2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Property, plant and equipment
Property,
plant and equipment are shown at cost less accumulated depreciation. Property,
plant and equipment are depreciated on the straight-line basis at rates which
are estimated to amortize the assets to their anticipated residual values over
their useful lives. Within the following asset classifications, the expected
economic lives are approximately:
Computer equipment
|
3 to 5 years
|
Office equipment
|
2 to 10 years
|
Vehicles
|
4 to 8 years
|
Furniture and fittings
|
5 to 10 years
|
Plant and equipment
|
5 to 10 years
|
The
gain or loss arising on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognized in income.
Goodwill
Goodwill
represents the excess of the purchase price of an acquired enterprise over the
fair values of the identifiable assets acquired and liabilities assumed. The
Company tests for impairment of goodwill on an annual basis and at any other
time if events or circumstances change that would more likely than not reduce
the fair value of the reporting unit goodwill below its carrying amount.
Circumstances
that could trigger an impairment test include but are not limited to: a
significant adverse change in the business climate or legal factors; an adverse
action or assessment by a regulator; unanticipated competition; loss of key
personnel; the likelihood that a reporting unit or significant portion of a
reporting unit will be sold or otherwise disposed; and results of testing for
recoverability of a significant asset group within a reporting unit.
If
the carrying amount of the reporting unit goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recorded in the statement of
operations. Measurement of the fair value of a reporting unit is based on one or
more of the following fair value measures: the amount at which the unit as a
whole could be bought or sold in a current transaction between willing parties;
present value techniques of estimated future cash flows; or valuation techniques
based on multiples of earnings or revenue, or a similar performance measure.
Intangible assets
Intangible
assets are shown at cost less accumulated amortization. Intangible assets are
amortized over the following useful lives:
Customer relationships
|
1 to 15 years
|
Software and unpatented technology
|
3 to 5 years
|
FTS patent
|
10 years
|
Exclusive licenses
|
7 years
|
Trademarks
|
3 to 20 years
|
Customer databases
|
3 years
|
Intangible
assets are periodically evaluated for recoverability, and those evaluations take
into account events or circumstances that warrant revised estimates of useful
lives or that indicate that impairment exists.
F-12
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Policy reserves and liabilities
Reserves for future policy benefits and claims payable:
The
Company determines its reserves for future policy benefits under its life
insurance products using the financial soundness valuation method and
assumptions as of the issue date as to mortality, interest, persistency and
expenses plus provisions for adverse deviations.
Deposits on investment contracts
For
the Companys interest-sensitive life contracts, liabilities approximate the
policyholders account value. For deferred annuities, the fixed option on
variable annuities, guaranteed investment contracts and other investment
contracts, the liability is the policyholders account value.
Reinsurance contracts held
The
Company enters into reinsurance contracts with reinsurers under which the
Company is compensated for the entire amount or a portion of losses arising on
one or more of the insurance contracts it issues.
The
expected benefits to which the Company is entitled under its reinsurance
contracts held are recognized as reinsurance assets. These assets consist of
short-term balances due from reinsurers (classified within accounts receivable,
net) as well as long-term receivables (classified within other long-term assets)
that are dependent on the present value of expected claims and benefits arising
net of expected premiums payable under the related reinsurance contracts.
Amounts recoverable from or due to reinsurers are measured consistently with the
amounts associated with the reinsured contracts and in accordance with the terms
of each reinsurance contract.
Reinsurance
assets are assessed for impairment at each balance sheet date. If there is
reliable objective evidence that amounts due may not be recoverable, the Company
reduces the carrying amount of the reinsurance asset to its recoverable amount
and recognizes that impairment loss in its condensed consolidated statement of
operations.
Reinsurance premiums are recognized when due for payment under each reinsurance
contract.
Sales taxes
Revenue and expenses are presented net of sales, use and value added taxes, as
the case may be.
Revenue recognition
The Company recognizes revenue when:
-
there is persuasive evidence of an agreement or arrangement;
-
delivery of products has occurred or services have been rendered;
-
the sellers price to the buyer is fixed or determinable; and
-
collectability is reasonably assured.
F-13
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
The Companys principal revenue streams and their respective accounting
treatments are discussed below:
Fees
Pension and welfare and South African participating merchants
The
Company provides a state welfare benefit distribution service to the South
Africa Social Security Agency. Fee income received for these services is
recognized in the statement of operations when distributions have been made to
the recipient cardholders.
Recipient
cardholders are able to load their welfare grants at merchants enrolled in the
Companys participating merchant system in certain provinces. There is no charge
to the recipient cardholder to load the grant onto a smart card at the merchant
location, however, a fee is charged to the merchant for purchases made at the
merchant using the smart card. A fee is also charged to the merchant when the
recipient cardholder makes a cash withdrawal. Fee income received for these
services is recognized in the statement of operations when the transaction
occurs.
Card VAN, banking VAN and payment gateway
Card
VAN services consist of services relating to authorization of credit card
transactions including transmission of transaction details (authorization
service), and collection of receipts associated with the credit card
transactions (collection service). With its authorization service, the Company
connects credit card companies with merchants online when a customer uses
his/her credit card via terminals installed at merchants sites and the
Companys central processing server for approval of credit card transactions.
Immediately after approval of credit card transactions, the Company transmits
details of the transactions to credit card companies online for processing
payments. Collection service captures the transaction data and gathers receipts
as documented evidence and provides them to credit card companies upon request.
The Company earns service fees based on the number of transactions processed for
credit card companies when services are rendered in accordance with the
contracts entered into between credit card companies and the Company. The
Company bills for its service charges to credit card companies each month. Each
service could be provided either individually or collectively, based on terms of
contracts.
The
Company charges commission fees to credit card companies for the authorization
service provided based on the number of approvals transferred. The right to
receive a service fee is due once a credit card transaction has been approved
and details of the transaction are transmitted by the Company. Therefore,
revenues from the authorization service are recognized when the credit card
transactions are authorized and details of the transactions are transmitted. The
Company earns a collection service fee once it has provided settled funds to the
credit card companies. Therefore, revenue from the collection service is
recognized when the Company collects the receipts and provides them to the card
companies.
For
multiple-element arrangements, the Company has identified two deliverables. The
first deliverable is the authorization service, and the second deliverable is
the collection service. The Company evaluates each deliverable in an arrangement
to determine whether it represents a separate unit of accounting. A deliverable
constitutes a separate unit of accounting when it has standalone value and there
are no customer-negotiated refunds or return rights for the delivered elements.
If the arrangement includes a customer-negotiated refund or return right
relative to the delivered item and the delivery and performance of the
undelivered item is considered probable and substantially in the Company's
control, the delivered element constitutes a separate unit of accounting. In
instances when the aforementioned criteria are not met, the deliverable is
combined with the undelivered elements and the allocation of the arrangement
consideration and revenue recognition is determined for the combined unit as a
single unit. Allocation of the consideration is determined at arrangement
inception on the basis of each unit's relative selling price. In such
circumstances, the Company uses a hierarchy to determine the selling price to be
used for allocating revenue to deliverables: (i) vendor-specific objective
evidence of fair value (VSOE), (ii) third-party evidence of selling price
(TPE), and (iii) best estimate of the selling price (ESP).
F-14
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Fees (continued)
Card VAN, banking VAN and payment gateway (continued)
VSOE
generally exists only when the Company sells the deliverable separately and is
the price actually charged by the Company for that deliverable. ESPs reflect the
Companys best estimates of what the selling prices of elements would be if they
were sold regularly on a stand-alone basis. Because the Company has neither VSOE
nor TPE for the two deliverables, the allocation of revenue has been based on
the Companys ESPs. Amounts allocated to the authorization and the collection
service are recognized at the time of service, provided the other conditions for
revenue recognition have been met.
The
Companys process for determining its ESP for deliverables without VSOE or TPE
considers multiple factors that may vary depending upon the unique facts and
circumstances related to each deliverable. Key factors considered by the Company
in developing the ESPs include prices charged by the Company, historical pricing
practices and controls, range of prices for various customers and the nature of
the services. Consideration is also given to market conditions such as
competitor pricing strategies and market perception.
Banking
VAN is a division supporting a companys fund management business (large payment
transfers, collections, etc.) by relaying financial transactions between client
companies and financial institutions. Financial transactions between two or more
business enterprises, or between business enterprises and their customers, are
conducted through the transaction-processing network established between the
Company and the banks. Revenue from the banking VAN service is recognized when
the service is rendered by the Company.
With
its PG service, the Company provides the Internet-based settlement service
between an on-line shopping mall and a credit card company when a customer uses
his/her credit card, debit card or on-line payment to pay for goods or services.
The Company receives fees for carrying out settlements for electronic
transactions. Revenue from the PG service is recognized when the service is
rendered by the Company.
Microlending service fee
The
Company provides short-term loans to customers in South Africa and charges and
recognizes monthly service fee revenue over the term of the loan. The monthly
service fee amount is fixed upon initiation and does not change over the term of
the loan.
Other fees and commissions
The
Company provides an automated payment collection service to third parties, for
which it charges monthly fees. These fees are recognized in the statement of
operations as the underlying services are performed. The Company provides
medical-related claims adjudication, reconciliation and settlement services
(medical-related claim service) to customers, for which it charges fees. These
fees are recognized in the statement of operations as the underlying services
are performed. The Company sells prepaid electricity and recognizes a commission
in its statement of operations once the prepaid electricity token has been
delivered to the customer.
Contract variations fees
The Company records additional revenue from variations to contracts for the
provision of state welfare benefits, if:
-
there is persuasive evidence of an agreement; and
-
collectability is reasonably assured; and
-
all material terms and conditions of the agreement have been adhered to.
F-15
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Hardware and prepaid airtime voucher sales
Revenue
from hardware and airtime voucher sales is recognized when risk of loss has
transferred to the customer and there are no unfulfilled Company obligations
that affect the customers final acceptance of the arrangement. Any cost of
warranties and remaining obligations that are inconsequential or perfunctory are
accrued when the corresponding revenue is recognized.
The
Company buys terminals from manufacturers, and subsequently sells them through
its agencies. Revenue is recognized when significant risks and rewards of
ownership of terminals have passed to the buyer, usually on delivery of the
terminals to the buyer.
To
the extent that sales of hardware are made in an arrangement that includes
software that is more than incidental, the Company considers post-contract
maintenance and technical support or other future obligations which could impact
the timing and amount of revenue recognized.
Software
Revenue
from licensed software is recognized on a subscription basis over the period
that the client is entitled to use the license. Revenue from the sale of
software is recognized if all revenue recognition criteria have been met.
Post-contract maintenance and technical support in respect of software is
generally negotiated and sold as a separate service and is recognized over the
period such items are delivered.
Systems implementation projects
The
Company undertakes smart card system implementation projects. The hardware and
software installed in these projects are in the form of customized systems,
which ordinarily involve modification to meet the customers specifications.
Software delivered under such arrangements is available to the customer
permanently, subject to the payment of annual license fees. Revenue for such
arrangements is recognized under the percentage of completion method, save for
annual license fees, which are recognized in the period to which they relate.
Up-front and interim payments received are recorded as client deposits until
customer acceptance.
The
Companys customer arrangements may have multiple deliverables. Generally, the
Companys multiple element arrangements fall within the scope of specific
accounting standards that provide guidance regarding the separation of elements
in multiple-deliverable arrangements and the allocation of consideration among
those elements. If not, the Company unbundles multiple element arrangements into
separate units of accounting when the delivered element(s) has stand-alone value
and fair value of the undelivered element(s) exists.
Terminal rental income
The
Company leases terminals to merchants participating in its merchant acquiring
system. Operating rental income is recognized monthly on a straight-line basis
in accordance with the lease agreement.
Other income
Revenue
from service and maintenance activities is charged to customers on a
time-and-materials basis and is recognized in the statement of operations as
services are delivered to customers.
