NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Balance Sheets
|
|
Unaudited
|
|
|
(A)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents (Note 15)
|
$
|
222,972
|
|
$
|
223,644
|
|
Restricted cash (Note 15)
|
|
44,735
|
|
|
-
|
|
Pre-funded social
welfare grants receivable (Note 3)
|
|
1,615
|
|
|
1,580
|
|
Accounts receivable, net of allowances
of March: $3,362; June: $1,669
|
|
122,540
|
|
|
107,805
|
|
Finance loans
receivable, net of allowances of March: $3,536; June: $4,494
|
|
43,539
|
|
|
37,009
|
|
Inventory (Note 4)
|
|
10,560
|
|
|
10,004
|
|
Deferred income taxes
|
|
6,841
|
|
|
6,956
|
|
Total
current assets before settlement assets
|
|
452,802
|
|
|
386,998
|
|
Settlement assets (Note 5)
|
|
513,713
|
|
|
536,725
|
|
Total current assets
|
|
966,515
|
|
|
923,723
|
|
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of
|
|
|
|
|
|
|
March: $124,527; June: $99,969
|
|
43,901
|
|
|
54,977
|
|
EQUITY-ACCOUNTED INVESTMENTS
|
|
38,920
|
|
|
25,645
|
|
GOODWILL (Note 7)
|
|
190,174
|
|
|
179,478
|
|
INTANGIBLE ASSETS, net (Note 7)
|
|
42,904
|
|
|
48,556
|
|
OTHER LONG-TERM ASSETS, including reinsurance assets (Note
6 and Note 8)
|
|
39,281
|
|
|
31,121
|
|
TOTAL ASSETS
|
|
1,321,695
|
|
|
1,263,500
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Short-term credit
facilities (Note 9)
|
|
-
|
|
|
-
|
|
Accounts payable
|
|
13,555
|
|
|
14,097
|
|
Other payables
|
|
38,319
|
|
|
37,479
|
|
Current portion of long-term borrowings
(Note 10)
|
|
8,941
|
|
|
8,675
|
|
Income taxes payable
|
|
11,223
|
|
|
5,235
|
|
Total
current liabilities before settlement obligations
|
|
72,038
|
|
|
65,486
|
|
Settlement obligations (Note 5)
|
|
513,713
|
|
|
536,725
|
|
Total current liabilities
|
|
585,751
|
|
|
602,211
|
|
DEFERRED INCOME TAXES
|
|
11,143
|
|
|
12,559
|
|
LONG-TERM BORROWINGS (Note 10)
|
|
16,335
|
|
|
43,134
|
|
OTHER LONG-TERM LIABILITIES, including
insurance policy liabilities (Note 8)
|
|
2,725
|
|
|
2,376
|
|
TOTAL LIABILITIES
|
|
615,954
|
|
|
660,280
|
|
COMMITMENTS AND CONTINGENCIES (Note 18)
|
|
|
|
|
|
|
EQUITY
|
|
COMMON STOCK (Note 11)
|
|
|
|
|
|
|
Authorized: 200,000,000 with $0.001 par value;
|
|
|
|
|
|
|
Issued
and outstanding shares, net of treasury -
March: 57,590,085; June: 55,271,954
|
|
79
|
|
|
74
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
Authorized shares: 50,000,000 with $0.001 par value;
|
|
|
|
|
|
|
Issued and outstanding shares, net of treasury: March: -; June: -
|
|
-
|
|
|
-
|
|
ADDITIONAL
PAID-IN-CAPITAL
|
|
269,533
|
|
|
223,978
|
|
TREASURY SHARES, AT COST: March:
23,621,541; June: 20,483,932
|
|
(273,238
|
)
|
|
(241,627
|
)
|
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 12)
|
|
(164,510
|
)
|
|
(189,700
|
)
|
RETAINED EARNINGS
|
|
761,987
|
|
|
700,322
|
|
TOTAL NET1 EQUITY
|
|
593,851
|
|
|
493,047
|
|
REDEEMABLE
COMMON STOCK
|
|
107,672
|
|
|
107,672
|
|
NON-CONTROLLING INTEREST
|
|
4,218
|
|
|
2,501
|
|
TOTAL EQUITY
|
|
705,741
|
|
|
603,220
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
$
|
1,321,695
|
|
$
|
1,263,500
|
|
(A) Derived from audited financial statements
See Notes to Unaudited Condensed Consolidated Financial
Statements
2
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Operations
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands, except per share data)
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
147,944
|
|
$
|
134,736
|
|
$
|
455,010
|
|
$
|
439,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing and support
|
|
70,912
|
|
|
63,266
|
|
|
219,210
|
|
|
219,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration
|
|
42,195
|
|
|
35,998
|
|
|
122,366
|
|
|
108,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
10,290
|
|
|
9,281
|
|
|
31,117
|
|
|
29,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
24,547
|
|
|
26,191
|
|
|
82,317
|
|
|
82,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
5,124
|
|
|
3,345
|
|
|
14,489
|
|
|
11,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
467
|
|
|
852
|
|
|
1,773
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE
|
|
29,204
|
|
|
28,684
|
|
|
95,033
|
|
|
90,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (Note 17)
|
|
10,233
|
|
|
9,816
|
|
|
32,320
|
|
|
31,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE EARNINGS FROM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY-ACCOUNTED INVESTMENTS
|
|
18,971
|
|
|
18,868
|
|
|
62,713
|
|
|
59,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS
|
|
45
|
|
|
2
|
|
|
778
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
19,016
|
|
|
18,870
|
|
|
63,491
|
|
|
59,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS NET INCOME ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
624
|
|
|
450
|
|
|
1,826
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO NET1
|
$
|
18,392
|
|
$
|
18,420
|
|
$
|
61,665
|
|
$
|
58,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, in U.S. dollars
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings attributable to Net1 shareholders
|
$
|
0.34
|
|
$
|
0.40
|
|
$
|
1.16
|
|
$
|
1.24
|
|
Diluted
earnings attributable to Net1 shareholders
|
$
|
0.34
|
|
$
|
0.40
|
|
$
|
1.16
|
|
$
|
1.23
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
3
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Comprehensive Income
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
19,016
|
|
$
|
18,870
|
|
$
|
63,491
|
|
$
|
59,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
income on asset available
for
sale, net of tax
|
|
-
|
|
|
642
|
|
|
-
|
|
|
692
|
|
Movement in foreign currency translation reserve
|
|
24,158
|
|
|
14,359
|
|
|
25,694
|
|
|
(46,297
|
)
|
Total other comprehensive
income
(loss),
net of taxes
|
|
24,158
|
|
|
15,001
|
|
|
25,694
|
|
|
(45,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
43,174
|
|
|
33,871
|
|
|
89,185
|
|
|
14,256
|
|
Less comprehensive income
attributable
to
non-controlling interest
|
|
(649
|
)
|
|
(509
|
)
|
|
(2,330
|
)
|
|
(1,359
|
)
|
Comprehensive income
attributable
to Net1
|
$
|
42,525
|
|
$
|
33,362
|
|
$
|
86,855
|
|
$
|
12,897
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
4
NET 1 UEPS
TECHNOLOGIES,
INC.
