NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2013
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
47,670
|
|
$
|
53,665
|
|
Pre-funded social welfare grants
receivable (Note 2)
|
|
4,263
|
|
|
2,934
|
|
Accounts receivable,
net of allowances of September: $935; June: $4,701
|
|
118,025
|
|
|
102,614
|
|
Finance loans receivable, net of
allowances of September: $701; June: $-
|
|
17,338
|
|
|
8,350
|
|
Inventory (Note 3)
|
|
11,063
|
|
|
12,222
|
|
Deferred income taxes
|
|
5,125
|
|
|
4,938
|
|
Total current assets before settlement assets
|
|
203,484
|
|
|
184,723
|
|
Settlement assets (Note 4)
|
|
685,305
|
|
|
752,476
|
|
Total
current assets
|
|
888,789
|
|
|
937,199
|
|
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
|
|
|
|
|
|
|
DEPRECIATION OF September: $92,099; June:
$84,808
|
|
48,716
|
|
|
48,301
|
|
EQUITY-ACCOUNTED INVESTMENTS
|
|
1,270
|
|
|
1,183
|
|
GOODWILL (Note 6)
|
|
180,950
|
|
|
175,806
|
|
INTANGIBLE ASSETS, net (Note 6)
|
|
76,915
|
|
|
77,257
|
|
OTHER LONG-TERM ASSETS, including
reinsurance assets (Note 7)
|
|
36,150
|
|
|
36,576
|
|
TOTAL ASSETS
|
|
1,232,790
|
|
|
1,276,322
|
|
LIABILITIES
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
14,036
|
|
|
26,567
|
|
Other payables
|
|
38,802
|
|
|
33,808
|
|
Current portion of
long-term borrowings (Note 9)
|
|
15,007
|
|
|
14,209
|
|
Income taxes payable
|
|
9,261
|
|
|
2,275
|
|
Total current liabilities before settlement obligations
|
|
77,106
|
|
|
76,859
|
|
Settlement obligations (Note 4)
|
|
685,305
|
|
|
752,476
|
|
Total
current liabilities
|
|
762,411
|
|
|
829,335
|
|
DEFERRED INCOME TAXES
|
|
18,703
|
|
|
18,727
|
|
LONG-TERM BORROWINGS (Note 9)
|
|
70,374
|
|
|
66,632
|
|
OTHER LONG-TERM LIABILITIES, including insurance policy
liabilities (Note 7)
|
|
21,499
|
|
|
21,659
|
|
TOTAL
LIABILITIES
|
|
872,987
|
|
|
936,353
|
|
COMMITMENTS AND CONTINGENCIES (Note 16)
|
|
|
|
|
|
|
EQUITY
|
|
COMMON STOCK (Note 10)
|
|
|
|
|
|
|
Authorized: 200,000,000 with $0.001 par value; Issued and outstanding
shares,
net of treasury - September: 45,780,513; June: 45,592,550
|
|
59
|
|
|
59
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
Authorized shares: 50,000,000 with $0.001 par value; Issued and
outstanding
shares,
net of treasury: September: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL PAID-IN-CAPITAL
|
|
161,605
|
|
|
160,670
|
|
TREASURY SHARES, AT
COST: September: 13,455,090; June: 13,455,090
|
|
(175,823
|
)
|
|
(175,823
|
)
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
(93,544
|
)
|
|
(100,858
|
)
|
RETAINED EARNINGS
|
|
464,214
|
|
|
452,618
|
|
TOTAL NET1
EQUITY
|
|
356,511
|
|
|
336,666
|
|
NON-CONTROLLING INTEREST
|
|
3,292
|
|
|
3,303
|
|
TOTAL EQUITY
|
|
359,803
|
|
|
339,969
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
|
$
|
1,232,790
|
|
$
|
1,276,322
|
|
(A) Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial
Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Operations
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
123,494
|
|
$
|
111,682
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing and support
|
|
56,559
|
|
|
45,101
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
|
40,506
|
|
|
47,252
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
10,029
|
|
|
10,004
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
16,400
|
|
|
9,325
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
3,319
|
|
|
3,091
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
1,752
|
|
|
2,071
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE
|
|
17,967
|
|
|
10,345
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (note 15)
|
|
6,485
|
|
|
3,729
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS
|
|
11,482
|
|
|
6,616
|
|
|
|
|
|
|
|
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
103
|
|
|
128
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
11,585
|
|
|
6,744
|
|
|
|
|
|
|
|
|
(ADD) NET (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
(11
|
)
|
|
-
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO NET1
|
$
|
11,596
|
|
$
|
6,744
|
|
|
|
|
|
|
|
|
Net income per share, in United States
dollars
(note 12)
|
|
|
|
|
|
|
Basic earnings
attributable to Net1 shareholders
|
$
|
0.25
|
|
$
|
0.15
|
|
Diluted
earnings attributable to Net1 shareholders
|
$
|
0.25
|
|
$
|
0.15
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net income
|
$
|
11,585
|
|
$
|
6,744
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
Net unrealized loss on
asset available for sale, net of tax
|
|
(255
|
)
|
|
-
|
|
Movement in
foreign currency translation reserve
|
|
7,569
|
|
|
4,255
|
|
Total other comprehensive income, net of taxes
|
|
7,314
|
|
|
4,255
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
18,899
|
|
|
10,999
|
|
Add comprehensive loss attributable to non-controlling
interest
|
|
11
|
|
|
-
|
|
Comprehensive income attributable to Net1
|
$
|
18,910
|
|
$
|
10,999
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS
TECHNOLOGIES,
INC.
