
21,258
|
|
|
105,752
|
|
|
171,310
|
|
Cash flows from investing
activities
Third
quarter
Cash used in investing activities
for the third quarter of fiscal 2013 includes capital expenditure of $5.1
million (ZAR 46.7 million), primarily for computer equipment for our SASSA
contract and acquisition of payment processing terminals in Korea.
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.
39
Year
to date
Cash used in investing activities
for the year to date fiscal 2013 includes capital expenditure of $17.1 million
(ZAR 144.7 million), primarily for computer equipment, payment vehicles and
related equipment for our SASSA contract and acquisition of payment processing
terminals in Korea.
During the year to date fiscal
2013 we paid, net of cash acquired, $1.9 million (ZAR 16.2 million) for Pbel and
$0.2 million for SmartSwitch Botswana.
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.
During the year to date fiscal
2012, we received a net settlement of $4.9 million from the former shareholders
of KSNET. We also paid $4.5 million (ZAR 36.4 million) for the Eason prepaid
electricity and airtime business.
Cash flows from financing
activities
Third
quarter
There were no cash flows from
financing activities during the third quarter of fiscal 2013.
During the third quarter of
fiscal 2012, we made an unscheduled $4.8 million long-term debt repayment.
Year
to date
During the year to date fiscal
2013, we made long-term debt repayments of $7.3 million and received $0.2
million from the exercise of stock options.
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.
Off-Balance Sheet Arrangements
We have no off-balance sheet
arrangements.
Capital Expenditures
We expect that capital spending
for the fourth quarter of fiscal 2013 will include computer equipment for our
SASSA contract and payment terminals for the expansion of our operations in
Korea.
Our historical capital
expenditures for the third quarter of fiscal 2013 and 2012 are discussed under
Liquidity and Capital ResourcesCash flows from investing activities
andRecent DevelopmentsSouth AfricaSASSA. 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, 2013, of $1.2 million
related mainly to computer equipment implement our new SASSA contract. We expect
to fund these expenditures through internally-generated funds.