Unaudited
Condensed
Consolidated
Statement
of
Changes
in
Equity for the nine
months
ended March 31, 2017 (dollar
amounts
in
thousands)
|
|
Net 1 UEPS Technologies, Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
of
|
|
|
|
|
|
Number of
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
Redeemable
|
|
|
Non-
|
|
|
|
|
|
|
of
|
|
|
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Shares, Net
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Net1
|
|
|
Common
|
|
|
Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Shares
|
|
|
of
Treasury
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Stock
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 1, 2016
|
|
75,755,886
|
|
$
|
74
|
|
|
(20,483,932
|
)
|
$
|
(241,627
|
)
|
|
55,271,954
|
|
$
|
223,978
|
|
$
|
700,322
|
|
$
|
(189,700
|
)
|
$
|
493,047
|
|
$
|
107,672
|
|
$
|
2,501
|
|
$
|
603,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock (Note 11)
|
|
5,000,000
|
|
|
5
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
44,995
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock (Note 11)
|
|
|
|
|
|
|
|
(3,137,609
|
)
|
|
(31,611
|
)
|
|
(3,137,609
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,611
|
)
|
|
|
|
|
|
|
|
(31,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock granted (Note 13)
|
|
387,000
|
|
|
|
|
|
|
|
|
|
|
|
387,000
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock option (Note 13)
|
|
68,740
|
|
|
|
|
|
|
|
|
|
|
|
68,740
|
|
|
629
|
|
|
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of stock compensation charge (Note
13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,827
|
)
|
|
|
|
|
|
|
|
(1,827
|
)
|
|
|
|
|
|
|
|
(1,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization of APIC pool related to vested
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
(613
|
)
|
|
(613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,665
|
|
|
|
|
|
61,665
|
|
|
|
|
|
1,826
|
|
|
63,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,190
|
|
|
25,190
|
|
|
|
|
|
504
|
|
|
25,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2017
|
|
81,211,626
|
|
$
|
79
|
|
|
(23,621,541
|
)
|
$
|
(273,238
|
)
|
|
57,590,085
|
|
$
|
269,533
|
|
$
|
761,987
|
|
$
|
(164,510
|
)
|
$
|
593,851
|
|
$
|
107,672
|
|
$
|
4,218
|
|
$
|
705,741
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
5
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed
Consolidated Statements of Cash Flows
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
19,016
|
|
$
|
18,870
|
|
$
|
63,491
|
|
$
|
59,861
|
|
Depreciation and amortization
|
|
10,290
|
|
|
9,281
|
|
|
31,117
|
|
|
29,982
|
|
Earnings from equity-accounted investments
|
|
(45
|
)
|
|
(2
|
)
|
|
(778
|
)
|
|
(578
|
)
|
Fair value adjustments
|
|
(50
|
)
|
|
(2,387
|
)
|
|
(61
|
)
|
|
613
|
|
Interest payable
|
|
75
|
|
|
343
|
|
|
84
|
|
|
1,697
|
|
Profit on disposal of property, plant and
equipment
|
|
(98
|
)
|
|
(29
|
)
|
|
(571
|
)
|
|
(113
|
)
|
Gain on fair value of T24
|
|
-
|
|
|
(1,909
|
)
|
|
-
|
|
|
(1,909
|
)
|
Stock-based compensation charge (reversal),
net (Note 13)
|
|
621
|
|
|
954
|
|
|
(68
|
)
|
|
2,645
|
|
Facility fee amortized
|
|
27
|
|
|
34
|
|
|
94
|
|
|
103
|
|
Dividends received from equity-accounted
investments
|
|
-
|
|
|
-
|
|
|
370
|
|
|
-
|
|
(Increase) Decrease in accounts receivable, pre- funded
social welfare grants receivable and finance loans receivable
|
|
(16,612
|
)
|
|
15,914
|
|
|
(2,261
|
)
|
|
(15,211
|
)
|
Decrease (Increase) in inventory
|
|
3,893
|
|
|
(340
|
)
|
|
308
|
|
|
(495
|
)
|
(Decrease) Increase in accounts payable and other payables
|
|
(1,486
|
)
|
|
4,009
|
|
|
(4,386
|
)
|
|
1,563
|
|
Increase in taxes payable
|
|
6,678
|
|
|
4,479
|
|
|
5,819
|
|
|
3,444
|
|
Decrease in deferred taxes
|
|
(506
|
)
|
|
(19
|
)
|
|
(1,752
|
)
|
|
(256
|
)
|
Net cash provided by
operating activities
|
|
21,803
|
|
|
49,198
|
|
|
91,406
|
|
|
81,346
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(1,949
|
)
|
|
(8,053
|
)
|
|
(8,498
|
)
|
|
(28,698
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
330
|
|
|
136
|
|
|
1,344
|
|
|
753
|
|
Investment in MobiKwik
|
|
-
|
|
|
-
|
|
|
(15,347
|
)
|
|
-
|
|
Loans to equity accounted investments (Note 6)
|
|
(2,000
|
)
|
|
-
|
|
|
(12,044
|
)
|
|
-
|
|
Acquisitions, net of cash acquired (Note 2)
|
|
-
|
|
|
(1,666
|
)
|
|
(4,651
|
)
|
|
(1,666
|
)
|
Acquisition of available for sale securities
|
|
-
|
|
|
(8,900
|
)
|
|
-
|
|
|
(8,900
|
)
|
Other investing activities
|
|
-
|
|
|
(5
|
)
|
|
-
|
|
|
(5
|
)
|
Net change in settlement assets (Note 5)
|
|
(165,945
|
)
|
|
(111,118
|
)
|
|
54,827
|
|
|
171,516
|
|
Net cash (used in) provided
by investing
activities
|
|
(169,564
|
)
|
|
(129,606
|
)
|
|
15,631
|
|
|
133,000
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of common stock (Note
11 and Note 13)
|
|
45,629
|
|
|
-
|
|
|
45,629
|
|
|
3,762
|
|
Acquisition of treasury stock (Note 11)
|
|
-
|
|
|
(12,726
|
)
|
|
(32,081
|
)
|
|
(23,912
|
)
|
Repayment of long-term borrowings (Note 10)
|
|
-
|
|
|
-
|
|
|
(28,493
|
)
|
|
-
|
|
Guarantee fee paid (Note 10)
|
|
-
|
|
|
-
|
|
|
(1,145
|
)
|
|
-
|
|
Dividends paid to non-controlling interest
|
|
-
|
|
|
-
|
|
|
(613
|
)
|
|
-
|
|
Long-term borrowings utilized (Note 10)
|
|
274
|
|
|
676
|
|
|
521
|
|
|
2,107
|
|
Net change in settlement obligations (Note
5)
|
|
165,955
|
|
|
111,118
|
|
|
(54,817
|
)
|
|
(171,516
|
)
|
Net cash used in (provided by)
financing
activities
|
|
211,858
|
|
|
99,068
|
|
|
(70,999
|
)
|
|
(189,559
|
)
|
Effect of exchange rate changes on cash
|
|
4,719
|
|
|
3,192
|
|
|
8,025
|
|
|
(19,101
|
)
|
Net increase in cash, cash equivalents and
restricted cash
|
|
68,816
|
|
|
21,852
|
|
|
44,063
|
|
|
5,686
|
|
Cash, cash equivalents and restricted
cash
beginning of period
|
|
198,891
|
|
|
101,417
|
|
|
223,644
|
|
|
117,583
|
|
Cash, cash equivalents and restricted cash end
of period (Note 15)
|
$
|
267,707
|
|
$
|
123,269
|
|
$
|
267,707
|
|
$
|
123,269
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
6
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the
Unaudited Condensed Consolidated Financial Statements
for the three
and nine months ended March 31, 2017 and 2016
(All amounts in tables
stated in thousands or thousands of U.S. 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 U.S. generally accepted accounting principles
(GAAP) and the rules and regulations of the United States Securities and
Exchange Commission for Quarterly Reports on Form 10-Q and include all of the
information and disclosures required for interim financial reporting. The
results of operations for the three and nine months ended March 31, 2017 and
2016, 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, 2016. 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, collectively,
unless the context otherwise requires. References to Net1 are references
solely to Net 1 UEPS Technologies, Inc.
Recent
accounting pronouncements adopted
In
February 2015, the FASB issued guidance regarding
Amendments to the
Consolidation Analysis
. This guidance amends both the variable interest
entity and voting interest entity consolidation models. The requirement to
assess an entity under a different consolidation model may change previous
consolidation conclusions. The guidance is effective for the Company beginning
July 1, 2016. The adoption of this guidance did not have a material impact on
the Companys financial statements.
In
November 2016, the FASB issued guidance regarding
Restricted Cash - a
consensus of the FASB Emerging Issues Task Force.
This guidance amends
current guidance to add or clarify the classification and presentation of
restricted cash in the statement of cash flows. The guidance is effective for
the Company beginning July 1, 2018, however the Company has early adopted the
guidance, effective December 31, 2016. The adoption of this guidance did not
have a material impact on the Companys financial statements.
Recent
accounting pronouncements not yet adopted as of March 31, 2017
In
May 2014, the FASB issued guidance regarding
Revenue from Contracts with
Customers
. This guidance requires an entity to recognize revenue when a
customer obtains control of promised goods or services in an amount that
reflects the consideration to which the entity expects to receive in exchange
for those goods or services. In addition, the standard requires disclosure of
the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The guidance was to be effective for the Company
beginning July 1, 2017, however in August 2015, the FASB issued guidance
regarding
Revenue from Contracts with Customers, Deferral of the Effective
Date
. This guidance defers the required implementation date specified in
Revenue from Contracts with Customers
to March 2017. Public companies may
elect to adopt the standard along the original timeline. The guidance is
effective for the Company beginning July 1, 2018. The Company expects that this
guidance may have a material impact on its financial statements and is currently
evaluating the impact of this guidance on its financial statements on adoption.
In
August 2014, the FASB issued guidance regarding
Disclosure of Uncertainties
about an Entitys Ability to Continue as a Going Concern
. This guidance
requires an entity to perform interim and annual assessments of its ability to
continue as a going concern within one year of the date that its financial
statements are issued. An entity must provide certain disclosures if conditions
or events raise substantial doubt about the entitys ability to continue as a
going concern. The guidance is effective for the Company beginning July 1, 2017.
Early adoption is permitted. The Company is currently assessing the impact of
this guidance on its financial statements disclosure.
7
1.
Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Recent accounting pronouncements not yet adopted as of March 31, 2017
(continued)
In
July 2015, the FASB issued guidance regarding
Simplifying the Measurement of
Inventory
. This guidance requires entities to measure most inventory at the
lower of cost and net realizable value, thereby simplifying the current
guidance under which an entity must measure inventory at the lower of cost or
market (market in this context is defined as one of three different measures).
The guidance will not apply to inventories that are measured by using either the
last-in, first-out (LIFO) method or the retail inventory method (RIM). The
guidance is effective for the Company beginning July 1, 2017. Early adoption is
permitted. The Company is currently assessing the impact of this guidance on its
financial statements disclosure.
In
November 2015, the FASB issued guidance regarding
Balance Sheet
Classification of Deferred Taxes
. This guidance requires that deferred tax
liabilities and assets are to be classified as non-current in a classified
statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and
presented as a single amount is not affected by the amendments in this update.
This guidance is effective for the Company beginning July 1, 2017, with early
adoption permitted on a prospective or retrospective basis. The Company is
currently assessing the impact of this guidance on its financial statements
disclosures.
In
January 2016, the FASB issued guidance regarding
Recognition and Measurement
of Financial Assets and Financial Liabilities
. The guidance primarily
affects the accounting for equity investments, financial liabilities under the
fair value option and the presentation and disclosure requirements for financial
instruments. In addition, the guidance clarifies the valuation allowance
assessment when recognizing deferred tax assets resulting from unrealized losses
on available-for-sale debt securities. This guidance is effective for the
Company beginning July 1, 2018, and early adoption is not permitted, with
certain exceptions. The amendments are required to be applied by means of a
cumulative-effect adjustment on the balance sheet as of the beginning of the
fiscal year of adoption. The Company is currently assessing the impact of this
guidance on its financial statements disclosure.