Consolidated
Statement
of
Changes
in
Equity (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
shares, net of
|
|
|
Paid-In
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Total Net1
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
treasury
|
|
|
Capital
|
|
|
Earnings
|
|
|
(loss) income
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2013
|
|
59,047,640
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
|
45,592,550
|
|
$
|
160,670
|
|
$
|
452,618
|
|
$
|
(100,858
|
)
|
$
|
336,666
|
|
$
|
3,303
|
|
$
|
339,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock granted
|
|
187,963
|
|
|
|
|
|
|
|
|
|
|
|
187,963
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
930
|
|
|
|
|
|
|
|
|
930
|
|
|
|
|
|
930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from
vested stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,596
|
|
|
|
|
|
11,596
|
|
|
(11
|
)
|
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,314
|
|
|
7,314
|
|
|
|
|
|
7,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2013
|
|
59,235,603
|
|
$
|
59
|
|
|
(13,455,090
|
)
|
$
|
(175,823
|
)
|
|
45,780,513
|
|
$
|
161,605
|
|
$
|
464,214
|
|
$
|
(93,544
|
)
|
$
|
356,511
|
|
$
|
3,292
|
|
$
|
359,803
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
$
|
11,585
|
|
$
|
6,744
|
|
Depreciation and amortization
|
|
10,029
|
|
|
10,004
|
|
Earnings from equity-accounted investments
|
|
(103
|
)
|
|
(128
|
)
|
Fair value adjustments
|
|
(133
|
)
|
|
(293
|
)
|
Interest payable
|
|
972
|
|
|
1,192
|
|
Profit on disposal of plant and equipment
|
|
(1
|
)
|
|
-
|
|
Stock-based compensation charge
|
|
930
|
|
|
1,116
|
|
Facility fee amortized
|
|
69
|
|
|
88
|
|
(Increase) Decrease in accounts receivable, pre-funded
social welfare grants receivable
|
|
|
|
|
|
|
and finance loans receivable
|
|
(23,101
|
)
|
|
5,892
|
|
Decrease (Increase) in inventory
|
|
1,011
|
|
|
(959
|
)
|
Decrease in accounts payable and other
payables
|
|
(8,668
|
)
|
|
(1,349
|
)
|
Increase in taxes payable
|
|
6,921
|
|
|
5,438
|
|
Decrease in deferred taxes
|
|
(1,187
|
)
|
|
(2,016
|
)
|
Net cash (used in) provided by operating
activities
|
|
(1,676
|
)
|
|
25,729
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(5,616
|
)
|
|
(6,453
|
)
|
Proceeds from disposal of property, plant
and equipment
|
|
48
|
|
|
105
|
|
Acquisitions, net of cash acquired
|
|
-
|
|
|
(1,913
|
)
|
Repayment of loan by equity-accounted
investment
|
|
-
|
|
|
3
|
|
Other investing activities, net
|
|
(1
|
)
|
|
-
|
|
Proceeds from maturity of investments
related to insurance business
|
|
-
|
|
|
545
|
|
Net change in settlement assets
|
|
51,773
|
|
|
60,779
|
|
Net cash provided by
investing activities
|
|
46,204
|
|
|
53,066
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from issue of common stock
|
|
-
|
|
|
240
|
|
Net change in settlement obligations
|
|
(51,773
|
)
|
|
(60,779
|
)
|
Net cash used in financing
activities
|
|
(51,773
|
)
|
|
(60,539
|
)
|
Effect of exchange rate changes on cash
|
|
1,250
|
|
|
165
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
(5,995
|
)
|
|
18,421
|
|
Cash and cash equivalents beginning of period
|
|
53,665
|
|
|
39,123
|
|
Cash and cash equivalents end of
period
|
$
|
47,670
|
|
$
|
57,544
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the
Unaudited Condensed Consolidated Financial Statements
for the three
months ended September 30, 2013 and 2012
(All amounts in tables
stated in thousands or thousands of United States Dollars, unless otherwise
stated)
1.
Basis
of Presentation and Summary of Significant Accounting Policies
Unaudited Interim
Financial Information
The
accompanying unaudited condensed consolidated financial statements include all
majority-owned subsidiaries over which the Company exercises control and have
been prepared in accordance with US generally accepted accounting principles
(GAAP) and the rules and regulations of the Securities and Exchange Commission
for quarterly reports on Form 10-Q and include all of the information and
disclosures required for interim financial reporting. The results of operations
for the three months ended September 30, 2013 and 2012, are not necessarily
indicative of the results for the full year. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These
financial statements should be read in conjunction with the financial
statements, accounting policies and financial notes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2013. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments), which are necessary for a fair representation of
financial results for the interim periods presented.
References
to the Company refer to Net1 and its consolidated subsidiaries, unless the
context otherwise requires. References to Net1 are references solely to Net 1
UEPS Technologies, Inc.
Recent
accounting pronouncements adopted
In
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 and is applied
prospectively. The adoption of this guidance did not have a material impact on
the Companys financial statements.
Recent
accounting pronouncements not yet adopted as of September 30, 2013
In
March 2013, the FASB issued guidance regarding
Parents Accounting for the
Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or
Groups 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.
