(A) Certain amounts have been restated to correct the
misstatements discussed in Note 1.
(B) Refer to Note 1.
(A) Certain amounts have been restated to correct the
misstatements discussed in Note 1.
(A) Certain amounts have been restated to correct the
misstatements discussed in Note 1.
(A) Certain amounts have been restated to correct the
misstatements discussed in Note 1.
(A) Certain amounts have been restated to correct the
misstatements discussed in Note 1. See accompanying notes to consolidated
financial statements.
1. DESCRIPTION OF BUSINESS AND BASIS
OF PRESENTATION
Description of Business
Net 1 UEPS Technologies, Inc.
(Net1 and collectively with its consolidated subsidiaries, the Company) was
incorporated in the State of Florida on May 8, 1997. The Company provides
payment solutions and transaction processing services across a wide range of
industries and in various geographies. It has developed and markets a smart-card
based alternative payment system for the unbanked and under-banked populations
of developing economies. Its universal electronic payment system (UEPS) uses
biometrically secure smart cards that operate in real-time but offline, which
allows users to enter into transactions at any time with other card holders in
even the most remote areas. The Company also develops and provides secure
transaction technology solutions and services, and offers transaction processing
and financial solutions. The Companys technology is widely used in South Africa
today, where it distributes welfare payments to recipient cardholders in South
Africa, provides financial services, processes debit and credit card payment
transactions on behalf of retailers through its EasyPay system, processes
value-added services such as bill payments and prepaid electricity for the major
bill issuers and local councils in South Africa, processes third-party and
associated payroll payments for employees and provides mobile telephone top-up
transactions for the major South African mobile carriers. The Company recently
acquired DNI-4PL Proprietary Limited (DNI), the leading distributor of mobile
subscriber starter packs for Cell C Proprietary Limited (Cell C) in South
Africa. Through KSNET, the Company offers card processing, payment gateway
(PG) and banking value-added network services (VAN) in South Korea. The
Company has card issuing and acquiring capabilities through Transact24 in Hong
Kong and provides value added payment services to online retailers across Europe
through Masterpayment in Germany. The Company leverages its strategic equity
investments in Finbond Group Limited (Finbond) and Bank Frick & Co. AG
(Bank Frick) (both regulated banks), and Cell C to introduce products to new
customers and geographies.
Basis of presentation
The accompanying consolidated
financial statements include subsidiaries over which Net1 exercises control and
have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP).
Restatement of financial
statements
Subsequent to the issuance of the
Companys 2018 consolidated financial statements, the Companys management
determined that the Company incorrectly classified and recorded its investment
in Cell C as available-for-sale and recorded the change in its fair value of
$25.2 million, net of taxation of $7.3 million, in other comprehensive income
for the year ended June 30, 2018. The Company has now determined that, due to
the election of the fair value option on acquisition, the investment in Cell C
should have been accounted at fair value with changes in fair value recorded in
the statement of operations. The tables below present the impact of the
restatement on each of the Companys financial statements for the year ended
June 30, 2018:
|
Consolidated balance sheet
|
|
|
|
|
As of June 30, 2018
|
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
reported
|
|
|
Correction
|
|
|
restated
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Accumulated other comprehensive loss
|
$
|
(159,237
|
)
|
$
|
(25,199
|
)
|
$
|
(184,436
|
)
|
|
Retained earnings
|
|
812,426
|
|
|
25,199
|
|
|
837,625
|
|
|
Total equity
|
$
|
738,430
|
|
$
|
-
|
|
$
|
738,430
|
|
F-10
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
1. DESCRIPTION OF BUSINESS AND BASIS
OF PRESENTATION (continued)
Restatement of financial
statements (continued)
|
Consolidated
statement of operations
|
|
|
|
|
Year ended June 30, 2018
|
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
reported
|
|
|
Correction
|
|
|
restated
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
Change in fair value of equity securities
|
$
|
-
|
|
$
|
32,473
|
|
$
|
32,473
|
|
|
Income before income taxes
|
|
67,893
|
|
|
32,473
|
|
|
100,366
|
|
|
Income tax expense
|
|
41,353
|
|
|
7,274
|
|
|
48,627
|
|
|
Net income before earnings from equity-accounted
investments
|
|
26,540
|
|
|
25,199
|
|
|
51,739
|
|
|
Net income
|
|
38,270
|
|
|
25,199
|
|
|
63,469
|
|
|
Net income attributable to Net1
|
$
|
39,150
|
|
$
|
25,199
|
|
$
|
64,349
|
|
|
Net income per share, in United States
dollars:
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable to Net1 shareholders
|
|
0.69
|
|
|
0.44
|
|
|
1.13
|
|
|
Diluted earnings attributable to Net1
shareholders
|
|
0.69
|
|
|
0.44
|
|
|
1.13
|
|
|
Consolidated
statement of comprehensive income
|
|
|
|
|
Year ended June 30, 2018
|
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
reported
|
|
|
Correction
|
|
|
restated
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Net income
|
$
|
38,270
|
|
$
|
25,199
|
|
$
|
63,469
|
|
|
Net unrealized income on asset available for sale, net of
tax
|
|
25,199
|
|
|
(25,199
|
)
|
|
-
|
|
|
Total other comprehensive income (loss)
|
|
3,234
|
|
|
(25,199
|
)
|
|
(21,965
|
)
|
|
Comprehensive income
|
$
|
41,504
|
|
$
|
-
|
|
$
|
41,504
|
|
|
Consolidated statement of changes in equity
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
Retained
|
|
|
comprehensive
|
|
|
|
|
|
|
|
earnings
|
|
|
loss
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
As reported June 30, 2018
|
$
|
812,426
|
|
$
|
(159,237
|
)
|
|
|
|
|
Correction of misstatement
|
|
25,199
|
|
|
(25,199
|
)
|
|
|
|
|
As restated June 30, 2018
|
$
|
837,625
|
|
$
|
(184,436
|
)
|
|
|
|
|
Consolidated
statement of cash flows
|
|
|
|
|
Year ended June 30, 2018
|
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
reported
|
|
|
Correction
|
|
|
restated
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Net income
|
$
|
38,270
|
|
$
|
25,199
|
|
$
|
63,469
|
|
|
Fair value adjustment
A
|
|
(212
|
)
|
|
(31,847
|
)
|
|
(32,059
|
)
|
|
Increase (Decrease) in deferred taxes
|
|
(1,308
|
)
|
|
7,274
|
|
|
5,966
|
|
|
Net cash provided by operating activities
A
|
$
|
132,605
|
|
$
|
(300
|
)
|
$
|
132,305
|
|
(A) The Company also identified
and corrected other insignificant misstatements in its consolidated statement of
cash flows for the year ended June 30, 2018. The correction of these
insignificant changes decreased net cash provided by operating activities with a
corresponding increase in net cash provided by investing activities. The
correction of these insignificant changes did not affect the net decrease
increase in cash, cash equivalents and restricted cash for the year ended June
30, 2018.
F-11
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
1. DESCRIPTION OF BUSINESS AND BASIS
OF PRESENTATION (continued)
Reclassification of
redeemable common stock outside of permanent equity
During the three months ended
December 31, 2017, the Company reclassified redeemable common stock out of total
equity because redeemable common stock is required to be presented outside of
permanent equity. The Company has restated these amounts in its consolidated
balance sheet as at June 30, 2017, and each of the consolidated statement of
changes in equity for the years ended June 30, 2018, 2017 and 2016. The
reclassification resulted in a decrease in total equity by approximately $107.7
million and an increase in redeemable common stock, presented outside of
permanent equity, of approximately $107.7 million. This reclassification had no
impact on the Companys previously reported consolidated income, comprehensive
income or cash flows.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of
consolidation
The financial statements of
entities which are controlled by Net1, referred to as subsidiaries, are
consolidated. Inter-company accounts and transactions are eliminated upon
consolidation.
The Company, if it is the primary
beneficiary, consolidates entities which are considered to be variable interest
entities (VIE). The primary beneficiary is considered to be the entity that
will absorb a majority of the entity's expected losses, receive a majority of
the entity's expected residual returns, or both. No entities were required to be
consolidated as a result of these requirements during the years ended June 30,
2018, 2017 and 2016.
Business combinations
The Company accounts for its
business acquisitions under the acquisition method of accounting. The total
value of the consideration paid for acquisitions is allocated to the underlying
net assets acquired, based on their respective estimated fair values. The
Company uses a number of valuation methods to determine the fair value of assets
and liabilities acquired, including discounted cash flows, external market
values, valuations on recent transactions or a combination thereof, and believes
that it uses the most appropriate measure or a combination of measures to value
each asset or liability. The Company recognizes measurement-period adjustments
in the reporting period in which the adjustment amounts are determined.
Use of estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Translation of foreign
currencies
The primary functional currency
of the Company is the South African Rand (ZAR) and its reporting currency is
the U.S. dollar. The Company also has consolidated entities which have other
currencies, primarily South Korean won (KRW), as their functional currency.
Assets and liabilities are translated at the exchange rates in effect at the
balance sheet date. Revenues and expenses are translated at average rates for
the period. Translation gains and losses are reported in accumulated other
comprehensive income in total equity.
Foreign exchange transactions are
translated at the spot rate ruling at the date of the transaction. Monetary
items are translated at the closing spot rate at the balance sheet date.
Transactional gains and losses are recognized in selling, general and
administration expense on the Companys consolidated statement of operations for
the period.
F-12
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance for doubtful
accounts receivable
Allowance
for doubtful finance loans receivable
The Company regularly reviews the
ageing of outstanding amounts due from borrowers and adjusts the allowance based
on managements estimate of the recoverability of the finance loans receivable.
The Company writes off microlending finance loans receivable and related service
fees if a borrower is in arrears with repayments for more than three months or
dies. The Company writes off working capital finance receivables and related
fees when it is evident that reasonable recovery procedures, including where
deemed necessary, formal legal action, have failed.
Allowance
for doubtful accounts receivable
A specific provision is
established where it is considered likely that all or a portion of the amount
due from customers renting point of sale (POS) equipment, receiving support
and maintenance or transaction services or purchasing licenses from the Company
will not be recovered. Non-recoverability is assessed based on a review by
management of the ageing of outstanding amounts, the location of the customer
and the payment history in relation to those specific amounts.
Inventory
Inventory is valued at the lower
of cost and net realizable value. Cost is determined on a first-in, first-out
basis and includes transport and handling costs.
Leasehold improvement
costs
Costs incurred in the adaptation
of leased properties to serve the requirements of the Company are capitalized
and amortized over the shorter of the estimated useful life of the asset and the
remaining term of the lease.
Property, plant and
equipment
Property, plant and equipment are
shown at cost less accumulated depreciation. Property, plant and equipment are
depreciated on the straight-line basis at rates which are estimated to amortize
the assets to their anticipated residual values over their useful lives. Within
the following asset classifications, the expected economic lives are
approximately:
Computer equipment
|
3 to 8 years
|
Office equipment
|
2 to 10 years
|
Vehicles
|
3 to 8 years
|
Furniture and fittings
|
3 to 10 years
|
Buildings and structures
|
8 to 30 years
|
The gain or loss arising on the
disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in income.
Equity-accounted
investments
The Company uses the equity
method to account for investments in companies when it has significant influence
but not control over the operations of the company. Under the equity method, the
Company initially records the investment at cost and thereafter adjusts the
carrying value of the investment to recognize the proportional share of the
equity-accounted companys net income or loss. In addition, when an investment
qualifies for the equity method (as a result of an increase in the level of
ownership interest or degree of influence), the cost of acquiring the additional
interest in the investee is added to the current basis of the Companys
previously held interest and the equity method would be applied subsequently
from the date on which the Company obtains the ability to exercise significant
influence over the investee.
F-13
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Equity-accounted
investments (continued)
Any unrealized holding gains or
losses in accumulated other comprehensive income related to an available for
sale security that is subsequently required to be accounted for utilizing the
equity method are recognized in earnings as of the date on which the investment
qualifies for the equity method. The Company does not recognize cumulative
losses in excess of its investment or loans in an equity-accounted investment
except if it has an obligation to provide additional financial support.
Dividends received from an equity-accounted investment reduce the carrying value
of the Companys investment. The Company reviews its equity-accounted
investments for impairment whenever events or circumstances indicate that the
carrying amount of the investment may not be recoverable.
Goodwill
Goodwill represents the excess of
the purchase price of an acquired enterprise over the fair values of the
identifiable assets acquired and liabilities assumed. The Company tests for
impairment of goodwill on an annual basis and at any other time if events or
circumstances change that would more likely than not reduce the fair value of
the reporting unit goodwill below its carrying amount.
Circumstances that could trigger
an impairment test include but are not limited to: a significant adverse change
in the business climate or legal factors; an adverse action or assessment by a
regulator; unanticipated competition; loss of key personnel; the likelihood that
a reporting unit or significant portion of a reporting unit will be sold or
otherwise disposed; and results of testing for recoverability of a significant
asset group within a reporting unit. If the carrying amount of the reporting
unit goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recorded in the statement of operations. Measurement of the fair value
of a reporting unit is based on one or more of the following fair value
measures: the amount at which the unit as a whole could be bought or sold in a
current transaction between willing parties; present value techniques of
estimated future cash flows; or valuation techniques based on multiples of
earnings or revenue, or a similar performance measure.
Intangible assets
Intangible assets are shown at
cost less accumulated amortization. Intangible assets are amortized over the
following useful lives:
Customer relationships
|
1 to 15 years
|
Software and unpatented technology
|
3 to 5 years
|
FTS patent
|
10 years
|
Exclusive licenses
|
7 years
|
Trademarks
|
3 to 20 years
|
Intangible assets are
periodically evaluated for recoverability, and those evaluations take into
account events or circumstances that warrant revised estimates of useful lives
or that indicate that impairment exists.
Debt and equity
securities
The Company is required to
classify all applicable debt and equity securities as either trading securities,
available-for-sale or held to maturity upon investment in the security. All
equity securities that do not have readily determinable fair value and for which
the fair value option has not been elected are carried using the cost method of
accounting.
Trading
Debt and equity securities
acquired by the Company which it intends to sell in the short-term are
classified as trading securities and are initially measured at fair value. These
securities are subsequently measured at fair value and realized and unrealized
gains and losses from these trading securities are included in the Companys
consolidated statement of operations. Classification of a security as a trading
security is not precluded simply because the Company does not intend to sell the
security in the short term. The Company had no trading securities as of June 30,
2018 and 2017, respectively.
F-14
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Debt and equity
securities (continued)
Available
for sale
Debt and equity securities
acquired by the Company that have readily determinable fair values are
classified as available for sale if the Company has not classified them as
trading securities or if it does not have the ability or positive intent to hold
the security until maturity. The Company is required to make an election to
account for these securities as available for sale. These available for sale
securities are initially measured at fair value. These securities are
subsequently measured at fair value with unrealized gains and losses from
available for sale investments in debt and equity securities reported as a
separate component of accumulated other comprehensive income, net of deferred
income taxes, in shareholders equity. The Company had no available for sale
securities as of June 30, 2018 and 2017.
Held
to maturity
Debt securities acquired by the
Company which it has the ability and the positive intent to hold to maturity are
classified as held to maturity securities. The Company is required to make an
election to classify these securities as held to maturity and these securities
are carried at amortized cost. The amortized cost of held to maturity securities
is adjusted for amortization of premiums and accretion of discounts to maturity.
Interest received from the held to maturity security together with this
amortization is included in interest income in the Companys consolidated
statement of operations. The Company had a held to maturity security as of June
30, 2018, refer to Note 9, and had no held to maturity securities as of June 30,
2017.
Impairment
The Companys available for sale
and held to maturity securities with unrealized losses are reviewed quarterly to
identify other-than-temporary impairments in value.
In evaluating whether a decline
in value of an equity security is other-than-temporary, the Company considers
several factors including, but not limited to the following: (i) the extent and
the duration of the decline; (ii) the reasons for the decline in value (i.e.
credit event, currency or interest-rate related); and (iii) the financial
condition of and near term-prospects of the issuer of the security. When it is
determined that a decline in value of an equity securities is
other-than-temporary, the carrying value of the security is reduced to its fair
value, with a corresponding charge to earnings.
With regard to available for sale
and held to maturity debt securities, the Company considers (i) the ability and
intent to hold the debt security for a period of time to allow for recovery of
value (ii) whether it is more likely than not that the Company will be required
to sell the debt security; and (iii) whether it expects to recover the entire
amortized cost basis of the debt security. The Company records an impairment
loss in its consolidated statement of operations representing the difference
between the debt securities carrying value and the current fair value as of the
date of the impairment if the Company determines that it intends to sell the
debt security or if that it is more likely than not that it will be required to
sell the debt security before recovery of the amortized cost basis. However, an
impairment loss is considered to have occurred if the Company determines that it
does not intend to sell the debt security or that it is more likely than not
that it will not be required to sell the debt security before the recovery of
the amortized cost basis. In this instance, the impairment loss is split between
a credit loss and a non-credit loss. The credit loss portion, which is measured
as the difference between the debt securitys cost basis and the present value
of expected future cash flows, is recognized in the Companys consolidated
statement of operations. The non-credit loss portion, which is measured as the
difference between the debt securitys cost basis and its current fair value, is
recognized in other comprehensive income, net of applicable taxes.
Policy reserves and
liabilities
Reserves
for policy benefits and claims payable
The Company determines its
reserves for policy benefits under its life insurance products using a model
which estimates claims incurred that have not been reported and total present
value of disability claims-in-payment at the balance sheet date. This model
allows for best estimate assumptions based on experience (where sufficient) plus
prescribed margins, as required in the markets in which these products are
offered, namely South Africa.
F-15
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Policy reserves and
liabilities (continued)
Reserves
for policy benefits and claims payable (continued)
The best estimate assumptions
include (i) mortality and morbidity assumptions reflecting the companys most
recent experience and (ii) claim reporting delays reflecting Company specific
and industry experience. Most of the disability claims-in-payment reserve is
reinsured and the reported values were based on the reserve held by the relevant
reinsurer. The values of matured guaranteed endowments are increased by late
payment interest (net of the asset management fee and allowance for tax on
investment income).
Deposits
on investment contracts
For the Companys
interest-sensitive life contracts, liabilities approximate the policyholders
account value.
Reinsurance contracts
held
The Company enters into
reinsurance contracts with reinsurers under which the Company is compensated for
the entire amount or a portion of losses arising on one or more of the insurance
contracts it issues.
The expected benefits to which
the Company is entitled under its reinsurance contracts held are recognized as
reinsurance assets. These assets consist of short-term balances due from
reinsurers (classified within accounts receivable, net) as well as long-term
receivables (classified within other long-term assets) that are dependent on the
expected claims and benefits arising under the related reinsurance contracts.
Amounts recoverable from or due to reinsurers are measured consistently with the
amounts associated with the reinsured contracts and in accordance with the terms
of each reinsurance contract. Reinsurance assets are assessed for impairment at
each balance sheet date. If there is reliable objective evidence that amounts
due may not be recoverable, the Company reduces the carrying amount of the
reinsurance asset to its recoverable amount and recognizes that impairment loss
in its consolidated statement of operations. Reinsurance premiums are recognized
when due for payment under each reinsurance contract.
Redeemable common stock
Common stock that is redeemable
(1) at a fixed or determinable price on a fixed or determinable date, (2) at the
option of the holder, or (3) upon the occurrence of an event that is not solely
within the control of Company is presented outside of total Net1 equity (i.e.
permanent equity). Redeemable common stock is initially recognized at issuance
date fair value and the Company does not adjust the issuance date fair value if
redemption is not probable. The Company re-measures the redeemable common stock
to the maximum redemption amount at the balance sheet date once redemption is
probable. Reduction in the carrying amount of the redeemable common stock is
only appropriate to the extent that the Company has previously recorded
increases in the carrying amount of the redeemable equity instrument as the
redeemable common stock may be not be carried at an amount that is less the
initial amount reported outside of permanent equity.
Redeemable common stock is
reclassified as permanent equity when presentation outside permanent equity is
no longer required (if, for example, a redemption feature lapses, or there is a
modification of the terms of the instrument). The existing carrying amount of
the redeemable common stock is reclassified to permanent equity at the date of
the event that caused the reclassification and prior period consolidated
financial statements are not adjusted.
Sales taxes
Revenue and expenses are
presented net of sales, use and value added taxes, as the case may be.
F-16
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue
recognition
The Company recognizes revenue
when:
-
there is persuasive evidence of an agreement or arrangement;
-
delivery of products has occurred or services have been rendered;
-
the sellers price to the buyer is fixed or determinable; and
-
collectability is reasonably assured.
The Companys principal revenue
streams and their respective accounting treatments are discussed below:
Fees
Welfare
benefit distribution and South African participating merchants
The Company provides a welfare
benefit distribution service in South Africa. Fee income received for these
services is recognized in the statement of operations when distributions have
been made to the recipient cardholders. With respect to services provided from
April 1, 2018, the Company has recorded fee income from these services utilizing
the price specified in the original contractual arrangement between the Company
and SASSA. The Company has the right to request an increase, from the South
African National Treasury, in the price charged under an order of the
Constitutional Court of South Africa. The Company has made the appropriate
submission to National Treasury and it has provided its recommendation, but this
has not yet been ratified by the Constitutional Court.
Recipient cardholders are able to
load their welfare grants at merchants enrolled in the Companys participating
merchant system in certain provinces. There is no charge to the recipient
cardholder to load the grant onto a smart card at the merchant location,
however, a fee is charged to the merchant for purchases made at the merchant
using the smart card. A fee is also charged to the merchant when the recipient
cardholder makes a cash withdrawal. Fee income received for these services is
recognized in the statement of operations when the transaction occurs.
Fees
related to management of card issuance programs and utilization of ATMs
The Company manages card issuance
programs and owns ATMs in South Africa from which it generates fee revenue. Fee
revenue generated from the provision of a bank account to customers is
recognized monthly as charged. Fee revenue generated from card issuance programs
includes interchange and other miscellaneous fees, which are recorded when
cardholders transact at either a POS or an ATM. Fee revenue generated from the
utilization of ATMs includes cash withdrawal, balance enquiry, insufficient
funds and other miscellaneous ATM fees which are recorded when an ATM user
performs a transaction at an ATM.
Card
VAN, banking VAN and payment gateway
Card VAN services consist of
services relating to the authorization of credit card transactions, including
transmission of transaction details (authorization service), and collection of
receipts associated with the credit card transactions (collection service).
With its authorization service, the Company connects credit card companies with
merchants online when a customer uses his/her credit card via terminals
installed at merchants sites and the Companys central processing server for
approval of credit card transactions. Immediately after approval of credit card
transactions, the Company transmits details of the transactions to credit card
companies online for processing payments. The collection service captures the
transaction data and gathers receipts as documented evidence and provides them
to credit card companies upon request. The Company earns service fees based on
the value and number of transactions processed for credit card companies when
services are rendered in accordance with the contracts entered into between
credit card companies and the Company. The Company bills for its service charges
to credit card companies each month. Each service could be provided either
individually or collectively, based on the terms of the contracts.
F-17
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue recognition
(continued)
Fees
(continued)
Card
VAN, banking VAN and payment gateway (continued)
The Company charges commission
fees to credit card companies for the authorization service provided based on
the number of approvals transferred or on the value of transactions processed,
as appropriate. The right to receive a service fee is due once a credit card
transaction has been approved and details of the transaction are transmitted by
the Company. Therefore, revenues from the authorization service are recognized
when the credit card transactions are authorized and details of the transactions
are transmitted. Revenue from the collection service is recognized when the
Company collects the receipts and provides them to the card companies.