Research and development expenditure
Research
and development expenditures is charged to net income in the period in which it
is incurred. During the years ended June 30, 2013, 2012 and 2011, the Company
incurred research and development expenditures of $1.3 million, $3.9 million and
$5.7 million, respectively.
F-16
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Computer software development
Product
development costs in respect of software intended for sale to licensees are
expensed as incurred until technological feasibility is attained. Technological
feasibility is attained when the Companys software has completed system testing
and has been determined to be viable for its intended use. The time between the
attainment of technological feasibility and completion of software development
is generally short with immaterial amounts of development costs incurred during
this period.
Costs
in respect of the development of software for the Companys internal use are
expensed as incurred, except to the extent that these costs are incurred during
the application development stage. All other costs including those incurred in
the project development and post-implementation stages are expensed as incurred.
Income taxes
The
Company provides for income taxes using the asset and liability method. This
approach recognizes the amount of taxes payable or refundable for the current
year, as well as deferred tax assets and liabilities for the future tax
consequence of events recognized in the financial statements and tax returns.
Deferred income taxes are adjusted to reflect the effects of changes in tax laws
or enacted tax rates.
The
Company measured its South African income taxes and deferred income taxes for
the years ended June 30, 2013 and 2012, using the enacted statutory tax rate in
South Africa of 28%. On December 20, 2011, there was a change in South African
tax law to impose a dividends withholding tax (a tax levied and withheld by a
company on distributions to its shareholders) to replace the Secondary Taxation
on Companies (a tax levied directly on a company on dividend distributions)
(STC). The change was effective on April 1, 2012. For years prior to 2012 the
tax rate in South Africa varied depending on whether income was distributed.
During the year ended June 30, 2011, the income tax rate was 28%, but upon
distribution, STC of 10% was due based on the amount of dividends declared net
of dividends received during a dividend cycle. The Company therefore measured
its income taxes and deferred income taxes for the year ended June 30, 2011
using a combined rate of 34.55% .
Currently
the Company intends to permanently reinvest its undistributed South African
earnings as of June 30, 2013 in South Africa. Accordingly, the Company has not
recognized a deferred tax liability related to any future distributions of these
undistributed earnings. The Company will be required to record a taxation charge
if it decides not to permanently reinvest its undistributed earnings. This may
result in an increase in the Companys effective tax rate in future periods.
In
establishing the appropriate deferred tax asset valuation allowances, the
Company assesses the realizability of its net deferred tax assets, and based on
all available evidence, both positive and negative, determines whether it is
more likely than not that the net deferred tax assets or a portion thereof will
be realized.
Uncertain
tax positions are recognized in the financial statements for positions which are
considered more likely than not of being sustained based on the technical merits
of the position on audit by the tax authorities. The measurement of the tax
benefit recognized in the financial statements is based upon the largest amount
of tax benefit that, in managements judgement, is greater than 50% likely of
being realized based on a cumulative probability assessment of the possible
outcomes.
The
Companys policy is to include interest related to unrecognized tax benefits in
interest expense and penalties in selling, general and administration in the
consolidated statements of operations.
Stock-based compensation
Stock-based
compensation represents the cost related to stock-based awards granted. The
Company measures equity-based stock-based compensation cost at the grant date,
based on the estimated fair value of the award, and recognizes the cost as an
expense on a straight-line basis (net of estimated forfeitures) over the
requisite service period. In respect of awards with only service conditions that
have a graded vesting schedule, the Company recognizes compensation cost on a
straight-line basis over the requisite service period for the entire award. The
forfeiture rate is estimated using historical trends of the number of awards
forfeited prior to vesting. The expense is recorded in the statement of
operations and classified based on the recipients respective functions.
F-17
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Stock-based compensation (continued)
The
Company records deferred tax assets for awards that result in deductions on the
Companys income tax returns, based on the amount of compensation cost
recognized and the Companys statutory tax rate in the jurisdiction in which it
will receive a deduction. Differences between the deferred tax assets recognized
for financial reporting purposes and the actual tax deduction reported on the
Companys income tax return are recorded in additional paid-in capital (if the
tax deduction exceeds the deferred tax asset) or in the statement of operations
(if the deferred tax asset exceeds the tax deduction and no additional paid-in
capital exists from previous awards).
Equity instruments issued to third parties
Equity
instruments issued to third parties represents the cost related to equity
instruments granted. The Company measures this cost at the grant date, based on
the estimated fair value of the award, and recognizes the cost as an expense on
a straight-line basis (net of estimated forfeitures) over the requisite service
period. The forfeiture rate is estimated based on the Companys expectation of
the number of awards that will be forfeited prior to vesting.
The
Company records deferred tax assets for equity instrument awards that result in
deductions on the Companys income tax returns, based on the amount of equity
instrument cost recognized and the Companys statutory tax rate in the
jurisdiction in which it will receive a deduction. Differences between the
deferred tax assets recognized for financial reporting purposes and the actual
tax deduction reported on the Companys income tax return are recorded in the
statement of operations.
Settlement assets and settlement obligations
Settlement
assets comprise (1) cash received from the South African government that the
Company holds pending disbursement to recipient cardholders of social welfare
grants, (2) cash received from health care plans which the Company disburses to
health care service providers once it adjudicates claims and (3) cash received
from customers on whose behalf the Company processes payroll payments that the
Company will disburse to customer employees, payroll-related payees and other
payees designated by the customer.
Settlement
obligations comprise (1) amounts that the Company is obligated to disburse to
recipient cardholders 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.
Recent accounting pronouncements adopted
The
following summary of recent accounting pronouncements reflects only the new
authoritative accounting guidance issued that is relevant and applicable to the
Company.
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.
F-18
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
Recent accounting pronouncements not yet adopted as of June 30, 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.
3. ACQUISITIONS
The
cash paid, net of cash received related to the Companys various acquisitions
during the years ended June 30, 2013, 2012 and 2011 are summarized in the table
below:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Pbel (Proprietary) Limited (Pbel)
|
$
|
1,913
|
|
$
|
-
|
|
$
|
-
|
|
SmartSwitch Botswana (Proprietary) Limited (SmartSwitch
Botswana)
|
|
230
|
|
|
-
|
|
|
-
|
|
The Smart Life Insurance Company Limited
(Smart Life)
|
|
-
|
|
|
1,673
|
|
|
-
|
|
Prepaid business
|
|
-
|
|
|
4,481
|
|
|
-
|
|
KSNET
|
|
-
|
|
|
-
|
|
|
230,225
|
|
Total cash paid, net of cash received
|
$
|
2,143
|
|
$
|
6,154
|
|
$
|
230,225
|
|
2013 acquisitions
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.
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. SmartSwitch
Botswana has been allocated to the Companys International transaction-based
activities operating segment.
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 a three-year
measurement period. 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 measurement period is achieved or if the Company
decides to abandon its Mobile Virtual Card initiative. During the year ended
June 30, 2013, Pbel achieved its pre-defined financial performance milestones
for the first year and the sellers earned 47,412 shares of the Companys common
stock.
F-19
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS
(continued)
2013 acquisitions (continued)
Pbel (Proprietary) Limited (continued)
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. See also Note 24.
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 Net1 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. Pbel has been allocated to the Companys South
African transaction-based activities operating segment.
The
final purchase price allocation of SmartSwitch Botswana and Pbel acquisitions,
translated at the foreign exchange rates applicable on the date of acquisition,
is provided in the table below:
|
|
SmartSwitch
|
|
|
|
|
|
|
|
|
|
Botswana
|
|
|
Pbel
|
|
|
Total
|
|
Cash and cash equivalents
|
$
|
584
|
|
$
|
660
|
|
$
|
1,244
|
|
Accounts receivable, net
|
|
-
|
|
|
234
|
|
|
234
|
|
Inventory
|
|
150
|
|
|
-
|
|
|
150
|
|
Other current assets
|
|
-
|
|
|
-
|
|
|
-
|
|
Property, plant and equipment, net
|
|
472
|
|
|
92
|
|
|
564
|
|
Intangible assets (Note 9)
|
|
-
|
|
|
1,785
|
|
|
1,785
|
|
Goodwill (Note 9)
|
|
657
|
|
|
1,710
|
|
|
2,367
|
|
Other payables
|
|
(218
|
)
|
|
(65
|
)
|
|
(283
|
)
|
Income taxes payable
|
|
-
|
|
|
(93
|
)
|
|
(93
|
)
|
Deferred tax liabilities
|
|
(17
|
)
|
|
(494
|
)
|
|
(511
|
)
|
Fair value of
assets and liabilities on acquisition
|
|
1,628
|
|
|
3,829
|
|
|
5,457
|
|
Less: gain on re-measurement of
previously held interest in
|
|
|
|
|
|
|
|
|
|
SmartSwitch
Botswana
|
|
(328
|
)
|
|
-
|
|
|
(328
|
)
|
Less: carrying value of
SmartSwitch Botswana, an equity
|
|
|
|
|
|
|
|
|
|
accounted
investment, at the acquisition date
|
|
(486
|
)
|
|
-
|
|
|
(486
|
)
|
Total purchase price
|
$
|
814
|
|
$
|
3,829
|
|
$
|
4,643
|
|
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 year ended June 30, 2013, the Company
incurred acquisition-related expenditure of $0.1 million related to these
acquisitions. Since the closing of the SmartSwitch Botswana acquisition, it has
contributed revenue and net income of $0.7 million and $0.02 million,
respectively, for the year ended June 30, 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 $1.1 million and $0.5
million, respectively, for the year ended June 30, 2013.
2012 acquisitions
Acquisition of prepaid airtime and electricity business
On
October 3, 2011, the Company acquired the South African prepaid airtime and
electricity businesses of Eason & Son, Ltd (Eason), an Irish private
limited company, for approximately $4.5 million in cash. The principal assets
acquired comprise prepaid airtime and electricity businesses customer list,
accounts receivable books, inventory and a perpetual license to utilize Easons
internally developed transaction-based system software (EBOS).
F-20
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS
(continued)
2012 acquisitions (continued)
Acquisition
of prepaid airtime and electricity business (continued)
The
business has been integrated with EasyPay and allocated to the Companys South
African transaction-based activities operating segment. The Company believes
that the acquisition will enable it to expand its prepaid customer base and over
time integrate all of its prepaid offerings onto the EBOS system.
Smart Life
On
July 1, 2011, the Company acquired Smart Life (formerly known as Saambou Life
Assurers Limited), a South African long-term insurance company, for ZAR 13
million (approximately $1.8 million) in cash. Prior to its acquisition by the
Company, Smart Life had been administered as a ring-fenced life-insurance
license by a large South African insurance company, had not written any new
insurance business for a number of years and had reinsured all of its risk
exposure under its life insurance products. Smart Life has been allocated to the
Companys financial services operating segment. In November 2011, the Company
sold 10% of Smart Life to a strategic partner for $0.1 million and recognized a
loss on sale of $0.08 million.
The
acquisition of Smart Life provides the Company with an opportunity to offer
relevant insurance products directly to its existing customer and employee base
in South Africa. The Company intends to offer this customer base a full spectrum
of products applicable to this market segment, including credit life, group
life, funeral and education insurance policies.