2.
Pre-funded
social welfare grants receivable
Pre-funded
social welfare grants receivable represents amounts pre-funded by the Company to
certain merchants participating in the merchant acquiring system. The October
2013 payment service commenced on October 1, 2013, but the Company pre-funded
certain merchants participating in the merchant acquiring system during the last
three days of September 2013.
3.
Inventory
The
Companys inventory comprised the following categories as of September 30, 2013
and June 30, 2013.
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
2013
|
|
|
2013
|
|
|
Finished goods
|
$
|
11,063
|
|
$
|
12,222
|
|
|
|
$
|
11,063
|
|
$
|
12,222
|
|
7
4.
Settlement
assets and settlement obligations
Settlement
assets comprise (1) cash received from the South African government that the
Company holds pending disbursement to beneficiaries of social welfare grants,
(2) cash received from health care plans which the Company disburses to health
care service providers once it adjudicates claims and (3) cash received from
customers on whose behalf the Company processes payroll payments that the
Company will disburse to customer employees, payroll-related payees and other
payees designated by the customer.
Settlement
obligations comprise (1) amounts that the Company is obligated to disburse to
beneficiaries of social welfare grants, (2) amounts which are due to health care
service providers after claims have been adjudicated and reconciled, provided
that the Company shall have previously received such funds from health care plan
customers and (3) amounts that the Company is obligated to pay to customer
employees, payroll-related payees and other payees designated by the customer.
The
balances at each reporting date may vary widely depending on the timing of the
receipts and payments of these assets and obligations
5.
Fair
value of financial instruments and equity-accounted investments
Fair
value of financial instruments
Risk
management
The
Company seeks to reduce its exposure to currencies other than the South African
rand through a policy of matching, to the extent possible, assets and
liabilities denominated in those currencies. In addition, the Company uses
financial instruments in order to economically hedge its exposure to exchange
rate and interest rate fluctuations arising from its operations. The Company is
also exposed to equity price and liquidity risks as well as credit risks.
Currency
exchange risk
The
Company is subject to currency exchange risk because it purchases inventories
that it is required to settle in other currencies, primarily the euro and US
dollar. The Company 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 September 30, 2013 None.
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
|
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.
8
5.
Fair
value of financial instruments and equity-accounted investments (continued)
Fair
value of financial instruments (continued)
Risk
management (continued)
Credit
risk
Credit
risk relates to the risk of loss that the Company would incur as a result of
non-performance by counterparties. The Company maintains credit risk policies
with regard to its counterparties to minimize overall credit risk. These
policies include an evaluation of a potential counterpartys financial
condition, credit rating, and other credit criteria and risk mitigation tools as
the Companys management deems appropriate.
With
respect to credit risk on financial instruments, the Company maintains a policy
of entering into such transactions only with South African and European
financial institutions that have a credit rating of BBB or better, as determined
by credit rating agencies such as Standard & Poors, Moodys and Fitch
Ratings.
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.
The
following section describes the valuation methodologies the Company uses to
measure its significant financial assets and liabilities at fair value.
In
general, and where applicable, the Company uses quoted prices in active markets
for identical assets or liabilities to determine fair value. This pricing
methodology applies to Level 1 investments. If quoted prices in active markets
for identical assets or liabilities are not available to determine fair value,
then the Company uses quoted prices for similar assets and liabilities or inputs
other than the quoted prices that are observable either directly or indirectly.
These investments are included in Level 2 investments. In circumstances in which
inputs are generally unobservable, values typically reflect managements
estimates of assumptions that market participants would use in pricing the asset
or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models, and
similar techniques. Investments valued using such techniques are included in
Level 3 investments.
Asset
measured at fair value using significant unobservable inputs investment in
Finbond Group Limited (Finbond)
The
Company's Level 3 asset represents an investment of 156,788,712 shares of common
stock of Finbond, which are exchange-traded equity securities. Finbonds shares
are traded on the JSE Limited (JSE) and the Company has designated such shares
as available for sale investments. The Company has concluded that the market for
Finbond shares is not active and consequently has employed alternative valuation
techniques in order to determine the fair value of such stock. Currently, the
operations of Finbond relate primarily to the provision of microlending
products. Finbond was recently issued a mutual banking licence and intends to
offer financial products under this licence. In determining the fair value of
Finbond, the Company has considered amongst other things Finbonds historical
financial information (including its most recent public accounts), press
releases issued by Finbond and its published net asset value. The Company
believes that the best indicator of fair value of Finbond is its published net
asset value and has used this value to determine the fair value.
The
fair value of these securities as of September 30, 2013, represented
approximately 1% of the Companys total assets, including these securities.
9
5.
Fair
value of financial instruments and equity-accounted investments (continued)
The
following table presents the Companys assets measured at fair value on a
recurring basis as of September 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
|
$
|
1,816
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,816
|
|
|
Investment in Finbond (available for
sale assets included in other long-term assets)
|
|
-
|
|
|
-
|
|
|
8,019
|
|
|
8,019
|
|
|
Other
|
|
-
|
|
|
155
|
|
|
-
|
|
|
155
|
|
|
Total assets at fair
value
|
$
|
1,816
|
|
$
|
155
|
|
$
|
8,019
|
|
$
|
9,990
|
|
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
|
|
Changes
in the Companys investment in Finbond (Level 3 that are measured at fair value
on a recurring basis) were insignificant during the three months ended September
30, 2013 and 2012, respectively. There have been no transfers in or out of Level
3 during the three months ended September 30, 2013 and 2012, respectively.