For multiple-element
arrangements, the Company has identified two deliverables. The first deliverable
is the authorization service, and the second deliverable is the collection
service. The Company evaluates each deliverable in an arrangement to determine
whether it represents a separate unit of accounting. A deliverable constitutes a
separate unit of accounting when it has standalone value and there are no
customer-negotiated refunds or return rights for the delivered elements. If the
arrangement includes a customer-negotiated refund or return right relative to
the delivered item and the delivery and performance of the undelivered item is
considered probable and substantially in the Company's control, the delivered
element constitutes a separate unit of accounting. In instances when the
aforementioned criteria are not met, the deliverable is combined with the
undelivered elements and the allocation of the arrangement consideration and
revenue recognition is determined for the combined unit as a single unit.
Allocation of the consideration is determined at arrangement inception on the
basis of each unit's relative selling price. In such circumstances, the Company
uses a hierarchy to determine the selling price to be used for allocating
revenue to deliverables: (i) vendor-specific objective evidence of fair value
(VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best
estimate of the selling price (ESP).
VSOE generally exists only when
the Company sells the deliverable separately and is the price actually charged
by the Company for that deliverable. ESPs reflect the Companys best estimates
of what the selling prices of elements would be if they were sold regularly on a
stand-alone basis. Because the Company has neither VSOE nor TPE for the two
deliverables, the allocation of revenue has been based on the Companys ESPs.
Amounts allocated to the authorization and the collection service are recognized
at the time of service, provided the other conditions for revenue recognition
have been met.
The Companys process for
determining its ESP for deliverables without VSOE or TPE considers multiple
factors that may vary depending upon the unique facts and circumstances related
to each deliverable. Key factors considered by the Company in developing the
ESPs include prices charged by the Company, historical pricing practices and
controls, range of prices for various customers and the nature of the services.
Consideration is also given to market conditions such as competitor pricing
strategies and market perception.
Banking VAN is a division
supporting a companys fund management process (large payment transfers,
collections, etc.) by relaying financial transactions between client companies
and financial institutions. Financial transactions between two or more business
enterprises, or between business enterprises and their customers, are conducted
through the transaction-processing network established between the Company and
the banks. Revenue from the banking VAN service is recognized when the service
is rendered by the Company.
With its PG service, the Company
provides the Internet-based settlement service between an on-line shopping mall
and a credit card company when a customer uses his/her credit card, debit card
or on-line payment to pay for goods or services. The Company receives fees for
carrying out settlements for electronic transactions. Revenue from the PG
service is recognized when the service is rendered by the Company.
Microlending
service fee
The Company provides short-term
loans to customers in South Africa and charges and recognizes monthly service
fee revenue under the contractual terms of the loan. The monthly service fee
amount is fixed upon initiation and does not change over the term of the
loan.
F-18
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue recognition
(continued)
Fees
(continued)
Other
fees and commissions
The Company provides an automated
payment collection service to third parties, for which it charges monthly fees.
The Company provides medical-related claims adjudication, reconciliation and
settlement services (medical-related claim service) to customers, for which it
charges fees. The Company provides a payment processing service to merchants for
which it charges a transaction fee. All of these fees are recognized in the
statement of operations as the underlying services are performed. The Company
sells prepaid electricity and recognizes a commission in its statement of
operations once the prepaid electricity token has been delivered to the
customer.
Hardware
and prepaid airtime voucher sales
Revenue from hardware and airtime
voucher sales is recognized when risk of loss has transferred to the customer
and there are no unfulfilled Company obligations that affect the customers
final acceptance of the arrangement. Any cost of warranties and remaining
obligations that are inconsequential or perfunctory are accrued when the
corresponding revenue is recognized. The Company buys terminals from
manufacturers, and subsequently sells them through its agencies. Revenue is
recognized when significant risks and rewards of ownership of terminals have
passed to the buyer, usually on delivery of the terminals to the buyer. To the
extent that sales of hardware are made in an arrangement that includes software
that is more than incidental, the Company considers post-contract maintenance
and technical support or other future obligations which could impact the timing
and amount of revenue recognized.
Software
Revenue from licensed software is
recognized on a subscription basis over the period that the client is entitled
to use the license. Revenue from the sale of software is recognized if all
revenue recognition criteria have been met. Post-contract maintenance and
technical support in respect of software is generally negotiated and sold as a
separate service and is recognized over the period such items are delivered.
Terminal
rental income
The Company leases terminals to
merchants participating in its merchant acquiring system. Operating rental
income is recognized monthly on a straight-line basis in accordance with the
lease agreement.
Other
income
Revenue from service and
maintenance activities is charged to customers on a time-and-materials basis and
is recognized in the statement of operations as services are delivered to
customers.
Research and development
expenditure
Research and development
expenditure is charged to net income in the period in which it is incurred.
During the years ended June 30, 2018, 2017 and 2016, the Company incurred
research and development expenditures of $1.8 million, $2.0 million and $2.3
million, respectively.
Computer software
development
Product development costs in
respect of software intended for sale to licensees are expensed as incurred
until technological feasibility is attained. Technological feasibility is
attained when the Companys software has completed system testing and has been
determined to be viable for its intended use. The time between the attainment of
technological feasibility and completion of software development is generally
short with immaterial amounts of development costs incurred during this
period.
F-19
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue recognition (continued)
Computer software
development (continued)
Costs in respect of the
development of software for the Companys internal use are expensed as incurred,
except to the extent that these costs are incurred during the application
development stage. All other costs including those incurred in the project
development and post-implementation stages are expensed as incurred.
Income taxes
The Company provides for income
taxes using the asset and liability method. This approach recognizes the amount
of taxes payable or refundable for the current year, as well as deferred tax
assets and liabilities for the future tax consequence of events recognized in
the financial statements and tax returns. Deferred income taxes are adjusted to
reflect the effects of changes in tax laws or enacted tax rates.
The Company measured its South
African income taxes and deferred income taxes for the years ended June 30,
2018, 2017 and 2016, using the enacted statutory tax rate in South Africa of
28%.
As of June 30, 2018, the Company
intends to permanently reinvest its non-U.S. undistributed earnings of $545.4
million in those non-U.S. jurisdictions. Accordingly, the Company has not
recognized a deferred tax liability related to future distributions of these
undistributed earnings. It is not practicable for the Company to estimate the
amount of unrecognized deferred tax liability because of the complexities of the
calculations involved. The Company will be required to record a tax charge if it
is no longer able to permanently reinvest its undistributed earnings. This may
result in an increase in the Companys effective tax rate in future periods.
In establishing the appropriate
deferred tax asset valuation allowances, the Company assesses the realizability
of its deferred tax assets, and based on all available evidence, both positive
and negative, determines whether it is more likely than not that the deferred
tax assets or a portion thereof will be realized.
Reserves for uncertain tax
positions are recognized in the financial statements for positions which are not
considered more likely than not of being sustained based on the technical merits
of the position on audit by the tax authorities. For positions that meet the
more likely than not standard, the measurement of the tax benefit recognized in
the financial statements is based upon the largest amount of tax benefit that,
in managements judgement, is greater than 50% likely of being realized based on
a cumulative probability assessment of the possible outcomes.
The Companys policy is to
include interest related to unrecognized tax benefits in interest expense and
penalties in selling, general and administration in the consolidated statements
of operations.
Impact
of Tax Cuts and Jobs Act
On December 22, 2017, the Tax
Cuts and Jobs Act (the TCJA), was enacted into law, significantly modifying
U.S. federal tax laws. The United States Securities and Exchange Commission
staff issued Staff Accounting Bulletin No. 18 (SAB 118), which provides
guidance on accounting for the tax effects of the TCJA. SAB 118 provides a
measurement period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under GAAP tax guidance.
In accordance with SAB 118, a company must reflect the income tax effects of
those aspects of the TCJA for which the accounting under the GAAP tax guidance
is complete. To the extent that a companys accounting for certain income tax
effects of the TCJA is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements. If
a company cannot determine a provisional estimate to be included in the
financial statements, it should continue to apply the GAAP tax guidance on the
basis of the provisions of the tax laws that were in effect immediately before
the enactment of the Tax Act. Refer to Note 19 for additional information
regarding the impact of the TCJA on the Company.
F-20
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock-based compensation
Stock-based compensation
represents the cost related to stock-based awards granted. The Company measures
equity-based stock-based compensation cost at the grant date, based on the
estimated fair value of the award, and recognizes the cost as an expense on a
straight-line basis (net of estimated forfeitures) over the requisite service
period. In respect of awards with only service conditions that have a graded
vesting schedule, the Company recognizes compensation cost on a straight-line
basis over the requisite service period for the entire award. The forfeiture
rate is estimated using historical trends of the number of awards forfeited
prior to vesting. The expense is recorded in the statement of operations and
classified based on the recipients respective functions. The Company records
deferred tax assets for awards that result in deductions on the Companys income
tax returns, based on the amount of compensation cost recognized and the
Companys statutory tax rate in the jurisdiction in which it will receive a
deduction. Differences between the deferred tax assets recognized for financial
reporting purposes and the actual tax deduction reported on the Companys income
tax return are recorded in taxation expense in the statement of operations.
Equity instruments issued
to third parties
Equity instruments issued to
third parties represents the cost related to equity instruments granted. The
Company measures this cost at the grant date, based on the estimated fair value
of the award, and recognizes the cost as an expense on a straight-line basis
(net of estimated forfeitures) over the requisite service period. The forfeiture
rate is estimated based on the Companys expectation of the number of awards
that will be forfeited prior to vesting. The Company records deferred tax assets
for equity instrument awards that result in deductions on the Companys income
tax returns, based on the amount of equity instrument cost recognized and the
Companys statutory tax rate in the jurisdiction in which it will receive a
deduction. Differences between the deferred tax assets recognized for financial
reporting purposes and the actual tax deduction reported on the Companys income
tax return are recorded in the statement of operations.
Settlement assets and
settlement obligations
Settlement assets comprise (1)
cash received from the South African government that the Company holds pending
disbursement to recipient cardholders of social welfare grants 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.
Recent accounting
pronouncements adopted
In August 2014, the Financial
Accounting Standards Board (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. The adoption of this guidance did not have a material impact on
the Companys financial statements disclosures.
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. The adoption of this guidance
did not have a material impact on the Companys financial statements.
F-21
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting
pronouncements adopted (continued)
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 the 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,
and has been applied on a prospective basis. The adoption of this guidance has
resulted in the reclassification of current deferred tax assets and liabilities
as non-current deferred tax assets and liabilities in the consolidated balance
sheet as of June 30, 2018. Prior period current deferred tax assets have not
been reclassified as non-current in the consolidated balance sheet as of June
30, 2017.
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. The
adoption of this guidance did not have a material impact on the Companys
financial statements. The Company has elected to continue to estimate the number
of forfeitures when an award is made.
Recent accounting
pronouncements not yet adopted as of June 30, 2018
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 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 originally set 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 December 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 has determined that the adoption of
this guidance on July 1, 2018, will not materially impact its financial
statements, except for the additional footnote disclosures required. The Company
has excluded DNI from this determination because it acquired DNI on June 30,
2018. The Company is currently assessing the impact of this guidance on its
financial statements as they pertain to DNI.
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. The guidance
requires changes in the fair value of the Companys equity investments, with
certain exceptions, to be recognized through net income rather than other
comprehensive income. 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.
Upon adoption of this guidance on
July 1, 2018, the Company will recognize any changes in the fair value of its
investment in One MobiKwik Systems Private Limited (MobiKwik), which is
currently carried at cost, through net income.
F-22
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
2. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recent accounting
pronouncements not yet adopted as of June 30, 2018 (continued)
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 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 and
related disclosures.
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 and
related disclosures.
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.
In May 2017, the FASB issued
guidance regarding
CompensationStock Compensation (Topic 718): Scope of
Modification Accounting.
The guidance amends the scope of modification
accounting for share-based payment arrangements and provides guidance on the
types of changes to the terms or conditions of share-based payment awards to
which an entity would be required to apply modification accounting under
Accounting Standards Codification 718. Specifically, an entity would not apply
modification accounting if the fair value, vesting conditions, and
classification of the awards are the same immediately before and after the
modification. 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 and related disclosures.
In June 2018, the FASB issued
guidance regarding
Improvements to Nonemployee Share-Based Payment
Accounting.
The guidance simplifies the accounting for share-based payments
granted to non-employees for goods and services and aligns the guidance for
these share-based payments with guidance applicable to accounting for
share-based payments granted to employees. The guidance is effective for the
Company beginning July 1, 2019. Early adoption is permitted. The Company is
currently assessing the impact of this guidance on its financial statements and
related disclosures.
F-23
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS
The cash paid, net of cash
received related to the Companys various acquisitions during the years ended
June 30, 2018, 2017 and 2016 is summarized in the table below:
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
DNI
(1)
|
$
|
6,202
|
|
$
|
-
|
|
$
|
-
|
|
|
Masterpayment Financial Services Limited
(formerly C4U-Malta Limited) (Malta FS)
|
|
-
|
|
|
2,940
|
|
|
-
|
|
|
Pros Software Proprietary
Limited (Pros Software)
|
|
-
|
|
|
1,711
|
|
|
-
|
|
|
Transact24 Limited (Transact24)
|
|
-
|
|
|
-
|
|
|
1,666
|
|
|
Masterpayment AG
(Masterpayment)
|
|
-
|
|
|
-
|
|
|
14,101
|
|
|
Total cash
paid, net of cash received
|
$
|
6,202
|
|
$
|
4,651
|
|
$
|
15,767
|
|
(1) represents the cash paid, net of cash acquired, to
acquire a further 6% voting and economic interest, which resulted in the Company
obtaining a controlling stake in DNI. As described below, the acquisition of DNI
occurred in stages and DNI was accounted for using the equity method until June
30, 2018, being the point at which the Company obtained control over DNI. The
total cash paid, net of cash acquired, to obtain a 55% voting and economic
interest in DNI was $85.7 million.
2018 acquisition
DNI
The Company accounted for its
interest in DNI using the equity method from August 1, 2017, until June 30,
2018, the date upon which it acquired further voting and economic interest in
DNI, taking it to ownership of 55%. The transaction actually closed on June 28,
2018, however, for practical purposes the Company has used June 30, 2018, as the
date from which it accounted for a controlling stake in DNI. Therefore, from
June 30, 2018, the Company has consolidated DNI from June 30, 2018. Refer to
Note 9, for additional information regarding DNIs contribution to the Companys
reported results under the equity method.
On July 27, 2017, the Company
subscribed for 44,999,999 ordinary A shares in DNI, representing a 45% voting
and economic interest in DNI, for a subscription price of ZAR 945.0 million
($72.0 million) in cash. On March 9, 2018, the Company subscribed for an
additional 4,000,000 ordinary A shares in DNI for a subscription price of ZAR
89.3 million ($7.5 million), in cash, which increased its voting and economic
interest in DNI to 49%, but did not give it control. On March 9, 2018, the
Company also agreed to subscribe for an additional 6,000,000 ordinary A shares
in DNI for an aggregate subscription price of ZAR 126.0 million ($9.2 million).
The subscription was subject to certain suspensive conditions, including
obtaining South African Competition Commission approval which was eventually
obtained on June 21, 2018. Accordingly, on June 28, 2018, all conditions were
met and the Company subscribed for 6,000,000 ordinary A shares in DNI for a
subscription price of ZAR 126.0 million ($9.2 million) in cash, increasing its
voting and economic interest in DNI to 55%. Under the terms of its subscription
agreements with DNI, the Company has agreed to pay to DNI an additional amount
of up to ZAR 400.0 million ($29.1 million, translated at exchange rates
applicable as of June 30, 2018), in cash, subject to the achievement of certain
performance targets by DNI. The Company expects to pay the additional amount
during the first quarter of the year ended June 30, 2020, and has recorded an
amount of ZAR 373.6 million ($27.2 million), in other long-term liabilities in
its consolidated balance sheet as of June 30, 2018, which amount represents the
present value of the ZAR 400 million ($29.1 million) to be paid (amounts
translated at exchange rates applicable as of June 30, 2018). The present value
of ZAR 373.6 million ($27.2 million) has been calculated using the following
assumptions (a) the maximum additional amount of ZAR 400 million will be paid on
August 1, 2019 and (b) an interest rate of 6.3 % (the rate used to calculate
interest earned by the Company on its surplus South African funds) has been used
to discount the ZAR 400.0 million to its present value as of June 30, 2018.
Utilization of different inputs, or changes to these inputs, may result in
significantly higher or lower fair value measurement.
As described in Note 9, on March
9, 2018, the Company obtained financing to partially fund the acquisition of the
additional ordinary A DNI shares and Net1 Applied Technologies South Africa
Proprietary Limited (Net1 SA) has pledged, among other things, its entire
equity interest in DNI as security for the South African facilities described in
Note 14.
F-24
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS (continued)
2018 acquisition
(continued)
DNI
(continued)
On March 9, 2018, the Company
provided DNI with an interest-free loan of ZAR 126.0 million ($10.6 million)
which was repayable at the earlier of June 30, 2018, or within twenty days of
the 6,000,000 ordinary A share subscription agreement (i) becoming
unconditional, (ii) lapsing because the Competition Commission prohibits the
subscription, or (iii) the agreement being cancelled for any reason. As
described in Note 9, on March 9, 2018, the Company obtained financing to provide
the loan to DNI. On June 28, 2018, DNI repaid the ZAR 126 million ($9.2 million)
loan in full and the Company used the proceeds from the repayment of the loan to
fund the subscription for 6,000,000 ordinary A shares in DNI.
The preliminary purchase price
allocation of the DNI acquisition, translated at the foreign exchange rates
applicable on the date of acquisition, is provided in the table below:
|
|
DNI
|
|
Cash and cash equivalents
|
$
|
2,979
|
|
Accounts receivable
|
|
16,977
|
|
Inventory
|
|
2,526
|
|
Property, plant and equipment
|
|
1,317
|
|
Equity-accounted investment -
Speckpack(Note 9)
|
|
339
|
|
Goodwill (Note 10)
|
|
114,161
|
|
Intangible assets (Note 10)
|
|
104,003
|
|
Deferred tax assets
|
|
561
|
|
Other long-term assets(1)
|
|
21,348
|
|
Accounts payables and other payables
|
|
(20,914
|
)
|
Income taxes payable
|
|
-
|
|
Other long-term liabilities(1)
|
|
(8,291
|
)
|
Deferred tax liabilities
|
|
(29,121
|
)
|
Fair value of assets and
liabilities on acquisition
|
|
205,885
|
|
Less: fair value
attributable to controlling interests on acquisition date
|
|
(94,123
|
)
|
Less: fair value of
equity-accounted investment, comprising:
|
|
(100,947
|
)
|
Add: loss on re-measurement of previously held interest
|
|
4,614
|
|
Less: Contingent payment recognized related to 49% interest acquired
|
|
(25,589
|
)
|
Less: carrying value at the acquisition date (Note 9)
|
|
(79,972
|
)
|
Less: Contingent payment recognized related to
6% interest acquired
|
|
(1,633
|
)
|
Total
purchase price
|
$
|
9,182
|
|
(1) DNI concluded an acquisition in November 2017 and other
long-term liabilities includes a contingent purchase consideration of ZAR 113.8
million ($8.3 million) due to the sellers and other long-term assets includes an
amount due from the DNI shareholders, excluding the Company. DNI is obligated
under the terms of this obligation to pay 50% of the purchase consideration plus
or (less) a contingent amount (refund) calculated on a multiple of excess
(deficit) earnings over (less) an agreed earnings amount. The other DNI
shareholders have agreed to reimburse DNI the 50% consideration plus (less) the
contingent amount (refund) payable in full. Therefore, other long-term asset
includes the amounts due from the DNI shareholder, excluding the Company, and
other long-term liabilities includes the contingent consideration due under the
November 2017 acquisition. The Company expects DNI to pay, and to be reimbursed,
the additional amount during the first quarter of the year ended June 30, 2020,
which amount represents the present value of the ZAR 129.0 million ($9.4
million) to be paid (amounts translated at exchange rates applicable as of June
30, 2018). The present value of ZAR 113.8 million ($8.3 million) has been
calculated using the following assumptions (a) the maximum additional amount of
ZAR 129.0 million will be paid on August 1, 2019 and (b) an interest rate of
10.0 % (the rate used to calculate interest earned by DNI on its surplus South
African funds) has been used to discount the ZAR 129.0 million to its present
value as of June 30, 2018. Utilization of different inputs, or changes to these
inputs, may result in significantly higher or lower fair value measurement.
F-25
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS (continued)
2018 acquisition
(continued)
DNI
(continued)
Pro forma results of operations
have not been presented because the effect of the DNI acquisition was not
material to the Company. During the year ended June 30, 2018, the Company
incurred acquisition-related expenditure of $0.5 million related to this
acquisition, which has been included in selling, general and administration
expenses in the consolidated statement of operations. The DNI acquisition closed
on the last day of the Companys fiscal year and therefore it has not
contributed to revenue and net income as a subsidiary for the year ended June
30, 2018. Refer to Note 9 for DNIs contribution to net income under the equity
method.
2017
acquisitions
Malta
FS
In November 2016, the Company
acquired a 100% interest in Malta FS, a licensed Malta Financial Services
Authority-supervised electronic money institution, for approximately €3.6
million ($3.9 million translated at the foreign exchange rates applicable on the
date of acquisition). Malta FS license has been passported across all member
states of the European Union which allows Malta FS to operate in these
territories. The Company plans to build and reinforce Malta FS such that it
operates as the Companys 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 final purchase price
allocation of the Malta FS and Pros Software acquisitions, translated at the
foreign exchange rates applicable on the date of acquisition, is provided in the
table below:
|
|
Malta FS
|
|
|
Pros Software
|
|
|
Total
|
|
Cash and cash equivalents
|
$
|
999
|
|
$
|
110
|
|
$
|
1,109
|
|
Accounts receivable
|
|
983
|
|
|
165
|
|
|
1,148
|
|
Property, plant and equipment
|
|
30
|
|
|
9
|
|
|
39
|
|
Intangible assets (Note 10)
|
|
1,078
|
|
|
2,311
|
|
|
3,389
|
|
Goodwill (Note 10)
|
|
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
|
|
Pro forma results of operations
have not been presented because the effect of the Malta FS and Pros Software
acquisitions, individually and in the aggregate, were not material to the
Company. During the year ended June 30, 2017, the Company incurred
acquisition-related expenditure of $0.5 million related to the Malta FS and Pros
Software acquisitions. Since the closing of the Malta FS 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 $0.7 million,
respectively, for the year ended June 30, 2017. 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 $0.5
million and $1.8 million, respectively, for the year ended June 30, 2017.
F-26
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
3. ACQUISITIONS (continued)
2016
acquisitions
Transact24
Limited
On January 20, 2016, the Company
acquired the remaining 56% of the issued and outstanding ordinary shares of
Transact24 for $3.0 million in cash and through the issue of 391,645 shares of
the Companys common stock with an aggregate issue date fair value of
approximately $4.0 million. Transact24 is a specialist Hong Kong-based payment
services company. The Company acquired approximately 44% of Transact24 in May
2015.
The Company elected to settle
part of the purchase price in shares in order to appropriately align the T24
management team with the Company and its global strategy. The parties agreed
that 50% of the Companys shares issued in the transaction were contractually
restricted as to resale until after June 30, 2016, and the remaining 50% of the
shares were restricted until after June 30, 2017.
