INDEX TO ANNUAL FINANCIAL STATEMENTS
Naspers Limited Consolidated Annual Financial Statements for the year ended March 31, 2004
Report of the independent registered public accounting firm: consolidated annual financial statements
Consolidated balance sheets
Consolidated income statements
Consolidated cash flow statements
Consolidated statements of changes in shareholders’ equity
Notes to the consolidated annual financial statements
Page F-1 | ||
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF NASPERS LIMITED
We have audited the consolidated balance sheets of Naspers Limited and its subsidiaries as at March 31, 2004 and 2003, and the related consolidated income statements, cash flow statements and statements of changes in shareholders’ equity for each of the three years in the period ended March 31, 2004, set out on pages F-3 to F-106. These financial statements are the responsibility of the directors of the company. Our responsibility is to express an opinion on these financial statements based on our audits.
SCOPE
We conducted our audits in accordance with auditing standards generally accepted in South Africa and the Standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes:
• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
• assessing the accounting principles used and significant estimates made by management; and
• evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Naspers Limited and its subsidiaries at March 31, 2004 and 2003 and the results of their operations, cash flows and changes in shareholders’ equity for each of the three years in the period ended March 31, 2004 in conformity with South African Statements of Generally Accepted Accounting Practice and in the manner required by the South African Companies Act, 1973.
US GAAP RECONCILIATION
Statements of Generally Accepted Accounting Practice in South Africa vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 42 to the consolidated annual financial statements.
As discussed in Note 2 to the group consolidated financial statements, Naspers Limited changed its methods of accounting under South African Statements of Generally Accepted Accounting Practice for financial instruments and for joint ventures during the period ended March 31, 2004.
PricewaterhouseCoopers Inc.
Registered Accountants & Auditors
Chartered Accountants (SA)
Cape Town, South Africa
June 25, 2004
Page F-2 | ||
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2004 AND 2003
Notes | 2004 | 2003 | ||||||||
R'000 | R'000 | |||||||||
ASSETS | ||||||||||
Non-current assets | ||||||||||
Property, plant and equipment | 5 | 3,273,834 | 3,818,229 | |||||||
Goodwill | 6 | 2,053,602 | 2,273,116 | |||||||
Other intangible assets | 7 | 437,813 | 515,684 | |||||||
Investments and loans | 8 | 52,391 | 68,184 | |||||||
Program and film rights | 9 | 39,896 | 229,644 | |||||||
Deferred taxation | 10 | 456,631 | 171,040 | |||||||
Total non-current assets | 6,314,167 | 7,075,897 | ||||||||
Current assets | ||||||||||
Inventory | 11 | 365,478 | 420,617 | |||||||
Program and film rights | 9 | 760,639 | 932,930 | |||||||
Accounts receivable | 12 | 1,188,240 | 1,187,509 | |||||||
Other receivables | 13 | 586,373 | 407,575 | |||||||
Amounts owing by related parties | 14 | 49,439 | 37,173 | |||||||
Investments and loans | 8 | 423,537 | 152,559 | |||||||
Embedded derivative assets | 338,566 | – | ||||||||
Cash and cash deposits | 3,066,071 | 3,158,889 | ||||||||
Total current assets | 6,778,343 | 6,297,252 | ||||||||
TOTAL ASSETS | 13,092,510 | 13,373,149 | ||||||||
EQUITY AND LIABILITIES | ||||||||||
Shareholders' equity | ||||||||||
Share capital and premium | 15 | 4,592,029 | 4,513,383 | |||||||
Other reserves | 16 | (220,362 | ) | 135,292 | ||||||
Retained earnings | 17 | (1,189,193 | ) | (1,145,028 | ) | |||||
Total shareholders' equity | 3,182,474 | 3,503,647 | ||||||||
Minority interest | 235,030 | 305,053 | ||||||||
Commitments and contingencies | 22 | – | – | |||||||
Non-current liabilities | ||||||||||
Post-retirement medical liability | 18 | 171,070 | 149,345 | |||||||
Long-term liabilities | ||||||||||
Capitalized finance leases | 19 | 1,904,971 | 2,378,637 | |||||||
Concession liabilities | 19 | 15,799 | 18,178 | |||||||
Interest-bearing loans | 19 | 572,536 | 421,721 | |||||||
Program and film rights | 19 | 70,127 | 165,916 | |||||||
Non-interest-bearing loans | 19 | 58,598 | 75,774 | |||||||
Deferred taxation | 10 | 79,496 | 233,103 | |||||||
Total non-current liabilities | 2,872,597 | 3,442,674 | ||||||||
Current liabilities | ||||||||||
Current portion of long-term liabilities | 19 | 801,018 | 1,635,221 | |||||||
Provisions | 20 | 96,658 | 65,681 | |||||||
Accounts payable | 953,380 | 1,117,257 | ||||||||
Accrued expenses and other current liabilities | 21 | 3,028,555 | 2,210,129 | |||||||
Amounts owing to related parties | 14 | 62,052 | 117,945 | |||||||
Taxation | 512,085 | 271,431 | ||||||||
Foreign exchange contract liabilities | 898,200 | – | ||||||||
Bank overdrafts and short-term loans | 450,461 | 704,111 | ||||||||
Total current liabilities | 6,802,409 | 6,121,775 | ||||||||
TOTAL EQUITY AND LIABILITIES | 13,092,510 | 13,373,149 | ||||||||
Net asset value per N ordinary share (cents) | 1,216 | 1,359 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements |
Page F-3 | ||
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2004, 2003 AND 2002
Notes | 2004 | 2003 | 2002 | ||||||||||
R'000 | R'000 | R'000 | |||||||||||
Revenue | 23 | 12,804,510 | 12,203,907 | 10,699,905 | |||||||||
Cost of providing services and sale of goods | (6,593,527 | ) | (6,706,387 | ) | (6,055,839 | ) | |||||||
Selling, general and administration expenses | (3,771,776 | ) | (4,013,692 | ) | (3,748,578 | ) | |||||||
Earnings before interest, taxation, depreciation | |||||||||||||
amortization and impairment | 2,439,207 | 1,483,828 | 895,488 | ||||||||||
Depreciation of property, plant and equipment | (635,102 | ) | (746,429 | ) | (713,394 | ) | |||||||
Operating profit before amortization and impairment | 1,804,105 | 737,399 | 182,094 | ||||||||||
Amortization of goodwill | (419,488 | ) | (287,320 | ) | (332,813 | ) | |||||||
Amortization of other intangible assets | (65,019 | ) | (68,454 | ) | (53,367 | ) | |||||||
Impairment of program rights | (31,033 | ) | (155,316 | ) | – | ||||||||
Operating profit/(loss) | 24 | 1,288,565 | 226,309 | (204,086 | ) | ||||||||
Finance costs | 25 | (664,098 | ) | (246,742 | ) | (430,845 | ) | ||||||
Income from investments | 26 | 229 | 20 | 3,831 | |||||||||
Share of equity-accounted results | 8 | 3,147 | 1,469 | 17,125 | |||||||||
Exceptional items | 27 | 47,885 | 61,300 | 4,748 | |||||||||
Profit/(loss) before taxation | 675,728 | 42,356 | (609,227 | ) | |||||||||
Taxation | 28 | (175,853 | ) | (161,652 | ) | (141,359 | ) | ||||||
Profit/(loss) after taxation | 499,875 | (119,296 | ) | (750,586 | ) | ||||||||
Minority interest | (128,461 | ) | (157,630 | ) | 361,021 | ||||||||
Net profit/(loss) from continuing operations | 371,414 | (276,926 | ) | (389,565 | ) | ||||||||
Loss from discontinuing operations | 29 | – | (140,810 | ) | (605,313 | ) | |||||||
Profit/(loss) arising on discontinuance of operations | 29 | – | 750,878 | (952,248 | ) | ||||||||
Net profit/(loss) attributable to shareholders | 371,414 | 333,142 | (1,947,126 | ) | |||||||||
Earnings/(loss) per N ordinary share (cents) | |||||||||||||
Basic | 30 | 144 | 189 | (1,336 | ) | ||||||||
Fully diluted | 30 | 140 | 189 | (1,336 | ) | ||||||||
Headline earnings/(loss) per N ordinary share (cents) | |||||||||||||
Basic | 30 | 302 | (13 | ) | (330 | ) | |||||||
Fully diluted | 30 | 294 | (13 | ) | (330 | ) | |||||||
Headline earnings/(loss) per N ordinary share from continuing | |||||||||||||
operations (cents) | 30 | 302 | 7 | (178 | ) | ||||||||
Dividend paid per A ordinary share (cents) | 6 | 5 | – | ||||||||||
Dividend paid per N ordinary share (cents) | 30 | 25 | 24 | ||||||||||
Proposed dividend per A ordinary share (cents) | 7 | – | – | ||||||||||
Proposed dividend per N ordinary share (cents) | 38 | – | – | ||||||||||
The accompanying notes are an integral part of these annual consolidated financial statements |
Page F-4 | ||
CONSOLIDATED CASH FLOW STATEMENTS
THE YEARS ENDED MARCH 31, 2004, 2003 AND 2002
Notes | 2004 | 2003 | 2002 | ||||||||||
R'000 | R'000 | R'000 | |||||||||||
Cash flows from operating activities | |||||||||||||
Cash from activities | 31 | 2,284,909 | 2,258,292 | 960,044 | |||||||||
Investment income received | 229 | 20 | 3,831 | ||||||||||
Dividends received from equity accounted companies | 1,621 | – | 4,265 | ||||||||||
Cash generated from operating activities | 2,286,759 | 2,258,312 | 968,140 | ||||||||||
Finance cost paid | (229,333 | ) | (535,062 | ) | (508,980 | ) | |||||||
Taxation paid | (306,423 | ) | (108,710 | ) | (78,723 | ) | |||||||
Dividends paid | (78,184 | ) | (37,058 | ) | (35,514 | ) | |||||||
Dividends paid to minority shareholders | (30,440 | ) | (28,563 | ) | (6,532 | ) | |||||||
Cash utilized in discontinuing operations | (5,806 | ) | (277,049 | ) | (573,991 | ) | |||||||
Net cash from/(utilized in) operating activities | 1,636,573 | 1,271,870 | (235,600 | ) | |||||||||
Cash flows from investment activities | |||||||||||||
Property, plant and equipment acquired | (405,964 | ) | (530,454 | ) | (631,403 | ) | |||||||
Proceeds from disposal of property, plant and equipment | 41,840 | 64,773 | 87,253 | ||||||||||
Additional investment in existing subsidiaries | (99,014 | ) | (50,198 | ) | (122,241 | ) | |||||||
Acquisition of subsidiaries | 32 | 7,168 | – | (416,433 | ) | ||||||||
Additional investment in existing joint ventures | 33 | 11,214 | – | – | |||||||||
Disposal of subsidiaries | 34 | – | (566,409 | ) | (20,123 | ) | |||||||
Dilution from subsidiary to joint venture | 35 | (84,744 | ) | – | – | ||||||||
Net cash movements in other investments and loans | (265 | ) | 99,774 | (120,986 | ) | ||||||||
Net investment in associated and other companies | (1,369 | ) | – | 35,118 | |||||||||
Investment in intangible assets | (23,916 | ) | (65,206 | ) | (16,091 | ) | |||||||
Short-term marketable debt and equity instruments sold | – | 1,210,497 | 42,279 | ||||||||||
Net cash (used in)/from investment activities | (555,050 | ) | 162,777 | (1,162,627 | ) | ||||||||
Cash flows from financing activities | |||||||||||||
Net advances/(repayments) of long-term loans and liabilities | 6,284 | (511,910 | ) | 787,628 | |||||||||
Repayments of capitalized finance lease liabilities | (315,774 | ) | (207,052 | ) | (238,558 | ) | |||||||
(Decrease)/increase in short-term loans | (323,057 | ) | 60,128 | 13,934 | |||||||||
Issue of shares and movement in treasury shares | 55,233 | 1,734 | 84,512 | ||||||||||
Share buy-back by joint venture | – | – | (44,947 | ) | |||||||||
Contributions by minority shareholders | 22,566 | 14,622 | 194,496 | ||||||||||
Other | – | (7,140 | ) | – | |||||||||
Net cash (used in)/from financing activities | (554,748 | ) | (649,618 | ) | 797,065 | ||||||||
Net increase/(decrease) in cash and cash equivalents | 526,775 | 785,029 | (601,162 | ) | |||||||||
Forex translation adjustments on cash and cash equivalents | (363,795 | ) | (423,545 | ) | 592,844 | ||||||||
Change in effective holding of joint ventures | (2,148 | ) | (56 | ) | 591 | ||||||||
Cash and cash equivalents at beginning of the year | 2,454,778 | 2,093,350 | 2,101,077 | ||||||||||
Cash and cash equivalents at end of the year | 36 | 2,615,610 | 2,454,778 | 2,093,350 | |||||||||
The principal non-cash transactions are the issue of shares as consideration for business acquisitions (Note 3) and the acquisition of property, plant and equipment using finance leases (Note 5).
The accompanying notes are an integral part of these consolidated annual financial statements
Page F-5 | ||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2004, 2003 AND 2002Other reserves | ||||||||||||||||||||||
Foreign | ||||||||||||||||||||||
currency | ||||||||||||||||||||||
Share capital and premium | Retained | Fair value | Hedging | translation | ||||||||||||||||||
Class A | Class N | earnings | reserve | reserve | reserve | Total | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Balance April 1, 2001 | ||||||||||||||||||||||
As previously reported | 14,243 | 1,612,694 | 535,843 | – | – | 389,885 | 2,552,665 | |||||||||||||||
Effect of change in | ||||||||||||||||||||||
accounting policy | – | – | – | – | – | – | – | |||||||||||||||
As restated | 14,243 | 1,612,694 | 535,843 | – | – | 389,885 | 2,552,665 | |||||||||||||||
Foreign currency translation | – | – | – | – | – | 556,599 | 556,599 | |||||||||||||||
Share capital issued | – | 227,583 | – | – | – | – | 227,583 | |||||||||||||||
Treasury shares movement | – | 2,584 | – | – | – | – | 2,584 | |||||||||||||||
Adjustments to prior year | ||||||||||||||||||||||
goodwill | – | – | 8,345 | – | – | – | 8,345 | |||||||||||||||
Net attributable loss | – | – | (1,947,126 | ) | – | – | – | (1,947,126 | ) | |||||||||||||
Dividends | – | – | (38,174 | ) | – | – | – | (38,174 | ) | |||||||||||||
Balance March 31, 2002 | 14,243 | 1,842,861 | (1,441,112 | ) | – | – | 946,484 | 1,362,476 | ||||||||||||||
Balance April 1, 2002 | �� | |||||||||||||||||||||
As previously reported | 14,243 | 1,842,861 | (1,417,236 | ) | – | – | 946,548 | 1,386,416 | ||||||||||||||
Effect of change in | ||||||||||||||||||||||
accounting policy | – | – | (23,876 | ) | – | – | (64 | ) | (23,940 | ) | ||||||||||||
As restated | 14,243 | 1,842,861 | (1,441,112 | ) | – | – | 946,484 | 1,362,476 | ||||||||||||||
Foreign currency translation | – | – | – | – | – | (811,192 | ) | (811,192 | ) | |||||||||||||
Share capital issued | – | 3,394,606 | – | – | – | – | 3,394,606 | |||||||||||||||
Treasury shares movement | – | (738,327 | ) | – | – | – | – | (738,327 | ) | |||||||||||||
Net attributable profit | – | – | 333,142 | – | – | – | 333,142 | |||||||||||||||
Dividends | – | – | (37,058 | ) | – | – | – | (37,058 | ) | |||||||||||||
Balance March 31, 2003 | 14,243 | 4,499,140 | (1,145,028 | ) | – | – | 135,292 | 3,503,647 | ||||||||||||||
Balance April 1, 2003 | ||||||||||||||||||||||
As previously reported | 14,243 | 4,506,640 | (1,128,533 | ) | – | – | 118,744 | 3,511,094 | ||||||||||||||
Effect of adopting AC133 | – | – | (337,395 | ) | (7,613 | ) | (20,550 | ) | – | (365,558 | ) | |||||||||||
Effect of change in | ||||||||||||||||||||||
accounting policy | – | (7,500 | ) | (16,495 | ) | – | – | 16,548 | (7,447 | ) | ||||||||||||
As restated | 14,243 | 4,499,140 | (1,482,423 | ) | (7,613 | ) | (20,550 | ) | 135,292 | 3,138,089 | ||||||||||||
Foreign currency translation | – | – | – | – | – | (298,611 | ) | (298,611 | ) | |||||||||||||
Treasury shares movement | – | 78,646 | – | – | – | – | 78,646 | |||||||||||||||
Net fair value losses | – | – | – | (9,331 | ) | – | – | (9,331 | ) | |||||||||||||
Cash flow hedges | – | – | – | – | (19,549 | ) | – | (19,549 | ) | |||||||||||||
Net attributable profit | – | – | 371,414 | – | – | – | 371,414 | |||||||||||||||
Dividends | – | – | (78,184 | ) | – | – | – | (78,184 | ) | |||||||||||||
Balance March 31, 2004 | 14,243 | 4,577,786 | (1,189,193 | ) | (16,944 | ) | (40,099 | ) | (163,319 | ) | 3,182,474 |
The accompanying notes are an integral part of these consolidated annual financial statements
Page F-6 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Naspers Limited was incorporated in 1915 under the laws of the Republic of South Africa. The principal activities of Naspers and its operating subsidiaries, joint ventures and associated companies (collectively, "the group") are the operation of pay television, internet and instant messaging subscriber platforms and the provision of related technologies, the publishing, distribution and printing of magazines, newspapers and books, and the provision of private education services. These activities are conducted primarily in South Africa, sub-Saharan Africa, Greece, Cyprus, Thailand, China, the Netherlands and the United States of America.
2. PRINCIPAL ACCOUNTING POLICIES
The consolidated annual financial statements of the group are presented in accordance with, and comply with, South African Statements of Generally Accepted Accounting Practice ("SA GAAP"). The consolidated financial statements are prepared according to the historic cost convention as modified by the revaluation of available-for-sale investments and financial assets and financial liabilities held for trading.
The group uses the South African rand as its presentation currency, being the measurement currency of the parent company. However, the group measures separately the transactions of each of its material operations using the particular currency of the primary economic environment in which the operation conducts its business.
The preparation of the consolidated annual financial statements requires management to make estimates and assumptions about future events 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 revenue and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial techniques. Actual results ultimately may differ from those estimates.
The accounting policies used in the preparation of the consolidated annual financial statements are consistent in all material aspects with those applied during the year ended March 31, 2003, except for the following accounting policy changes:
The group adopted AC133, "Financial Instruments - Recognition and Measurement", on April 1, 2003. AC133 established standards for recognizing, measuring and disclosing information about an enterprise’s financial assets and financial liabilities, including accounting for hedging transactions. Changes in the fair value of derivative instruments have been recognized in earnings as offsets to the change in fair value of the related hedged assets and liabilities, or for firm commitments and forecasted transactions, deferred and recorded as a component of shareholders’ equity until the hedged transactions occur and are recognized in earnings. According to the transitional provisions of AC133, the standard has been applied prospectively from April 1, 2003, with no restatement of the comparative figures. The c umulative impact on prior year results has been accounted for as an adjustment against equity as at April 1, 2003 (refer note 4).
The group changed its accounting policy relating to joint ventures. In prior years the group accounted for its interests in joint ventures on the equity method in terms of the allowed alternative treatment in terms of AC119, "Joint Ventures". The group decided to change this policy to the benchmark treatment in terms of AC119. In terms of the benchmark treatment the group reports its interest in a jointly controlled entity on a proportionate consolidation basis. The group is of the opinion that the benchmark treatment would give rise to better presentation of the substance and economic reality of its joint venture arrangements due to their increased significance for the group. This change in accounting policy was applied retrospectively by restating the comparative figures. The cumulative impact on prior year re sults is analyzed in detail in note 4 to the consolidated annual financial statements.
The group previously included the results of the internet operations of Media24 Limited and Via Afrika Limited in its segmental report as part of the Internet segment. These internet operations have now been included in the Print media and Book publishing segments respectively. Comparative figures have been restated accordingly. This change was necessitated by the integration of these operations within the Print media and Book publishing operations.
(a) | Basis of consolidation |
Subsidiaries
The consolidated annual financial statements include the results of Naspers Limited and all its material subsidiaries. Subsidiaries are those companies in which the group, directly or indirectly, has an interest of more than half of the voting rights, or otherwise has the power to exercise control over their operations. The existence and effect of potential voting rights that are presently exercisable or presently convertible without restriction are considered when assessing whether the group controls another entity. Subsidiaries are consolidated from the date that effective control is transferred to the group and are no longer consolidated from the date that effective control ceases. Similarly, the results of a subsidiary divested during an accounting period are included in the consolidated financial statements only to the date of disposal.For certain entities, the group has entered into contractual arrangements (such as nominee relationships and escrow arrangements) which allow the group, along with its direct interests in such entities, to control a majority of the voting rights or otherwise have power to exercise control over the operations of such entities. Because the group controls such entities in this manner they are considered to be subsidiaries and are therefore consolidated in the annual financial statements.
Page F-7 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(a) Basis of consolidation
Subsidiaries(continued)
All intergroup transactions and balances are eliminated as part of the consolidation process. The interests of minority shareholders in the consolidated equity and in the consolidated results of the group are shown separately in the consolidated balance sheet and consolidated income statement, respectively. Where the losses attributable to the minority shareholders in a consolidated subsidiary exceed their interest in that subsidiary, the excess, and any further losses attributable to them, are recognized by the group only to the extent that the minority shareholders have a binding obligation and are able to fund the losses. If the subsidiary subsequently turns profitable, the group recognizes all such profits until the minority shareholders’ share of losses previously absorbed by the group has been recover ed.
Acquisitions of subsidiaries are accounted for using the purchase method. The excess of the purchase price over the fair value of assets acquired less the liabilities assumed is allocated to acquired identifiable tangible assets, identifiable intangible assets, and goodwill, and amortized over the period that the group expects to derive benefits from these assets.
Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the group.
Associated companies
Investments in associated companies are accounted for under the equity method. Associated companies are those companies in which the group generally has between 20% and 50% of the voting rights, and over which the group exercises significant influence, but which it does not control.
Equity accounting involves recognizing in the income statement the group’s share of the associate’s post-acquisition results before taxation, exceptional items and dividends. The group's share in the associate's taxation and exceptional items is included in the taxation and exceptional items of the group, respectively. The group’s share of post-acquisition movements in reserves is accounted for in reserves. The group’s interest in the associate is carried in the balance sheet at cost, adjusted for changes in the group’s share in the post-acquisition net assets, and inclusive of goodwill and other identifiable intangible assets recognized on successive acquisitions. Where the group’s share of losses exceeds the carrying amount of its investment, the carrying amount is reduced to nil and no further losses are recognized, unless the group has incurred obligations to the associate or the group has guaranteed or committed to satisfy obligations of the associate.
Unrealized gains and losses on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associates, unless the loss provides evidence of an impairment of the asset transferred.
Joint ventures
The group’s interest in jointly controlled entities is accounted for by proportionate consolidation. The group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the group’s financial statements. The group recognizes the portion of gains or losses on the sale of assets by the group to the joint venture that is attributable to the other venturers. The group does not recognize its share of profits or losses from the joint venture that result from the purchase of assets by the group from the joint venture until it resells the assets to an independent third party. However, if a loss on the transaction provides evidence of a reduction in the net realizable value of current assets or an impairment loss, the loss is recognized immediately.
Investments
The group classified its investments in debt and equity securities into the following categories: held-for-trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short-term is defined as a period of three months or less. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are includ ed in non-current assets, except for maturities within 12 months from the balance sheet date, which are classified as current assets. All other investments, including those that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Loans and receivables originated by the group and not held for trading are measured at amortized cost.
Page F-8 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(a) Basis of consolidation(continued)
Investments(continued)
Purchases and sales of investments are recognized on the trade date, which is the date that the group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Held-for-trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortized cost using the effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealized gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognized in equity. The fair values of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognized at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.
(b) | Property, plant and equipment |
Property, plant and equipment are stated at cost, being the purchase cost plus any cost to prepare the assets for their intended use, less accumulated depreciation. Cost includes transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchase costs. Property, plant and equipment, with the exception of land, are depreciated in equal annual amounts over each asset’s estimated useful economic life. Land is not depreciated as it is deemed to have an indefinite life. Depreciation periods vary in accordance with the conditions in the relevant industries, but are subject to the following maximum limits:
Fixed property: | Factory buildings | 25 years |
Other buildings | 50 years | |
Printing presses | 20 years | |
Production equipment | 15 years | |
Office equipment | 8 years | |
Computer equipment: | Manufacturing | 5 years |
Office | 3 years | |
Furniture | 10 years | |
Vehicles | 5 years | |
Set-top boxes | 2 years | |
Transponders and transmitters | 10 years | |
Major leasehold improvements are amortized over the shorter of their respective lease periods and estimated useful economic life. The carrying value of property, plant and equipment are reviewed periodically to assess whether or not the net recoverable amount has declined below the carrying amount. In the event of such impairment, the carrying amount is reduced and the reduction is charged as an expense against income.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. All other borrowing costs are expensed in the period in which they are incurred.
Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the group. Major renovations are depreciated over the remaining useful life of the related asset.
(c) | Leased assets |
Leases of property, plant and equipment, except land, are classified as finance leases where, substantially all risks and rewards associated with ownership of an asset are transferred from the lessor to the group as lessee. Assets classified as finance leases are capitalized at the lower of the fair value of the leased asset and the estimated present value of the underlying minimum lease payments, with the related lease obligation recognized at the estimated present value of the minimum lease payments. Capitalized leased assets are depreciated over their estimated useful lives, limited to the duration of the lease agreement. The amounts of interest expense and capital repayment on finance lease payments are allocated, using the effective interest rate method.
Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the third-party lessor are classified as operating leases. Operating lease rentals are charged against operating profit on a straight-line basis over the period of the lease.
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2. PRINCIPAL ACCOUNTING POLICIES(continued)
(d) | Goodwill and other intangible assets |
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net assets of the acquired subsidiary, associate or joint venture undertaking at the date of acquisition. Goodwill on acquisitions occurring on or after April 1, 2000 is reported in the balance sheet as an intangible asset and is amortized using the straight-line method over its estimated useful life. Goodwill on acquisitions that occurred prior to April 1, 2000 was charged in full to retained earnings. In accordance with the transitional provisions of AC131, goodwill that arose prior to April 1, 2000 has not been capitalized and amortized retrospectively. Goodwill previously charged to retained earnings is not included in the gain or loss on sale calculation when the entity to which the goodwill aro se is subsequently disposed.
Goodwill is amortized using the straight-line method over its estimated useful life. Management determines the estimated useful life of goodwill based on its evaluation of the respective company at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired company. Goodwill is amortized over periods ranging from 3 to 20 years. The goodwill arising on certain acquisitions has been determined by management to have an indefinite life, however based on current guidance under SA GAAP, the goodwill on these transactions has been amortized over the maximum period of 20 years. The carrying value of goodwill is reviewed at each balance sheet date and written down for impairment where the carrying amount exceeds the recoverable amount.
Patents, brand names, trademarks, title rights and other similar intangible assets acquired on or after April 1, 2000 are capitalized at cost and amortized using the straight-line method over their useful lives, not exceeding 20 years. Some intangible assets have been determined by management to have an indefinite life, however based on current guidance under SA GAAP, these assets have been amortized over the maximum period of 20 years. Patents, brand names, trademarks, title rights and other similar intangible assets acquired before April 1, 2000 were written off against retained earnings as they were acquired. Other intangible assets acquired before April 1, 2000 have not been retroactively capitalized and amortized, as allowed by the transitional provisions of AC129. Other intangible assets previously charged to retained earnings are not included in the gain or loss calculation when the entity to which the other intangible assets arose is subsequently disposed. The carrying amount of each intangible asset is reviewed annually and adjusted for impairment where the carrying amount exceeds the recoverable amount. The following amortization periods are used:
Patents | 5 years |
Title rights | 8 years |
Brand names & trademarks | 20 years |
Intellectual property rights | 3 - 5 years |
Concession rights | 20 years |
No value is attributed to internally developed trademarks or similar rights and assets. Costs incurred on these items, whether purchased or created by the group, are charged to the income statement in the period in which they are incurred.
(e) | Program and film rights |
Purchased program and film rights are stated at acquisition costs less accumulated amortization. Licenses are recorded as assets and liabilities for rights acquired, and obligations incurred under license agreements when the license period begins and the cost of each program is known or reasonably determinable. Sports rights are written off on initially showing the event whereas general entertainment and films are amortized on a straight-line basis over the duration of the license or based on broadcasts where the number of showings is restricted. Amortization of program and film rights is included in cost of providing services and sale of goods. The costs of in-house programs are expensed as incurred.
(f) | Impairment of long lived assets |
The group evaluates the carrying value of property, plant and equipment and other non-current assets to be held and used, including goodwill and other intangible assets, when events and circumstances indicate that the carrying value may not be recoverable. Indicators, which could trigger an impairment review include, but are not limited to, significant underperformance relative to expectations based on historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the group’s overall business, significant negative industry or economic trends, a significant and sustained decline in an investment’s share price or market capitalization relative to its net book value.
An impairment loss is recognized in the income statement when the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable willing parties, or its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For the purposes of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows.
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2. PRINCIPAL ACCOUNTING POLICIES(continued)
(f) | Impairment of long lived assets(continued) |
An impairment loss recognized for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal of the impairment is limited to the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized in prior years. The reversal of such an impairment loss is recognized in the income statement in the same line item as the original impairment charge.
(g) | Development activities |
Research and development costs
Research and development costs are charged against operating profit as the expenditure is incurred.
Software development costs
Generally, costs associated with developing computer software programs for the group’s own use are recognized as an expense as incurred. However, expenditure that enhances or extends the benefits of acquired computer software programs beyond their original specifications or estimated useful lives is recognized as a capital improvement and added to the original cost of the software. Computer software development costs recognized as assets are amortized using the straight-line method over their useful lives.
Software development costs that are directly associated with identifiable and unique software products controlled by the group and will probably generate future economic benefits are capitalized, beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers.
Website development costs
Website development costs are capitalized as intangible assets if the necessary recognition criteria for capitalization can be met, otherwise it is charged against operating profit as the expenditure is incurred.
(h) | Inventory |
Inventory is stated at the lower of cost or net realizable value. The cost of inventory is determined by means of the first-in-first-out basis. The cost of finished products and work in progress comprises raw materials, direct labor, other direct costs and related production overheads, but excludes finance costs. Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges relating to inventory purchases. Net realizable value is the estimate of the selling price, less the costs of completion and selling expenses. Provisions are made for obsolete, unusable and unsaleable inventory and for latent damage first revealed when inventory items are taken into use or offered for sale.
(i) | Trade receivables |
Trade receivables are carried at original invoice amount less provision made for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the estimated recoverable amount.
(j) | Cash and cash equivalents |
Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks and investments in money market instruments with maturities of three months or less at the date of purchase. Certain cash balances are restricted from immediate use according to terms with banks or other financial institutions. For cash flow purposes, cash and cash equivalents are presented net of bank overdrafts.
(k) | Borrowings |
Borrowings are recognized initially at an amount equal to the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds and the redemption value is recognized in the income statement over the period of the borrowings.
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2. PRINCIPAL ACCOUNTING POLICIES(continued)
(l) | Provisions |
Provisions are recognized when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
The group recognizes the estimated liability on all products still under warranty at the balance sheet date. The group recognizes a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract. Restructuring provisions are recognized in the period in which the group becomes legally or constructively committed to payment. Costs related to the ongoing activities of the group are not provided in advance.
(m) | Taxation |
Taxation rates
The normal South African company tax rate used is 30%.
Secondary tax on companies is calculated at 12.5%.
International tax rates vary from jurisdiction to jurisdiction.
Deferred taxation
Deferred taxation is provided in full, using the balance sheet liability method, for all timing differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred taxation.
Using this method, the group is required to make provision for deferred taxation, in relation to an acquisition, on the difference between the fair values of the net assets acquired and their tax base. Provision for taxes, mainly withholding taxes, which could arise on the remittance of retained earnings, is only made if there is a current intention to remit such earnings.
The principal timing differences arise from depreciation on property, plant and equipment, other intangibles, provisions and other current liabilities, income received in advance and tax losses carried forward. Deferred taxation assets are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses and timing differences can be utilized.
Secondary tax on companies ("STC")
Dividends declared are subject to STC, but are reduced by dividends received during the dividend cycle in determining the STC liability. Where the dividends received exceed dividends declared within a cycle, there is no liability to pay STC. The excess dividends received are carried forward to the next dividend cycle. Where dividends declared exceed the dividends received during a cycle, STC is payable at the current STC rate. The STC expense is included in the taxation charge in the income statement in the period that the dividend is paid.
(n) | Foreign currencies |
Income statements of foreign subsidiaries regarded as foreign entities are translated to South African rand at average exchange rates for the year and the balance sheets are translated at the year end exchange rates ruling on March 31. Exchange differences arising from the translation of such entities are recognized as a foreign currency translation reserve. On disposal of such entities, the translation differences are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Foreign currency transactions in the group companies are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges. Monetary assets and liabilities are translated at year end exchange rates.
(o) | Derivative financial instruments |
The group uses derivative instruments to reduce exposure to fluctuations in foreign currency exchange rates and interest rates. These instruments mainly comprise foreign exchange contracts, interest rate caps and interest rate swap agreements. Foreign exchange contracts protect the group from movements in exchange rates by establishing the rate at which a foreign currency asset or liability will be settled. Interest rate caps and swap agreements protect the group from movements in interest rates. It is the policy of the group not to trade in derivative financial instruments for speculative purposes.
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(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(o) | Derivative financial instruments(continued) |
Derivative financial instruments are initially recognized in the balance sheet at cost and subsequently are measured at their fair value. The method of recognizing the resulting gain or loss is dependent on the nature of the item being hedged. The group designates derivatives as either (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), or (2) a hedge of a forecasted transaction or of a firm commitment (cash flow hedge), or (3) a hedge of a net investment in a foreign entity on the date a derivative contract is entered into.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the income statement, along with changes in the fair value of the hedged asset or liability that is attributable to the hedged risk.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognized in equity. Where the forecasted transaction or firm commitment results in the recognition of an asset or of a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in equity are transferred to the income statement and classified as income or expense in the same periods during which the hedged firm commitment or forecasted transaction affects the income statement.
Certain derivative transactions, while providing effective economic hedges under the group’s risk management policies, do not qualify for hedge accounting under the specific rules in AC133.
Changes in the fair value of any derivative instrument that do not qualify for hedge accounting under AC133 are recognized immediately in the income statement.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under AC133, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the committed or forecasted transaction ultimately is recognized in the income statement. When a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
Hedges of net investments in foreign entities are accounted for similarly to cash flow hedges. Where the hedging instrument is a derivative, any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in equity; the gain or loss relating to the ineffective portion is recognized immediately in the income statement. However, where the hedging instrument is not a derivative, all foreign exchange gains and losses arising on translation are recognized in equity.
Embedded derivatives are derivative instruments that are embedded in another contract or host contract. The group separates an embedded derivative from its host contract and accounts for it separately, when its economic characteristics are not clearly and closely related to those of the host contract. These separated embedded derivatives are classified as trading assets or liabilities and marked to market through the income statement, provided that the combined contract is not measured at fair value with changes through the income statement.
(p) | Revenue recognition |
Product sales
Sales are recognized upon delivery of products and customer acceptance, net of sales taxes, VAT and discounts, and after eliminating sales within the group.
Subscription fees
Pay-television and Internet subscription fees are earned over the period the services are provided. Subscription revenue arises from the monthly billing of subscribers for pay-television and internet services provided by the group. Revenue is recognized in the month the service is rendered. Any subscription revenue received in advance of the service being provided is recorded as deferred revenue and recognized in the month the service is provided.
Advertising revenues
The group mainly derives advertising revenues from advertisements published in its newspapers and magazines, broadcasted on its pay television platforms and showed online on its websites and instant messaging windows. Advertising revenues from pay television and print media products are recognized upon showing or publication over the period of the advertising contract. Online advertising revenues are recognized ratably over the period in which the advertisements are displayed.
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(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(p) Revenue recognition(continued)
Technology contracts and licensing
Continuing operations
For contracts with multiple obligations (e.g. maintenance and other services), and for which vendor-specific objective evidence of fair value for the undelivered elements exists, revenue from product licenses are recognized when delivery has occurred, collection of the receivables is probable, the fee is fixed or determinable and objective evidence exists to allocate the total fee to all delivered and undelivered elements of the arrangement. Generally, the group has vendor-specific objective evidence of the fair value of the maintenance element of software arrangements based on the renewal rates for maintenance in future years as specified in the contracts. In such cases, the maintenance revenue is deferred at the outset of the arrangement and is recognized ratably over the period during which the maintenance is to be provided. That period generally commences on the date that the software is delivered. Vendor-specific objective evidence of fair value for the service element is determined based on the price charged when those services are sold separately. The group recognizes revenue allocated to maintenance and support fees, for ongoing customer support and product updates ratably over the period of the relevant contracts. Payments for maintenance and support fees are generally made in advance and are non-refundable. For revenue allocated to consulting services and for consulting services sold separately, the group recognizes revenue as the related services are performed.