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.
10
6.
Goodwill and intangible assets Goodwill
Summarized
below is the movement in the carrying value of goodwill for the three months
ended September 30, 2013:
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Gross value
|
|
|
impairment
|
|
|
value
|
|
Balance as of June 30, 2013
|
$
|
218,558
|
|
$
|
(42,752)
|
|
$
|
175,806
|
|
Foreign currency adjustment
(1)
|
|
5,067
|
|
|
77
|
|
|
5,144
|
|
Balance as of September 30, 2013
|
$
|
223,625
|
|
$
|
(42,675)
|
|
$
|
180,950
|
(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
has been allocated to the Companys reportable segments as follows:
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2013
|
|
SA transaction-based activities
|
$
|
29,861
|
|
$
|
30,525
|
|
International transaction-based activities
|
|
120,334
|
|
|
113,972
|
|
Smart card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware, software and related technology
sales
|
|
30,755
|
|
|
31,309
|
|
Total
|
$
|
180,950
|
|
$
|
175,806
|
|
Intangible
assets
Carrying
value and amortization of intangible assets
Summarized
below is the carrying value and accumulated amortization of the intangible
assets as of September 30, 2013 and June 30, 2013:
|
|
|
As
of September 30, 2013
|
|
|
As
of June 30, 2013
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
94,206
|
|
|
($32,986
|
)
|
$
|
61,220
|
|
$
|
90,469
|
|
$
|
(29,818
|
)
|
$
|
60,651
|
|
|
Software and unpatented
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
technology
|
|
36,052
|
|
|
(24,129
|
)
|
|
11,923
|
|
|
34,951
|
|
|
(22,151
|
)
|
|
12,800
|
|
|
FTS patent
|
|
3,789
|
|
|
(3,789
|
)
|
|
-
|
|
|
3,873
|
|
|
(3,873
|
)
|
|
-
|
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks
|
|
6,755
|
|
|
(2,983
|
)
|
|
3,772
|
|
|
6,611
|
|
|
(2,805
|
)
|
|
3,806
|
|
|
Customer database
|
|
601
|
|
|
(601
|
)
|
|
-
|
|
|
614
|
|
|
(614
|
)
|
|
-
|
|
|
Total
finite-lived intangible
assets
|
$
|
145,909
|
|
|
($68,994
|
)
|
$
|
76,915
|
|
$
|
141,024
|
|
$
|
(63,767
|
)
|
$
|
77,257
|
|
Aggregate
amortization expense on the finite-lived intangible assets for the three months
ended September 30, 2013, was approximately $3.7 million (three months ended
September 30, 2012, was approximately $4.7 million).
Future
estimated annual amortization expense for the next five fiscal years and
thereafter, assuming exchange rates prevailing on September 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
|
$
|
15,637
|
|
2015
|
|
15,583
|
|
2016
|
|
11,228
|
|
2017
|
|
8,896
|
|
2018
|
|
8,896
|
|
Thereafter
|
$
|
20,575
|
|
11
7.
Reinsurance
assets and policy holder liabilities under insurance and investment contracts
Reinsurance
assets and policy holder liabilities under insurance contracts
Summarized
below is the movement in reinsurance assets and policy holder liabilities under
insurance contracts during the three month ended September 30, 2013:
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets (1)
|
|
|
contracts (2)
|
|
Balance as of June 30, 2013
|
$
|
19,557
|
|
$
|
(19,711
|
)
|
Foreign currency
adjustment
(3)
|
|
(425
|
)
|
|
428
|
|
Balance as of September 30, 2013
|
$
|
19,132
|
|
$
|
(19,283
|
)
|
|
(1)
|
Included in other long-term assets.
|
|
(2)
|
Included in other long-term liabilities.
|
|
(3)
|
The foreign currency adjustment represents the effects of
the fluctuations between the ZAR against the US
dollar.
|
The
Company has agreements with reinsurance companies in order to limit its losses
from large insurance contracts, however, if the reinsurer is unable to meet its
obligations, the Company retains the liability.
The
value of insurance contract liabilities is based on best estimates assumptions
of future experience plus prescribed margins, as required in the markets in
which these products are offered, namely South Africa. The process of deriving
the best estimates assumptions plus prescribed margins includes assumptions
related to future mortality and morbidity (an appropriate base table of standard
mortality is chosen depending on the type of contract and class of business),
withdrawals (based on recent withdrawal investigations and expected future
trends), investment returns (based on government treasury rates adjusted by an
applicable margin), expense inflation (based on a 10 year real return on
CPI-linked government bonds from the risk-free rate and adding an allowance for
salary inflation and book shrinkage of 1% per annum) and claim reporting delays
(based on average industry experience).
Assets
and policy holder liabilities under investment contracts
Summarized
below is the movement in assets and policy holder liabilities under investment
contracts during the three months ended September 30, 2013:
|
|
|
|
|
Investment
|
|
|
|
Assets (1)
|
|
|
contracts (2)
|
|
Balance as of June 30, 2013
|
$
|
953
|
|
$
|
(953
|
)
|
Foreign currency
adjustment
(3)
|
|
(21
|
)
|
|
21
|
|
Balance as of September 30, 2013
|
$
|
932
|
|
$
|
(932
|
)
|
|
(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.