The
final purchase price allocation of the prepaid business and Smart Life
acquisitions, translated at the foreign exchange rates applicable on the date of
acquisition, are provided in the table below:
|
|
Prepaid
|
|
|
|
|
|
|
|
|
|
business
|
|
|
Smart Life
|
|
|
Total
|
|
Accounts receivable, net
|
$
|
1,083
|
|
$
|
152
|
|
$
|
1,235
|
|
Inventory
|
|
305
|
|
|
-
|
|
|
305
|
|
Customer relationships
|
|
895
|
|
|
-
|
|
|
895
|
|
Software and unpatented technology
|
|
2,449
|
|
|
-
|
|
|
2,449
|
|
Deferred tax liability
|
|
(251
|
)
|
|
-
|
|
|
(251
|
)
|
Cash and cash equivalents
|
|
-
|
|
|
169
|
|
|
169
|
|
Financial investments
(allocated to other long-term assets)
|
|
-
|
|
|
3,059
|
|
|
3,059
|
|
Reinsurance assets (allocated to other
long-term assets)
|
|
-
|
|
|
28,492
|
|
|
28,492
|
|
Other payables
|
|
-
|
|
|
(185
|
)
|
|
(185
|
)
|
Policy holder liabilities (allocated to other
long-term liabilities)
|
|
-
|
|
|
(29,845
|
)
|
|
(29,845
|
)
|
Total
purchase price
|
$
|
4,481
|
|
$
|
1,842
|
|
$
|
6,323
|
|
During
the year ended June 30, 2012, the Company did not incur transaction-related
expenditures related to these acquisitions.
2011 acquisitions
98.73% of KSNET Inc. (KSNET) in October 2010 and final settlement in December
2011
On
October 29, 2010, the Company acquired KSNET for KRW 270 billion (approximately
$240 million based on exchange rates on October 29, 2010), and a post-closing
working capital adjustment. The acquisition of KSNET expands the Companys
international footprint as well as diversifies the Companys revenue, earnings
and product portfolio. In December 2011, the Company received $4.9 million, in
cash, in final settlement of any and all claims and contractual adjustments
between the Company and the former shareholders of KSNET. This amount has been
applied against the goodwill recognized on the acquisition of KSNET and has
reduced the goodwill balance. As required by the Companys Korean debt
agreement, the Company has used the settlement proceeds to prepay a portion of
its outstanding debt thereunder. The prepayment was made on January 30, 2012.
F-21
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS (continued)
2011 acquisitions (continued)
98.73% of KSNET Inc. (KSNET) in October 2010 and final settlement in December
2011 (continued)
Most
of KSNETs revenue is derived from the provision of payment processing services
to approximately 220,000 merchants and to card issuers in Korea through its VAN.
KSNET has a diverse product offering and the Company believes it is the only
total payments solutions provider offering card VAN, PG and banking VAN services
in Korea, which differentiates KSNET from other Korean payment solution
providers and allows it to cross-sell its products across its customer base.
The following table sets forth the allocation of the purchase price:
|
|
|
June 30,
|
|
|
Fiscal 2012
|
|
|
June 30,
|
|
|
|
|
2012
|
|
|
settlement
|
|
|
2011
|
|
|
Cash and cash equivalents
|
$
|
10,507
|
|
$
|
-
|
|
$
|
10,507
|
|
|
Accounts receivable, net
|
|
28,748
|
|
|
-
|
|
|
28,748
|
|
|
Inventory
|
|
2,788
|
|
|
-
|
|
|
2,788
|
|
|
Current deferred tax assets
|
|
837
|
|
|
(74
|
)
|
|
911
|
|
|
Settlement assets
|
|
13,164
|
|
|
-
|
|
|
13,164
|
|
|
Long-term receivable
|
|
288
|
|
|
-
|
|
|
288
|
|
|
Property, plant and equipment
|
|
24,052
|
|
|
-
|
|
|
24,052
|
|
|
Goodwill (Note 9)
|
|
115,900
|
|
|
(4,239
|
)
|
|
120,139
|
|
|
Intangible assets (Note 9)
|
|
102,829
|
|
|
-
|
|
|
102,829
|
|
|
Other long-term assets
|
|
6,324
|
|
|
-
|
|
|
6,324
|
|
|
Trade payables
|
|
(9,643
|
)
|
|
-
|
|
|
(9,643
|
)
|
|
Other payables
|
|
(14,789
|
)
|
|
(696
|
)
|
|
(14,093
|
)
|
|
Income taxes payable
|
|
(3,363
|
)
|
|
-
|
|
|
(3,363
|
)
|
|
Settlement obligations
|
|
(13,164
|
)
|
|
-
|
|
|
(13,164
|
)
|
|
Long-term deferred income tax liabilities
(Note 19)
|
|
(24,459
|
)
|
|
-
|
|
|
(24,459
|
)
|
|
Other long-term liabilities
|
|
(1,199
|
)
|
|
-
|
|
|
(1,199
|
)
|
|
Total net assets attributable
to shareholders, including goodwill
|
|
238,820
|
|
|
(5,009
|
)
|
|
243,829
|
|
|
Less attributable to
non-controlling interest
|
|
(3,033
|
)
|
|
64
|
|
|
(3,097
|
)
|
|
Total purchase price
|
$
|
235,787
|
|
$
|
(4,945
|
)
|
$
|
240,732
|
|
The Company incurred transaction-related expenditures of $5.6 million during the
year ended June 30, 2011.
19.9% of Net1 Universal Electronic Technologies (Austria) AG, formerly BGS
Smartcard Systems AG (Net1 UTA)
On
December 23, 2010, the Company acquired the remaining 19.9% of the issued share
capital of Net 1 Universal Technologies (Austria) AG (Net1 UTA) for $0.6
million in cash. The Company now owns 100% of Net1 UTA. The transaction was
accounted for as an equity transaction with a non-controlling interest and
accordingly, no gain or loss was recognized in the Companys consolidated
statement of operations. The carrying amount of the non-controlling interest was
adjusted to reflect the change in ownership interest in Net1 UTA. The difference
between the fair value of the consideration paid and the amount by which the
non-controlling interest was adjusted, of $0.9 million, was recognized in equity
attributable to Net1.
4.
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 July 2013
payment service commenced on July 1, 2013, but the Company pre-funded certain
merchants participating in the merchant acquiring systems in the last two days
of June 2013. The July 2012 payment service commenced on July 1, 2012, but the
Company pre-funded certain merchants participating in the merchant acquiring
systems in the last two days of June 2012.
F-22
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
5.
ACCOUNTS RECEIVABLE, net
|
|
|
2013
|
|
|
|
|
2012
|
|
|
Accounts receivable,
trade, net
|
$
|
41,225
|
|
|
|
$
|
50,406
|
|
|
Accounts receivable,
trade, gross
|
|
45,926
|
|
|
|
|
51,194
|
|
|
Allowance
for doubtful accounts receivable, end of year
|
|
4,701
|
|
|
|
|
788
|
|
|
Allowance
for doubtful accounts receivable, beginning of year
re-measured
at year end rates
|
|
709
|
|
|
|
|
621
|
|
|
Allowance reversed to statement of operations, re-measured at year
end rates .
|
|
(85
|
)
|
|
|
|
(114
|
)
|
|
Allowance
acquired in acquisitions, re-measured at year end rates
|
|
-
|
|
|
|
|
131
|
|
|
Allowance charged to statement of operations, re-measured at year
end rates
|
|
4,082
|
|
|
|
|
50
|
|
|
Amount
utilized, re-measured at year end rates
|
|
(5
|
|
|
|
|
100
|
|
|
Other
receivables
|
|
61,389
|
|
|
|
|
51,512
|
|
|
Total accounts receivable, net
|
$
|
102,614
|
|
|
|
$
|
101,918
|
|
Receivables
from customers renting POS equipment from the Company are included in accounts
receivable, trade, and are stated net of an allowance for certain amounts that
the Companys management has identified may be unrecoverable. Accounts
receivable, trade, also includes amounts due by customers from the sale of
hardware, software licenses and SIM cards and provision of transaction
processing services. During the year ended June 30, 2013, 2012 and 2011,
respectively, the Company recorded a bad debt expense of $0.4 million, $0.2
million and $1.3 million.
Cash
payments to agents in Korea are amortized over the contract period with the
agent. As of June 30, 2013 and 2012, respectively, other receivables include
approximately $32.4 million and $24.5 million related to these prepayments.
6. INVENTORY
The Companys inventory comprised the following categories as of June
30, 2013 and 2012.
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
-
|
|
$
|
30
|
|
Finished goods
|
|
12,222
|
|
|
10,749
|
|
|
$
|
12,222
|
|
$
|
10,779
|
|
The
Company presented deferred expenditures on smart cards of $4.6 million under a
separate caption on its consolidated balance sheet in its 2012 Annual Report.
Deferred expenditures on smart cards represented the cost of smart cards to be
issued to grant recipient cardholders in South Africa pursuant to the Companys
SASSA contract. Recipient cardholders receive their first card for free but are
charged a replacement card fee if the card is lost and a replacement card is
issued. The Company believes it appropriate to reclassify these deferred
expenditures on smart cards to inventory as the smart card is a consumable item.
Accordingly the finished goods as of June 30, 2012, presented in the table above
of $10,749 include the deferred expenditures on smart cards of $4,587 presented
under a separate caption in the Companys 2012 Annual Report.
The
Company also presented (increase) decrease in deferred expenditures on smart
cards under a separate caption on its consolidated statements of cash flow in
its 2012 Annual Report. The Company has reclassified the increase in deferred
expenditures on smart cards of $4,554 presented in its consolidated statements
of cash flow for the twelve months ended June 30, 2012, in its 2012 Annual
Report to (increase) decrease in inventory in this Annual Report. Accordingly,
the $5,271 presented in (increase) decrease in inventory for the twelve months
ended June 30, 2012, in the Companys consolidated statements of cash flow
includes the $4,554. There were no cash flow movements in deferred expenditures
on smart cards during the twelve months ended June 30, 2011.
F-23
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF
FINANCIAL INSTRUMENTS
Fair value of financial instruments
Initial recognition and measurement
Financial
instruments are recognized when the Company becomes a party to the transaction.
Initial measurements are at cost, which includes transaction costs subsequent to
initial recognition. These instruments are measured as set out below:
Risk managemen
t
The
Company seeks to reduce its exposure to currencies other than the South African
rand through a policy of matching, to the extent possible, assets and
liabilities denominated in those currencies. In addition, the Company uses
financial instruments in order to economically hedge its exposure to exchange
rate and interest rate fluctuations arising from its operations. The Company is
also exposed to equity price and liquidity risks as well as credit risks.
Currency exchange risk
The
Company is subject to currency exchange risk because it purchases inventories
that it is required to settle in other currencies, primarily the euro and US
dollar. The Company has used forward contracts in order to limit its exposure in
these transactions to fluctuations in exchange rates between the South African
rand, on the one hand, and the US dollar and the euro, on the other hand.
The Companys outstanding foreign exchange contracts are as
follows:
As of June 30, 2013
|
|
|
|
Fair market
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
USD
|
4,000,000
|
ZAR
|
9.06
|
ZAR
|
10.1397
|
September 30,
2013
|
As of June 30, 2012
None.
Translation risk
Translation
risk relates to the risk that the Companys results of operations will vary
significantly as the US dollar is its reporting currency, but it earns most of
its revenues and incurs most of its expenses in ZAR. The US dollar to ZAR
exchange rate has fluctuated significantly over the past two years. As exchange
rates are outside the Companys control, there can be no assurance that future
fluctuations will not adversely affect the Companys results of operations and
financial condition.
Interest rate risk
As
a result of its normal borrowing and leasing activities, the Companys operating
results are exposed to fluctuations in interest rates, which it manages
primarily through regular financing activities. The Company generally maintains
limited investment in cash equivalents and has occasionally invested in
marketable securities. The Company, through its recently acquired insurance
business, maintains investments in fixed maturity investments which are exposed
to fluctuations in interest rates.
Credit risk
Credit
risk relates to the risk of loss that the Company would incur as a result of
non-performance by counterparties. The Company maintains credit risk policies
with regard to its counterparties to minimize overall credit risk. These
policies include an evaluation of a potential counterpartys financial
condition, credit rating, and other credit criteria and risk mitigation tools as
the Companys management deems appropriate.
F-24
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF
FINANCIAL INSTRUMENTS (continued)
Fair
value of financial instruments (continued)
Risk management (continued)
Credit risk (continued)
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.