The group enters into arrangements with network operators whereby application software is licensed to network operators in exchange for a percentage of the subscription revenue they earn from their customers. Where all of the software under the arrangement has been delivered, the revenue is recognized as the network operator reports to the group its revenue share, which is generally done on a quarterly basis. Under arrangements where the group has committed to deliver unspecified future applications, the revenue earned on the delivered applications is recognized on a subscription basis over the term of the arrangement.
Discontinuing operations
For product licenses sold with integration services, the group recognizes revenue based on the completed contract method. Revenue from software development contracts of less than six months’ duration is recognized based on the completed contract method and for longer-term contracts generally on the percentage of completion method. Under the percentage of completion method the extent of progress towards completion is measured based on actual costs incurred to total estimated costs. Provisions for estimated losses on uncompleted contracts are made in the period in which estimated losses are determined.
Revenues from professional services agreements are recognized on the percentage of completion method based on the hours incurred relative to total estimated hours for fixed bid contracts or based on the hours incurred multiplied by the hourly rate for time and material engagements.These services include strategic interactive television consulting; middleware porting and integration services for set-top box manufacturers and chip-set vendors; network customization and field validation test services; customization of core applications or integration testing of third-party applications; client-specific solution centers; customization and implementation services for deploying HTML engine and browsers to set-top boxes and inter net devices; and content transformation and training. Revenue is generally recognized based on the percentage of completion method, provided there are insignificant amounts of risk associated with customer acceptance. Revenue earned from professional services that possess significant customer acceptance risk is recognized based on the completed contract method. The types of arrangements that involve significant customer acceptance risk include services that involve significant production, modification or customization of software. Since SA GAAP does not contain specific guidance for recognizing revenue on technically-based professional services, under these arrangements, the arrangements are accounted for in conformity with specific accounting guidance in the United States including ARB No 45, using the relevant guidance in SOP 81-1, as guided by SOP 97-2. In cases where services do not involve such significant production, modification or customization of software, then service revenue is recognized separate ly from the software license revenue and is recognized as the services are being performed, as required by SOP 97-2.
Instant messaging services
The group’s activities include operating instant messaging platforms from which it derives revenues from provision of mobile and telecommunications value-added services and Internet value-added services.
Mobile and telecommunication value-added services revenues are derived principally from providing users with mobile instant messaging services, mobile chat services and other mobile value-added services. These services are substantially billed on a monthly subscription basis with certain portions billed on a per message basis ("Mobile and Telecom Service Fees"). These services are predominantly delivered through the platforms of various mobile operators and they also collect the Mobile and Telecom Service Fees on behalf of the group. Mobile and Telecom Service Fees are recognized in the amount invoiced to the group’s customers by the various mobile operators, less any sales taxes. Fixed commissions, other expenses and bad debt expenses are recorded as an element of cost of providing services.
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(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(p) Revenue recognition(continued)
Instant messaging services(continued)
Revenue from Internet value-added services ("Internet Service Fees") are derived from subscriptions received/receivable from the provision of a comprehensive customer service platform that utilizes instant messaging and online entertainment services. Similar to mobile and telecommunication value-added services these services are substantially delivered to the group’s customers through the platforms of various mobile operators with monthly subscriptions paid/payable by the users. In addition, a small portion of the Internet Service Fees is prepaid by the customers to the group in the form of prepaid point cards. Revenue related to these prepaid services are recorded as deferred revenue and amortized on a straight-line basis into income over the estimated usage period.
Tuition fees
Tuition fees are non-refundable and are recognized on a percentage of completion method over the term of the applicable course.
Interest income
Interest is accrued on a time-proportion basis, recognizing the effective yield on the underlying assets.
Dividend income
Dividends are recognized when the right to receive payment is established.
(q) | Employee benefits |
Retirement benefits
The group provides retirement benefits for its full-time employees, primarily by means of monthly contributions to a number of defined contribution pension and provident funds in the countries in which the group operates. The assets of these funds are generally held in separate trustee-administered funds. The group’s contributions to retirement funds are recognized as an expense when the employees render the related service.
Medical aid benefits
The group’s contributions to medical aid benefit funds for employees are recognized as an expense in the period during which the employees render services to the group.
Post-retirement medical aid benefit
Some group companies provide post-retirement health-care benefits to their retirees. The entitlement to post-retirement health-care benefits is based on the employee remaining in service up to retirement age and completing a minimum service period. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans. Independent qualified actuaries carry out valuations of these obligations. All actuarial gains and losses are recognized immediately in the income statement. The actuarial valuation method used to value the obligations is the Projected Unit Credit Method. Future benefits valued are projected using specific actuarial assumptions and the liability to in-service members is accrued over the expected working life time. These obligations are unfunded.
(r) | Equity compensation benefits |
No compensation cost is recognized for options or shares granted to employees from share incentive plans.
(s) | Segment reporting |
The primary segmental reporting has been prepared based on the group’s method of internal reporting, which disaggregates its business by service or product. The secondary segmental reporting has been prepared on a geographical basis.
(t) | Discontinuing operations |
A discontinuing operation results from the sale or abandonment of an operation that represents a separate, major line of business and for which the assets, net profits or losses and activities can be distinguished physically, operationally and for functional reporting purposes. The results of discontinuing operations up to the point of sale or abandonment, net of taxation, are separately disclosed.
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(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES(continued)
(u) | Advertising expenses |
Advertising expenses are expensed in the financial period in which they are incurred.
(v) | Treasury shares |
Where subsidiaries hold shares in the holding company’s equity share capital, the consideration paid including any attributable incremental external costs is deducted from total shareholders’ equity as treasury shares. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity. Shares issued to or held by share incentive plans within the group are treated as treasury shares until such time when participants pay for and take delivery of such shares.
(w) | Exceptional items |
The group’s policy is to show separately, as exceptional items, certain items that are of such nature or incidence that their separate disclosure is relevant to explain the group’s performance and to make comparisons of operating margins more meaningful.
(x) | Recently issued accounting standards |
The Accounting Practices Board ("APB") issued statement AC501 "Accounting for South African secondary tax on companies (STC)" in November 2003. This statement is effective for financial statements periods beginning on or after January 1, 2004. This statement addresses the accounting treatment and disclosure requirements of STC in an entity’s financial statements. The group will adopt AC501 in financial year March 2005 and is currently evaluating the effects of the statement, but do not expect it to have a material effect.
The APB issued exposure draft ED169 "Changes in decommissioning, restoration and similar liabilities" in September 2003 and does not yet have an effective date for implementation. The objective of this exposure draft is to address the accounting for changes in decommissioning, restoration and similar liabilities. The group will adopt ED169 when it becomes effective and is currently evaluating the effects of the exposure draft, but do not expect it to have a material effect.
The APB issued exposure draft ED172 "Determining whether an arrangement contains a lease" in January 2004 and does not yet have an effective date for implementation. The objective of this exposure draft is to provide guidance for when certain arrangements should be accounted for as a lease. The group will adopt ED172 when it becomes effective and is currently evaluating the effects of the exposure draft, but do not expect it to have a material effect.
The new JSE Securities Exchange South Africa Listing Requirements requires that the group apply International Financial Reporting Standards ("IFRS") for the year ended March 31, 2006. The group has not yet assessed whether the adoption of IFRS will have a material effect on the group’s results of operations and financial position. The following IFRS standards will have an impact for the 2006 year-end:
The International Accounting Standards Board ("IASB") issued IFRS 1 "First-time adoption of IFRS" in June 2003. This statement applies when an entity adopts IFRS for the first time by an explicit and unreserved statement of compliance with IFRS. It sets out the procedures that the group will have to follow in preparation of its annual financial statements for the March 31, 2006 financial year.
The IASB issued its improved standards under the "Improvements project" in December 2003. This exposure draft is on improvements to International Accounting Standards ("IAS") and proposes substantial revisions to the certain standards and lesser revisions to some others. The group will adopt the reissued standards in financial year March 2006 and is currently evaluating the effects of these reissued statements.
The IASB issued its revised standards on financial instruments, IAS 32 and 39 "Financial instruments: disclosure and presentation and Financial instruments: recognition and measurement" in December 2003 and is effective for the group from its March 31, 2006 year-end. These revisions establish significant amendments to the two South African Accounting Standards dealing with accounting for financial instruments, AC125 and AC133. The group is currently evaluating the effects of the revisions.
The IASB issued IFRS 2 "Share-based payments" in February 2004 and will be effective date for the group’s 2005 year-end. The objective of this standard is to ensure that an entity recognizes all share-based payment transactions in its financial statements, measured at fair value, so as to provide high quality, transparent and comparable information to users of financial statements. The group will adopt IFRS 2 when it becomes effective and is currently evaluating the effects of the standard.
The IASB issued IFRS 3 "Business combinations" in March 2004 and will be effective for the group’s March 2005 year-end. The objective of this standard is to improve the quality of, and seek international convergence on, the accounting for business combinations. The group will adopt IFRS 3 when it becomes effective and is currently evaluating the effects of the standard.
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2. PRINCIPAL ACCOUNTING POLICIES(continued)
(x) | Recently issued accounting standards(continued) |
The IASB issued IFRS 5 "Disposal of non-current assets and presentation of discontinued operations" in March 2004 and will be effective date for the group’s March 31, 2006 year-end. The objective of this standard is to improve the information in financial statements about assets and disposal groups that are to be disposed of and discontinued operations. The group will adopt IFRS 5 when it becomes effective and is currently evaluating the effects of the standard.
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES
Financial year ended March 31, 2004:
On April 22, 2003, the group acquired an additional 15% in MultiChoice Kenya Holdings Limited for a purchase consideration of U.S. $0.3 million. This increased the group’s effective shareholding in MultiChoice Kenya Limited to 60%.
On July 3, 2003, Media24 Limited ("Media24") acquired, pursuant to a put option exercised by the NR Retief Trust, an additional interest of 10.53% in its subsidiary, Paarl Media Holdings (Proprietary) Limited ("Paarl Media"), for a purchase consideration of Rand 95 million in cash. This increased Media24’s effective financial interest in Paarl Media to 84.21%.The total purchase consideration of Rand 95.2 million (including expenses of Rand 0.2 million) was allocated based upon an appraisal, as follows: net assets (Rand 34.1 million) and goodwill (Rand 61.1 million). The goodwill is to be amortized over its e stimated useful live of eight years. The goodwill is mainly attributable to the market share of Paarl Media in the South African printing industry.
NetMed NV ("NetMed") announced on June 19, 2003, that subject to the fulfillment of certain conditions precedent, it had reached an agreement with Teletypos SA ("Teletypos"), in terms of which Teletypos will exchange its interest in MultiChoice Hellas SA for approximately €6.6 million in cash and a 12.5% equity interest in NetMed. As at March 31, 2004 and the approval date of these annual financial statements, some of the conditions precedent have not been fulfilled, therefore this transaction has not been reflected in the annual financial statements for the year ended March 31, 2004.
On August 11, 2003, Tencent Holdings Limited bought back some of its own shares, resulting in the group owning through its subsidiary, MIH QQ (BVI) Limited, 50% of the share capital of Tencent (Holdings) Limited, with the founding members owning the remaining 50%. The group consolidated the results of Tencent until that date as the group exercised control over Tencent. After this transaction the group enjoyed joint control with the founders, therefore the results of Tencent subsequent to this transaction were proportionately consolidated.
On October 22, 2003, the group disposed of its interests in Cable News Egypt Limited and Nile Communications Network Limited for U.S. $0.9 million and U.S. $0.7 million respectively. A profit of U.S. $0.6 million was realized on disposal.
On March 24, 2004, the last conditions precedent relating to schemes of arrangement under Section 311 of the South African Companies Act, 1973, were satisfied, in terms of which Naspers Limited acquired an additional 19.62% financial interest in Electronic Media Network Limited ("M-Net") and SuperSport International Holdings Limited ("SuperSport") respectively. Minority shareholders in M-Net/SuperSport were offered Rand 8.50 in cash per M-Net/SuperSport linked unit or one Naspers Class N ordinary share for every 4.5 M-Net/SuperSport linked units. Subsequent to March 31, 2004, Naspers issued 17,532,061 Naspers Class N ordinary shares in consideration for 78,894,421 M-Net/SuperSport linked units and paid cash of Rand 61.7 million for a further 7,259,747 M-Net/SuperSport linked units. The investment in 33,686,280 o f these M-Net and SuperSport shares for a consideration of Rand 314.2 million was classified as an available-for-sale investment at March 31, 2004, due to an outstanding call option over these shares. The remaining purchase consideration of Rand 503.3 million (including expenses of Rand 1.9 million) relating to the remaining 52,467,888 M-Net and SuperSport shares was accounted for as an investment in a joint venture and allocated based upon an appraisal, as follows: net liabilities (Rand 2.2 million), intangible net assets other than goodwill (Rand 12.6 million) and goodwill (Rand 492.9 million). The intangible assets and goodwill are both deemed to have indefinite useful lives and are therefore amortized over the maximum allowed period of 20 years. The goodwill is mainly attributable to the key role that M-Net and SuperSport are playing in the provision of content to the South African pay television market.
Subsequent to March 31, 2004, Johnnic Communications Limited ("Johncom") exercised a call option on Naspers relating to 39.1% of the M-Net and SuperSport ordinary shares acquired from minority shareholders in terms of the Section 311 schemes of arrangement. Naspers sold 33,686,280 M-Net and SuperSport shares respectively for a total cash consideration of Rand 286.3 million resulting in a loss of Rand 27.9 million on disposal. Naspers retained an effective 60.12% interest in both M-Net and SuperSport.
Subsequent to March 31, 2004, Tencent Holdings Limited ("Tencent") completed an initial public offering of shares on June 16, 2004 and listed on the Hong Kong Stock Exchange. The group’s interest in Tencent diluted from 50% to approximately 37.5%. Tencent’s net proceeds were approximately H.K. $1.42 billion.
Page F-17 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES(continued)
Financial year ended March 31, 2003:
In August 2002, MIH Limited ("MIHL") sold all of its shares in OpenTV Inc. ("OpenTV") to Liberty Media Corporation and LDIG OTV, Inc. for approximately Rand 489.7 million (U.S. $46.2 million in cash), before acquisition costs, and 15.38 million shares of Liberty Media Corporation common stock.In addition, upon the closing of the OpenTV transaction, MIHL obtained an option for long-term access in its operating territories to the Liberty Broadband Interactive Television interactive television technologiesin consideration for the payment of Rand 180.2 million (U.S. $17 million) and MultiChoice Africa, a subsidiary of MIHL, paid Rand 47.7 million (U.S. $4.5 million) to OpenTV underoperatingagreements for the deployment of OpenTV’s advanced interactive television technologies and bundled content. OpenTV’s results have been included in Naspers’ financial statements as discontinuing operations. A profit on sale of OpenTV of Rand 751 million has been realized and is disclosed as a profit on discontinuance of operations.
In December 2002 a merger agreement was concluded in terms of which MIHL merged with MIH (BVI) Limited, an existing wholly-owned subsidiary of MIH Holdings Limited. MIHL’s outstanding shares were cancelled and delisted from the Nasdaq National Market. Naspers issued 98,803,261 Class N ordinary shares to the minority shareholders of MIH Limited at an exchange ratio of 3.5 Class N ordinary shares for each MIHL A ordinary share. The group further concluded a scheme of arrangement in terms of section 311 of the South African Companies Act, 1973, to acquire all the remaining shares it did not already own in MIH Holdings Limited. The transaction was conducted at an exchange ratio of 2.25 MIH Holdings shares for each Class N ordinary share. A total of 38,263,345 Class N ordinary shares was issued. MIH Holdings was delisted from the JSE Securities Exchange SA. These reorganization transactions were conducted to significantly simplify the corporate structure and operation of the group.The total purchase consideration of Rand 3,376.2 million (including expenses of Rand 52 million) was allocated based upon an appraisal, as follows: net assets (Rand 1,035.4 million), intangible net assets other than goodwill (Rand 439.2 million to subsidiaries and Rand 54.4 million to associated companies and joint ventures) and goodwill (Rand 1,336.6 million to subsidiaries and Rand 510.6 million to associated companies and joint ventures). The intangible assets and goodwill are to be amortized over their estimated useful lives. The goodwill is mainly attributable to synergies between the various media businesses and the dominant market position of certain business units within the group.
Financial year ended March 31, 2002:
In April 2001 the group concluded an agreement in terms of which Paarl Print (Proprietary) Limited was acquired for approximately Rand 63 million. This business, which specializes in printing high quality flat sheet magazines, pamphlets and labels, was merged with Media24 Limited’s NBD division, the group’s book printing division, and now forms part of the group’s printing entity, Paarl Media Holdings (Proprietary) Limited.
In May 2001 the group acquired a 46.5% stake in Tencent Holdings Limited, which is the operator of QQ, an instant-messaging platform in China, for a purchase consideration (including costs directly attributable to the acquisition) of Rand 266.0 million, settled in cash. Subsequent to this acquisition, the group made additional cash funding of Rand 8.0 million, in proportion to its shareholding. The purchase consideration was allocated to net tangible assets acquired of Rand 32.8 million and goodwill of Rand 241.2 million, which will be amortized over its estimated useful life of three years.
During May 2001 the group acquired an additional 47.92% interest in Educor Holdings Limited ("Educor"), the group’s private education subsidiary. This took the group’s interest to 93.5% after the transaction. The acquisition was made as part of a section 311 scheme of arrangement in terms of the South African Companies Act, 1973. The purchase consideration amounted to Rand 86.6 million and was settled in a combination of Class N ordinary shares and cash. Educor was subsequently delisted from the JSE Securities Exchange South Africa.
In June 2001 OpenTV, acquired a 100% interest in Static 2358 Limited ("Static"), a privately-held leading interactive TV media and entertainment company. Under the acquisition agreement, OpenTV acquired all of Static’s privately-held shares in a combined share and cash transaction. Static shareholders and option-holders received an aggregate of 2,719,048 Class A ordinary shares with a value of Rand 307.2 million at the acquisition date, and approximately Rand 102.1 million in cash. Pursuant to certain earn-out provisions contained in the Static acquisition agreement, the principal shareholders of Static earned an additional consideration of 626,872 Class A ordinary shares which were issued in early 2002. Additional goodwill of Rand 29.8 million was recorded based on the fair value of the shares at the date of issuance. The total purchase consideration (including expenses of Rand 12.1 million) was allocated based upon an appraisal, as follows: net liabilities (Rand 44.2 million), intangible net assets other than goodwill (Rand 132.8 million) and goodwill (Rand 357.4 million). The other intangible assets are to be amortized over their estimated useful lives of three years and goodwill will be amortized over its useful life of five years. The issue of shares by OpenTV to acquire Static gave rise to a dilution loss of Rand 131.2 million.
During July 2001 the group disposed of its 100% interest in A-1 Net Holdings Limited and its wholly-owned subsidiary, M-Web Online Company Limited, for a consideration of Rand 8.2 million, resulting in a loss on disposal of Rand 47.7 million.
During July 2001 the group reduced its 40% interest to 15% in its joint venture, SOE International SA, which also owns AEK PAE and Basic Hellas SA. A net profit on disposal of Rand 30.4 million was recorded. The group continues to have a 15% non-funding investment in AEK PAE. This interest has been accounted for using the equity method up until the date of disposal and as an investment at cost thereafter as the group no longer exercises any significant influence over its operations.
Page F-18 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES(continued)
Financial year ended March 31, 2002(continued)
In July 2001 the group concluded a scheme of arrangement in terms of section 311 of the South African Companies Act, 1973, to acquire an additional 18.59% interest in M-Web Holdings Limited ("M-Web"), the group’s on-line service provider in South Africa. The transaction was conducted at an exchange ratio of 15 M-Web shares for each Class N ordinary share consideration. A total of 4,690,450 Class N ordinary shares were issued. M-Web was subsequently delisted from the JSE Securities Exchange South Africa.
In October 2001 the group’s subsidiary NetMed issued 622 Class E ordinary shares to Antenna TV SA for a total consideration of Rand 115.9 million (representing a 5% interest in NetMed). Antenna has the option to acquire an additional 10% interest within two years at fair value. This transaction resulted in a dilution gain of Rand 100.4 million.
During December 2001 the group disposed of its 100% interest in Eefoo.com (BVI) Limited, which owns a 52.5% equity interest in Shanghai Eefoo Network Technology Development Company Limited. This investment was disposed of for a cash consideration of Rand 3.0 million resulting in a loss on disposal of Rand 29.4 million.
During January 2002, MIH Limited disposed of its 45% interest in MultiChoice Middle East Inc., resulting in a net profit on disposal of Rand 22.7 million.
During March 2002 the group disposed of its 10% interest in 21 Vianet Inc. for a consideration of Rand 11.4 million, resulting in a loss on disposal of Rand 42.8 million.
MultiChoice Egypt was liquidated with effect from March 31, 2002. The remaining assets of MultiChoice Egypt were sold to Cable Network Egypt ("CNE") in consideration for shares issued to MultiChoice Africa by CNE. This increased the group’s ownership of CNE from 10.5% to 16.5%.
4. CHANGE IN ACCOUNTING POLICIES
The group changed its accounting policy relating to joint ventures. In prior years the group accounted for its interests in joint ventures on the equity method in terms of the allowed alternative treatment in terms of AC119, "Joint Ventures". The group decided to change this policy to the benchmark treatment in terms of AC119. In terms of the benchmark treatment the group reports its interest in a jointly controlled entity on a proportionate consolidation basis. The impact of this change on the prior periods’ income statements and reserves is as follows:
Share | ||||||||||||||||||||||
Opening | capital and | Other | Income before | |||||||||||||||||||
reserves | premium | reserves | taxation | Taxation | Minorities | Net | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
March 2003 | (23,940 | ) | (7,500 | ) | 16,612 | 5,225 | (2,007 | ) | 4,163 | (7,447 | ) | |||||||||||
March 2002 | – | – | (64 | ) | (63,224 | ) | 6,455 | 32,893 | (23,940 | ) |
The group adopted AC133, "Financial Instruments - Recognition and Measurement", on April 1, 2003. The impact of the adoption on the group’s opening reserves was as follows:
Other reserves | Retained earnings | Total | ||||||||||||||||||||
Gross | Taxation | Net | Gross | Taxation | Net | |||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
April 1, 2003 | (40,233 | ) | 12,070 | (28,163 | ) | (481,993 | ) | 144,598 | (337,395 | ) | (365,558 | ) |
The impact of the change in accounting policy on the balance sheet as at March 31, 2003 is shown on the next page. The impact of reclassifications of certain balance sheet items is also highlighted. These reclassifications were done to conform to presentation in the current year and to rectify certain misallocations in the prior year. None of the reclassifications had any impact on the net asset value at March 31, 2003 or the income statements for the years ended March 31, 2003 and 2002. Reclassifications related to the following:
1.) | Reclassification between other intangible assets and goodwill, to rectify a misallocation in the prior year. |
2.) | Reclassification between deferred taxation and taxation payable, to rectify a misallocation in the prior year. |
3.) | Reclassification between accounts receivable and accounts payable to conform to presentation in the current year. |
Page F-19 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
4. CHANGE IN ACCOUNTING POLICIES(continued)
March 2003 | Adoption of | |||||||||||||||
As previously | proportionate | March 2003 | ||||||||||||||
reported | consolidation | Reclassifications | Restated | |||||||||||||
R'000 | R'000 | R'000 | R'000 | |||||||||||||
ASSETS | ||||||||||||||||
Non-current assets | ||||||||||||||||
Property, plant and equipment | 3,592,251 | 225,978 | – | 3,818,229 | ||||||||||||
Goodwill | 1,590,269 | 494,204 | 188 643 | 1 | 2,273,116 | |||||||||||
Other intangible assets | 634,666 | 69,661 | (188 643 | ) | 1 | 515,684 | ||||||||||
Investments and loans | 733,460 | (665,276 | ) | – | 68,184 | |||||||||||
Program and film rights | 227,295 | 2,349 | – | 229,644 | ||||||||||||
Deferred taxation | 126,114 | 44,926 | – | 171,040 | ||||||||||||
Total non-current assets | 6,904,055 | 171,842 | – | 7,075,897 | ||||||||||||
Current assets | ||||||||||||||||
Inventory | 412,580 | 8,037 | – | 420,617 | ||||||||||||
Program and film rights | 403,973 | 528,957 | – | 932,930 | ||||||||||||
Accounts receivable | 1,151,823 | 107,158 | (71 472 | ) | 3 | 1,187,509 | ||||||||||
Other receivables | 324,667 | 82,908 | – | 407,575 | ||||||||||||
Amounts owing by related parties | 38,070 | (897 | ) | – | 37,173 | |||||||||||
Investments and loans | 152,559 | – | – | 152,559 | ||||||||||||
Cash and cash deposits | 2,792,117 | 366,772 | – | 3,158,889 | ||||||||||||
Total current assets | 5,275,789 | 1,092,935 | (71 472 | ) | 6,297,252 | |||||||||||
TOTAL ASSETS | 12,179,844 | 1,264,777 | (71 472 | ) | 13,373,149 | |||||||||||
EQUITY AND LIABILITIES | ||||||||||||||||
Shareholders' equity | ||||||||||||||||
Share capital and premium | 4,520,883 | (7,500 | ) | – | 4,513,383 | |||||||||||
Other reserves | 118,744 | 16,548 | – | 135,292 | ||||||||||||
Retained earnings | (1,128,533 | ) | (16,495 | ) | – | (1,145,028 | ) | |||||||||
Total shareholders' equity | 3,511,094 | (7,447 | ) | – | 3,503,647 | |||||||||||
Minority interest | 300,842 | 4,211 | – | 305,053 | ||||||||||||
Non-current liabilities | ||||||||||||||||
Post-retirement medical liability | 146,256 | 3,089 | – | 149,345 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Capitalized finance leases | 2,277,153 | 101,484 | – | 2,378,637 | ||||||||||||
Concession liabilities | – | 18,178 | – | 18,178 | ||||||||||||
Interest-bearing loans | 412,372 | 9,349 | – | 421,721 | ||||||||||||
Program and film rights | 157,508 | 8,408 | – | 165,916 | ||||||||||||
Non-interest-bearing loans | 33,214 | 42,560 | – | 75,774 | ||||||||||||
Deferred taxation | 70,671 | 130,592 | 31 840 | 2 | 233,103 | |||||||||||
Total non-current liabilities | 3,097,174 | 313,660 | 31 840 | 3,442,674 | ||||||||||||
Current liabilities | ||||||||||||||||
Current portion of long-term liabilities | 1,246,645 | 388,576 | – | 1,635,221 | ||||||||||||
Provisions | 60,062 | 5,619 | – | 65,681 | ||||||||||||
Accounts payable | 944,296 | 244,433 | (71 472 | ) | 3 | 1,117,257 | ||||||||||
Accrued expenses and other current liabilities | 1,923,762 | 286,367 | – | 2,210,129 | ||||||||||||
Amounts owing to related parties | 259,171 | (141,226 | ) | – | 117,945 | |||||||||||
Taxation | 222,664 | 80,607 | (31 840 | ) | 2 | 271,431 | ||||||||||
Bank overdrafts and short-term loans | 614,134 | 89,977 | – | 704,111 | ||||||||||||
Total current liabilities | 5,270,734 | 954,353 | (103 312 | ) | 6,121,775 | |||||||||||
TOTAL EQUITY AND LIABILITIES | 12,179,844 | 1,264,777 | (71 472 | ) | 13,373,149 | |||||||||||
Net asset value per N ordinary share (cents) | 1,360 | (1 | ) | – | 1,359 |
Page F-20 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
4. CHANGE IN ACCOUNTING POLICIES(continued)
The impact on the income statement for the year ended March 31, 2003 as a result of the adoption of proportionate consolidation for joint ventures is indicated below:
March 2003 | Adoption of | |||||||||
As previously | proportionate | March 2003 | ||||||||
reported | consolidation | Restated | ||||||||
R'000 | R'000 | R'000 | ||||||||
Revenue | 11,186,719 | 1,017,188 | 12,203,907 | |||||||
Cost of providing services and sale of goods | (6,443,877 | ) | (262,510 | ) | (6,706,387 | ) | ||||
Selling, general and administration expenses | (3,551,248 | ) | (462,444 | ) | (4,013,692 | ) | ||||
Earnings before interest, taxation, depreciation | ||||||||||
amortization and impairment | 1,191,594 | 292,234 | 1,483,828 | |||||||
Depreciation of property, plant and equipment | (664,116 | ) | (82,313 | ) | (746,429 | ) | ||||
Operating profit before amortization and impairment | 527,478 | 209,921 | 737,399 | |||||||
Amortization of goodwill and other intangibles | (341,893 | ) | (13,881 | ) | (355,774 | ) | ||||
Impairment of program rights | (155,316 | ) | – | (155,316 | ) | |||||
Operating profit | 30,269 | 196,040 | 226,309 | |||||||
Finance costs | (222,954 | ) | (23,788 | ) | (246,742 | ) | ||||
Income from investments | 20 | – | 20 | |||||||
Share of equity-accounted results | 168,496 | (167,027 | ) | 1,469 | ||||||
Exceptional items | 61,300 | – | 61,300 | |||||||
Profit before taxation | 37,131 | 5,225 | 42,356 | |||||||
Taxation | (159,645 | ) | (2,007 | ) | (161,652 | ) | ||||
Loss after taxation | (122,514 | ) | 3,218 | (119,296 | ) | |||||
Minority interest | (161,793 | ) | 4,163 | (157,630 | ) | |||||
Net loss from continuing operations | (284,307 | ) | 7,381 | (276,926 | ) | |||||
Loss from discontinuing operations | (140,810 | ) | – | (140,810 | ) | |||||
Profit arising on discontinuance of operations | 750,878 | – | 750,878 | |||||||
Net profit attributable to shareholders | 325,761 | 7,381 | 333,142 | |||||||
Earnings per N ordinary share (cents) | ||||||||||
Basic | 185 | 4 | 189 | |||||||
Fully diluted | 185 | 4 | 189 | |||||||
Headline loss per N ordinary share (cents) | ||||||||||
Basic | (19 | ) | 6 | (13 | ) | |||||
Fully diluted | (19 | ) | 6 | (13 | ) | |||||
Headline earnings per N ordinary share from continuing | ||||||||||
operations (cents) | 1 | 6 | 7 |
Page F-21 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
4. CHANGE IN ACCOUNTING POLICIES(continued)
The impact on the income statement for the year ended March 31, 2002 as a result of the adoption of proportionate consolidation for joint ventures is indicated below:
March 2002 | Adoption of | |||||||||
As previously | proportionate | March 2002 | ||||||||
reported | consolidation | Restated | ||||||||
R'000 | R'000 | R'000 | ||||||||
Revenue | 9,836,609 | 863,296 | 10,699,905 | |||||||
Cost of providing services and sale of goods | (5,786,549 | ) | (269,290 | ) | (6,055,839 | ) | ||||
Selling, general and administration expenses | (3,340,884 | ) | (407,694 | ) | (3,748,578 | ) | ||||
Earnings before interest, taxation, depreciation | ||||||||||
amortization and impairment | 709,176 | 186,312 | 895,488 | |||||||
Depreciation of property, plant and equipment | (636,158 | ) | (77,236 | ) | (713,394 | ) | ||||
Operating profit before amortization and impairment | 73,018 | 109,076 | 182,094 | |||||||
Amortization of goodwill and other intangibles | (373,434 | ) | (12,746 | ) | (386,180 | ) | ||||
Operating loss | (300,416 | ) | 96,330 | (204,086 | ) | |||||
Finance costs | (411,745 | ) | (19,100 | ) | (430,845 | ) | ||||
Income from investments | 3,831 | – | 3,831 | |||||||
Share of equity-accounted results | 157,265 | (140,140 | ) | 17,125 | ||||||
Exceptional items | 5,062 | (314 | ) | 4,748 | ||||||
Loss before taxation | (546,003 | ) | (63,224 | ) | (609,227 | ) | ||||
Taxation | (147,814 | ) | 6,455 | (141,359 | ) | |||||
Loss after taxation | (693,817 | ) | (56,769 | ) | (750,586 | ) | ||||
Minority interest | 328,128 | 32,893 | 361,021 | |||||||
Net loss from continuing operations | (365,689 | ) | (23,876 | ) | (389,565 | ) | ||||
Loss from discontinuing operations | (605,313 | ) | – | (605,313 | ) | |||||
Loss arising on discontinuance of operations | (952,248 | ) | – | (952,248 | ) | |||||
Net loss attributable to shareholders | (1,923,250 | ) | (23,876 | ) | (1,947,126 | ) | ||||
Loss per N ordinary share (cents) | ||||||||||
Basic | (1,320 | ) | (16 | ) | (1,336 | ) | ||||
Fully diluted | (1,320 | ) | (16 | ) | (1,336 | ) | ||||
Headline loss per N ordinary share (cents) | ||||||||||
Basic | (313 | ) | (17 | ) | (330 | ) | ||||
Fully diluted | (313 | ) | (17 | ) | (330 | ) | ||||
Headline loss per N ordinary share from continuing | ||||||||||
operations (cents) | (162 | ) | (16 | ) | (178 | ) |
Page F-22 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
March 31 | |||||||||
2004 | 2003 | ||||||||
R'000 | R'000 |
5. PROPERTY, PLANT AND EQUIPMENT
Land and buildings - owned | 590,172 | 536,520 | |||||
Cost price | 682,846 | 614,507 | |||||
Accumulated depreciation | 92,674 | 77,987 | |||||
Land and buildings - leased | 99,930 | 111,617 | |||||
Cost price | 114,956 | 124,339 | |||||
Accumulated depreciation | 15,026 | 12,722 | |||||
Manufacturing equipment - owned | 396,860 | 425,495 | |||||
Cost price | 833,004 | 818,039 | |||||
Accumulated depreciation | 436,144 | 392,544 | |||||
Manufacturing equipment - leased | 69,234 | 80,574 | |||||
Cost price | 144,810 | 144,887 | |||||
Accumulated depreciation | 75,576 | 64,313 | |||||
Transmission equipment and set-top boxes - owned | 69,715 | 87,207 | |||||
Cost price | 512,250 | 515,901 | |||||
Accumulated depreciation | 442,535 | 428,694 | |||||
Transmission equipment and set-top boxes - leased | 1,568,298 | 1,992,780 | |||||
Cost price | 2,708,221 | 3,019,179 | |||||
Accumulated depreciation | 1,139,923 | 1,026,399 | |||||
Vehicles, computer and office equipment - owned | 405,054 | 469,012 | |||||
Cost price | 1,573,271 | 1,569,310 | |||||
Accumulated depreciation | 1,168,217 | 1,100,298 | |||||
Vehicles, computers and office equipment - leased | 12,902 | 99,617 | |||||
Cost price | 44,250 | 145,884 | |||||
Accumulated depreciation | 31,348 | 46,267 | |||||
Subtotal | 3,212,165 | 3,802,822 | |||||
Work-in-progress | 61,669 | 15,407 | |||||
Net book value | 3,273,834 | 3,818,229 | |||||
Total cost price | 6,675,277 | 6,967,453 | |||||
Total accumulated depreciation | 3,401,443 | 3,149,224 | |||||
Net book value | 3,273,834 | 3,818,229 |
Page F-23 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)5. PROPERTY, PLANT AND EQUIPMENT(continued)
Transmission | Vehicles, | ||||||||||||||||||
Manufac- | equipment | computers | |||||||||||||||||
Land and | turing | and | and office | Total | Total | ||||||||||||||
buildings | equipment | set-top boxes | equipment | 2004 | 2003 | ||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||
Cost price | |||||||||||||||||||
Balance April 1 | 738,846 | 962,926 | 3,535,080 | �� | 1,715,194 | 6,952,046 | 8,035,999 | ||||||||||||
Currency translation differences | (9,700 | ) | (4,171 | ) | (364,305 | ) | (144,341 | ) | (522,517 | ) | (1,065,038 | ) | |||||||
Reallocations | (394 | ) | 2,619 | – | (2,225 | ) | – | – | |||||||||||
Asset impairment | – | – | – | – | – | (2,251 | ) | ||||||||||||
Acquisition of subsidiaries | – | – | – | 16,410 | 16,410 | 716 | |||||||||||||
Acquisitions | 75,472 | 49,697 | 41,494 | 232,480 | 399,143 | 650,784 | |||||||||||||
Successive acquisition | – | – | – | – | – | 122,313 | |||||||||||||
Disposals | (5,165 | ) | (33,257 | ) | (4,789 | ) | (168,573 | ) | (211,784 | ) | (790,292 | ) | |||||||
Change in effective holding | |||||||||||||||||||
of joint ventures | (1,257 | ) | – | 12,991 | (31,424 | ) | (19,690 | ) | (185 | ) | |||||||||
Balance March 31 | 797,802 | 977,814 | 3,220,471 | 1,617,521 | 6,613,608 | 6,952,046 | |||||||||||||
Accumulated depreciation | |||||||||||||||||||
Balance April 1 | 90,709 | 456,857 | 1,455,093 | 1,146,565 | 3,149,224 | 3,239,923 | |||||||||||||
Currency translation differences | (2,840 | ) | (4,052 | ) | (172,746 | ) | (50,158 | ) | (229,796 | ) | (427,138 | ) | |||||||
Reallocations | (470 | ) | 155 | – | 315 | – | – | ||||||||||||
Acquisition of subsidiaries | – | – | – | 15,444 | 15,444 | 387 | |||||||||||||
Disposals | (3,030 | ) | (12,720 | ) | (2,310 | ) | (158,013 | ) | (176,073 | ) | (455,244 | ) | |||||||
Depreciation | 23,526 | 71,480 | 289,449 | 250,647 | 635,102 | 791,396 | |||||||||||||
Change in effective holding | |||||||||||||||||||
of joint ventures | (195 | ) | – | 12,972 | (5,235 | ) | 7,542 | (100 | ) | ||||||||||
Balance March 31 | 107,700 | 511,720 | 1,582,458 | 1,199,565 | 3,401,443 | 3,149,224 | |||||||||||||
Work-in-progress | 61,669 | 15,407 | |||||||||||||||||
Net book value | 690,102 | 466,094 | 1,638,013 | 417,956 | 3,273,834 | 3,818,229 | |||||||||||||
March 31 | |||||||||||||||||||
2004 | 2003 | ||||||||||||||||||
Classification of depreciation in income statements | R'000 | R'000 | |||||||||||||||||
Depreciation - continuing operations | 635,102 | 791,396 | |||||||||||||||||
Depreciation - discontinuing operations | – | (44,967 | ) | ||||||||||||||||
635,102 | 746,429 |
The group has pledged property, plant and equipment with a carrying value of Rand 161.7 million at March 31, 2004 (2003: Rand 230.2 million) as security against certain term loans and overdrafts with banks.