8.
Short-term
credit facility
The
Company has a ZAR 250 million ($24.7 million, translated at exchange rates
applicable as of September 30, 2013) short-term South African credit facility
from Nedbank Limited (Nedbank). As of September 30, 2013, the overdraft rate
on this facility was 7.35% . The Company has ceded its investment in Cash
Paymaster Services (Proprietary) Limited, a wholly owned South African
subsidiary, as security for the facility. As of September 30, 2013, the Company
had utilized approximately ZAR 130 million of this facility to enable the bank
providing the short-term credit facility to issue guarantees, including stand-by
letters of credit, in order for the Company to honor its obligations to third
parties requiring such guarantees (Refer to Note 16). As of June 30, 2013, the
Company had utilized none of this facility.
The
Company believes that this facility is sufficient in order to meet its future
obligations as they arise.
12
9.
Long-term borrowings
2010
Senior Facilities Agreement
The
Companys KRW 92.4 billion ($85.4 million, translated at exchange rates
applicable as of September 30, 2013) Korean senior secured loan facility is
described in Note 13 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2013. The
current carrying value as of September 30, 2013, is $85.4 million. As of
September 30, 2013, the carrying amount of the long-term borrowings approximated
fair value. The interest rate in effect on September 30, 2013, was 6.76% .
Interest expense during the three months ended September 30, 2013 and 2012, was
$1.4 million and $1.9 million, respectively.
The
fifth and sixth scheduled principal repayments are $7.5 million each, translated
at exchange rates applicable as of September 30, 2013, and have been classified
as current in the Companys condensed consolidated balance sheet. The Company
repaid the full amount outstanding of KRW 92.4 billion on October 29, 2013,
using a combination of cash on hand and loan proceeds from the new facility
described below. The Company has expensed the remaining prepaid facility fees of
approximately $0.4 million during the three months ended December 31, 2013. The
third scheduled repayment of $7.3 million was paid on October 29, 2012.
2013
Senior Facilities Agreement
On
October 28, 2013, the Company signed a new five-year senior secured facilities
agreement (the New Facilities Agreement) provided by a consortium of Korean
banks. The New Facilities Agreement provides for three separate facilities to
the Companys wholly owned subsidiary, Net1 Applied Technologies Korea (Net1
Korea): a Facility A loan of up to KRW 60.0 billion ($55.5 million), a Facility
B loan of up to KRW 15 billion ($13.9 million) and a Facility C revolving credit
facility of up to KRW 10.0 billion ($9.2 million) (all facilities denominated in
KRW and translated at exchange rates applicable as of September 30, 2013).
The
Facility A and B loans were fully drawn on October 29, 2013, and used to repay
KRW 75.0 billion of the KRW 92.4 billion loan outstanding under the 2010 senior
facilities agreement. The remaining outstanding balance under the 2010 facility
of KRW 17.4 billion was paid from cash on hand on October 29, 2013. In addition,
the Company drew KRW 1.1 billion of the revolving credit facility on October 29,
2013, to pay fees and expenses related to the New Facilities Agreement.
Interest
on the loans and revolving credit facility is payable quarterly and is based on
the Korean CD rate in effect from time to time plus a margin of 3.10% for the
Facility A loan and Facility C revolving credit facility; and a margin of 2.90%
for the Facility B loan. The CD rate was 2.66% on September 30, 2013. The
Company paid facilities fees of approximately KRW 0.9 billion. A commitment fee
of 0.3% is payable on any un-drawn and un-cancelled amount of the revolving
credit facility.
The
Facility A loan is repayable in three scheduled annual installments of KRW 10
billion each beginning 30 months after initial drawdown and one final
installment of KRW 30 billion on the maturity date, namely October 29, 2018. The
Facility B loan is repayable in full on October 29, 2014. The Facility C
revolving credit facility is repayable in full on the maturity date. Prepayment
of the revolving credit facility may be withdrawn at any time up to three months
before the maturity date.
The
loans under the New Facilities Agreement are secured by 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 to maintain agreed leverage and debt service coverage
ratios and restricts Net1 Koreas ability to make certain distributions with
respect to its capital stock, prepay other debt, encumber its assets, incur
additional indebtedness, or engage in certain business combinations. 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).
10. Capital structure
Common
stock repurchases
The
Company did not repurchase any of its shares during the three months ended
September 30, 2013 and 2012, respectively.