Masterpayment
AG
In April 2016, the Company
acquired a 60% interest in Masterpayment AG (Masterpayment), a specialist
payment services processor based in Munich, Germany for approximately $9.4
million and paid a contractually agreed EBITDA earn-out of $5.4 million in June
2016, for a total purchase consideration of $14.8 million.
The final purchase price
allocation of the Transact24 and Masterpayment acquisitions, translated at the
foreign exchange rates applicable on the date of acquisition, is provided in the
table below:
|
|
Transact24
|
|
|
Masterpayment
|
|
|
Total
|
|
Cash and cash equivalents
|
$
|
1,334
|
|
$
|
665
|
|
$
|
1,999
|
|
Accounts receivable
|
|
2,019
|
|
|
765
|
|
|
2,784
|
|
Property, plant and equipment
|
|
154
|
|
|
18
|
|
|
172
|
|
Deferred tax assets
|
|
1,070
|
|
|
-
|
|
|
1,070
|
|
Intangible assets (Note 10)
|
|
4,974
|
|
|
9,428
|
|
|
14,402
|
|
Goodwill (Note 10)
|
|
6,024
|
|
|
17,084
|
|
|
23,108
|
|
Accounts payables and other payables
|
|
(1,898
|
)
|
|
(1,114
|
)
|
|
(3,012
|
)
|
Deferred tax liabilities
|
|
(1,243
|
)
|
|
(2,236
|
)
|
|
(3,479
|
)
|
Fair value of
assets and liabilities on acquisition
|
|
12,434
|
|
|
24,610
|
|
|
37,044
|
|
Less: fair value of
equity-accounted investment, comprising:
|
|
(5,471
|
)
|
|
-
|
|
|
(5,471
|
)
|
Less: gain on re-measurement of previously held interest
|
|
(1,908
|
)
|
|
-
|
|
|
(1,908
|
)
|
Less: carrying value at the acquisition date
|
|
(3,563
|
)
|
|
-
|
|
|
(3,563
|
)
|
Less: fair value
attributable to controlling interests on acquisition date .
|
|
-
|
|
|
(9,844
|
)
|
|
(9,844
|
)
|
Total purchase price
|
$
|
6,963
|
|
|
14,766
|
|
$
|
21,729
|
|
Add:
carrying value of non-controlling interests acquired
|
|
|
|
|
9,867
|
|
|
|
|
Add: adjustment to Net1 equity (Note 15)
|
|
|
|
|
1,322
|
|
|
|
|
Cash
paid for non-controlling interest (Note 15)
|
|
|
|
|
11,189
|
|
|
|
|
Total consideration paid for Masterpayment
|
|
|
|
$
|
25,955
|
|
|
|
|
Pro forma results of operations
have not been presented because the effect of the Transact24 and Masterpayment
acquisitions, individually and in the aggregate, were not material to the
Company. During the year ended June 30, 2016, the Company incurred
acquisition-related expenditure of $0.2 million related to these acquisitions.
Since the closing of the Transact24 acquisition, it has contributed revenue and
net income of $3.8 million and $0.03 million, respectively, for the year ended
June 30, 2016. Since the closing of the Masterpayment acquisition, it has
contributed revenue and a net loss, after acquired intangible asset
amortization, net of taxation, and a non-controlling interest, of $2.4 million
and $0.04 million, respectively, for the year ended June 30, 2016.
F-27
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
4. PRE-FUNDED SOCIAL WELFARE GRANTS
RECEIVABLE
Pre-funded social welfare grants
receivable represents primarily amounts pre-funded by the Company to certain
merchants participating in the merchant acquiring system. The July 2018 payment
service commenced on July 1, 2018, but the Company pre-funded certain merchants
participating in the merchant acquiring systems on June 29, 2018. The July 2017
payment service commenced on July 1, 2017, but the Company pre-funded certain
merchants participating in the merchant acquiring systems on the last day of
June 2017.
5. ACCOUNTS RECEIVABLE, net and
FINANCE LOANS RECEIVABLE, net
Accounts receivable, net
|
|
2018
|
|
|
|
|
2017
|
|
|
Accounts receivable, trade, net
|
$
|
49,365
|
|
|
|
$
|
53,818
|
|
|
Accounts receivable, trade, gross
|
|
50,466
|
|
|
|
|
55,073
|
|
|
Allowance for doubtful accounts receivable,
end of year
|
|
1,101
|
|
|
|
|
1,255
|
|
|
Beginning of year
|
|
1,255
|
|
|
|
|
1,669
|
|
|
Acquired in
acquisition
|
|
-
|
|
|
|
|
10
|
|
|
Reversed to
statement of operations
|
|
(47
|
)
|
|
|
|
(42
|
)
|
|
Charged to
statement of operations
|
|
642
|
|
|
|
|
672
|
|
|
Utilized
|
|
(776
|
)
|
|
|
|
(1,200
|
)
|
|
Foreign currency
adjustment
|
|
27
|
|
|
|
|
146
|
|
|
Current portion of payments to agents in South Korea
amortized over the contract period
|
|
21,971
|
|
|
|
|
22,562
|
|
|
Payments to agents
in South Korea amortized over the contract period
|
|
39,554
|
|
|
|
|
39,852
|
|
|
Less: Payments to agents in South Korea amortized over the contract
period
included in other long-term assets (Note 9)
|
|
17,582
|
|
|
|
|
17,290
|
|
|
Loans provided to Finbond (Note 9)
|
|
1,107
|
|
|
|
|
11,920
|
|
|
Other receivables
|
|
37,240
|
|
|
|
|
23,129
|
|
|
Total accounts
receivable, net
|
$
|
109,683
|
|
|
|
$
|
111,429
|
|
|
Receivables from customers
renting POS equipment from the Company are included in accounts receivable,
trade, and are stated net of an allowance for certain amounts that the Companys
management has identified may be unrecoverable. Accounts receivable, trade, also
includes amounts due from customers from the sale of hardware, software licenses
and SIM cards and provision of transaction processing services. During the year
ended June 30, 2018, 2017 and 2016, the Company recorded bad debt expense of
$0.1 million, $0.1 million and $1.2 million, respectively.
F-28
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
5. ACCOUNTS RECEIVABLE, net and
FINANCE LOANS RECEIVABLE, net (continued)
Finance loans receivable,
net
The Companys finance loans
receivable, net, as of June 30, 2018 and 2017, is presented in the table below:
|
|
|
2018
|
|
|
|
|
|
2017
|
|
|
Microlending finance loans receivable, net
|
|
$
|
57,504
|
|
|
|
|
$
|
50,994
|
|
|
Microlending finance loans receivable, gross
|
|
|
61,743
|
|
|
|
|
|
54,711
|
|
|
Allowance for doubtful
microlending finance loans receivable, end of year
|
|
|
4,239
|
|
|
|
|
|
3,717
|
|
|
Beginning of year
|
|
|
3,717
|
|
|
|
|
|
4,494
|
|
|
Reversed to statement of operations
|
|
|
-
|
|
|
|
|
|
(55
|
)
|
|
Charged to
statement of operations
|
|
|
4,348
|
|
|
|
|
|
-
|
|
|
Utilized
|
|
|
(3,588
|
)
|
|
|
|
|
(1,260
|
)
|
|
Foreign currency
adjustment
|
|
|
(238
|
)
|
|
|
|
|
538
|
|
|
Working capital finance receivable, net
|
|
|
3,959
|
|
|
|
|
|
29,183
|
|
|
Working capital finance receivable, gross
|
|
|
16,123
|
|
|
|
|
|
32,935
|
|
|
Allowance for doubtful working
capital finance receivable, end of year
|
|
|
12,164
|
|
|
|
|
|
3,752
|
|
|
Beginning of year
|
|
|
3,752
|
|
|
|
|
|
-
|
|
|
Charged to statement of operations
|
|
|
8,415
|
|
|
|
|
|
3,752
|
|
|
Utilized
|
|
|
-
|
|
|
|
|
|
-
|
|
|
Foreign currency adjustment
|
|
|
(3
|
)
|
|
|
|
|
-
|
|
|
Current portion of other finance loans receivable
|
|
|
742
|
|
|
|
|
|
-
|
|
|
Total other finance loans receivable
|
|
|
13,025
|
|
|
|
|
|
-
|
|
|
Less included in
other long-term assets (Note 9)
|
|
|
12,283
|
|
|
|
|
|
-
|
|
|
Total finance loans receivable,
net
|
|
$
|
62,205
|
|
|
|
|
$
|
80,177
|
|
|
Finance loans receivable, net,
comprising microlending finance loans receivable related to the Companys
microlending operations in South Africa, its working capital finance receivable
related to its working capital financing offering in Korea, and as of June 30,
2017, its European and the United States working capital offering, and, as of
June 30, 2018, other finance loans receivable related to funding provided to
Cell C in South Africa to be used to fund the construction of mobile telephony
network infrastructure.
During the year ended June 30,
2018, the Company exited its working capital finance businesses in Europe and
the United States. The Company did not expense any unrecoverable microlending
finance loans receivable during the year ended June 30, 2018, 2017 or 2016,
respectively, because these loans were written off directly against the
allowance for doubtful microlending finance loans receivable. The Company has
created an allowance for doubtful working capital finance receivables related to
receivables due from customers based in the United States.
6. INVENTORY
The Companys inventory as of
June 30, 2018 and 2017, is presented in the table below:
|
|
2018
|
|
|
2017
|
|
Finished goods
|
$
|
12,887
|
|
$
|
8,020
|
|
|
$
|
12,887
|
|
$
|
8,020
|
|
F-29
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF FINANCIAL
INSTRUMENTS
Fair value of financial
instruments
Initial
recognition and measurement
Financial instruments are
recognized when the Company becomes a party to the transaction. Initial
measurements are at cost, which includes transaction costs.
Risk
management
The Company manages its exposure
to currency exchange, translation, interest rate, customer concentration, credit
and equity price and liquidity risks as discussed below.
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 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 lending 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 investments in
cash equivalents and held to maturity investments 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 BB+ (or its equivalent) 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 provide unsecured short-term loans to
qualifying customers. The Company manages this risk by performing an
affordability test for each prospective customer and assigning a
creditworthiness score, which takes into account a variety of factors such as
other debts and total expenditures on normal household and lifestyle expenses.
F-30
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF FINANCIAL
INSTRUMENTS (continued)
Fair value of financial
instruments (continued)
Risk
management (continued)
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. The market price of
these securities may fluctuate for a variety of reasons and, consequently, the
amount that the Company may obtain in a subsequent sale of these securities may
significantly differ from the reported market value.
Liquidity risk relates to the
risk of loss that the Company would incur as a result of the lack of liquidity
on the exchange on which these securities are listed. The Company may not be
able to sell some or all of these securities at one time, or over an extended
period of time without influencing the exchange traded price, or at all.
Financial instruments
Fair value is defined as the
price that would be received upon sale of an asset or paid upon transfer of a
liability in an orderly transaction between market participants at the
measurement date and in the principal or most advantageous market for that asset
or liability. The fair value should be calculated based on assumptions that
market participants would use in pricing the asset or liability, not on
assumptions specific to the entity. In addition, the fair value of liabilities
should include consideration of non-performance risk including the Companys own
credit risk.
Fair value measurements and
inputs are categorized into a fair value hierarchy which prioritizes the inputs
into three levels based on the extent to which inputs used in measuring fair
value are observable in the market. Each fair value measurement is reported in
one of the three levels which is determined by the lowest level input that is
significant to the fair value measurement in its entirety.
These levels are:
-
Level 1 inputs are based upon unadjusted quoted prices for identical
instruments traded in active markets.
-
Level 2 inputs are based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
-
Level 3 inputs are generally unobservable and typically reflect
managements estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined using
model-based techniques that include option pricing models, discounted cash
flow models, and similar techniques.
The following section describes
the valuation methodologies the Company uses to measure financial assets and
liabilities at fair value.
Asset
measured at fair value using significant unobservable inputs investment in
Cell C
The Company's Level 3 asset
represents an investment of 75,000,000 class A shares in Cell C, a leading
mobile telecoms provider in South Africa (refer to Note 9). The Company has
designated the investment in such shares to be carried at fair value, under the
fair value option. Cell C shares are not listed on an exchange and there is no
readily determinable market value for the shares. The Company has developed an
adjusted EV/EBITDA multiple valuation model in order to determine the fair value
of the Cell C shares. The primary inputs to the valuation model are Cell Cs
annualized adjusted EBITDA for the 11 months ended June 30, 2018, of ZAR 3.9
billion ($284.8 million, translated at exchange rates applicable as of June 30,
2018), an EBITDA multiple of 6.75, Cell Cs net external debt of ZAR 8.8 billion
($641.1 million, translated at exchange rates applicable as of June 30, 2018)
and a marketability discount of 10% as Cell C is not currently listed, but has a
publically stated intention to list.
F-31
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF FINANCIAL
INSTRUMENTS (continued)
Financial instruments
(continued)
Asset
measured at fair value using significant unobservable inputs investment in
Cell C (continued)
The EBITDA multiple was
determined based on an analysis of Cell Cs peer group, which comprises various
African and emerging market mobile telecommunications operators. The fair value
of Cell C utilizing the adjusted EV/EBITDA valuation model developed by the
Company is sensitive to the following inputs: (i) the Companys determination of
adjusted EBITDA (ii) the EBITDA multiple used and (iii) the marketability
discount used. Utilization of different inputs, or changes to these inputs, may
result in significantly higher or lower fair value measurement.
The following table presents the
impact of a 0.50 increase and 0.50 decrease to the EBITDA multiple used in the
Cell C valuation on the June 30, 2018, carrying value of the Companys Cell C
investment (all amounts translated at exchange rates applicable as of June 30,
2018):
|
Sensitivity for fair
value
|
|
of Cell C investment
|
EBITDA multiple of 6.25 times
|
$153,724
|
EBITDA multiple of 6.75 times
|
172,948
|
EBITDA multiple of 7.25 times
|
$192,172
|
The fair value of the Cell C
shares as of June 30, 2018, represented approximately 14% of the Companys total
assets, including these shares. The Company expects to hold these shares for an
extended period of time and it is not concerned with short-term equity price
volatility with respect to these shares provided that the underlying business,
economic and management characteristics of the company remain sound.
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. All of the
Companys derivative exposures are with counterparties that have long-term
credit ratings of BB+ (or equivalent) 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 Company had no
outstanding foreign exchange contracts as of June 30, 2018 and 2017,
respectively.
The following table presents the
Companys assets and liabilities measured at fair value on a recurring basis as
of June 30, 2018, according to the fair value hierarchy:
|
|
|
Quoted price in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
active markets
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
for identical
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
|
assets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Cell C
|
$
|
-
|
|
$
|
-
|
|
$
|
172,948
|
|
$
|
172,948
|
|
|
Related to insurance business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents (included in
other
long-term assets)
|
|
610
|
|
|
-
|
|
|
-
|
|
|
610
|
|
|
Fixed maturity
investments (included in
cash
and cash equivalents)
|
|
8,304
|
|
|
-
|
|
|
-
|
|
|
8,304
|
|
|
Other
|
|
-
|
|
|
18
|
|
|
-
|
|
|
18
|
|
|
Total assets at
fair value
|
$
|
8,914
|
|
$
|
18
|
|
$
|
172,948
|
|
$
|
181,880
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DNI contingent consideration
(Note 3)
|
$
|
-
|
|
$
|
-
|
|
$
|
27,222
|
|
$
|
27,222
|
|
|
Total liabilities at fair value
|
$
|
-
|
|
$
|
-
|
|
$
|
27,222
|
|
$
|
27,222
|
|
F-32
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
7. FAIR VALUE OF FINANCIAL
INSTRUMENTS (continued)
Financial instruments
(continued)
The following table presents the
Companys assets measured at fair value on a recurring basis as of June 30,
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents (included in
other
long-term assets)
|
$
|
627
|
|
$
|
-
|
|
$
|
-
|
|
$
|
627
|
|
|
Fixed maturity
investments (included in
cash
and cash equivalents)
|
|
5,160
|
|
|
-
|
|
|
-
|
|
|
5,160
|
|
|
Other
|
|
-
|
|
|
37
|
|
|
-
|
|
|
37
|
|
|
Total assets at
fair value
|
$
|
5,787
|
|
$
|
37
|
|
$
|
-
|
|
$
|
5,824
|
|
Changes in the Companys
investment in Finbond (Level 3 that are measured at fair value on a recurring
basis) were insignificant during the years ended June 30, 2016. There have been
no transfers into or out of Level 3 during the year ended June 30, 2018 and
2017. During the year ended June 30, 2016, the Company determined that it was
able to exert significant influence on Finbond and transferred the carrying
value as of April 1, 2016, to equity-accounted investments.
Summarized below is the movement
in the carrying value of assets measured at fair value on a recurring basis, and
categorized within Level 3, during the year ended June 30, 2018:
|
|
Carrying value
|
|
Assets
|
|
|
|
Acquisition of investment in
Cell C
|
$
|
151,003
|
|
Change in fair value of Cell C
|
|
32,473
|
|
Foreign currency
adjustment
|
|
(10,528
|
)
|
Balance as of June 30, 2018
|
$
|
172,948
|
|
Trade,
finance loans and other receivables
Trade, finance loans and other
receivables originated by the Company are stated at cost less allowance for
doubtful accounts receivable. The fair value of trade, finance loans and other
receivables approximates their carrying value due to their short-term nature.
Trade
and other payables
The fair values of trade and
other payables approximates their carrying amounts, due to their short-term
nature.
Assets
and liabilities measured at fair value on a nonrecurring basis
The Company measures its assets
at fair value on a nonrecurring basis when they are deemed to be
other-than-temporarily impaired. The Company has no liabilities that are
measured at fair value on a nonrecurring basis. The Company reviews the carrying
values of its assets when events and circumstances warrant and considers all
available evidence in evaluating when declines in fair value are
other-than-temporary. The fair values of the Companys assets are determined
using the best information available, and may include quoted market prices,
market comparables, and discounted cash flow projections. An impairment charge
is recorded when the cost of the asset 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.
F-33
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
8. PROPERTY, PLANT AND EQUIPMENT,
net
Summarized below is the cost,
accumulated depreciation and carrying amount of property, plant and equipment as
of June 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Cost:
|
|
|
|
|
|
|
Land
|
$
|
880
|
|
$
|
858
|
|
Building and
structures
|
|
483
|
|
|
471
|
|
Computer equipment
|
|
125,241
|
|
|
131,589
|
|
Furniture and
office equipment
|
|
9,438
|
|
|
8,769
|
|
Motor vehicles
|
|
20,197
|
|
|
17,936
|
|
|
|
156,239
|
|
|
159,623
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
Land
|
|
-
|
|
|
-
|
|
Building and structures
|
|
193
|
|
|
171
|
|
Computer
equipment
|
|
104,185
|
|
|
97,475
|
|
Furniture and office equipment
|
|
7,221
|
|
|
6,804
|
|
Motor vehicles
|
|
17,586
|
|
|
15,762
|
|
|
|
129,185
|
|
|
120,212
|
|
Carrying amount:
|
|
|
|
|
|
|
Land
|
|
880
|
|
|
858
|
|
Building and
structures
|
|
290
|
|
|
300
|
|
Computer equipment
|
|
21,056
|
|
|
34,114
|
|
Furniture and
office equipment
|
|
2,217
|
|
|
1,965
|
|
Motor vehicles
|
|
2,611
|
|
|
2,174
|
|
|
$
|
27,054
|
|
$
|
39,411
|
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS
Equity-accounted
investments
The Companys ownership
percentage in its equity-accounted investments as of June 30, 2018 and 2017, was
as follows:
|
2018
|
|
2017
|
Bank Frick
|
35%
|
|
-
|
Finbond
|
29%
|
|
26%
|
OneFi Limited (formerly KZ
One) (OneFi)
|
25%
|
|
25%
|
SmartSwitch Namibia (Pty) Ltd (SmartSwitch
Namibia)
|
50%
|
|
50%
|
Speckpack Field Services
(Pty) Ltd (Speckpack)
|
50%
|
|
-
|
Walletdoc Proprietary Limited (Walletdoc)
|
20%
|
|
20%
|
Bank
Frick
On October 2, 2017, the Company
acquired a 30% interest in Bank Frick, a fully licensed bank based in Balzers,
Liechtenstein, from the Kuno Frick Family Foundation (Frick Foundation) for
approximately CHF 39.8 million ($40.9 million) in cash. On February 9, 2018, the
Company purchased an additional 5% in Bank Frick from the Frick Foundation for
CHF 10.4 million ($11.1 million) and the Frick Foundation contributed
approximately CHF 3.8 million ($4.1 million) to Bank Frick to facilitate the
development of Bank Fricks Fintech and blockchain businesses. The Company has
an option, exercisable until October 2, 2019, to acquire an additional 35%
interest in Bank Frick.
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 card issuing and acquiring
and transaction processing activities as well as new opportunities in blockchain
and cryptocurrencies. The investment in Bank Frick has the potential to provide
the Company with a stable, long-term and strategic relationship with a
fully-licensed bank.
F-34
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS (continued)
Equity-accounted
investments (continued)
Finbond
As of June 30, 2018, the Company
owned 261,069,481 shares in Finbond representing approximately 28.5% of its
issued and outstanding ordinary shares. Finbond is listed on the Johannesburg
Stock Exchange and its closing price on June 29, 2018, the last trading day of
the month, was ZAR 3.80 per share. The market value of the Companys holding in
Finbond on June 29, 2018 was ZAR 992.1 million ($72.3 million translated at
exchange rates applicable as of June 30, 2018). On July 13, 2017, the Company
acquired an additional 3.6 million shares in Finbond for approximately ZAR 11.2
million ($0.8 million). On July 17, 2017, the Company, pursuant to its election,
received an additional 4,361,532 shares in Finbond as a capitalization share
issue in lieu of a dividend.
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 to
partially finance Finbonds expansion strategy in the United States. Interest on
the loan was payable quarterly in arrears and was based on the London Interbank
Offered Rate (LIBOR) in effect from time to time plus a margin of 12.00% . The
loan was included in accounts receivable, net, as of June 30, 2017, on the
Companys consolidated balance sheet.
The loan was initially set to
mature at the earlier of Finbond concluding a rights offer or February 28, 2017,
but the agreement was subsequently amended to extend the repayment date to on or
before February 28, 2018, or such later date as may be mutually agreed by the
parties in writing. The Company had the right to elect for the loan to be repaid
in either Finbond ordinary shares, including through a rights offering, (in
accordance with an agreed mechanism) or in cash. The Company was required to
make a repayment election within 180 days after the repayment date otherwise the
repayment election would automatically default to repayment in ordinary shares.
Finbond undertook to perform all necessary steps reasonably required to effect
the issuance of shares to settle the repayment of the loan if that option was
elected by the Company.
In March 2018, the parties
amended the agreement to extend the repayment date from February 28, 2018 to
August 31, 2018, and to finalize certain matters related to the rights offering
mechanism and determining the maximum number of shares that Finbond would issue
to parties participating in a rights offering. On March 23, 2018, Finbond
publicly announced that it had commenced a rights offering process and that the
proceeds of the offering would be used to settle certain loans, including the
loan due to the Company. The Company agreed to underwrite the Finbond rights
offer up to an amount of 55,585,514 shares. The rights offering closed on April
20, 2018, and Finbond issued 55,585,514 shares to the Company.