Registers containing additional information on land and buildings are available for inspection at the registered offices of the respective group companies. The directors are of the opinion that the recoverable amount of each class of property exceeds the carrying amount at which it is included in the balance sheet.
Page F-24 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)6. GOODWILL
March 31 | |||||||||
2004 | 2003 | ||||||||
R'000 | R'000 |
Cost price | |||||||
Balance April 1 | 2,811,992 | 4,646,996 | |||||
Currency translation differences | (309,850 | ) | (518,032 | ) | |||
Adjustments to goodwill resulting from adjustment of deferred tax asset | (107,703 | ) | – | ||||
Impairment | (8,331 | ) | – | ||||
Acquisition of subsidiaries | 7,965 | 8,004 | |||||
Disposal of subsidiaries | – | (3,200,000 | ) | ||||
Acquisitions | 17,632 | 27,720 | |||||
Disposals | (3,159 | ) | – | ||||
Successive acquisition | 392,652 | 1,847,307 | |||||
Change in effective holding of joint venture | (17,476 | ) | (3 | ) | |||
Balance March 31 | 2,783,722 | 2,811,992 | |||||
Accumulated amortization | |||||||
Balance April 1 | 538,876 | 1,429,511 | |||||
Currency translation differences | (100,955 | ) | (127,084 | ) | |||
Adjustments to goodwill resulting from adjustment of deferred tax asset | 7,180 | – | |||||
Impairment | 1,014 | 11,953 | |||||
Disposal of subsidiaries | – | (1,645,518 | ) | ||||
Disposals | (978 | ) | – | ||||
Amortization | 295,260 | 870,014 | |||||
Change in effective holding in joint venture | (10,277 | ) | – | ||||
Balance March 31 | 730,120 | 538,876 | |||||
Net book value | 2,053,602 | 2,273,116 | |||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Classification of amortization in income statements | |||||||
Amortization per income statement | 419,488 | 287,320 | |||||
Amortization for the year | 295,260 | 275,367 | |||||
Impairments and adjustments | 124,228 | 11,953 | |||||
Amortization included in loss from discontinuing operations | – | 594,647 | |||||
419,488 | 881,967 |
Page F-25 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
6. GOODWILL(continued)
The changes in the carrying amount of goodwill on a segmental basis for the year ended March 31, 2004 are as follows:
Subscriber platforms | Print media | Books & private education | ||||||||||||||||||||
Pay | ||||||||||||||||||||||
television | Internet | Technology | Books | Education | Total | |||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Net book value | ||||||||||||||||||||||
Balance April 1 | 1,737,889 | 315,590 | 62,903 | 66,964 | 2,241 | 87,529 | 2,273,116 | |||||||||||||||
Currency translation differences | (169,919 | ) | (28,638 | ) | (10,338 | ) | – | – | – | (208,895 | ) | |||||||||||
Impairment | (114,967 | ) | (8,118 | ) | – | – | (1,143 | ) | – | (124,228 | ) | |||||||||||
Acquisition of subsidiaries | – | – | – | – | 6,500 | 1,465 | 7,965 | |||||||||||||||
Acquisitions | 3,491 | 13,693 | – | 448 | – | – | 17,632 | |||||||||||||||
Disposals | – | (650 | ) | – | (1,521 | ) | (10 | ) | – | (2,181 | ) | |||||||||||
Successive acquisition | 330,172 | – | – | 62,480 | – | – | 392,652 | |||||||||||||||
Amortization | (85,164 | ) | (144,456 | ) | (22,403 | ) | (13,589 | ) | (1,988 | ) | (27,660 | ) | (295,260 | ) | ||||||||
Change in effective holding of | ||||||||||||||||||||||
joint ventures | – | (7,199 | ) | – | – | – | – | (7,199 | ) | |||||||||||||
Balance March 31 | 1,701,502 | 140,222 | 30,162 | 114,782 | 5,600 | 61,334 | 2,053,602 |
Page F-26 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
7. OTHER INTANGIBLE ASSETS
Intellectual | Brand | |||||||||||||||
Concession | property | names and | Total | Total | ||||||||||||
rights | rights | title rights | 2004 | 2003 | ||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||
Cost price | ||||||||||||||||
Balance 1 April | 14,639 | 220,699 | 366,838 | 602,176 | 621,375 | |||||||||||
Currency translation differences | (1,866 | ) | (32,681 | ) | (9,874 | ) | (44,421 | ) | (107,491 | ) | ||||||
Impairment | – | (153 | ) | 3,092 | 2,939 | (13,764 | ) | |||||||||
Acquisition of subsidiaries | – | – | – | – | 1,767 | |||||||||||
Disposal of subsidiaries | – | – | – | – | (450,145 | ) | ||||||||||
Acquisitions | – | 15,522 | 30 | 15,552 | 41,891 | |||||||||||
Disposals | – | (500 | ) | – | (500 | ) | (4,786 | ) | ||||||||
Successive acquisition | – | 440 | 13,637 | 14,077 | 513,340 | |||||||||||
Change in effective holding | ||||||||||||||||
of joint venture | – | (79 | ) | (1,113 | ) | (1,192 | ) | (11 | ) | |||||||
Balance 31 March | 12,773 | 203,248 | 372,610 | 588,631 | 602,176 | |||||||||||
Accumulated amortization | ||||||||||||||||
Balance 1 April | 5,469 | 70,058 | 10,965 | 86,492 | 186,777 | |||||||||||
Currency translation differences | (741 | ) | (2,474 | ) | (646 | ) | (3,861 | ) | (40,190 | ) | ||||||
Impairment | – | 2,581 | 3,373 | 5,954 | 12,228 | |||||||||||
Disposal of subsidiaries | – | – | – | – | (149,615 | ) | ||||||||||
Disposals | – | – | – | – | (9,541 | ) | ||||||||||
Successive acquisition | – | 254 | 405 | 659 | – | |||||||||||
Amortization | 613 | 41,856 | 19,535 | 62,004 | 87,322 | |||||||||||
Change in effective holding | ||||||||||||||||
in joint venture | – | (330 | ) | (100 | ) | (430 | ) | (489 | ) | |||||||
Balance 31 March | 5,341 | 111,945 | 33,532 | 150,818 | 86,492 | |||||||||||
Net book value | 7,432 | 91,303 | 339,078 | 437,813 | 515,684 | |||||||||||
2004 | 2003 | |||||||||||||||
R'000 | R'000 | |||||||||||||||
Classification of amortization in income statements | ||||||||||||||||
Amortization per income statement | 65,019 | 68,454 | ||||||||||||||
Amortization for the year | 62,004 | 42,462 | ||||||||||||||
Impairments and write-offs | 3,015 | 25,992 | ||||||||||||||
Amortization included in loss from discontinuing operations | – | 44,860 | ||||||||||||||
65,019 | 113,314 |
Page F-27 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
March 31 | |||||||||
2004 | 2003 | ||||||||
R'000 | R'000 |
8. INVESTMENTS AND LOANS
Investments in associated companies | ||||||||||
Unlisted | 30,871 | 23,242 | ||||||||
30,871 | 23,242 | |||||||||
Available-for-sale investments | ||||||||||
Listed | 137,204 | 152,559 | ||||||||
Unlisted | 286,522 | 17,942 | ||||||||
423,726 | 170,501 | |||||||||
Originating loans | ||||||||||
Unlisted | 21,331 | 27,000 | ||||||||
21,331 | 27,000 | |||||||||
Total investments and loans | 475,928 | 220,743 | ||||||||
Investments classified on balance sheets | ||||||||||
Non-current | 52,391 | 68,184 | ||||||||
Current | 423,537 | 152,559 | ||||||||
475,928 | 220,743 | |||||||||
Market value of total listed investments | 137,204 | 152,559 | ||||||||
Directors' valuation of total unlisted investments and loans, as approved | ||||||||||
by the directors of the respective group companies | 338,724 | 68,184 |
Page F-28 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
8. INVESTMENTS AND LOANS(continued)
The following information relates to Naspers Limited’s financial interest in its significant subsidiaries, over which the group has voting control through its direct and indirect interests in respective intermediate holding companies and other entities:
Name of subsidiary | Measurement currency | D or I | Effective percentage interest* | Nature of business | Country of incorporation | ||||||
2004 | 2003 | ||||||||||
% | % | ||||||||||
Media24 Limited | ZAR | D | 100.0 | 100.0 | Print media | South Africa | |||||
Paarl Media Holdings (Proprietary) Limited | ZAR | I | 84.2 | 73.7 | Printing | South Africa | |||||
Via Afrika Limited (previously Nasboek Limited) | ZAR | D | 100.0 | 100.0 | Book publishing and retail | South Africa | |||||
Educor Holdings Limited | ZAR | I | 93.5 | 93.5 | Private education | South Africa | |||||
MIH Investments (Proprietary) Limited | ZAR | D | 100.0 | 100.0 | Investment holding | South Africa | |||||
MIH Holdings Limited | ZAR | I | 100.0 | 100.0 | Investment holding | South Africa | |||||
MultiChoice Africa (Proprietary) Limited | ZAR | I | 100.0 | 100.0 | Subscription television | South Africa | |||||
M-Web Holdings Limited | ZAR | I | 100.0 | 100.0 | Internet service and content provider | South Africa | |||||
MIH (BVI) Limited | USD | I | 100.0 | 100.0 | Investment holding | British Virgin Islands | |||||
Myriad International Holdings BV | EUR | I | 100.0 | 100.0 | Investment holding | The Netherlands | |||||
MultiChoice Africa Limited | USD | I | 100.0 | 100.0 | Subscription television | Mauritius | |||||
NetMed NV | EUR | I | 84.7 | 84.7 | Investment holding | The Netherlands | |||||
NetMed Hellas SA | EUR | I | 84.7 | 84.7 | Subscription television | Greece | |||||
MultiChoice Hellas SA | EUR | I | 44.9 | 44.9 | Subscription television | Greece | |||||
MultiChoice Cyprus Holdings Limited | CYP | I | 58.5 | 58.5 | Investment holding | Cyprus | |||||
MultiChoice Cyprus Limited | CYP | I | 29.9 | 29.9 | Subscription television | Cyprus | |||||
Irdeto Access BV | USD | I | 100.0 | 100.0 | Technology development | The Netherlands | |||||
Tencent Holdings Limited | CNY | I | – | 46.5 | Instant messaging services | Cayman Islands | |||||
Shanghai Sportscn.com Information Technology Company Limited | CNY | I | 87.7 | 87.7 | Online sport content | China | |||||
Entriq Inc. | USD | I | 100.0 | 100.0 | Technology development | USA | |||||
M-Web (Thailand) Limited | THB | I | 100.0 | 100.0 | Internet content provider | Thailand | |||||
Internet Knowledge Service Centre Company Limited | THB | I | 62.5 | 62.5 | Internet content provider | Thailand |
D - Direct interest
I - Combined direct and indirect effective interest
* - The effective percentage interest shown is the financial effective interest, after adjusting for the interests of the group's equitycompensation plans treated as treasury shares.
Page F-29 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
8. INVESTMENTS AND LOANS(continued)
The following information relates to Naspers Limited’s financial interest in its significant joint ventures, over which the group has joint voting control through its direct and indirect interests in respective intermediate holding companies and other entities:
Name of joint venture | Measurement currency | D or I | Effective percentage interest* | Nature of business | Country of incorporation | ||||||
2004 | 2003 | ||||||||||
% | % | ||||||||||
MNH Holdings (1998) (Proprietary) Limited | ZAR | D | 50.0 | 50.0 | Investment holding | South Africa | |||||
Electronic Media Network Limited | ZAR | I | 60.1 | 54.1 | Pay TV content provider | South Africa | |||||
SuperSport International Holdings Limited | ZAR | I | 60.1 | 54.1 | Pay TV content provider | South Africa | |||||
United Broadcasting Corporation Public Company Limited | THB | I | 30.8 | 31.1 | Subscription television | Thailand | |||||
MultiChoice Supplies (Proprietary) Limited | ZAR | I | 50.0 | 50.0 | Set-top box rentals | South Africa | |||||
Tencent Holdings Limited | CNY | I | 50.0 | – | Instant messaging services | Cayman Islands | |||||
KSC Commercial Internet Company Limited | THB | I | 40.6 | 40.6 | Internet service provider | Thailand | |||||
Myriad International Programming Services BV | EUR | I | 80.0 | 77.0 | Programme content acquisition | The Netherlands | |||||
The Natal Witness Printing and Publishing Company (Proprietary) Limited | ZAR | I | 50.0 | 50.0 | Newspaper publishing and printing | South Africa |
D - Direct interest
I - Combined direct and indirect effective interest
* - The effective percentage interest shown is the financial effective interest, after adjusting for the interests of the group's equitycompensation plans treated as treasury shares.
31 March | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Investment in associated companies | |||||||
Balance April 1 | 23,242 | 24,561 | |||||
Associate companies acquired - gross consideration | 1,369 | 25 | |||||
Net assets acquired | – | 25 | |||||
Other | 1,369 | – | |||||
Loans made to/(repaid by) the associated company | 3,975 | (2,813 | ) | ||||
Share of equity-accounted results per the income statement | 3,147 | 1,469 | |||||
Profits | 3,692 | 1,556 | |||||
Losses | (545 | ) | (87 | ) | |||
Dividends paid | (3,547 | ) | – | ||||
Foreign currency translation adjustments | 153 | – | |||||
Dilution loss | (431 | ) | – | ||||
Successive acquisition | 2,963 | – | |||||
Balance March 31 | 30,871 | 23,242 |
Page F-30 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
8. INVESTMENTS AND LOANS(continued)
March 31 | |||||||||
2004 | 2003 | ||||||||
R'000 | R'000 |
Significant associated companies | |||||||
The following are the combined summarised balance sheets of Free State Cheetahs | |||||||
(Proprietary) Limited, Griqualand West Rugby (Proprietary) Limited, and | |||||||
Natal Sharks (Proprietary) Limited as per their financial statements: | |||||||
Non-current assets | 111,828 | 117,857 | |||||
Current assets | 22,825 | 29,731 | |||||
Total assets | 134,653 | 147,588 | |||||
Total liabilities | 150,668 | 174,826 | |||||
Total shareholders' equity | (16,015 | ) | (27,238 | ) | |||
Total equity and liabilities | 134,653 | 147,588 | |||||
The following are the summarized income statements: | |||||||
Revenue | 40,195 | 44,223 | |||||
Operating profit | 18,790 | 5,085 | |||||
Net profit | 11,223 | 2,947 |
The following information relates to Naspers Limited's financial interest in its significant associated companies: | |||||||||||
Name of associated company | Measure-ment | D or I | Effective percentage interest* | Nature of business | Country of incorporation | ||||||
2004 | 2003 | ||||||||||
% | % | ||||||||||
Free State Cheetahs (Proprietary) Limited | ZAR | I | 14.7 | 13.2 | Professional rugby team | South Africa | |||||
Griqualand West Rugby (Proprietary) Limited | ZAR | I | 14.7 | 13.2 | Professional rugby team | South Africa | |||||
Natal Sharks (Proprietary) Limited | ZAR | I | 24.0 | 21.6 | Professional rugby team | South Africa | |||||
I - Indirect effective interest |
Page F-31 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
8. INVESTMENTS AND LOANS(continued)
31 March | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Available-for-sale investments | |||||||
Non-current | 189 | 17,942 | |||||
Nile Communications Network Limited | – | 4,519 | |||||
Cable News Egypt Limited | – | 11,724 | |||||
Other | 189 | 1,699 | |||||
Current | 423,537 | 152,559 | |||||
Electronic Media Network Limited | 149,609 | – | |||||
SuperSport International Holdings Limited | 136,724 | – | |||||
Liberty Media Corporation | 137,204 | 152,559 | |||||
423,726 | 170,501 | ||||||
Originating loans | |||||||
Non-current | |||||||
Loan to Thebe Scitech (Proprietary) Limited | 15,000 | 27,000 | |||||
Other loans | 6,331 | – | |||||
21,331 | 27,000 |
Page F-32 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
9. PROGRAM AND FILM RIGHTS
31 March | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Programme and film rights | |||||||
Cost | |||||||
Program and sports rights | 857,654 | 1,288,747 | |||||
Film rights | 631,952 | 829,714 | |||||
1,489,606 | 2,118,461 | ||||||
Accumulated amortization | |||||||
Program and sports rights | 470,129 | 567,333 | |||||
Film rights | 218,942 | 388,554 | |||||
689,071 | 955,887 | ||||||
Net book value | |||||||
Program and sports rights | 387,525 | 721,414 | |||||
Film rights | 413,010 | 441,160 | |||||
800,535 | 1,162,574 | ||||||
Classified on the balance sheets as follows | |||||||
Current assets | 760,639 | 932,930 | |||||
Non-current assets | 39,896 | 229,644 | |||||
800,535 | 1,162,574 |
10. DEFERRED TAXATION
Balance April 1 | (62,063 | ) | (144,589 | ) | |||
Acquisition of subsidiaries | 6,183 | 11 | |||||
Accounted for in income statement | 322,299 | 141,467 | |||||
Accounted for against reserves | 101,613 | (46,416 | ) | ||||
Change in effective holding of joint ventures | (1,583 | ) | – | ||||
Foreign currency translation | 1,640 | 7,644 | |||||
Acquisition | 9,046 | (20,180 | ) | ||||
Balance March 31 | 377,135 | (62,063 | ) |
Page F-33 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
10. DEFERRED TAXATION(continued)
The deferred tax assets and liabilities and movement thereon are attributable to the following items:
Acquisition | Change in | |||||||||||||||||||||
April 1 | Charged to | Charged | ofsubsidiary | Foreign currency | holding of joint | March 31 | ||||||||||||||||
2003 | income | to equity | and JV | translation | ventures | 2004 | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Deferred taxation assets | ||||||||||||||||||||||
Property, plant and equipment | 39,322 | 21,132 | – | 236 | (4,627 | ) | (42 | ) | 56,021 | |||||||||||||
Intangible assets | 37,746 | (9,479 | ) | – | – | (362 | ) | – | 27,905 | |||||||||||||
Receivables and current assets | 50,319 | 35,914 | – | (300 | ) | (2,226 | ) | 98 | 83,805 | �� | ||||||||||||
Provisions and current liabilities | 170,516 | (8,087 | ) | (694 | ) | 826 | (6,765 | ) | (149 | ) | 155,647 | |||||||||||
Program and film rights | (5,139 | ) | 80,601 | – | (1,908 | ) | (4,086 | ) | 343 | 69,811 | ||||||||||||
Income received in advance | 80,554 | 8,732 | – | – | (5,069 | ) | – | 84,217 | ||||||||||||||
Tax loss carry-forwards | 1,290,723 | 74,857 | – | 11,178 | (153,679 | ) | (876 | ) | 1,222,203 | |||||||||||||
Capitalized finance leases | 385,954 | (75,614 | ) | – | – | (14,341 | ) | – | 295,999 | |||||||||||||
Derivative assets | 31,995 | 10,790 | – | – | – | – | 42,785 | |||||||||||||||
Hedging reserve | 6,444 | – | 29 | – | – | – | 6,473 | |||||||||||||||
Derivative liabilities | – | (18,407 | ) | 58,059 | 5,429 | – | (976 | ) | 44,105 | |||||||||||||
2,088,434 | 120,439 | 57,394 | 15,461 | (191,155 | ) | (1,602 | ) | 2,088,971 | ||||||||||||||
Valuation allowance | 1,579,782 | (97,321 | ) | – | – | (178,720 | ) | – | 1,303,741 | |||||||||||||
508,652 | 217,760 | 57,394 | 15,461 | (12,435 | ) | (1,602 | ) | 785,230 | ||||||||||||||
Deferred taxation liabilities | ||||||||||||||||||||||
Property, plant and equipment | 266,014 | (23,751 | ) | – | 125 | (2,856 | ) | – | 239,532 | |||||||||||||
Receivables and current assets | 12,790 | 655 | – | 107 | (36 | ) | (19 | ) | 13,497 | |||||||||||||
Intangible assets | 57,541 | 1,941 | – | – | (5,460 | ) | – | 54,022 | ||||||||||||||
Provisions and current liabilities | 809 | (185 | ) | – | – | – | – | 624 | ||||||||||||||
Capitalized finance leases | 124,221 | (13,623 | ) | – | – | (6,374 | ) | – | 104,224 | |||||||||||||
Translation reserves | 4,381 | (8,836 | ) | – | – | 651 | – | (3,804 | ) | |||||||||||||
Derivative liabilities | 104,959 | (60,740 | ) | (44,219 | ) | – | – | – | – | |||||||||||||
570,715 | (104,539 | ) | (44,219 | ) | 232 | (14,075 | ) | (19 | ) | 408,095 | ||||||||||||
Net deferred taxation | (62,063 | ) | 322,299 | 101,613 | 15,229 | 1,640 | (1,583 | ) | 377,135 |
The group has raised a valuation allowance against the net deferred tax assets, as in management’s estimate it is probable that certain deferred tax assets will not be realized, due to the timing on the available taxation loss carry-forwards that arose on these losses. Further valuation allowances have been raised when it is uncertain if future taxable profits will be available to utilize unused tax losses and timing differences.
South | Rest of | Greece | ||||||||||||||||||||
Africa | Africa | & Cyprus | Netherlands | USA | Thailand | Total | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Valuation allowance | 361,862 | – | 500,385 | 165,352 | 112,571 | 163,571 | 1,303,741 |
Page F-34 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
10. DEFERRED TAXATION(continued)
The group has tax loss carry-forwards of approximately Rand 3,974 million. A summary of the tax loss carry-forwards at March 31, 2004 by tax jurisdiction, and the expected expiry dates are set out below:
South | Rest of | Greece | ||||||||||||||||||||
Africa | Africa | & Cyprus | Netherlands | USA | Thailand | Total | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Expires in year one | – | – | 89,768 | – | – | 90,879 | 180,647 | |||||||||||||||
Expires in year two | – | – | 226,720 | – | – | 89,630 | 316,350 | |||||||||||||||
Expires in year three | – | – | 304,046 | – | – | 86,349 | 390,395 | |||||||||||||||
Expires in year four | – | – | 260,117 | – | – | 67,547 | 327,664 | |||||||||||||||
Expires in year five | – | – | 22,494 | – | – | 65,313 | 87,807 | |||||||||||||||
Expire after five years | 1,627,018 | 395,069 | – | 321,126 | 328,048 | – | 2,671,261 | |||||||||||||||
1,627,018 | 395,069 | 903,145 | 321,126 | 328,048 | 399,718 | 3,974,124 |
The ultimate outcome of additional taxation assessments may vary from the amounts accrued. However, management believes that any additional taxation liability over and above the amount accrued would not have a material adverse impact on the group’s income statement and balance sheet.
Deferred tax assets and liabilities are offset when the income tax relates to the same fiscal authority and there is a legal right to offset at settlement. The following amounts are shown in the consolidated balance sheet:
31 March | ||||||||||
2004 | 2003 | |||||||||
R'000 | R'000 | |||||||||
Deferred tax assets | 456,631 | 171,040 | ||||||||
Deferred tax liabilities | (79,496 | ) | (233,103 | ) | ||||||
Net deferred tax assets/(liabilities) | 377,135 | (62,063 | ) | |||||||
11. INVENTORY
Raw materials | 112,909 | 127,028 | |||||
Finished products, trading inventory and consumables | 155,006 | 191,353 | |||||
Work-in-progress | 28,204 | 25,411 | |||||
Set-top boxes, internet and associated components | 200,305 | 220,814 | |||||
Gross inventory | 496,424 | 564,606 | |||||
Less: provision for slow-moving and obsolete inventories | (130,946 | ) | (143,989 | ) | |||
365,478 | 420,617 |
12. ACCOUNTS RECEIVABLE
Trade accounts receivable | 1,586,692 | 1,576,228 | |||||
Less: Provision for impairment of receivables | (398,452 | ) | (388,719 | ) | |||
1,188,240 | 1,187,509 | ||||||
Included in accounts receivable are Rand 683.5 million and Rand 699.4 million at March 31, 2004 and 2003 respectively, prebilled to customers and credit balances, which have been recorded as deferred income (see note 21).The group has pledged accounts receivable with a carrying value of Rand 173.0 million at March 31, 2004 (2003: Rand 296.7 million) as security against certain term loans and overdrafts with banks.
Page F-35 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
13. OTHER RECEIVABLES
31 March | ||||||||||
2004 | 2003 | |||||||||
R'000 | R'000 | |||||||||
Pre-payments and accrued income | 229,229 | 186,411 | ||||||||
Staff debtors | 9,271 | 10,126 | ||||||||
VAT and related taxes receivable | 36,352 | 26,679 | ||||||||
Receivable from minority shareholder | 19,819 | 24,561 | ||||||||
Deposits held | 1,186 | 6,968 | ||||||||
Other receivables | 290,516 | 152,830 | ||||||||
586,373 | 407,575 |
14. RELATED PARTY TRANSACTIONS AND BALANCES
The group entered into transactions and has balances with a number of related parties, including equity investors, directors, shareholders and entities under common control. The transactions are at arm’s length. The significant transactions and balances with related parties are summarized below:
31 March | ||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||
R'000 | R'000 | R'000 | ||||||||||||||
Sale of goods and services to related parties | Notes | |||||||||||||||
Electronic Media Network Limited | (a | ) | 41,776 | 28,696 | 38,682 | |||||||||||
SuperSport International Holdings Limited | (a | ) | 17,439 | 11,022 | 6,225 | |||||||||||
United Broadcasting Corporation Public Company Limited | (a | ) | 6,456 | 1,096 | 44,427 | |||||||||||
Alchemy Publishing (Proprietary) Limited | (b | ) | 7,287 | 8,213 | 4,843 | |||||||||||
Antenna TV | (c | ) | 4,584 | 4,420 | – | |||||||||||
KSC Comnet (Proprietary) Limited | (d | ) | – | 7,438 | – | |||||||||||
Lumiere Television Limited | (e | ) | 16,463 | 25,433 | – | |||||||||||
Jane Raphaely & Associates (Proprietary) Limited | (b | ) | 17,924 | 17,177 | 23,768 | |||||||||||
Multichoice Supplies (Proprietary) Limited | (f | ) | – | 3,600 | – | |||||||||||
New Media Publishers (Proprietary) Limited | (b | ) | 3,973 | 55,987 | 48,218 | |||||||||||
Rodale & Touchline Publishers (Proprietary) Limited | (b | ) | 20,140 | 28,037 | 26,851 | |||||||||||
Shape (Proprietary) Limited | (b | ) | 7,608 | 9,670 | 6,752 | |||||||||||
Uppercase Media (Proprietary) Limited | (b | ) | 10,157 | 6,241 | 8,438 | |||||||||||
153,807 | 207,030 | 208,204 |
Notes:
(a) | Sale of goods and services to M-Net, SuperSport and UBC. |
(b) | Media24 Limited receives revenue from a number of its related parties mainly for the printing and distribution of magazines and newspapers. |
(c) | Transponder rental paid by Antenna TV to NetMed NV. |
(d) | Management fee of Rand 1.4 million and asset usage fees of Rand 6.0 million paid to M-Web (Thailand) Limited. |
(e) | Royalty recovery fee paid to NetMed NV. |
(f) | Management fee paid to MultiChoice Africa (Proprietary) Limited. |
Page F-36 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
March 31 | ||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||
R'000 | R'000 | R'000 | ||||||||||||||
Purchase of goods and services | ||||||||||||||||
Electronic Media Network Limited/ | ||||||||||||||||
SuperSport International Holdings Limited | (a | ) | 1,693,173 | 1,699,399 | 1,484,125 | |||||||||||
KSC Comnet (Proprietary) Limited | (b | ) | – | 1,727 | – | |||||||||||
Lumiere Productions AE | (c | ) | 46,633 | 51,151 | – | |||||||||||
Lumiere Kosmos Communication SA | (d | ) | 1,765 | 2,343 | – | |||||||||||
Antenna TV | (e | ) | – | 13,904 | – | |||||||||||
Teletypos AE | (e | ) | – | 14,257 | – | |||||||||||
1,741,571 | 1,782,781 | 1,484,125 |
Notes:
(a) | Channel and programming rights purchased by MultiChoice Africa (Proprietary) Limited. |
(b) | Network fees and lease line charges paid by M-Web (Thailand) Limited. |
(c) | Programming production costs paid by NetMed NV. |
(d) | Subtitling costs paid by NetMed NV. |
(e) | Programming and advertising costs paid by NetMed NV. |
Other transactions with related parties
Tencent Holdings Limited
A fee of U.S. $705,000 was paid for consultancy services provided to Tencent Holdings Limited ("Tencent") to certain companies owned or controlled by the founding shareholders of Tencent during the 2004 financial year. The group also entered into a number of intellectual property and know-how licensing agreements with Tencent. On June 27, 2002, Tencent granted a sole and exclusive licence to a group company to use, and to authorize its affiliates ("the operators") which carry on business in sub-Saharan Africa (including South Africa), Indonesia, Thailand, Greece and Cyprus to use certain proprietary intellectual property and know-how of Tencent for a license fee computed at 40% of gross revenue derived by the operators by using these propriet ary information. The agreement is for a term of 15 years and expires in 2017. Two further supplementary agreements granted a group company the right to use any licensed mobile downloaded images developed by Tencent. The operators were further granted a sole and exclusive license to use certain trademarks and other intellectual property belonging to Tencent. During the 2004 financial year, no license fees were paid to Tencent, as the operators had not generated any revenue from the provision of these services.
On January 1, 2003, Shanghai Sportscn.com Information Technology Company Limited (Sportscn") entered into a co-operation agreement with Tencent Technology (Shenzhen) Company Limited ("TTL") to develop a SMS channel. TTL is entitled to 40% of the revenue generated. This contract expires on December 31, 2004. During the 2004 financial year, payments of approximately CNY785,000 were made to Sportscn under this agreement.
Tencent entered into consultancy contracts with Fat Yue Holdings Limited, a company owned by one of the founding members of Tencent, and Surge Ahead Limited, a company jointly owned by the founding members. These contracts were in effect from September 2002 to July 2003 and from July to December 2003, respectively. Pursuant to these contracts, Fat Yue Holdings Limited and Surge Ahead Limited are required to provide technical research and development consultancy services to Tencent. The company paid a total consideration of approximately RMB1.1 million and approximately RMB1.6 million to Fat Yue Holdings Limited and Surge Ahead Limited, respectively. These contracts have not been renewed.
MIH Holdings Limited
In December 2002, Naspers Limited concluded a scheme of arrangement in terms of section 311 of the South African Companies Act, 1973, to acquire all the remaining shares it did not already own in MIH Holdings Limited. The transaction was conducted at an exchange ratio of 2.25 MIH Holdings shares for each Naspers Class N ordinary share consideration. A total of 38,263,345 Naspers Class N ordinary shares was issued to minority shareholders of MIH Holdings Limited.
Page F-37 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
Other transactions with related parties(continued)
MIH Limited
In December 2002 a merger agreement was concluded in terms of which MIH Limited (MIHL) merged with MIH (BVI) Limited, an existing wholly-owned subsidiary of MIH Holdings Limited. MIHL’s outstanding shares were cancelled and delisted from the Nasdaq National Market. Naspers issued 98,803,261 Class N ordinary shares to the minority shareholders of MIHL at an exchange ratio of 3.5 Naspers Class N ordinary shares for each MIHL A ordinary share.
MultiChoice Nigeria Limited (MCN)
The group has a loan of Rand 15.2 million (U.S. $2.4 million) with MCN minority shareholders which bears interest at 1% above LIBOR and is secured by a pledge of 10% of the shareholding of MCN. Interest received during the year amounted to Rand 0.3 million (2003: Rand 0.8 million). On April 22, 2002 the group acquired an additional 10% interest from the minority shareholders for Rand 27.2 million (U.S. $2.4m). The minority shareholders have the right to repurchase this interest on any date at the greater of Rand 15.1 million (U.S. $2.4m) or the value of MCN at Rand 2,682 (U.S. $425) per subscriber.
MultiChoice Egypt Limited (MCE)
During the 2003 financial year, MCE transferred its business to Cable Network Egypt (CNE) and subscribed for an additional 8% in CNE and 12.5% in Nile Communications Network (NCN) at par value. The group’s shareholding in both CNE and NCN increased to 16.5%. The group also received a liquidation dividend of R9.5 million (U.S. $1.2 million).
MultiChoice Ghana Limited (MGL)
An advance of U.S. $0.4 million was made during the 2004 financial year to a minority shareholder in MGL. The MGL minority shareholders’ loan bears interest at 1% above LIBOR and is secured by a pledge of shares in MGL.
MultiChoice Kenya Holdings Limited (MKL)
During the 2004 financial year the group acquired the minority interest in MKL for a purchase consideration of U.S. $290,000.
Antenna TV
In prior years, NetMed NV entered into agreements with Antenna for the purchase of a 5% interest (plus a 10% option) in NetMed NV and for the right to distribute three Antenna channels. In October 2001, Antenna concluded the transaction for the acquisition of 5% of the shares in NetMed NV for a consideration of approximately Rand 94.7 million (U.S. $12 million). Two channels were aired in the current year with the third being in the planning stage.
Electronic Media Network Limited (M-Net)
In March 2004, Naspers Limited concluded a scheme of arrangement in terms of section 311 of the South African Companies Act, 1973, to acquire all the remaining shares that it, Johnnic Communications Limited and MNH Holdings (1998) (Proprietary) Limited did not already own in M-Net and SuperSport. The transaction was conducted at an exchange ratio of 4.5 M-Net/SuperSport linked units for each NaspersClassN ordinary share consideration or a cash consideration of Rand 8.50 per M-Net/SuperSport linked unit.
M-Net reduced its capital by paying a total of Rand 37.5 million to its shareholders in March 2003. The group participated in this transaction to the extent of its shareholding in M-Net.
Electronic Media Network Limited and SuperSport International Holdings Limited ceded forward exchange contracts (FEC’s) totaling U.S. $49.9 million on March 31, 2003 at no consideration to the group. The FEC’s ceded are at an average rate of Rand 12.16 and mature between November 28, 2003 and March 31, 2005.
SuperSport International Holdings Limited (SuperSport)
In March 2004, Naspers Limited concluded a scheme of arrangement in terms of section 311 of the South African Companies Act, 1973, to acquire all the remaining shares that it, Johnnic Communications Limited and MNH Holdings (1998) (Proprietary) Limited did not already own in M-Net and SuperSport. The transaction was conducted at an exchange ratio of 4.5 M-Net/SuperSport linked units for each Naspers N ordinary share consideration or a cash consideration of Rand 8.50 per M-Net/SuperSport linked unit.
SuperSport reduced its capital in March 2003 by paying Rand 37.5 million to its shareholders and distributing a further
11,386,277 NaspersClassN ordinary shares with an aggregate value of Rand 252.8 million on March 7, 2003. The group participated in this transaction to the extent of its shareholding in SuperSport.