13
10. Capital structure (continued)
The
following table presents reconciliation between the number of shares, net of
treasury, presented in the consolidated statement of changes in equity during
the three months ended September 30, 2013 and 2012, respectively, and the number
of shares, net of treasury, excluding non-vested equity shares that have not
vested during the three months ended September 30, 2013 and 2012, respectively:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Number of shares, net of
treasury:
|
|
|
|
|
|
|
Statement of changes in
equity
|
|
45,780,513
|
|
|
45,600,471
|
|
Less:
Non-vested equity shares that have not vested
|
|
(576,282
|
)
|
|
(644,750
|
)
|
Number
of shares, net of treasury excluding
non-vested
equity
shares that have not vested
|
|
45,204,231
|
|
|
44,955,721
|
|
11. Stock-based compensation
Stock
option and restricted stock activity
Options
The
following table summarizes stock option activity for the three months ended
September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Grant
|
|
|
|
|
|
|
exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Date Fair
|
|
|
|
Number of
|
|
|
price
|
|
|
Term
|
|
|
Value
|
|
|
Value
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2013
|
|
2,648,583
|
|
|
15.15
|
|
|
5.98
|
|
|
313
|
|
|
|
|
Granted under Plan: August 2013
|
|
224,896
|
|
|
7.35
|
|
|
10.00
|
|
|
568
|
|
|
2.53
|
|
Outstanding September 30,
2013
|
|
2,873,479
|
|
|
14.54
|
|
|
6.06
|
|
|
4,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30, 2012
|
|
2,648,583
|
|
|
15.15
|
|
|
6.74
|
|
|
978
|
|
|
|
|
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 August
2013 and 2012, respectively. The table below presents the range of assumptions
used to value options granted during the three months ended September 30, 2013
and 2012:
|
2013
|
|
2012
|
Expected volatility
|
50%
|
|
49%
|
Expected dividends
|
0%
|
|
0%
|
Expected life (in years)
|
3
|
|
3
|
Risk-free rate
|
0.9%
|
|
0.3%
|
14
11. Stock-based compensation (continued)
Stock
option and restricted stock activity (continued)
Options
(continued)
The
following table presents stock options vesting and expecting to vest as of
September 30, 2013:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
price
|
|
|
Term
|
|
|
Value
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
Vested and expecting to vest September
30, 2013
|
|
2,873,479
|
|
|
14.54
|
|
|
6.06
|
|
|
4,841
|
|
These
options have an exercise price range of $6.59 to $24.46.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
(000)
|
|
Exercisable
|
|
1,985,250
|
|
$
|
17.07
|
|
|
5.05
|
|
$
|
1,963
|
|
During
the three months ended September 30, 2013 and 2012, respectively, 198,667 and
85,000 stock options became exercisable. Included in the 85,000 stock options
are 30,000 stock options with respect to which the Remuneration Committee of the
Board agreed to accelerate vesting, in August 2012, prior to the resignation of
a non-employee director. During the three months ended September 30, 2012, the
Company received approximately $0.2 million from the 30,000 stock options
exercised by the non-employee director that resigned. No stock options were
exercised during the three months ended September 30, 2013. The Company issues
new shares to satisfy stock option exercises.
Restricted
stock
The
following table summarizes restricted stock activity for the three months ended
September 30, 2013 and 2012:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
Stock
|
|
|
($000)
|
|
Non-vested June 30, 2013
|
|
405,226
|
|
$
|
4,393
|
|
Granted August 2013
|
|
187,963
|
|
|
1,382
|
|
Vested August 2013
|
|
(16,907
|
)
|
|
161
|
|
Non-vested September
30, 2013
|
|
576,282
|
|
|
5,630
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2012
|
|
646,617
|
|
|
7,061
|
|
Granted August 2012
|
|
21,569
|
|
|
189
|
|
Vested August 2012
|
|
(23,436
|
)
|
|
216
|
|
Non-vested September 30, 2012
|
|
644,750
|
|
$
|
7,021
|
|
The
fair value of restricted stock vesting during the three months ended September
30, 2013 and 2012, respectively, was $0.2 million and $0.2 million. 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
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.
15
11. Stock-based compensation (continued)
Stock-based
compensation charge and unrecognized compensation cost
The
Company has recorded a stock compensation charge of $0.9 million and $1.1
million for the three months ended September 30, 2013 and 2012, respectively,
which comprised:
|
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
|
Three months ended September
30, 2013
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
930
|
|
$
|
-
|
|
$
|
930
|
|
|
Total three months ended September 30, 2013 .
|
$
|
930
|
|
$
|
-
|
|
$
|
930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September
30, 2012
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,116
|
|
$
|
-
|
|
$
|
1,116
|
|
|
Total three months ended September 30, 2012 .
|
$
|
1,116
|
|
$
|
-
|
|
$
|
1,116
|
|
The
stock-based compensation charges have been allocated to selling, general and
administration based on the allocation of the cash compensation paid to the
employees.
As
of September 30, 2013, the total unrecognized compensation cost related to stock
options was approximately $1.6 million, which the Company expects to recognize
over approximately three years. As of September 30, 2013, the total unrecognized
compensation cost related to restricted stock awards was approximately $4.3
million, which the Company expects to recognize over approximately three years.
As
of each of September 30, 2013 and June 30, 2013, respectively, the Company has
recorded a deferred tax asset of approximately $1.4 million related to the
stock-based compensation charge recognized related to employees and directors of
Net1 as it is able to deduct the grant date fair value for taxation purposes in
the United States.
12. 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 three months ended September 30, 2013 and 2012,
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 February 2012 and August 2013 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 to the Companys audited
consolidated financial statements included in its Annual Report on Form 10-K for
the year ended June 30, 2013.