UEPS-based microlending credit risk
The
Company is exposed to credit risk in its UEPS-based microlending activities,
which provides unsecured short-term loans to qualifying customers, primarily its
social grant recipient cardholder base. The Company manages this risk by
performing an affordability test for each prospective customer and assigns a
creditworthiness score, which takes into account a variety of factors such as
other debts and total expenditures on normal household and lifestyle expenses.
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. The
market price of these securities may fluctuate for a variety of reasons,
consequently, the amount the Company may obtain in a subsequent sale of these
securities may significantly differ from the reported market value.
Liquidity
risk relates to the risk of loss that the Company would incur as a result of the
lack of liquidity on the exchange on which these securities are listed. The
Company may not be able to sell some or all of these securities at one time, or
over an extended period of time without influencing the exchange traded price,
or at all.
Financial instruments
Fair
value is defined as the price that would be received upon sale of an asset or
paid upon transfer of a liability in an orderly transaction between market
participants at the measurement date and in the principal or most advantageous
market for that asset or liability. The fair value should be calculated based on
assumptions that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition, the fair
value of liabilities should include consideration of non-performance risk
including the Companys own credit risk.
Fair
value measurements and inputs are categorized into a fair value hierarchy which
prioritizes the inputs into three levels based on the extent to which inputs
used in measuring fair value are observable in the market. Each fair value
measurement is reported in one of the three levels which is determined by the
lowest level input that is significant to the fair value measurement in its
entirety.
These levels are:
-
Level 1 inputs are based upon unadjusted quoted prices for identical
instruments traded in active markets.
-
Level 2 inputs are based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
-
Level 3 inputs are generally unobservable and 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.
F-25
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF
FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
The
following section describes the valuation methodologies the Company uses to
measure financial assets and liabilities at fair value.
Investments in common stock
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 would apply 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 would be included in Level 2 investments. In
circumstances in which inputs are generally unobservable, values typically
reflect managements estimates of assumptions that market participants would use
in pricing the asset or liability. The fair values are therefore determined
using model-based techniques that include option pricing models, discounted cash
flow models, and similar techniques. Investments valued using such techniques
are included in Level 3 investments.
Asset
measured at fair value using significant unobservable inputs investment in
Finbond Group Limited (Finbond)
The
Company's Level 3 asset represents an investment of 156,788,712 shares of common
stock of Finbond, which are exchange-traded equity securities. Finbonds shares
are traded on the JSE Limited (JSE) and the Company has designated such shares
as available for sale investments. The Company has concluded that the market for
Finbond shares is not active and consequently has employed alternative valuation
techniques in order to determine the fair value of such stock. Currently, the
operations of Finbond relate primarily to the provision of microlending
products. In determining the fair value of Finbond, the Company has considered
amongst other things Finbonds historical financial information (including its
most recent public accounts), press releases issued by Finbond and its published
net asset value. The Company believes that the best indicator of fair value of
Finbond is its published net asset value and has used this value to determine
the fair value.
The
fair value of these securities as of June 30, 2013, represented approximately 1%
of the Companys total assets, including these securities. The Company expects
to hold these securities for an extended period of time and it is not concerned
with short-term equity price volatility with respect to these securities
provided that the underlying business, economic and management characteristics
of the company remain sound.
In
March 2012, Finbond completed a rights issue and the Company acquired an
additional 72,156,187 shares for approximately $1 million. The Companys
ownership interest in Finbond as of June 30, 2013, is approximately 26%. The
Company has no rights to participate in the financial, operating, or governance
decisions made by Finbond. The Company also has no participation on Finbonds
board of directors whether through contractual agreement or otherwise.
Consequently, the Company has concluded that it does not have significant
influence over Finbond and therefore equity accounting is not appropriate.
Derivative transactions - Foreign exchange contracts
As
part of the Companys risk management strategy, the Company enters into
derivative transactions to mitigate exposures to foreign currencies using
foreign exchange contracts. These foreign exchange contracts are
over-the-counter customized derivative transactions. Substantially all of the
Companys derivative exposures are with counterparties that have long-term
credit ratings of BBB or better. The Company uses quoted prices in active
markets for similar assets and liabilities to determine fair value. The Company
has no derivatives that require fair value measurement under level 1 or 3 of the
fair value hierarchy.
F-26
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF
FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
The
following table presents the Companys assets and liabilities measured at fair
value on a recurring basis as of June 30, 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
|
$
|
1,833
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,833
|
|
Investment in Finbond
(available for sale assets
included in other
long-term assets)
|
|
-
|
|
|
-
|
|
|
8,303
|
|
|
8,303
|
|
Other
|
|
-
|
|
|
147
|
|
|
-
|
|
|
147
|
|
Total assets at
fair value
|
$
|
1,833
|
|
$
|
147
|
|
$
|
8,303
|
|
$
|
10,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
-
|
|
$
|
436
|
|
$
|
-
|
|
$
|
436
|
|
Total
liabilities at fair value
|
$
|
-
|
|
$
|
436
|
|
$
|
-
|
|
$
|
436
|
|
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
|
|
Changes
in the Companys investment in Finbond (Level 3 that are measured at fair value
on a recurring basis) were insignificant during the years ended June 30, 2013
and 2012, respectively. There have been no transfers in or out of Level 3 during
the years ended June 30, 2013 and 2012, respectively.
Trade and other receivables
Trade
and other receivables originated by the Company are stated at cost less
allowance for doubtful accounts receivable. The fair value of trade and other
receivables approximate their carrying value due to their short-term nature.
F-27
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF
FINANCIAL INSTRUMENTS (continued)
Financial instruments (continued)
Trade and other payables
The fair values of trade and other payables approximates their carrying
amounts, due to their short-term nature.
Assets and liabilities measured at fair value on a nonrecurring
basis
The
Company measures its assets 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 assets 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 assets 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 assets 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.
8. PROPERTY, PLANT
AND EQUIPMENT, net
|
|
2013
|
|
|
2012
|
|
Cost:
|
|
|
|
|
|
|
Land
|
$
|
858
|
|
$
|
847
|
|
Building and structures
|
|
471
|
|
|
465
|
|
Computer
equipment
|
|
101,536
|
|
|
88,669
|
|
Furniture and office equipment
|
|
7,864
|
|
|
14,091
|
|
Motor vehicles
|
|
22,127
|
|
|
20,413
|
|
Plant and equipment
|
|
253
|
|
|
2,373
|
|
|
|
133,109
|
|
|
126,858
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
Land
|
|
-
|
|
|
-
|
|
Building and structures
|
|
92
|
|
|
67
|
|
Computer
equipment
|
|
69,573
|
|
|
59,062
|
|
Furniture and office equipment
|
|
5,627
|
|
|
5,815
|
|
Motor vehicles
|
|
9,263
|
|
|
7,178
|
|
Plant and equipment
|
|
253
|
|
|
2,120
|
|
|
|
84,808
|
|
|
74,242
|
|
Carrying amount:
|
|
|
|
|
|
|
Land
|
|
858
|
|
|
847
|
|
Building and structures
|
|
379
|
|
|
398
|
|
Computer
equipment
|
|
31,963
|
|
|
29,607
|
|
Furniture and office equipment
|
|
2,237
|
|
|
8,276
|
|
Motor vehicles
|
|
12,864
|
|
|
13,235
|
|
Plant and equipment
|
|
-
|
|
|
253
|
|
|
$
|
48,301
|
|
$
|
52,616
|
|
F-28
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. GOODWILL AND
INTANGIBLE ASSETS, net
Goodwill
Summarized below is the movement in the carrying value of goodwill for
the years ended June 30, 2013, 2012 and 2011:
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Gross value
|
|
|
impairment
|
|
|
value
|
|
|
Balance as of July 1, 2010
|
$
|
117,734
|
|
$
|
(41,388
|
)
|
$
|
76,346
|
|
|
Acquisition of KSNET (Note 3)
|
|
120,139
|
|
|
-
|
|
|
120,139
|
|
|
Foreign currency
adjustment
(1)
|
|
20,211
|
|
|
(7,126
|
)
|
|
13,085
|
|
|
Balance as of June 30, 2011
|
|
258,084
|
|
|
(48,514
|
)
|
|
209,570
|
|
|
Reduction in
goodwill related to net settlement (Note 3)
|
|
(4,239
|
)
|
|
-
|
|
|
(4,239
|
)
|
|
Foreign currency adjustment
(1)
|
|
(28,957
|
)
|
|
6,363
|
|
|
(22,594
|
)
|
|
Balance as of June 30, 2012
|
|
224,888
|
|
|
(42,151
|
)
|
|
182,737
|
|
|
Acquisition of Pbel (Note 3)
|
|
1,710
|
|
|
-
|
|
|
1,710
|
|
|
Acquisition of
SmartSwitch Botswana (Note 3)
|
|
657
|
|
|
-
|
|
|
657
|
|
|
Foreign currency adjustment
(1)
|
|
(8,697
|
)
|
|
(601
|
)
|
|
(9,298
|
)
|
|
Balance as of June 30, 2013
|
$
|
218,558
|
|
|
($42,752
|
)
|
$
|
175,806
|
|
(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, SmartSwitch Botswana and KSNET
represents the excess of cost over the fair value of acquired net assets. The
Pbel, SmartSwitch Botswana and KSNET goodwill is not deductible for tax
purposes. See Note 3 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 and
KSNET to the international transaction-based activities operating segment.
The
Company assesses the carrying value of goodwill for impairment annually, or more
frequently, whenever events occur and circumstances change indicating potential
impairment. The Company performs its annual impairment test as at June 30 of
each year. The results of our impairment tests during the year ended June 30,
2013 and 2012, indicated that the fair value of the Companys reporting units
exceeded their carrying values and therefore the Companys reporting units were
not at risk of potential impairment.
Goodwill has been allocated to the Companys reportable segments as follows:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
South African
transaction-based activities
|
$
|
30,525
|
|
$
|
34,692
|
|
International transaction-based activities
|
|
113,972
|
|
|
111,798
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
31,309
|
|
|
36,247
|
|
Total
|
$
|
175,806
|
|
$
|
182,737
|
|
F-29
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. GOODWILL AND
INTANGIBLE ASSETS, net (continued)
Intangible assets, net
Impairment loss during the year ended June 30, 2011
The
Company assesses the carrying value of intangible assets for impairment whenever
events occur or circumstances change indicating that the carrying amount of the
intangible asset may not be recoverable. During the year ended June 30, 2011,
one of Net1 UTAs largest customers advised the Company of its intention to
transition to an alternative payment platform. As a consequence of this
development, as well as deteriorating trading conditions and uncertainty
surrounding the timing and quantum of future net cash inflows, the Company
reviewed customer relationships acquired as part of the Net1 UTA acquisition for
impairment. As a result of this review, the Company recognized an impairment
loss of $41.8 million during its third quarter of fiscal 2011 related to the
entire carrying value of customer relationships acquired in the Net1 UTA
acquisition in August 2008. In addition, the Company reversed the deferred tax
liability of $10.4 million associated with this intangible asset.
The
impairment loss recognized was allocated to the Companys hardware, software and
related technology sales operating segment.
Intangible assets acquired
Summarized
below is the fair value of intangible assets acquired, translated at the
exchange rate applicable as of the relevant acquisition dates, and the
weighted-average amortization period:
|
|
|
|
|
Weighted-
|
|
|
|
Fair value
|
|
|
Average
|
|
|
|
as of
|
|
|
Amortization
|
|
|
|
acquisition
|
|
|
period (in
|
|
|
|
date
|
|
|
years)
|
|
Finite-lived intangible asset:
|
|
|
|
|
|
|
KSNET customer
relationships
|
$
|
74,663
|
|
|
10
|
|
Pbel customer relationships
|
|
1,113
|
|
|
3
|
|
Prepaid business
customer relationships
|
|
895
|
|
|
0.75
|
|
KSNET software and unpatented
technology
|
|
24,380
|
|
|
5
|
|
Prepaid business
software and unpatented technology
|
|
2,449
|
|
|
3
|
|
Pbel software and unpatented
technology
|
|
672
|
|
|
3
|
|
KSNET trademarks
|
$
|
3,786
|
|
|
8
|
|
The
Company recognized a deferred tax liability of approximately $0.5 million
related to the acquisition of the Pbel intangible assets during the year ended
June 30, 2013. The Company recognized a deferred tax liability of approximately
$0.2 million related to the acquisition of the prepaid business customer
relationships during the year ended June 30, 2012. The Company recognized a
deferred tax liability of approximately $24.5 million related to the acquisition
of the KSNET intangible assets during the year ended June 30, 2011.