DNI
and Speckpack
The Companys investment in DNI
is described in Note 3. On July 27, 2017, the Company acquired a 45% voting and
economic interest in DNI and on March 9, 2018, it increased this interest to
49%. The Company obtained control of DNI on June 30, 2018, and ceased accounting
for DNI using the equity method from that date. DNI owns 50% of the issued and
outstanding ordinary shares in Speckpack and it has been accounted for
separately as an equity method investment from June 30, 2018.
The Company has recognized a
non-cash re-measurement loss of approximately $4.6 million related to the
re-measurement of its previously held interest in DNI, at 49%, upon acquisition
(refer to Note 3). The re-measurement loss is included in selling, general and
administration expenses in the consolidated statement of operations for the year
ended June 30, 2018.
OneFi
The Company provided a credit
facility of up to $10 million in the form of convertible debt to OneFi, of which
$2 million was drawn as of March 31, 2018 and June 30, 2017. In April 2018, an
additional $1.0 million was drawn under the credit facility which has now
expired and the Company has no further obligations in this regard.
F-35
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS (continued)
Equity-accounted
investments (continued)
Summarized below is the movement
in equity-accounted investments during the years ended June 30, 2018 and 2017,
which includes the investment in equity and the investment in loans provided to
equity-accounted investees:
|
|
|
|
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
DNI
(1)
|
|
|
Frick
|
|
|
Finbond
|
|
|
Other
(2)
|
|
|
Total
|
|
Investment in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2016
|
$
|
-
|
|
$
|
-
|
|
$
|
16,304
|
|
$
|
8,185
|
|
|
24,489
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
89
|
|
|
-
|
|
|
89
|
|
Comprehensive income (loss):
|
|
-
|
|
|
-
|
|
|
816
|
|
|
(849
|
)
|
|
(33
|
)
|
Other comprehensive loss
|
|
-
|
|
|
-
|
|
|
(1,687
|
)
|
|
(1,010
|
)
|
|
(2,697
|
)
|
Equity accounted earnings (loss)
|
|
-
|
|
|
-
|
|
|
2,503
|
|
|
161
|
|
|
2,664
|
|
Share
of net income
|
|
-
|
|
|
-
|
|
|
2,709
|
|
|
161
|
|
|
2,870
|
|
Dilution resulting
from corporate transactions
|
|
-
|
|
|
-
|
|
|
(206
|
)
|
|
-
|
|
|
(206
|
)
|
Dividends received
|
|
-
|
|
|
-
|
|
|
(477
|
)
|
|
(710
|
)
|
|
(1187
|
)
|
Foreign currency adjustment
(3)
|
|
-
|
|
|
-
|
|
|
2,229
|
|
|
116
|
|
|
2,345
|
|
Balance as of
June 30, 2017
|
|
-
|
|
|
-
|
|
|
18,961
|
|
|
6,742
|
|
|
25,703
|
|
Acquisition of shares
|
|
79,541
|
|
|
51,949
|
|
|
13,043
|
|
|
-
|
|
|
144,533
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
(139
|
)
|
|
-
|
|
|
(139
|
)
|
Comprehensive income (loss):
|
|
7,005
|
|
|
(606
|
)
|
|
2,901
|
|
|
4
|
|
|
9,304
|
|
Other comprehensive loss
|
|
-
|
|
|
-
|
|
|
(2,426
|
)
|
|
-
|
|
|
(2,426
|
)
|
Equity accounted earnings (loss)
|
|
7,005
|
|
|
(606
|
)
|
|
5,327
|
|
|
4
|
|
|
11,730
|
|
Share
of net income (loss)
|
|
9,510
|
|
|
201
|
|
|
5,583
|
|
|
4
|
|
|
15,298
|
|
Amortization -
acquired intangible assets
|
|
(3,480
|
)
|
|
(531
|
)
|
|
-
|
|
|
-
|
|
|
(4,011
|
)
|
Deferred taxes - acquired intangible assets
|
|
975
|
|
|
128
|
|
|
-
|
|
|
-
|
|
|
1,103
|
|
Dilution resulting
from corporate transactions
|
|
-
|
|
|
-
|
|
|
(256
|
)
|
|
-
|
|
|
(256
|
)
|
Other
|
|
-
|
|
|
(404
|
)
|
|
-
|
|
|
-
|
|
|
(404
|
)
|
Dividends received
|
|
(1,765
|
)
|
|
(1,946
|
)
|
|
(1,096
|
)
|
|
(400
|
)
|
|
(5,207
|
)
|
Carrying value at the acquisition date (Note 3)
|
|
(79,972
|
)
|
|
-
|
|
|
-
|
|
|
339
|
|
|
(79,633
|
)
|
Foreign currency adjustment
(3)
|
|
(4,809
|
)
|
|
(1,268
|
)
|
|
(2,712
|
)
|
|
(593
|
)
|
|
(9,382
|
)
|
Balance as of
June 30, 2018
|
$
|
-
|
|
$
|
48,129
|
|
$
|
30,958
|
|
$
|
6,092
|
|
$
|
85,179
|
|
Investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
July 1, 2016
|
$
|
-
|
|
$
|
-
|
|
$
|
1,015
|
|
$
|
141
|
|
$
|
1,156
|
|
Loans granted
|
|
|
|
|
|
|
|
10,044
|
|
|
2,000
|
|
|
12,044
|
|
Interest accrued
|
|
|
|
|
|
|
|
107
|
|
|
0
|
|
|
107
|
|
Foreign currency adjustment
(3)
|
|
-
|
|
|
-
|
|
|
754
|
|
|
18
|
|
|
772
|
|
Included in accounts receivable, net (Note 5)
|
|
-
|
|
|
-
|
|
|
(11,920
|
)
|
|
0
|
|
|
(11,920
|
)
|
Balance as of June 30, 2017
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,159
|
|
|
2,159
|
|
Loans granted
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,000
|
|
|
1,000
|
|
Transfer from accounts receivable, net
|
|
-
|
|
|
-
|
|
|
11,235
|
|
|
-
|
|
|
11,235
|
|
Transfer to investment in equity
|
|
-
|
|
|
-
|
|
|
(11,102
|
)
|
|
-
|
|
|
(11,102
|
)
|
Foreign currency adjustment
(3)
|
|
-
|
|
|
-
|
|
|
(133
|
)
|
|
(7
|
)
|
|
(140
|
)
|
Balance as of
June 30, 2018
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,152
|
|
$
|
3,152
|
|
|
|
|
Equity
|
|
|
|
Loans
|
|
|
|
Total
|
|
|
Carrying amount as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
$
|
25,703
|
|
|
$
|
2,159
|
|
|
$
|
27,862
|
|
|
June
30, 2018
|
$
|
85,179
|
|
|
$
|
3,152
|
|
|
$
|
88,331
|
|
(1) DNI was included as an equity-accounted investment from
August 1, 2017 until June 30, 2018, the date upon which the Company obtained
control and commenced consolidation of DNI; (2) Includes OneFi, SmartSwitch
Namibia, Speckpack and Walletdoc;
(3) The foreign currency adjustment represents
the effects of the fluctuations of the South African rand, Nigerian naira and
Namibian dollar, against the U.S. dollar on the carrying value.
F-36
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS (continued)
Summary financial
information of equity-accounted investments
Summarized below is the financial
information of equity-accounted investments (during the Companys reporting
periods in which investments were carried using the equity-method, unless
otherwise noted) as of the stated reporting period of the investee and
translated at the applicable closing or average foreign exchange rates (as
applicable):
|
|
Bank Frick
|
|
|
Finbond
|
|
|
Other
(1)
|
|
Balance sheet, as of
|
|
June 30
|
|
|
February 28
(2)
|
|
|
Various
(3)
|
|
Current
assets
(4)
|
|
|
|
|
|
|
|
|
|
2018
|
|
n/a
|
|
|
n/a
|
|
$
|
11,433
|
|
2017
|
|
n/a
|
|
|
n/a
|
|
|
9,196
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
|
2018
|
$
|
1,418,160
|
|
$
|
266,149
|
|
|
1,343
|
|
2017
|
|
n/a
|
|
|
229,875
|
|
|
813
|
|
Current
liabilities
(4)
|
|
|
|
|
|
|
|
|
|
2018
|
|
n/a
|
|
|
n/a
|
|
|
3,295
|
|
2017
|
|
n/a
|
|
|
n/a
|
|
|
443
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
2018
|
|
1,323,470
|
|
|
178,587
|
|
|
3,930
|
|
2017
|
|
n/a
|
|
|
152,827
|
|
|
2,872
|
|
Redeemable
stock
|
|
|
|
|
|
|
|
|
|
2018
|
|
-
|
|
|
-
|
|
|
-
|
|
2017
|
|
n/a
|
|
|
-
|
|
|
-
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
2018
|
|
-
|
|
|
13,896
|
|
|
-
|
|
2017
|
|
n/a
|
|
|
17,366
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations, for the period ended
|
|
June 30
(5)
|
|
|
February 28
(2)
|
|
|
Various
(6)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
2018
|
|
33,814
|
|
|
161,915
|
|
|
10,955
|
|
2017
|
|
n/a
|
|
|
97,431
|
|
|
7,168
|
|
2016
|
|
n/a
|
|
|
n/a
|
|
|
4,966
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
|
2018
|
|
776
|
|
|
35,225
|
|
|
826
|
|
2017
|
|
n/a
|
|
|
19,551
|
|
|
276
|
|
2016
|
|
n/a
|
|
|
n/a
|
|
|
(21
|
)
|
Income (loss)
from continuing operations
|
|
|
|
|
|
|
|
|
|
2018
|
|
617
|
|
|
19,167
|
|
|
152
|
|
2017
|
|
n/a
|
|
|
9,700
|
|
|
3
|
|
2016
|
|
n/a
|
|
|
n/a
|
|
|
(268
|
)
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
2018
|
$
|
617
|
|
|
19,167
|
|
|
152
|
|
2017
|
|
n/a
|
|
$
|
9,700
|
|
|
3
|
|
2016
|
|
n/a
|
|
|
n/a
|
|
$
|
(268
|
)
|
(1) Includes OneFi, SmartSwitch
Namibia, Speckpack and Walletdoc;
(2) Finbond is listed on the Johannesburg
Stock Exchange and the balances included were derived from its publically
available information;
(3) Balance sheet information for OneFi, SmartSwitch
Namibia and Speckpack is as of June 30, 2018, and Walletdoc as of February 28,
2018.
(4) Bank Frick and Finbond are banks and do not present current and
long-term assets and liabilities. All assets and liabilities of these two
entities are included under the long-term caption.
(5) Statement of
operations information for Bank Frick is for the period from October 1, 2017 to
June 30, 2018.
(6) Statement of operations information for OneFi and
SmartSwitch Namibia for the year ended June 30, 2018, and Walletdoc for the year
ended February 28, 2018
F-37
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS (continued)
Other long-term assets
Summarized below is the breakdown
of other long-term assets as of June 30, 2018 and 2017:
|
|
|
2018
|
|
|
|
2017
|
|
|
Total equity investments
|
$
|
199,865
|
|
|
$
|
26,317
|
|
|
Investment in 15% of Cell C, at
fair value (Note 7)
|
|
172,948
|
|
|
|
-
|
|
|
Investment in
12% of MobiKwik, at cost
(1)
|
|
26,917
|
|
|
|
26,317
|
|
|
Total held to maturity investments
|
|
10,395
|
|
|
|
-
|
|
|
Investment in
7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes
|
|
10,395
|
|
|
|
-
|
|
|
Long-term portion of payments to South Korean agents
amortized over the contract period
|
|
17,582
|
|
|
|
17,290
|
|
|
Long-term portion of other finance loans
receivable(Note 5)
|
|
12,283
|
|
|
|
-
|
|
|
Contingent purchase consideration (Note 3)
|
|
9,064
|
|
|
|
-
|
|
|
Policy holder assets under investment
contracts (Note 11)
|
|
610
|
|
|
|
627
|
|
|
Reinsurance assets under insurance contracts Note 11)
|
|
633
|
|
|
|
191
|
|
|
Other long-term assets
(1)
|
|
5,948
|
|
|
|
5,271
|
|
|
Total other long-term assets
|
$
|
256,380
|
|
|
$
|
49,696
|
|
(1) The investment in MobiKwik
and other investments in common stock included within other long-term assets are
carried at cost and are reviewed quarterly for indicators of
other-than-temporary impairment. It is not practicable for the Company to
reliably estimate the fair value of these investments.
Cell
C
On August 2, 2017, the Company,
through its subsidiary, Net1SA, purchased 75,000,000 class A shares of Cell C
for an aggregate purchase price of ZAR 2.0 billion ($151.0 million) in cash. The
Company funded the transaction through a combination of cash and the facilities
described in Note 14. Net1 SA has pledged, among other things, its entire equity
interest in Cell C as security for the South African facilities described in
Note 14 used to partially fund the acquisition of Cell C.
MobiKwik
The Company signed a subscription
agreement with MobiKwik, which is one of Indias largest independent mobile
payments networks, with over 60 million users and 2.5 million merchants.
Pursuant to the subscription agreement, the Company agreed to make an equity
investment of up to $40.0 million in MobiKwik over a 24 month period. The
Company made an initial $15.0 million investment in August 2016 and a further
$10.6 million investment in June 2017, under this subscription agreement. As of
June 30, 2017, the Company owned approximately 13.5% of MobiKwik. In August
2017, MobiKwik raised additional funding through the issuance of additional
shares to a new shareholder at a 50% premium to the value of the Companys
investments and the Companys percentage ownership was diluted to approximately
12.0%, which also represents the Companys ownership as of June 30, 2018. In
addition, through a technology agreement, the Companys Virtual Card technology
has been integrated into the MobiKwik wallet in order to provide ubiquity across
all merchants in India, and as part of the Companys continued strategic
relationship, the Company has a pipeline of three additional products to launch
with MobiKwik over the next year.
F-38
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
9. EQUITY-ACCOUNTED INVESTMENTS AND
OTHER LONG-TERM ASSETS (continued)
Other long-term assets
(continued)
Cedar
Cellular
In December 2017, the Company
purchased, for cash, $9.0 million of notes, with a face value of $20.5 million,
issued by Cedar Cellular Investment 1 (RF) (Pty) Ltd (Cedar Cellular), a Cell
C shareholder, representing 7.625% of the issuance. The investment in the notes
was made in connection with the Cell C investment discussed above. The notes are
listed on The International Stock Exchange. The Company has elected to treat the
investment in the notes as held to maturity securities. The investment in the
notes is reviewed on a quarterly basis for indicators of other-than-temporary
impairment. The notes bear interest semi-annually at 8.625% per annum on the
face value and interest is payable in cash or deferred, at Cedar Cellulars
election, for payment on the maturity date. The notes mature on August 2, 2022.
The notes are secured by all of Cedar Cellulars investment in Cell C
(59,000,000 class A shares) and the fair value of the Cell C shares pledged of
$9.9 million is less than the carrying value of the notes by $0.5 million as of
June 30, 2018. The Company does not believe that there is an other-than
temporary impairment related to the Cedar Cellular notes because the notes
mature in August 2022 and the Company expects that the carrying amount will be
recoverable on maturity.
Summarized below are the
components of the Companys held to maturity investments as of June 30, 2018:
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
holding
|
|
|
holding
|
|
|
Carrying
|
|
|
|
|
Cost basis
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in
Cedar Cellular notes
|
$
|
9,000
|
|
$
|
1,395
|
|
$
|
-
|
|
$
|
10,395
|
|
The Company had no held to
maturity investments as of June 30, 2017. The unrealized holding gains related
to the investment in Cedar Cellular notes is included in interest income in the
consolidated statement of operations for the year ended June 30, 2018.
Contractual maturities of
held to maturity investments
Summarized below are the
contractual maturities of the Companys held to maturity investment as of June
30, 2018:
|
|
|
|
|
Estimated
|
|
|
|
Cost basis
|
|
|
fair value
|
|
Due in one year or less
|
$
|
-
|
|
$
|
-
|
|
Due in one year through five years
|
|
9,000
|
|
|
9,916
|
|
Due in five years through ten
years
|
|
-
|
|
|
-
|
|
Due after ten years
|
|
-
|
|
|
-
|
|
Total
|
$
|
9,000
|
|
$
|
9,916
|
|
F-39
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
10. GOODWILL AND INTANGIBLE ASSETS, net
Goodwill
Summarized below is the movement
in the carrying value of goodwill for the years ended June 30, 2018, 2017 and
2016:
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
value
|
|
|
impairment
|
|
|
value
|
|
|
Balance as of July 1, 2015
|
$
|
166,437
|
|
$
|
-
|
|
$
|
166,437
|
|
|
Acquisition of Transact24 (Note 3)
|
|
6,024
|
|
|
-
|
|
|
6,024
|
|
|
Acquisition of Masterpayment
(Note 3)
|
|
17,084
|
|
|
-
|
|
|
17,084
|
|
|
Foreign currency adjustment
(1)
|
|
(10,067
|
)
|
|
-
|
|
|
(10,067
|
)
|
|
Balance as of June 30, 2016
|
|
179,478
|
|
|
-
|
|
|
179,478
|
|
|
Acquisition of Malta FS (Note 3)
|
|
2,475
|
|
|
-
|
|
|
2,475
|
|
|
Foreign currency
adjustment
(1)
|
|
6,880
|
|
|
-
|
|
|
6,880
|
|
|
Balance as of June 30, 2017
|
|
188,833
|
|
|
-
|
|
|
188,833
|
|
|
Acquisition of DNI (Note 3)
|
|
114,161
|
|
|
-
|
|
|
114,161
|
|
|
Impairment loss
|
|
-
|
|
|
(20,917
|
)
|
|
(20,917
|
)
|
|
Foreign currency
adjustment
(1)
|
|
1,019
|
|
|
144
|
|
|
1,163
|
|
|
Balance as of June 30, 2018
|
$
|
304,013
|
|
$
|
(20,773
|
)
|
$
|
283,240
|
|
(1) the foreign currency adjustment represents the effects of
the fluctuations between the South African rand, the Euro and the Korean won,
and the U.S. dollar on the carrying value.
Goodwill associated with the
acquisition of DNI, Transact24, Masterpayment and Malta FS represents the excess
of cost over the fair value of acquired net assets. The DNI, Transact24,
Masterpayment and Malta FS goodwill is not deductible for tax purposes. See Note
3 for the allocation of the purchase price to the fair value of acquired net
assets. DNI has been allocated to the Companys Financial inclusion and applied
technologies operating segment. Transact24, Masterpayment and Malta FS have all
been allocated to the Companys International transaction processing operating
segment.
Impairment
loss
The Company assesses the carrying
value of goodwill for impairment annually, or more frequently, whenever events
occur and circumstances change indicating potential impairment. The Company
performs its annual impairment test as at June 30 of each year. During the third
quarter of fiscal 2018, the Company recognized an impairment loss of
approximately $19.9 million related to goodwill allocated to the Masterpayment
business within its international transaction processing operating segment as a
result of changes to the operating model of Masterpayment. The Company also
impaired goodwill of approximately $1.1 million during its June 2018 annual
goodwill impairment assessment related to a business allocated to its South
African transaction processing operating segment, which ceased trading during
the year.
During the second quarter of
fiscal 2018, the Company re-evaluated the operating performance and ongoing
viability of Masterpayments working capital financing and supply chain
solutions offering and determined to exit this portion of its business. While
the Company initially believed that it could scale this offering in the medium
to long-term by focusing on customers and industries outside Masterpayments
initial target market, this standalone offering did not fit the Companys
strategy of providing payment solutions and working capital to small and
medium-sized merchants. In order to focus on the Companys stated international
strategy, the Company decided to wind-down the working capital finance book
issued to non-payment solutions customers. During the third quarter of fiscal
2018, the Company evaluated Masterpayments business strategy and following the
wind-down referred to above, it has determined that Masterpayment is unlikely to
deliver the financial results or cash flows previously anticipated. The Company
and two of Masterpayments senior managers have agreed, by mutual consent, that
with effect from the end of March 2018, the managers terminated their employment
with Masterpayment in order to dedicate themselves to new professional tasks.
F-40
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
10. GOODWILL AND INTANGIBLE ASSETS, net
(continued)
Goodwill (continued)
In order to determine the amount
of goodwill impairment, the estimated fair value of the Companys Masterpayment
business was allocated to the individual fair value of the assets and
liabilities of Masterpayment as if it had been acquired in a business
combination, which resulted in the implied fair value of the goodwill. The
Company used a discounted cash flow model in order to determine the fair value
of Masterpayment. The allocation of the fair value of Masterpayment required the
Company to make a number of assumptions and estimates about the fair value of
assets and liabilities where the fair values were not readily available or
observable.
A further deterioration in the
international transaction processing operating segment, or in any other of the
Companys businesses, may lead to additional impairments in future periods.
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 July 1, 2015
|
$
|
24,579
|
|
$
|
115,519
|
|
$
|
26,339
|
|
$
|
166,437
|
|
|
Acquisition of Transact24 (Note 3)
|
|
-
|
|
|
6,024
|
|
|
-
|
|
|
6,024
|
|
|
Acquisition of Masterpayment
(Note 3)
|
|
-
|
|
|
17,084
|
|
|
-
|
|
|
17,084
|
|
|
Foreign currency adjustment
(1)
|
|
(4,154
|
)
|
|
(2,442
|
)
|
|
(3,471
|
)
|
|
(10,067
|
)
|
|
Balance as of June 30, 2016
|
|
20,425
|
|
|
136,185
|
|
|
22,868
|
|
|
179,478
|
|
|
Acquisition of Malta FS (Note 3)
|
|
-
|
|
|
2,475
|
|
|
-
|
|
|
2,475
|
|
|
Foreign currency
adjustment
(1)
|
|
2,706
|
|
|
1,910
|
|
|
2,264
|
|
|
6,880
|
|
|
Balance as of June 30, 2017
|
|
23,131
|
|
|
140,570
|
|
|
25,132
|
|
|
188,833
|
|
|
Acquisition of DNI (Note 3)
|
|
-
|
|
|
-
|
|
|
114,161
|
|
|
114,161
|
|
|
Impairment loss
|
|
(1,052
|
)
|
|
(19,865
|
)
|
|
-
|
|
|
(20,917
|
)
|
|
Foreign currency
adjustment
(1)
|
|
(1,133
|
)
|
|
3,243
|
|
|
(947
|
)
|
|
1,163
|
|
|
Balance as of June 30, 2018
|
$
|
20,946
|
|
$
|
123,948
|
|
$
|
138,346
|
|
$
|
283,240
|
|
(1) the foreign currency adjustment 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.