16
12. 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:
|
|
|
Three months ended
|
|
|
|
|
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands except percent
|
|
|
|
|
and
|
|
|
|
|
per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable
to Net1
|
$
|
11,596
|
|
$
|
6,744
|
|
|
Undistributed earnings
|
|
11,596
|
|
|
6,744
|
|
|
Percent allocated to
common shareholders (Calculation 1)
|
|
99%
|
|
|
99%
|
|
|
Numerator
for earnings per share: basic and diluted
|
$
|
11,495
|
|
$
|
6,659
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic
earnings per share: weighted-average common
|
|
|
|
|
|
|
|
shares
outstanding
|
|
45,216
|
|
|
44,968
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
Performance shares related to acquisition
|
|
-
|
|
|
-
|
|
|
Stock options
|
|
71
|
|
|
48
|
|
|
Denominator
for diluted earnings per share: adjusted weighted average
common
shares
outstanding and assumed conversion
|
|
45,287
|
|
|
45,016
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.25
|
|
$
|
0.15
|
|
|
Diluted
|
$
|
0.25
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
Basic weighted-average
common shares outstanding (A)
|
|
45,216
|
|
|
44,968
|
|
|
Basic
weighted-average common shares outstanding and unvested
|
|
|
|
|
|
|
|
restricted shares
expected to vest (B)
|
|
45,613
|
|
|
45,544
|
|
|
Percent
allocated to common shareholders (A) / (B)
|
|
99%
|
|
|
99%
|
|
Options
to purchase 2,493,759 shares of the Companys common stock at prices ranging
from $7.35 to $24.46 per share were outstanding during the three months ended
September 30, 2013, but were not included in the computation of diluted earnings
per share because the options exercise price were greater than the average
market price of the Companys common shares. The options, which expire at
various dates through August 21, 2023, were still outstanding as of September
30, 2013.
13. Supplemental cash flow information
The
following table presents the supplemental cash flow disclosures for the three
months ended September 30, 2013 and 2012:
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
Cash received from interest
|
$
|
3,241
|
|
$
|
3,125
|
|
Cash paid for interest
|
$
|
1,639
|
|
$
|
2,000
|
|
Cash paid for income taxes
|
$
|
498
|
|
$
|
342
|
|
14. Operating segments
The
Company discloses segment information as reflected in the management information
systems reports that its chief operating decision maker uses in making decisions
and to report certain entity-wide disclosures about products and services, major
customers, and the countries in which the entity holds material assets or
reports material revenues. A description of the Companys operating segments is
contained in Note 22 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2013.
17
14. Operating segments (continued)
The
following tables summarize segment information which is prepared in accordance
with GAAP:
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
Revenues from external customers
|
|
|
|
|
|
|
SA
transaction-based activities
|
$
|
63,032
|
|
$
|
61,364
|
|
International
transaction-based activities
|
|
36,817
|
|
|
31,649
|
|
Smart
card accounts
|
|
11,329
|
|
|
8,364
|
|
Financial services
|
|
2,427
|
|
|
1,384
|
|
Hardware,
software and related technology sales
|
|
9,889
|
|
|
8,921
|
|
Total
|
|
123,494
|
|
|
111,682
|
|
Inter-company revenues
|
|
|
|
|
|
|
SA transaction-based
activities
|
|
2,275
|
|
|
3,983
|
|
International transaction-based activities
|
|
-
|
|
|
-
|
|
Smart card accounts
|
|
-
|
|
|
386
|
|
Financial
services
|
|
252
|
|
|
-
|
|
Hardware, software and
related technology sales
|
|
170
|
|
|
208
|
|
Total
|
|
2,697
|
|
|
4,577
|
|
Operating (loss) income
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
13,282
|
|
|
6,400
|
|
International
transaction-based activities
|
|
2,051
|
|
|
(171
|
)
|
Smart
card accounts
|
|
3,228
|
|
|
2,385
|
|
Financial services
|
|
56
|
|
|
1,097
|
|
Hardware,
software and related technology sales
|
|
2,948
|
|
|
1,984
|
|
Corporate/Eliminations
|
|
(5,165
|
)
|
|
(2,370
|
)
|
Total
|
|
16,400
|
|
|
9,325
|
|
Interest income
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
-
|
|
|
-
|
|
International
transaction-based activities
|
|
-
|
|
|
-
|
|
Smart
card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
-
|
|
|
-
|
|
Hardware,
software and related technology sales
|
|
-
|
|
|
-
|
|
Corporate/Eliminations
|
|
3,319
|
|
|
3,091
|
|
Total
|
|
3,319
|
|
|
3,091
|
|
Interest expense
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
23
|
|
|
143
|
|
International
transaction-based activities
|
|
44
|
|
|
-
|
|
Smart
card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
51
|
|
|
-
|
|
Hardware,
software and related technology sales
|
|
161
|
|
|
70
|
|
Corporate/Eliminations
|
|
1,473
|
|
|
1,858
|
|
Total
|
|
1,752
|
|
|
2,071
|
|
Depreciation and amortization
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
2,447
|
|
|
3,141
|
|
International
transaction-based activities
|
|
7,406
|
|
|
6,679
|
|
Smart
card accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
117
|
|
|
87
|
|
Hardware,
software and related technology sales
|
|
59
|
|
|
97
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
Total
|
|
10,029
|
|
|
10,004
|
|
Income taxation (benefit) expense
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
3,712
|
|
|
1,753
|
|
International
transaction-based activities
|
|
157
|
|
|
(433
|
)
|
Smart
card accounts
|
|
903
|
|
|
668
|
|
Financial services
|
|
10
|
|
|
312
|
|
Hardware,
software and related technology sales
|
|
693
|
|
|
438
|
|
Corporate/Eliminations
|
|
1,010
|
|
|
991
|
|
Total
|
$
|
6,485
|
|
$
|
3,729
|
|
18
14. Operating segments (continued)
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
Net (loss) income
|
|
|
|
|
|
|
SA
transaction-based activities
|
$
|
9,547
|
|
$
|
4,504
|
|
International transaction-based
activities
|
|
1,937
|
|
|
343
|
|
Smart card
accounts
|
|
2,324
|
|
|
1,716
|
|
Financial services
|
|
27
|
|
|
801
|
|
Hardware,
software and related technology sales
|
|
2,095
|
|
|
1,477
|
|
Corporate/Eliminations
|
|
(4,334
|
)
|
|
(2,097
|
)
|
Total
|
|
11,596
|
|
|
6,744
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
SA
transaction-based activities
|
|
556
|
|
|
3,594
|
|
International transaction-based
activities
|
|
4,831
|
|
|
2,703
|
|
Smart card
accounts
|
|
-
|
|
|
-
|
|
Financial services
|
|
200
|
|
|
145
|
|
Hardware,
software and related technology sales
|
|
29
|
|
|
11
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
Total
|
$
|
5,616
|
|
$
|
6,453
|
|
The
segment information as reviewed by the chief operating decision maker does not
include a measure of segment assets per segment as all of the significant assets
are used in the operations of all, rather than any one, of the segments. The
Company does not have dedicated assets assigned to a particular operating
segment. Accordingly, it is not meaningful to attempt an arbitrary allocation
and segment asset allocation is therefore not presented.