F-30
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. GOODWILL AND
INTANGIBLE ASSETS, net (continued)
Intangible assets, net (continued)
Summarized below is the carrying value and accumulated amortization of
intangible assets as of June 30, 2013 and 2012:
|
|
|
As
of June 30, 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)
|
$
|
90,469
|
|
$
|
(29,818
|
)
|
$
|
60,651
|
|
$
|
91,692
|
|
$
|
(22,617
|
)
|
$
|
69,075
|
|
|
Software and unpatented technology(1)
|
|
34,951
|
|
|
(22,151
|
)
|
|
12,800
|
|
|
36,082
|
|
|
(15,968
|
)
|
|
20,114
|
|
|
FTS patent
|
|
3,873
|
|
|
(3,873
|
)
|
|
-
|
|
|
4,623
|
|
|
(4,623
|
)
|
|
-
|
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks
|
|
6,611
|
|
|
(2,805
|
)
|
|
3,806
|
|
|
7,125
|
|
|
(2,507
|
)
|
|
4,618
|
|
|
Customer database
|
|
614
|
|
|
(614
|
)
|
|
-
|
|
|
734
|
|
|
(611
|
)
|
|
123
|
|
|
Total finite-lived intangible assets .
|
$
|
141,024
|
|
$
|
(63,767
|
)
|
$
|
77,257
|
|
$
|
144,762
|
|
$
|
(50,832
|
)
|
$
|
93,930
|
|
(1) June 30, 2013 balances include the customer relationships and
software and unpatented technology acquired as part of the Pbel acquisition in
September 2012;
Amortization
expense charged for the years to June 30, 2013, 2012 and 2011 was $18.2 million,
$19.4 million, and $22.5 million, respectively.
Future
estimated annual amortization expense for the next five fiscal years, assuming
exchange rates prevailing on June 30, 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.
2014
|
$
|
14,984
|
|
2015
|
|
14,929
|
|
2016
|
|
10,730
|
|
2017
|
|
8,474
|
|
2018
|
|
8,474
|
|
Thereafter
|
$
|
19,659
|
|
10. 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 years ended June 30, 2013 and 2012:
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
Balances acquired on July 1, 2011
|
$
|
28,492
|
|
$
|
(28,492
|
)
|
Claims and policyholders benefits under insurance
contracts
|
|
254
|
|
|
(360
|
)
|
Foreign currency adjustment
(3)
|
|
(5,151
|
)
|
|
5,151
|
|
Balance as of June 30, 2012
|
|
23,595
|
|
|
(23,701
|
)
|
Claims and policyholders benefits under
insurance contracts
|
|
(211
|
)
|
|
146
|
|
Foreign currency adjustment
(3)
|
|
(3,827
|
)
|
|
3,844
|
|
Balance as of June 30, 2013
|
$
|
19,557
|
|
$
|
(19,711
|
)
|
|
(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.
|
F-31
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
10. REINSURANCE ASSETS AND
POLICY HOLDER LIABILITIES UNDER INSURANCE AND INVESTMENT CONTRACTS (continued)
Reinsurance assets and policy holder liabilities under insurance contracts
(continued)
The
Company has agreements with reinsurance companies in order to limit its losses
from large insurance contracts, however, if the reinsurer is unable to meet its
obligations, the Company retains the liability.
The
value of insurance contract liabilities is based on best estimates assumptions
of future experience plus prescribed margins, as required in the markets in
which these products are offered, namely South Africa. The process of deriving
the best estimates assumptions plus prescribed margins includes assumptions
related to future mortality and morbidity (an appropriate base table of standard
mortality is chosen depending on the type of contract and class of business),
withdrawals (based on recent withdrawal investigations and expected future
trends), investment returns (based on government treasury rates adjusted by an
applicable margin), expense inflation (based on a 10 year real return on
CPI-linked government bonds from the risk-free rate and adding an allowance for
salary inflation and book shrinkage of 1% per annum) and claim reporting delays
(based on average industry experience).
Assets and policy holder liabilities under investment contracts
Summarized
below is the movement in assets and policy holder liabilities under investment
contracts during the years ended June 30, 2013 and 2012:
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balances acquired on July 1,
2011
|
$
|
1,353
|
|
$
|
(1,353
|
)
|
Foreign currency adjustment
(3)
|
|
(244
|
)
|
|
244
|
|
Balance as of
June 30, 2012
|
$
|
1,109
|
|
$
|
(1,109
|
)
|
Foreign currency adjustment
(3)
|
|
(156
|
)
|
|
156
|
|
Balance as of
June 30, 2012
|
$
|
953
|
|
$
|
(953
|
)
|
|
(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.
11. OTHER PAYABLES
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Participating merchants
settlement obligation
|
$
|
2,005
|
|
$
|
5,291
|
|
Payroll-related payables
|
|
1,611
|
|
|
2,199
|
|
Accruals
|
|
10,522
|
|
|
11,413
|
|
Value-added tax payable
|
|
2,560
|
|
|
2,405
|
|
Other (Note 1)
|
|
7,009
|
|
|
7,705
|
|
Provisions
|
|
10,101
|
|
|
11,154
|
|
|
$
|
33,808
|
|
$
|
40,167
|
|
12. SHORT-TERM FACILITIES
The
Company has a ZAR 250 million ($25.3 million, translated at exchange rates
applicable as of June 30, 2013) short-term South African credit facility. As of
June 30, 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 June 30,
2013 and June 30, 2012, the Company had utilized none of its South African
short-term facility.
The Company believes that this facility is sufficient in order to meet its
future obligations as they arise.
F-32
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
13. LONG-TERM BORROWINGS
The
Company financed a portion of the KSNET acquisition price and related
transaction expenses with the proceeds of a KRW 130.5 billion (approximately
$115.9 million based on October 29, 2010 exchange rates) five-year senior
secured loan facility provided by a consortium of banks under a facilities
agreement (the Facilities Agreement). The current carrying value as of June
30, 2013, is $80.8 million. The Facilities Agreement provides for three separate
facilities: a Facility A loan to the Companys wholly owned subsidiary, Net1
Applied Technologies Korea (Net1 Korea), of up to KRW 130.5 billion (divided
into Facility A1 (KRW 65.5 billion) and Facility A2 (KRW 65.0 billion)) and a
Facility B loan to KSNET of up to KRW 65.0 billion. The Facility B loan, if
drawn, must be used to repay the Facility A2 loan and may be borrowed only if
Net1 Korea and KSNET complete a merger transaction with each other. Interest on
the loans is payable quarterly and is based on the Korean CD rate in effect from
time to time plus a margin of 4.10% for Facility A loans and 3.90% for the
Facility B loan. The CD rate was 2.79% on June 30, 2013. Total interest expense
for the year ended June 30, 2013, 2012 and 2011, respectively, was $7.1 million,
$8.8 million and $7.5 million, and includes amortization of facility fees of
$0.3 million, $0.4 million and $2.0 million. Interest of approximately $0.9
million, translated at exchange rates applicable as of June 30, 2013, has been
accrued as of June 30, 2013.
The
Facility A1 loan matures on the fifth anniversary of the initial drawdown with
no required principal prepayments. Principal on the Facility A2 loan and
Facility B loan is repayable in scheduled installments, beginning twelve months
after initial drawdown and thereafter, semi-annually with final maturity
scheduled for 54 months after initial drawdown. During the year ended June 30,
2013, the Company made the third and fourth principal payments totaling
approximately $14.5 million. During the year ended June 30, 2012, the Company
made the first and second principal payments totaling approximately $14.3
million and an unscheduled $4.8 million principal payment with the proceeds of
the net settlement received from the former shareholders of KSNET. The fifth and
sixth scheduled installments of approximately $14.2 million, translated at
exchange rates applicable as of June 30, 2013, are due in equal installments of
$7.1 million each, on October 29, 2013 and April 29, 2014, respectively, and
have been classified as current in the Companys consolidated balance sheet. As
of June 30, 2013, the carrying amount of the long-term borrowings approximated
its fair value
The
loans are secured by substantially all of KSNETs assets, a pledge by Net1 Korea
of its entire equity interest in KSNET and a pledge by the immediate parent of
Net1 Korea (also one of the Companys subsidiaries) of its entire equity
interest in Net1 Korea. The Facilities Agreement contains customary covenants
that require Net1 Korea and its consolidated subsidiaries to maintain certain
specified financial ratios (including a leverage ratio and a debt service
coverage ratio) and restrict their ability to make certain distributions with
respect to their capital stock, prepay other debt, encumber their assets, incur
additional indebtedness, make capital expenditures above specified levels,
engage in certain business combinations and engage in other corporate
activities. The loans under the Facilities Agreement are without recourse to,
and the covenants and other agreements contained therein do not apply to, the
Company or any of the Companys subsidiaries (other than Net1 Korea and its
subsidiaries, including KSNET).
14. COMMON STOCK
Common stock
Holders
of shares of Net1s common stock are entitled to receive dividends and other
distributions when declared by Net1s board of directors out of funds available.
Payment of dividends and distributions is subject to certain restrictions under
the Florida Business Corporation Act, including the requirement that after
making any distribution Net1 must be able to meet its debts as they become due
in the usual course of its business.
Upon
voluntary or involuntary liquidation, dissolution or winding up of Net1, holders
of common stock share ratably in the assets remaining after payments to
creditors and provision for the preference of any preferred stock according to
its terms. There are no pre-emptive or other subscription rights, conversion
rights or redemption or scheduled installment payment provisions relating to
shares of common stock. All of the outstanding shares of common stock are fully
paid and non-assessable.
F-33
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
14. COMMON STOCK (continued)
Common stock (continued)
Each
holder of common stock is entitled to one vote per share for the election of
directors and for all other matters to be voted on by shareholders. Holders of
common stock may not cumulate their votes in the election of directors, and are
entitled to share equally and ratably in the dividends that may be declared by
the board of directors, but only after payment of dividends required to be paid
on outstanding shares of preferred stock according to its terms. The shares of
Net1 common stock are not subject to redemption.
The
Companys number of shares, net of treasury, presented in the consolidated
balance sheets and consolidated statement of changes in equity includes
participating non-vested equity shares (specifically contingently returnable
shares) as described in Note 17Amended and Restated Stock Incentive
PlanRestricted StockGeneral Terms of Awards. The following table presents
reconciliation between the number of shares, net of treasury, presented in the
consolidated statement of changes in equity and the number of shares, net of
treasury, excluding non-vested equity shares that have not vested during the
years ended June 30, 2013, 2012 and 2011:
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares, net of treasury:
|
|
|
|
|
|
|
|
|
|
|
Statement of
changes in equity
|
|
45,592,550
|
|
|
45,548,902
|
|
|
45,152,805
|
|
|
Less:
Non-vested equity shares that have not vested as of end
of
year
(Note 17)
|
|
405,226
|
|
|
646,617
|
|
|
103,672
|
|
|
Number of shares, net of treasury excluding non-vested
equity
shares that have not vested
|
|
45,187,324
|
|
|
44,902,285
|
|
|
45,049,133
|
|
Common stock repurchases
In
February 2010 and in May 2010, the Companys Board of Directors authorized the
repurchase of up to $50 million of the Company's common stock, for a total of
$100 million. The authorization does not have an expiration date.