Page F-38 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
Balances with related parties
The balances of advances, deposits, receivables and payables between the group and related parties are as follows:
March31 |
2004 | 2003 | ||||||
R'000 | R'000 |
Receivables | |||||||
SuperSport International Holdings Limited | 928 | – | |||||
United Broadcasting Corporation Public Company Limited | 8,178 | 8,678 | |||||
KSC Commercial Internet Company Limited | 4,774 | – | |||||
Alchemy Publishing (Proprietary) Limited | 1,232 | 1,039 | |||||
Capital Media (Proprietary) Limited | 1,235 | 1,829 | |||||
Jane Raphaely & Associates (Proprietary) Limited | 1,940 | 2,090 | |||||
New Media Publishers (Proprietary) Limited | 5,929 | 5,197 | |||||
Rodale & Touchline Publishers (Proprietary) Limited | 2,679 | 3,534 | |||||
Shape (Proprietary) Limited | 1,792 | – | |||||
Associated Magazines (Proprietary) Limited | 1,017 | 1,819 | |||||
8 Ink Publishing (Proprietary) Ltd | 1,906 | – | |||||
Natal Witness Administration Company (Proprietary) Limited | 5,000 | 5,766 | |||||
Western Province Professional Cricket (Proprietary) Ltd | 1,650 | – | |||||
Free State Cheethas (Proprietary) Limited | 1,601 | – | |||||
Griqualand West Rugby (Proprietary) Limited | 3,081 | – | |||||
Griqualand West Rugby Stadium (Proprietary) Limited | – | 2,179 | |||||
Uppercase Media (Proprietary) Limited | 3,896 | 3,502 | |||||
Other related parties | 2,601 | 1,540 | |||||
49,439 | 37,173 | ||||||
Payables | |||||||
Electronic Media Network Limited | 46,811 | 116,124 | |||||
SuperSport International Holdings Limited | 1,715 | 1,821 | |||||
Griqualand West Rugby (Proprietary) Limited | 3,849 | – | |||||
Natal Witness Administration Company (Proprietary) Limited | 4,500 | – | |||||
Associated Magazines (Proprietary) Limited | 1,927 | – | |||||
Other related parties | 3,250 | – | |||||
62,052 | 117,945 |
Page F-39 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
March 31 |
2004 | 2003 | 2001 | |||||||||||
R'000 | R'000 | R'000 |
Directors' emoluments | ||||||||||
Executive directors | ||||||||||
Remuneration for other services paid by subsidiary companies | 3,598 | 3,577 | 3,048 | |||||||
Non-executive directors | ||||||||||
Fees for services as directors | 2,192 | 1,506 | 930 | |||||||
Fees for services as directors of subsidiary companies | 1,790 | 1,573 | 900 | |||||||
Fees for managerial services, paid by subsidiary companies | – | – | 575 | |||||||
7,580 | 6,656 | 5,453 |
No director has a notice period of more than one year.
No director’s service contract includes pre-determined compensation as a result of termination that would exceed one year’s salary and benefits.
The individual directors received the following remuneration and emoluments during the current financial year:
Bonuses and | |||||||||||||
performance | Pension | ||||||||||||
Salary | related fees | Contributions | Total | ||||||||||
Executive directors | R'000 | R'000 | R'000 | R'000 | |||||||||
2004 | |||||||||||||
JP Bekker | – | – | – | – | |||||||||
SJZ Pacak | 1,611 | 1,800 | 187 | 3,598 | |||||||||
1,611 | 1,800 | 187 | 3,598 | ||||||||||
2003 | |||||||||||||
JP Bekker | – | – | – | – | |||||||||
SJZ Pacak | 1,413 | 2,004 | 160 | 3,577 | |||||||||
1,413 | 2,004 | 160 | 3,577 |
Page F-40 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
Directors’ emoluments(continued)
Committee1 | Committee1 | ||||||||||||||||||
Director | and trustee2 | Total | Director | and trustee2 | Total | ||||||||||||||
fees | fees | 2004 | fees | fees | 2003 | ||||||||||||||
Non-executive directors | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | |||||||||||||
T Vosloo3,4,5 | 1,325 | – | 1,325 | 1,126 | – | 1,126 | |||||||||||||
JF Malherbe3,4 | 187 | 50 | 237 | 337 | 95 | 432 | |||||||||||||
MJ de Vries3,4 | – | – | – | 56 | 65 | 121 | |||||||||||||
JJM van Zyl3,4,5 | 573 | 315 | 888 | 225 | 155 | 380 | |||||||||||||
E Botha4 | 200 | – | 200 | 150 | – | 150 | |||||||||||||
LM Taunyane4 | 83 | – | 83 | 150 | – | 150 | |||||||||||||
LN Jonker | 100 | 44 | 144 | 75 | 30 | 105 | |||||||||||||
NP van Heerden | 100 | 105 | 205 | 75 | 45 | 120 | |||||||||||||
BJ van der Ross | 100 | 46 | 146 | 75 | 19 | 94 | |||||||||||||
GJ Gerwel3,4,6 | 417 | 68 | 485 | 300 | 48 | 348 | |||||||||||||
HSS Willemse | 100 | 12 | 112 | 50 | 3 | 53 | |||||||||||||
F du Plessis | 42 | 31 | 73 | – | – | – | |||||||||||||
FTM Phaswana | 42 | – | 42 | – | – | – | |||||||||||||
RCC Jafta | 42 | – | 42 | – | – | – | |||||||||||||
3,311 | 671 | 3,982 | 2,619 | 460 | 3,079 |
Notes on non-executive directors’ remuneration
Note 1: Committee fees include fees for the attendance of the audit committee, the human resources committee, the budget committee and the executive committee meetings of the board.
Note 2: Trustee fees include fees for the attendance of the various retirement fund trustee meetings of the group's retirement funds, as well as for the attendance of Welkom trustee meetings.
Note 3: Directors fees include fees for services as directors of Media24 Limited.
Note 4: Directors fees includes fees for services as directors of Via Afrika Limited
Note 5: Directors fees includes fees for services as directors of MIH Holdings Limited and MIH BV.
Note 6: Directors fees include fees for services as directors of Educor Holdings Limited.
Page F-41 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
Directors’ interests in scheme shares of the Naspers Share Incentive Scheme
The executive directors of Naspers are allowed to participate in the Naspers Share Incentive Scheme. Details in respect of their participation in scheme shares are as follows:
Purchase | Number of | Purchase | Release | ||||||||||
Name | date | N - shares | price | period | |||||||||
JP Bekker ¹ | 10/01/2002 | 2,452,411 | Rand 22.39 - | 10/01/2005 - | |||||||||
Rand 24.50 | 10/01/2007 | ||||||||||||
12/17/2002 | 2,236,280 | Rand 29.09 - | 12/17/2005 - | ||||||||||
Rand 31.54 | 12/17/2007 | ||||||||||||
SJZ Pacak | 01/02/2003 | 500,000 | Rand 23.50 | 01/02/2006 - | |||||||||
01/02/2008 |
(1) | The managing director of Naspers has allocations, as indicated above, in the share incentive scheme, in terms of which Naspers Class N ordinary shares can be acquired at certain prices, with vesting of three tranches taking place over periods of five years. The purchase prices relating to the allocations were set at the middle market price of the shares on the purchase date, but increased by anticipated inflation over the course of the vesting periods of three, four and five years respectively for each of the tranches. Inflation expectations were calculated by the Bureau for Economic Research of the University of Stellenbosch. The managing director does not earn any remuneration from the group, in particular no salary, bonus, car scheme, medical or pension contributions of any nature whatever are payable. The managing director’s contract is for a five-year period starting on October 1, 2002. No compens ation will apply to termination. |
Directors’ interest in MIH Holdings Share Incentive Scheme
Historically SJZ Pacak has been a participant under the MIH Holdings Share Incentive Scheme. In December 2002 Naspers Limited acquired all the MIH Holdings ordinary shares held by the MIH Holdings Share Trust in exchange for Naspers Class N ordinary shares. Participants exchanged their rights to MIH Holdings shares for Naspers Class N ordinary shares. A total of 141,197 Naspers N ordinary shares have been allocated to SJZ Pacak with vesting periods until February 15, 2007.
Directors’ interest in SuperSport Share Incentive Scheme
Historically SJZ Pacak has been a participant under the SuperSport Share Incentive Scheme. In March 2003 SuperSport completed a capital reduction, in terms of which Naspers Class N ordinary shares were distributed to its shareholders, including the SuperSport Share Incentive Trust. In terms of his participation in the SuperSport Share Incentive Scheme, 2,119 Naspers Class N ordinary shares have been allocated to SJZ Pacak with vesting periods until August 26, 2004.
In March 2004 Naspers Limited acquired all the SuperSport ordinary shares held by the SuperSport Share Incentive Trust in exchange for Naspers Class N ordinary shares. Participants could exchange their rights to SuperSport shares for Naspers Class N ordinary shares. A total of 5,305 Naspers Class N ordinary shares have been allocated to SJZ Pacak with vesting periods until August 26, 2004.
Directors’ interest in M-Net Share Incentive Scheme
Historically SJZ Pacak has been a participant under the M-Net Share Incentive Scheme. In March 2004 Naspers Limited acquired all the M-Net ordinary shares held by the M-Net Share Incentive Trust in exchange for Naspers Class N ordinary shares. Participants could exchange their rights to M-Net shares for Naspers Class N ordinary shares. A total of 5,805 Naspers Class N ordinary shares have been allocated to SJZ Pacak with vesting periods until August 26, 2004.
Page F-42 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
14. RELATED PARTY TRANSACTIONS AND BALANCES(continued)
Directors’ interests in Naspers shares
The directors of Naspers had the following interests in Naspers Class A and N ordinary shares at March 31, 2004:
Naspers Class A ordinary shares | |||||||||||||
Beneficial | Non-beneficial | ||||||||||||
Name | Direct | Indirect | Direct | Indirect | |||||||||
JJM van Zyl | 745 | – | – | – |
No other directors of Naspers have an interest in Naspers Class A ordinary shares at March 31, 2004.
Naspers Class N ordinary shares | |||||||||||||
Beneficial | Non-beneficial | ||||||||||||
Name | Direct | Indirect | Direct | Indirect | |||||||||
T Vosloo | 31,993 | 406,857 | – | – | |||||||||
JP Bekker | 314,754 | – | – | 3,532,756 | |||||||||
SJZ Pacak | 114,518 | – | – | 299,516 | |||||||||
JJM van Zyl | 50,361 | 99,958 | – | – | |||||||||
E Botha | 15,280 | – | – | – | |||||||||
LN Jonker | – | 1,000 | – | 95,000 | |||||||||
NP van Heerden | – | – | – | 1,300 | |||||||||
BJ van der Ross | – | – | – | – | |||||||||
GJ Gerwel | – | – | – | – | |||||||||
HSS Willemse | – | – | – | – | |||||||||
F du Plessis | – | – | – | – | |||||||||
FTM Phaswana | – | – | – | – | |||||||||
RCC Jafta | – | – | – | – |
Key management remuneration and participation in Share Incentive Plans
The total of executive directors’ and key management emoluments amounted to Rand 41.7 million (2003: Rand 45.4 million). The aggregate number of share options granted to the executive directors and key management during the 2004 financial year and the number of shares allocated to the executive directors and key management at March 31, 2004 respectively are:
For shares listed on a recognized stock exchange as follows: 476,075 (2003: 7,086,591) Naspers Limited Class N ordinary shares were allocated during the 2004 financial year and an aggregate of 15,075,008 (2003: 14,788,034) Class N ordinary shares were allocated as at March 31, 2004; no (2003: nil) Electronic Media Network Limited and SuperSport International Holdings Limited ordinary shares were allocated during 2004 and an aggregate of no (2003: 3,200,420) ordinary shares were allocated as at March 31, 2004.
For shares in private companies as follows: no (2003: nil) Media24 Limited ordinary shares were allocated during 2004 and an aggregate of 288 390 (2003: 288 390) ordinary shares were allocated as at March 31, 2004; no (2003: nil) Educor Holdings Limited ordinary shares were allocated during 2004 and an aggregate of 1,506,055 (2003: 1,506,055) ordinary shares were allocated as at March 31, 2004;no (2003: nil) Mindport Holdings Limited ordinary shares were allocated during 2004 and no (2003: 455,000) ordinary shares were allocated as at March 31, 2004; no (2003: nil) Irdeto Access BV ordinary shares were allocated during 2004 and an aggregate of 7,500 (2003: 143,347) ordinary shares were allocated as at March 31, 2004; no (2003: nil) Mindport Integrated Business Systems BV ordinary shares were allocated during 2004 and no (2003: 60,000) ordinary shares were allocated as at March 31, 2004; no (2003: 20,000) MIH QQ (BVI) Limited shares were allocated during 2004 and an aggregate of 20,000 (2003: 20,000) shares were allotted as at March 31, 2004; 10,000 Entriq (Mauritius) Limited shares were allocated during 2004 and as at March 31, 2004.
These shares were granted on the same terms and conditions as those offered to employees of the group.
Page F-43 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
March31 |
2004 | 2003 | ||||||
R'000 | R'000 |
15. SHARE CAPITAL AND PREMIUM
Authorised | |||||||
1,250,000 Class A ordinary shares of Rand 20 each | 25,000 | 25,000 | |||||
500,000,000 Class N ordinary shares of 2 cents each | 10,000 | 10,000 | |||||
35,000 | 35,000 | ||||||
Issued | |||||||
712,131 Class A ordinary shares of Rand 20 each | 14,243 | 14,243 | |||||
296,816,639 Class N ordinary shares of 2 cents each (2003: 296,816,639) | 5,936 | 5,936 | |||||
20,179 | 20,179 | ||||||
Share premium | 5,412,628 | 5,412,628 | |||||
5,432,807 | 5,432,807 | ||||||
Less: 35,197,406 Class N ordinary shares held as treasury shares | |||||||
(2003: 39,003,111 Class N ordinary shares) | (840,778 | ) | (919,424 | ) | |||
4,592,029 | 4,513,383 | ||||||
2004 | 2003 | ||||||
Number of | Number of | ||||||
N shares | N shares | ||||||
Movement in Class N ordinary shares in issue during the year | |||||||
Shares in issue at April 1 | 296,816,639 | 156,289,724 | |||||
Shares issued to acquire MIH Holdings Limited shares from minority shareholders | – | 38,263,345 | |||||
Shares issued to acquire MIH Limited shares from minority shareholders | – | 98,803,261 | |||||
Shares issued to Naspers Share Incentive Trust | – | 3,460,309 | |||||
Shares in issue at March 31 | 296,816,639 | 296,816,639 | |||||
Movement in Class N ordinary shares held as treasury shares during the year | |||||||
Shares held as treasury shares at April 1 | 39,003,111 | 8,205,773 | |||||
Shares acquired by MIH-group equity compensation plans | – | 21,250,486 | |||||
Shares received by subsidiaries and equity compensation plans | |||||||
resulting from SuperSport's capital reduction distribution of shares | – | 6,146,759 | |||||
Shares issued to equity compensation plans | – | 3,460,309 | |||||
Deconsolidation of shares held by the Phutuma Futhi scheme | (1,186,220 | ) | – | ||||
Change in effective interest in treasury shares held by SuperSport | 21,877 | – | |||||
Shares bought by equity compensation plans from participants | 882 | 23,305 | |||||
Shares acquired by participants from equity compensation plans | (2,642,244 | ) | (83,521 | ) | |||
Shares held as treasury shares at March 31 | 35,197,406 | 39,003,111 | |||||
Net number of shares in issue at March 31 | 261,619,233 | 257,813,528 |
Voting and dividend rights
The Class A ordinary shareholders are entitled to 1,000 votes per share and shall be entitled to nominal dividends as determined from time to time by the board of directors, but always limited to one fifth of the dividend to which Class N ordinary shareholders are entitled. The Class A ordinary shareholders do not have a right to receive a dividend when dividends are declared to Class N ordinary shareholders, although a dividend to Class A ordinary shareholders could be proposed by the board. In respect of all other rights, the Class A ordinary shares rank pari passu with the Class N ordinary shares of the company.
Page F-44 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
15. SHARE CAPITAL AND PREMIUM(continued)
Unissued share capital
The directors of the company have unrestricted authority until after the following annual general meeting to allot and issue the unissued 537,869 Class A ordinary shares and 203,183,361 Class N ordinary shares in the company, subject to the provisions of section 221 of the Companies Act, 1973. Subsequent to March 31, 2004, the directors of the company authorized the issuance of17,532,061 ClassN ordinary shares as consideration to the minority shareholders of Electronic Media Network Limited and SuperSport International Holdings Limited in terms of the schemes of arrangement entered into by the minority shareholders.
Share Incentive Plans holding Naspers Class N ordinary shares
Directors may, from time to time, instruct the trustees of the Naspers Limited Share Incentive Trust to offer employees options and / or contracts relating to such number of Class N ordinary shares in the company which in total, together with the shares already in the existing scheme, shall not exceed 11% of the company's issued shares. With the acquisition of the minority interests in MIH Holdings Limited and MIH Limited in December 2002, the MIH Holdings Share Incentive Plan and the MIH (BVI) Plan received Naspers N ordinary shares. The SuperSport Share Incentive Plan received Naspers Class N ordinary shares in February 2003 from the distribution of Naspers Class N ordinary shares by SuperSport as part of a capital reduction exercise. Aggregate information on Naspers Class N ordinary shares hel d by the Naspers, MIH Holdings, MIH (BVI) and SuperSport plans are as follows:
March 31 | |||||||
2004 | 2003 | ||||||
Number of | Number of | ||||||
N shares | N shares | ||||||
Shares at the disposal of equity compensation plans at April 1 | 33,194,193 | 8,205,773 | |||||
Shares issued to equity compensation plans | – | 3,460,309 | |||||
Shares acquired by the MIH Holdings, MIH (BVI) and SuperSport plans | – | 21,250,486 | |||||
Shares received by SuperSport plan as result of capital reduction | – | 337,841 | |||||
Shares bought from participants | 882 | 23,305 | |||||
Shares acquired by participants | (2,642,244 | ) | (83,521 | ) | |||
Change in effective interest in treasury shares held by SuperSport plan | 21,877 | – | |||||
Shares at the disposal of the plans at March 31 | 30,574,708 | 33,194,193 | |||||
Shares allocated by the plans at April 1 | 30,776,858 | 6,376,147 | |||||
Shares previously allocated by the MIH Holdings, MIH (BVI) and SuperSport plans | – | 17,674,862 | |||||
Shares allocated to participants | 2,268,826 | 10,763,739 | |||||
Shares acquired by participants | (2,642,244 | ) | (83,521 | ) | |||
Shares cancelled and forfeited | (1,068,385 | ) | (3,954,369 | ) | |||
Change in effective interest in treasury shares held by SuperSport plan | 13,176 | – | |||||
Shares allocated by the plans at March 31 | 29,348,231 | 30,776,858 | |||||
Shares available for allocation at March 31 | 1,226,477 | 2,417,335 |
Shares allocated to participants of the incentive schemes vest in equal numbers after respectively three, four and five years after the date of allocation. The plans is obliged to deliver the shares to the participants at any time after vesting up to a maximum of 10 years after the allocation date, when participants request and pay for the shares.
Share options issued
In terms of the Welkom Trust share scheme, participants subscribed to 4,003,740 convertible debentures. If the target price was reached on September 9, 2003, participants would have received 5,605,236 Naspers Class N ordinary shares on conversion of the debentures. Since the share price was less than the target price on September 9, 2003, the debentures were redeemed on that date. Share options were issued to the participants to subscribe for 5,605,236 Naspers Class N ordinary shares at a subscription price of Rand 31.96 per Class N ordinary share during the 30-day period from September 9, 2006.
Page F-45 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
31 March | ||||||||||
2004 | 2003 | |||||||||
R'000 | R'000 | |||||||||
16. OTHER RESERVES | ||||||||||
Other reserves on the balance sheet comprise: | ||||||||||
Fair value reserve | (16,944 | ) | – | |||||||
Hedging reserve | (40,099 | ) | – | |||||||
Foreign currency translation reserve | (163,319 | ) | 135,292 | |||||||
(220,362 | ) | 135,292 |
The fair value reserve relates to unrealized profits and losses arising from changes in the fair value of investments classified as available-for-sale.
The cash flow hedging reserve relates to the changes in the fair value of derivative financial instruments that hedges forecasted transactions or firm commitments. The changes in fair value are recorded in the cash flow hedging reserve until the forecasted transaction or firm commitment result in the recognition of an asset or liability, when such deferred gains or losses are then included in the initial measurement of the asset or liability.
Foreign currency translation reserve relates to exchange differences arising from the translation of foreign subsidiaries’ and joint ventures’ income statements at average exchange rates for the year and their balance sheets at the ruling exchange rates at the balance sheet date.
17. RETAINED EARNINGS
Retained earnings comprise: | |||||||
Company and subsidiaries | (1,113,848 | ) | (1,055,763 | ) | |||
Associated companies | (4,814 | ) | (7,361 | ) | |||
Joint ventures | (70,531 | ) | (81,904 | ) | |||
(1,189,193 | ) | (1,145,028 | ) |
Any future dividends declared from the distributable reserves of the company or its subsidiaries, which are not wholly-owned subsidiaries of the company and are incorporated in South Africa, may be subject to secondary taxation on companies at a rate of 12.5% of the dividends declared.
Page F-46 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
18. POST-RETIREMENT MEDICAL LIABILITY
The group operates a number of post-retirement medical benefit schemes. The obligation of the group to pay medical aid contributions after retirement is no longer part of the conditions of employment for new employees. A number of pensioners and current employees, however, remain entitled to this benefit. The entitlement to this benefit for current employees is dependent upon the employees remaining in service until retirement age and completing a minimum service period. The group provides for post-retirement medical aid benefits on the accrual basis determined each year by an independent actuary. The directors believe that adequate provision has been made for future liabilities.
Media24 Limited and Via Afrika Limited entered into agreements during the year ended March 31, 2004 with certain employees to terminate their future participation in the post-retirement medical aid benefits plan, in exchange for certain future contributions to endowment policies for these employees. At March 31, 2004 the group had a liability of Rand 39.2 million relating to these future contributions to be made in five installments over the next five years.
MultiChoice Africa (Pty) Limited (MCA) provides post-retirement benefits by way of medical aid contributions. At March 31, 2004 and 2003 the liability for benefits was Rand 4.0 million and Rand 6.5 million, respectively. During the year ended March 31, 1998 an agreement was reached with employees of MCA to terminate the post-retirement medical aid benefits plan in exchange for an increase of MCA’s annual contributions to the retirement benefit fund. The provision is gradually released to operating results to match the additional contributions to the retirement benefit plan.
31 March | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Present value of obligations | 171,070 | 149,345 | |||||
The principal actuarial assumptions used for accounting purposes were: | |||||||
Health care cost inflation | 7.5 | % | 9,5 | % | |||
Discount rate | 9 | % | 11 | % | |||
Continuation at retirement | 100 | % | 100 | % | |||
Average retirement age | 60 | 60 |
19. LONG-TERM LIABILITIES
Capitalized finance leases | 1,904,971 | 2,378,637 | |||||
Total liabilities | 2,173,209 | 2,696,718 | |||||
Less: current portion | 268,238 | 318,081 | |||||
Concession liabilities | 15,799 | 18,178 | |||||
Total liabilities | 15,861 | 18,240 | |||||
Less: current portion | 62 | 62 | |||||
Interest-bearing loans | 572,536 | 421,721 | |||||
Total liabilities | 691,720 | 1,051,528 | |||||
Less: current portion | 119,184 | 629,807 | |||||
Program & film rights | 70,127 | 165,916 | |||||
Total liabilities | 483,043 | 847,462 | |||||
Less: current portion | 412,916 | 681,546 | |||||
Non-interest-bearing loans | 58,598 | 75,774 | |||||
Total liabilities | 59,216 | 81,499 | |||||
Less: current portion | 618 | 5,725 | |||||
Net long-term liabilities | 2,622,031 | 3,060,226 |
Page F-47 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
19. LONG-TERM LIABILITIES(continued)
Capitalized finance leases | ||||||||||||||||
Year of | ||||||||||||||||
final | Year-end | 2004 | 2003 | |||||||||||||
Type of lease | Currency | repayment | interest rate | R'000 | R'000 | |||||||||||
Land and buildings | Rand | 2010 | 13.8 | % | 16,868 | 17,650 | ||||||||||
Rand | 2007 | 21.5 | % | 41,797 | 47,667 | |||||||||||
Rand | 2012 | 17.0 | % | 52,584 | 51,374 | |||||||||||
2023 | 12.0 | % | 115,088 | – | ||||||||||||
226,337 | 116,691 | |||||||||||||||
Transmission equipment | Euro | 2010 | 8.1 | % | 368,099 | 467,334 | ||||||||||
US dollar | 2012 | 6.5 | % | 460,334 | 557,855 | |||||||||||
US dollar | 2006 | 5.1 | % | 306,822 | 426,090 | |||||||||||
US dollar | 2008 | 20.0 | % | 82,118 | 114,257 | |||||||||||
Thai baht | 2012 | 8.2 | % | 708,524 | 974,148 | |||||||||||
– | 9.7% - 12.2 | % | 4,888 | 11,910 | ||||||||||||
1,930,785 | 2,551,594 | |||||||||||||||
Vehicles, computers and office equipment | Rand | 2006 | 10.5 | % | 15,729 | 27,938 | ||||||||||
Rand | various | various | 358 | 495 | ||||||||||||
16,087 | 28,433 | |||||||||||||||
Total capitalized finance leases | 2,173,209 | 2,696,718 | ||||||||||||||
Minimum instalments | ||||||||||||||||
Payable within year one | 445,044 | 516,525 | ||||||||||||||
Payable within year two | 399,866 | 458,470 | ||||||||||||||
Payable within year three | 403,233 | 430,251 | ||||||||||||||
Payable within year four | 372,735 | 443,863 | ||||||||||||||
Payable within year five | 360,074 | 414,499 | ||||||||||||||
Payable after year five | 1,133,975 | 1,142,722 | ||||||||||||||
3,114,927 | 3,406,330 | |||||||||||||||
Future finance costs on leases | 941,718 | 709,612 | ||||||||||||||
Present value of lease liabilities | 2,173,209 | 2,696,718 | ||||||||||||||
Present value | ||||||||||||||||
Payable within year one | 268,238 | 318,081 | ||||||||||||||
Payable within year two | 242,339 | 284,724 | ||||||||||||||
Payable within year three | 266,925 | 277,442 | ||||||||||||||
Payable within year four | 263,362 | 314,365 | ||||||||||||||
Payable within year five | 273,193 | 311,058 | ||||||||||||||
Payable after year five | 859,152 | 1,191,048 | ||||||||||||||
Present value of finance lease liabilities | 2,173,209 | 2,696,718 |
Page F-48 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
19. LONG-TERM LIABILITIES(continued)
Concession liabilities | |||||||||||||||||||
Final | Year-end | 2004 | 2003 | ||||||||||||||||
Type of concession liability | Currency | repayment | interest rate | R'000 | R'000 | ||||||||||||||
Licence consession liability | Thai baht | 2014 | 13.0 | % | 6,772 | 7,887 | |||||||||||||
Licence consession liability | Thai baht | 2019 | 12.0 | % | 9,089 | 10,353 | |||||||||||||
15,861 | 18,240 | ||||||||||||||||||
Interest-bearing loans | |||||||||||||||||||
Asset | Final | Year-end | 2004 | 2003 | |||||||||||||||
Loan | secured | Currency | repayment | interest rate | R'000 | R'000 | |||||||||||||
Secured | |||||||||||||||||||
Term loan: ABSA Bank Limited | Shares | US dollar | 2004 | 3.3 | % | – | 197,389 | ||||||||||||
Term loan: Investec Bank Limited | Cash | Rand | 2006 | 7.0 | % | 180,000 | – | ||||||||||||
Term loan: Nedbank Limited | Receivables | Rand | 2006 | 15.5 | % | 265,157 | 283,250 | ||||||||||||
Instalment sale: Wesbank Limited | Machinery | Rand | 2007 | 10.5 | % | 10,628 | 11,844 | ||||||||||||
Bond finance: Investec Bank Limited | Land | Rand | 2009 - 2011 | 13.7 | % | 14,526 | 15,773 | ||||||||||||
Bond finance: Nedbank Limited | Land | Rand | 2012 | 12.8 | % | 7,330 | 7,815 | ||||||||||||
Other loans | Equipment | Rand | various | various | 592 | 2,690 | |||||||||||||
Right to subscription shares | – | Rand | 2006 | – | (170,132 | ) | (148,361 | ) | |||||||||||
Unsecured | |||||||||||||||||||
Term loan: FirstRand Bank Limited | Rand | 2006 | 10.2 | % | 111,316 | – | |||||||||||||
Term loan: SCMB Limited | Rand | 2005 | 10.1 | % | 21,678 | 43,642 | |||||||||||||
Term loan: CommerzBank and Futuregrowth | Rand | 2007 | 10.5 | % | 116,469 | – | |||||||||||||
Term loan: ABSA, Nedbank and RMB | Rand | – | – | – | 347,000 | ||||||||||||||
Term loan: ABSA Bank Limited | Rand | – | – | – | 78,000 | ||||||||||||||
Term loan: ABSA Bank Limited | Rand | 2009 | 15,6 | % | 183,200 | 183,200 | |||||||||||||
Term loan: Nedbank Limited | Rand | 2012 | 14.7 | % | 41,257 | 39,076 | |||||||||||||
Welkom debenture scheme | Rand | – | – | – | 317,162 | ||||||||||||||
Onerous lease liabilities | Rand | 2005 | 14.0 | % | 2,301 | 69,031 | |||||||||||||
Loans from minority shareholders | Rand | various | various | 29,325 | 85,230 | ||||||||||||||
Preference share investments | Rand | 2012 | – | (24,554 | ) | (397,785 | ) | ||||||||||||
Right to subscription shares | Rand | 2009 | – | (97,373 | ) | (83,428 | ) | ||||||||||||
691,720 | 1,051,528 | ||||||||||||||||||
Program and film rights | |||||||||||||||||||
Final | Year-end | 2004 | 2003 | ||||||||||||||||
Liabilities | Currency | repayment | interest rate | R'000 | R'000 | ||||||||||||||
Program and film rights liabilities | Euro | 2006 | – | 238,285 | 474,303 | ||||||||||||||
US dollar | 2005 | – | 244,758 | 373,159 | |||||||||||||||
483,043 | 847,462 | ||||||||||||||||||
Non-interest-bearing loans | |||||||||||||||||||
Final | Year-end | 2004 | 2003 | ||||||||||||||||
Loans | Currency | repayment | interest rate | R'000 | R'000 | ||||||||||||||
Loans from minority shareholders | Rand | 2006 | – | 59,216 | 81,499 | ||||||||||||||
59,216 | 81,499 |
Page F-49 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
19. LONG-TERM LIABILITIES(continued)
March 31 | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Repayment of long-term liabilities | |||||||
Payable within year one | 532,780 | 1,317,140 | |||||
Payable within year two | 340,383 | 224,732 | |||||
Payable within year three | 162,846 | 43,346 | |||||
Payable within year four | 13,690 | 126,703 | |||||
Payable within year five | 90,539 | 10,769 | |||||
Payable after year five | 109,602 | 276,039 | |||||
1,249,840 | 1,998,729 |
20. PROVISIONS
Trans- | Unutilized | Charged | ||||||||||||||||||||
lation | Additional | provisions | to | |||||||||||||||||||
April 1 | adjust- | provisions | reversed | other | Provisions | March 31 | ||||||||||||||||
2003 | ments | raised | to income | accounts | utilized | 2004 | ||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||
Reorganization | 740 | (149 | ) | 871 | – | – | – | 1,462 | ||||||||||||||
Onerous contracts | 835 | – | 14,514 | – | – | (835 | ) | 14,514 | ||||||||||||||
Discontinued operations | 51,565 | (3,957 | ) | – | (6,361 | ) | (4,387 | ) | (6,609 | ) | 30,251 | |||||||||||
Pending litigation | 9,544 | – | 13,840 | (694 | ) | 294 | (643 | ) | 22,341 | |||||||||||||
Ad Valorem duties | – | – | 23,100 | – | – | – | 23,100 | |||||||||||||||
Other | 2,997 | 1,489 | – | – | 504 | – | 4,990 | |||||||||||||||
65,681 | (2,617 | ) | 52,325 | (7,055 | ) | (3,589 | ) | (8,087 | ) | 96,658 | ||||||||||||
Accounts receivable impairment - note 12 | 388,719 | (17,621 | ) | 61,994 | (8,845 | ) | 5,119 | (30,914 | ) | 398,452 | ||||||||||||
Slow-moving and obsolete inventories - note 11 | 143,989 | (6,194 | ) | 15,683 | (3,745 | ) | 364 | (19,151 | ) | 130,946 | ||||||||||||
Post-retirement medical liability - note 18 | 149,345 | (393 | ) | 30,328 | (14 | ) | (7,538 | ) | (658 | ) | 171,070 | |||||||||||
747,734 | (26,825 | ) | 160,330 | (19,659 | ) | (5,644 | ) | (58,810 | ) | 797,126 |
The following account balances have been determined based on management’s estimates and assumptions:
Further details describing the provisions at March 31, 2004 are included below:
The reorganization provisions have been raised in connection with reorganization costs in the group’s private education businesses.
The provision for onerous contracts relates to obligations that the group has in terms of lease agreements, but the premises have been vacated. The group is liable for the rent under these contracts. The obligation will be settled over the remaining lease periods until 2010.
The provision for discontinued operations relates to amounts payable for settlement, legal and retrenchment costs arising from the discontinuance of the Mindport Broadband business and to teach-out costs to be paid relating to the closure of Lyceum College.
The group is currently involved in various litigation matters. The litigation provision has been made based on legal counsel and management’s estimates of costs and claims relating to these actions. (Refer note 22)
The provision for ad valorem duties relates to an investigation by the tax authorities into the value ascribed to digital satellite decoders purchased for onward sale to major retailers. A provision was raised by the group for the payment of these duties. The group expect the matter to be settled during the next year.
Other provisions relates to various liabilities of the group with uncertain timings and amounts.
Page F-50 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
20. PROVISIONS(continued)
Trans- | Arising | Unutilized | Charged | ||||||||||||||||||||||
lation | on | Additional | provisions | to | |||||||||||||||||||||
April 1 | adjust- | acqui- | provisions | reversed | other | Provisions | March 31 | ||||||||||||||||||
2002 | ments | sition | raised | to income | accounts | utilized | 2003 | ||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||
Warranties | 18,456 | (5,991 | ) | – | – | (12,465 | ) | – | – | – | |||||||||||||||
Reorganization | 13,804 | (326 | ) | – | – | (920 | ) | (1,602 | ) | (10,216 | ) | 740 | |||||||||||||
Onerous contracts | 2,038 | – | – | 834 | (2,037 | ) | – | – | 835 | ||||||||||||||||
Discontinued operations | 135,146 | (25,267 | ) | – | – | (36,928 | ) | – | (21,386 | ) | 51,565 | ||||||||||||||
Pending litigation | 1,500 | – | – | 8,982 | (288 | ) | 600 | (1,250 | ) | 9,544 | |||||||||||||||
Other | 2,749 | 248 | – | – | – | – | – | 2,997 | |||||||||||||||||
173,693 | (31,336 | ) | – | 9,816 | (52,638 | ) | (1,002 | ) | (32,852 | ) | 65,681 | ||||||||||||||
Accounts receivable impairment - note 12 | 492,824 | (54,472 | ) | 11,435 | 49,060 | (1,231 | ) | (83,868 | ) | (25,029 | ) | 388,719 | |||||||||||||
Slow-moving and obsolete inventories - note 11 | 120,555 | (14,260 | ) | 455 | 41,839 | (1,528 | ) | – | (3,072 | ) | 143,989 | ||||||||||||||
Post-retirement medical liability - note 18 | 125,843 | 237 | – | 20,671 | (216 | ) | 3,401 | (591 | ) | 149,345 | |||||||||||||||
912,915 | (99,831 | ) | 11,890 | 121,386 | (55,613 | ) | (81,469 | ) | (61,544 | ) | 747,734 |
Trans- | Arising | Unutilized | Charged | ||||||||||||||||||||||
lation | on | Additional | provisions | to | |||||||||||||||||||||
April 1 | adjust- | acqui- | provisions | reversed | other | Provisions | March 31 | ||||||||||||||||||
2001 | ments | sition | raised | to income | accounts | utilized | 2002 | ||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||
Warranties | 46,312 | 6,133 | – | – | – | – | (33,989 | ) | 18,456 | ||||||||||||||||
Intellectual property | 9,954 | 4,178 | – | – | – | – | (14,132 | ) | – | ||||||||||||||||
Digital decoder upgrade | 12,743 | 5,558 | – | – | – | – | (18,301 | ) | – | ||||||||||||||||
Losses in joint ventures | 7,024 | 402 | – | – | – | – | (7,426 | ) | – | ||||||||||||||||
Reorganization | 37,324 | 2,435 | – | 18,639 | (28,108 | ) | – | (16,486 | ) | 13,804 | |||||||||||||||
Onerous contracts | 5,222 | – | – | – | – | (3,184 | ) | 2,038 | |||||||||||||||||
Discontinued operations | – | – | – | 144,246 | – | – | (9,100 | ) | 135,146 | ||||||||||||||||
Pending litigation | – | – | – | 1,500 | – | – | – | 1,500 | |||||||||||||||||
Other | 1,946 | 803 | – | – | – | – | – | 2,749 | |||||||||||||||||
120,525 | 19,509 | – | 164,385 | (28,108 | ) | – | (102,618 | ) | 173,693 | ||||||||||||||||
Accounts receivable impairment | 342,289 | 59,382 | 1,309 | 52,254 | (8,455 | ) | 74,034 | (27,989 | ) | 492,824 | |||||||||||||||
Slow-moving and obsolete inventories | 97,991 | 25,290 | 688 | 5,894 | (2,142 | ) | 1,681 | (8,847 | ) | 120,555 | |||||||||||||||
Post-retirement medical liability | 121,508 | – | – | 4,335 | – | – | – | 125,843 | |||||||||||||||||
682,313 | 104,181 | 1,997 | 226,868 | (38,705 | ) | 75,715 | (139,454 | ) | 912,915 |
Page F-51 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
31 March | ||||||||||
2004 | 2003 | |||||||||
R'000 | R'000 | |||||||||
21. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | ||||||||||
Deferred income | 683,503 | 699,426 | ||||||||
Accrued expenses | 1,003,266 | 920,291 | ||||||||
Amounts owing in respect of investments acquired | 766,578 | 750 | ||||||||
Taxes and social securities | 149,456 | 154,576 | ||||||||
Payments received in advance | 29,726 | 27,593 | ||||||||
Royalties payable | 24,749 | 69,063 | ||||||||
Other current liabilities | 371,277 | 338,430 | ||||||||
3,028,555 | 2,210,129 | |||||||||
22. COMMITMENTS AND CONTINGENCIES
The group is subject to contingencies, which occur in the normal course of business including legal proceedings, and claims that cover a wide range of matters. These contingencies include contract and employment claims, product liability and warranty. None of these claims are expected to result in a material gain or loss to the group.