It
is impractical to disclose revenues from external customers for each product and
service or each group of similar products and services.
15. Income tax
Income
tax in interim periods
For
the purposes of interim financial reporting, the Company determines the
appropriate income tax provision by first applying the effective tax rate
expected to be applicable for the full fiscal year to ordinary income. This
amount is then adjusted for the tax effect of significant unusual or
extraordinary items, for instance, changes in tax law, valuation allowances and
non-deductible transaction-related expenses that are reported separately, and
have an impact on the tax charge. The cumulative effect of any change in the
enacted tax rate, if and when applicable, on the opening balance of deferred tax
assets and liabilities is also included in the tax charge as a discrete event in
the interim period in which the enactment date occurs.
For
the three months ended September 30, 2013, the tax charge was calculated using
the expected effective tax rate for the year. The Companys effective tax rate
for each of the three months ended September 30, 2013 and 2012, respectively,
was 36% and was higher than the South African statutory rate as a result of
non-deductible expenses (including interest expense related to the Companys
long-term Korean borrowings and stock-based compensation charges).
Uncertain
tax positions
There
were no changes during the three months ended September 30, 2013. As of
September 30, 2013, the Company had accrued interest related to uncertain tax
positions of approximately $0.2 million on its balance sheet.
The
Company does not expect changes related to its unrecognized tax benefits will
have a significant impact on its results of operations or financial position in
the next 12 months.
The
Company files income tax returns mainly in South Africa, Korea, Austria,
Botswana, the Russian Federation and in the US federal jurisdiction. As of
September 30, 2013, the Company is no longer subject to any new income tax
examination by the South African Revenue Service for years before June 30, 2009.
In 2011, the Korea National Tax Service had completed the examination of the
Companys returns in Korea related to years 2006 through 2010. The Company is
subject to income tax in other jurisdictions outside South Africa and Korea,
none of which are individually material to its financial position, cash flows,
or results of operations.
19
16. Commitments and contingencies
Guarantees
The
South African Revenue Service and certain of the Companys customers, suppliers
and other business partners have asked the Company to provide them with
guarantees, including standby letters of credit, issued by a South African bank.
The Company is required to procure these guarantees for these third parties to
operate its business.
Nedbank
has issued guarantees to these third parties amounting to ZAR 131.2 million
($13.0 million, translated at exchange rates applicable as of September 30,
2013) and thereby utilizing part of the Companys short-term facility. The
Company in turn has provided nonrecourse, unsecured counter-guarantees to
Nedbank for the same amount. The Company pays commission of between 0.2% per
annum to 2.0% per annum of the face value of these guarantees and does not
recover any of the commission from third parties.
The
Company has not recognized any obligation related to these counter-guarantees in
its unaudited condensed consolidated balance sheet as of September 30, 2013. The
maximum potential amount that the Company could pay under these guarantees is
ZAR 131.2 million ($13.0 million, translated at exchange rates applicable as of
September 30, 2013). The guarantees have reduced the amount available for
borrowings under the Companys short-term credit facility described in note 8.
Contingencies
The
Company is subject to a variety of insignificant claims and suits that arise
from time to time in the ordinary course of business.
Management
currently believes that the resolution of these matters, individually or in the
aggregate, will not have a material adverse impact on the Companys financial
position, results of operations and cash flows.
17. Subsequent events
2013
Senior Facilities Agreement
As
described in Note 9, the Company signed a new five-year senior secured
facilities agreement provided by a consortium of banks on October 28, 2013.
November
2013 Broad Based Black Economic Empowerment deal
On
November 6, 2013, the Company signed a letter of intent to issue 4,400,000
shares of its common stock at a price of ZAR 88.50 per share (calculated as 75%
of the closing price of the Companys common stock on the JSE Limited on
November 5, 2013) to Business Venture Investments 1567 (Proprietary) Limited
(RF), a special purpose entity, pursuant to a new Broad Based Black Economic
Empowerment transaction. Issue of the shares is subject to the conclusion of an
agreement which will include certain conditions, including obtaining the
relevant regulatory approvals.
20