In
February 2016, the FASB issued guidance regarding
Leases
. The guidance
increases transparency and comparability among organizations by requiring the
recognition of lease assets and lease liabilities on the balance sheet. The
amendments to current lease guidance include the recognition of assets and
liabilities by lessees for those leases currently classified as operating
leases. The guidance also requires disclosures to meet the objective of enabling
users of financial statements to assess the amount, timing, and uncertainty of
cash flows arising from leases. This guidance is effective for the Company
beginning July 1, 2019. Early adoption is permitted. The Company expects that
this guidance may have a material impact on its financial statements and is
currently evaluating the impact of this guidance on its financial statements on
adoption.
In
March 2016, the FASB issued guidance regarding
Improvements to Employee
Share-Based Payment Accounting
. The guidance simplifies several aspects of
the accounting for employee share-based payment transactions for both public and
nonpublic entities, including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the
statement of cash flows. This guidance is effective for the Company beginning
July 1, 2017. Early adoption is permitted. The Company is currently assessing
the impact of this guidance on its financial statements disclosure.
In
June 2016, the FASB issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. For trade and other
receivables, loans, and other financial instruments, an entity is required to
use a forward-looking expected loss model rather than the incurred loss model
for recognizing credit losses, which reflects losses that are probable. Credit
losses relating to available-for-sale debt securities will also be recorded
through an allowance for credit losses rather than as a reduction in the
amortized cost basis of the securities. This guidance is effective for the
Company beginning July 1, 2020. Early adoption is permitted beginning July 1,
2019. The Company is currently assessing the impact of this guidance on its
financial statements disclosure.
In
June 2016, the FASB issued guidance regarding
Classification of Certain Cash
Receipts and Cash Payments
. The guidance is intended to reduce diversity in
practice and explains how certain cash receipts and payments are presented and
classified in the statement of cash flows, including beneficial interests in
securitization, which would impact the presentation of the deferred purchase
price from sales of receivables. This guidance is effective for the Company
beginning July 1, 2018, and must be applied retrospectively. Early adoption is
permitted. The Company is currently assessing the impact of this guidance on its
financial statements disclosure.
8
1.
Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Recent accounting pronouncements not yet adopted as of March 31, 2017
(continued)
In
January 2017, the FASB issued guidance regarding
Clarifying the Definition of
a Business.
This guidance provides a more robust framework to use in
determining when a set of assets and activities is a business. Because the
current definition of a business is interpreted broadly and can be difficult to
apply, stakeholders indicated that analyzing transactions is inefficient and
costly and that the definition does not permit the use of reasonable judgment.
The amendments provide more consistency in applying the guidance, reduce the
costs of application, and make the definition of a business more operable. The
guidance is effective for the Company beginning July 1, 2018. Early adoption is
permitted. The Company is currently assessing the impact of this guidance on its
financial statements disclosure.
In
January 2017, the FASB issued guidance regarding
Simplifying the Test for
Goodwill Impairment.
This guidance removes the requirement for an entity to
calculate the implied fair value of goodwill (as part of step 2 of the current
goodwill impairment test) in measuring a goodwill impairment loss. The guidance
is effective for the Company beginning July 1, 2020. Early adoption is permitted
for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company is currently assessing the impact of this guidance
on its financial statements disclosure.
2.
Acquisitions
The
cash paid, net of cash received related to the Companys various acquisitions
during the nine months ended March 31, 2017, are summarized in the table below:
|
|
2017
|
|
C4U-Malta Limited (C4U Malta)
|
$
|
2,940
|
|
Pros Software (Pty) Ltd (Pros Software)
|
|
1,711
|
|
Total cash paid, net of cash received
|
$
|
4,651
|
|
C4U
Malta
In
November 2016, the Company acquired a 100% interest in C4U Malta, a licensed
Malta Financial Services Authority-supervised electronic money institution, for
approximately $3.9 million (€3.6 million translated at the foreign exchange
rates applicable on the date of acquisition). C4U Maltas license has been
passported across all member states of the European Union. The Company intends
to apply for a principal membership with the major card associations and to
integrate a robust and reliable issuing and acquiring processing platform in C4U
Malta to enable the issuance of electronic money instruments, such as electronic
money accounts, prepaid cards and virtual cards, after a transitional period of
integration and technology adaption. The Company plans to build and reinforce
C4U Malta such that it operates as its principal regulated electronic money
institution with the ability to cover all of the Companys financial services
activities and business in the European Union.
Pros
Software
In
October 2016, the Company acquired a 100% interest in Pros Software, a software
development and consulting services company based near Johannesburg, South
Africa, for ZAR 25.0 million ($1.8 million, translated at the foreign exchange
rates applicable on the date of acquisition). Pros Software performs software
development and consulting services for a number of clients, including for the
Company, and has a specialty practice in business intelligence.
The
preliminary purchase price allocation of the C4U Malta and Pros Software
acquisitions, translated at the foreign exchange rates applicable on the date of
acquisition, is provided in the table below:
|
|
|
C4U Malta
|
|
|
Pros Software
|
|
|
Total
|
|
|
Cash and cash equivalents
|
$
|
999
|
|
$
|
110
|
|
$
|
1,109
|
|
|
Accounts receivable
|
|
983
|
|
|
165
|
|
|
1,148
|
|
|
Property, plant and equipment, net
|
|
30
|
|
|
9
|
|
|
39
|
|
|
Intangible assets (Note 7)
|
|
1,078
|
|
|
2,311
|
|
|
3,389
|
|
|
Goodwill (Note 7)
|
|
2,475
|
|
|
-
|
|
|
2,475
|
|
|
Accounts payables and other payables
|
|
(1,570
|
)
|
|
(58
|
)
|
|
(1,628
|
)
|
|
Income taxes payable
|
|
-
|
|
|
(69
|
)
|
|
(69
|
)
|
|
Deferred tax liabilities
|
|
(56
|
)
|
|
(647
|
)
|
|
(703
|
)
|
|
Total purchase price
|
$
|
3,939
|
|
$
|
1,821
|
|
$
|
5,760
|
|
9
2.
Acquisitions (continued)
The
preliminary purchase price allocations are based on management estimates as of
March 31, 2017, and may be adjusted up to one year following the closing of the
C4U Malta and Pros Software acquisitions. The Company expects to finalize the
purchase price allocation on or before June 30, 2017. Pro forma results of
operations have not been presented because the effect of the C4U Malta and Pros
Software acquisitions, individually and in the aggregate, were not material to
the Company. During the nine months ended March 31, 2017, the Company incurred
acquisition-related expenditure of $0.2 million related to the C4U Malta and
Pros Software acquisitions. Since the closing of the C4U Malta acquisition on
November 1, 2016, it has contributed revenue and a net loss after acquired
intangible asset amortization, net of taxation, of $0.2 million and $0.4
million, respectively. Since the closing of the Pros Software acquisition on
October 1, 2016, it has contributed revenue and a net loss after acquired
intangible asset amortization, net of taxation, of $0.4 million and $1.2
million, respectively.
3.
Pre-funded social welfare grants receivable
Pre-funded
social welfare grants receivable represents amounts pre-funded by the Company to
certain merchants participating in the merchant acquiring system. The April 2017
payment service commenced on April 1, 2017, but the Company pre-funded certain
merchants participating in the merchant acquiring system on March 31, 2017.
4.
Inventory
The
Companys inventory comprised the following category as of March 31, 2017 and
June 30, 2016.
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Finished goods
|
$
|
10,560
|
|
$
|
10,004
|
|
|
$
|
10,560
|
|
$
|
10,004
|
|
5.
Settlement assets and settlement obligations
Settlement
assets comprise (1) cash received from the South African government that the
Company holds pending disbursement to recipient beneficiaries of social welfare
grants and (2) 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, and (2) 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.
Net
change in settlement assets and net change in settlement obligations included in
the unaudited condensed consolidated statement of cash flows for the three and
nine months ended March 31, 2016, have been increased by $19.7 million and $59.5
million, respectively, as a result of the restatement described in Note
2(Significant accounting policiesSettlement assets and settlement obligations)
to the Companys audited consolidated financial statements included in its
Annual Report on Form 10-K for the year ended June 30, 2016.
6.
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.
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.
10
6.
Fair value of financial instruments (continued)
Risk
management (continued)
Currency
exchange risk
The
Company is subject to currency exchange risk because it purchases inventories
that it is required to settle in other currencies, primarily the euro and U.S.
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 U.S. dollar and the euro, on the other hand.
Translation
risk
Translation
risk relates to the risk that the Companys results of operations will vary
significantly as the U.S. dollar is its reporting currency, but it earns most of
its revenues and incurs most of its expenses in ZAR. The U.S. dollar to ZAR
exchange rate has fluctuated significantly over the past three years. As
exchange rates are outside of 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.
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.
Microlending
credit risk
The
Company is exposed to credit risk in its microlending activities, which provides
unsecured short-term loans to qualifying customers. 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
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.
11
6.
Fair value of financial instruments (continued)
Financial
instruments (continued)
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.
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 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 (Level 2). The Company has no
derivatives that require fair value measurement under Level 1 or 3 of the fair
value hierarchy.
The
Companys outstanding foreign exchange contracts are as follows:
As
of March 31, 2017
None.