(a) Capital expenditure
Commitments in respect of contracts placed for capital expenditure at March 31, 2004 amount to Rand 394.0 million (2003: Rand 138.0 million).
(b) Program and film rights
At March 31, 2004 the group had entered into contracts for the purchase of program and film rights. The group's commitments in respect of these contracts amounted to Rand 994.5 million (2003: Rand 1,897.7 million).
(c) Network supply agreements
At March 31, 2004 the group had entered into contracts for the supply of network capacity. The group's commitments in respect of these agreements amounted to Rand 42.7 million (2003: Rand 110.3 million).
(d) Set-top boxes
At March 31, 2004 the group had entered into contracts for the purchase of set-top boxes (decoders). The group's commitments in respect of these contracts amounted to Rand 189.0 million (2003: Rand 5.5 million).
(e) Other commitments
At March 31, 2004 the group had entered into contracts for the receipt of various services. These service contracts are for the receipt of advertising, security, cleaning and computer support services. The group’s commitments in respect of these agreements amounted to Rand 122.2 million (2003: Rand 84.1 million).
Page F-52 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
22. COMMITMENTS AND CONTINGENCIES(continued)
(f) Operating lease commitments
The group has the following operating lease liabilities at March 31, 2004 and 2003:
31 March | ||||||||||
2004 | 2003 | |||||||||
R'000 | R'000 | |||||||||
Commitments | ||||||||||
Minimum operating lease payments | ||||||||||
Payable in year one | 193,837 | 155,294 | ||||||||
Payable in year two | 178,429 | 139,919 | ||||||||
Payable in year three | 141,832 | 124,463 | ||||||||
Payable in year four | 80,853 | 94,304 | ||||||||
Payable in year five | 21,077 | 41,890 | ||||||||
Payable after five years | 14,747 | 73,279 | ||||||||
630,775 | 629,149 |
(g) Litigation claims
Fidelity Management S.A.
On July 26, 2002, NetMed NV ("NetMed"), Myriad International Holdings BV ("MIH BV") and Fidelity Management S.A. ("Fidelity") entered into a share subscription agreement and a share sale agreement under which Fidelity would have acquired a 22% interest in NetMed, the group’s pay-television subsidiary in Greece, for a cash purchase price of U.S. $5 million plus a cash payment equal to an amount calculated with reference to the value of the subscriber base to be acquired by NetMed. The completion of this transaction was subject to the unconditional approval of the Greek Competition Committee before a stipulated date. The required approval from the Greek Competition Committee was not received within the contractually agreed period and accordingly the group believes that the agreements have ceas ed to have any force or effect.
As Fidelity disputed this, NetMed and MIH BV initiated arbitration proceedings under the auspices of the London Court of International Arbitration seeking confirmation from the tribunal that the agreements had lapsed. Fidelity has counterclaimed for loss and damages allegedly suffered as a result of the actions of NetMed and MIH BV. Fidelity has also initiated legal proceedings in the South African courts against Naspers Limited, MIH Holdings Limited and an employee of MIH BV claiming approximately U.S. $62 million (alternatively, approximately U.S. $114 million) on the grounds that the parties had unlawfully caused NetMed to terminate its agreements with Fidelity, thereby causing Fidelity financial loss.
Call Center Nucleus (Pty) Ltd
Call Center Nucleus (Proprietary) Limited ("CCN") has claimed approximately Rand 13.5 million from M-Web Holdings Limited arising out of the purchase by M-Web of a subscriber base from CCN. The matter has been referred for arbitration and a hearing is expected during 2004.
PaySmart Africa (Pty) Ltd
PaySmart Africa (Proprietary) Limited ("Paysmart") has claimed approximately Rand 10.4 million from Electronic Media Network Limited ("M-Net") and Endemol South Africa Limited ("Endemol") (in its capacity as producer ofBig Brother Africa). Paysmart alleges that it would have realized this amount if M-Net and Endemol had granted to it the rights to provide an SMS voting system forBig Brother AfricaandIdols, as allegedly contemplated in Heads of Agreement executed by the parties in April 2003.
Telecommunications Authority of Thailand
The Telecommunications Authority of Thailand ("TOT") has claimed approximately U.S. $4.4 million from United Broadcasting Corporation Public Company Limited ("UBC") arising out of services allegedly tendered by TOT to the predecessor in title to UBC.
Defamation claims
Touchline Media (Proprietary) Ltd, a subsidiary of Media24 Limited, is a defendant in a defamation claim for damages for an amount of approximately Rand 12 million (increased from previous Rand 8 million). The claim results from articles and statements published in a magazine published by Touchline Media.
Page F-53 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
22. COMMITMENTS AND CONTINGENCIES(continued)
(g) Litigation claims(continued)
Taxation matters
A claim, first raised during the 2003 financial year, from the Kenyan tax authorities that MultiChoice Kenya should have paid VAT on its agreements with subscribers for approximately U.S. $4.1 million will be heard by the tax tribunal in the course of 2004.
In December 2000, MultiChoice Hellas SA received a tax assessment for approximately €5.4 million flowing from the tax treatment of advertising and marketing costs and municipal duties. The company challenged the assessment and the Court of First Instance has found against the company. MultiChoice Hellas has appealed the decision.
Thomas Weisel Partners LLC (Weisel)
On March 12, 2003 Liberty Media Corporation advised the group that it is seeking indemnification for a claim that OpenTV Inc. received in terms of an arbitration demand from Weisel, claiming that OpenTV Inc. was required to pay Weisel a fee of about U.S. $1.9 million in connection with OpenTV’s acquisition of Wink Communications Inc.
MultiChoice Hellas License
On September 5, 2003, the Commerce Administration of the Prefectorial Government of East Attica, Greece (the "Prefecture") notified MultiChoice Hellas that the Prefecture intended to revoke MultiChoice Hellas’ license of establishment and operation (the "License"), on the ground that MultiChoice Hellas’ paid up share capital had fallen below one tenth of its total shareholders’ equity. The Prefecture has also refused to approve a resolution recapitalizing MultiChoice Hellas, which was passed by a majority of MultiChoice Hellas’ shareholders at an extraordinary general meeting on March 13, 2003 in order to resolve the irregularity. The Prefecture’s refusal was based on an allegation that the resolution had not been passed by the requisite majority of MultiChoice Hellas shareholders. The n otification included an invitation to MultiChoice Hellas to express its views on the notification at a hearing at the Prefecture. Prior to the hearing, MultiChoice Hellas filed a contestation in the supreme administrative court of Greece, the Council of State, contesting the Prefecture’s refusal to approve the shareholders’ resolution of March 13, 2003. MultiChoice Hellas’s contestation is supported by opinions from professors of the Athens University Law School, who are recognized as authorities on Greek corporate and administrative law. MultiChoice Hellas confirmed its views in the subsequent hearing at the Prefecture and in an extensive memorandum that it filed with the Prefecture. Following the hearing, and several subsequent meetings, the Prefecture has indicated that, prior to the disposition of the contestation that is pending before the Council of State, it will not revoke the License. The Prefecture is deciding if and how it will formally document the suspension of its original intent ion to revoke the License, and the duration of such suspension. Any revocation of the License would itself be subject to contestation before the Council of State, and MultiChoice Hellas would have the right to request a stay pending the hearing of such a contestation.
Equity compensation claims
Three former employees of the group have made claims against the Royal Bank of Canada Trustees Limited, being the trustees of the Mindport Share Trust, alleging that the trustees used an incorrect valuation methodology in valuing their scheme shares at the time of the cessation of their employment.
(h) Guarantees
At March 31, 2004 the group had provided guarantees of Rand 76.4 million (2003: Rand 94.9 million) mainly in respect of office rental, services and other contracts.
(i) Assets pledged as security
The group pledged property, plant and equipment, investments, cash and cash equivalents and accounts receivable with a net carrying value of Rand 786.2 million at March 31, 2004 (2003: Rand 794.6 million) to a number of banks as security for certain term loans and bank overdrafts.
The group plans to fund above commitments and liabilities out of existing loan facili/ties and internally generated funds.
Page F-54 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
23. NET REVENUES
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R’000 | R’000 | R’000 | ||||||||
Net revenues - continuing operations | ||||||||||
Subscription | 6,932,212 | 6,674,186 | 5,491,530 | |||||||
Hardware sales | 447,283 | 490,672 | 539,223 | |||||||
Technology | 333,128 | 399,779 | 456,313 | |||||||
Circulation | 681,584 | 601,682 | 523,793 | |||||||
Advertising | 1,711,410 | 1,483,957 | 1,298,720 | |||||||
Printing and distribution | 689,304 | 662,892 | 565,700 | |||||||
Book publishing and sales | 712,193 | 624,358 | 613,443 | |||||||
Tuition fees | 494,818 | 473,304 | 454,372 | |||||||
e-Commerce revenue | 285,295 | 232,919 | 249,838 | |||||||
Other | 517,283 | 560,158 | 506,973 | |||||||
12,804,510 | 12,203,907 | 10,699,905 | ||||||||
Net revenues - continuing operations | ||||||||||
OpenTV | - | 234,519 | 839,826 | |||||||
Mindport Broadband | - | - | 85,225 | |||||||
Lyceum College | 20,277 | 21,874 | 24,803 | |||||||
20,277 | 256,393 | 949,854 | ||||||||
Net revenues - total | 12,824,787 | 12,460,300 | 11,649,759 |
Other revenues include revenues from decoder maintenance, backhaul charges and financing service fees.
Page F-55 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
24. OPERATING PROFIT
31 March | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Operating profit | ||||||||||
Operating loss and loss from discontinued operations includes the | ||||||||||
following items: | ||||||||||
Auditors’ remuneration | ||||||||||
Audit fees | 21,003 | 19,812 | 15,028 | |||||||
Audit related fees | 1,383 | 8,046 | 3,436 | |||||||
Tax fees | 9,483 | 6,294 | 2,398 | |||||||
All other fees | 4,366 | 3,930 | 1,355 | |||||||
36,235 | 38,082 | 22,217 | ||||||||
Operating leases | ||||||||||
Buildings | 95,959 | 132,054 | 127,447 | |||||||
Satellite and transponders | 35,489 | 52,676 | 46,726 | |||||||
Other equipment | 27,522 | 26,297 | 17,173 | |||||||
158,970 | 211,027 | 191,346 | ||||||||
(Loss)/profit on sale of property, plant and | ||||||||||
equipment | (2,232 | ) | (16,580 | ) | 5,511 | |||||
Retirement benefit costs | 175,874 | 169,910 | 154,793 | |||||||
Secretarial, management and technical fees paid | ||||||||||
other than to employees | 110,093 | 110,688 | 101,663 | |||||||
Employee costs | ||||||||||
As at 31 March, the group had 12 089 | ||||||||||
(2003: 11 101, 2002: 11 494) permanent employees. | ||||||||||
Total employment costs of permanent and temporary employees, | ||||||||||
including executive directors were: | ||||||||||
Salaries, wages and bonuses | 1,818,554 | 1,861,587 | 1,808,415 | |||||||
Retirement benefit costs | 175,874 | 169,910 | 154,793 | |||||||
Medical aid fund contributions | 56,600 | 42,020 | 48,511 | |||||||
Post-retirement benefits | 27,590 | 18,088 | 15,189 | |||||||
Training costs | 21,578 | 9,506 | 11,073 | |||||||
2,100,196 | 2,101,111 | 2,037,981 | ||||||||
Advertising expenses | 372,720 | 338,387 | 305,431 | |||||||
Research and development costs | 13,984 | 7,794 | 4,778 |
Page F-56 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
25. NET FINANCE COSTS
31 March | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Interest paid | ||||||||||
Loans and overdrafts | 396,216 | 409,037 | 357,444 | |||||||
Welkom debenture scheme | 30,365 | 61,136 | 52,779 | |||||||
Finance leases | 184,817 | 269,544 | 290,563 | |||||||
611,398 | 739,717 | 700,786 | ||||||||
Preference dividends | (155,689 | ) | (142,867 | ) | (125,539 | ) | ||||
455,709 | 596,850 | 575,247 | ||||||||
Interest received | ||||||||||
Loans and bank accounts | 116,988 | 142,057 | 115,302 | |||||||
116,988 | 142,057 | 115,302 | ||||||||
Net (profit)/loss from foreign exchange translations | (63,272 | ) | (210,762 | ) | (31,713 | ) | ||||
Transponder leases | (88,098 | ) | (338,410 | ) | 264,897 | |||||
Other assets and liabilities | 24,826 | 127,648 | (296,610 | ) | ||||||
Net loss/(profit) from fair value adjustments on | ||||||||||
derivative financial instruments | 386,549 | – | – | |||||||
Foreign exchange contracts and interest rate swaps | 669,556 | – | – | |||||||
Embedded derivatives | (283,007 | ) | – | – | ||||||
Concession costs | 2,100 | 2,711 | 2,613 | |||||||
Net finance costs | 664,098 | 246,742 | 430,845 | |||||||
26. INCOME FROM INVESTMENTS
Dividends - unlisted investments | 229 | 20 | 3,831 | |||||||
Total dividend income | 229 | 20 | 3,831 |
Page F-57 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
27. EXCEPTIONAL ITEMS
Gross | Minority | Net | |||||||||||
Amount | Taxation | interest | 2004 | ||||||||||
R'000 | R'000 | R'000 | R'000 | ||||||||||
Gains: | |||||||||||||
Profit on sale of land and buildings | 12,320 | (1,226 | ) | – | 11,094 | ||||||||
Profit on sale of investments | 2,235 | – | – | 2,235 | |||||||||
Dilution profits | 11,810 | – | – | 11,810 | |||||||||
Reversal of impairment charge | 44,450 | – | – | 44,450 | |||||||||
Profit on redemption of debentures | 16,816 | – | – | 16,816 | |||||||||
87,631 | (1,226 | ) | – | 86,405 | |||||||||
Losses: | |||||||||||||
Impairment of assets | 27,100 | – | – | 27,100 | |||||||||
Loss on sale of investments | 8,745 | – | (1,352 | ) | 7,393 | ||||||||
Dilution losses | 3,901 | – | – | 3,901 | |||||||||
39,746 | – | (1,352 | ) | 38,394 | |||||||||
Net exceptional items | 47,885 | (1,226 | ) | 1,352 | 48,011 |
Gross | Minority | Net | |||||||||||
Amount | Taxation | interest | 2003 | ||||||||||
R'000 | R'000 | R'000 | R'000 | ||||||||||
Gains: | |||||||||||||
Profit on sale of land and buildings | 4,393 | – | – | 4,393 | |||||||||
Profit on sale of investments | 6,682 | – | – | 6,682 | |||||||||
Dilution profits | 1,418 | – | – | 1,418 | |||||||||
Reversal of warranty provision | 6,500 | – | – | 6,500 | |||||||||
Profit on sale of Liberty Media Corporation shares | 120,887 | – | (51,311 | ) | 69,576 | ||||||||
139,880 | – | (51,311 | ) | 88,569 | |||||||||
Losses: | |||||||||||||
Impairment of assets | 70,730 | – | – | 70,730 | |||||||||
Loss on sale of investments | 5,136 | – | (917 | ) | 4,219 | ||||||||
Dilution losses | 2,714 | – | – | 2,714 | |||||||||
78,580 | – | (917 | ) | 77,663 | |||||||||
Net exceptional items | 61,300 | – | (50,394 | ) | 10,906 |
Page F-58 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
27. EXCEPTIONAL ITEMS(continued)
Gross | Minority | Net | |||||||||||
Amount | Taxation | interest | 2002 | ||||||||||
R'000 | R'000 | R'000 | R'000 | ||||||||||
Gains: | |||||||||||||
Profit on dilution of interest in subsidiaries | 84,612 | – | (53,445 | ) | 31,167 | ||||||||
Disposal of investments and business units | 106,068 | – | (30,587 | ) | 75,481 | ||||||||
Reversal of warranty provisions | 4,189 | – | – | 4,189 | |||||||||
Reversal of impairment charge | 4,500 | – | – | 4,500 | |||||||||
199,369 | – | (84,032 | ) | 115,337 | |||||||||
Losses: | |||||||||||||
Disposal of other investments and business units | 130,789 | (1,858 | ) | (69,087 | ) | 59,844 | |||||||
Asset impairments | 28,420 | (760 | ) | (594 | ) | 27,066 | |||||||
Shares repurchased by joint ventures | 31,816 | – | (6,556 | ) | 25,260 | ||||||||
Restructuring costs | 2,096 | (629 | ) | (628 | ) | 839 | |||||||
Provision for claims | 1,500 | (450 | ) | – | 1,050 | ||||||||
194,621 | (3,697 | ) | (76,865 | ) | 114,059 | ||||||||
Net exceptional items | 4,748 | 3,697 | (7,167 | ) | 1,278 |
28. TAXATION
31 March | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
R'000 | R'000 | R'000 | |||||||||||
Normal taxation | 487,685 | 295,565 | 87,322 | ||||||||||
South Africa | |||||||||||||
Current year | 267,949 | 158,372 | 49,494 | ||||||||||
Prior years | 132,710 | 14,090 | (2,217 | ) | |||||||||
Foreign taxation | |||||||||||||
Current year | 83,806 | 76,626 | 40,045 | ||||||||||
Prior years | 3,220 | 46,477 | – | ||||||||||
Secondary taxation on companies | 10,467 | 7,545 | 8,322 | ||||||||||
Income taxation for the year | 498,152 | 303,110 | 95,644 | ||||||||||
Deferred taxation | (322,299 | ) | (141,467 | ) | 41,226 | ||||||||
Current year | 44,103 | 92,075 | 31,496 | ||||||||||
Prior years | (364,546 | ) | (227,326 | ) | 7,332 | ||||||||
Foreign | (1,856 | ) | (6,216 | ) | 2,398 | ||||||||
Total taxation for the group | 175,853 | 161,643 | 136,870 | ||||||||||
Share of equity accounted companies’ taxation | – | 9 | 4,489 | ||||||||||
Total tax per income statement | 175,853 | 161,652 | 141,359 |
Page F-59 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
28. TAXATION(continued)
31 March | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Reconciliation of taxation | ||||||||||
Taxation at statutory rates | 368,724 | 15,095 | (162,190 | ) | ||||||
Adjusted for: | ||||||||||
Non-deductable expenses | 62,014 | 362,207 | 259,120 | |||||||
Non-taxable income | (72,157 | ) | (254,262 | ) | (165,451 | ) | ||||
Unprovided timing differences | 19,848 | 159,280 | 209,466 | |||||||
Assessed losses utilized | (25,640 | ) | (4,368 | ) | 2,342 | |||||
Prior year adjustments | (222,562 | ) | (214,974 | ) | (3,937 | ) | ||||
Other taxes | 45,626 | 17,306 | 21,424 | |||||||
Goodwill adjustment | – | 81,368 | – | |||||||
Changes in taxation rates | – | – | (19,415 | ) | ||||||
Taxation provided in income statement | 175,853 | 161,652 | 141,359 | |||||||
29. DISCONTINUING OPERATIONS
Lyceum College
Effective the end of September 2001, the group decided to terminate the operations of Lyceum College, a distance-learning operation. The decision was taken to embark on a teach-out program for students enrolled under current course programs. Current students will therefore be allowed to complete their current courses, but no new enrolments will be allowed. The group has provided in full for future teach-out and other related closure costs. The results of this operation were previously included in the group’s private education segment.
The following is selected financial data relating to | 31 March | |||||||||
Lyceum College: | 2004 | 2003 | 2002 | |||||||
R'000 | R'000 | R'000 | ||||||||
Revenue | 20,277 | 21,874 | 24,803 | |||||||
Operating loss | – | – | 3,459 | |||||||
Net loss | – | – | 2,880 | |||||||
Closure and teach out costs included in | ||||||||||
loss arising on discontinuance | – | – | 74,418 | |||||||
Total assets | – | 21,618 | 61,357 | |||||||
Total liabilities | – | 44,676 | 64,356 | |||||||
Net cash flow for the year | (5,806 | ) | (5,514 | ) | 3,841 |
Page F-60 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
29. DISCONTINUING OPERATIONS(continued)
Mindport Broadband
On November 21, 2001, the group publicly announced that the stand-alone Mindport businesses for the broadband initiatives and the integrated business software products would be discontinued as part of a formal plan established by management. The results of this operation were previously included in the group’s technology segment.
31 March | ||||||||||
The following is selected financial data relating | 2004 | 2003 | 2002 | |||||||
to Mindport Broadband: | R'000 | R'000 | R'000 | |||||||
Revenue | – | – | 85,225 | |||||||
Operating loss | – | – | 409,513 | |||||||
Taxation expense | – | – | 4,185 | |||||||
Net loss | – | – | 155,720 | |||||||
Impairment of goodwill and assets included in | ||||||||||
loss arising on discontinuance | – | – | 275,536 | |||||||
Minorities' contribution included in loss arising on discontinuance | – | – | 159,167 | |||||||
Total assets | – | – | 384,881 | |||||||
Total liabilities | – | – | 1,117,110 | |||||||
Net cash flow for the year | – | – | 4,448 |
OpenTV Corp.
On May 8, 2002, the group publicly announced that it had entered into an agreement in terms of which it would sell its entire interest in OpenTV Corp. to Liberty Media Corporation for a gross amount of approximately U.S. $185 million payable in cash and Liberty Media Corporation shares. This transaction was concluded in August 2002. The results of this operation were previously included in the technology segment of the group.
31 March | ||||||||||
The following is selected financial data relating | 2004 | 2003 | 2002 | |||||||
to OpenTV Corp: | R'000 | R'000 | R'000 | |||||||
Revenue | – | 234 519 | 839,826 | |||||||
Operating loss | – | (888 171 | ) | (2,267,499 | ) | |||||
Taxation | – | (7 046 | ) | (12,997 | ) | |||||
Loss from discontinuing operations | – | (140 810 | ) | (446,713 | ) | |||||
The profit/(loss) arising on discontinuance of OpenTV includes the | ||||||||||
following items: | ||||||||||
Profit on sale of OpenTV | – | 1,122,963 | – | |||||||
Impairment of goodwill | – | – | (4,613,942 | ) | ||||||
Minorities | – | (372,085 | ) | 3,852,481 | ||||||
– | 750,878 | (761,461 | ) | |||||||
The carrying values included in the group's balance sheets as at | ||||||||||
31 March 2003 and 2002, relating to OpenTV are as follows: | ||||||||||
Total assets | – | – | 5,548,973 | |||||||
Total liabilities | – | – | (475,863 | ) | ||||||
Total cash flow | – | (675 513 | ) | (561 791 | ) |
Page F-61 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
30. EARNINGS PER SHARE
31 March | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
R'000 | R'000 | R'000 | |||||||||||
Earnings | |||||||||||||
Net profit/(loss) attributable to shareholders | 371,414 | 333,142 | (1,947,126 | ) | |||||||||
Headline adjustments | |||||||||||||
Profits | 86,405 | 82,436 | 111,151 | ||||||||||
Reversal of warranty provision | – | 6,500 | 4,189 | ||||||||||
Profit on redemption of debentures | 16,816 | – | – | ||||||||||
Reversal of impairment charge | 44,450 | – | – | ||||||||||
Profit on sale of marketable securities | – | 58,316 | – | ||||||||||
Disposal of investments | 2,235 | 6,682 | 75,481 | ||||||||||
Profit on sale of assets | 11,094 | 9,520 | – | ||||||||||
Dilution profits | 11,810 | 1,418 | 31,481 | ||||||||||
Losses | 74,647 | 181,623 | 202,391 | ||||||||||
Disposal of other investments and businesses | 7,393 | 3,973 | 113,272 | ||||||||||
Asset impairments | 30,752 | 104,744 | 53,529 | ||||||||||
Impairment of program rights | 31,033 | 70,040 | – | ||||||||||
Shares repurchased by joint ventures | – | – | 25,260 | ||||||||||
Dilution losses | 3,901 | 2,601 | – | ||||||||||
Loss on sale of assets | 1,568 | 265 | – | ||||||||||
OpenTV restructuring costs accrual | – | – | 10,330 | ||||||||||
Amortization of goodwill after minorities | 419,488 | 296,475 | 423,336 | ||||||||||
(Profit)/loss arising on discontinuance of operations | – | (750,878 | ) | 952,248 | |||||||||
Headline earnings/(loss) | 779,144 | (22,074 | ) | (480,302 | ) | ||||||||
Headline loss from discontinuing operations | – | 35,098 | 220,523 | ||||||||||
Headline earnings/(loss) from continuing operations | 779,144 | 13,024 | (259,779 | ) | |||||||||
Attributable profit/(loss) | 371,414 | 333,142 | (1,947,126 | ) | |||||||||
Interest on Welkom debentures scheme | – | 61,136 | 52,779 | ||||||||||
Fully diluted profit/(loss) | 371,414 | 394,278 | (1,894,347 | ) | |||||||||
Weighted average number of N ordinary shares in issue | |||||||||||||
during the year | 257,813,528 | 176,527,751 | 145,691,868 | ||||||||||
Dilution effect of shares held by equity compensation plans | 7,261,000 | – | – | ||||||||||
Dilution effect of options held by Welkom scheme participants | 113,411 | – | – | ||||||||||
Shares to be issued on conversion of Welkom debentures | – | 5,605,236 | 5,605,236 | ||||||||||
Fully diluted weighted number of N ordinary shares in issue | 265,187,939 | 182,132,987 | 151,297,104 | ||||||||||
Earnings/(loss) per N ordinary share (cents) | |||||||||||||
Basic | 144 | 189 | (1 336 | ) | |||||||||
Fully diluted | 140 | 189 | (1 336 | ) | |||||||||
Headline earnings/(loss) per N ordinary share (cents) | |||||||||||||
Basic | 302 | ( 13 | ) | ( 330 | ) | ||||||||
Fully diluted | 294 | ( 13 | ) | ( 330 | ) | ||||||||
Headline earnings/(loss) per N ordinary share from continuing | |||||||||||||
operations (cents) | 302 | 7 | ( 178 | ) |
Page F-62 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
31 March | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
R'000 | R'000 | R'000 | |||||||||||
31. CASH FROM ACTIVITIES | |||||||||||||
Earnings before depreciation and amortization | 2,439,207 | 1,483,828 | 895,488 | ||||||||||
Adjustment for: | |||||||||||||
Loss/(profit) on sale of property, plant and equipment | 2,232 | 16,580 | (5,511 | ) | |||||||||
Other non-cash movements | 23,045 | 54,850 | 35,016 | ||||||||||
2,464,484 | 1,555,258 | 924,993 | |||||||||||
Changes to working capital | (179,575 | ) | 703,034 | 35,051 | |||||||||
Inventory | 47,816 | 26,096 | 40,908 | ||||||||||
Receivables | (155,747 | ) | 185,953 | 29,988 | |||||||||
Payables and provisions | (258,520 | ) | 523,803 | 239,738 | |||||||||
Program and film rights | 186,876 | (32,818 | ) | (275,583 | ) | ||||||||
2,284,909 | 2,258,292 | 960,044 |
32. ACQUISITION OF SUBSIDIARIES | |||||||||||||
Fair value of assets and liabilities acquired: | |||||||||||||
Property, plant and equipment | 1,788 | – | 63,278 | ||||||||||
Investments | – | – | 4,800 | ||||||||||
Intangible assets | – | – | 132,738 | ||||||||||
Net current assets/(liabilities) | 42,702 | – | (17,355 | ) | |||||||||
Deferred taxation | 6,183 | – | (5,618 | ) | |||||||||
Long-term liabilities | (31,500 | ) | – | (15,921 | ) | ||||||||
19,173 | – | 161,922 | |||||||||||
Minority shareholders' interest | – | – | 611,810 | ||||||||||
Derecognition of investment in associate and joint ventures | (17,866 | ) | – | – | |||||||||
Goodwill | 7,965 | – | 41,718 | ||||||||||
Purchase consideration | 9,272 | – | 815,450 | ||||||||||
Amount settled via share issues | – | – | (354,122 | ) | |||||||||
Cash paid in respect of subsidiaries acquired | 9,272 | – | 461,328 | ||||||||||
Cash in subsidiaries acquired | (16,440 | ) | – | (44,894 | ) | ||||||||
Net cash (inflow)/outflow from acquisition of subsidiaries | (7,168 | ) | – | 416,434 |
Page F-63 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
31 March | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
R'000 | R'000 | R'000 |
33. ADDITIONAL INVESTMENT IN EXISTING JOINT VENTURES
Fair value of assets and liabilities acquired: | ||||||||||
Property, plant and equipment | 9,425 | – | – | |||||||
Investments | 11,618 | – | – | |||||||
Intangible assets | 780 | – | – | |||||||
Net current liabilities | (30,234 | ) | – | – | ||||||
Deferred taxation | 9,046 | – | – | |||||||
Long-term liabilities | (2,860 | ) | – | – | ||||||
(2,225 | ) | – | – | |||||||
Brandnames | 12,638 | – | – | |||||||
Goodwill | 492,858 | – | – | |||||||
Purchase consideration | 503,271 | – | – | |||||||
Amounts to be settled in future | (502,593 | ) | – | – | ||||||
Cash paid in respect of joint ventures acquired | 678 | – | – | |||||||
Cash in joint ventures acquired | (11,892 | ) | – | – | ||||||
Net cash inflow from additional investment in joint ventures | (11,214 | ) | – | – |
34. DISPOSAL OF SUBSIDIARIES
Book value of assets and liabilities: | ||||||||||
Property, plant and equipment | – | 254,304 | 26,830 | |||||||
Other intangible assets | – | 1,885,766 | 62,434 | |||||||
Investments and loans | – | 806,733 | 109,932 | |||||||
Long-term liabilities | – | (8,622 | ) | (59,441 | ) | |||||
Net current assets/(liabilities) | – | 827,941 | (51,048 | ) | ||||||
3,766,122 | 88,707 | |||||||||
Minorities | – | (2,289,676 | ) | (735 | ) | |||||
Profit/(loss) on sale | – | 258,906 | (76,223 | ) | ||||||
Selling price | – | 1,735,352 | 11,749 | |||||||
Cash in subsidiaries disposed | – | (826,694 | ) | (31,872 | ) | |||||
Shares received as settlement | – | (1,475,067 | ) | – | ||||||
Net cash outflow with disposal | – | (566,409 | ) | (20,123 | ) |
35. DILUTION FROM SUBSIDIARY TO JOINT VENTURE
Book value of assets and liabilities: | ||||||||||
Property, plant and equipment | 23,852 | – | – | |||||||
Net current assets | 111,475 | – | – | |||||||
135,327 | – | – | ||||||||
Carrying value of equity investment | 31,646 | – | – | |||||||
Minorities | (135,327 | ) | – | – | ||||||
Dilution profit | 1,842 | – | – | |||||||
Dilution of cash in subsidiary | (118,232 | ) | – | – | ||||||
Net cash outflow with dilution to joint venture | (84,744 | ) | – | – |
Page F-64 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
31 March | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 |
36. CASH AND CASH EQUIVALENTS
Cash and deposits | 3,066,071 | 3,158,889 | 3,243,597 | |||||||
Bank overdrafts | (450,461 | ) | (704,111 | ) | (1,177,860 | ) | ||||
2,615,610 | 2,454,778 | 2,065,737 |
Certain cash balances are restricted from immediate use according to agreements with banks and other financial institutions. A total amount of Rand 451.4 million was restricted at March 31, 2004 (2003: Rand 203.0 million).
37. BUSINESS AND GEOGRAPHICAL SEGMENTS
Primary reporting format - business segments
The group has determined that its primary reporting format for segments is based on its method of internal reporting that disaggregates its businesses by service or product. The group’s reportable business segments are subscriber platforms, print media, book publishing and private education and corporate services. The group’s business is conducted in the following main business segments:
Subscriber platforms
o | Television platforms - through the group’s subsidiaries, associated companies and joint ventures based in South Africa, Africa south of the Sahara, Cyprus, Greece and Thailand, which generate revenue mainly from local customers. |
o | Internet - through the group’s subsidiaries and joint ventures based in South Africa, Africa south of the Sahara, Thailand and China which generate revenue mainly from local customers. |
o | Technology - through the group’s subsidiaries based in the Netherlands and the United States of America, which generate income from customers based around the world. |
Print media - through the group’s subsidiaries, joint ventures and associated companies in Southern Africa, which publish, print and distribute various newspapers and magazines for the local market.
Book publishing and private education
o | Books- through the group’s subsidiaries in Southern Africa, which generate income mainly from local customers. |
o | Private education - through the group’s subsidiaries in South Africa, which generate income mainly from local customers. |
Corporate services - represent the group’s holding company and head office infrastructure.
The accounting policies applied by the reportable segments are consistent with the accounting policies applied in the consolidated financial statements, as described in note 2.