F-41
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
10. GOODWILL AND INTANGIBLE ASSETS, net
(continued)
Intangible assets, net
Summarized below is the fair
value of intangible assets acquired, translated at the exchange rate applicable
as of the relevant acquisition dates, and the weighted-average amortization
period:
|
|
|
Weighted-
|
|
Fair value as
|
|
Average
|
|
of acquisition
|
|
Amortization
|
|
date
|
|
period (in years)
|
Finite-lived intangible asset:
|
|
|
|
|
|
|
|
Acquired
during the year ended June 30, 2018
|
|
|
|
DNI customer
relationships acquired
|
$97,255
|
|
5.00 15.00
|
DNI software and unpatented technology
|
2,609
|
|
5.00
|
DNI trademarks
|
4,139
|
|
5.00
|
|
|
|
|
Acquired during the year
ended June 30, 2017
|
|
|
|
Pros Software customer relationships
|
2,311
|
|
0.75
|
Malta FS
customer relationships
|
186
|
|
0.65
|
Malta FS software and unpatented technology
|
147
|
|
1.25
|
|
|
|
|
Acquired
during the year ended June 30, 2016
|
|
|
|
Transact24
customer relationships
|
3,749
|
|
5.00
|
Masterpayment customer relationships
|
6,595
|
|
5.00
|
Transact24
software and unpatented technology
|
1,225
|
|
3.00
|
Masterpayment software and unpatented technology
|
1,765
|
|
3.00
|
Masterpayment
trademarks
|
1,068
|
|
5.00
|
|
|
|
|
Indefinite-lived intangible asset:
|
|
|
|
Acquired during the year ended June 30, 2017
|
|
|
|
Malta FS
Financial institution license
|
$745
|
|
n/a
|
On acquisition, the Company
recognized deferred tax liabilities of approximately $29.1 million and $0.7
million related to the acquisition of intangible assets during the years ended
June 30, 2018 and 2017, respectively.
The Company assesses the carrying
value of intangible assets for impairment whenever events occur or circumstances
change indicating that the carrying amount of the intangible asset may not be
recoverable. No intangible assets have been impaired during the years ended June
30, 2018, 2017 and 2016, respectively.
F-42
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
10. GOODWILL AND INTANGIBLE ASSETS, net
(continued)
Intangible assets, net
(continued)
Summarized below is the carrying
value and accumulated amortization of intangible assets as of June 30, 2018 and
2017:
|
|
|
As
of June 30, 2018
|
|
|
As
of June 30, 2017
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (1)
|
$
|
197,676
|
|
$
|
(76,237
|
)
|
$
|
121,439
|
|
$
|
99,209
|
|
$
|
(65,595
|
)
|
$
|
33,614
|
|
|
Software and
unpatented technology (1)
|
|
35,730
|
|
|
(32,342
|
)
|
|
3,388
|
|
|
33,273
|
|
|
(31,112
|
)
|
|
2,161
|
|
|
FTS patent
|
|
2,792
|
|
|
(2,792
|
)
|
|
-
|
|
|
2,935
|
|
|
(2,935
|
)
|
|
-
|
|
|
Exclusive
licenses
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
4,506
|
|
|
(4,506
|
)
|
|
-
|
|
|
Trademarks (1)
|
|
11,101
|
|
|
(5,589
|
)
|
|
5,512
|
|
|
6,972
|
|
|
(4,759
|
)
|
|
2,213
|
|
|
Total
finite-lived intangible assets
|
|
251,805
|
|
|
(121,466
|
)
|
|
130,339
|
|
|
146,895
|
|
|
(108,907
|
)
|
|
37,988
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
institution license
|
|
793
|
|
|
-
|
|
|
793
|
|
|
776
|
|
|
-
|
|
|
776
|
|
|
Total
indefinite-lived intangible assets
|
|
793
|
|
|
-
|
|
|
793
|
|
|
776
|
|
|
-
|
|
|
776
|
|
|
Total intangible assets
|
$
|
252,598
|
|
$
|
(121,466
|
)
|
$
|
131,132
|
|
$
|
147,671
|
|
$
|
(108,907
|
)
|
$
|
38,764
|
|
(1) Includes the intangible
assets acquired as part of the DNI acquisition in June 2018, Pros Software
acquisition in October 2016 and Malta FS acquisition in November 2016.
Amortization expense charged for
the years to June 30, 2018, 2017 and 2016 was $11.8 million, $14.0 million, and
$11.2 million, respectively.
Future estimated annual
amortization expense for the next five fiscal years, assuming exchange rates
prevailing on June 30, 2018, 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.
2019
|
$
|
22,126
|
|
2020
|
|
21,123
|
|
2021
|
|
15,283
|
|
2022
|
|
10,928
|
|
2023
|
|
10,928
|
|
Thereafter
|
|
49,951
|
|
Total future
estimated amortization expense
|
$
|
130,339
|
|
F-43
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
11. REINSURANCE ASSETS AND POLICY HOLDER
LIABILITIES UNDER INSURANCE AND INVESTMENT CONTRACTS
Reinsurance assets and
policy holder liabilities under insurance contracts
Summarized below is the movement
in reinsurance assets and policy holder liabilities under insurance contracts
during the years ended June 30, 2018 and 2017:
|
|
Reinsurance
|
|
|
Insurance
|
|
|
|
assets
(1)
|
|
|
contracts
(2)
|
|
Balance as of July 1, 2016
|
$
|
171
|
|
$
|
(1,078
|
)
|
Increase in policy
holder benefits under insurance contracts
|
|
262
|
|
|
(4,481
|
)
|
Claims and policyholders benefits under insurance contracts
|
|
(265
|
)
|
|
4,091
|
|
Foreign currency
adjustment
(3)
|
|
23
|
|
|
(143
|
)
|
Balance as of June 30, 2017
|
|
191
|
|
|
(1,611
|
)
|
Increase in policy
holder benefits under insurance contracts
|
|
1,899
|
|
|
(9,714
|
)
|
Claims and policyholders benefits under insurance contracts
|
|
(1,449
|
)
|
|
9,214
|
|
Foreign currency
adjustment
(3)
|
|
(8
|
)
|
|
79
|
|
Balance as of June 30, 2018
|
$
|
633
|
|
$
|
(2,032
|
)
|
|
(1)
|
Included in other long-term assets (refer to Note
9);
|
|
(2)
|
Included in other long-term liabilities;
|
|
(3)
|
Represents the effects of the fluctuations of the ZAR
against the U.S. dollar.
|
The Company has agreements with
reinsurance companies in order to limit its losses from large insurance
contracts, however, if the reinsurer is unable to meet its obligations, the
Company retains the liability. The value of insurance contract liabilities is
based on the best estimate assumptions of future experience plus prescribed
margins, as required in the markets in which these products are offered, namely
South Africa. The process of deriving the best estimates assumptions plus
prescribed margins includes assumptions related to claim reporting delays (based
on average industry experience).
Summarized below is the movement
in assets and policy holder liabilities under investment contracts during the
years ended June 30, 2018 and 2017:
|
|
|
|
|
Investment
|
|
|
|
Assets
(1)
|
|
|
contracts
(2)
|
|
Balance as of July 1, 2016
|
$
|
528
|
|
$
|
(528
|
)
|
Increase in
policyholder benefits under insurance contracts
|
|
40
|
|
|
(40
|
)
|
Claims and policyholders benefits under insurance contracts
|
|
(11
|
)
|
|
11
|
|
Foreign currency
adjustment
(3)
|
|
70
|
|
|
(70
|
)
|
Balance as of June 30, 2017
|
|
627
|
|
|
(627
|
)
|
Increase in
policyholder benefits under insurance contracts
|
|
13
|
|
|
(13
|
)
|
Foreign currency adjustment
(3)
|
|
(30
|
)
|
|
30
|
|
Balance as of June 30, 2018
|
$
|
610
|
|
$
|
(610
|
)
|
|
(1)
|
Included in other long-term assets (refer to Note
9);
|
|
(2)
|
Included in other long-term liabilities;
|
|
(3)
|
Represents the effects of the fluctuations of the ZAR
against the U.S. dollar.
|
The Company does not offer any
investment products with guarantees related to capital or returns.
F-44
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
12. SHORT-TERM FACILITIES
Summarized below are the
Companys available short-term facilities and the amounts utilized as of June
30, 2018 and 2017, all amounts below were translated at the exchange rates
applicable as of the date presented:
|
|
|
June 30, 2018
|
|
|
|
June 30, 2017
|
|
|
|
|
Available
|
|
|
|
Utilized
|
|
|
|
Available
|
|
|
|
Utilized
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Frick
(1)
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Frick
(1)
|
|
-
|
|
|
|
-
|
|
|
|
66,579
|
|
|
|
16,579
|
|
|
South Africa:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nedbank Limited
|
|
29,200
|
|
|
|
7,871
|
|
|
|
30,600
|
|
|
|
10,000
|
|
|
Overdraft facility
(1)
|
|
18,200
|
|
|
|
-
|
|
|
|
19,109
|
|
|
|
-
|
|
|
Indirect and derivative facilities (Note 23)
|
$
|
11,000
|
|
|
$
|
7,871
|
|
|
$
|
11,491
|
|
|
$
|
10,000
|
|
|
(1)
|
Utilized amount included in short-term facilities on the
consolidated balance sheets.
|
United States
On January 29, 2018, the Company
obtained a $10.0 million overdraft facility from Bank Frick. The interest rate
on the facility is 4.50% plus 3-month US Dollar LIBOR and interest is payable
quarterly commencing on June 30, 2018. The 3-month US Dollar LIBOR rate was
2.31175% on June 29, 2018. The facility has no fixed term, however, it may be
terminated by either party with six weeks written notice. The facility is
secured by a pledge of the Companys investment in Bank Frick. As of June 30,
2018, the Company had repaid the amounts utilized during the year in full and
had $10.0 million available.
Europe
The Company had obtained EUR 40.0
million and CHF 20 million revolving overdraft facilities from Bank Frick during
the year ended June 30, 2017. The Company assigned all claims against amounts
due from Masterpayment customers, which have been financed from the CHF 20
million facility, plus all secondary rights and preferential rights as
collateral for this facility to Bank Frick. Masterpayment was required to open a
primary business account with Bank Frick and this account was pledged to Bank
Frick as collateral for the EUR 40 million facility. Net1 stood as guarantor for
both of these facilities. The facilities were settled in full in January 2018
and were terminated in February 2018. As of June 30, 2017, the Company had
utilized approximately CHF 15.9 million ($16.6 million, translated at exchange
rates applicable as of June 30, 2017) of the CHF 20 million facility and had not
utilized any of the EUR 40 million facility.
South Africa
The aggregate amount of the
Companys short-term South African credit facility with Nedbank Limited was ZAR
400 million ($29.2 million) and consists of (i) a primary amount of up to ZAR
200 million ($14.6 million, and (ii) a secondary amount of up to ZAR 200 million
($14.6 million). The primary amount comprises an overdraft facility of up to ZAR
50 million ($3.6 million) and indirect and derivative facilities of up to ZAR
150 million ($11.0 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 June 30, 2018. As of June 30,
2018, the interest rate on the overdraft facility was 8.85% . The Company has
ceded its investment in Cash Paymaster Services Proprietary Limited (CPS), a
South African subsidiary, 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 short-term facility. 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.
As of each of June 30, 2018 and
June 30, 2017, respectively, the Company had not utilized any of its overdraft
facility. As of June 30, 2018, the Company had utilized approximately ZAR 108.0
million ($7.9 million, translated at exchange rates applicable as of June 30,
2018) 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 23). As of June 30, 2017, the Company had utilized approximately
ZAR 130.5 million ($10.0 million, translated at exchange rates applicable as of
June 30, 2017) of its ZAR 150 million indirect and derivative facilities.
F-45
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
13. OTHER PAYABLES
Summarized below is the breakdown
of other payables as of June 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accruals
|
$
|
17,035
|
|
$
|
10,874
|
|
Provisions
|
|
10,026
|
|
|
8,073
|
|
Other
|
|
12,395
|
|
|
8,592
|
|
Value-added tax payable
|
|
6,146
|
|
|
5,397
|
|
Payroll-related payables
|
|
1,807
|
|
|
1,320
|
|
Participating merchants settlement obligation
|
|
585
|
|
|
543
|
|
|
$
|
47,994
|
|
$
|
34,799
|
|
14. LONG-TERM BORROWINGS
South Africa
July
2017 Facilities, as amended in March 2018
On July 21, 2017, Net1 SA entered
into a Common Terms Agreement, Senior Facility A Agreement, Senior Facility B
Agreement, Senior Facility C Agreement, Subordination Agreement, Security
Cession & Pledge and certain ancillary loan documents (collectively, the
Original Loan Documents) with FirstRand Bank Limited (acting through its Rand
Merchant Bank division) (RMB), a South African corporate and investment bank,
and Nedbank Limited (acting through its Corporate and Investment Banking
division), an African corporate and investment bank, and any other lenders that
may participate in such loans (collectively, the Lenders), pursuant to which,
among other things, Net1 SA may borrow up to an aggregate of ZAR 1.25 billion to
finance a portion of its investment in Cell C and to fund its on-going working
capital requirements. Net1 agreed to guarantee the obligations of Net1 SA to the
Lenders and subordinate any claims it may have against Net1 SA and certain of
its subsidiaries to the Lenders claims against such persons. On July 26, 2017,
Net1 SA entered into a letter agreement (the Letter and together with the
Original Loan Documents and March 2018 amendment described below, the Loan
Documents) with the Lenders to amend the Common Terms Agreement to, among other
things, permit the amounts borrowed under the Senior Facility B to fund the
acquisition of Cell C shares and adjust the terms of certain conditions
precedent. On March 8, 2018, the Company amended its South African long-term
facility to include an additional term loan, Facility D, of up to ZAR 210.0
million.
The Loan Documents provide for a
Facility A term loan of up to ZAR 750 million, a Facility B term loan of up to
ZAR 500 million, 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, and a Facility D term loan of up to ZAR 210 million. Net1 SA
paid non-refundable deal origination fees of approximately $0.6 million and $0.2
million in August 2017 and March 2018, respectively. Interest on the loans is
payable quarterly based on the Johannesburg Interbank Agreed Rate (JIBAR) in
effect from time to time plus a margin of 2.25% for the Facility A loan, 3.5%
for the Facility B loan , 2.25% for the Facility C loan and 2.75% for the
Facility D loan. The JIBAR rate has been set at 6.96% for the period to
September 29, 2018. Interest expense incurred during the year ended June 30,
2018, was $7.2 million. During the year ended June 30, 2018, $0.5 million of
prepaid facility fees were amortized.
On July 26, 2017, the Company
utilized ZAR 1.25 billion (approximately $92.2 million) of its South African
long-term facility to partially fund the acquisition of 15% of Cell C. On March
9, 2018, the Company utilized ZAR 84.0 million (approximately $7.1 million) of
its new ZAR 210 million South African long-term facility to partially fund the
acquisition of a further 4.0% in DNI and the balance of the facility to extend a
ZAR 126.0 million (approximately $10.6 million) loan to DNI (refer to Note 3).
Principal repayments of the
facilities are due in twelve quarterly installments commencing on September 29,
2017 and the Company has made scheduled repayments of ZAR 776.3 million ($60.5
million) during the year ended June 30, 2018. The next scheduled principal
repayment of ZAR 151.3 million ($11.0 million, translated at exchange rates
applicable as of June 30, 2018) is due on September 29, 2018.
F-46
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
14. LONG-TERM BORROWINGS (continued)
South Africa (continued)
July
2017 Facilities, as amended in March 2018 (continued)
The loans are secured by a pledge
by Net1 SA of, among other things, its entire equity interests in Cell C and
DNI. 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, without
the Lenders consent.
June
2018 Facilities
On June 28, 2018, DNI entered
into a Revolving Credit Facility Agreement (DNI Credit Facility Agreement)
with RMB and K2018318388 (South Africa) (RF) Proprietary Limited (Debt
Guarantor), a South African company incorporated for the sole purpose of
holding collateral for the benefit of RMB and acting as debt guarantor. DNI, RMB
and the Debt Guarantor concurrently entered into a Subordination Agreement;
Shareholder Guarantee, Cession and Pledge Agreement; Guarantee Cession and
Pledge Agreement (collectively with the DNI Credit Facility Agreement, the
Revolving Credit Agreement Documents), with various other parties, including
DNIs subsidiaries and DNIs shareholders (except Net1 SA), pursuant to which,
among other things, DNI has obtained a ZAR 200.0 million revolving credit
facility with a term of three years to June 2021 from RMB to finance the
acquisition and/ or requisition of telecommunication towers. The Company had not
utilized the revolving credit facility as of June 30, 2018.
Interest on the revolving credit
facility is payable quarterly based on JIBAR in effect from time to time plus a
margin of 2.75% . DNI paid a non-refundable deal origination fee of
approximately ZAR 2.3 million ($0.2 million) in July 2018. DNIs shareholders,
excluding Net1 SA, have agreed to pledge their entire equity interest in DNI to
RMB, guarantee the obligations of DNI to RMB and subordinate any claims they may
have against DNI and certain of its subsidiaries to RMBs claims against such
persons. DNI has agreed to ensure that Net1 SA will become bound by the terms
and conditions applicable to the other DNI shareholders party to the Shareholder
Guarantee, Cession and Pledge Agreement once the DNI shares pledged as security
for the July 2017 facilities are released. The revolving credit facility is also
secured by a pledge by DNI of, among other things, its entire equity interests
in its subsidiaries and it has also agreed to arrange for the registration of
notarial bonds over its movable property. The Loan Documents contain customary
covenants that require DNI to maintain specified net senior debt to EBITDA and
EBITDA to net senior interest ratios and restrict the ability of DNI, 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, without the approval of
RMB.
October
2016 Facilities
On October 4, 2016, 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 intended to 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. Net1 SA entered into
a facility agreement with RMB to fund ZAR 1.4 billion of the required ZAR 2
billion Blue Label transaction and paid a guarantee fee of approximately ZAR
16.0 million ($1.1 million) during the year ended June 30, 2017. In May 2017,
Blue Label and Net1 SA mutually agreed that Net1 SA would not subscribe for the
shares in Blue Label and the Blue Label Subscription Agreement was terminated.
Interest expense for the year ended June 30, 2017, includes the ZAR 16.0 million
guarantee fee expensed related to the October 2016 facilities obtained from
RMB.
F-47
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
14. LONG-TERM BORROWINGS (continued)
South Korea
The Companys wholly owned
subsidiary, Net1 Applied Technologies Korea (Net1 Korea), signed a five-year
senior secured facilities agreement (the Facilities Agreement) with a
consortium of South Korean banks in October 2013. On October 20, 2017, the
Company made an unscheduled repayment of $16.6 million and settled the full
outstanding balance, including interest, related to these borrowings and the
Company was released from its security obligations created under the Facilities
Agreement. The Company made a scheduled repayment of its Facility A loan of KRW
10 billion ($8.8 million), unscheduled voluntary principal repayments towards
its Facility A loan of KRW 22.1 billion ($19.6 million) and a prepayment towards
its Facility C revolving credit facility of KRW 10.0 billion ($8.9 million)
during the year ended June 30, 2017. The Company made a scheduled repayment of
its Facility A loan of KRW 10.0 billion ($8.7 million) during the year ended
June 30, 2016. The Company utilized approximately KRW 0.3 billion ($0.3
million), KRW 0.9 billion ($0.8 million) and KRW 2.5 billion ($2.1 million), of
its Facility C revolving credit facility to pay interest due during the year
ended June 30, 2018, 2017 and 2016, respectively.
Interest on the loans and
revolving credit facility was payable quarterly and was based on the South
Korean CD rate in effect from time to time plus a margin of 3.10% for the
Facility A loan and Facility C revolving credit facility. Total interest expense
related to the facilities during the years ended June 30, 2018, 2017 and 2016,
was $0.4 million, $1.2 million and $2.6 million, respectively. Prepaid facility
fees amortized during each of the years ended June 30, 2018, 2017 and 2016, was
approximately $0.1 million, respectively.
15. COMMON STOCK
Common stock
Holders of shares of Net1s
common stock are entitled to receive dividends and other distributions when
declared by Net1s board of directors out of legally available funds. Payment of
dividends and distributions is subject to certain restrictions under the Florida
Business Corporation Act, including the requirement that after making any
distribution Net1 must be able to meet its debts as they become due in the usual
course of its business.
Upon voluntary or involuntary
liquidation, dissolution or winding up of Net1, holders of common stock share
ratably in the assets remaining after payments to creditors and provision for
the preference of any preferred stock according to its terms. There are no
pre-emptive or other subscription rights, conversion rights or redemption or
scheduled installment payment provisions relating to shares of common stock. All
of the outstanding shares of common stock are fully paid and non-assessable.
Each holder of common stock is
entitled to one vote per share for the election of directors and for all other
matters to be voted on by shareholders. Holders of common stock may not cumulate
their votes in the election of directors, and are entitled to share equally and
ratably in the dividends that may be declared by the board of directors, but
only after payment of dividends required to be paid on outstanding shares of
preferred stock according to its terms. The shares of Net1 common stock are not
subject to redemption.
The Companys number of shares,
net of treasury, presented in the consolidated balance sheets and consolidated
statement of changes in equity includes participating non-vested equity shares
(specifically contingently returnable shares) as described below in Note 18
Amended and Restated Stock Incentive PlanRestricted StockGeneral Terms of
Awards.
F-48
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
15. COMMON STOCK (continued)
Common stock (continued)
The following table presents a
reconciliation between the number of shares, net of treasury, presented in the
consolidated statement of changes in equity and the number of shares, net of
treasury, excluding non-vested equity shares that have not vested during the
years ended June 30, 2018, 2017 and 2016:
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Number of shares, net of treasury:
|
|
|
|
|
|
|
|
|
|
|
Statement of
changes in equity common stock
|
|
56,685,925
|
|
|
56,369,737
|
|
|
55,271,954
|
|
|
Less: Non-vested
equity shares that have not vested as of
end
of year (Note 18)
|
|
765,411
|
|
|
505,473
|
|
|
589,447
|
|
|
Number of shares, net of treasury excluding
non-vested
equity shares that have not vested
|
|
55,920,514
|
|
|
55,864,264
|
|
|
54,682,507
|
|
Redeemable common stock
issued pursuant to transaction with the IFC Investors
Holders of redeemable common
stock have all the rights enjoyed by holders of common stock, however, holders
of redeemable common stock have additional contractual rights. On April 11,
2016, the Company entered into a Subscription Agreement (the Subscription
Agreement) with International Finance Corporation, IFC African, Latin American
and Caribbean Fund, LP, IFC Financial Institutions Growth Fund, LP, and Africa
Capitalization Fund, Ltd. (collectively, the IFC Investors). Under the
Subscription Agreement, the IFC Investors purchased, and the Company sold in the
aggregate, approximately 9.98 million shares of the Companys common stock, par
value $0.001 per share, at a price of $10.79 per share, for gross proceeds to
the Company of approximately $107.7 million. The Company has accounted for these
9.98 million shares as redeemable common stock as a result of the put option
discussed below.
The Company has entered into a
Policy Agreement with the IFC Investors (the Policy Agreement). The material
terms of the Policy Agreement are described below.
Board
Rights
For so long as the IFC Investors
in aggregate beneficially own shares representing at least 5% of the Companys
common stock, the IFC Investors will have the right to nominate one director to
the Companys board of directors. For so long as the IFC Investors in aggregate
beneficially own shares representing at least 2.5% of the Companys common
stock, the IFC Investors will have the right to appoint an observer to the
Companys board of directors at any time when they have not designated, or do
not have the right to designate, a director.