The
share repurchase authorization will be used at managements discretion, subject
to limitations imposed by SEC Rule 10b-18 and other legal requirements and
subject to price and other internal limitations established by the Board.
Repurchases will be funded from the Companys available cash. Share repurchases
may be made through open market purchases, privately negotiated transactions, or
both. There can be no assurance that the Company will purchase any shares or any
particular number of shares.
The
authorization may be suspended, terminated or modified at any time for any
reason, including market conditions, the cost of repurchasing shares, liquidity
and other factors that management deems appropriate. During the year ended June
30, 2012 and 2011, respectively, the Company repurchased 180,656 and 125,392
shares for approximately $1.1 million and $1.0 million. The Company did not
repurchase any of its shares during the year ended June 30, 2013 under this
authorization.
15. REVENUE
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods comprising mainly hardware
and software sales
|
$
|
15,266
|
|
$
|
19,152
|
|
$
|
30,130
|
|
Loan-based interest and fees received
|
|
6,613
|
|
|
8,433
|
|
|
7,276
|
|
Services rendered comprising mainly fees
and commissions
|
|
430,268
|
|
|
362,679
|
|
|
306,014
|
|
|
$
|
452,147
|
|
$
|
390,264
|
|
$
|
343,420
|
|
During
the years ended June 30, 2013, 2012 and 2011, the Company did not recognize any
revenue using the percentage of completion method.
F-34
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
16. EQUITY INSTRUMENT ISSUED
PURSUANT TO BEE TRANSACTION
On
April 19, 2012, the Company issued an option to purchase 8,955,000 shares of its
common stock to a BEE consortium pursuant to a BEE transaction that it entered
into on January 25, 2012. The option expired unexercised on April 19, 2013. 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, was not reversed during the year ended June 30, 2013,
because the option had vested in full on the grant date.
The
fair value was determined on the date that all conditions to the BEE transaction
had been fulfilled using the Cox Ross Rubinstein binomial model. The Company
used an expected volatility of 47%, an expected life of one year, a risk free
rate of 0.90% and no future dividends in its calculation of the fair value. The
estimated expected volatility is calculated based on the Companys 250 day
volatility.
17. STOCK-BASED COMPENSATION
Amended and Restated Stock Incentive Plan
The
Companys Amended and Restated Stock Incentive Plan (the Plan) has been
approved by its shareholders. No evergreen provisions are included in the Plan.
This means that the maximum number of shares issuable under the Plan is fixed
and cannot be increased without shareholder approval, the plan expires by its
terms upon a specified date, and no new stock options are awarded automatically
upon exercise of an outstanding stock option. Shareholder approval is required
for the repricing of awards or the implementation of any award exchange program.
The Plan permits Net1 to grant to its employees, directors and consultants
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock, performance-based awards and other awards based on its common
stock. The Remuneration Committee of the Companys Board of Directors
(Remuneration Committee) administers the Plan.
The
total number of shares of common stock issuable under the Plan is 8,552,580. The
maximum number of shares for which awards, other than performance-based awards,
may be granted in any combination during a calendar year to any participant is
569,120. The maximum limits on performance-based awards that any participant may
be granted during a calendar year are 569,120 shares subject to stock option
awards and $20 million with respect to awards other than stock options. Shares
that are subject to awards which terminate or lapse without the payment of
consideration may be granted again under the Plan. Shares delivered to the
Company as part or full payment for the exercise of an option or to satisfy
withholding obligations upon the exercise of an option may be granted again
under the Plan in the Remuneration Committees discretion. No awards may be
granted under the Plan after June 7, 2019, but awards granted on or before such
date may extend to later dates.
Options
General Terms of Awards
Option
awards are generally granted with an exercise price equal to the market price of
the Company's stock at the date of grant, with vesting conditioned upon the
recipients continuous service through the applicable vesting date and expire 10
years after the date of grant. The options generally become exercisable in
accordance with a vesting schedule ratably over a period of five years from the
date of grant. The Company issues new shares to satisfy stock option award
exercises but may also use treasury shares.
F-35
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Options (continued)
Valuation Assumptions
The
fair value of each option is estimated on the date of grant using the Cox Ross
Rubinstein binomial model that uses the assumptions noted in the following
table. The estimated expected volatility is calculated based on the Companys
250 day volatility. The estimated expected life of the option was determined
based historical behavior of employees who were granted options with similar
terms. The Company has estimated no forfeitures for options awarded in 2013,
2012 and 2011. The table below presents the range of assumptions used to value
options granted during the years ended June 30, 2013, 2012 and 2011:
|
2013
|
|
2012
|
|
2011
|
Expected volatility
|
49%
|
|
37% - 39%
|
|
35%
|
Expected dividends
|
0%
|
|
0%
|
|
0%
|
Expected life (in years)
|
3
|
|
3
|
|
3
|
Risk-free rate
|
0.3%
|
|
1.9% - 0.9%
|
|
2.0%
|
Restricted Stock
General Terms of Awards
Shares
of restricted stock are considered to be participating non-vested equity shares
(specifically contingently returnable shares) for the purposes of calculating
earnings per share (refer Note 20) because, as discussed in more detail below,
the recipient is obligated to transfer any unvested restricted stock back to the
Company for no consideration and these shares of restricted stock are eligible
to receive non-forfeitable dividend equivalents at the same rate as common
stock. Restricted stock generally vests ratably over a three year period, with
vesting conditioned upon the recipients continuous service through the
applicable vesting date and under certain circumstances, the achievement of
certain performance targets, as described below.
Restricted
stock awarded to non-employee directors and employees of the Company vests
ratably over a three-year period. In addition, for awards granted to certain
non-employee directors in 2009, until 11 months after the restricted stock
become vested and nonforfeitable, the shares may not be sold, assigned,
transferred, pledged, hypothecated, exchanged, or disposed of in any way
(whether by operation of law or otherwise). Recipients are entitled to all
rights of a stockholder of the Company except as otherwise provided in the
restricted stock agreements. These rights include the right to vote and receive
dividends and/or other distributions. However, the restricted stock agreements
generally prohibit transfer of any nonvested and forfeitable restricted stock.
If a recipient ceases to be a member of the Board of Directors or an employee
for any reason, all shares of his restricted stock that are not then vested and
nonforfeitable will be immediately forfeited and transferred to the Company for
no consideration.
The Company issues new shares to satisfy restricted stock awards.
Valuation Assumptions
The
fair value of restricted stock is based on the closing price of the Companys
stock quoted on The Nasdaq Global Select Market on the date of grant.
Performance Conditions - Restricted Stock Granted in August 2007
In
August 2007, the Remuneration Committee approved an award of 591,500 shares of
restricted stock to executive officers and other employees of the Company. The
award provided for vesting of one-third of the award shares on each of September
1, 2009, 2010 and 2011, conditioned upon each recipients continuous service
through the applicable vesting date and the Company achieving the financial
performance target for that vesting date.
F-36
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Performance Conditions - Restricted Stock Granted in August 2007 (continued)
Specifically, the financial performance targets were a 20% increase, compounded annually, in fundamental diluted earnings per share (expressed in South African rand) (“2007 Fundamental EPS”) above Fundamental EPS for the fiscal year ended June 30, 2007. For award shares vesting prior to September 1, 2009, the annual required increase in the case of Dr. Belamant and Mr. Kotzé was 25% rather than 20%. On November 5, 2009, the Company’s board of directors, on the recommendation of the Remuneration Committee, determined that the annual required target for Dr. Belamant and Mr. Kotzé be 20%, effective immediately, to be consistent with the terms of the restricted stock awards granted to other employees. There were no other amendments to the terms of the restricted stock awards. For the purpose of the award, 2007 Fundamental EPS was calculated by adjusting GAAP diluted earnings per share (as reflected in the Company’s audited consolidated financial statements) to exclude the effects related to the amortization of intangible assets, stock-based compensation charges, one-time, large, unusual expenses as determined at the discretion of the Remuneration Committee, and assuming a constant tax rate of 30%. If Fundamental EPS for the specified fiscal year did not equal or exceed the 2007 Fundamental EPS target for such year, no award shares would become vested or nonforfeitable on the corresponding vesting date but would be available to become vested and nonforfeitable as of a subsequent vesting date if the 2007 Fundamental EPS target for a subsequent fiscal year were met; provided that the recipient’s service continued through such subsequent vesting date. Any outstanding award shares that had not become vested and nonforfeitable as of September 1, 2011, would be forfeited by the recipient on September 1, 2011, and transferred to the Company for no consideration.
The
first two tranches of this award vested on September 1, 2009 and 2010, for
employees that continued to provide the requisite service as the financial
performance targets were met. The third tranche did not vest because the
financial performance target was not met. Refer also Stock option and
restricted stock activityrestricted stock below
.
Performance Conditions - Restricted Stock Granted in October and November
2010
In
October 2010, the Remuneration Committee approved an award of 60,000 shares of
restricted stock to an employee of the Company. Under the terms of the award,
the shares would vest on June 30, 2014, conditioned upon the employees
continuous service through June 30, 2014, and on the employee receiving an
incremental incentive bonus, as defined in the employees employment agreement
for each of the periods ended June 30, 2011, 2012, 2013 and 2014. Any
outstanding award shares that had not become vested and nonforfeitable as of
June 30, 2014, would be forfeited by the recipient on June 30, 2014, and
transferred to the Company for no consideration. The October 2010 restricted
stock award did not vest because the financial performance target was not met
for June 30, 2011. Refer also Stock option and restricted stock
activityrestricted stock below
.
In
November 2010, the Remuneration Committee approved an award of 83,000 shares of
restricted stock to two of the Companys executive officers. The award provides
for vesting of one-third of the award shares on each of November 10, 2011, 2012
and 2013, conditioned upon each recipients continuous service through the
applicable vesting date and the Company achieving the financial performance
target for that vesting date. Specifically, the financial performance targets is
Fundamental EPS, as defined below, of $1.44, $1.60 and $1.90 for the years ended
June 30, 2011, 2012 and 2013, respectively. For the purpose of this award,
Fundamental EPS is calculated as Companys diluted earnings per share as
reflected in the Companys consolidated financial statements, measured in U.S.
dollars and determined in accordance with GAAP, adjusted to exclude the effects
related to the amortization of intangible assets and acquisition-related costs,
stock-based compensation charges, foreign exchange gains and losses arising from
foreign currency hedging transactions, and other items that the Committee may
determine in its discretion to be appropriate (for example, accounting changes
and one-time or unusual items), and assumes a constant tax rate equal to the
Companys effective tax rate for the year ended June 30, 2010. If Fundamental
EPS for the specified fiscal year does not equal or exceed the Fundamental EPS
target for such year, no award shares will become vested or nonforfeitable on
the corresponding vesting date but are available to become vested and
nonforfeitable as of a subsequent vesting date if the Fundamental EPS target for
a subsequent fiscal year is met; provided that the recipients service continues
through such subsequent vesting date.
F-37
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Performance Conditions - Restricted Stock Granted in October and November 2010
(continued)
Any
outstanding award shares that have not become vested and nonforfeitable as of
November 10, 2013, will be forfeited by the recipient on November 10, 2013, and
transferred to the Company for no consideration. One-third of the award shares
vested on November 10, 2011. The remaining two-thirds of the restricted stock
award did not vest because the financial performance target of $1.90 was not met
for June 30, 2013. Refer also Stock option and restricted stock
activityrestricted stock below
.