Page F-65 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
37. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Subscriber platforms | Print media | Books & Private education | ||||||||||||||||||||||||||
Pay | Corporate | Consolidated | ||||||||||||||||||||||||||
March 2004 | television | Internet | Technology | Books | Education | services | Eliminations | total | ||||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||
External | 7,298,517 | 1,046,642 | 315,321 | 2,820,413 | 785,593 | 535,699 | 2,325 | – | 12,804,510 | |||||||||||||||||||
Intersegmental | 7,993 | 9,798 | 91,514 | 114,892 | 16,133 | – | 49,869 | (290,199 | ) | – | ||||||||||||||||||
Total revenue | 7,306,510 | 1,056,440 | 406,835 | 2,935,305 | 801,726 | 535,699 | 52,194 | (290,199 | ) | 12,804,510 | ||||||||||||||||||
Cost of providing services and sale of goods | (3,800,906 | ) | (311,482 | ) | (79,169 | ) | (1,810,839 | ) | (479,629 | ) | (264,165 | ) | (46,801 | ) | 199,464 | (6,593,527 | ) | |||||||||||
Selling, general and administration expenses | (1,791,959 | ) | (583,734 | ) | (337,101 | ) | (619,032 | ) | (285,153 | ) | (211,710 | ) | (33,822 | ) | 90,735 | (3,771,776 | ) | |||||||||||
EBITDA | 1,713,645 | 161,224 | (9,435 | ) | 505,434 | 36,944 | 59,824 | (28,429 | ) | – | 2,439,207 | |||||||||||||||||
Depreciation | (377,269 | ) | (89,710 | ) | (13,576 | ) | (116,798 | ) | (15,614 | ) | (20,096 | ) | (2,039 | ) | – | (635,102 | ) | |||||||||||
Operating profit/(loss) before amortization | 1,336,376 | 71,514 | (23,011 | ) | 388,636 | 21,330 | 39,728 | (30,468 | ) | – | 1,804,105 | |||||||||||||||||
Amortization | (242,741 | ) | (152,212 | ) | (40,108 | ) | (15,132 | ) | (6,499 | ) | (27,815 | ) | – | – | (484,507 | ) | ||||||||||||
Impairment of program rights | (31,033 | ) | – | – | – | – | – | – | – | (31,033 | ) | |||||||||||||||||
Operating profit/(loss) | 1,062,602 | (80,698 | ) | (63,119 | ) | 373,504 | 14,831 | 11,913 | (30,468 | ) | – | 1,288,565 | ||||||||||||||||
Finance costs | (710,279 | ) | (10,650 | ) | (8,011 | ) | (86,492 | ) | (4,214 | ) | (25,776 | ) | 181,324 | – | (664,098 | ) | ||||||||||||
Income from investments | 208 | – | – | – | – | – | 21 | – | 229 | |||||||||||||||||||
Share of equity accounted results | 2,605 | 47 | – | 495 | – | – | – | – | 3,147 | |||||||||||||||||||
Exceptional items | 45,160 | (4,374 | ) | – | 3,709 | 1,942 | (27,100 | ) | 28,548 | – | 47,885 | |||||||||||||||||
Taxation | (320,064 | ) | 217,049 | (1,489 | ) | (62,902 | ) | 2,304 | (2,842 | ) | (7,909 | ) | – | (175,853 | ) | |||||||||||||
Minority interest | (49,692 | ) | (42,423 | ) | – | (35,520 | ) | (149 | ) | (669 | ) | (8 | ) | – | (128,461 | ) | ||||||||||||
Net profit from continuing operations | 30,540 | 78,951 | (72,619 | ) | 192,794 | 14,714 | (44,474 | ) | 171,508 | – | 371,414 | |||||||||||||||||
Segment assets | 9,238,148 | 1,408,143 | 1,858,358 | 1,812,068 | 1,098,805 | 51,969 | 4,197,273 | (6,572,254 | ) | 13,092,510 | ||||||||||||||||||
Investment in associates | 29,350 | 63 | – | 89 | 1,369 | – | – | – | 30,871 | |||||||||||||||||||
Segment liabilities | 11,601,486 | 1,761,783 | 958,053 | 1,143,908 | 1,316,706 | – | (534,676 | ) | (6,572,254 | ) | 9,675,006 | |||||||||||||||||
Capital expenditure | 122,641 | 122,259 | 17,240 | 126,902 | 8,567 | – | 1,673 | – | 399,282 | |||||||||||||||||||
Amortization of | ||||||||||||||||||||||||||||
program and film rights* | 1,131,334 | – | – | – | – | – | – | – | 1,131,334 |
Page F-66 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
37. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Subscriber platforms | Print media | Books & Private education | ||||||||||||||||||||||||||
Pay | Corporate | Consolidated | ||||||||||||||||||||||||||
March 2003 | television | Internet | Technology | Books | Education | services | Eliminations | total | ||||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||
External | 7,225,170 | 913,119 | 377,605 | 2,468,582 | 665,443 | 552,889 | 1,099 | – | 12,203,907 | |||||||||||||||||||
Intersegmental | 20,047 | 3,552 | 80,401 | 48,830 | 16,384 | – | 49,138 | (218,352 | ) | – | ||||||||||||||||||
Total revenue | 7,245,217 | 916,671 | 458,006 | 2,517,412 | 681,827 | 552,889 | 50,237 | (218,352 | ) | 12,203,907 | ||||||||||||||||||
Cost of providing services and sale of goods | (4,182,303 | ) | (279,450 | ) | (65,862 | ) | (1,622,832 | ) | (437,213 | ) | (281,491 | ) | (41,593 | ) | 204,357 | (6,706,387 | ) | |||||||||||
Selling, general and administration expenses | (1,945,160 | ) | (732,762 | ) | (327,282 | ) | (493,471 | ) | (272,533 | ) | (230,084 | ) | (26,395 | ) | 13,995 | (4,013,692 | ) | |||||||||||
EBITDA | 1,117,754 | (95,541 | ) | 64,862 | 401,109 | (27,919 | ) | 41,314 | (17,751 | ) | – | 1,483,828 | ||||||||||||||||
Depreciation | (459,497 | ) | (124,067 | ) | (15,664 | ) | (111,601 | ) | (14,645 | ) | (18,968 | ) | (1,987 | ) | – | (746,429 | ) | |||||||||||
Operating profit/(loss) before amortization | 658,257 | (219,608 | ) | 49,198 | 289,508 | (42,564 | ) | 22,346 | (19,738 | ) | – | 737,399 | ||||||||||||||||
Amortization | (67,837 | ) | (208,184 | ) | (35,503 | ) | (10,252 | ) | (4,318 | ) | (29,680 | ) | – | – | (355,774 | ) | ||||||||||||
Impairment of program rights | (155,316 | ) | – | – | – | – | – | – | – | (155,316 | ) | |||||||||||||||||
Operating profit/(loss) | 435,104 | (427,792 | ) | 13,695 | 279,256 | (46,882 | ) | (7,334 | ) | (19,738 | ) | – | 226,309 | |||||||||||||||
Finance costs | (475,580 | ) | (13,580 | ) | (17,195 | ) | (120,940 | ) | 1,240 | (31,425 | ) | 410,738 | – | (246,742 | ) | |||||||||||||
Income from investments | – | – | – | – | – | – | 20 | – | 20 | |||||||||||||||||||
Share of equity accounted results | 1,548 | (79 | ) | – | – | – | – | – | – | 1,469 | ||||||||||||||||||
Exceptional items | (73,638 | ) | 231 | 119,232 | 11,075 | 124 | (2,224 | ) | 6,500 | – | 61,300 | |||||||||||||||||
Taxation | (121,521 | ) | (7,756 | ) | (828 | ) | (19,383 | ) | (1,871 | ) | (7,428 | ) | (2,865 | ) | – | (161,652 | ) | |||||||||||
Minority interest | (54,970 | ) | (42,692 | ) | (7,307 | ) | (33,063 | ) | (946 | ) | (1,701 | ) | (16,951 | ) | – | (157,630 | ) | |||||||||||
Net loss from continuing operations | (289,057 | ) | (491,668 | ) | 107,597 | 116,945 | (48,335 | ) | (50,112 | ) | 377,704 | – | (276,926 | ) | ||||||||||||||
Segment assets | 8,189,964 | 1,533,412 | 1,947,092 | 1,758,951 | 402,555 | 562,832 | 5,266,456 | (6,288,113 | ) | 13,373,149 | ||||||||||||||||||
Investment in associates | 23,242 | – | – | – | – | – | – | – | 23,242 | |||||||||||||||||||
Segment liabilities | 10,187,496 | 1,198,142 | 1,018,970 | 1,262,302 | 310,736 | 613,312 | 1,261,604 | (6,288,113 | ) | 9,564,449 | ||||||||||||||||||
Capital expenditure | 193,986 | 81,613 | 68,856 | 146,863 | 9,468 | 34,623 | 1,837 | – | 537,246 | |||||||||||||||||||
Amortization of | ||||||||||||||||||||||||||||
program and film rights* | 1,292,499 | – | – | – | – | – | – | – | 1,292,499 | |||||||||||||||||||
* - Included in EBITDA |
Page F-67 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
37. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Subscriber platforms | Print Media | Books & Private education | ||||||||||||||||||||||||||
Pay | Corporate | Consolidated | ||||||||||||||||||||||||||
March 2002 | television | Internet | Technology | Books | Education | services | Eliminations | total | ||||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||
External | 6,334,518 | 591,045 | 476,374 | 2,159,252 | 627,272 | 510,587 | 857 | – | 10,699,905 | |||||||||||||||||||
Intersegmental | – | 51,812 | 172,529 | 60,239 | 4,621 | – | – | (289,201 | ) | – | ||||||||||||||||||
Total revenue | 6,334,518 | 642,857 | 648,903 | 2,219,491 | 631,893 | 510,587 | 857 | (289,201 | ) | 10,699,905 | ||||||||||||||||||
Cost of providing services and sale of goods | (3,806,365 | ) | (267,048 | ) | (168,465 | ) | (1,417,018 | ) | (374,084 | ) | (267,607 | ) | – | 244,748 | (6,055,839 | ) | ||||||||||||
Selling, general and administration expenses | (1,832,373 | ) | (663,580 | ) | (378,113 | ) | (446,786 | ) | (254,186 | ) | (207,391 | ) | (10,602 | ) | 44,453 | (3,748,578 | ) | |||||||||||
EBITDA | 695,780 | (287,771 | ) | 102,325 | 355,687 | 3,623 | 35,589 | (9,745 | ) | – | 895,488 | |||||||||||||||||
Depreciation | (428,038 | ) | (129,256 | ) | (16,937 | ) | (104,988 | ) | (11,745 | ) | (22,105 | ) | (325 | ) | – | (713,394 | ) | |||||||||||
Operating profit/(loss) before amortization | 267,742 | (417,027 | ) | 85,388 | 250,699 | (8,122 | ) | 13,484 | (10,070 | ) | – | 182,094 | ||||||||||||||||
Amortization | (31,687 | ) | (287,693 | ) | (32,816 | ) | (8,794 | ) | (1,194 | ) | (23,996 | ) | – | – | (386,180 | ) | ||||||||||||
Operating profit/(loss) | 236,055 | (704,720 | ) | 52,572 | 241,905 | (9,316 | ) | (10,512 | ) | (10,070 | ) | - | (204,086 | ) | ||||||||||||||
Finance costs | (518,182 | ) | (32,562 | ) | 10,922 | (103,818 | ) | 987 | (31,877 | ) | 243,685 | – | (430,845 | ) | ||||||||||||||
Income from investments | 3,813 | – | – | – | – | – | 18 | – | 3,831 | |||||||||||||||||||
Share of equity accounted results | – | (97 | ) | – | 17,222 | – | – | – | – | 17,125 | ||||||||||||||||||
Exceptional items | 116,056 | (115,919 | ) | – | 24,419 | (3,687 | ) | (10,266 | ) | (5,855 | ) | – | 4,748 | |||||||||||||||
Taxation | (98,798 | ) | (763 | ) | 9,202 | (22,470 | ) | 889 | (27,382 | ) | (2,037 | ) | – | (141,359 | ) | |||||||||||||
Minority interest | 139,367 | 357,901 | (44,406 | ) | (28,173 | ) | (118 | ) | 1,416 | (64,966 | ) | – | 361,021 | |||||||||||||||
Net loss from continuing operations | (121,689 | ) | (496,160 | ) | 28,290 | 129,085 | (11,245 | ) | (78,621 | ) | 160,775 | – | (389,565 | ) | ||||||||||||||
Capital expenditure | 98,432 | 80,571 | 206,423 | 94,468 | 23,844 | 13,505 | 2,452 | – | 519,695 | |||||||||||||||||||
Amortization of | ||||||||||||||||||||||||||||
program and film rights* | 1,056,385 | – | – | – | – | – | – | – | 1,056,385 | |||||||||||||||||||
* - Included in EBITDA |
Page F-68 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
37. BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Secondary reporting format - geographical segments
The group operates in five main geographical areas:
Africa -The group derives revenues from television platform services, print media activities, internet services, technology products and services, book publishing and private education from this region. Additionally, the group provides internet services and generates revenue from interactive television and technology products and services, provided by subsidiaries based in the Netherlands. The activities in the Republic of South Africa are the most significant in this segment and therefore have been presented separately.
Greece and Cyprus -The group generates revenue from television platform services with operations in Greece and Cyprus. Additionally, the group provides internet services and generates revenue from interactive television and technology products and services, provided by subsidiaries based in the Netherlands.
Asia -The group’s activities comprise its interest in the television platform operations of UBC, based in Thailand, and internet activities based in Thailand and China. Furthermore, the group generates revenue from interactive television and technology products and services, provided by subsidiaries based in the Netherlands.
United States of America -The group’s activities comprise a portion of services and goods rendered by the technology operations, based in the United States of America.
Other -includes the group’s subsidiaries, providing interactive television and technology products, located mainly in the Netherlands. It also includes the assets of MIH (BVI) Limited, based in the British Virgin Islands, which mainly comprises cash and investments in group companies.
Africa | Consoli- | ||||||||||||||||||||||||||
South | Rest of | Mediter- | dated | ||||||||||||||||||||||||
Africa | Africa | USA | ranean | Asia | Other | Eliminations | total | ||||||||||||||||||||
R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | R'000 | ||||||||||||||||||||
March 2004 | |||||||||||||||||||||||||||
External revenue | 8,678,852 | 1,502,774 | 27,518 | 1,389,975 | 984,626 | 220,765 | – | 12,804,510 | |||||||||||||||||||
Segment assets | 8,344,483 | 2,337,126 | 46,273 | 1,262,437 | 1,269,250 | 6,405,195 | (6,572,254 | ) | (a) | 13,092,510 | |||||||||||||||||
Capital expenditure | 247,946 | 24,432 | 6,317 | 20,925 | 87,972 | 11,690 | – | 399,282 | |||||||||||||||||||
March 2003 | |||||||||||||||||||||||||||
External revenue | 7,976,090 | 1,584,861 | 59,615 | 1,390,094 | 864,762 | 328,485 | – | 12,203,907 | |||||||||||||||||||
Segment assets | 7,739,494 | 2,134,174 | 282,340 | 1,653,595 | 937,543 | 6,914,116 | (6,288,113 | ) | (a) | 13,373,149 | |||||||||||||||||
Capital expenditure | 290,802 | 55,679 | 854 | 61,735 | 108,274 | 19,902 | – | 537,246 | |||||||||||||||||||
March 2002 | |||||||||||||||||||||||||||
External revenue | 6,964,209 | 1,355,297 | 56,005 | 1,289,617 | 700,279 | 334,498 | – | 10,699,905 | |||||||||||||||||||
Capital expenditure | 159,770 | 27,719 | 160,059 | 15,394 | 108,289 | 48,464 | – | 519,695 |
(a) Represents adjustments to the assets and liabilities of the segments relating to intersegment loans and investments that eliminate on consolidation.
Page F-69 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
38. FINANCIAL RISK MANAGEMENT
Financial risk factors
The group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity markets, foreign currency exchange rates and interest rates. The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize the potential adverse effects on the financial performance of the group. The group uses derivative financial instruments, such as forward exchange contracts and interest rate swaps, to hedge certain exposures. The group does not speculate or engage in the trading of financial instruments.
Risk management is carried out by the management of the group under policies approved by the board of directors. Management identifies, evaluates and hedges financial risks. The various boards of directors within the group provide written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative instruments and investing funds.
Foreign exchange risk
The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Entities in the group use forward exchange contracts to hedge their exposure to foreign currency risk in connection with their functional currencies. Management is responsible for hedging the net position in each currency. The group generally covers forward 80% to 100% of firm commitments in foreign currency for up to two years.
Credit risk
Receivables consist primarily of invoiced amounts from normal trading activities and the group has a large diversified customer base across many geographical areas. Strict credit control is exercised through monitoring customers’ payment history and when necessary, provision is made for both specific and general doubtful accounts. As at March 31, 2004, the directors were unaware of any significant unprovided or uninsured concentration of credit risk.
The group is exposed to certain concentrations of credit risk relating to its cash and current investments. It places its cash and current investments only with major banking groups and high-quality institutions that have high credit ratings. The group’s policy is designed to limit exposure to any one institution and invests its excess cash in low-risk investment accounts. The counter parties that are used by the group are evaluated on a continuous basis. No losses have been experienced on such accounts. At March 31, 2004 cash and current investments were held with numerous financial institutions.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. In terms of the articles of association of the company, no limitation is placed on its borrowing capacity. The group had the following unutilized banking facilities as at March 31, 2004 and 2003:
March 31 | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
On call | 648,408 | 752,300 | |||||
Expiring within one year | – | 30,000 | |||||
Expiring beyond one year | 9,055 | 46,062 | |||||
657,463 | 828,362 |
The facilities expiring within one year are subject to renewal at various dates during the next year.
Page F-70 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
38. FINANCIAL RISK MANAGEMENT (continued)
Interest rate risk
As part of the process of managing the group’s fixed and floating borrowings mix, the interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates. Where appropriate, the group uses derivative instruments, such as interest rate swap agreements, purely for hedging purposes. The interest rate profile of the loans as at March 31, 2004 was as follows:
March 31 | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Interest rate profile of long-term liabilities | |||||||
Loans at fixed rates: 1 - 12 months | 1,366 | 366,615 | |||||
Loans at fixed rates: more than 12 months | 2,532,382 | 3,005,291 | |||||
Interest free loans | 542,259 | 928,961 | |||||
Loans linked to variable rates | 347,042 | 394,580 | |||||
3,423,049 | 4,695,447 |
Foreign exchange rates
The exchange rates used by the group to translate foreign entities' income statements and balance sheets are as follows:
March 31, 2004 | March 31, 2003 | ||||||||||||
Average | Closing | Average | Closing | ||||||||||
Currency (1FC =ZAR) | rate | rate | rate | rate | |||||||||
USA dollar | 7.1119 | 6.3097 | 9.5147 | 7.8927 | |||||||||
Cyprus pound | 14.2450 | 13.1184 | 16.4204 | 14.5138 | |||||||||
Euro | 8.3696 | 7.7519 | 9.5057 | 8.6059 | |||||||||
Nigerian naira | 0.0528 | 0.0461 | 0.0761 | 0.0619 | |||||||||
Thai baht | 0.1750 | 0.1608 | 0.2231 | 0.1843 | |||||||||
Chinese yuan renminbi | 0.8582 | 0.7623 | 1.1500 | 0.9538 |
The average rates listed above are only approximate average rates for the year, as the group measures separately the transactions of each of its material operations using the particular currency of the primary economic environment in which the operation conducts its business, using the prevailing exchange rate at the transaction date.
March 31, 2004 | March 31, 2003 | ||||||||||||
Foreign | Foreign | ||||||||||||
currency | currency | ||||||||||||
amount | amount | ||||||||||||
'000 | R'000 | '000 | R'000 | ||||||||||
Foreign currency exchange commitments | |||||||||||||
The group had the following forward foreign | |||||||||||||
currency exchange contract liabilities: | |||||||||||||
USA dollar | 217,590 | 2,321,992 | 295,544 | 3,479,363 | |||||||||
Sterling | 3,847 | 46,130 | 3,788 | 57,233 | |||||||||
Euro | 13,031 | 113,273 | 7,529 | 76,780 | |||||||||
Hong Kong dollar | 665 | 631 | 533 | 603 | |||||||||
Singapore dollar | 235 | 975 | 496 | 2,244 |
Page F-71 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
38. FINANCIAL RISK MANAGEMENT (continued)
March 31, 2004 | March 31, 2003 | ||||||||||||
Foreign | Foreign | ||||||||||||
currency | currency | ||||||||||||
amount | amount | ||||||||||||
'000 | R'000 | '000 | R'000 | ||||||||||
Uncovered foreign liabilities | |||||||||||||
The group had the following uncovered foreign | |||||||||||||
liabilities: | |||||||||||||
USA dollar | 125,368 | 767,169 | 41,987 | 331,849 | |||||||||
Sterling | 294 | 3,418 | 188 | 2,393 | |||||||||
Euro | 55,894 | 433,652 | 3,251 | 27,800 |
The group provides retirement benefits for its employees by way of various separate defined contribution pension and provident funds. All permanent employees have access to these funds. Contributions to these funds are paid on a fixed scale.
An amount of Rand 175.9 million (2003: Rand 169.9 million; 2002: Rand 154.8 million) was recognized as an expense in relation to the group's retirement funds.
40. SUBSEQUENT EVENTS
Subsequent to March 31, 2004, Johnnic Communications Limited exercised a call option relating to 39.1% of the Electronic Media Network Limited ("M-Net’) and SuperSport International Holdings Limited ("SuperSport") ordinary shares acquired from minority shareholders in terms of the Section 311 schemes of arrangement. Naspers sold 33,686,280 M-Net and SuperSport shares respectively for a total cash consideration of Rand 286.3 million resulting in an accounting loss of Rand 27.9 million. At March 31, 2004 the shares have been classified as available-for-sale investments and have been carried at fair value.
Subsequent to March 31, 2004, Tencent Holdings Limited completed an initial public offering of shares on June 16, 2004 and listed on the Hong Kong Stock Exchange. The group’s interest in Tencent diluted from 50% to approximately 37.5%. Tencent’s net proceeds were approximately H.K. $1.42 billion.
Page F-72 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS
The following share incentive plans were in operation during the financial year:
Naspers Limited
On August 14, 1987, the group established the Naspers Share Incentive Trust ("the Naspers Plan") under which it may award options for no more than 11% of the total number of N ordinary shares in issue. Share options may be granted with an exercise price of not less than 100% of the market value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
Activity in terms of the Naspers Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 11,432,903 | 26,15 | 6,376,147 | 25.56 | 6,406,470 | 26.87 | |||||||||||||
Granted | 420,433 | 29.00 | 5,459,741 | 26.12 | 413,050 | 25.31 | |||||||||||||
Exercised | (746,832 | ) | 22.03 | (28,786 | ) | 21.22 | (129,230 | ) | 21.22 | ||||||||||
Forfeited | (193,867 | ) | 36.89 | (374,199 | ) | 37.06 | (314,143 | ) | 25.73 | ||||||||||
Outstanding at March 31 | 10,912,637 | 26.35 | 11,432,903 | 26.15 | 6,376,147 | 25.56 |
The following table summarizes information about the share allotments outstanding at March 31, 2004.
Shares outstanding | Shares currently exercisable | ||||||||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | ||||||||
10.00 – 15.00 | 1,500 | 7.92 | 13.65 | – | – | ||||||||
15.01 – 20.00 | 158,000 | 8.48 | 18.43 | – | – | ||||||||
20.01 – 25.00 | 4,103,774 | 7.46 | 22.82 | 1,151,163 | 21.26 | ||||||||
25.01 – 30.00 | 4,858,779 | 5.87 | 27.58 | 3,362,386 | 27.45 | ||||||||
30.01 – 35.00 | 1,702,434 | 8.35 | 31.04 | 112,380 | 31.16 | ||||||||
35.01 – 40.00 | – | – | – | – | – | ||||||||
40.01 – 45.00 | 66,400 | 7.39 | 43.21 | 29,900 | 43.65 | ||||||||
45.01 – 50.00 | 5,000 | 5.67 | 45.13 | 3,332 | 45.13 | ||||||||
50.01 – 60.15 | 16,750 | 6.13 | 59.12 | 7,027 | 58.55 | ||||||||
10,912,637 | 4,666,188 |
Media24 Limited
On August 31, 2000 the group established the Media24 Share Trust ("the Media24 Plan") in terms of which it may award options for no more than 15% of the total number of ordinary shares in issue. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
Page F-73 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
Media24 Limited(continued)
Activity in terms of the Media24 Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR | ) | Shares | price (ZAR | ) | Shares | price (ZAR | ) | |||||||||||
Outstanding at April 1 | 6,876,686 | 6.74 | 7,126,267 | 6.75 | 6,238,288 | 6.92 | |||||||||||||
Granted | 270,725 | 8.10 | 448,830 | 6.62 | 1,374,560 | 6.04 | |||||||||||||
Exercised | (38,592 | ) | 6.92 | – | – | – | – | ||||||||||||
Forfeited | (431,957 | ) | 6.75 | (698,411 | ) | 6.78 | (486,581 | ) | 6.92 | ||||||||||
Outstanding at March 31 | 6,676,862 | 6.80 | 6,876,686 | 6.74 | 7,126,267 | 6.75 |
The following table summarizes information about the share allotments outstanding at March 31, 2004.
Shares outstanding | Shares currently exercisable | |||||||||||||||
Exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR | |||||||||||
6.04 | 1,293,478 | 7.68 | 6.04 | – | – | |||||||||||
6.90 | 270,809 | 8.67 | 6.90 | – | – | |||||||||||
6.92 | 4,847,270 | 6.76 | 6.92 | 1,605,210 | 6.92 | |||||||||||
8.12 | 265,305 | 9.68 | 8.12 | – | – | |||||||||||
6,676,862 | 1,605,210 |
Educor Holdings Limited
On June 12, 2001, the group established the Educor Share Incentive Scheme ("the Educor Plan") in terms of which it may award options for no more than 20% of the total number of ordinary shares in issue. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
Activity in terms of the Educor Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 10,646,905 | 0.90 | 11,649,605 | 0.90 | – | – | |||||||||||||
Granted | 1,173,500 | 1.47 | 100,000 | 0.90 | 14,535,605 | 0.90 | |||||||||||||
Forfeited | (357,900 | ) | 0.90 | (1,102,700 | ) | 0.90 | (2,886,000 | ) | 0.90 | ||||||||||
Outstanding at March 31 | 11,462,505 | 0.96 | 10,646,905 | 0.90 | 11,649,605 | 0.90 |
Page F-74 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
Educor Holdings Limited(continued)
The following table summarizes information about the share allotments outstanding at March 31, 2004:
Shares outstanding | Shares currently exercisable | |||||||||||||||||
Exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | |||||||||||||
0.90 | 10,289,005 | 7.27 | 0.90 | 1,500 | 0.90 | |||||||||||||
1.47 | 1,173,500 | 9.42 | 1.47 | 500 | 1.47 | |||||||||||||
11,462,505 | 2,000 |
Paarl Media Holdings Limited
On May 29, 2001, the group established the Paarl Media Holdings Share Trust ("the Paarl Media Plan") in terms of which it may award options for no more than 5% of the total number of ordinary shares in issue. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after five years. Unvested shares are subject to cancellation upon expiration or termination of employment.
Activity in terms of the Paarl Media Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 3,619,000 | 5.16 | 2,429,000 | 4.80 | – | – | |||||||||||||
Granted | 84,000 | 6.93 | 1,218,000 | 5.93 | 2,429,000 | 4.80 | |||||||||||||
Forfeited | (122,800 | ) | 5.93 | (28,000 | ) | 5.93 | – | – | |||||||||||
Outstanding at March 31 | 3,580,200 | 5.18 | 3,619,000 | 5.16 | 2,429,000 | 4.80 |
The following table summarizes information about the share allotments outstanding at March 31, 2004:
Shares outstanding | ||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | ||||
4.80 | 2,429,000 | 7.50 | ||||
5.93 | 1,067,200 | 8.25 | ||||
6.93 | 84,000 | 9.75 | ||||
3,580,200 |
As at March 31, 2004, no share allotments were exercisable.
Page F-75 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
M-Web Holdings Limited
On February 19, 1998, the group established the M-Web Share Trust ("the M-Web Plan") under which it may award options for no more than 5% of the total number of ordinary shares in issue. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment. At March 31, 2004 no shares were allocated under the M-Web Plan, as it will be terminated in the future.
Activity in terms of the M-Web Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | – | – | 676,349 | 3.99 | 26,508,682 | 3.99 | |||||||||||||
Cancelled | – | – | (291,276 | ) | 4.03 | – | – | ||||||||||||
Forfeited | – | – | (385,073 | ) | 3.83 | (25,832,333 | ) | 3.99 | |||||||||||
Outstanding at March 31 | – | – | – | – | 676,349 | 3.99 |
MIH Holdings Limited
In terms of the plan,MIH Holdings may grant options to its employees for up to 26.4 million shares ofMIH Holdings ordinary share capital. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after th e grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
In terms of a section 311 scheme of arrangement, Naspers Limited offered one Naspers Class N ordinary share to all the minority shareholders of MIH Holdings Limited, including the MIH Holdings Plan, for every 2.25 MIH Holdings shares that it held. All the MIH Holdings shares were exchanged for Naspers Class N ordinary shares on December 20, 2002.
Activity in terms of theMIH HoldingsPlan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 5,314,971 | 23.44 | 11,088,429 | 15.25 | 10,138,677 | 17.03 | |||||||||||||
Granted | 564,076 | 39.88 | 101,400 | 5.67 | 2,163,542 | 7.73 | |||||||||||||
Exercised | (709,560 | ) | 21.43 | (6,801 | ) | 6.30 | (327,627 | ) | 13.74 | ||||||||||
Forfeited | (259,325 | ) | 25.79 | (955,605 | ) | 19.24 | (886,163 | ) | 17.90 | ||||||||||
Cancelled | – | – | (2,100 | ) | 6.25 | – | – | ||||||||||||
Outstanding at December 20, 2002 | 10,225,323 | 12.28 | |||||||||||||||||
Exchanged for Naspers N | |||||||||||||||||||
ordinary shares | (10,225,323 | ) | (12.28 | ) | |||||||||||||||
Naspers N ordinary shares received | 4,544,588 | 30.26 | |||||||||||||||||
Granted | 1,178,618 | 23.10 | |||||||||||||||||
Exercised | (17,862 | ) | 22.22 | ||||||||||||||||
Forfeited | (115,223 | ) | 33.05 | ||||||||||||||||
Cancelled | (275,150 | ) | 89.37 | ||||||||||||||||
Outstanding at March 31 | 4,910,162 | 25.49 | 5,314,971 | 23.44 | 11,088,429 | 15.25 |
Page F-76 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
MIH Holdings Limited(continued)
The following table summarizes information about the Naspers Class N ordinary share allotments outstanding at March 31, 2004:
Shares outstanding | Shares currently exercisable | |||||||||||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | |||||||||||
6.91 – 20.00 | 804,816 | 6.86 | 13.95 | 120,581 | 13.79 | |||||||||||
20.01 – 40.00 | 3,627,434 | 5.39 | 25.78 | 2,252,397 | 26.04 | |||||||||||
40.01 – 60.00 | 468,676 | 9.95 | 41.55 | 3,567 | 46.91 | |||||||||||
60.01 – 130.50 | 9,236 | 5.84 | 103.17 | 3,530 | 101.00 | |||||||||||
4,910,162 | 2,380,075 |
MIH (BVI) Limited
On March 25, 1999 the group established the MIH Limited Share Scheme (theMIH Limited Plan) in terms of which it may award options for no more than 10% of the total number of ordinary shares. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
As part of the merger between MIH Limited and MIH (BVI) Limited, Naspers offered 3.5 Naspers Class N ordinary shares for each MIH Limited share held by minority shareholders, including the MIH Limited Plan. The MIH Limited Plan was converted into the MIH (BVI) Limited Plan at which time all its MIH Limited shares were exchanged for Naspers Class N ordinary shares and Naspers ADS’s.
Activity in terms of theMIH (BVI) Limited Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (US$) | Shares | price (US$) | Shares | price (US$) | ||||||||||||||
Outstanding at April 1 | 13,752,287 | 2.63 | 4,124,160 | 13.30 | 2,784,938 | 17.26 | |||||||||||||
Granted | 204,790 | 3.22 | – | – | 1,697,811 | 7.18 | |||||||||||||
Exercised | (164,200 | ) | 2.25 | (10,097 | ) | 6.54 | – | – | |||||||||||
Forfeited | (157,750 | ) | 2.86 | (441,611 | ) | 14.39 | (129,733 | ) | 26.94 | ||||||||||
Cancelled | (31,150 | ) | 1.10 | – | – | (228,856 | ) | 29.32 | |||||||||||
Outstanding at December 20, 2002 | – | – | 3,672,452 | 11.43 | – | – | |||||||||||||
Exchanged for Naspers N ordinary | |||||||||||||||||||
shares and ADS's | – | – | (3,672,452 | ) | (11.43 | ) | – | – | |||||||||||
Equivalent number of Naspers N | |||||||||||||||||||
ordinary shares received | – | – | 12,853,577 | 3.28 | – | – | |||||||||||||
Converted to ZAR Naspers N shares | (10,586,757 | ) | 2.63 | – | – | – | – | ||||||||||||
Granted | – | – | 4,125,380 | 2.75 | – | – | |||||||||||||
Exercised | (298,230 | ) | 2.60 | (29,760 | ) | 2.11 | – | – | |||||||||||
Forfeited | (309,890 | ) | 2.26 | (263,810 | ) | 3.06 | – | – | |||||||||||
Cancelled | (44,610 | ) | 3.29 | (2,933,100 | ) | 5.62 | – | – | |||||||||||
Outstanding at March 31 | 2,364,490 | 2.73 | 13,752,287 | 2.63 | 4,124,160 | 13.30 |
Page F-77 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
MIH (BVI) Limited(continued)
March 31, 2004 | |||||||
Shares | Weighted Average exercise price (ZAR) | ||||||
Converted into ZAR Naspers N shares | |||||||
Granted | 10,586,757 | 19.66 | |||||
Exercised | 1,079,527 | 39.17 | |||||
Forfeited | (546,650 | ) | 19.94 | ||||
Cancelled | (89,200 | ) | 15.16 | ||||
Outstanding at March 31 | - | - | |||||
11,030,434 | 21.59 |
The following table summarizes information about the Naspers N ordinary share allotments outstanding at March 31, 2004:
NASPERS "N" (US$) | Shares outstanding | Shares currently exercisable | ||||||||||
Range of exercise price (US$) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (US$) | Number exercisable at March 31, 2004 | Weighted average exercise price (US$) | |||||||
1.10 | – | 2.50 | 925,720 | 7.38 | 1.73 | – | – | |||||
2.50 | – | 5.00 | 1,385,690 | 7.72 | 3.14 | 328,540 | 3.23 | |||||
5.00 | – | 7.50 | 46,990 | 5.00 | 5.32 | 31,320 | 5.32 | |||||
7.50 | – | 9.97 | 6,090 | 5.00 | 8.39 | 4,060 | 8.39 | |||||
2,364,490 | 363,920 | |||||||||||
NASPERS "N" (ZAR) | Shares outstanding | Shares currently exercisable | ||||||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Number exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | |||||||
8.19 | – | 15.00 | 1,582,197 | 8.00 | 8.19 | – | – | |||||
15.01 | – | 40.00 | 8,807,225 | 7.34 | 22.51 | 2,418,530 | 25.21 | |||||
40.01 | – | 65.00 | 631,952 | 10.00 | 41.52 | – | – | |||||
65.01 | – | 75.00 | 9,060 | 6.00 | 74.22 | 3,020 | 74.22 | |||||
11,030,434 | 2,421,550 |
Page F-78 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
Mindport Holdings Limited
On October 14, 1999 Mindport Holdings Limited established the Mindport Holdings Limited Share Scheme ("the MHL Plan"), the Mindport Integrated Business Systems Share Scheme ("the MIBS Plan") and the Irdeto Access Share Scheme ("the IA Plan"). In terms of the schemes, options of no more than 10% of the total number of issued ordinary shares of Mindport Holdings Limited, Mindport Integrated Business Systems BV and Irdeto Access BV may be awarded. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expi ration or termination of employment.
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (US$) | Shares | price (US$) | Shares | price (US$) | ||||||||||||||
Activity in terms of the MHL Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 790,194 | 9.22 | 1,017,609 | 9.22 | 1,110,009 | 9.22 | |||||||||||||
Exercised | – | – | – | – | (71,760 | ) | 9.22 | ||||||||||||
Forfeited | (24,456 | ) | 9.22 | (111,910 | ) | 9.22 | (20,640 | ) | 9.22 | ||||||||||
Cancelled | (760,738 | ) | 9.22 | (115,505 | ) | 9.22 | – | – | |||||||||||
Outstanding at March 31 | 5,000 | 9.22 | 790,194 | 9.22 | 1,017,609 | 9.22 | |||||||||||||
Activity in terms of the MIBS Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 103,787 | 8.90 | 183,207 | 9.04 | 215,167 | 9.04 | |||||||||||||
Forfeited | (8,272 | ) | 8.93 | (79,420 | ) | 9.23 | (31,960 | ) | 9.04 | ||||||||||
Cancelled | (95,515 | ) | 8.90 | – | – | – | – | ||||||||||||
Outstanding at March 31 | – | – | 103,787 | 8.90 | 183,207 | 9.04 | |||||||||||||
Activity in terms of the IA Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 866,140 | 10.48 | 595,359 | 11.50 | 553,560 | 11.17 | |||||||||||||
Granted | 8,150 | 11.68 | 337,918 | 9.13 | 136,044 | 12.35 | |||||||||||||
Exercised | – | – | – | – | (71,694 | ) | 10.15 | ||||||||||||
Forfeited | (101,818 | ) | 10.50 | (67,137 | ) | 12.71 | (22,551 | ) | 12.79 | ||||||||||
Cancelled | (484,305 | ) | 11.35 | – | – | – | – | ||||||||||||
Outstanding at March 31 | 288,167 | 9.05 | 866,140 | 10.48 | 595,359 | 11.50 |
Page F-79 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
Mindport Holdings Limited (continued)
The following table summarizes information about the share allotments outstanding at March 31, 2004:
Weighted average exercise price (US$) | Number outstanding at March 31, 2004 | Remaining contractual life (years) | |||||||||||||||||||||||
MHL | MIBS | IA | MHL | MIBS | IA | MHL | MIBS | IA | |||||||||||||||||
9.22 | – | 7.90 | 5,000 | – | 213,508 | 5.00 | – | 8.03 | |||||||||||||||||
– | – | 8.30 | – | – | 18,898 | – | – | 5.00 | |||||||||||||||||
– | – | 12.60 | – | – | 13,819 | – | – | 7.71 | |||||||||||||||||
– | – | 14.10 | – | – | 41,942 | – | – | 7.00 | |||||||||||||||||
5,000 | – | 288,167 | |||||||||||||||||||||||
At 31 March 2004 the following shares were exercisable:
Weighted average exercise price (US$) | Shares exercisable at March 31, 2004 | |||||||||||||||
MHL | MIBS | IA | MHL | MIBS | IA | |||||||||||
9.22 | – | 8.30 | 3,332 | – | 12,592 | |||||||||||
– | – | 12.00 | – | – | 666 | |||||||||||
– | – | 14.00 | – | – | 12,163 |
M-Web China (BVI) Limited and M-Web Thailand (BVI) Limited
On May 14, 2000 M-Web China (BVI) Limited established the M-Web China (BVI) Limited Share Trust and M-Web Thailand (BVI) Limited established the M-Web Thailand (BVI) Limited Share Trust. In terms of the schemes, options of no more than 15% of the total number of ordinary shares of M-Web China (BVI) Limited and M-Web Thailand (BVI) Limited, respectively may be awarded. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One quarter of the options generally vest at the anniversary of each of the first, second, third and fourth years after the grant date of the share options and expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment. At March 31, 2004 no shares we re allotted in terms of these schemes, as they will be terminated in future.
Activity in terms of the M-Web China (BVI) Limited Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (US$) | Shares | price (US$) | Shares | price (US$) | ||||||||||||||
Outstanding at April 1 | – | 2,018,311 | 1.00 | 2,705,293 | 1.00 | ||||||||||||||
Forfeited | – | – | (563,958 | ) | 1.00 | (686,982 | ) | 1.00 | |||||||||||
Cancelled | – | – | (1,454,353 | ) | 1.00 | – | – | ||||||||||||
Outstanding at March 31 | – | – | – | – | 2,018,311 | 1.00 |
Page F-80 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
M-Web China (BVI) Limited and M-Web Thailand (BVI) Limited(continued)
Activity in terms of the M-Web Thailand (BVI) Limited Plan is as follows:
March 31, 2004 | March 31, 2002 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (US$) | Shares | price (US$) | Shares | price (US$) | ||||||||||||||
Outstanding at April 1 | – | – | 1,960,541 | 1.00 | 2,130,535 | 1.00 | |||||||||||||
Forfeited | – | – | (440,987 | ) | 1.00 | (169,994 | ) | 1.00 | |||||||||||
Cancelled | – | – | (1,519,554 | ) | 1.00 | – | – | ||||||||||||
Outstanding at March 31 | – | – | – | – | 1,960,541 | 1.00 |
MIH QQ (BVI) Limited
On February 23, 2003 MIH QQ (BVI) Limited established the MIH QQ (BVI) Limited Share Trust ("the MIH QQ Plan"), in terms of which it can award options, but for no more than 10% of the total number of ordinary shares. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One quarter of the shares generally vest at the anniversary of each of the first, second, third and fourth years after the grant date. The share options expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment.
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (US$) | Shares | price (US$) | Shares | price (US$) | ||||||||||||||
Activity in terms of the MIH QQ Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 32,000 | 34.00 | – | – | – | – | |||||||||||||
Granted | 2,500 | 34.00 | 32,000 | 34.00 | – | – | |||||||||||||
Outstanding at March 31 | 34,500 | 34.00 | 32,000 | 34.00 | – | – |
At March 31, 2004 were 34,500 shares outstanding with an exercise price of U.S. $34 with a remaining contractual life of nine years and 8,625 shares were exercisable.
Entriq (Mauritius) Limited
On May 6, 2003 Entriq (Mauritius) Limited established the Entriq Share Trust ("the Entriq Plan"), in terms of which it can award options, but for no more than 15% of the total number of ordinary shares. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One quarter of the shares generally vest at the anniversary of each of the first, second, third and fourth years after the grant date. The share options expire after ten years. Unvested shares are subject to cancellation upon expiration or termination of employment. At March 31, 2004 there were 104,600 shares outstanding with a remaining contractual life of nine years with an exercise price of U.S. $1.30 and 26,150 shares were exercisable.
Page F-81 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
United Broadcasting Corporation Public Company Limited ("UBC")
On December 12, 2000 UBC established the UBC Employee Securities Option Plan ("the UBC plan"), in terms of which it can award options, but for no more than 3.95% of the total number of ordinary shares. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the first, second and third years after the grant date. The share options expire after nine years. Unvested shares are subject to cancellation upon expiration or termination of employment.
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (Baht) | Shares | price (Baht) | Shares | price (Baht) | ||||||||||||||
Activity in terms of the UBC Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 26,157,000 | 10.00 | 28,700,200 | 10.00 | – | – | |||||||||||||
Granted | – | – | – | – | 29,282,000 | 10.00 | |||||||||||||
Exercised | (8,554,200 | ) | 10.00 | (2,136,800 | ) | 10.00 | (435,400 | ) | 10.00 | ||||||||||
Forfeited | (499,600 | ) | 10.00 | (406,400 | ) | 10.00 | (146,400 | ) | 10.00 | ||||||||||
Outstanding at March 31 | 17,103,200 | 10.00 | 26,157,000 | 10.00 | 28,700,200 | 10.00 |
At March 31, 2004 there were 17 103 200 options outstanding and exercisable under the UBC plan with a remaining average contractual life of 6.75 years and an exercise price of 10 baht.
Tencent Holdings Limited
On July 27, 2001 Tencent Holdings Limited established a share option scheme ("the Tencent plan"), in terms of which it can award options, but for no more than 5% of the total number of ordinary shares. Share options may be granted with an exercise price of not less than 100% of the fair value of the shares at the time of the grant. One third of the shares generally vest at the anniversary of each of the first, second and third years after the grant date. The share options expire after nine years. Unvested shares are subject to cancellation upon expiration or termination of employment.
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (CNY) | Shares | price (CNY) | Shares | price (CNY) | ||||||||||||||
Activity in terms of the Tencent Plan is as follows: | |||||||||||||||||||
Outstanding at April 1 | 62,561,100 | 0.05 | 57,678,600 | 0.05 | – | – | |||||||||||||
Granted | 10,464,230 | 13.77 | 4,882,500 | 0.05 | 57,678,600 | 0.05 | |||||||||||||
Forfeited | (533,680 | ) | 1.62 | – | – | – | – | ||||||||||||
Outstanding at March 31 | 72,491,650 | 2.02 | 62,561,100 | 0.05 | 57,678,600 | 0.05 |
At March 31, 2004 there are 62,088,600 options outstanding with an exercise price of CNY0.05 and 10,403,050 options with an exercise price of CNY13.77. The average remaining contractual life of the options is 7.75 years. At March 31, 2004 there are 29,823,675 options exercisable at a price of CNY0.05.
Page F-82 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
Electronic Media Network Limited ("M-Net")
On June 12, 1991 M-Net established the M-Net Share Trust ("the M-Net plan"), under which it may award shares or options for no more than 10% of the total number of ordinary shares. Shares or options may be granted with an exercise price of not less than 100% of the market value of the shares or options at the time of the grant. One third of the shares or options generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the shares or options and expire after ten years. Unvested shares or options are subject to cancellation upon expiration or termination of employment.
In terms of a section 311 scheme of arrangement, Naspers Limited offered one Naspers Class N ordinary share to all the minority shareholders of M-Net, including the M-Net Plan, for every 4.5 M-Net/SuperSport linked unit that it held, or Rand 8.50 per M-Net/SuperSport linked unit. The transaction became unconditional on March 24, 2004. The linked units were exchanged for 574,726 Naspers Class N ordinary shares after March 31, 2004.
Activity in terms of the M-Net Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 11,802,009 | 1.19 | 10,713,888 | 1.20 | 14,064,982 | 1.13 | |||||||||||||
Granted | 133,051 | 1.07 | 2,944,952 | 1.01 | 231,100 | 0.93 | |||||||||||||
Exercised | (6,245,193 | ) | 1.38 | (1,459,133 | ) | 0.85 | (1,657,465 | ) | 0.94 | ||||||||||
Forfeited | (392,579 | ) | 1.00 | (397,698 | ) | 1.27 | (1,924,729 | ) | 0.87 | ||||||||||
Outstanding at 31 March | 5,297,288 | 0.98 | 11,802,009 | 1.19 | 10,713,888 | 1.20 |
The following table summarizes information about the share allotments outstanding at March 31, 2004:
Shares outstanding | Shares currently exercisable | |||||||||||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | |||||||||||
0.01– 0.99 | 1,732,393 | 4.83 | 0.69 | 1,207,473 | 0.64 | |||||||||||
1.00– 1.40 | 3,182,320 | 8.68 | 1.02 | 110,293 | 1.12 | |||||||||||
1.41– 1.80 | 800 | 3.00 | 1.57 | 800 | 1.57 | |||||||||||
1.81– 1.97 | 381,775 | 3.08 | 1.96 | 381,495 | 1.96 | |||||||||||
5,297,288 | 1,700,061 |
Page F-83 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
41. EQUITY COMPENSATION BENEFITS(continued)
SuperSport International Holdings Limited ("SuperSport")
On June 12, 1991 SuperSport established the SuperSport Share Trust ("the SuperSport plan"), under which it may award shares or options for no more than 10% of the total number of ordinary shares. Shares or options may be granted with an exercise price of not less than 100% of the market value of the shares or options at the time of the grant. One third of the shares or options generally vest at the anniversary of each of the third, fourth and fifth years after the grant date of the shares or options and expire after ten years. Unvested shares or options are subject to cancellation upon expiration or termination of employment.
In terms of a section 311 scheme of arrangement, Naspers Limited offered one Naspers Class N ordinary share to all the minority shareholders of SuperSport, including the SuperSport Plan, for every 4.5 M-Net/SuperSport linked unit that it held, or Rand 8.50 per M-Net/SuperSport linked unit. The transaction became unconditional on March 24, 2004. The linked units were exchanged for 525, 228 Naspers Class N ordinary shares after March 31, 2004.
Activity in terms of the SuperSport Plan is as follows:
March 31, 2004 | March 31, 2003 | March 31, 2002 | |||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||
average | average | average | |||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||
Shares | price (ZAR) | Shares | price (ZAR) | Shares | price (ZAR) | ||||||||||||||
Outstanding at April 1 | 11,802,009 | 3.81 | 10,713,888 | 3.35 | 14,064,982 | 3.34 | |||||||||||||
Granted | 133,051 | 5.53 | 2,944,952 | 5.22 | 231,100 | 4.85 | |||||||||||||
Exercised | (6,245,193 | ) | 3.17 | (1,459,133 | ) | 3.27 | (1,657,465 | ) | 3.30 | ||||||||||
Forfeited | (392,579 | ) | 4.62 | (397,698 | ) | 3.75 | (1,924,729 | ) | 3.52 | ||||||||||
Outstanding at March 31 | 5,297,288 | 4.55 | 11,802,009 | 3.81 | 10,713,888 | 3.35 |
The following table summarizes information about the share allotments outstanding at March 31, 2004:
Shares outstanding | Shares currently exercisable | |||||||||||||||
Range of exercise price (ZAR) | Number outstanding at March 31, 2004 | Weighted average remaining contractual life (years) | Weighted average exercise price (ZAR) | Exercisable at March 31, 2004 | Weighted average exercise price (ZAR) | |||||||||||
0.01 - 1.00 | 3,334 | – | 0.60 | 3,334 | 0.60 | |||||||||||
1.01 - 2.50 | 62,269 | 0.19 | 1.26 | 62,269 | 1.26 | |||||||||||
2.51 - 5.00 | 2,046,641 | 4.65 | 3.48 | 1,524,025 | 3.24 | |||||||||||
5.01 - 6.25 | 3,185,044 | 8.68 | 5.30 | 110,433 | 5.81 | |||||||||||
5,297,288 | 1,700,061 |
On February 17, 2003, a cash and share distribution was approved by the shareholders of SuperSport. SuperSport distributed a total of 11,386,277 Naspers Class N ordinary shares to its shareholders, including the SuperSport plan. As at March 31, 2004 the SuperSport plan is holding 360,406 Naspers Class N ordinary shares received from this distribution.
Page F-84 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTEDACCOUNTING PRINCIPLES
The group’s consolidated annual financial statements are prepared in accordance with statements of Generally Accepted Accounting Practice in South Africa ("SA GAAP"), which differ in certain material respects from accounting principles generally accepted in the United States of America ("US GAAP"). Such differences include methods for measuring and presenting the amounts shown in the consolidated annual financial statements, as well as additional disclosures required by US GAAP. The principle differences between SA GAAP and US GAAP are presented below together with explanations of certain adjustments that affect consolidated net profit/(loss) for each of the three years ended March 31, 2004, 2003 and 2002 and total shareholders' equity as at the years ended March 31, 2004 and 2003. During th e fiscal year ended March 31, 2004 the group changed its method of accounting for joint ventures under SA GAAP from the equity method to proportionate consolidation. This change required retroactive restatement which adjusted the previously reported net profit and shareholders' equity balances under SA GAAP (see Note 4). Corresponding adjustments to the US GAAP reconciliation were made, as this change in accounting policy did not impact the net profit or shareholders' equity under US GAAP. For the convenience of understanding these adjustments, a consolidated income statement and consolidated balance sheet prepared in accordance with US GAAP have been presented on page F-102 and F-103.
March 31 | ||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||
R'000 | R'000 | R'000 | ||||||||||||||
Net profit/(loss) under SA GAAP | 371,414 | 333,142 | (1,947,126 | ) | ||||||||||||
US GAAP adjustments: | ||||||||||||||||
(a) Business combinations | – | – | (2,316,770 | ) | ||||||||||||
(i) Date of acquisition | – | – | – | |||||||||||||
(ii) Value of purchase consideration | – | – | (2,299,287 | ) | ||||||||||||
(iii) Acquired in-process research and development | – | – | (17,483 | ) | ||||||||||||
(iv) Value of purchase consideration | – | – | – | |||||||||||||
(b) Reinstatement of goodwill written off to reserves | – | – | (971,430 | ) | ||||||||||||
(c) Reinstatement of other intangible assets written off to reserves | (95,576 | ) | (159,913 | ) | (229,503 | ) | ||||||||||
(d) Impairment of goodwill | – | (122,920 | ) | (5,469,895 | ) | |||||||||||
(e) Impairment of other intangible assets | – | (50,136 | ) | – | ||||||||||||
(f) Purchase of minority interests (successive acquisition), net | 135,751 | 16,438 | – | |||||||||||||
(g) Stock based compensation | (129,841 | ) | (14,959 | ) | (103,391 | ) | ||||||||||
(h) Provision for teach out costs | (10,271 | ) | (21,386 | ) | 52,261 | |||||||||||
(i) Write-back of asset impairment | 17,696 | 1,284 | (10,269 | ) | ||||||||||||
(j) Amortization of goodwill and other intangible assets with indefinite lives | 156,210 | 172,523 | – | |||||||||||||
(k) Adjustment to dilution gains/(losses | – | 122 | (253,592 | ) | ||||||||||||
(l) Unrealised gains and losses on marketable securities | – | 7,613 | (179,268 | ) | ||||||||||||
(m) Derivative financial instruments | 47,020 | (794,138 | ) | 232,476 | ||||||||||||
(n) Post-retirement employee benefits | (14,636 | ) | (27,329 | ) | (34,200 | ) | ||||||||||
(o) Discontinuing operations | 1,235 | (2,512 | ) | (504 | ) | |||||||||||
(p) Software and website development costs | – | (74,610 | ) | – | ||||||||||||
(q) Proportionate consolidation | – | (502 | ) | 23,876 | ||||||||||||
Effect of adjustments on taxation | 16,295 | 187,772 | 110,198 | |||||||||||||
Effect of adjustments on minority interests | – | 187,971 | 5,850,172 | |||||||||||||
Profit/(loss) under US GAAP before change | ||||||||||||||||
in accounting principle | 495,297 | (361,540 | ) | (5,246,965 | ) | |||||||||||
(d) Cumulative effect of change in accounting principle | – | (531,520 | ) | 18,434 | ||||||||||||
Net profit/(loss) under US GAAP | 495,297 | (893,060 | ) | (5,228,531 | ) |
Page F-85 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
2004 | 2003 | ||||||||||||
R'000 | R'000 | ||||||||||||
Total shareholders’ equity under SA GAAP | 3,182,474 | 3,503,647 | |||||||||||
US GAAP adjustments: | |||||||||||||
(a) Business combinations | (318,851 | ) | (346,746 | ) | |||||||||
(i) Date of acquisition | 196,436 | 168,541 | |||||||||||
(ii) Value of purchase consideration | (12,742 | ) | (12,742 | ) | |||||||||
(iii) Exchange of non-monetary assets | (502,545 | ) | (502,545 | ) | |||||||||
(iv) Acquired in-process research and development | – | – | |||||||||||
(b) Reinstatement of goodwill written off to reserves | 2,142,337 | 2,142,337 | |||||||||||
(c) Reinstatement of other intangible assets written off to reserves | 360,143 | 449,490 | |||||||||||
(d) Impairment of goodwill | (1,526,114 | ) | (1,526,114 | ) | |||||||||
(e) Impairment of other intangible assets | (466,858 | ) | (466,858 | ) | |||||||||
(f) Purchase of minority interests (successive acquisition), net | (313,097 | ) | (512,670 | ) | |||||||||
(g) Stock based compensation | (183,900 | ) | (69,547 | ) | |||||||||
(h) Provision for teach out costs | 20,604 | 30,874 | |||||||||||
(i) Write-back of asset impairment | 2,349 | (19,471 | ) | ||||||||||
(j) Amortization of goodwill and other intangible assets with indefinite lives | 357,456 | 183,426 | |||||||||||
(k)Adjustment to dilution losses | (268,286 | ) | (268,286 | ) | |||||||||
(m)Derivative financial instruments | – | (647,721 | ) | ||||||||||
(n) Post-retirement employee benefits | (33,965 | ) | (19,329 | ) | |||||||||
(o) Software and website development costs | 6,237 | 7,086 | |||||||||||
(q) Proportionate consolidation | 48,481 | 46,397 | |||||||||||
Effect of adjustments on taxation | 366,975 | 470,138 | |||||||||||
Effect of adjustments on minority interests | (187,118 | ) | (177,555 | ) | |||||||||
Total shareholders’ equity under US GAAP | 3,188,867 | 2,779,098 |
(a) | Business combinations |
Under both SA GAAP and US GAAP, the acquisitions of the group have been accounted for under the purchase method. Both SA GAAP and US GAAP require the purchase consideration to be allocated to the identifiable net assets acquired at their fair value at the date of acquisition, with the difference between the consideration paid and the fair value of the identifiable net assets acquired recorded as goodwill. Certain differences between SA GAAP and US GAAP in the application of the purchase method of accounting for business combinations arise as set out below:
Page F-86 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(i) Date of acquisition
Under SA GAAP, prior to the implementation of AC131 "Business Combinations", the date on which earnings of an acquired entity were included in the group’s consolidated results of operations could be based on an effective date identified in the acquisition agreement when management control is ceded. Under US GAAP, when regulatory approval or other substantive conditions precedent exist, the consummation of the acquisition is not considered effective until such conditions are satisfied and irrevocable control of the company is obtained or consideration is exchanged. This adjustment includes the effect of reversing the results of operations and impact on shareholders’ equity for the period for which the acquired entities would not have been consolidated under US GAAP. The impact on goodwil l and other intangible assets as a result of the different dates of acquisition under US GAAP, net of accumulated amortization, are included separately in notes (b) and (c) below.
In March 2004, the group completed the purchase of an additional effective 7.4% interest in Electronic Media Network Limited ("M-Net") and SuperSport International Holdings Limited ("SuperSport"). For SA GAAP purposes, the purchase was deemed complete on the date the last condition precedent relating to the schemes of arrangement was satisfied. The initial offer made by Naspers included a purchase option to Johncom Holdings Limited, which was exercised in April 2004. Under SA GAAP, the value of the Naspers Class N ordinary shares ("the shares") to be issued as consideration in April 2004 was measured using the market value on the effective date of the transaction.
Under US GAAP, an acquisition is generally recorded on the date consideration is exchanged or possibly at an earlier date provided effective control has passed. As the exchange for Naspers Class N ordinary shares for shares in M-Net and SuperSport had not occurred at March 31, 2004, the transaction will be recognized as of the settlement date, April 13, 2004, for US GAAP purposes and the results of operations related to the additional interest for M-Net and SuperSport will be included in the consolidated results of the company at that time. At the date the acquisition was recorded subsequent to year end, the purchase price was separately determined under US GAAP which will result in additional differences between US and SA GAAP in 2005.
The purchase price of the acquisition under US GAAP of Rand 538.8 million was based on the value of the shares issued with other adjustments related to the costs of the acquisition and exceeded the purchase price under SA GAAP by Rand 35.6 million. Under US GAAP, the value of the 17,532,061 shares, was measured using the average market value of the shares a few days before and after the date in which consideration was fixed. In addition, the cost of the acquisition included the cost of acquiring the share options outstanding of M-Net and SuperSport.
Finally, the group had a written commitment to sell to Johncom a portion of the shares re-purchased as a result of this transaction. Under US GAAP, this is considered a contingent option based on the price of the shares repurchased upon consummation of the transaction. The exercise of this option resulted in a reduction of the purchase price of the acquisition. Under SA GAAP, the value of the proceeds of the commitment to sell M-Net and SuperSport shares was less than the acquisition price of those shares. Therefore, the group recorded a unrealized loss as part of shareholders’ equity related to these marketable securities as of March 31, 2004.
The unaudited pro forma consolidated financial information at April 1, 2004 illustrates the effects of:
· | the issuance of 17,532,061 Naspers N ordinary shares to acquire the additional effective 7.4% stake in M-Net and SuperSport on April 13, 2004. |
The unaudited pro forma consolidated information has been prepared by applying pro forma adjustments to the historical consolidated financial information of Naspers in conformity with US GAAP.
Page F-87 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
A condensed balance sheet incorporating the impact of this transaction which for US GAAP will be recorded as of April 13, 2004 on each major asset and liability caption of the acquired entity as of April 1, 2004 is presented below in accordance with US GAAP:
R'000 | ||||
Non-current assets | 6,941,886 | |||
Current assets | 5,137,734 | |||
TOTAL ASSETS | 12,079,620 | |||
Shareholders' equity | 3,950,389 | |||
Minority interest | 187,253 | |||
Non-current liabilities | 3,221,857 | |||
Current liabilities | 4,720,121 | |||
TOTAL EQUITY AND LIABILITIES | 12,079,620 |
As a result of this acquisition, the group will record brand names and goodwill of approximately Rand 12.6 million and Rand 533.0 million, respectively. All of the goodwill, none of which is deductible for tax purposes, will be recorded in the pay television segment.
(ii) Value of purchase consideration
Under SA GAAP, the value of the OpenTV shares issued as consideration for the Spyglass acquisition in fiscal year 2001 and the value of the additional 18.59% interest Naspers acquired in M-Web Holdings Limited in fiscal year 2002 in exchange for Naspers Class N ordinary shares were measured using the market value of the respective shares on the consummation dates of the transactions. Under US GAAP, the value of the shares issued is measured using the average market value of the shares a few days before and after the announcement date. In addition, under US GAAP, the fair value of OpenTV options issued to replace Spyglass options is recorded as part of the purchase consideration, based on the fair value of the options outstanding at the acquisition date. As a result, the value of the purchase cons ideration and the related dilution gain (refer to (l) below) under US GAAP was Rand 8.0 billion higher than under SA GAAP for the Spyglass acquisition. The value of the purchase consideration was Rand 15.6 million lower for the M-Web transaction than that recorded under SA GAAP. The difference in the value of the purchase consideration was allocated to goodwill under US GAAP and was being amortized over five years prior to the adoption of FAS 142 on April 1, 2002. Accordingly, this adjustment includes the additional goodwill amortization charge of Rnil (2003: Rand nil, 2002: Rand 2.3 billion), before minority interest of Rand nil (2003: Rand nil, 2002: Rand 1.9 billion).
(iii) Exchange of non-monetary assets
In March 2000, the group completed the second phase of a marketable securities swap based on a previously agreed exchange ratio with a third-party to exchange shares the group held in M-Cell Limited for shares in MIH Holdings Limited and M-Web Holdings Limited. Under SA GAAP, the gain recorded and cost of investments acquired were based on the value of the shares received. Under US GAAP, the gain recorded and cost in the investments acquired were based on the market value of the shares surrendered on the dates that the exchanges were consummated. This adjustment decreases the goodwill recognized under SA GAAP and subsequently written off to reserves by Rand 502.5 million which has been reinstated under US GAAP (refer to note (b)).
(iv) Acquired in-process research and development
In July 2001, a subsidiary of the group completed the acquisition of a 100% interest in Static. Under US GAAP, the Rand 17.5 million (before minority interest of Rand 14.6 million) identified as in-process research and development from the acquisition is charged to expenses in fiscal year 2002 since the projects had not yet reached technological feasibility and had no future alternative use.
Page F-88 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(b) | Reinstatement of goodwill written off against reserves |
Under SA GAAP, prior to the implementation of AC131 "Business combinations", goodwill recorded on acquisitions prior to April 1, 2000 was written off against retained income in the year of acquisition. For purposes of US GAAP prior to the adoption of FAS 142, "Goodwill and other intangible assets", all goodwill written off against retained income under SA GAAP has been reinstated as an asset on the balance sheet and is being amortized using the straight-line method over its estimated useful life of three to five years. This adjustment to goodwill also reverses the amortization charge of goodwill recorded under SA GAAP relating to the post July 1, 2001 acquisition of Static of Rand 48.8 million (before minority interest of Rand 40.8 million) and the goodwill related to the acquisition of an additi onal interest in M-Web of Rand 7.8 million (before minority interest of Rand 4.5 million). Upon adoption of FAS 142 on April 1, 2002, the group no longer amortizes goodwill and tests goodwill by reporting unit annually for impairment.
(c) | Reinstatement of other intangible assets written off against retained income |
Under SA GAAP, prior to the implementation of AC129 "Intangible assets", patents, trademarks, title rights and similar other intangible assets acquired before April 1, 2000 were written off against retained income in the year of acquisition. Under US GAAP, all other intangible assets written off against retained income have been reinstated as assets on the balance sheet and are being amortized using the straight-line method over a range of estimated useful lives of three to eight years. Upon adoption of FAS 142 on April 1, 2002, none of the reinstated other intangible assets previously written off against retained income were determined to have an indefinite life and therefore all other intangible assets will continue to be amortized over their remaining estimated useful lives. This adjustment re presents the capitalization of intangible assets, other than goodwill, written off against retained income prior to April 1, 2000, net of accumulated amortization to that date, and the additional amortization charge of Rand 95.6 million (2003: Rand 159.9 million, 2002: Rand 229.5 million) before minority interest of Rand nil (2003: Rand nil, 2002: Rand 52.1 million).
(d) | Impairment of goodwill |
As at September 30, 2002, the group performed the transitional impairment test required under FAS 142 and compared the carrying value of each reporting unit to its fair value, which was based on discounted cash flows or market values for listed companies to determine whether there was an impairment. The impairment was then calculated based on an allocation of the fair value of the reporting unit and the implied value of goodwill based on that allocation. Upon completion of the transitional test, the group recorded an initial goodwill impairment of Rand 531.5 million related to mainly goodwill in the group’s internet operating segment and recorded this as a cumulative effect of change in accounting principle. The group also completed the annual impairment test required under FAS 142 as at Mar ch 31, 2003, which was also performed by comparing the carrying value of each reporting unit to its fair value and determination of the implied value of goodwill. A goodwill impairment charge of Rand 122.9 million was recorded mainly related to goodwill in the group’s internet segment.
The group recorded a goodwill impairment charge of Rand 4.6 billion, before minority interest of Rand 3.8 billion, under SA GAAP for the year ended March 31, 2002 that related solely to OpenTV. As a binding sales agreement was reached for the sale of OpenTV on May 8, 2002, the net selling price was used in the determination of the goodwill impairment charge. Such charge reduced the goodwill held by OpenTV by Rand 4.6 billion from its carrying value of Rand 6.9 billion to Rand 2.3 billion, after which the group’s interest in the net assets of OpenTV equaled the agreed net selling price of Rand 1.9 billion.
At March 31, 2002, the total net asset value of OpenTV under US GAAP exceeded that under SA GAAP by Rand 8.6 billion, mainly related to the additional goodwill recorded in connection with the OpenTV’s acquisition of Spyglass (refer to item (a)(ii)). Under US GAAP, a goodwill impairment charge was recorded during the year ended March 31, 2002, as the carrying value of goodwill held by OpenTV exceeded its expected undiscounted cash flows. The impairment charge recorded was Rand 8.6 billion (less minority interest of Rand 7.2 billion), which represented the difference between the expected discounted cash flows and the US GAAP carrying value of OpenTV. The goodwill impairment adjustment of Rand 4.0 billion (less minority interest of Rand 3.4 billion) included in the reconciliation between SA GAA P and US GAAP represents the reversal of the goodwill impairment charge of Rand 4.6 billion (less minority interest of Rand 3.8 billion) recorded under SA GAAP and the inclusion of the goodwill impairment charge recorded under US GAAP. In addition to this amount is a further Rand 1.5 billion (less minority interest of Rand 42.3 million) impairment charge that relates to goodwill resulting from the group’s purchases of interests inMIH Limited andMIH Holdings Limited which have been attributed to their respective interests in OpenTV.
(e) | Impairment of other intangible assets |
Under both SA GAAP and US GAAP, the carrying value of other intangible assets is reviewed whenever changes in circumstances indicate that the historical carrying value may not be appropriate. Intangible assets that were written off against retained income prior to April 1, 2000 under SA GAAP were reinstated as assets under US GAAP. For certain of the reinstated intangible assets in the group’s private education segment, the carrying value as at March 31, 2003 and March 31, 2001 exceeded the estimated future cash flows expected to result from these assets and therefore an impairment charge of Rand 50.1 million (less minority interest of Rand nil) and Rand 416.7 million (less minority interest of Rand 268.2 million) is included in fiscal years 2003 and 2001, respectively, to adjust the carryin g value of these assets to their fair value.
Page F-89 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(f) | Purchase of minority interests (successive acquisition), net |
As discussed in note 3 to the consolidated annual financial statements, in December 2002 Naspers issued a total of 137,066,606 Class N ordinary shares to acquire the remaining minority interests in MIH Limited and MIH Holdings Limited that it did not already own. As the purchase of the minority interest was an increase in the existing ownership, the results of the operations of MIH Limited and MIH Holdings Limited were already included within the consolidated income statement. The minority interest from April 1, 2002 to December 31, 2002 was Rand 43.6 million.
The following tables reflect the reconciliation of the total consideration for MIH Limited and MIH Holdings Limited, the allocation of the excess of purchase consideration over the net assets acquired accounted for under US GAAP and the US GAAP purchase accounting adjustments:
R'000 | ||||
Market value of shares issued | 2,399,851 | |||
Fair value of options issued | 2,437 | |||
Direct acquisition costs | 52,312 | |||
Total consideration | 2,454,600 | |||
Net assets acquired | 906,562 | |||
Excess of purchase consideration over the net assets acquired | 1,548,038 | |||
US GAAP purchase accounting adjustments: | ||||
Transmission equipment - leased | 122,313 | |||
Subscriber base | 518,493 | |||
Brand names | 276,395 | |||
Patents and technology | – | |||
Capitalized finance leases | (122,313 | ) | ||
Goodwill | 570,780 | |||
Investment in joint ventures | 378,203 | |||
Deferred taxation on adjustments | (195,833 | ) | ||
Excess of purchase consideration over the net assets acquired | 1,548,038 |
Direct acquisition costs of R52 million, which have been capitalized to the purchase price, consisted of professional and legal fees.
The amortization periods of assets assigned from the excess of purchase consideration under US GAAP are:
Transmission equipment - leased | over the remaining lease period |
Subscriber base | 8 years |
Patents and technology | 5 years |
Brand names | not amortized |
Goodwill | not amortized |
Page F-90 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
The impact of these adjustments on the reconciliation of net profit and shareholders' equity, including impact of translation difference, between SA GAAP and US GAAP for the purchase of minority interests (successive acquisition) are as follows:
31 March 2004 | 31 March 2003 | |||||||||
R'000 | R'000 | |||||||||
Difference between net income under SA GAAP and US GAAP | ||||||||||
(aa) Goodwill amortization | 156,328 | 21,489 | ||||||||
(bb) Brand name amortization | 20,379 | 4,744 | ||||||||
(cc) Patents and technology amortization | 17,549 | 5,039 | ||||||||
(dd) Subscriber base amortization | (63,007 | ) | (16,052 | ) | ||||||
(ee) Effect of adjustments on equity accounted results | (11,967 | ) | (3,272 | ) | ||||||
Effect of adjustments on deferred taxation | 16,469 | 4,490 | ||||||||
Total difference between net income under SA GAAP and US GAAP related to acquisition of minority interests | 135,751 | 16,438 | ||||||||
31 March 2004 | 31 March 2003 | |||||||||
R'000 | R'000 | |||||||||
Effect on shareholders' equity between SA GAAP and US GAAP | ||||||||||
(aa) Goodwill | (848,005 | ) | (1,081,971 | ) | ||||||
(bb) Brand names | (74,638 | ) | (101,691 | ) | ||||||
(cc) Patents and technology | (58,490 | ) | (92,708 | ) | ||||||
(dd) Subscriber base | 416,540 | 495,070 | ||||||||
(ee) Effect of adjustments on equity accounted investments | 361,846 | 398,496 | ||||||||
Effect of adjustments on deferred taxation | (110,350 | ) | (129,866 | ) | ||||||
Total difference of cumulative effect on shareholders' equity between SA GAAPand US GAAP related to acquisition of minority interests | (313,097 | ) | (512,670 | ) |
Due to the group’s change in accounting policy for joint ventures, differences in purchase accounting between SA GAAP and US GAAP for entities which are now proportionally consolidated under SA GAAP are presented in the line items they relate instead of grouped as part of adjustments on equity accounted investments as previously presented.
(aa) Goodwill
Under SA GAAP the total purchase consideration in a business combination includes the market value of shares issued determined on the date the shares are exchanged, effective in this transaction as at December 20, 2002, as well as direct acquisition costs related to the purchase. Under US GAAP the total purchase consideration includes the average market value of shares issued and the average market value of options issued to replace employee options acquired determined a few days before and after the acquisition is announced, determined to be September 26, 2002, as well as direct acquisition costs. Since goodwill is composed of the remainder of the excess purchase price not allocated to the fair values of other identified tangible and intangible assets and liabilities, the goodwill under US GAAP and SA GAAP diff ers initially by Rand 1,276.3 million based on the determination of differences in purchase consideration as well as due to differences in the net book values of minority interests acquired recorded under SA GAAP and US GAAP. Additionally, under SA GAAP goodwill is amortized over its estimated useful life not exceeding 20 years, whereas under US GAAP goodwill is not amortized.
(bb) Brand names
The value of brand names acquired has been calculated similarly between SA GAAP and US GAAP, however under SA GAAP other intangible assets are limited to amortization period of 20 years, whereas under US GAAP the brand names acquired were determined to have indefinite lives and therefore are not amortized.
(cc) Patents and technology
The value of patents and technology acquired has been calculated similarly between SA GAAP and US GAAP, however the underlying book values in the entities in which these assets are generated and the allocation of excess purchase price differ between SA GAAP and US GAAP and therefore the value under US GAAP is less by Rand 106 million at the date of acquisition.
Page F-91 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(dd) Subscriber base
Under US GAAP the subscriber bases acquired in the successive acquisition have been considered to be non-contractual customer relationships since the average contract period for subscribers is approximately one to three months. However, based on historical evidence the group expects the economic useful lives of these subscribers to be approximately eight years. Under SA GAAP, other intangible assets can only be separately recorded if, among other conditions, the group is able to control the asset. Since the period of control over the subscriber is limited, the group has determined that the value of subscriber bases acquired cannot be separately recorded apart from goodwill.
(ee) Effect of adjustments on equity accounted investments
The allocation of the excess purchase consideration related to the successive acquisition was also undertaken for the group’s investments in associates and joint ventures. This excess was allocated based on the differences between the assessed fair value of assets and liabilities acquired and the underlying net book value accounted for under US GAAP. This difference was allocated to the respective assets and is amortized over the estimated useful lives of the underlying assets in those entities, if applicable.
Pro forma information on acquisition of MIH Holdings Limited and MIH Limited minorities
The unaudited pro forma consolidated financial information gives pro forma effects as at April 1, 2001 and for the years ended on March 31, 2002 and 2003 to illustrate the effects of:
· | The issuance of 115,816,120 Naspers Class N ordinary shares to acquire the remaining minority interests in MIH Limited and MIH Holdings Limited and the issuance of 21,250,486 Naspers Class N ordinary shares to acquire the shares held by the MIH Limited and MIH Holdings Limited share trusts. |
The unaudited pro forma consolidated information has been prepared by applying pro forma adjustments to the historical consolidated financial information of Naspers in conformity with SA GAAP and US GAAP. The pro forma consolidated income statements have been adjusted to reflect the acquisition of the MIH Holdings Limited and MIH Limited minority interests as at April 1, 2001. These pro forma adjustments exclude foreign exchange movements relating to the transaction. Profit on foreign exchange relating to the transaction (Rand 1.2 million), included in finance costs for the current year, has consequently been reversed. This is done to ensure consistent treatment. These unaudited pro forma results have been prepared for comparative purposes only, and do not purport to be indicative of the results of operations, w hich would have resulted had the acquisitions taken place on April 1, 2001.
Selected income statement information under SA GAAP is presented below:
Pro forma | Pro forma | ||||||
March 31, 2003 | March 31, 2002 | ||||||
R'000 | R'000 | ||||||
Revenue | 12,203,907 | 10,699,905 | |||||
Loss before exceptional items | (109,056 | ) | (732,473 | ) | |||
Net profit/(loss) attributable to shareholders | 360,376 | (4,472,663 | ) | ||||
Profit/(loss) per N ordinary share - basic (cents) | 137 | (1,710 | ) |
Selected income statement information under US GAAP is presented below:
Pro forma | Pro forma | ||||||
March 31, 2003 | March 31, 2002 | ||||||
R'000 | R'000 | ||||||
Revenue | 11,208,593 | 9,861,412 | |||||
Loss before exceptional items | (1,537,208 | ) | (2,613,570 | ) | |||
Net loss attributable to shareholders | (889,583 | ) | (9,206,535 | ) | |||
Loss per N ordinary share - basic (cents) | (338 | ) | (3,521 | ) |
Page F-92 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(g) | Stock based compensation |
Under SA GAAP, the group does not recognize compensation expense for employee share option and share purchase plans. For US GAAP purposes, the group accounts for its share options granted to employees under Accounting Principles Board Opinion No.25 "Accounting for Stock Issued to Employees" ("APB 25"), as permitted by Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("FAS 123"). In general, APB 25 requires that the intrinsic value of the options, defined as the market value of the share at the grant date less the exercise price, be recognized as compensation expense prospectively, over the vesting period of the related options. For the year ended March 31, 2004 the group recorded a compensation charge relating to options issued to employees of Rand 129 .6 million (2003: Rand 11.4 million, 2002: Rand 104.6 million) before minority interest of Rand nil (2003: Rand 3.3 million, 2002: Rand 67.7 million). For the year ended March 31, 2004, the group recorded a compensation charge of share options issued to non-employees of Rand 0.2 million (2003: Rand 3.6 million, 2002: income of Rand 1.2 million).
As permitted by FAS 123, for purposes of US GAAP, the group applies APB25 and related interpretations in accounting for its option plans. Had compensation costs for the group’s share option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FAS 123, the group’s net profit/(loss) and net profit/(loss) per share under US GAAP would have decreased/(increased) to the pro forma amounts indicated below:
2004 | 2003 | 2002 | |||||||||||
(in thousands except per share data) | |||||||||||||
Net profit/(loss) | As reported | 495,297 | (893,060 | ) | (5,228,531 | ) | |||||||
Pro forma | 577,749 | (890,007 | ) | (5,280,322 | ) | ||||||||
Net profit/(loss) per N ordinary share | As reported | 1.92 | (5.06 | ) | (35.89 | ) | |||||||
Pro forma | 2.24 | (5.04 | ) | (36.24 | ) |
The weighted average fair value of the options granted under the Naspers plan during 2004, 2003 and 2002 was Rand 16.03, Rand 12.93 and Rand 17.10 respectively. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 11.0 | % | 11.0 | % | ||||
Expected dividend yield | 0.6 | % | 0.9 | % | 0 | % | ||||
Expected stock price volatility | 61.5 | % | 67.7 | % | 50.2 | % | ||||
Expected terms | 4 | 6 | 7 |
Page F-93 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
The weighted average fair value of the options granted under the Media24 plan during 2004, 2003 and 2002 was Rand 5.87, Rand 5.42 and Rand 4.03 respectively. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 11.0 | % | 10.0 | % | ||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | ||||
Expected stock price volatility | 94.3 | % | 103.5 | % | 50.8 | % | ||||
Expected terms | 4 | 5 | 7 |
The weighted average fair value of the options granted under the Educor plan during 2004, 2003 and 2002 was Rand 0.77, Rand 0.50 and Rand 0.81. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 11.0 | % | 11.2 | % | ||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | ||||
Expected stock price volatility | 52.8 | % | 43.9 | % | 109.5 | % | ||||
Expected terms | 4 | 5 | 7 |
The weighted average fair value of the options granted under the Paarl Media plan during 2004, 2003 and 2002 was Rand 5.02, Rand 4.86 and Rand 3.83. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 11.0 | % | 10.6 | % | ||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | ||||
Expected stock price volatility | 94.3 | % | 103.5 | % | 30.8 | % | ||||
Expected terms | 4 | 5 | 7 | |||||||
The weighted average fair value of the options granted under theMIH Holdings Limited plan during 2004, 2003 and 2002 was Rand 22.55, Rand 14.03 and Rand 7.07 respectively. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 11.0 | % | 11.3 | % | ||||
Expected dividend yield | 0.6 | % | 0.9 | % | 0 | % | ||||
Expected stock price volatility | 61.5 | % | 68.0 | % | 84.0 | % | ||||
Expected terms | 4 | 5 | 7 |
The weighted average fair value of the options granted under theMIH (BVI) Limited ADS plan during 2004 was U.S. $15.57. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | ||||
Risk-free interest rate | 2.7 | % | ||
Expected dividend yield | 0.6 | % | ||
Expected stock price volatility | 61.5 | % | ||
Expected terms | 4 |
Page F-94 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
The weighted average fair value of the options granted under theMIH (BVI) Limited plan during 2004, 2003 and 2002 was Rand 22.13, Rand 15.32 and Rand 56.75 forMIH Limited, respectively. The fair values were calculated using the Black-Scholes option pricing method using the following assumptions:
2004 | 2003 | 2002 | ||||||||
Risk-free interest rate | 9.8 | % | 3.5 | % | 5.3 | % | ||||
Expected dividend yield | 0.6 | % | 0.9 | % | 0 | % | ||||
Expected stock price volatility | 61.5 | % | 67.6 | % | 75.0 | % | ||||
Expected terms | 4 | 5 | 7 |
The weighted average fair value of the options granted under the MIH QQ plan during 2004 and 2003 was Rand 22.21 and Rand 27.35. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | ||||||
Risk-free interest rate | 2.6 | % | 3.48 | % | |||
Expected dividend yield | 0.6 | % | 0 | % | |||
Expected stock price volatility | 104.0 | % | 110.0 | % | |||
Expected terms | 4 | 5.1 |
The weighted average fair value of the options granted under the Irdeto plan during 2004 and 2003 was U.S. $5.95 and U.S. $7.35. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | 2003 | ||||||
Risk-free interest rate | 3.2 | % | 7.4 | % | |||
Expected dividend yield | 0 | % | 0 | % | |||
Expected stock price volatility | 61.5 | % | 75.0 | % | |||
Expected terms | 4 | 6 |
The weighted average fair value of the options granted under the Entriq plan during 2004 was U.S. $0.60. The fair value was calculated using the Black-Scholes option pricing method using the following weighted average assumptions:
2004 | ||||
Risk-free interest rate | 2.9 | % | ||
Expected dividend yield | 0.0 | % | ||
Expected stock price volatility | 62.0 | % | ||
Expected terms | 4 |
Page F-95 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(h) | Provision for teach-out costs |
As discussed in note 29 to the consolidated annual financial statements, the group approved a formal plan to terminate the operations of Lyceum College in September 2001. Due to the contractual obligations with the students that existed prior to the approval date, the group implemented a teach-out program that will allow the currently enrolled students to complete the courses. All outstanding courses under the teach-out program are expected to be completed by March 31, 2005. Under SA GAAP, a provision was established for all costs related to providing services under the existing contracts during the teach-out period. Under US GAAP, costs that will result in future benefit after the commitment date of an activity that will not continue are required to be expensed in the period they are incurred. This adjustment r epresents a reversal of the portion of the provision that is not eligible for accrual at March 31, 2004 and 2003 and to expense the cost as incurred under US GAAP thereafter.
(i) | Write-back of asset impairment |
During the year ended March 31, 2004, the group eliminated a provision created under US GAAP maintained for assets that have been previously disposed of.
During the year ended March 31, 2002, the group reversed impairments of long-term assets under SA GAAP. Under US GAAP, impairment write-downs cannot be subsequently written back up to their historical carrying amounts. This adjustment eliminates the impairment reversal as recorded under SA GAAP and reverses subsequent depreciation recorded under SA GAAP on the higher asset balance.
(j) | Amortization of goodwill and other intangible assets with indefinite lives |
Under SA GAAP, after the implementation of AC131, goodwill and other intangible assets are amortized using the straight-line method over their estimated useful lives. Following the adoption of FAS 142 on April 1, 2002, goodwill and other intangible assets with indefinite useful lives are no longer amortized under US GAAP, but reviewed annually for impairment. Intangible assets not subject to amortization include brand names of Rand 266.9 million at March 31, 2004 (2003: Rand 266.9 million) acquired in the purchase of minority interests. The 2004 and 2003 amortization charges on goodwill and intangible assets with indefinite lives recognized for SA GAAP has been reversed for US GAAP purposes. The impact of not amortizing goodwill on net loss for prior years is summarized below:
March 31 | ||||
2002 | ||||
R'000 | ||||
Net loss | ||||
Net loss as reported under US GAAP | (5,228,531 | ) | ||
Add back: goodwill amortization | 1,386,303 | |||
Net (loss)/income under US GAAP adjusted for SFAS 142 | (3,842,228 | ) | ||
Basic and diluted (loss)/profit per N ordinary share: | ||||
Net (loss)/income per share as reported under US GAAP | (35.89 | ) | ||
Add back: goodwill amortization | 9.52 | |||
Basis and diluted (loss)/profit per N ordinary share as reported under | ||||
US GAAP adjusted for SFAS 142 | (26.37 | ) |
The estimated aggregate amortization expense for other intangible assets with finite lives including title rights, subscriber base, intellectual property rights and patents and technology under US GAAP for each of the five succeeding years, is as follows:
R'000 | ||||
12 months to: | ||||
31 March 2005 | 97,192 | |||
31 March 2006 | 83,069 | |||
31 March 2007 | 74,560 | |||
31 March 2008 | 64,899 | |||
31 March 2009 | 62,491 |
Page F-96 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICEAND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(k) | Adjustment to dilution (losses)/gains |
During the years ended March 31, 2002 and 2001, certain subsidiaries issued shares to third parties for cash or non-cash assets, which resulted in a dilution of the group’s ownership in these entities. The most significant of these transactions was the acquisition of Spyglass (refer to (a)(ii)) in the year ended March 31, 2001 and Static in the year ended March 31, 2002. Under SA GAAP, the group has recorded dilution (losses)/gains resulting from these transactions as the value received for the subsidiaries’ shares issued were (less than)/greater than the group’s carrying value prior to the transactions. Generally, the calculation of, and accounting for, dilution gains and losses is similar under US GAAP as it is under SA GAAP. However, the calculation of the dilution gain or loss under US GAAP is determined using the carrying value of the subsidiaries’ net assets based on US GAAP and the fair value of purchase consideration, as determined under US GAAP, either of which may differ with SA GAAP.
(l) | Unrealized gains and losses on marketable securities |
Prior to April 1, 2003, under SA GAAP the group recorded unrealized gains and losses on marketable debt and equity securities in the income statement. Under US GAAP, FAS 115, "Accounting for Certain Investments in Debt and Equity Securities" requires that unrealized gains and losses be recorded within shareholders’ equity as a component of Other Comprehensive Income until they are realized. During fiscal year 2001 the group wrote down marketable securities to their current market value. Under SA GAAP the write-down to current market value was included in determination of net profit for the year ended March 31, 2001. The investments to which these unrealized losses referred were sold during fiscal year 2002 and therefore this adjustment reverses the unrealized loss recorded in Other Comprehensive (Loss)/Inco me under US GAAP to net loss under US GAAP. As at March 31, 2003, the group recorded unrealized profits on its marketable equity securities in the income statement which has been reversed to other comprehensive income under US GAAP.
(m) | Derivative financial instruments |
Under SA GAAP, the group adopted AC133 "Financial instruments: Recognition and Measurement", as of April 1, 2003. For US GAAP purposes, FAS 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by FAS 137 and FAS 138 was adopted by the group as at April 1, 2001. These standards establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively, referred to as derivatives) and for hedging activities. These standards require that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at fair value. The adoption of AC133 in regards to financial instruments results in the inclusion of all derivatives, including embedded derivat ives, on the balance sheet with an offsetting entry to equity upon adoption. Under US GAAP, the impact of the embedded derivatives was recorded as an adjustment to net profit in the current year.
Page F-97 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(n) | Post-retirement employee benefits |
The group maintains a number of post-retirement medical benefit plans. Under the plans, active plan participants and retirees contribute to the medical benefit plan based upon average per capita costs of coverage for the entire plan group. This practice provides an additional post-retirement benefit to the extent that retirees are contributing less than actual costs they incur for healthcare. Under US GAAP, the benefit obligation has been calculated as of March 31, 2004 and March 31, 2003 as the portion of the future cost of retiree healthcare benefits not recovered through retiree contributions (i.e. excluding the effective cross-subsidy provided by active plan participants’ contributions). Under SA GAAP, the post-retirement benefits other than pensions obligation is calculated based upon t he obligations and contributions of active and retiree plan members combined (i.e. inclusive of the cross-subsidy).
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Change in benefit obligation | ||||||||||
Benefit obligation at April 1 | 261,230 | 277,600 | 247,200 | |||||||
Service cost | 6,363 | 9,140 | 8,200 | |||||||
Interest cost | 28,352 | 35,430 | 31,500 | |||||||
Actuarial (gain)/loss | (42,170 | ) | (50,660 | ) | – | |||||
Settlement gain | (92,883 | ) | – | – | ||||||
Benefits paid | (7,183 | ) | (10,280 | ) | (9,300 | ) | ||||
Benefit obligation at March 31 | 153,709 | 261,230 | 277,600 |
The assumptions utilized to determine the benefit obligation and the net healthcare cost at and as of the year ended March 31, 2004 are listed below:
Benefit obligation | ||||
Rate of future healthcare inflation per annum (a) | 7.5 | % | ||
Discount rate per annum | 9.0 | % | ||
Net Healthcare Cost | ||||
Rate of future healthcare inflation per annum (a) | 9.5 | % | ||
Discount rate per annum | 11.0 | % |
(a) In regards to the future healthcare inflation assumption, the initial trend and ultimate trend are the same.
The expected employer benefit payments for the next five years and cumulatively thereafter following March 31, 2004 is presented below:
R'000 | ||||
Period | ||||
Year ending March 31, 2005 | 7,284 | |||
Year ending March 31, 2006 | 7,979 | |||
Year ending March 31, 2007 | 8,768 | |||
Year ending March 31, 2008 | 9,659 | |||
Year ending March 31, 2009 | 10,632 | |||
April 1, 2009 to March 31, 2014 | 71,183 |
The post-retirement medical benefit plans are unfunded. The group’s best estimate of expected contributions for the next year equals the expected benefit payment of Rand 7.3 million.
Page F-98 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Net periodic post-employment cost under US GAAP includes the following components:
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Net period post-retirement benefit cost charged to operating profit | ||||||||||
Service cost | 6,363 | 8,200 | 4,800 | |||||||
Interest cost | 28,352 | 31,500 | 22,300 | |||||||
Amortization of transition obligation | 8,750 | 8,800 | 8,800 | |||||||
Recognized net actuarial loss | – | 1,800 | – | |||||||
Net post-retirement benefit cost charged to operating profit | 43,465 | 50,300 | 35,900 |
The actuarial and recorded liabilities for post-retirement health care benefits, none of which are funded, under US GAAP are as follows:
March 31 | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
Funded status at 31 March | |||||||
Funded status | (153,710 | ) | (261,230 | ) | |||
Unrecognized transition obligation | 25,886 | 113,640 | |||||
Unrecognized net actuarial gain | (30,169 | ) | (6,120 | ) | |||
Net amount recognized pension cost | (157,993 | ) | (153,710 | ) |
At March 31, 2004 an amount of Rand 158.0 million (2003: Rand 153.7 million) is recognized in the balance sheet relating to the accrued benefit liability attributable to these plans.
During the year, the group entered into an agreement with certain of its employees regarding their post-employment benefits. Under the terms of this agreement, the group will no longer offer post-employment medical benefits to its employees. Instead, upon retirement, the employee will receive a payment of an agreed-upon lump sum amount equivalent to the current value of the past service liability for post-employment benefits to be terminated as a result of this agreement. The employee will only receive this amount upon retirement.
In order to fund these payments, the group entered into a contract with an independent third party whereby the group will make payments, commencing in fiscal 2005, to the third party and the third party will facilitate the payments to be made to the employees upon their retirement.
In order to compensate for the future service liability forfeited on behalf of the employee, the group agreed with all employees that it would make specified monthly payments into a fund on behalf of the employees. These amounts are immediately vested to the employee. No contributions have yet been made by March 31, 2004 to this fund.
In accordance with US GAAP, the group may recognize a settlement of a post-employment or pension liability upon full and irrevocable release of the group’s responsibility for future benefits. In the current year, a gain of Rand 93 million was recorded upon settlement of the liability. This gain was completely offset by the unrecognized transition liability and unrecognized actuarial losses.
A one percentage point increase in the assumed health-care cost inflation would increase the accumulated post-retirement benefit obligation as at March 31, 2004 by Rand 22.6 million (2003: Rand 52.3 million) and the net period post-retirement benefit cost for 2004 by Rand 2.4 million (2003: Rand 7.8 million, 2002: Rand 9.7 million). A one percentage point decrease in the assumed health-care cost inflation would decrease the accumulated post-retirement benefit obligation as at March 31, 2004 by Rand 18.5 million (2003: Rand 41.0 million) and the net period post-retirement benefit cost for 2004 by Rand 2.0 million (2003: Rand 6.0 million, 2002: Rand 4.7 million).
Page F-99 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)42. | DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) |
(o) | Software and website development costs |
Under SA GAAP, prior to the adoption of AC432, "Intangible assets - website costs" which the group adopted effective on April 1, 2002, costs incurred for internally generated software and website development have been expensed as incurred. Under US GAAP, certain direct and indirect costs associated with the acquisitions or development of internal use software and website development are required to be capitalized. Once the software and website development is completed and the software and website is ready for its intended use, capitalized costs are amortized over their respective estimated useful lives. This adjustment represents the capitalization of costs previously expensed under SA GAAP and the related amortization over an estimated useful life of three years.
(p) | Discontinued operations |
As discussed in note 29, the group entered into an agreement to dispose of its interest in OpenTV on 8 May 2002. Under SA GAAP, the net assets in OpenTV were written down to the net selling price of Rand 1.7 billion as at March 31, 2002. Under US GAAP, OpenTV did not meet the requirements of a discontinuing operation. Due to a FAS 121 impairment of goodwill, the net assets in OpenTV were written down to the expected discounted cash flows as at March 31, 2002 under US GAAP. In fiscal year 2003, the results of operations of OpenTV up to the disposal date in August 2002 have been presented as discontinued under US GAAP, which resulted in a profit on disposal of Rand 668.8 million, due mainly to the release of the cumulative translation adjustment under US GAAP of Rand 1.36 billion.
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Loss from discontinued operations | – | (140,810 | ) | (1,787,176 | ) | |||||
OpenTV | – | (140,810 | ) | (1,631,456 | ) | |||||
Mindport Broadband | – | – | (155,720 | ) | ||||||
Profit/(loss) on disposal | – | 668,837 | (877,831 | ) | ||||||
OpenTV | – | 668,837 | (761,461 | ) | ||||||
Mindport Broadband | – | – | (116,370 | ) | ||||||
– | 528,027 | (2,665,007 | ) |
(q) | Proportionate consolidation |
Under SA GAAP, the group proportionately consolidates its interests in jointly controlled entities ("Joint Ventures"). This benchmark treatment in AC119 "Joint Ventures" results in the group reporting in its consolidated financial statements the proportionate share of the income, expenses, assets and liabilities of the joint venture. Under US GAAP, interest in joint ventures is accounted for in accordance with APB No. 18 "The Equity Method of Accounting for Investments in Common Stock". Under the equity method, the investment is initially recognized at cost and the carrying amounts is increased or decreased to recognize the investor’s share of the profits or losses of the investee after the date of acquisition. If under the equity method the group’s share of losses of a joint venture eq uals or exceeds the carrying amount of its investment, the group ordinarily discontinues equity accounting. Additional losses are provided for to the extent that the group has incurred obligations or made payments on behalf of the joint venture that the group has guaranteed or otherwise committed. Accordingly, operating profit/(loss) may be different between SA GAAP and US GAAP with the joint venture losses fully accounted for under SA GAAP but potentially limited under US GAAP. Differences in US GAAP and SA GAAP equity relates to the cumulative difference of such losses allowed for under proportional consolidation.
Page F-100 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. | DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) |
Additional Disclosure requirements
Presentation in the financial statements - consolidated income statements
Under SA GAAP, operating profit/(loss) may be shown before specific exceptional costs that under US GAAP would be included within operating profit. Additionally, the presentation of earnings per share is not limited to basic and diluted earnings per share on the net (loss)/profit attributable to shareholders. Presentation of operating profit/(loss) before certain costs and additional earnings per share data is allowable when management believes that it provides useful information to an investor and presents a true and fair view of the group’s results. Under US GAAP, items such as asset impairments, restructuring costs and other items would be included within operating profit/(loss). Earnings per share may only be presented on a basic and diluted basis for profit and loss from continuing oper ations, discontinuing operations and net (loss)/profit for the period. Accordingly, operating profit/(loss) would differ between US GAAP and SA GAAP and the presentation of "earnings before interest, taxation, depreciation and amortization and impairment" and "operating profit/(loss) before goodwill amortization and impairment" as well as "headline loss per N ordinary share", "dividend per N ordinary share", "dividend per A ordinary share", "proposed dividend per A ordinary share" and "proposed dividend per N ordinary share" are not allowed under US GAAP. An income statement prepared in accordance with and in a format prescribed by US GAAP is presented on page F-102.
Page F-101 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Presentation in the financial statements - discontinuing operations
Lyceum College
In September 2001, the group approved a formal plan to terminate the operations of Lyceum College. Under SA GAAP, the results of Lyceum College have been presented separately in the primary financial statements as a discontinuing operation as at March 31, 2002. Under US GAAP, the discontinuance of operations of Lyceum College do not qualify for separate presentation as a discontinuing operation as at March 31, 2004, 2003 and 2002.
To provide a better understanding of the differences in accounting standards, the table below presents the condensed consolidated income statements under US GAAP in a format consistent with the presentation of US GAAP consolidated income statements, as if Lyceum College were presented as a continuing operation and after processing the adjustments in (a) to (q), all of which are discussed above.
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Net revenues | 11,526,068 | 11,208,593 | 9,861,412 | |||||||
Operating expenses | (10,483,462 | ) | (11,271,620 | ) | (12,217,193 | ) | ||||
Operating profit /(loss) | 1,042,606 | (63,027 | ) | (2,355,781 | ) | |||||
Finance costs | (356,641 | ) | (388,517 | ) | (566,850 | ) | ||||
Income from investments | 144 | 20 | 86,624 | |||||||
Share of equity-accounted results | 191,742 | (502,029 | ) | 273,107 | ||||||
Loss on sale and dilution of interest in subsidiaries, joint venture and associates, net | (8,884 | ) | (1,063 | ) | (543,755 | ) | ||||
Profit/(loss) from continuing operations before tax, minority interest and change in accounting principle | 868,967 | (954,616 | ) | (3,106,655 | ) | |||||
Income tax | (245,895 | ) | 32,834 | (98,079 | ) | |||||
Profit/(loss) from continuing operations before minority interest and change in accounting principle | 623,072 | (921,782 | ) | (3,204,734 | ) | |||||
Minority interest | (127,775 | ) | 32,215 | 622,776 | ||||||
Profit/(loss) from continuing operations before change in accounting principle | 495,297 | (889,567 | ) | (2,581,958 | ) | |||||
Discontinued operations | – | 528,027 | (2,665,007 | ) | ||||||
Profit/(loss) before change in accounting principle | 495,297 | (361,540 | ) | (5,246,965 | ) | |||||
Cumulative effect of change in accounting principle | – | (531,520 | ) | 18,434 | ||||||
Net profit/(loss) attributable to shareholders | 495,297 | (893,060 | ) | (5,228,531 | ) | |||||
Weighted average N ordinary shares outstanding | 258,151,369 | 176,555,904 | 145,691,868 | |||||||
Diluted weighted average N ordinary shares outstanding | 265,525,780 | 182,161,140 | 151,297,104 | |||||||
Basic and diluted profit/(loss) per N ordinary share: | ||||||||||
Continuing operations | 1.92 | (5.04 | ) | (17.72 | ) | |||||
Discontinuing operations | – | 2.99 | (18.29 | ) | ||||||
Cumulative effect of change in accounting principle | – | (3.01 | ) | 0.12 | ||||||
1.92 | (5.06 | ) | (35.89 | ) |
Page F-102 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Presentation in the financial statements - consolidated balance sheets
To provide a better understanding of the differences in accounting standards, the table below presents the condensed consolidated balance sheets under US GAAP.
March 31 | |||||||
2004 | 2003 | ||||||
R'000 | R'000 | ||||||
ASSETS | |||||||
Non-current assets | |||||||
Property, plant and equipment | 3,046,258 | 3,592,461 | |||||
Goodwill and other intangibles | 1,767,684 | 2,253,871 | |||||
Investments and loans | 830,487 | 459,330 | |||||
Available-for-sale investments | 367,060 | 961,333 | |||||
Program and film rights | 12,192 | 227,295 | |||||
Deferred taxation | 381,309 | 126,114 | |||||
Total non-current assets | 6,404,990 | 7,620,404 | |||||
Current assets | |||||||
Inventory | 360,824 | 412,580 | |||||
Program and film rights | 194,004 | 403,973 | |||||
Receivables | 1,448,554 | 1,514,560 | |||||
Embedded derivative asset | 240,192 | – | |||||
Available-for-sale investments | 137,205 | 152,559 | |||||
Restricted cash | 369,370 | 142,900 | |||||
Cash and cash deposits | 2,162,959 | 2,649,217 | |||||
Total current assets | 4,913,108 | 5,275,789 | |||||
TOTAL ASSETS | 11,318,098 | 12,896,193 | |||||
EQUITY AND LIABILITIES | |||||||
Shareholders' equity | |||||||
Share capital and premium | 4,068,775 | 3,986,799 | |||||
Other reserves | (11,656 | ) | 120,329 | ||||
Retained income | (868,252 | ) | (1,328,030 | ) | |||
Total shareholders' equity | 3,188,867 | 2,779,098 | |||||
Minority interest | 187,253 | 257,379 | |||||
Commitments and contingencies | – | – | |||||
Non-current liabilities | |||||||
Post-retirement medical liability | 205,020 | 165,585 | |||||
Long-term liabilities | 2,815,551 | 3,843,879 | |||||
Deferred taxation | 201,286 | 244,360 | |||||
Total non-current liabilities | 3,221,857 | 4,253,824 | |||||
Current liabilities | |||||||
Current portion of long-term liabilities | 516,668 | 1,246,645 | |||||
Provisions | 64,838 | 49,724 | |||||
Accounts payable, accrued expenses and other current liabilities | 3,400,369 | 3,397,295 | |||||
Foreign exchange contract liability | 388,309 | 298,094 | |||||
Bank overdraft and short-term loans | 349,937 | 614,134 | |||||
Total current liabilities | 4,720,121 | 5,605,892 | |||||
TOTAL EQUITY AND LIABILITIES | 11,318,098 | 12,896,193 | |||||
Page F-103 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Presentation in the financial statements - treatment of certain financial asset investments
Under SA GAAP, the group holds certain financial asset investments that are related to certain long-term debt arrangements. For financial reporting presentation purposes these assets have been treated as a contra liability within long-term debt. Under US GAAP, in accordance with FIN 39 "Offsetting of Amounts Related to Certain Contracts, an interpretation of APB Opinion No. 10 and FASB No. 105," these financial asset investments do not qualify for right of set-off with the long-term debt and therefore would be separately presented as marketable equity securities. The impact of this difference would be to increase marketable equity securities and increase long-term debt by Rand 367.1 million and Rand 961.3 million at March 31, 2004 and 2003, respectively, presented in accordance with US GAAP. The reclassification has been presented in the US GAAP consolidated balance sheets.
Comprehensive income/(loss)
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Net profit/(loss) under US GAAP | 495,297 | (893,060 | ) | (5,228,531 | ) | |||||
Other comprehensive income: | ||||||||||
Foreign currency translations | (257,213 | ) | (1,448,010 | ) | 1,065,571 | |||||
Cumulative effect of adoption of FAS 133 from cash flow hedges | – | – | 24,020 | |||||||
Net change in fair value of cash flow hedges | 114,393 | (270,504 | ) | 66,166 | ||||||
Capital contribution by minorities | – | – | – | |||||||
Unrealized profits/(losses) on marketable securities | 18,562 | (7,024 | ) | (95,848 | ) | |||||
Reclassification of adjustments for realized losses included in net loss | – | – | 17,307 | |||||||
Comprehensive income/(loss) | 371,039 | (2,618,598 | ) | (4,151,315 | ) |
Cash flow information
Under SA GAAP, the consolidated cash flow statements are presented in accordance with AC118 "Cash flow statements". The statements prepared under AC118 present substantially the same information as that required under US GAAP as interpreted by FAS 95 "Statement of Cash Flows." However, the definition of cash flow differs between SA and US GAAP. Cash flow under SA GAAP represents increases or decreases in cash and cash equivalents, which comprises cash in hand and repayable on demand, restricted cash and overdrafts. Under US GAAP, cash flow represents increases or decreases in cash and cash equivalents, which include short term, highly liquid investments with original maturities of less than 90 days, and excludes restricted cash and overdrafts. Additionally, under US GAAP cash dividends paid would be included within financing activities whereas under SA GAAP they are treated as operating cash flows. The movement in restricted cash and overdrafts has been included within financing activities under US GAAP.
A summary of the group’s operating, investing and financing activities, classified in accordance with US GAAP, are as follows:
March 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
R'000 | R'000 | R'000 | ||||||||
Net cash provided by/(used in) operating activities | 1,692,260 | 1,128,894 | (346,068 | ) | ||||||
Net cash (used in)/provided by investing activities | (534,092 | ) | 42,479 | (1,087,955 | ) | |||||
Net cash (used in)/provided by financing activities | (1,332,626 | ) | (942,573 | ) | 768,027 | |||||
Net (decrease)/increase in cash and cash equivalents | (174,458 | ) | 228,800 | (665,996 | ) | |||||
Cash and cash equivalents at beginning of year | 2,649,217 | 2,876,003 | 2,774,574 | |||||||
Exchange adjustments | (311,800 | ) | (455,586 | ) | 767,425 | |||||
Cash and cash equivalents at end of year | 2,162,959 | 2,649,217 | 2,876,003 |
Page F-104 | ||
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Segment information
Under FAS 131, "Disclosure about Segments of an Enterprise and Related Information", group management’s primary performance measure is defined as operating profit/(loss) before amortization and impairment, but including finance costs on transponder and transmitter finance leases. With the exception of the pay television segment, the performance measure under FAS 131 is consistent with operating profit/(loss) before amortization and impairment disclosed under SA GAAP in note 37 to the consolidated annual financial statements. Using group management’s primary performance measure under FAS 131, the segment results for the pay television segment would have been Rand 1,151.6 million, Rand 388.7 million profit and Rand 22.8 million loss for the three years ended March 31, 2004, 2003 and 2002, respectively an d the consolidated segment total would have been Rand 1,619.3 million, Rand 467.9 million profit and Rand 108.5 million loss for the three years ended March 31, 2004, 2003 and 2002, respectively.
Provision for discontinued operations
The provision for discontinued operations at March 31, 2002 related to amounts payable for settlement, legal and retrenchment costs arising from the discontinuance of group’s Mindport Broadband operations. The retrenchment costs included in the provision amounted to Rand 22.7 million at March 31, 2002, in respect of approximately 40 employees. The group ceased the Mindport Broadband operations by March 31, 2002. The remaining provision at March 31, 2004 relates to amounts payable for the settlement of legal costs.
Certain risk concentrations
The group’s digital programming is or will be transmitted to customers through different satellites around the world, and in certain regions its terrestrial analogue signal is also transmitted to regional broadcast points through satellites. In addition, the group receives a significant amount of its programming through satellites. Satellites are subject to significant risks that may prevent or impair commercial operations. Although the group has not experienced any significant disruption of its transmissions, the operation of satellites is beyond the control of the group. Disruption of satellite transmissions could have a material adverse effect on the group.
The group does not have any single customer or related customers that generate more than 10% of the group’s revenues.
Program and film rights
The group accounts for fixed price program and film rights contracts and the portion of variable price program and film rights contracts for which the cost can be reliably measured as an asset and liability under AC129 "Intangible assets" and AC130 "Provisions, contingent liabilities and contingent assets". Under FAS 63 "Financial Reporting by Broadcasters" the asset and liability are recorded when the license period begins, the program is available for its first broadcast and the cost of each program is known or reasonably determinable. Under US GAAP, sporting and other live event programs are therefore only accounted for when available for telecast. The different treatment does not have an impact on net (loss)/income or shareholders’ equity. The total assets as at March 31, 2004 relating t o program and film rights decreased by Rand 425.1 million (2003: Rand 314.8 million) comprising a decrease in current assets by Rand 210.0 million (2003: Rand 201.4 million), non-current assets by Rand 215.1 million (2003: Rand 113.4 million). The total liabilities as at March 31, 2004 relating to program and film rights decreased by Rand 247.3 million (2003: Rand 314.8 million) comprising a decrease in current liabilities by Rand 125.4 million (2003: Rand 208.3 million), non-current liabilities by Rand 121.9 million (2003: Rand 106.5 million).
Secondary Tax on Companies ("STC")
STC is a tax levied on South African companies at a rate of 12.5% of dividends distributed. However, in the case of companies liquidated after April 1, 1993, STC is only payable on undistributed earnings earned after April 1, 1993. STC is not included in the computation of deferred tax or the normal South African tax charge. These amounts are calculated at the statutory group tax rate on undistributed earnings of 30%. On declaration of a dividend, the group includes the tax of 12.5% on this dividend in its computation of the income tax expense in the period of such declaration.
If the group distributed all of its undistributed retained earnings as at March 31, 2004, of which Rand 6,212 million (2003: Rand 5,612 million, 2002: Rand 5,098 million) would be subject to STC, the group would have to pay additional taxes of Rand 690.3 million (2003: Rand 623.6 million, 2002: Rand 566.5 million). If all the earnings attributable to shareholders for the year ended March 31, 2004 were distributed, the additional estimated STC charge would be Rand 66.7 million (2003: Rand 57.1 million, 2002: Rand 2.1 million).
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NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
(CONTINUED)
42. DIFFERENCES BETWEEN SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING
PRACTICE ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Recently issued accounting standards
US GAAP
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities ("VIE"), an interpretation of ARB No. 51" (FIN 46) and in December 2003 issued FIN 46R, a revision of this interpretation. Under the revised interpretation, certain entities, known as Variable Interest Entities ("VIE’s"), must be consolidated by the primary beneficiary of the entity. The primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE. Additionally, for VIEs in which a significant, but not majority, variable interest is held, certain disclosures are required. Certain measurement principles of this interpretation relating to VIEs created or acquired after January 31, 2003 are applicable for the f iscal year ended March 31, 2004. The group is in the process of evaluating the impact all potential VIE’s on its financial position and results of operations. The remaining disclosure and measurement requirements in the interpretation are effective for subsequent financial statements. The group has not yet completed its assessment of the remaining relationships that could have an impact on the disclosures included in the subsequent financial statements or on the results of operations or financial position in those periods.
In May 2003, the FASB issued FAS 150, "Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity" (FAS 150). This standard establishes how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument that is within its scope as a liability or an asset in some circumstances. Certain provisions of SFAS 150 as they relate to the accounting and classification of mandatory redeemable financial instruments have been deferred until periods beginning after December 15, 2004.
In January 2003, the Emerging Issues Task Force (EITF) issued EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses the issues of (1) how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and (2) how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. EITF 00-21 does not change otherwise applicable revenue recognition criteria. EITF 00-21 is effective for revenue arrangements entered into in financial periods beginning after June 15, 2003 and is not expected to have a material impact on the group’s financial statements.
In May 2003, the EITF reached a consensus on EITF Issue No. 01-8, Determining Whether an Arrangement Contains a Lease. EITF 01-8 expands the scope of lease accounting to include many types of service and other arrangements which contain terms to use specified plant, property and equipment to the counterparty. Previously many of these types of agreements would not have been considered to be a lease. If arrangements meet the criteria specified in the interpretation they would be required to be accounted for in accordance with FASB No. 13, Accounting for Leases. The guidance under EITF 01-8 is to be applied to all arrangements agreed or committed to, or modified in the fiscal year beginning after May 28, 2003. For the group, it would apply this guidance effective April 1, 2004. The group is currentl y evaluating the impact of EITF 01-8 on its financial position and results of operations.
In April 2004, the EITF Issued EITF 03-6, Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share. This EITF, which requires the use of a two-class method of computing basic EPS when participating securities exist, is effective for fiscal periods beginning after March 31, 2004 and requires restatement of prior period earnings per share amounts. As the group does not currently have participating rights associated with their shares, this EITF is not expected to have a material impact on the presentation of earnings per share in subsequent periods.
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