As
of June 30, 2016
|
|
Fair market
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
EUR 573,765.00
|
ZAR 15.9587
|
ZAR 16.3393
|
July 20, 2016
|
EUR 554,494.50
|
ZAR 16.0643
|
ZAR 16.4564
|
August 19, 2016
|
EUR 465,711.00
|
ZAR 16.1798
|
ZAR 16.582
|
September 20, 2016
|
EUR 393,675.00
|
ZAR 16.2911
|
ZAR 16.7017
|
October 20, 2016
|
EUR 302,368.50
|
ZAR 16.4085
|
ZAR 16.8301
|
November 21, 2016
|
The
following table presents the Companys assets measured at fair value on a
recurring basis as of March 31, 2017, 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
|
$
|
605
|
|
$
|
-
|
|
$
|
-
|
|
$
|
605
|
|
|
Other
|
|
-
|
|
|
38
|
|
|
-
|
|
|
38
|
|
|
Total assets at fair
value
|
$
|
605
|
|
$
|
38
|
|
$
|
-
|
|
$
|
643
|
|
12
6.
Fair value of financial instruments (continued)
The
following table presents the Companys assets measured at fair value on a
recurring basis as of June 30, 2016, 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
|
$
|
533
|
|
$
|
-
|
|
$
|
-
|
|
$
|
533
|
|
|
Foreign exchange contracts
|
|
-
|
|
|
62
|
|
|
-
|
|
|
62
|
|
|
Other
|
|
-
|
|
|
37
|
|
|
-
|
|
|
37
|
|
|
Total assets at fair
value
|
$
|
533
|
|
$
|
99
|
|
$
|
-
|
|
$
|
632
|
|
Changes
in the Companys investment in Finbond Group Limited, or Finbond, (Level 3 that
are measured at fair value on a recurring basis) were insignificant during the
nine months ended March 31, 2016. There have been no transfers in or out of
Level 3 during the three and nine months ended March 31, 2017 and during the
three months ended March 31, 2016, 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.
Equity
accounted investments
Finbond
On
October 7, 2016, the Company provided a loan of ZAR 139.2 million ($10.0
million, translated at the foreign exchange rates applicable on the date of the
loan) to Finbond in order for Finbond to partially finance its expansion
strategy in the United States. Interest on the loan is payable quarterly in
arrears and is based on the London Interbank Offered Rate (LIBOR) in effect
from time to time plus a margin of 10.00% . The LIBOR rate was 1.064% on March
31, 2017. The loan was initially repayable in full at the earlier of Finbond
concluding a rights offer or February 28, 2017, but the agreement has
subsequently been amended to extend this date to August 31, 2017. The Company
has provided an irrevocable undertaking to participate in the rights offering
and convert the ZAR 139.2 million loan to Finbond shares as part of this
process.
Strategic
investments
Bank
Frick
On
January 12, 2017, the Company entered into a share purchase agreement with the
Kuno Frick Family Foundation (Frick Foundation) to acquire a 30% interest in
Bank Frick & Co AG (Bank Frick), a fully licensed bank based in Balzers,
Liechtenstein, from the Frick Foundation for approximately CHF 39.8 million
($39.7 million translated at exchange rates applicable as of March 31, 2017).
The completion of the investment is subject to approval from the Financial
Market Authority Liechtenstein. Following the successful completion of this
investment, the Company will have a two-year option to acquire a further 35%
interest in Bank Frick.
13
6.
Fair value of financial instruments (continued)
Strategic
investments (continued)
Bank
Frick provides a complete suite of banking services, with one of its key
strategic pillars being the provision of payment services and funding of
financial technology opportunities. Bank Frick holds acquiring licenses from
both Visa and MasterCard and operates a branch in London. The Company and Bank
Frick have jointly identified several funding opportunities, including for the
Companys working capital finance, card issuing and acquiring and transaction
processing activities. The pending investment in Bank Frick has the potential to
provide the Company with a stable, long term and strategic relationship with a
fully licensed bank. The Company and Bank Frick have agreed that approximately
$30 million of the Bank Fricks free equity will be utilized as seed capital for
a fund dedicated to the Companys future activities.
7.
Goodwill and intangible assets, net Goodwill
Summarized
below is the movement in the carrying value of goodwill for the nine months
ended March 31, 2017:
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Gross value
|
|
|
impairment
|
|
|
value
|
|
|
Balance as of June 30, 2016
|
$
|
179,478
|
|
$
|
-
|
|
$
|
179,478
|
|
|
Acquisition of C4U Malta (Note 2)
|
|
2,475
|
|
|
-
|
|
|
2,475
|
|
|
Foreign currency
adjustment
(1)
|
|
8,221
|
|
|
-
|
|
|
8,221
|
|
|
Balance as of March 31, 2017
|
$
|
190,174
|
|
$
|
-
|
|
$
|
190,174
|
|
(1)
Represents the effects of the fluctuations between the South African rand,
euro and the Korean won, and the U.S. dollar on the carrying value.
Goodwill
has been allocated to the Companys reportable segments as follows:
|
|
|
South
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
African
|
|
|
International
|
|
|
inclusion and
|
|
|
|
|
|
|
|
transaction
|
|
|
transaction
|
|
|
applied
|
|
|
Carrying
|
|
|
|
|
processing
|
|
|
processing
|
|
|
technologies
|
|
|
value
|
|
|
Balance as of June 30, 2016
|
$
|
20,425
|
|
$
|
136,185
|
|
$
|
22,868
|
|
$
|
179,478
|
|
|
Acquisition of C4U Malta (Note 2)
|
|
-
|
|
|
2,475
|
|
|
-
|
|
|
2,475
|
|
|
Foreign currency
adjustment
(1)
|
|
2,087
|
|
|
4,387
|
|
|
1,747
|
|
|
8,221
|
|
|
Balance as of March 31, 2017
|
$
|
22,512
|
|
$
|
143,047
|
|
$
|
24,615
|
|
$
|
190,174
|
|
(1)
Represents the effects of the fluctuations between the South African rand,
euro and the Korean won, and the U.S. dollar on the carrying value.
Intangible
assets, net
Intangible
assets acquired
Summarized
below is the fair value of the Pros Software and C4U Malta intangible assets
acquired, translated at the exchange rate applicable as of the acquisition date,
and the weighted-average amortization period of the intangible assets:
|
|
Fair value
|
|
|
Weighted-
|
|
|
|
as of
|
|
|
average
|
|
|
|
acquisition
|
|
|
amortization period
|
|
|
|
date
|
|
|
(in years)
|
|
Finite-lived intangible asset:
|
|
|
|
|
|
|
Customer relationships
Pros Software
|
$
|
2,311
|
|
|
0.75
|
|
Customer relationships C4U Malta
|
$
|
186
|
|
|
0.65
|
|
Software and unpatented
technology
|
$
|
147
|
|
|
1.25
|
|
Infinite-lived intangible asset:
|
|
|
|
|
|
|
Financial institution
license
|
$
|
745
|
|
|
n/a
|
|
On
acquisition, the Company recognized a deferred tax liability of approximately
$0.7 million related to the acquisition of the intangible assets.
14
7.
Goodwill and intangible assets, net (continued)
Intangible
assets, net (continued)
Carrying
value and amortization of intangible assets
Summarized
below is the carrying value and accumulated amortization of the intangible
assets as of March 31, 2017 and June 30, 2016:
|
|
As
of March 31, 2017
|
|
|
As
of June 30, 2016
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
Finite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
(1)
|
$
|
100,487
|
|
$
|
(62,992
|
)
|
$
|
37,495
|
|
$
|
94,529
|
|
$
|
(51,557
|
)
|
$
|
42,972
|
|
Software
and unpatented
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
technology (1)
|
|
32,951
|
|
|
(30,682
|
)
|
|
2,269
|
|
|
31,452
|
|
|
(28,791
|
)
|
|
2,661
|
|
FTS
patent
|
|
2,857
|
|
|
(2,857
|
)
|
|
-
|
|
|
2,592
|
|
|
(2,592
|
)
|
|
-
|
|
Exclusive licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
Trademarks
|
|
6,998
|
|
|
(4,583
|
)
|
|
2,415
|
|
|
6,685
|
|
|
(3,762
|
)
|
|
2,923
|
|
Total finite-lived
intangible assets
|
|
147,799
|
|
|
(105,620
|
)
|
|
42,179
|
|
|
139,764
|
|
|
(91,208
|
)
|
|
48,556
|
|
Infinite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial institution
license
|
|
725
|
|
|
-
|
|
|
725
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total infinite-lived intangible assets
|
|
725
|
|
|
-
|
|
|
725
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total intangible assets
|
$
|
148,524
|
|
$
|
(105,620
|
)
|
$
|
42,904
|
|
$
|
139,764
|
|
$
|
(91,208
|
)
|
$
|
48,556
|
|
(1) Includes the customer relationships
acquired as part of the Pros Software acquisition in October 2016, and the
customer relationships and software and unpatented technology acquired as part
of the C4U Malta acquisition in November 2016.
Aggregate
amortization expense on the finite-lived intangible assets for the three months
ended March 31, 2017 and 2016, was approximately $3.7 million and $2.3 million,
respectively. Aggregate amortization expense on the finite-lived intangible
assets for the nine months ended March 31, 2017 and 2016, was approximately
$10.2 million and $8.2 million, respectively.
Future
estimated annual amortization expense for the next five fiscal years and
thereafter, assuming exchange rates that prevailed on March 31, 2017, 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.
2017
|
$
|
14,922
|
|
2018
|
|
11,655
|
|
2019
|
|
10,961
|
|
2020
|
|
10,254
|
|
2021
|
|
4,428
|
|
Thereafter
|
$
|
380
|
|
8.
Reinsurance assets and policyholder liabilities under insurance and
investment contracts
Reinsurance assets and policyholder liabilities under
insurance contracts
Summarized
below is the movement in reinsurance assets and policyholder liabilities under
insurance contracts during the nine months ended March 31, 2017:
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets
(1)
|
|
|
contracts
(2)
|
|
Balance as of June 30, 2016
|
$
|
171
|
|
$
|
(1,078
|
)
|
Increase in policyholder
benefits under insurance contracts
|
|
454
|
|
|
(3,178
|
)
|
Claims
and policyholders benefits under insurance contracts .
|
|
(448
|
)
|
|
2,539
|
|
Foreign currency
adjustment
(3)
|
|
18
|
|
|
(110
|
)
|
Balance as of March 31, 2017
|
$
|
195
|
|
$
|
(1,827
|
)
|
(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) Represents the effects
of the fluctuations between the ZAR against the U.S. dollar.