Stock Appreciation Rights
The
Remuneration Committee also may grant stock appreciation rights, either singly
or in tandem with underlying stock options. Stock appreciation rights entitle
the holder upon exercise to receive an amount in any combination of cash or
shares of common stock (as determined by the Remuneration Committee) equal in
value to the excess of the fair market value of the shares covered by the right
over the grant price. No stock appreciation rights have been granted.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the years ended June
30, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Grant
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
Date Fair
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
(’000)
|
|
|
Value ($)
|
|
Outstanding June 30, 2010
|
|
1,813,656
|
|
|
19.76
|
|
|
7.41
|
|
$
|
585
|
|
|
-
|
|
Granted under Plan: November 2010
|
|
307,000
|
|
|
10.59
|
|
|
10.00
|
|
|
-
|
|
|
2.61
|
|
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
|
|
Forfeitures
|
|
(240,073
|
)
|
|
21.68
|
|
|
-
|
|
|
-
|
|
|
-
|
|
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 June 30, 2013
|
|
2,648,583
|
|
|
15.15
|
|
|
5.98
|
|
$
|
313
|
|
|
|
|
These options have an exercise price range of $6.59 to $24.46.
F-38
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity (continued)
Options (continued)
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
(000)
|
|
Exercisable
|
|
1,786,583
|
|
|
18.06
|
|
|
4.92
|
|
|
$229
|
|
During
the years ended June 30, 2013, 2012 and 2011, approximately 442,666, 300,000 and
380,000, stock options became exercisable, respectively. Included in the 442,666
stock options are 30,000 stock options with respect to which the Remuneration
Committee of the Board agreed to accelerate vesting prior to the resignation of
a non-employee director. The stock option vesting was accelerated in recognition
of this directors long service and valued contributions. During the year ended
June 30, 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 years ended June 30, 2012 and 2011, respectively.
During the year ended June 30, 2012, employees forfeited 240,073 stock options.
There were no forfeitures during the years ended June 30, 2013 and 2011. The
Company issues new shares to satisfy stock option exercises.
Restricted stock
The following table summarizes restricted stock activity for the years
ended June 30, 2013, 2012 and 2011:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock
|
|
|
(000)
|
|
Non-vested July 1, 2010
|
|
407,828
|
|
|
|
|
Granted August 2010
|
|
13,956
|
|
$
|
185
|
|
Granted October 2010
|
|
60,000
|
|
|
740
|
|
Granted November 2010
|
|
83,000
|
|
|
879
|
|
Vested
|
|
(203,956
|
)
|
|
2,267
|
|
Awards not vesting
|
|
(257,156
|
)
|
|
3,492
|
|
Non-vested
June 30, 2011
|
|
103,672
|
|
|
1,235
|
|
Granted August 2011
|
|
30,155
|
|
|
199
|
|
Granted February 2012
|
|
550,000
|
|
|
6,111
|
|
Granted May 2012
|
|
2,574
|
|
|
23
|
|
Vested - August 2011
|
|
(6,141
|
)
|
|
40
|
|
Vested - November 2011
|
|
(27,667
|
)
|
|
209
|
|
Total vested
|
|
(33,808
|
)
|
|
|
|
Forfeitures
|
|
(5,976
|
)
|
|
50
|
|
Non-vested
June 30, 2012
|
|
646,617
|
|
|
7,061
|
|
Granted August 2012
|
|
21,569
|
|
|
189
|
|
Vested August 2012
|
|
(23,436
|
)
|
|
216
|
|
Vested February 2013
|
|
(183,333
|
)
|
|
1,016
|
|
Vested May 2013
|
|
(858
|
)
|
|
7
|
|
Total vested
|
|
(207,627
|
)
|
|
|
|
Forfeitures
|
|
(55,333
|
)
|
|
407
|
|
Non-vested June 30,
2013
|
|
405,226
|
|
$
|
4,393
|
|
F-39
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
The
fair value of restricted stock vested during the years ended June 30, 2013, 2012
and 2011, was $1.4 million, $0.2 million and $2.3 million, respectively.
Included in the 23,436 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. The second and third tranche totaling 55,333 shares of restricted
stock granted in November 2010 to two executive officers did not vest because
the agreed performance target was not achieved.
One
of the Companys non-employee directors resigned effective June 29, 2012, and he
forfeited 5,976 restricted shares that had not vested. The third tranche of
197,156 shares of restricted stock granted in August 2007 to executive officers
and other employees of the Company and 60,000 shares granted to an employee of
the Company in October 2010 did not vest because the agreed performance target
was not achieved. The Company has recorded a reversal of the compensation charge
related to August 2007 and October 2010 restricted stock of $3.4 million and
$0.09 million, respectively, during the year ended June 30, 2011.
Forfeited
shares of restricted stock are returned to the Company and, in accordance with
the Plan, are available for future issuances by the Remuneration Committee.
Stock-based compensation charge and unrecognized compensation cost
The
Company has recorded a net stock compensation charge of $3.9 million, $2.8
million and $1.7 million for the years ended June 30, 2013, 2012 and 2011,
respectively, which comprised:
|
|
|
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
|
cost of goods
|
|
|
|
|
|
|
|
|
|
|
sold, IT
|
|
|
Allocated to
|
|
|
|
|
Total
|
|
|
processing,
|
|
|
selling,
|
|
|
|
|
charge
|
|
|
servicing
|
|
|
general and
|
|
|
|
|
(reversal)
|
|
|
and support
|
|
|
administration
|
|
|
Year ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
4,387
|
|
$
|
-
|
|
$
|
4,387
|
|
|
Reversal of stock compensation
charge related to restricted stock forfeited
|
|
(480
|
)
|
|
-
|
|
|
(480
|
)
|
|
Total year ended June 30, 2013
|
$
|
3,907
|
|
$
|
-
|
|
$
|
3,907
|
|
|
Year ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
2,909
|
|
$
|
-
|
|
$
|
2,909
|
|
|
Reversal of stock compensation
charge related to options forfeited
|
|
(134
|
)
|
|
-
|
|
|
(134
|
)
|
|
Total year ended June 30, 2012
|
$
|
2,775
|
|
$
|
-
|
|
$
|
2,775
|
|
|
Year ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
5,212
|
|
$
|
193
|
|
$
|
5,019
|
|
|
Reversal of stock compensation
charge related to August 2007 and
October 2010
restricted stock that did not vest
|
|
(3,492
|
)
|
|
-
|
|
|
(3,492
|
)
|
|
Total year ended June 30, 2011
|
$
|
1,720
|
|
$
|
193
|
|
$
|
1,527
|
|
The
stock compensation charge and reversals have been allocated to cost of goods
sold, IT processing, servicing and support and selling, general and
administration based on the allocation of the cash compensation paid to the
employees.
As
of June 30, 2013, the total unrecognized compensation cost related to stock
options was approximately $1.2 million, which the Company expects to recognize
over approximately two years. As of June 30, 2013, the total unrecognized
compensation cost related to restricted stock awards was approximately $3.5
million, which the Company expects to recognize over approximately two years.
F-40
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. STOCK-BASED COMPENSATION
(continued)
Tax consequences
There
are no tax consequences related to options and restricted stock granted to
employees of Company subsidiaries incorporated in South Africa. The Company has
recorded a deferred tax asset of approximately $1.4 million and $1.1 million,
respectively, for the years ended June 30, 2013 and 2012, related to the
stock-based compensation charge recognized related to employees of Net1 as it is
able to deduct the difference between the market value on date of exercise by
the option recipient and the exercise price from income subject to taxation in
the United States.
18. PROFIT ON LIQUIDATION OF
SMARTSWITCH NIGERIA
The
Company has ceased operations in the Federation of Nigeria due to an inability
to implement its technology on a profitable basis. During the year ended June
30, 2012, the Company, together with the other shareholders, agreed to liquidate
SmartSwitch Nigeria, the company through which operating activities in Nigeria
were performed. SmartSwitch Nigeria was capitalized primarily with shareholder
loans. The shareholders of SmartSwitch Nigeria have agreed to waive all
outstanding capital and interest repayments related to the loan funding
initially provided as part of the liquidation processes. The non-cash profit on
liquidation of SmartSwitch Nigeria of $4.0 million includes the write back of
all assets and liabilities, including non-controlling interest loans, of
SmartSwitch Nigeria, except for expected liabilities related to the liquidation
of SmartSwitch Nigeria. The profit has been allocated to corporate/eliminations.
19. INCOME TAXES
Income tax provision
The table below presents the components of income before income taxes
for the years ended June 30, 2013, 2012 and 2011:
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa
|
$
|
38,654
|
|
$
|
67,054
|
|
$
|
108,349
|
|
|
United States
|
|
(10,075
|
)
|
|
(6,340
|
)
|
|
(15,053
|
)
|
|
Other
|
|
(1,300
|
)
|
|
(333
|
)
|
|
(56,886
|
)
|
|
Income before income taxes
|
$
|
27,279
|
|
$
|
60,381
|
|
$
|
36,410
|
|
Presented
below is the provision for income taxes by location of the taxing jurisdiction
for the years ended June 30, 2013, 2012 and 2011:
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax
|
$
|
33,968
|
|
|
$
|
49,092
|
|
|
$
|
117,141
|
|
|
South Africa
|
|
15,418
|
|
|
|
26,787
|
|
|
|
38,882
|
|
|
United States
|
|
16,061
|
|
|
|
20,746
|
|
|
|
77,085
|
|
|
Other
|
|
2,489
|
|
|
|
1,559
|
|
|
|
1,174
|
|
|
Deferred taxation (benefit)
charge
|
|
(4,915
|
)
|
|
|
(4,598
|
)
|
|
|
(4,862
|
)
|
|
South Africa
|
|
(2,037
|
)
|
|
|
(2,941
|
)
|
|
|
(776
|
)
|
|
United States
|
|
(331
|
)
|
|
|
31
|
|
|
|
2,306
|
|
|
Other
|
|
(2,547
|
)
|
|
|
(1,688
|
)
|
|
|
(6,392
|
)
|
|
Capital gains tax
|
|
7
|
|
|
|
1,465
|
|
|
|
-
|
|
|
Secondary taxation on companies
|
|
-
|
|
|
|
327
|
|
|
|
-
|
|
|
Change in tax rate
|
|
-
|
|
|
|
(18,315
|
)
|
|
|
-
|
|
|
Foreign tax credits generated United States
|
|
(14,404
|
)
|
|
|
(12,035
|
)
|
|
|
(78,754
|
)
|
|
Income tax
provision
|
$
|
14,656
|
|
|
$
|
15,936
|
|
|
$
|
33,525
|
|
There
were no significant capital gains taxes paid during the years ended June 30,
2013 and 2011, respectively. The capital gains tax paid during the year ended
June 30, 2012, represents the taxes paid resulting from an intercompany capital
transaction in South Africa.
F-41
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Income tax provision (continued)
The
Companys South African subsidiary paid a dividend to Net1 after the tax law had
changed but before the effective date of the South African dividends withholding
tax which resulted in the payment of STC in the third quarter of the year ended
June 30, 2012. For the first half of the year ended June 30, 2012, and in the
year ended June 30, 2011, the Companys effective tax rate included an accrual
for STC and therefore any STC obligation arising during these periods was
charged against the STC liability provided. This STC liability was released
during the year end June 30, 2012, as a result of the change in tax law
discussed below.
There
were no changes to the enacted tax rate in the years ended June 30, 2013 and
2011. On December 20, 2011, there was a change in South African tax law to
impose a dividends withholding tax (a tax levied and withheld by a company on
distributions to its shareholders) to replace STC. The change was effective on
April 1, 2012. As a result, the Company has recorded a net deferred taxation
benefit of approximately $18.3 million in income taxation expense in its
consolidated statements of operations during the year ended June 30, 2012.
The
movement in the valuation allowance for the year ended June 30, 2013, relates to
valuation allowances for foreign tax credits and valuation allowances related to
net operating loss carryforwards for the Companys South African subsidiaries,
primarily MediKredit. As a result of the change in South African tax law during
the year ended June 30, 2012, and the Companys intention to permanently
reinvest its undistributed earnings in South Africa, the Company did not believe
it would be able to recover foreign tax credits previously recognized of $8.2
million. The movement in the valuation allowance during the year ended June 30,
2012, included a valuation allowance related to this foreign tax credits. The
movement in the valuation allowance for the year ended June 30, 2011, relates to
valuation allowances for foreign tax credits and the Net1 UTA valuation
allowances related to its license ruling, tax deductible goodwill, and net
operating loss carryforwards.