Put
Option
Each Investor will have the
right, upon the occurrence of specified triggering events, to require the
Company to repurchase all of the shares of its common stock purchased by the IFC
Investors pursuant to the Subscription Agreement (or upon exercise of their
preemptive rights discussed below). Events triggering this put right relate to
(1) the Company being the subject of a governmental complaint alleging, a court
judgment finding or an indictment alleging that the Company (a) engaged in
specified corrupt, fraudulent, coercive, collusive or obstructive practices; (b)
entered into transactions with targets of economic sanctions; or (c) failed to
operate its business in compliance with anti-money laundering and anti-terrorism
laws; or (2) the Company rejecting a bona fide offer to acquire all of its
outstanding Common Stock at a time when it has in place or implements a
shareholder rights plan, or adopting a shareholder rights plan triggered by a
beneficial ownership threshold of less than twenty percent. The put price per
share will be the higher of the price per share paid by the IFC Investors
pursuant to the Subscription Agreement (or paid when exercising their preemptive
rights) and the volume weighted average price per share prevailing for the 60
trading days preceding the triggering event, except that with respect to a put
right triggered by rejection of a bona fide offer, the put price per share will
be the highest price offered by the offeror. The Company believes that the put
option has no value and, accordingly, has not recognized the put option in its
consolidated financial statements.
F-49
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
15. COMMON STOCK (continued)
Redeemable common stock
issued pursuant to transaction with the IFC Investors (continued)
Registration
Rights
The Company has agreed to grant
certain registration rights to the IFC Investors for the resale of their shares
of the Companys common stock, including filing a resale shelf registration
statement and taking certain actions to facilitate resales thereunder.
Preemptive
Rights
For so long as the IFC Investors
hold in aggregate 5% of the outstanding shares of common stock of the Company,
each Investor will have the right to purchase its pro-rata share of new
issuances of securities by the Company, subject to certain exceptions.
Sale of common stock
during fiscal 2017
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.
Common stock repurchases
Executed
under share repurchase authorizations
On February 3, 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. The share repurchase authorization
will be used at managements discretion, subject to limitations imposed by SEC
Rule 10b-18 and other legal requirements and subject to price and other internal
limitations established by the Board. Repurchases will be funded from the
Companys available cash. Share repurchases may be made through open market
purchases, privately negotiated transactions, or both. There can be no assurance
that the Company will purchase any shares or any particular number of shares.
The authorization may be suspended, terminated or modified at any time for any
reason, including market conditions, the cost of repurchasing shares, liquidity
and other factors that management deems appropriate.
In June 2016, the Company adopted
a 10b-5 in connection with its $100 million authorization. The plan expired at
the end of August 2016. During the first quarter of the year ended June 30,
2017, the Company repurchased 3,137,609 shares under its share repurchase
authorization for approximately $31.6 million. During November and December
2015, the Company repurchased an aggregate of 749,213 shares of its common stock
for approximately $11.2 million under its share repurchase authorization that
was approved on August 21, 2013. During February and June 2016, the Company
repurchased an aggregate of 1,677,491 shares for approximately $15.9 million
under its replenished share repurchase authorization which resulted in a total
of 2,426,704 shares repurchased for approximately $27.1 million under its
various share repurchase authorizations during the year ended June 30, 2016.
Other
repurchases
The Company did not repurchase
any of its shares during the years ended June 30, 2018 and 2016, respectively,
outside of the authorization. On May 24, 2017, the Company and one of its
co-founders, the former chief executive officer and former member of its board
of directors, Mr. S.C.P. Belamant, entered into a Separation and Release of
Claims Agreement (the Separation Agreement). The Company repurchased 1,269,751
shares of its common stock from Mr. Belamant, at a price of $10.80 per share,
for an aggregate consideration of $13.7 million under the Separation Agreement.
F-50
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
15. COMMON STOCK (continued)
Acquisition of
non-controlling interests
During the year ended June 30,
2016, the Company acquired all of the issued share capital of Masterpayment and
Smart Life that it did not previously own for approximately $11.2 million and
$0.001 million, respectively, in cash. These transactions were accounted for as
an equity transaction with a non-controlling interest and accordingly, no gain
or loss was recognized in the Companys consolidated statement of operations.
The carrying amount of the respective non-controlling interest was adjusted to
reflect the change in ownership interest in each of Masterpayment and Smart
Life. The difference between the fair value of the consideration paid and the
amount by which the non-controlling interest was adjusted, of $1.3 million, was
recognized in total Net1 equity during the year ended June 30, 2016.
16. ACCUMULATED OTHER COMPREHENSIVE (LOSS)
INCOME
The table below presents the
change in accumulated other comprehensive (loss) income per component during
years ended June 30, 2018, 2017 and 2016:
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
|
income (loss)
|
|
|
|
|
|
|
Accumulated
|
|
|
on asset
|
|
|
|
|
|
|
Foreign
|
|
|
available for
|
|
|
|
|
|
|
currency
|
|
|
sale, net of
|
|
|
Total
|
|
|
|
translation
|
|
|
tax
|
|
|
(As
|
|
|
|
reserve
|
|
|
(As restated)
A
|
|
|
restated)
A
|
|
Balance as of July 1, 2015
|
$
|
(140,221
|
)
|
$
|
1,040
|
|
$
|
(139,181
|
)
|
Movement in foreign currency
translation reserve
|
|
(49,479
|
)
|
|
-
|
|
|
(49,479
|
)
|
Unrealized gain
on asset available for sale, net of tax of $159
|
|
-
|
|
|
692
|
|
|
692
|
|
Release of gain on
asset available for sale, net of taxes of $444
|
|
-
|
|
|
(1,732
|
)
|
|
(1,732
|
)
|
Balance as of June 30, 2016
|
|
(189,700
|
)
|
|
-
|
|
|
(189,700
|
)
|
Movement in foreign
currency translation reserve related to
equity
accounted investment
|
|
(2,697
|
)
|
|
-
|
|
|
(2,697
|
)
|
Movement in
foreign currency translation reserve
|
|
29,828
|
|
|
-
|
|
|
29,828
|
|
Balance as of June 30, 2017
|
|
(162,569
|
)
|
|
-
|
|
|
(162,569
|
)
|
Movement in foreign currency translation reserve related to
equity
accounted investment
|
|
(2,426
|
)
|
|
-
|
|
|
(2,426
|
)
|
Movement in foreign currency
translation reserve
|
|
(19,441
|
)
|
|
-
|
|
|
(19,441
|
)
|
Balance as of June 30, 2018
|
$
|
(184,436
|
)
|
$
|
0
|
|
$
|
(184,436
|
)
|
(A) Certain amounts have been
restated to correct the misstatements discussed in Note 1.
There were no reclassifications
from accumulated other comprehensive loss to comprehensive (loss) income during
the year ended June 30, 2018 and 2017, respectively. The Company released a gain
of approximately $2.2 million from its accumulated net unrealized income (loss)
on asset available for sale, net of tax, to selling, general and administration
expense and related taxes of $0.4 million to income tax expense on its
consolidated statement of operations during the year ended June 30, 2016, as a
result of the change in accounting for Finbond to the equity method (see also
Note 7). There were no other reclassifications from accumulated other
comprehensive loss to comprehensive (loss) income during the year ended June 30,
2016.
F-51
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
17. REVENUE
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Services rendered comprising mainly fees
and commissions
|
$
|
538,429
|
|
$
|
533,279
|
|
$
|
514,847
|
|
|
Loan-based fees received
|
|
54,949
|
|
|
53,894
|
|
|
47,117
|
|
|
Sale of goods comprising mainly hardware
and software sales
|
|
19,511
|
|
|
22,893
|
|
|
28,785
|
|
|
|
$
|
612,889
|
|
$
|
610,066
|
|
$
|
590,749
|
|
During the years ended June 30,
2018, 2017 and 2016, the Company did not recognize any revenue using the
percentage of completion method.
18. STOCK-BASED COMPENSATION
Amended and Restated
Stock Incentive Plan
The Companys Amended and
Restated 2015 Stock Incentive Plan (the Plan) was most recently amended and
restated on November 11, 2015, after approval by shareholders. No evergreen
provisions are included in the Plan. This means that the maximum number of
shares issuable under the Plan is fixed and cannot be increased without
shareholder approval, the plan expires by its terms upon a specified date, and
no new stock options are awarded automatically upon exercise of an outstanding
stock option. Shareholder approval is required for the repricing of awards or
the implementation of any award exchange program.
The Plan permits Net1 to grant to
its employees, directors and consultants incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, performance-based
awards and other awards based on its common stock. The Remuneration Committee of
the Companys Board of Directors (Remuneration Committee) administers the
Plan.
The total number of shares of
common stock issuable under the Plan is 11,052,580. The maximum number of shares
for which awards, other than performance-based awards, may be granted in any
combination during a calendar year to any participant is 569,120. The maximum
limits on performance-based awards that any participant may be granted during a
calendar year are 569,120 shares subject to stock option awards and $20 million
with respect to awards other than stock options. Shares that are subject to
awards which terminate or lapse without the payment of consideration may be
granted again under the Plan. Shares delivered to the Company as part or full
payment for the exercise of an option or to satisfy withholding obligations upon
the exercise of an option may be granted again under the Plan in the
Remuneration Committees discretion. No awards may be granted under the Plan
after August 19, 2025, but awards granted on or before such date may extend to
later dates.
Options
General
Terms of Awards
Option awards are generally
granted with an exercise price equal to the market price of the Company's stock
at the date of grant, with vesting conditioned upon the recipients continuous
service through the applicable vesting date and expire 10 years after the date
of grant. The options generally become exercisable in accordance with a vesting
schedule ratably over a period of three years from the date of grant. The
Company issues new shares to satisfy stock option award exercises but may also
use treasury shares.
F-52
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Amended and Restated
Stock Incentive Plan (continued)
Options
(continued)
Valuation
Assumptions
No stock options were awarded
during the years ended June 30, 2018, 2017 and 2016, respectively.
Restricted
Stock
General
Terms of Awards
Shares of restricted stock are
considered to be participating non-vested equity shares (specifically
contingently returnable shares) for the purposes of calculating earnings per
share (refer to Note 20) because, as discussed in more detail below, the
recipient is obligated to transfer any unvested restricted stock back to the
Company for no consideration and these shares of restricted stock are eligible
to receive non-forfeitable dividend equivalents at the same rate as common
stock. Restricted stock generally vests ratably over a three year period, with
vesting conditioned upon the recipients continuous service through the
applicable vesting date and under certain circumstances, the achievement of
certain performance targets, as described below.
Recipients are entitled to all
rights of a shareholder of the Company except as otherwise provided in the
restricted stock agreements. These rights include the right to vote and receive
dividends and/or other distributions. However, the restricted stock agreements
generally prohibit transfer of any nonvested and forfeitable restricted stock.
If a recipient ceases to be a member of the Board of Directors or an employee
for any reason, all shares of restricted stock that are not then vested and
nonforfeitable will be immediately forfeited and transferred to the Company for
no consideration. Forfeited shares of restricted stock are available for future
issuances by the Remuneration Committee.
The Company issues new shares to
satisfy restricted stock awards.
Valuation
Assumptions
The fair value of restricted
stock is based on the closing price of the Companys stock quoted on The Nasdaq
Global Select Market on the date of grant.
Vesting
of all non-employee director shares issued prior to June 30, 2017
Grants of restricted stock to
non-employee directors made during fiscal 2017, as well as those grants made in
prior years, originally vested over a three-year period. After the end of fiscal
2017, the Companys board consulted with Pay Governance, an independent
compensation consultant, and determined that one-year vesting of restricted
stock grants is a more common compensation practice for independent directors
and therefore, amended the terms of outstanding awards to vest one-year after
grant. As a result of this amendment, 56,250 shares of restricted stock held by
the non-employee directors as of June 30, 2017, were fully-vested during the
year ended June 30, 2018.
F-53
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Amended and Restated
Stock Incentive Plan (continued)
Restricted
Stock (continued)
Forfeiture
of restricted stock awarded in August and November 2014 that did not achieve
targeted market conditions
In August and November 2014,
respectively, the Remuneration Committee approved an award of 127,626 and 71,530
shares of restricted stock to employees. These shares of restricted stock were
scheduled to vest in full only on the date, if any, the following conditions
were satisfied: (1) the closing price of the Companys common stock equals or
exceeds $19.41 (subject to appropriate adjustment for any stock split or stock
dividend) for a period of 30 consecutive trading days during a measurement
period commencing on the date that the Company filed its Annual Report on Form
10-K for the fiscal year ended 2017 and ending on December 31, 2017 and (2) the
recipient was employed by the Company on a full-time basis when the condition in
(1) was met. The $19.41 price target represented a 20% increase, compounded
annually, in the price of the Companys common stock on Nasdaq over the $11.23
closing price on August 27, 2014. These shares of restricted stock were
forfeited during the year ended June 30, 2018, because the target market
conditions were not achieved. The stock-based compensation charge related to
these awards was not reversed upon forfeiture because these awards contained
market conditions.
The 127,626 and 71,530 shares of
restricted stock were effectively forward starting knock-in barrier options with
a strike price of zero. The fair value of these shares of restricted stock was
calculated utilizing an adjusted Monte Carlo simulation discounted cash flow
model which was developed for the purpose of the valuation of these shares. For
each simulated share price path, the market share price condition was evaluated
to determine whether or not the shares would vest under that simulation. The
adjustment to the Monte Carlo simulation model incorporates a jump diffusion
process to the standard Geometric Brownian Motion simulation, in order to
capture the discontinuous share price jumps observed in the Companys share
price movements on stock exchanges on which it is listed. Therefore, the
simulated share price paths capture the idiosyncrasies of the observed Company
share price movements.
In scenarios where the shares do
not vest, the final vested value at maturity is zero. In scenarios where vesting
occurs, the final vested value on maturity is the share price on vesting date.
The value of the grant is the average of the discounted vested values. The
Company used an expected volatility of 76.01%, an expected life of approximately
three years, a risk-free rate of 1.27% and no future dividends in its
calculation of the fair value of the 127,626 shares of restricted stock. The
Company used an expected volatility of 63.73%, an expected life of approximately
three years, a risk-free rate of 1.21% and no future dividends in its
calculation of the fair value of the 71,530 shares of restricted stock.
Estimated expected volatility was calculated based on the Companys 30 day VWAP
share price using the exponentially weighted moving average of returns.
Forfeiture
of restricted stock with Performance Conditions awarded in August 2015
In August 2015, the Remuneration
Committee approved an award of 301,537 shares of restricted stock to employees.
The shares of restricted stock awarded to employees in August 2015 were subject
to time-based and performance-based vesting conditions. In order for any of the
shares to have vested, the recipient had to remain employed by the Company on a
full-time basis on the date that it filed its Annual Report on Form 10-K for the
fiscal year ended June 30, 2018. If that condition was satisfied, then the
shares would vest based on the level of Fundamental EPS the Company achieved 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.
F-54
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Amended and Restated
Stock Incentive Plan (continued)
Restricted
Stock (continued)
Forfeiture
of restricted stock with Performance Conditions awarded in August 2015
(continued)
At levels of 2018 Fundamental EPS
greater than $2.88 and less than $3.76, the number of shares that would have
vested would be determined by linear interpolation relative to 2018 Fundamental
EPS of $3.30. 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.
Any shares that did not vest in
accordance with the above-described conditions would be forfeited. During the
year ended June 30, 2017, the Company reversed the stock-based compensation
charge recognized to date related to the 301,537 shares of restricted stock
because it believed that it was unlikely that the 2018 Fundamental EPS target
would be achieved due to the dilutive impact on the fundamental EPS calculation
as a result of the issuance of approximately 10 million shares to the IFC in May
2016. The Company has not achieved the 2018 Fundamental EPS target and the
173,262 remaining shares that had not been forfeited as a result of terminations
were forfeited during the year ended June 30, 2018.
Performance
Conditions - Restricted Stock Granted in August 2016
In August 2016, the Remuneration
Committee approved an award of 350,000 shares of restricted stock to executive
officers. 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.
Market
Conditions - Restricted Stock Granted in August 2017
In August 2017, the Remuneration
Committee approved an award of 210,000 shares of restricted stock to executive
officers. The shares of restricted stock awarded to executive officers in August
2017 are subject to time-based and performance-based (a market condition)
vesting conditions and vest in full only on the date, if any, that the following
conditions are satisfied: (1) the price of the Companys common stock must equal
or exceed certain agreed VWAP levels (as described below) during a measurement
period commencing on the date that it files its Annual Report on Form 10-K for
the fiscal year ended 2020 and ending on December 31, 2020 and (2) the recipient
is employed by the Company on a full-time basis when the condition in (1) is
met. If either of these conditions is not satisfied, then none of the shares of
restricted stock will vest and they will be forfeited. The $23.00 price target
represents an approximate 35% increase, compounded annually, in the price of the
Companys common stock on Nasdaq over the $9.38 closing price on August 23,
2017. The VWAP levels and vesting percentages related to such levels are as
follows:
-
Below $15.00 (threshold)0%
-
At or above $15.00 and below $19.0033%
-
At or above $19.00 and below $23.0066%
-
At or above $23.00100%
F-55
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Amended and Restated
Stock Incentive Plan (continued)
Restricted
Stock (continued)
Market
Conditions - Restricted Stock Granted in August 2017
These 210,000 shares of
restricted stock are effectively forward starting knock-in barrier options with
multi-strike prices of zero. The fair value of these shares of restricted stock
was calculated utilizing a Monte Carlo simulation model which was developed for
the purpose of the valuation of these shares. For each simulated share price
path, the market share price condition was evaluated to determine whether or not
the shares would vest under that simulation. A standard Geometric Brownian
motion process was used in the forecasting of the share price instead of a jump
diffusion model, as the share price volatility was more stable compared to the
highly volatile levels of previous years. Therefore, the simulated share price
paths capture the idiosyncrasies of the observed Company share price
movements.
In scenarios where the shares do
not vest, the final vested value at maturity is zero. In scenarios where vesting
occurs, the final vested value on maturity is the share price on vesting date.
The value of the grant is the average of the discounted vested values. The
Company used an expected volatility of 44.0%, an expected life of approximately
three years, a risk-free rate ranging between 1.275% to 1.657% and no future
dividends in its calculation of the fair value of the restricted stock. The
estimated expected volatility was calculated based on the Companys 30 day VWAP
share price using the exponentially weighted moving average of returns.
Stock
Appreciation Rights
The Remuneration Committee may
also grant stock appreciation rights, either singly or in tandem with underlying
stock options. Stock appreciation rights entitle the holder upon exercise to
receive an amount in any combination of cash or shares of common stock (as
determined by the Remuneration Committee) equal in value to the excess of the
fair market value of the shares covered by the right over the grant price. No
stock appreciation rights have been granted.
Stock option and
restricted stock activity
Options
The following table summarizes
stock option activity for the years ended June 30, 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Grant
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
Date Fair
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Value ($)
|
|
Outstanding July 1, 2015
|
|
2,401,169
|
|
|
15.34
|
|
|
4.74
|
|
|
11,516
|
|
|
|
|
Exercised
|
|
(323,645
|
)
|
|
11.62
|
|
|
|
|
|
2,669
|
|
|
|
|
Outstanding June 30, 2016
|
|
2,077,524
|
|
|
15.92
|
|
|
3.65
|
|
|
926
|
|
|
|
|
Exercised
|
|
(321,026
|
)
|
|
8.97
|
|
|
|
|
|
3,607
|
|
|
|
|
Expired unexercised
|
|
(474,443
|
)
|
|
22.51
|
|
|
|
|
|
-
|
|
|
|
|
Forfeitures
|
|
(435,448
|
)
|
|
17.88
|
|
|
|
|
|
-
|
|
|
|
|
Outstanding June 30, 2017
|
|
846,607
|
|
|
13.87
|
|
|
3.80
|
|
|
486
|
|
|
|
|
Forfeitures
|
|
(37,333
|
)
|
|
11.23
|
|
|
|
|
|
-
|
|
|
|
|
Outstanding June 30, 2018
|
|
809,274
|
|
|
13.99
|
|
|
2.67
|
|
|
370
|
|
|
|
|
These options have an exercise
price range of $7.35 to $24.46.
F-56
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Stock option and
restricted stock activity (continued)
Options
(continued)
The following table presents
stock options that are exercisable as of June 30, 2018:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Term
|
|
|
Value
|
|
|
|
|
shares
|
|
|
price ($)
|
|
|
(in years)
|
|
|
($000)
|
|
|
Exercisable June 30, 2018
|
|
809,274
|
|
|
13.99
|
|
|
2.67
|
|
|
370
|
|
During the years ended June 30,
2018, 2017 and 2016, approximately 105,982, 154,803 and 373,435 stock options
became exercisable, respectively. No stock options were exercised during the
year ended June 30, 2018. During the year ended June 30, 2017, the Company
received approximately $2.9 million from the exercise of 321,026 stock options.
During the year ended June 30, 2016, the Company received approximately $3.8
million from the exercise of 323,645 stock options. During the year ended June
30, 2018 and 2017, employees forfeited 37,333 and 435,448 stock options,
respectively, and during the year ended June 30, 2017, 474,443 stock options
awarded in August 2006, expired unexercised. There were no forfeitures during
the year ended June 30, 2016. In August 2018, 200,000 stock options granted in
August 2008, with a strike price of $24.46 per share, were forfeited. The
Company issues new shares to satisfy stock option exercises.
Restricted
stock
The following table summarizes
restricted stock activity for the years ended June 30, 2018, 2017 and 2016:
|
|
Number of
|
|
|
|
Weighted
|
|
|
|
Shares of
|
|
|
|
Average Grant
|
|
|
|
Restricted
|
|
|
|
Date Fair Value
|
|
|
|
Stock
|
|
|
|
($000)
|
|
Non-vested
July 1, 2015
|
|
341,529
|
|
|
|
1,759
|
|
Granted August 2015
|
|
319,492
|
|
|
|
6,406
|
|
Vested August 2015
|
|
(71,574
|
)
|
|
|
1,435
|
|
Non-vested June 30,
2016
|
|
589,447
|
|
|
|
7,622
|
|
Total granted
|
|
389,587
|
|
|
|
4,172
|
|
Granted August 2016
|
|
387,000
|
|
|
|
4,145
|
|
Granted May 2017
|
|
2,587
|
|
|
|
27
|
|
Total vested
|
|
(268,091
|
)
|
|
|
2,590
|
|
Vested August 2016
|
|
(68,091
|
)
|
|
|
694
|
|
Vested June 2017
|
|
(200,000
|
)
|
|
|
1,896
|
|
Forfeitures
|
|
(205,470
|
)
|
|
|
2,219
|
|
Non-vested June 30,
2017
|
|
505,473
|
|
|
|
11,173
|
|
Total granted
|
|
618,411
|
|
|
|
4,581
|
|
Granted August 2017
|
|
588,594
|
|
|
|
4,288
|
|
Granted March 2018
|
|
22,817
|
|
|
|
234
|
|
Granted May 2018
|
|
7,000
|
|
|
|
59
|
|
Vested August 2017
|
|
(56,250
|
)
|
|
|
527
|
|
Total forfeitures
|
|
(302,223
|
)
|
|
|
3,222
|
|
Forfeitures employee
terminations
|
|
(33,635
|
)
|
|
|
516
|
|
Forfeitures August and November 2014 awards
with market conditions
|
|
(95,326
|
)
|
|
|
1,133
|
|
Forfeitures August 2015
awards with performance conditions
|
|
(173,262
|
)
|
|
|
1,573
|
|
Non-vested June 30,
2018
|
|
765,411
|
|
|
|
6,162
|
|
F-57
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Stock option and
restricted stock activity (continued)
Restricted
stock (continued)
The August 2017 grants comprise
(i) 326,000 shares of restricted stock awarded to executive officers and
employees that are subject to time-based vesting, (ii) 210,000 shares of
restricted stock awarded to executive officers that are subject to market and
time-based vesting as described above, and (iii) 52,594 shares of restricted
stock awarded to non-employee directors. The March 2018 grant relates to an
award made to the Companys new Chief Financial Officer. The May 2018 grant
comprises 7,000 shares of restricted stock awarded to employees on the same
terms as the 326,000 awards made. The 326,000 and 7,000 shares of restricted
stock will only vest if the recipient is employed by the Company on a full-time
basis on August 23, 2020. The 52,594 shares of restricted stock awarded to
non-employee directors will only vest if the recipient is a director on August
23, 2018. The 22,817 shares of restricted stock vest in two tranches, 11,409
will vest on March 1, 2019, and 11,408 will vest on March 1, 2020, subject to
the Chief Financial Officers continued employment.
The August 2016 grants comprise
(i) 350,000 shares of restricted stock awarded to executive officers that are
subject to performance and time-based vesting as described above and (ii) 37,000
shares of restricted stock awarded to non-employee directors. The August 2015
grants comprise (i) 301,537 shares of restricted stock awarded to executive
officers and employees that are subject to performance and time-based vesting as
described above and (ii) 17,955 shares of restricted stock awarded to
non-employee directors.
The fair value of restricted
stock vested during the years ended June 30, 2018, 2017 and 2016, was $0.5
million, $2.6 million and $1.4 million, respectively. During the year ended June
30, 2018, the Company determined that 56,250 shares of restricted stock held by
the non-employee directors as of June 30, 2017, were fully-vested. During the
year ended June 30, 2017, the Company agreed to accelerate the vesting of
200,000 shares of restricted stock granted to the Companys former Chief
Executive Officer in August 2016 pursuant to the Separation Agreement signed in
May 2017. During the year ended June 30, 2018, employees forfeited (i) 3,000
shares of restricted stock upon termination which did not have performance or
market conditions attached and (ii) 30,635 shares of restricted stock upon
termination and shares of restricted stock with either market or performance
conditions. In addition, executive officers and employees forfeited 173,262
shares of restricted stock as the performance conditions were not achieved.
During the year ended June 30, 2017, employees and the former Chief Executive
Officer that resigned during the year ended June 30, 2017, forfeited 205,470
shares of restricted stock that had not vested.
Stock-based compensation
charge and unrecognized compensation cost
The Company has recorded a net
stock compensation charge of $2.6 million, $2.0 million and $3.6 million for the
years ended June 30, 2018, 2017 and 2016, respectively, which comprised:
|
|
|
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
|
cost of goods
|
|
|
|
|
|
|
|
|
|
|
sold, IT
|
|
|
Allocated to
|
|
|
|
|
Total
|
|
|
processing,
|
|
|
selling,
|
|
|
|
|
charge
|
|
|
servicing
|
|
|
general and
|
|
|
|
|
(reversal)
|
|
|
and support
|
|
|
administration
|
|
|
Year ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charge
|
$
|
2,656
|
|
$
|
-
|
|
$
|
2,656
|
|
|
Reversal of stock compensation charge related
to restricted stock
forfeited
|
|
(49
|
)
|
|
-
|
|
|
(49
|
)
|
|
Total year
ended June 30, 2018
|
$
|
2,607
|
|
$
|
-
|
|
$
|
2,607
|
|
|
Year ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charge
|
$
|
3,905
|
|
$
|
-
|
|
$
|
3,905
|
|
|
Reversal of stock compensation charge related
to stock options and
restricted stock forfeited
|
|
(1,923
|
)
|
|
-
|
|
|
(1,923
|
)
|
|
Total year
ended June 30, 2017
|
$
|
1,982
|
|
$
|
-
|
|
$
|
1,982
|
|
F-58
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
18. STOCK-BASED COMPENSATION (continued)
Stock-based compensation
charge and unrecognized compensation cost (continued)
|
|
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
cost of goods
|
|
|
|
|
|
|
|
|
|
sold, IT
|
|
|
Allocated to
|
|
|
|
Total
|
|
|
processing,
|
|
|
selling,
|
|
|
|
charge
|
|
|
servicing
|
|
|
general and
|
|
|
|
(reversal)
|
|
|
and support
|
|
|
administration
|
|
Year ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
3,598
|
|
$
|
-
|
|
$
|
3,598
|
|
Total year ended June 30, 2016
|
$
|
3,598
|
|
$
|
-
|
|
$
|
3,598
|
|
The stock compensation charge and
reversals have been allocated to cost of goods sold, IT processing, servicing
and support and selling, general and administration based on the allocation of
the cash compensation paid to the relevant employees.
As of June 30, 2018, there was no
unrecognized compensation cost related to stock options because all stock
options granted have vested. As of June 30, 2018, 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.
Tax consequences
The Company has recorded a
deferred tax asset of approximately $0.8 million and $0.9 million, respectively,
for the years ended June 30, 2018 and 2017. As of June 30, 2018, the Company has
a valuation allowance of approximately $0.8 million related to the deferred tax
asset because it does not believe that the stock-based compensation deduction
would be utilized as it does not anticipate generating sufficient taxable income
in the United States. The Company deducts the difference between the market
value on date of exercise by the option recipient and the exercise price from
income subject to taxation in the United States.
19. INCOME TAXES
Impact of Tax Cuts and
Jobs Act
On December 22, 2017, the Tax
Cuts and Jobs Act (the TCJA), was enacted into law, significantly modifying
U.S. federal tax laws. The TCJA reduces the federal statutory tax rate for
corporations from 35% to 21% effective from January 1, 2018, eliminates
alternative minimum tax for corporations, limits net operating loss
carryforwards (and eliminates carrybacks), repeals indirect foreign tax credits
carry-forward rules, limits the deductibility of interest expense and
transitions the system of U.S. international taxation of corporations from a
worldwide tax system to a territorial tax system.
The transition to a territorial
tax system is not expected to have a significant impact on the Companys future
consolidated effective tax rate as it generates the majority of its taxable
income in tax jurisdictions with tax rates that are higher than the new federal
statutory tax rate of 21% (mainly South Africa, where its income is taxed at
28%, and Korea, where our income is taxed at 22%).
The Company has a June year end
and has used a blended rate of 28.10% for its tax year ending June 30, 2018, in
the U.S. Certain of the Companys deferred tax assets and liabilities which it
expects will be utilized/ reversed during the period ended June 30, 2018, have
been re-measured at this blended rate and those deferred taxes that the Company
believes will only be utilized/ reversed in subsequent tax years, have been
re-measured at 21%. The net impact of the change in the tax rate on the
Companys deferred taxes included in income tax expense during the year ended
June 30, 2018, was $0.3 million. The Company has also provided an additional
valuation allowance of approximately $0.6 million related to net operating loss
carryforwards that it does not believe will be utilized as a result of the
enactment of the TCJA.
F-59
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Impact of Tax Cuts and
Jobs Act (continued)
Deemed
repatriation of foreign earnings liability
The TCJA also requires a U.S.
shareholder of a specified foreign corporation to include a deemed repatriation
of foreign earnings (Transition Tax) as part of the transition to a
territorial tax system. However, the Company does not currently believe that it
has a net Transition Tax liability because it will generate sufficient foreign
tax credits to offset any potential repatriation transition tax liability. The
Transition Tax is a tax on previously untaxed accumulated and current earnings
and profits (E&P) of certain of the Companys foreign subsidiaries. In
order to determine the amount of any Transition Tax liability, the Company is
required to determine, in addition to other factors, the amount of post-1986
E&P of the relevant subsidiaries, as well as the amount of non-U.S. income
taxes paid on such earnings. The Company has made a reasonable estimate of its
Transition Tax liability as of June 30, 2018, and recorded a provisional
Transition Tax, before the application of any foreign tax credits, of $55.8
million, and has no liability after the application of generated foreign tax
credits. In fact, the Company believes that it may generate excess foreign tax
credits based on its preliminary calculations. The Company continues to gather
additional information to more precisely compute the final amount of the
Transition Tax to be included in its income tax return filings with the U.S. tax
authorities.
Global
intangible low taxed income
The TCJA creates a new
requirement that certain income earned by controlled foreign corporations
(CFCs) must be included currently in the gross income of the CFCs U.S.
shareholder. Global intangible low taxed income (GILTI) is the excess of the
shareholders net CFC tested income over the net deemed tangible income
return, which is currently defined as the excess of (1) 10 percent of the
aggregate of the U.S. shareholders pro rata share of the qualified business
asset investment of each CFC with respect to which it is a U.S. shareholder over
(2) the amount of certain interest expense taken into account in the
determination of net CFC-tested income. As a result of the complexity of the new
GILTI tax rules, the Company continues to evaluate this provision of the Tax Act
and the application of the relevant GAAP guidance. It is the Companys current
interpretation of the U.S. tax legislation that GILTI is only applicable for the
tax year commencing July 1, 2018 (i.e. its June 2019 tax year).
Under GAAP, the Company has the
option to make an accounting policy election of either (i) treating taxes due on
future U.S. inclusions in taxable income related to GILTI as a current-period
expense when incurred (the period cost method) or (ii) factoring such amounts
into a companys measurement of its deferred taxes (the deferred method).
The Company is not yet able to
reasonably estimate the effect of this provision of the TCJA on it because
whether it expects to have future U.S. inclusions in taxable income related to
GILTI depends on a number of different aspects of the Companys estimated future
results of global operations. Therefore, the Company has not made any
adjustments related to potential GILTI tax in its financial statements.
Income tax provision
The table below presents the
components of income before income taxes for the years ended June 30, 2018, 2017
and 2016:
|
|
2018
|
|
|
|
|
|
|
|
|
|
(As
|
|
|
2017
|
|
|
2016
|
|
|
|
restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa
|
$
|
131,366
|
|
$
|
129,786
|
|
$
|
119,097
|
|
United States
|
|
(15,329
|
)
|
|
(20,902
|
)
|
|
(5,915
|
)
|
Other
|
|
(15,671
|
)
|
|
5,572
|
|
|
13,055
|
|
Income before income taxes
|
$
|
100,366
|
|
$
|
114,456
|
|
$
|
126,237
|
|
F-60
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Income tax provision
(continued)
Presented below is the provision
for income taxes by location of the taxing jurisdiction for the years ended June
30, 2018, 2017 and 2016:
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(As
|
|
|
|
|
|
|
|
|
|
|
|
|
restated)
|
|
|
|
2017
|
|
|
|
2016
|
|
|
Current income tax
|
$
|
95,529
|
|
|
$
|
45,857
|
|
|
$
|
88,807
|
|
|
South Africa
|
|
35,745
|
|
|
|
35,986
|
|
|
|
31,815
|
|
|
United States
|
|
55,788
|
|
|
|
4,686
|
|
|
|
50,750
|
|
|
Other
|
|
3,996
|
|
|
|
5,185
|
|
|
|
6,242
|
|
|
Deferred taxation (benefit)
charge
|
|
8,567
|
|
|
|
(40
|
)
|
|
|
(161
|
)
|
|
South Africa
|
|
9,802
|
|
|
|
(473
|
)
|
|
|
3,044
|
|
|
United States
|
|
477
|
|
|
|
1,123
|
|
|
|
(274
|
)
|
|
Other
|
|
(1,712
|
)
|
|
|
(690
|
)
|
|
|
(2,931
|
)
|
|
Foreign tax credits generated
United States
|
|
(55,778
|
)
|
|
|
(3,345
|
)
|
|
|
(46,566
|
)
|
|
Change in tax rate United States
|
|
309
|
|
|
|
-
|
|
|
|
-
|
|
|
Income tax
provision
|
$
|
48,627
|
|
|
$
|
42,472
|
|
|
$
|
42,080
|
|
There were no changes to the
enacted tax rate in the years ended June 30, 2018, 2017 and 2016. However,
during the year ended June 30, 2018, there were changes to the U.S. tax code
which, among other things, changed the Federal tax rate. The Company has a June
year end and therefore it has used a blended rate of 28.10% for its tax year
ended June 30, 2018, for U.S. Federal tax purposes. The Companys U.S. deferred
tax assets and liabilities which are expected to be utilized or reversed in
subsequent tax years have been re-measured at a rate of 21% as of June 30, 2018.
The provisional Transition Tax of
$55.8 million is included within current income tax, United States. Foreign tax
credits of $65.3 million were generated and included in the computation of
Transition Tax of which $55.8 million were utilized against the Transition Tax.
The foreign tax credits utilized are included in Foreign tax credits generated
United States for the year ended June 30, 2018. In addition, indirect foreign
tax credits of $32.6 million carried forward from prior years have been written
off as a result of the TCJA rules that repeal indirect foreign tax credits
carry-forward. A valuation allowance of $32.6 million had been created in prior
years related to these indirect foreign tax credits. Foreign tax credits
generated United States for the year ended June 30, 2018, includes the write
off of the indirect foreign tax credits of $32.6 million and the reversal of the
valuation allowance related to these foreign tax credits.
The movement in the valuation
allowance for the year ended June 30, 2018, is primarily attributable to the
creation of the valuation allowance related to excess tax credits recognized
from the preliminary Transition Tax calculation and the creation of a valuation
allowance related to net operating losses generated during the year ended June
30, 2018, that the Company does not believe it will be able to utilize in the
foreseeable future. The movement in the valuation allowance for the year ended
June 30, 2017, is primarily attributable to a decrease resulting from the
utilization of foreign tax credits and an increase related to a valuation
allowance created for net operating loss carryforwards for the Companys German
subsidiaries. The movement in the valuation allowance for the year ended June
30, 2016, relates primarily to an increase in the valuation allowance resulting
from the generation of unused foreign tax credits during the year.
As discussed above, the Company
has generated excess foreign tax credits related to the Transition Tax and any
distribution received from Net1s subsidiaries will first be applied against the
deemed distributions recognized as a result of the Transition Tax as so called
previously taxed income, or PTI,. Therefore distributions actually made during
the year ended June 30, 2018, were treated as PTI and did not generate any
additional foreign tax credits because the quantum of the actual distributions
were lower than the deemed distributions calculated as a result of the
Transition Tax. Net1 included actual and deemed dividends received from one of
its South African subsidiaries in its years ended June 30, 2017 and 2016,
taxation computation. Net1 applied net operating losses against this income
during the year ended June 30, 2017 and did not generate any indirect foreign
tax credits. However, Net1 generated foreign tax credits as a result of the
inclusion of the dividends in its taxable income in 2016. Net1 has applied
certain of these foreign tax credits against its current income tax provision
for the years ended June 30, 2017 and 2016.
F-61
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Income tax provision
(continued)
A reconciliation of income taxes,
calculated at the fully-distributed South African income tax rate to the
Companys effective tax rate, for the years ended June 30, 2018, 2017 and 2016,
is as follows:
|
|
2018
|
|
|
|
|
|
|
|
|
|
(As
|
|
|
2017
|
|
|
2016
|
|
|
|
restated)
|
|
|
|
|
|
|
|
Income tax rate reconciliation:
|
|
|
|
|
|
|
|
|
|
Income taxes at fully-distributed South
African tax rates
|
|
28.00%
|
|
|
28.00%
|
|
|
28.00%
|
|
Non-deductible items
|
|
15.11%
|
|
|
1.01%
|
|
|
0.38%
|
|
Capital gains differential
|
|
(1.81%
|
)
|
|
-
|
|
|
-
|
|
Foreign tax rate differential
|
|
(0.65%
|
)
|
|
0.00%
|
|
|
7.42%
|
|
Transition Tax
|
|
55.38%
|
|
|
-%
|
|
|
-%
|
|
Foreign tax credits
|
|
(55.58%
|
)
|
|
(0.05%
|
)
|
|
(36.88%
|
)
|
Taxation on deemed dividends
in the United States
|
|
1.92%
|
|
|
8.00%
|
|
|
34.60%
|
|
Movement in valuation allowance
|
|
5.99%
|
|
|
0.07%
|
|
|
(0.09%
|
)
|
Change in tax laws United
States
|
|
0.11%
|
|
|
-%
|
|
|
-%
|
|
Prior year adjustments
|
|
(0.02%
|
)
|
|
0.07%
|
|
|
(0.09%
|
)
|
Income tax
provision
|
|
48.45%
|
|
|
37.10%
|
|
|
33.34%
|
|
Non-deductible items for the year
ended June 30, 2018, includes the impairment loss recognized related to goodwill
impaired. The impact on foreign tax during the year ended June 30, 2018, was
primarily due to the impact of the Transition Tax.
Net1 received dividends from one
of its South African subsidiaries during the year ended June 30, 2017, which
resulted in an increase in taxation on dividends received. No significant
foreign tax credits were generated during the year ended June 30, 2017, and the
Company utilized foreign tax credits generated in prior years. The utilization
of these foreign tax credits used in prior years is included in the movement in
the valuation allowance. The non-deductible items during the year ended June 30,
2017, includes transaction related expenses, including legal and consulting fees
incurred that are not deductible for tax purposes.
Net1 received substantial
dividends from one of its South African subsidiaries during the year ended June
30, 2016, which resulted in an increase in the amount of foreign tax credits
generated and an increase in taxation on dividends received. A portion of these
foreign tax credits generated were not used during the year and a valuation
allowance has been created for unused foreign tax credits. The foreign tax rate
differential represents the difference between statutory tax rates in South
Africa and foreign jurisdictions, primarily the United States.
F-62
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Deferred tax assets and
liabilities
Deferred income taxes reflect the
temporary differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The primary components of the temporary
differences that gave rise to the Companys deferred tax assets and liabilities
as of June 30, and their classification, were as follows:
|
|
2018
|
|
|
2017
|
|
Total deferred tax assets
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
$
|
11,339
|
|
$
|
4,946
|
|
Provisions and accruals
|
|
6,384
|
|
|
4,413
|
|
FTS patent
|
|
367
|
|
|
475
|
|
Intangible assets
|
|
687
|
|
|
829
|
|
Foreign tax credits
|
|
32,644
|
|
|
32,574
|
|
Other
|
|
7,779
|
|
|
5,717
|
|
Total
deferred tax assets before valuation allowance
|
|
59,200
|
|
|
48,954
|
|
Valuation
allowances
|
|
(48,691
|
)
|
|
(38,967
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
10,509
|
|
|
9,987
|
|
Total deferred tax liabilities:
|
|
|
|
|
|
|
Intangible assets
|
|
35,541
|
|
|
9,141
|
|
Investments
|
|
6,772
|
|
|
-
|
|
Other
|
|
8,490
|
|
|
6,655
|
|
Total deferred tax
liabilities
|
|
50,803
|
|
|
15,796
|
|
Reported as
|
|
|
|
|
|
|
Current deferred tax assets
|
|
-
|
|
|
5,330
|
|
Long-term deferred tax assets
|
|
6,312
|
|
|
-
|
|
Long-term deferred tax liabilities
|
|
46,606
|
|
|
11,139
|
|
Net deferred
income tax liabilities
|
$
|
40,294
|
|
$
|
5,809
|
|
Increase in total net
deferred income tax liabilities
Net
operating loss carryforwards
Net
operating loss carryforwards have increased primarily as a result of the losses
incurred by CPS, Net1 and the Companys German subsidiaries.
Intangible
assets
Deferred
tax liabilities intangible assets have increased during the year ended June
30, 2018, as a result of the acquisition of DNI, and partially offset by
amortization of KSNET, Masterpayment and Transact24 intangible assets.
Investments
Deferred
tax liabilities investments have increased during the year ended June 30,
2018, as a result of the fair value adjustments made to the investment in Cell
C.
F-63
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Deferred tax assets and
liabilities (continued)
Increase
in valuation allowance
At June 30, 2018, the Company had
deferred tax assets of $10.5 million (2017: $10.0 million), net of the valuation
allowance. Management believes, based on the weight of available positive and
negative evidence it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the valuation allowance.
However, the amount of the deferred tax asset considered realizable could be
adjusted in the future if estimates of taxable income are revised.
At June 30, 2018, the Company had
a valuation allowance of $48.7 million (2017: $39.0 million) to reduce its
deferred tax assets to estimated realizable value. The movement in the valuation
allowance for the years ended June 30, 2018 and 2017, is presented below:
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
operating
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
|
|
|
loss carry-
|
|
|
FTS
|
|
|
|
|
|
|
Total
|
|
|
credits
|
|
|
forwards
|
|
|
patent
|
|
|
Other
|
|
July 1, 2016
|
$
|
38,834
|
|
$
|
36,748
|
|
$
|
931
|
|
$
|
158
|
|
$
|
997
|
|
Reversed to statement of operations
|
|
(4,302
|
)
|
|
(4,174
|
)
|
|
(128
|
)
|
|
-
|
|
|
-
|
|
Charged to statement of
operations
|
|
4,684
|
|
|
-
|
|
|
3,107
|
|
|
-
|
|
|
1,577
|
|
Foreign currency adjustment
|
|
(249
|
)
|
|
-
|
|
|
(211
|
)
|
|
(38
|
)
|
|
-
|
|
June 30, 2017
|
|
38,967
|
|
|
32,574
|
|
|
3,699
|
|
|
120
|
|
|
2,574
|
|
Charged to statement of operations
|
|
9,582
|
|
|
10
|
|
|
971
|
|
|
-
|
|
|
8,601
|
|
Utilized
|
|
60
|
|
|
60
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Change in tax laws
|
|
(894
|
)
|
|
-
|
|
|
(263
|
)
|
|
-
|
|
|
(631
|
)
|
Foreign currency adjustment
|
|
976
|
|
|
-
|
|
|
1,038
|
|
|
(63
|
)
|
|
1
|
|
June 30, 2018
|
$
|
48,691
|
|
$
|
32,644
|
|
$
|
5,445
|
|
$
|
57
|
|
$
|
10,545
|
|
Net
operating loss carryforwards and foreign tax credits
United
States
The TCJA amends the rules
regarding net operating loss carryforwards for Federal income tax purposes
effective from July 1, 2018. The new rules prohibit net operating loss
carrybacks, allow indefinite net operating loss carryforwards and limit the
amount of the net operating loss carryforwards generated after July 1, 2018,
that may be used against future taxable income, to 80% of taxable income before
the net operating loss deduction. These new rules did not impact the Companys
net operating loss carryforwards generated during the year ended June 30, 2018
and in prior periods.
As of June 30, 2018, Net1 had net
operating loss carryforwards that will expire, if unused, as follows:
Year of expiration
|
|
U.S. net operating
|
|
|
|
loss carry
|
|
|
|
forwards
|
|
2024
|
$
|
1,874
|
|
2028
|
$
|
4,423
|
|
F-64
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
19. INCOME TAXES (continued)
Net
operating loss carryforwards and foreign tax credits (continued)
United
States (continued)
During the year ended June 30,
2018, Net1 generated additional direct foreign tax credits related to dividends
received from a foreign investment. Net1 did not generate any additional foreign
tax credits during the year ended June 30, 2017. Net1 had no net unused foreign
tax credits that are more likely than not to be realized as of June 30, 2018 and
2017, respectively.
Uncertain tax positions
As of June 30, 2018 and 2017, the
Company has unrecognized tax benefits of $0.8 million and $0.5 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 June 30, 2018, the Companys South African subsidiaries are
no longer subject to income tax examination by the South African Revenue Service
for periods before June 30, 2014. The Company is subject to income tax in other
jurisdictions outside South Africa, none of which are individually material to
its financial position, statement of cash flows, or results of operations. The
Company does not expect the change related to unrecognized tax benefits will
have a significant impact on its results of operations or financial position in
the next 12 months.
The following is a reconciliation
of the total amounts of unrecognized tax benefits for the year ended June 30,
2018, 2017 and 2016:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Unrecognized tax benefits - opening balance
|
$
|
475
|
|
$
|
1,930
|
|
$
|
2,322
|
|
Gross increases - tax positions in prior
periods
|
|
196
|
|
|
-
|
|
|
-
|
|
Gross decreases - tax
positions in prior periods
|
|
-
|
|
|
(2,109
|
)
|
|
(609
|
)
|
Gross increases - tax positions in current
period
|
|
311
|
|
|
440
|
|
|
641
|
|
Gross decreases - tax
positions in current period
|
|
(150
|
)
|
|
-
|
|
|
-
|
|
Lapse of statute limitations
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency adjustment
|
|
6
|
|
|
214
|
|
|
(424
|
)
|
Unrecognized tax benefits -
closing balance
|
$
|
838
|
|
$
|
475
|
|
$
|
1,930
|
|
As of June 30, 2018 and 2017, the
Company had accrued interest related to uncertain tax positions of approximately
$0.1 million and $0.1 million, respectively, on its consolidated balance sheet.
As of June 30, 2018 and 2017, the Company had accrued penalties related to
uncertain tax positions of approximately $0.2 million and $0.1 million,
respectively, on its consolidated balance sheet.
20. EARNINGS PER SHARE
The Company has issued redeemable
common stock (refer to Note 15) 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 years ended June 30, 2018, 2017 or 2016.
Accordingly the two-class method presented below does not include the impact of
any redemption.
Basic earnings per share include
shares of restricted stock that meet the definition of a participating security
because these shares are eligible to receive non-forfeitable dividend
equivalents at the same rate as common stock. Basic earnings per share have been
calculated using the two-class method and basic earnings per share for the years
ended June 30, 2018, 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.
F-65
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
20. EARNINGS PER SHARE (continued)
Diluted earnings per share has
been calculated to give effect to the number of shares of additional common
stock that would have been outstanding if the potential dilutive instruments had
been issued in each period. Stock options are included in the calculation of
diluted earnings per share utilizing the treasury stock method and are not
considered to be participating securities as the stock options do not contain
non-forfeitable dividend rights. The calculation of diluted earnings per share
includes the dilutive effect of a portion of the restricted stock granted to
employees in August and November 2014, August 2015, August 2016, August 2017 and
March 2018 as these shares of restricted stock are considered contingently
returnable shares for the purposes of the diluted earnings per share calculation
and the vesting conditions in respect of a portion of the restricted stock had
been satisfied. The vesting conditions are discussed in Note 18.
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 for the years ended June 30, 2018, 2017 and 2016:
|
|
2018
|
|
|
|
|
|
|
|
|
|
(As
|
|
|
2017
|
|
|
2016
|
|
|
|
restated)
|
|
|
|
|
|
|
|
|
|
(in thousands except percent and
|
|
|
|
per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income attributable to Net1
|
$
|
64,349
|
|
$
|
72,954
|
|
$
|
82,454
|
|
Undistributed
earnings
|
|
64,349
|
|
|
72,954
|
|
|
82,454
|
|
Percent allocated to common
shareholders (Calculation 1)
|
|
98%
|
|
|
99%
|
|
|
99%
|
|
Numerator for
earnings per share: basic and diluted
|
$
|
63,276
|
|
$
|
72,188
|
|
$
|
81,370
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings
per share: weighted-average common
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
55,860
|
|
|
53,966
|
|
|
47,234
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
51
|
|
|
109
|
|
|
242
|
|
Denominator
for diluted earnings per share: adjusted
weighted
average
common shares outstanding and assumed conversion
|
|
55,911
|
|
|
54,075
|
|
|
47,476
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.13
|
|
$
|
1.34
|
|
$
|
1.72
|
|
Diluted
|
$
|
1.13
|
|
$
|
1.33
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
|
|
Basic
weighted-average common shares outstanding (A)
|
|
55,860
|
|
|
53,966
|
|
|
47,234
|
|
Basic weighted-average
common shares outstanding and unvested
restricted shares expected to
vest (B)
|
|
56,807
|
|
|
54,539
|
|
|
47,863
|
|
Percent
allocated to common shareholders (A) / (B)
|
|
98%
|
|
|
99%
|
|
|
99%
|
|
Options to purchase 660,698
shares of the Companys common stock at prices ranging from $10.59 to $24.46 per
share were outstanding during the year ended June 30, 2018, but were not
included in the computation of diluted earnings per share because the options
exercise prices were greater than the average market price of the Companys
common shares. The options, which expire at various dates through August 27,
2024, were still outstanding as of June 30, 2018.
F-66
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
21. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents the
supplemental cash flow disclosures for the years ended June 30, 2018, 2017 and
2016:
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Cash received from interest
|
$
|
16,835
|
|
$
|
21,130
|
|
$
|
15,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
8,645
|
|
$
|
3,713
|
|
$
|
3,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
41,065
|
|
$
|
45,165
|
|
$
|
42,123
|
|
Investing
activities
As disclosed in Note 9, the
Company agreed to underwrite the Finbond rights offer up to an amount of
55,585,514 shares and utilized a $10.0 million loan due by Finbond to the
Company to acquire the 55,585,514 Finbond shares. Therefore, as this transaction
was net settled in 2018 and there was no transfer of cash between the parties,
the repayment of the loan by Finbond and the acquisition of 55,585,514 Finbond
shares are not included within net cash provided by (utilized) in investing
activities in the Companys consolidated statement of cash flows for the year
ended June 30, 2018.
Financing
activities
Treasury shares, at cost included
in the Companys 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 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 consolidated statement of cash flows for the
year ended June 30, 2017.
As discussed in Note 3, 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 Transact24.
22. OPERATING SEGMENTS
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.
The Company currently has three
reportable segments: South African transaction processing, International
transaction processing and Financial inclusion and applied technologies. The
South African transaction processing and Financial inclusion and applied
technologies segments operate mainly within South Africa and the International
transaction processing segment operates mainly within South Korea, Hong Kong and
the European Union. The Companys reportable segments offer different products
and services and require different resources and marketing strategies and share
the Companys assets.
The South African transaction
processing segment currently consists mainly of a welfare benefit distribution
service provided to the South African government, an ATM infrastructure deployed
in South Africa, and transaction processing for retailers, utilities, and banks.
Fee income is earned based on the number of recipient cardholders paid. Fee
income is also earned from customers utilizing our ATM infrastructure. Utility
providers and banks are charged a fee for transaction processing services
performed on their behalf at retailers. This segment has an individually
significant customer that accounts for more than 10% of the total revenue of the
Company. For the year ended June 30, 2018, there was one such customer,
providing 19% of total revenue (2017: one such customer, providing 22% of total
revenue; 2016: one such customer, providing 21% of total revenue). During the
year ended June 30, 2018, the operating segment incurred a goodwill impairment
loss of $1.1 million (refer to Note 10).
F-67
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
22. OPERATING SEGMENTS (continued)
Operating segments
(continued)
The International transaction
processing segment consists mainly of activities in South Korea from which the
Company generates revenue from the provision of payment processing services to
merchants and card issuers. This segment generates fee revenue from the
provision of payment processing services and to a lesser extent from the sale of
goods, primarily point of sale terminals, to customers in South Korea. Fees
generated from payment services processing and other processing activities by
Transact24 and Masterpayment are included in this segment. During the year ended
June 30, 2018, the operating segment incurred a goodwill impairment loss of
$19.9 million (refer to Note 10).
The Financial inclusion and
applied technologies segment derives revenue from the provision of short-term
loans as a principal and the provision of bank accounts, as a fixed monthly fee
per account is charged for the maintenance of these accounts. This segment also
includes fee income and associated expenses from merchants and card holders
using the Companys merchant acquiring system, the sale of prepaid products
(electricity and airtime) as well as the sale of hardware and software. Finally,
the Company earns premium income from the sale of life insurance products
through its insurance business. DNI was acquired on June 30, 2018, and has been
allocated to the Financial inclusion and applied technologies segment. DNI did
not contribute to segment performance during the year ended June 30, 2018. DNI
derives revenue from fees generated through the distribution of starter packs
and from interest income earned through the provision of financing to Cell C in
order for it to expand components of Cell Cs telecommunications infrastructure
in South Africa.
Corporate/eliminations includes
the Companys head office cost center and the amortization of
acquisition-related intangible assets. The $8.0 million paid to the Companys
founder, former chief executive officer and former member of our board of
directors during the year ended June 30, 2017, is also included in corporate/
eliminations. The $1.9 million fair value gain resulting from the acquisition of
Transact24 (refer to Note 3) and the $2.2 million gain resulting from the change
in accounting for Finbond (refer to Note 16) that were recognized during the
year ended June 30, 2016, have been allocated to corporate/ elimination.
The reconciliation of the
reportable segments revenue to revenue from external customers for the years
ended June 30, 2018, 2017 and 2016, respectively, is as follows:
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
Reportable
|
|
|
Inter-
|
|
|
external
|
|
|
|
Segment
|
|
|
segment
|
|
|
customers
|
|
South African transaction processing
|
$
|
268,047
|
|
$
|
29,949
|
|
$
|
238,098
|
|
International transaction processing
|
|
180,027
|
|
|
-
|
|
|
180,027
|
|
Financial inclusion and applied
technologies
|
|
221,906
|
|
|
27,142
|
|
|
194,764
|
|
Total for the year ended June 30, 2018
|
$
|
669,980
|
|
$
|
57,091
|
|
$
|
612,889
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
249,144
|
|
$
|
24,518
|
|
$
|
224,626
|
|
International transaction processing
|
|
176,729
|
|
|
-
|
|
|
176,729
|
|
Financial inclusion and applied technologies
|
|
235,901
|
|
|
27,190
|
|
|
208,711
|
|
Total for the year ended June
30, 2017
|
$
|
661,774
|
|
$
|
51,708
|
|
$
|
610,066
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
212,574
|
|
$
|
17,615
|
|
$
|
194,959
|
|
International transaction processing
|
|
169,807
|
|
|
-
|
|
|
169,807
|
|
Financial inclusion and applied
technologies
|
|
249,403
|
|
|
23,420
|
|
|
225,983
|
|
Total for the year ended June 30, 2016
|
$
|
631,784
|
|
$
|
41,035
|
|
$
|
590,749
|
|
F-68
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
22. OPERATING SEGMENTS (continued)
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 years ended June 30, 2018, 2017 and 2016,
respectively, is as follows:
|
|
For the years ended June 30,
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(As
|
|
|
2017
|
|
|
2016
|
|
|
|
restated)
|
|
|
|
|
|
|
|
Reportable segments measure
of profit or loss
|
$
|
85,690
|
|
$
|
130,799
|
|
$
|
129,774
|
|
Operating income:
Corporate/Eliminations
|
|
(26,741
|
)
|
|
(33,756
|
)
|
|
(15,406
|
)
|
Change in fair
value of equity securities
|
|
32,473
|
|
|
-
|
|
|
-
|
|
Interest income
|
|
17,885
|
|
|
20,897
|
|
|
15,292
|
|
Interest expense
|
|
(8,941
|
)
|
|
(3,484
|
)
|
|
(3,423
|
)
|
Income before
income taxes
|
$
|
100,366
|
|
$
|
114,456
|
|
$
|
126,237
|
|
The following tables summarize
segment information which is prepared in accordance with GAAP for the years
ended June 30, 2018, 2017 and 2016:
|
|
For the years ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
268,047
|
|
$
|
249,144
|
|
$
|
212,574
|
|
International
transaction processing
|
|
180,027
|
|
|
176,729
|
|
|
169,807
|
|
Financial inclusion and applied technologies
|
|
221,906
|
|
|
235,901
|
|
|
249,403
|
|
Total
|
|
669,980
|
|
|
661,774
|
|
|
631,784
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
South African
transaction processing
|
|
42,796
|
|
|
59,309
|
|
|
51,386
|
|
International transaction processing
|
|
(12,478
|
)
|
|
13,705
|
|
|
23,389
|
|
Financial
inclusion and applied technologies
|
|
55,372
|
|
|
57,785
|
|
|
54,999
|
|
Subtotal: Operating segments
|
|
85,690
|
|
|
130,799
|
|
|
129,774
|
|
Corporate/Eliminations
|
|
(26,741
|
)
|
|
(33,756
|
)
|
|
(15,406
|
)
|
Total
|
|
58,949
|
|
|
97,043
|
|
|
114,368
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
4,625
|
|
|
4,614
|
|
|
6,157
|
|
International
transaction processing
|
|
17,627
|
|
|
21,366
|
|
|
21,852
|
|
Financial inclusion and applied technologies
|
|
1,441
|
|
|
1,422
|
|
|
1,158
|
|
Subtotal: Operating segments
|
|
23,693
|
|
|
27,402
|
|
|
29,167
|
|
Corporate/Eliminations
|
|
11,791
|
|
|
13,976
|
|
|
11,227
|
|
Total
|
|
35,484
|
|
|
41,378
|
|
|
40,394
|
|
Expenditures for
long-lived assets
|
|
|
|
|
|
|
|
|
|
South African
transaction processing
|
|
3,988
|
|
|
2,473
|
|
|
5,101
|
|
International transaction processing
|
|
4,397
|
|
|
7,745
|
|
|
28,029
|
|
Financial
inclusion and applied technologies
|
|
1,264
|
|
|
977
|
|
|
2,667
|
|
Subtotal: Operating segments
|
|
9,649
|
|
|
11,195
|
|
|
35,797
|
|
Corporate/Eliminations
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
9,649
|
|
$
|
11,195
|
|
$
|
35,797
|
|
F-69
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
22. OPERATING SEGMENTS (continued)
It is impractical to disclose
revenues from external customers for each product and service or each group of
similar products and services.
The segment information as
reviewed by the chief operating decision maker does not include a measure of
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.
Geographic Information
Revenues based on the geographic
location from which the sale originated for the years ended June 30, 2018, 2017
and 2016, are presented in the table below:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
South Africa
|
$
|
433,421
|
|
$
|
434,124
|
|
$
|
422,022
|
|
South Korea
|
|
153,314
|
|
|
153,403
|
|
|
158,609
|
|
Rest of world
|
|
26,154
|
|
|
22,539
|
|
|
10,118
|
|
Total
|
$
|
612,889
|
|
$
|
610,066
|
|
$
|
590,749
|
|
Long-lived assets based on the
geographic location for the years ended June 30, 2018, 2017 and 2016, are
presented in the table below:
|
|
Long-lived assets
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
South Africa
|
$
|
498,418
|
|
$
|
74,370
|
|
$
|
69,213
|
|
South Korea
|
|
177,388
|
|
|
192,473
|
|
|
221,459
|
|
Rest of world
|
|
116,643
|
|
|
77,723
|
|
|
49,105
|
|
Total
|
$
|
792,449
|
|
$
|
344,566
|
|
$
|
339,777
|
|
23. COMMITMENTS AND CONTINGENCIES
Operating lease
commitments
The Company leases certain
premises. At June 30, 2018, the future minimum payments under operating leases
consist of:
Due within 1 year
|
$5,531
|
Due within 2 years
|
$2,706
|
Due within 3 years
|
$1,956
|
Due within 4 years
|
$1,459
|
Due within 5 years
|
$505
|
Operating lease payments related
to premises and equipment were $10.7 million, $9.8 million and $8.0 million,
respectively, for the years ended June 2018, 2017 and 2016, respectively.
Capital commitments
As of each of June 30, 2018 and
2017, the Company had outstanding capital commitments of approximately $1.1
million.
Purchase obligations
As of June 30, 2018 and 2017, the
Company had purchase obligations totaling $5.6 million and $2.3 million,
respectively. The purchase obligations as of June 30, 2018, primarily include
inventory that will be delivered to the Company and sold to customers in July
2018.
F-70
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
23. COMMITMENTS AND CONTINGENCIES
(continued)
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 108.0 million ($7.9 million, translated at
exchange rates applicable as of June 30, 2018) and thereby utilizing part of the
Companys short-term banking facility. The Company in turn has provided
nonrecourse, unsecured counter-guarantees to Nedbank for ZAR 108.0 million ($7.9
million, translated at exchange rates applicable as of June 30, 2018). The
Company pays commission of between 0.4% per annum to 1.9% 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 June 30, 2018. The maximum potential amount that the Company could
pay under these guarantees is ZAR 108.0 million ($7.9 million, translated at
exchange rates applicable as of June 30, 2018). The guarantees have reduced the
amount available for borrowings under the Companys short-term credit facility
described in Note 12.
Contingencies
Challenge
to Payment by SASSA of Additional Implementation Costs
As the Company previously
disclosed, in June 2014, the Company received approximately ZAR 277.0 million,
excluding VAT, from SASSA, related to the recovery of additional implementation
costs its subsidiary, CPS, incurred during the beneficiary re-registration
process in fiscal 2012 and 2013. After the award of the tender, SASSA requested
that CPS biometrically register all social grant beneficiaries (including child
grant beneficiaries) and collect additional information for each child grant
recipient. CPS agreed to SASSAs request and, as a result, it performed
approximately 11.0 million additional registrations beyond those that it
contracted to register for the quoted service fee. Accordingly, CPS sought
reimbursement from SASSA of the cost of this exercise, supported by a factual
findings certificate from an independent auditing firm. SASSA agreed to pay CPS
the ZAR 277.0 million as full settlement of the additional costs it incurred.
In March 2015, Corruption Watch,
a South African non-profit civil society organization, commenced a legal
proceeding in the High Court of South Africa seeking an order by the Court to
review and set aside the decision of SASSAs Chief Executive Officer to approve
a payment to CPS of ZAR 317.0 million (approximately ZAR 277 million, excluding
VAT) and directing CPS to repay the aforesaid amount, plus interest. Corruption
Watch claimed that there was no lawful basis to make the payment to CPS, and
that the decision was unreasonable and irrational and did not comply with South
African legislation. CPS was named as a respondent in this legal proceeding.
On February 22, 2018, the matter
was heard by the Gauteng Division, Pretoria of the High Court of South Africa
(High Court). On March 23, 2018, the High Court ordered that the June 15, 2012
variation agreement between SASSA and CPS be reviewed and set aside. CPS was
ordered to refund ZAR 317.0 million to SASSA, plus interest from June 2014 to
date of payment. On April 4, 2018, CPS filed an application seeking leave to
appeal the whole order and judgment of the High Court with the High Court
because it believes that the High Court erred in its application of the law
and/or in fact in its findings. On April 25, 2018, the High Court rejected the
application seeking leave to appeal. CPS has filed an application seeking leave
to appeal the whole order and judgment of the High Court with the Supreme Court
of Appeal. The Company cannot predict whether leave to appeal will be granted or
if granted, how the Supreme Court of Appeal would rule on the matter.
The Company is subject to a
variety of other insignificant claims and suits that arise from time to time in
the ordinary course of business. Management currently believes that the
resolution of these other matters, individually or in the aggregate, will not
have a material adverse impact on the Companys financial position, results of
operations or cash flows.
F-71
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
24. RELATED PARTY TRANSACTIONS
As described in Note 3, the
Company has acquired all of the outstanding and issued ordinary shares in
Transact24 that it did not own in January 2016 and commenced consolidating
Transact24 from that date. Transact24 had an existing relationship in place
between itself and a company controlled by the spouse of Transact24s Managing
Director at the time of the Transact24 acquisition. This arrangement therefore
was also in place before the Managing Director became an executive officer of
the Company. This relationship was disclosed to the Company during the due
diligence process and has been considered by the Companys management to be
critical to the ongoing operations of Transact24. The company controlled by the
spouse of the managing director performs transaction processing and Transact24
provides technical and administration services to the company.
The Company has recorded revenue
of approximately $4.4 million and $4.2 million related to this relationship
during the years ended June 30, 2018 and 2017, respectively, and approximately
$1.9 million during the six months ended June 30, 2016. Transact24s Managing
Director has an indirect interest in these transactions as a result of his
relationship with his spouse, with an approximate value of $0.3 million and $1.6
million during the years ended June 30, 2018 and 2017, respectively and $0.1
million during the six months ended June 30, 2016. The Company was due $0.2
million and $0.4 million, as of June 30, 2018 and 2017, respectively, related to
the service provided by Transact24 and these amounts are included in accounts
receivables, net as of June 30, 2018 and 2017.
25. UNAUDITED QUARTERLY RESULTS
The following tables contain
selected unaudited consolidated statements of operations information for each
quarter of fiscal 2018 and 2017:
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sep 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2018
|
|
|
|
(As
|
|
|
(As
|
|
|
|
|
|
|
|
|
(As
|
|
|
|
restated)
(1)
|
|
|
restated)
(1)
|
|
|
|
|
|
|
|
|
restated)
(1)
|
|
|
|
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
149,194
|
|
$
|
162,721
|
|
$
|
148,416
|
|
$
|
152,558
|
|
$
|
612,889
|
|
Operating income
|
|
10,072
|
|
|
7,564
|
|
|
16,307
|
|
|
25,006
|
|
|
58,949
|
|
Net income attributable to
Net1
|
$
|
2,869
|
|
$
|
32,375
|
|
$
|
9,622
|
|
$
|
19,483
|
|
$
|
64,349
|
|
Net income per share, in United States
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
attributable to Net1 shareholders
|
$
|
0.05
|
|
$
|
0.57
|
|
$
|
0.17
|
|
$
|
0.34
|
|
$
|
1.13
|
|
Diluted earnings attributable to
Net1 shareholders .
|
$
|
0.05
|
|
$
|
0.57
|
|
$
|
0.17
|
|
$
|
0.34
|
|
$
|
1.13
|
|
(1) Net income attributable to
Net1 and net income per share, basic and diluted, for the three months ended
June 30, 2018 and March 31, 2018, and the year ended June 30, 2018, have been
restated as discussed in Note 1. The Companys results were impacted as follows:
-
Three months ended March 31, 2018, includes an increase in net income
attributable to Net1 of $29.4 million (net of taxation of $8.5 million), and
net income per share, basic and diluted, each increased by $0.52;
-
Three months ended June 30, 2018, includes a decrease in net income
attributable to Net1of $4.2 million (net of taxation of $1.2 million), and net
income per share, basic and diluted, each decreased by $0.07; and
-
Year ended June 30, 2018, includes an increase in net income attributable
to Net1of $25.2 million (net of taxation of $7.3 million), and net income per
share, basic and diluted, each increased by $0.44.
F-72
NET 1 UEPS TECHNOLOGIES, INC.
|
Notes to the consolidated financial
statements
|
for the years ended June 30, 2018, 2017 and 2016
|
(All amounts
stated in thousands of United States Dollars, unless otherwise stated)
|
25. UNAUDITED QUARTERLY RESULTS
(continued)
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sep 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
155,056
|
|
$
|
147,944
|
|
$
|
151,433
|
|
$
|
155,633
|
|
$
|
610,066
|
|
Operating income
|
|
14,726
|
|
|
24,547
|
|
|
25,589
|
|
|
32,181
|
|
|
97,043
|
|
Net income attributable to Net1
|
$
|
11,289
|
|
$
|
18,392
|
|
$
|
18,641
|
|
$
|
24,632
|
|
$
|
72,954
|
|
Net income per share, in United States dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable to
Net1 shareholders
|
$
|
0.20
|
|
$
|
0.34
|
|
$
|
0.35
|
|
$
|
0.46
|
|
$
|
1.34
|
|
Diluted earnings attributable to Net1
shareholders .
|
$
|
0.20
|
|
$
|
0.33
|
|
$
|
0.35
|
|
$
|
0.46
|
|
$
|
1.33
|
|
*********************
F-73