15
8.
Reinsurance assets and policyholder liabilities under insurance and
investment contracts (continued)
Reinsurance assets and policyholder 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
Company determines its reserves for future policy benefits under its life
insurance products using a model which estimates claims incurred that have not
been reported at the balance sheet date. This model includes best estimate
assumptions of experience plus prescribed margins, as required in the markets in
which these products are offered, namely South Africa. The best estimate
assumptions include those assumptions related to mortality, morbidity and claim
reporting delays, and the main assumptions used to calculate the reserve for
future policy benefits include (i) mortality and morbidity assumptions
reflecting the companys most recent experience and (ii) claim reporting delays
reflecting Company specific and industry experience.
Assets and policyholder liabilities under investment contracts
Summarized
below is the movement in assets and policyholder liabilities under investment
contracts during the nine months ended March 31, 2017:
|
|
|
|
|
|
Investment
|
|
|
|
|
Assets
(1)
|
|
|
contracts
(2)
|
|
|
Balance as of June 30, 2016
|
$
|
528
|
|
$
|
(528
|
)
|
|
Increase in policyholder benefits under
investment contracts
|
|
35
|
|
|
(35
|
)
|
|
Maturity of claims
under investment contracts
|
|
(13
|
)
|
|
13
|
|
|
Foreign currency
adjustment
(3)
|
|
55
|
|
|
(55
|
)
|
|
Balance
as of March 31, 2017
|
$
|
605
|
|
$
|
(605
|
)
|
(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) Represents the effects
of the fluctuations between the ZAR against the U.S. dollar.
The Company does not offer any investment products with guarantees related to
capital or returns.
9.
Short-term credit facilities
The
Companys short-term credit facilities are described in Note 12 to the Companys
audited consolidated financial statements included in its Annual Report on Form
10-K for the year ended June 30, 2016.
South Africa
The
aggregate amount of the Companys short-term South African credit facility with
Nedbank Limited (Nedbank) was ZAR 400 million ($29.8 million) and consists of
(i) a primary amount of up to ZAR 200 million ($14.9 million), which is
immediately available, and (ii) a secondary amount of up to ZAR 200 million
($14.9 million), which is not immediately available (all amounts denominated in
ZAR and translated at exchange rates applicable as of March 31, 2017). The
primary amount comprises an overdraft facility of up to ZAR 50 million ($3.7
million) and indirect and derivative facilities of up to ZAR 150 million ($11.2
million), which include letters of guarantee, letters of credit and forward
exchange contracts (all amounts denominated in ZAR and translated at exchange
rates applicable as of March 31, 2017).
On
December 9, 2016, Nedbank issued a letter (the Nedbank Facility Letter) to the
Company under which it agreed to temporarily increase the overdraft facility by
the secondary amount of ZAR 200 million to ZAR 250 million. The increase in the
overdraft to ZAR 250 million is available until the earlier of the day on which
the Company issues shares to the value of $45.0 million (refer to Note 11) or
the day on which FirstRand Bank Limited (acting through its Rand Merchant Bank
division) repays ZAR 600 million back to the Company that is currently held in
escrow related to the issuance of a ZAR 2 billion guarantee to Net1 SA (refer to
Note 10).
As
of March 31, 2017, the interest rate on the overdraft facility was 9.35% . The
Company has ceded its investment in Cash Paymaster Services Proprietary Limited
as security for its repayment obligations under the facility. A commitment fee
of 0.35% per annum is payable on the monthly unutilized amount of the overdraft
portion of the primary amount. The Company is required to comply with customary
non-financial covenants, including, without limitation, covenants that restrict
its ability to dispose of or encumber its assets, incur additional indebtedness
or engage in certain business combinations.
16
9.
Short-term credit facilities (continued)
South Africa (continued)
As
of March 31, 2017 and June 30, 2016, respectively, the Company had not utilized
any of its overdraft facility. As of March 31, 2017, the Company had utilized
ZAR 130.5 million ($9.7 million, translated at exchange rates applicable as of
March 31, 2017) of its ZAR 150 million indirect and derivative facilities to
enable the bank 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 18). As of June 30, 2016, the Company had utilized ZAR
131.1 million ($8.9 million, translated at exchange rates applicable as of June
30, 2016) of its ZAR 150 million indirect and derivative facilities.
Korea
The
Company had not utilized any of its KRW 10 billion ($8.9 million, translated at
exchange rates applicable as of March 31, 2017) overdraft facility as of March
31, 2017 or June 30, 2016. As of March 31, 2017, the interest rate on the
overdraft facility was 3.40% . The facility expires in January 2018.
10. Long-term borrowings
Korea
The
Companys 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, 2016. The current carrying value
as of March 31, 2017, is $25.3 million. As of March 31, 2017, the carrying
amount of the long-term borrowings approximated fair value. The interest rate in
effect on March 31, 2017, was 4.59% .
On
July 29, 2016, the Company utilized approximately KRW 0.3 billion ($0.2 million)
of its Facility C revolving credit facility to pay interest due. On the same
day, the Company made unscheduled payments of KRW 20 billion ($17.8 million)
towards its Facility A loan, and KRW 10 billion ($8.9 million) towards its
Facility C revolving credit facility. On October 31, 2016, the Company made an
unscheduled payment of KRW 2.1 billion ($1.8 million) towards its Facility A
loan as a result of a distribution from KSNET paid to Net1 Korea which was
contractually required to be applied against interest and principal outstanding.
On January 29, 2017, the Company utilized approximately KRW 0.3 billion ($0.3
million) of its Facility C revolving credit facility to pay interest due. On
April 29, 2017, the Company made a scheduled repayment of $8.9 million
(translated at exchange rates applicable as of March 31, 2017). The next
scheduled principal payment of $8.9 million (translated at exchange rates
applicable as of March 31, 2017) is due on April 29, 2018.
Interest
expense incurred during the three months ended March 31, 2017 and 2016, was $0.3
million and $0.7 million, respectively. Interest expense incurred during the
nine months ended March 31, 2017 and 2016, was $0.9 million and $2.1 million,
respectively. Prepaid facility fees amortized during the three months ended
March 31, 2017 and 2016, was $0.03 million and $0.04 million respectively.
Prepaid facility fees amortized during the nine months ended March 31, 2017 and
2016, was $0.09 million and $0.1 million, respectively.
South Africa
On
October 4, 2016, the Company, through one of its subsidiaries, Net1 Applied
Technologies South Africa Proprietary Limited (Net1 SA), entered into a
Subscription Agreement (the Blue Label Subscription Agreement) with Blue Label
Telecoms Limited (Blue Label), a JSE-listed company which is a leading
provider of prepaid electricity and airtime in South Africa. Pursuant to the
Blue Label Subscription Agreement, Net1 SA will subscribe for approximately
117.9 million ordinary shares of Blue Label at a price of ZAR 16.96 per share,
for an aggregate price of ZAR 2.0 billion.
On
October 20, 2016, Net1 SA and Blue Label signed an addendum to the Blue Label
Subscription Agreement which, among other things, established the subscription
date and required FirstRand Bank Limited (acting through its Rand Merchant Bank
division) (RMB) to issue a guarantee to Blue Label for the purchase price of
the Blue Label shares to be purchased by Net1 SA (the Guarantee). On that same
date, and in connection with the Blue Label Subscription Agreement, Net1 SA
entered into a Common Terms Agreement, a Senior Facility A Agreement, Senior
Facility B Agreement, Senior Facility C Agreement, Subordination Agreement,
Security Cession & Pledge and certain ancillary loan documents
(collectively, the Loan Documents) with RMB, pursuant to which, among other
things, Net1 SA may borrow up to an aggregate of ZAR 1.4 billion ($104.4
million, translated at exchange rates applicable as of March 31, 2017) to
finance a portion of its working capital requirements and a portion of its
investment in Blue Label. The amounts available under these loans and an escrow
deposit of ZAR 600 million ($44.7 million, translated at exchange rates
applicable as of March 31, 2017) made by Net1 SA serve as security for the
Guarantee. Net1 and certain of the Companys other subsidiaries have agreed to
guarantee the obligations of Net1 SA to RMB and subordinate any claims they may
have against Net1 SA and certain of its subsidiaries to RMBs claims against
such persons.
17
10. Long-term borrowings
(continued)
South Africa (continued)
The
Loan Documents provide for a Facility A term loan of up to ZAR 500 million
($37.3 million), a Facility B term loan of up to ZAR 900 million ($67.1
million), amounts translated at exchange rates applicable as of March 31, 2017,
and a Facility C term loan in an amount equal to the aggregate amount of
voluntary prepayments of the outstanding principal amount of the Facility A
loan.
On
November 15, 2016, RMB, the Company, Net1 SA and certain of their respective
affiliates entered into a letter agreement (the Guarantee Letter) amending the
Loan Documents to extend the term of the Guarantee, as referenced therein, to
February 28, 2017. On November 16, 2016, Net1 SA and Blue Label entered into an
Amended and Restated Subscription Agreement (the A&R Agreement) which,
among other things, extended the subscription date to a date, to be specified by
Blue Label, during the period between January 23, 2017 and February 28, 2017
(inclusive). On November 15, 2016, RMB issued a new guarantee in favor of Blue
Label for the purchase price of the Blue Label shares to be purchased by Net1 SA
(the New Guarantee). In accordance with the terms of the Guarantee Letter, the
New Guarantee was scheduled to expire on February 28, 2017. Upon closing under
the A&R Agreement, Net1 SA expects Blue Label to deliver the New Guarantee
to RMB for payment of the subscription price of the Blue Label shares.
On
February 28, 2017, RMB, the Company, Net1 SA and certain of their respective
affiliates entered into a new letter agreement (the February 2017 Guarantee
Letter) amending the Loan Documents to extend the term of the New Guarantee, as
referenced therein, to May 31, 2017, and to correct certain outdated terms to
Loan Documents, and RMB issued a new guarantee (the February 2017 Guarantee)
in favor of Blue Label for the purchase price of the Blue Label shares to be
purchased by Net1 SA. In accordance with the terms of the February 2017
Guarantee Letter, this guarantee will expire on May 31, 2017.
On
February 28, 2017, RMB, the Company, Net1 SA and certain of their respective
affiliates entered into a letter agreement under which the parties agreed to
amend the Loan Documents by March 15, 2017, to contemplate and permit various
guarantors to provide guarantees and to ensure that only the original senior
lenders retain the benefits of all amounts credited to the escrow account and
security in respect thereof. On March 15, 2017, the parties signed the necessary
agreements to amend and restate the Loan Documents.
The
Company paid a guarantee fee of approximately ZAR 16.0 million ($1.1 million)
during the three months ended March 31, 2017. Interest on the loans is payable
monthly based on the Johannesburg Interbank Agreed Rate (JIBAR) in effect from
time to time plus a margin of 1.35% for the Facility A and Facility C loans and
2.75% for the Facility B loan. The JIBAR rate was 7.4% on March 31, 2017.
Principal
repayments on the Facility A and Facility B loans are due in eight equal
quarterly installments, beginning on a date to be determined by the parties upon
draw down, and all of the loans two years after draw down. Principal repayment
on the Facility C loan is due in quarterly installments to be determined by RMB
subject to the date of borrowing thereunder. Voluntary prepayments are permitted
without early repayment fees or penalties.
The
loans are secured by a pledge by Net1 SA of its entire equity interest in Blue
Label. The Loan Documents contain customary covenants that require Net1 SA to
maintain a specified total net leverage ratio and restrict the ability of Net1
SA, and certain of its subsidiaries to make certain distributions with respect
to their capital stock, prepay other debt, encumber their assets, incur
additional indebtedness, make investment above specified levels, engage in
certain business combinations and engage in other corporate activities.
11. Capital structure
The
following table presents reconciliation between the number of shares, net of
treasury, presented in the unaudited condensed consolidated statement of changes
in equity during the nine months ended March 31, 2017 and 2016, respectively,
and the number of shares, net of treasury, excluding non-vested equity shares
that have not vested during the nine months ended March 31, 2017 and 2016,
respectively:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Number of shares, net of treasury:
|
|
|
|
|
|
|
Statement
of changes in equity
|
|
57,590,085
|
|
|
45,636,435
|
|
Less: Non-vested equity
shares that have not vested (Note 13)
|
|
(904,356
|
)
|
|
(589,447
|
)
|
Number of shares, net of treasury excluding non-vested
equity shares that have not vested
|
|
56,685,729
|
|
|
45,046,988
|
|
18
11. Capital structure
(continued)
Sale of common stock
In
February 2017, the Company sold a total of five million shares of its common
stock at a price of $9.00 per share to two investors, for aggregate gross
proceeds to the Company of $45.0 million. These sales were made pursuant to
stock purchase agreements entered into on October 6, 2016, as amended. One of
the investors was contractually restricted from disposing of the shares until
April 6, 2017, and the other is restricted until August 16, 2017. The sale of
the shares has been registered under the Securities Act of 1933, as amended,
pursuant to the Companys shelf registration statement on Form S-3.
Common stock repurchases
Executed under share repurchase authorizations
In
February 2016, the Companys Board of Directors approved the replenishment of
its share repurchase authorization to repurchase up to an aggregate of $100
million of common stock. The authorization has no expiration date. On June 29,
2016, the Company adopted a Rule 10b5-1 trading plan for the purpose of
repurchasing approximately $50 million of its common stock, which was included
within the original share repurchase authorization. The Company did not
repurchase any of its shares during the three months ended March 31, 2017.
During the three months ended March 31, 2016, the Company repurchased 1,328,699
shares for approximately $12.7 million under its share repurchase authorization.
During the nine months ended March 31, 2017 and 2016, the Company repurchased
3,137,609 shares for approximately $31.6 million and 2,077,912 shares for
approximately $23.9 million, respectively, under its share repurchase
authorizations.
12. Accumulated other
comprehensive loss
The
table below presents the change in accumulated other comprehensive (loss) income
per component during the nine months ended March 31, 2017:
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
net
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
Accumulated
|
|
|
income on
|
|
|
|
|
|
|
foreign
|
|
|
asset
|
|
|
|
|
|
|
currency
|
|
|
available for
|
|
|
|
|
|
|
translation
|
|
|
sale, net of
|
|
|
|
|
|
|
reserve
|
|
|
tax
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016
|
$
|
(189,700
|
)
|
$
|
-
|
|
$
|
(189,700
|
)
|
Movement in foreign
currency translation reserve
|
|
25,190
|
|
|
-
|
|
|
25,190
|
|
Balance as of March 31, 2017
|
$
|
(164,510
|
)
|
$
|
-
|
|
$
|
(164,510
|
)
|
There
were no reclassifications from accumulated other comprehensive loss to
comprehensive (loss) income during the three and nine months ended March 31,
2017 or 2016, respectively.
- Remainder of this page left blank -
19
13. Stock-based compensation
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the nine months ended
March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
grant date
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
fair value
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2016
|
|
2,077,524
|
|
|
15.92
|
|
|
3.65
|
|
|
926
|
|
|
|
|
Exercised
|
|
(68,740
|
)
|
|
9.15
|
|
|
|
|
|
882
|
|
|
|
|
Expired unexercised
|
|
(474,443
|
)
|
|
22.51
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31,
2017 .
|
|
1,534,341
|
|
|
14.19
|
|
|
3.88
|
|
|
2,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2015
|
|
2,401,169
|
|
|
15.34
|
|
|
4.74
|
|
|
11,516
|
|
|
|
|
Exercised
|
|
(323,645
|
)
|
|
11.62
|
|
|
|
|
|
2,669
|
|
|
|
|
Outstanding March 31,
2016 .
|
|
2,077,524
|
|
|
15.92
|
|
|
3.89
|
|
|
654
|
|
|
|
|
No
stock options were awarded during the three and nine months ended March 31, 2017
or 2016. There were no forfeitures during the three months ended March 31, 2017
or during the three and nine months ended March 31, 2016; however, during the
nine months ended March 31, 2017, 474,443 stock options awarded in August 2006,
expired unexercised.
The following table presents stock options vested and expecting to vest as of
March 31, 2017:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Vested and expecting to vest March 31,
2017
|
|
1,534,341
|
|
|
14.19
|
|
|
3.88
|
|
|
2,150
|
|
These options have an exercise price range of $7.35 to $24.46.
The following table presents stock options that are exercisable as of March 31,
2017:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
|
Number of
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
|
|
shares
|
|
|
($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Exercisable March 31, 2017
|
|
1,379,538
|
|
|
14.53
|
|
|
3.49
|
|
|
1,996
|
|
No
stock options became exercisable during the three months ended March 31, 2017
and 2016, respectively. During the nine months ended March 31, 2017 and 2016,
respectively, 154,803 and 373,435 stock options became exercisable. The Company
received approximately $0.6 million from the exercise of 68,740 stock options,
during the three and nine months ended March 31, 2017. No stock options were
exercised during the three months ended March 31, 2016. The Company received
approximately $3.8 million from the exercise of 323,645 stock options, during
the nine months ended March 31, 2016. The Company issues new shares to satisfy
stock option exercises.
20
13. Stock-based compensation
(continued)
Stock option and restricted stock activity (continued)
Restricted stock
The following table summarizes restricted stock activity for the nine months
ended March 31, 2017 and 2016:
|
|
Number of
|
|
|
Weighted
|
|
|
|
shares of
|
|
|
average grant
|
|
|
|
restricted
|
|
|
date fair value
|
|
|
|
stock
|
|
|
($000)
|
|
Non-vested June 30, 2016
|
|
589,447
|
|
|
7,622
|
|
Granted August 2016
|
|
387,000
|
|
|
4,145
|
|
Vested August 2016
|
|
(72,091
|
)
|
|
735
|
|
Non-vested March 31,
2017
|
|
904,356
|
|
|
11,142
|
|
|
|
|
|
|
|
|
Non-vested June 30, 2015
|
|
341,529
|
|
|
1,759
|
|
Granted August 2015
|
|
319,492
|
|
|
6,406
|
|
Vested August 2015
|
|
(71,574
|
)
|
|
1,435
|
|
Non-vested March 31, 2016
|
|
589,447
|
|
|
7,622
|
|
The
August 2016 grants comprise 350,000 and 37,000 shares of restricted stock
awarded to executive officers and non-employee directors, respectively. The
shares of restricted stock awarded to executive officers in August 2016 are
subject to time-based and performance-based vesting conditions. In order for any
of the shares to vest, the recipient must remain employed by the Company on a
full-time basis on the date that it files its Annual Report on Form 10-K for the
fiscal year ended June 30, 2019. If that condition is satisfied, then the shares
will vest based on the level of Fundamental EPS the Company achieves for the
fiscal year ended June 30, 2019 (2019 Fundamental EPS), as follows:
-
One-third of the shares will vest if the Company achieves 2019 Fundamental
EPS of $2.60;
-
Two-thirds of the shares will vest if the Company achieves 2019
Fundamental EPS of $2.80; and
-
All of the shares will vest if the Company achieves 2019 Fundamental EPS
of $3.00.
At
levels of 2019 Fundamental EPS greater than $2.60 and less than $3.00, the
number of shares that will vest will be determined by linear interpolation
relative to 2019 Fundamental EPS of $2.80. Any shares that do not vest in
accordance with the above-described conditions will be forfeited. All shares of
restricted stock have been valued utilizing the closing price of shares of the
Companys common stock quoted on The Nasdaq Global Select Market on the date of
grant.
The
August 2015 grants comprise 301,537 and 17,955 shares of restricted stock
awarded to employees and non-employee directors, respectively. The shares of
restricted stock awarded to employees in August 2015 are subject to time-based
and performance-based vesting conditions. In order for any of the shares to
vest, the recipient must remain employed by the Company on a full-time basis on
the date that it files its Annual Report on Form 10-K for the fiscal year ended
June 30, 2018. If that condition is satisfied, then the shares will vest based
on the level of Fundamental EPS the Company achieves for the fiscal year ended
June 30, 2018 (2018 Fundamental EPS), as follows:
-
One-third of the shares will vest if the Company achieves 2018 Fundamental
EPS of $2.88;
-
Two-thirds of the shares will vest if the Company achieves 2018
Fundamental EPS of $3.30; and
-
All of the shares will vest if the Company achieves 2018 Fundamental EPS
of $3.76.
At
levels of 2018 Fundamental EPS greater than $2.88 and less than $3.76, the
number of shares that will vest will be determined by linear interpolation
relative to 2018 Fundamental EPS of $3.30. Any shares that do not vest in
accordance with the above-described conditions will be forfeited. All shares of
restricted stock have been valued utilizing the closing price of shares of the
Companys common stock quoted on The Nasdaq Global Select Market on the date of
grant. The Company has reversed the stock-based compensation charge recognized
to date related to the 301,537 shares of restricted stock because it believes
that it is unlikely that the 2018 Fundamental EPS target will be achieved due to
the dilutive impact on the fundamental EPS calculation as a result of issuance
of the approximate 10 million shares to the IFC in May 2016.
The
fair value of restricted stock vesting during the nine months ended March 31,
2017 and 2016, respectively, was $0.7 million and $1.4 million.
21
13.
Stock-based
compensation (continued)
Stock-based
compensation charge and unrecognized compensation cost
The
Company has recorded a stock-based compensation charge of $0.6 million and $1.0
million, respectively, during the three months ended March 31, 2017 and 2016,
which comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Three months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
621
|
|
$
|
-
|
|
$
|
621
|
|
Total three months ended March 31, 2017
|
$
|
621
|
|
$
|
-
|
|
$
|
621
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
954
|
|
$
|
-
|
|
$
|
954
|
|
Total three months ended March 31, 2016
|
$
|
954
|
|
$
|
-
|
|
$
|
954
|
|
The
Company has recorded a stock-based compensation (reversal) charge, net of ($0.1
million) and $2.6 million, respectively, during the nine months ended March 31,
2017 and 2016, which comprised:
|
|
|
|
|
Allocated to cost
|
|
|
|
|
|
|
|
|
|
of goods sold, IT
|
|
|
Allocated to
|
|
|
|
|
|
|
processing,
|
|
|
selling, general
|
|
|
|
Total
|
|
|
servicing and
|
|
|
and
|
|
|
|
charge
|
|
|
support
|
|
|
administration
|
|
Nine months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,759
|
|
$
|
-
|
|
$
|
1,759
|
|
Reversal of stock compensation charge
related to
restricted stock
|
|
(1,827
|
)
|
|
-
|
|
|
(1,827
|
)
|
Total nine months ended March 31, 2017
|
$
|
(68
|
)
|
$
|
-
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
2,645
|
|
$
|
-
|
|
$
|
2,645
|
|
Total nine months ended March 31, 2016
|
$
|
2,645
|
|
$
|
-
|
|
$
|
2,645
|
|
The
stock-based compensation charges have been allocated to selling, general and
administration based on the allocation of the cash compensation paid to the
employees.
As
of March 31, 2017, the total unrecognized compensation cost related to stock
options was approximately $0.3 million, which the Company expects to recognize
over approximately one year. As of March 31, 2017, the total unrecognized
compensation cost related to restricted stock awards was approximately $3.6
million, which the Company expects to recognize over approximately two years.
This amount excludes the total unrecognized compensation cost as of March 31,
2017, related to restricted stock awards that the Company expects will not vest
due to it not achieving the 2018 Fundamental EPS of approximately $6.0 million.
As of March 31, 2017, the cumulative unrecorded stock-based compensation charge
related to these awards of restricted stock that the Company has determined are
expected not to vest and has not expensed in its consolidated statement of
operations is approximately $3.4 million (which amount includes the $1.8 million
reversed).
As
of each of March 31, 2017 and June 30, 2016, respectively, the Company has
recorded a deferred tax asset of approximately $1.8 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.
14.
Earnings
per share
The Company has issued redeemable common stock which is redeemable at an amount
other than fair value. Redemption of a class of common stock at other than fair
value increases or decreases the carrying amount of the redeemable common stock
and is reflected in basic earnings per share using the two-class method. There
were no redemptions of common stock, or adjustments to the carrying value of the
redeemable common stock during the three and nine months ended March 31, 2017 or
2016. Accordingly the two-class method presented below does not include the
impact of any redemption. The Companys redeemable common stock is described in
Note 14 to the Companys audited consolidated financial statements included in
its Annual Report on Form 10-K for the year ended June 30, 2016.
22
14. Earnings per share
(continued)
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 and nine months ended March 31, 2017 and 2016,
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 have 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 2013, August 2014, November
2014, August 2015 and August 2016, 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 for
awards made in August 2016 and August 2015 are discussed in Note 13 and the
vesting conditions for all other awards are discussed in Note 18 to the
Companys audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended June 30, 2016.
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
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands except
|
|
|
(in thousands except
|
|
|
|
percent and
|
|
|
percent and
|
|
|
|
per share data)
|
|
|
per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Net1
|
$
|
18,392
|
|
$
|
18,420
|
|
$
|
61,665
|
|
$
|
58,098
|
|
Undistributed earnings
|
|
18,392
|
|
|
18,420
|
|
|
61,665
|
|
|
58,098
|
|
Percent allocated to common
shareholders (Calculation 1)
|
|
98%
|
|
|
99%
|
|
|
98%
|
|
|
99%
|
|
Numerator for earnings
per share: basic and diluted
|
$
|
18,064
|
|
$
|
18,158
|
|
$
|
60,609
|
|
$
|
57,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share: weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
average common shares
outstanding
|
|
53,666
|
|
|
45,683
|
|
|
52,054
|
|
|
46,171
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
169
|
|
|
89
|
|
|
127
|
|
|
288
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted
weighted average common shares
outstanding and assumed conversion
|
|
53,835
|
|
|
45,772
|
|
|
52,181
|
|
|
46,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.34
|
|
$
|
0.40
|
|
$
|
1.16
|
|
$
|
1.24
|
|
Diluted
|
$
|
0.34
|
|
$
|
0.40
|
|
$
|
1.16
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
53,666
|
|
|
45,683
|
|
|
52,054
|
|
|
46,171
|
|
Basic weighted-average common
shares outstanding
and unvested restricted
shares expected to vest (B)
|
|
54,639
|
|
|
46,341
|
|
|
52,961
|
|
|
46,786
|
|
Percent allocated to
common shareholders (A) / (B)
|
|
98%
|
|
|
99%
|
|
|
98%
|
|
|
99%
|
|
Options
to purchase 502,161 shares of the Companys common stock at prices ranging from
$13.16 to $24.46 per share were outstanding during the three and nine months
ended March 31, 2017, 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 stock. The options, which expire at
various dates through August 27, 2024, were still outstanding as of March 31,
2017.
23
15. Supplemental cash flow
information
Cash,
cash equivalents and restricted cash as of March 31, 2017, presented in the
unaudited condensed consolidated statements of cash flows includes restricted
cash of approximately $44.7 million related to the guarantee issued by FirstRand
Bank Limited (acting through its Rand Merchant Bank division) as described in
Note 10. This cash has been placed into an escrow account and is considered
restricted as to use and therefore is classified as restricted cash and
presented as restricted cash in the March 31, 2017, unaudited condensed
consolidated balance sheet. The restriction will lapse once the guarantee
expires, is utilized or is cancelled.
The
following table presents supplemental cash flow disclosures for the three and
nine months ended March 31, 2017 and 2016:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cash received from interest
|
$
|
5,265
|
|
$
|
3,341
|
|
$
|
14,600
|
|
$
|
11,262
|
|
|
Cash paid for interest
|
$
|
435
|
|
$
|
813
|
|
$
|
2,007
|
|
$
|
2,864
|
|
|
Cash paid for income taxes
|
$
|
3,631
|
|
$
|
4,052
|
|
$
|
27,698
|
|
$
|
28,374
|
|
Treasury
shares, at cost included in the Companys condensed consolidated balance sheet
as of June 30, 2016, includes 47,056 shares of the Companys common stock
acquired for approximately $0.5 million which were paid for on July 1, 2016. The
liability for this payment was included in accounts payable on the Companys
condensed consolidated balance sheet as of June 30, 2016. The payment of
approximately $0.5 million is included in acquisition of treasury stock in the
Companys condensed consolidated statement of cash flows for the nine months
ended March 31, 2017.
On
January 20, 2016, the Company issued 391,645 shares of its common stock with an
aggregate issue date fair value of approximately $4.0 million as part
consideration for the Companys 56% interest in T24.
16. 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 23 to the Companys audited consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2016.
The
reconciliation of the reportable segments revenue to revenue from external
customers for the three months ended March 31, 2017 and 2016, respectively, is
as follows:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
Reportable
|
|
|
Inter-
|
|
|
external
|
|
|
|
|
Segment
|
|
|
segment
|
|
|
customers
|
|
|
South African transaction processing
|
$
|
63,967
|
|
$
|
7,331
|
|
$
|
56,636
|
|
|
International transaction processing
|
|
41,514
|
|
|
-
|
|
|
41,514
|
|
|
Financial inclusion and applied
technologies
|
|
56,881
|
|
|
7,087
|
|
|
49,794
|
|
|
Total for the three months ended March 31, 2017
|
$
|
162,362
|
|
$
|
14,418
|
|
$
|
147,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
50,594
|
|
$
|
5,621
|
|
$
|
44,973
|
|
|
International transaction processing
|
|
40,588
|
|
|
-
|
|
|
40,588
|
|
|
Financial inclusion and applied technologies
|
|
54,286
|
|
|
5,111
|
|
|
49,175
|
|
|
Total for the three months ended
March 31, 2016
|
$
|
145,468
|
|
$
|
10,732
|
|
$
|
134,736
|
|
24
16. Operating segments
(continued)
The
reconciliation of the reportable segments revenue to revenue from external
customers for the nine months ended March 31, 2017 and 2016, respectively, is as
follows:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
Reportable
|
|
|
Inter-
|
|
|
external
|
|
|
|
|
Segment
|
|
|
segment
|
|
|
customers
|
|
|
South African transaction processing
|
$
|
181,397
|
|
$
|
18,127
|
|
$
|
163,270
|
|
|
International transaction processing
|
|
131,704
|
|
|
-
|
|
|
131,704
|
|
|
Financial inclusion and applied
technologies
|
|
179,681
|
|
|
19,645
|
|
|
160,036
|
|
|
Total for the nine months ended March 31, 2017
|
$
|
492,782
|
|
$
|
37,772
|
|
$
|
455,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
158,997
|
|
$
|
12,598
|
|
$
|
146,399
|
|
|
International transaction processing
|
|
122,653
|
|
|
-
|
|
|
122,653
|
|
|
Financial inclusion and applied technologies
|
|
187,332
|
|
|
16,894
|
|
|
170,438
|
|
|
Total for the nine months ended March
31, 2016
|
$
|
468,982
|
|
$
|
29,492
|
|
$
|
439,490
|
|
The
Company does not allocate interest income, interest expense or income tax
expense to its reportable segments. The Company evaluates segment performance
based on segment operating income before acquisition-related intangible asset
amortization which represents operating income before acquisition-related
intangible asset amortization and allocation of expenses allocated to
Corporate/Eliminations, all under GAAP. The reconciliation of the reportable
segments measure of profit or loss to income before income taxes for the three
and nine months ended March 31, 2017 and 2016, respectively, is as follows:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Reportable segments measure of profit or
loss
|
$
|
31,563
|
|
$
|
29,415
|
|
$
|
99,494
|
|
$
|
95,862
|
|
|
Operating income: Corporate/Eliminations
|
|
(7,016
|
)
|
|
(3,224
|
)
|
|
(17,177
|
)
|
|
(13,677
|
)
|
|
Interest income
|
|
5,124
|
|
|
3,345
|
|
|
14,489
|
|
|
11,284
|
|
|
Interest expense
|
|
(467
|
)
|
|
(852
|
)
|
|
(1,773
|
)
|
|
(2,880
|
)
|
|
Income before income
taxes
|
$
|
29,204
|
|
$
|
28,684
|
|
$
|
95,033
|
|
$
|
90,589
|
|
The
following tables summarize segment information that is prepared in accordance
with GAAP for the three and nine months ended March 31, 2017 and 2016:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
63,967
|
|
$
|
50,594
|
|
$
|
181,397
|
|
$
|
158,997
|
|
|
International
transaction processing
|
|
41,514
|
|
|
40,588
|
|
|
131,704
|
|
|
122,653
|
|
|
Financial inclusion and applied
technologies
|
|
56,881
|
|
|
54,286
|
|
|
179,681
|
|
|
187,332
|
|
|
Total
|
|
162,362
|
|
|
145,468
|
|
|
492,782
|
|
|
468,982
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African
transaction processing
|
|
15,531
|
|
|
13,133
|
|
|
44,451
|
|
|
38,724
|
|
|
International transaction processing
|
|
1,968
|
|
|
4,813
|
|
|
11,689
|
|
|
15,596
|
|
|
Financial inclusion and
applied technologies
|
|
14,064
|
|
|
11,469
|
|
|
43,354
|
|
|
41,542
|
|
|
Subtotal:
Operating segments
|
|
31,563
|
|
|
29,415
|
|
|
99,494
|
|
|
95,862
|
|
|
Corporate/Eliminations
|
|
(7,016
|
)
|
|
(3,224
|
)
|
|
(17,177
|
)
|
|
(13,677
|
)
|
|
Total
|
|
24,547
|
|
|
26,191
|
|
|
82,317
|
|
|
82,185
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
1,139
|
|
|
1,463
|
|
|
3,433
|
|
|
4,858
|
|
|
International
transaction processing
|
|
5,083
|
|
|
5,232
|
|
|
16,440
|
|
|
15,991
|
|
|
Financial inclusion and applied
technologies
|
|
365
|
|
|
272
|
|
|
1,056
|
|
|
844
|
|
|
Subtotal:
Operating segments
|
|
6,587
|
|
|
6,967
|
|
|
20,929
|
|
|
21,693
|
|
|
Corporate/Eliminations
|
|
3,703
|
|
|
2,314
|
|
|
10,188
|
|
|
8,289
|
|
|
Total
|
$
|
10,290
|
|
$
|
9,281
|
|
$
|
31,117
|
|
$
|
29,982
|
|
25
16. Operating segments
(continued)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
448
|
|
$
|
926
|
|
$
|
1,490
|
|
$
|
3,469
|
|
International transaction
processing
|
|
1,309
|
|
|
6,864
|
|
|
6,275
|
|
|
23,107
|
|
Financial inclusion and applied technologies
|
|
192
|
|
|
263
|
|
|
733
|
|
|
2,122
|
|
Subtotal: Operating segments
|
|
1,949
|
|
|
8,053
|
|
|
8,498
|
|
|
28,698
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
1,949
|
|
$
|
8,053
|
|
$
|
8,498
|
|
$
|
28,698
|
|
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.
17. Income tax
Income tax in interim periods
For
the purposes of interim financial reporting, the Company determines the
appropriate income tax provision by first applying the effective tax rate
expected to be applicable for the full fiscal year to ordinary income. This
amount is then adjusted for the tax effect of significant unusual or
extraordinary items, for instance, changes in tax law, valuation allowances and
non-deductible transaction-related expenses that are reported separately, and
have an impact on the tax charge. The cumulative effect of any change in the
enacted tax rate, if and when applicable, on the opening balance of deferred tax
assets and liabilities is also included in the tax charge as a discrete event in
the interim period in which the enactment date occurs.
For
the three and nine months ended March 31, 2017, the tax charge was calculated
using the expected effective tax rate for the year. The Companys effective tax
rate for the three and nine months ended March 31, 2017, was 35.0% and 34.0%,
respectively, and was higher than the South African statutory rate as a result
of additional taxes payable resulting from the finalization of a tax review in
South Korea, non-deductible expenses and the tax impact attributable to
distributions from our South African subsidiary.
For
the three and nine months ended March 31, 2016, the tax charge was calculated
using the expected effective tax rate for the year. The Companys effective tax
rate for the three and nine months ended March 31, 2016, was 34.2% and 34.6%,
respectively, and was higher than the South African statutory rate as a result
of non-deductible expenses (including consulting and legal fees) and the tax
impact, including withholding taxes, of distributions from subsidiary companies
in foreign jurisdictions.
Uncertain tax positions
There
were no changes during the three months ended March 31, 2017. The Company
utilized approximately $0.3 million of its unrecognized tax benefits during the
nine months ended March 31, 2017 as a result of the finalization of a tax review
in South Korea. As of March 31, 2017, the Company had accrued interest related
to uncertain tax positions of approximately $0.1 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.
As
of March 31, 2017 and June 30, 2016, the Company has unrecognized tax benefits
of $1.8 million and $1.9 million, respectively, all of which would impact the
Companys effective tax rate. The Company files income tax returns mainly in
South Africa, South Korea, Germany, Hong Kong, India, the United Kingdom,
Botswana and in the U.S. federal jurisdiction. As of March 31, 2017, the
Companys South African subsidiaries are no longer subject to income tax
examination by the South African Revenue Service for periods before June 30,
2012. The Company is subject to income tax in other jurisdictions outside South
Africa, none of which are individually material to its financial position,
results of operations or cash flows.
26
18. 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 130.5 million
($9.7 million, translated at exchange rates applicable as of March 31, 2017) and
thereby utilizing part of the Companys short-term facility. The Company in turn
has provided nonrecourse, unsecured counter-guarantees to Nedbank for ZAR 130.5
million ($9.7 million, translated at exchange rates applicable as of March 31,
2017). The Company pays commission of between 0.4% 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 consolidated balance sheet as of March 31, 2017 and June 30, 2016. The
maximum potential amount that the Company could pay under these guarantees is
ZAR 130.5 million ($9.7 million, translated at exchange rates applicable as of
March 31, 2017). The guarantees have reduced the amount available for borrowings
under the Companys short-term credit facility described in Note 9.
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 or cash flows.
27