Net1
included actual and deemed dividends received from one of its South African
subsidiaries in its years ended June 30, 2013, 2012 and 2011, taxation
computation. Net1 applied net operating losses against this income. Net1
generated foreign tax credits as a result of the inclusion of the dividends in
its taxable income. Net1 has applied certain of these foreign tax credits
against its current income tax provision for the year ended June 30, 2013, 2012
and 2011, respectively.
A
reconciliation of income taxes, calculated at the fully-distributed South
African income tax rate to the Companys effective tax rate, for the years ended
June 30, 2013, 2012 and 2011 is as follows:
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Income tax rate reconciliation:
|
|
|
|
|
|
|
|
|
|
|
Income taxes at fully-distributed South
African tax rates
|
|
28.00%
|
|
|
28.00%
|
|
|
34.55%
|
|
|
Non-deductible items
|
|
6.78%
|
|
|
6.60%
|
|
|
6.93%
|
|
|
Foreign tax rate differential
|
|
10.39%
|
|
|
7.22%
|
|
|
5.46%
|
|
|
Foreign tax credits
|
|
(52.80%
|
)
|
|
(21.12%
|
)
|
|
(209.00%
|
)
|
|
Taxation on deemed dividends
in the United States
|
|
57.32%
|
|
|
31.29%
|
|
|
217.52%
|
|
|
Capital gains tax paid
|
|
0.03%
|
|
|
2.43%
|
|
|
-%
|
|
|
Secondary taxation on
companies
|
|
0.00%
|
|
|
0.54%
|
|
|
-%
|
|
|
Movement in valuation allowance
|
|
9.40%
|
|
|
1.23%
|
|
|
34.01%
|
|
|
Prior year adjustments
|
|
(5.39%
|
)
|
|
0.53%
|
|
|
2.61%
|
|
|
Change in tax law
|
|
-%
|
|
|
(30.33%
|
)
|
|
-%
|
|
|
Income tax
provision
|
|
53.73%
|
|
|
26.39%
|
|
|
92.08%
|
|
The
non-deductible items during the year ended June 30, 2013, relates principally to
expenses that are not deductible for tax purposes, including stock-based
compensation charges, costs incurred to support foreign related entities and
interest expense. The non-deductible items during the year ended June 30, 2012,
relates principally to expenses that are not deductible for tax purposes,
including stock-based compensation charges, interest expense and an equity award
issued pursuant to the Companys BEE transaction. The non-deductible items
during the year ended June 30, 2011 relates principally to expenses that are not
deductible for tax purposes, including interest expense and transaction-related
expenditure. The foreign tax rate differential represents the difference between
statutory tax rates in South Africa and foreign jurisdictions, primarily the
U.S.
F-42
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Deferred tax assets and liabilities
Deferred
income taxes reflect the temporary differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The primary
components of the temporary differences that gave rise to the Companys deferred
tax assets and liabilities as at June 30, and their classification, were as
follows:
|
|
2013
|
|
|
2012
|
|
Total deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
$
|
12,024
|
|
$
|
11,869
|
|
Provisions and accruals
|
|
3,164
|
|
|
2,450
|
|
FTS patent
|
|
1,088
|
|
|
1,436
|
|
Intangible assets
|
|
17,150
|
|
|
18,290
|
|
Foreign tax credits
|
|
24,637
|
|
|
19,089
|
|
Other
|
|
5,537
|
|
|
5,006
|
|
Total
deferred tax assets before valuation allowance
|
|
63,600
|
|
|
58,140
|
|
Valuation allowances
|
|
(54,117
|
)
|
|
(47,496
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
9,483
|
|
|
10,644
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
18,729
|
|
|
22,215
|
|
Other
|
|
4,543
|
|
|
3,826
|
|
Total
deferred tax liabilities
|
|
23,272
|
|
|
26,041
|
|
|
|
|
|
|
|
|
Reported as
|
|
|
|
|
|
|
Current deferred tax assets
|
|
4,938
|
|
|
5,591
|
|
Long term deferred tax
liabilities
|
|
18,727
|
|
|
20,988
|
|
Net deferred income tax
liabilities
|
$
|
13,789
|
|
$
|
15,397
|
|
Decrease in total deferred tax assets
Net operating loss carryforwards
Included
in total deferred tax assets net operating loss carryforwards are net
operating losses generated by MediKredit of $2.7 million. MediKredit continues
to incur losses and its net operating losses increased by $0.2 million during
the year ended June 30, 2013, and therefore the Company has determined to
provide a valuation allowance for the full amount of its operating losses
incurred. Accordingly, during the year ended June 30, 2013, the Company provided
an additional valuation allowance related to MediKredits operating losses of
$1.6 million. Net operating loss carryforwards also includes $7.7 million
related to Net1 UTA. A valuation allowance has been created for the full amount
of the Net1 UTA net operating losses.
Intangible assets
Included
in total deferred tax assets intangible assets as of June 30, 2013, is an
intangible asset related to license rights in Net1 UTA. These license rights are
termed software for Austrian tax purposes and were valued for Austrian tax
purposes based on previous license payments at €50.76 million in June 2006. The
Company expects to amortize the license rights in its tax returns over a period
of 15 years. Any unused amounts are not carried forward to the subsequent year
of assessment. During the years ended June 30, 2013 and 2012, Net1 UTA utilized
approximately $0.05 million and $0.04 million, respectively, of these license
rights against its taxable income and in 2011 expensed $1.2 million unutilized
deferred tax asset. In addition, during the year ended June 30, 2011, the
Company provided in full for this deferred tax asset and recognized an
additional valuation allowance of $2.7 million. As of June 30, 2013, the gross
carrying value of this deferred tax asset is approximately $8.8 million and
there is a full valuation allowance.
F-43
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES
(continued)
Deferred tax assets and liabilities (continued)
Decrease in total deferred tax assets (continued)
Intangible assets (continued)
Net1
Applied Technologies Austria GmbH (Net1Austria) generated tax deductible
goodwill related to the acquisition of Net1 UTA in August 2008 and under
Austrian tax law Net1Austria can deduct up to 50% of the goodwill recognized, as
defined under Austrian tax law, over a period of 15 years. Unused amounts are
carried forward to subsequent years of assessment and are included in net
operating loss carryforwards. During the year ended June 30, 2011, the Company
provided in full for the deferred tax asset and recognized an additional
valuation allowance of approximately $1.7 million. As of June 30, 2013, the
gross value of this goodwill deferred tax asset was approximately $8.2 million
and there is a full valuation allowance. The Company did not utilize the
goodwill deferred tax asset during the years ended June 30, 2013 and 2012,
respectively.
Decrease in total deferred tax liabilities
Intangible assets
Deferred
tax liabilities intangible assets have decreased during the year ended June
30, 2013, primarily as a result of the amortization of the underlying KSNET
intangible assets during the year.
Valuation allowance
At
June 30, 2013, the Company had deferred tax assets of $9.5 million (2012: $10.6
million), net of the valuation allowance. Management believes, based on the
weight of available positive and negative evidence it is more likely than not
that the Company will realize the benefits of these deductible differences, net
of the valuation allowance. However, the amount of the deferred tax asset
considered realizable could be adjusted in the future if estimates of taxable
income are revised.
At
June 30, 2013, the Company had a valuation allowance of $54.1 million (2012:
$47.5 million) to reduce its deferred tax assets to estimated realizable value.
The valuation allowances at June 30, 2013 and 2012, relate primarily to
intangible assets including foreign tax credits (2013: $24.6 million, 2012:
$19.1 million); tax deductible goodwill (2013: $17.0 million, 2012: $18.0
million); net operating loss carryforwards (2013: $11.8 million, 2012: $9.6
million); the FTS patent (2013: $0.5 million, 2012: $0.7 million) and other
(2013: $0.1 million).
Net operating loss carryforwards and foreign tax credits
United States
As of June 30, 2013, Net1 had net operating loss carryforwards that will expire,
if unused, as follows:
Year of expiration
|
|
US net
|
|
|
|
operating loss
|
|
|
|
carry
|
|
|
|
forwards
|
|
2024
|
$
|
3,706
|
|
During
the years ended June 30, 2013 and 2012, Net1 generated additional foreign tax
credits related to the cash dividends received. Net1 had no net unused foreign
tax credits that are more likely than not to be realized as of June 30, 2013 and
2012, respectively. The unused foreign tax credits generated expire after ten
years in 2023, 2022, 2021, 2020 and 2019.
F-44
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES
(continued)
Deferred tax assets and liabilities (continued)
Net operating loss carryforwards and foreign tax credits (continued)
South Africa and Austria
Net
operating losses incurred in South Africa generally expire if a company does not
trade during the year. In South Africa, the subsidiary companies that incurred
the losses are currently trading and will continue to trade for the foreseeable
future. Net operating losses incurred in Austria generally do not expire.
Uncertain tax positions
As
of June 30, 2013 and 2012, respectively the Company has unrecognized tax
benefits of $1.1 million and $1.3 million, all of which would impact the
Companys effective tax rate. The Company files income tax returns mainly in
South Africa, Korea, Austria, the Russian Federation and in the US federal
jurisdiction. As of June 30, 2013, the Companys South African subsidiaries are
no longer subject to income tax examination by the South African Revenue Service
for periods before June 30, 2009. The Company is subject to income tax in other
jurisdictions outside South Africa, none of which are individually material to
its financial position, statement of cash flows, or results of operations. The
Company does not expect the change related to unrecognized tax benefits will
have a significant impact on its results of operations or financial position in
the next 12 months.
The
following is a reconciliation of the total amounts of unrecognized tax benefits
for the year ended June 30, 2013, 2012 and 2011:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Unrecognized tax benefits -
opening balance
|
$
|
1,314
|
|
$
|
2,664
|
|
$
|
1,460
|
|
Gross decreases - tax positions
in prior periods
|
|
(170
|
)
|
|
(1,159
|
)
|
|
-
|
|
Gross increases
- tax positions in current period
|
|
216
|
|
|
97
|
|
|
1,233
|
|
Lapse of statute limitations
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency
adjustment
|
|
(210
|
)
|
|
(288
|
)
|
|
(29
|
)
|
Unrecognized tax benefits - closing balance
|
$
|
1,150
|
|
$
|
1,314
|
|
$
|
2,664
|
|
As
of June 30, 2013 and 2012, the Company had accrued interest related to uncertain
tax positions of approximately $0.2 million and $0.03 million, respectively, on
its balance sheet.
20. EARNINGS PER SHARE
Basic
earnings per share include shares of restricted stock that meet the definition
of a participating security because these shares 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 years ended June 30, 2013, 2012 and 2011, reflects
only undistributed earnings. The computation below of basic earnings per share
excludes the net income attributable to shares of unvested restricted stock
(participating non-vested restricted stock) from the numerator and excludes the
dilutive impact of these unvested shares of restricted stock from the
denominator.
Diluted
earnings per share has been calculated to give effect to the number of shares of
additional common stock that would have been outstanding if the potential
dilutive instruments had been issued in each period. Stock options are included
in the calculation of diluted earnings per share utilizing the treasury stock
method and are not considered to be participating securities as the stock
options do not contain non-forfeitable dividend rights. The calculation of
diluted earnings per share includes the dilutive effect of a portion of the
restricted stock granted to employees in August 2007, October 2010, November
2010 and February 2012 as these shares of restricted stock are considered
contingently returnable shares for the purposes of the diluted earnings per
share calculation and the vesting conditions in respect of a portion of the
restricted stock had been satisfied. The vesting conditions are discussed in
Note 17.
F-45
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2013, 2012 and 2011
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
20. EARNINGS PER SHARE
(continued)
The
following table presents net income attributable to Net1 (income from continuing
operations) and the share data used in the basic and diluted earnings per share
computations using the two-class method: