Telkom AR front.qxp

322
Telkom Annual Report 2009
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
35. CONTINGENCIES (continued)
Competition Commission (continued)
Maredi Telecom and Broadcasting (Proprietary) Limited (Maredi) (continued)
Maredi applied for a court order, with a court hearing date set for February 3, 2009, requesting that the court prevent Telkom from entering
into a contract with Ericsson and Telsaf or either party, and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.
Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the
aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its award. Maredi alleged that there were
certain irregularities in the tender process in that Telkom did not follow fair procedures by failing to comply with its own mandatory
procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should
have been disqualified as it failed to meet Telkom’s critical criteria as set out in the tender.
Numerous allegations in the application, including accusations against certain members of the Procurement Review Council and allegations
by Maredi of compliance by them to the technical critical criteria, were refuted by Telkom. Telkom and Ericsson opposed the application
and filed their respective opposing affidavits. Telsaf did not oppose the application. The matter was ultimately set down for hearing on
February 20, 2009 and Maredi’s application was dismissed with costs. However, Maredi is proceeding with a review application in the
ordinary course and Telkom is opposing the application.
Telkom is not currently able to predict when these disputes may be resolved or the amount that it may eventually be required to pay,
however, it has not included provisions for all of these claims in its annual financial statements. In addition, Telkom may need to spend
substantial amounts defending or prosecuting these claims even if it was ultimately successful. If Telkom were to lose these or future legal
and arbitration proceedings, it could be prohibited from engaging in certain business activities and could be required to pay substantial
penalties and damages, which could cause its revenue and net profit to decline and have a material adverse impact on its business and
financial condition. Telkom may be required to fund any penalties or damages from cash flows or drawings on its credit facilities, which
could cause its indebtedness to increase.
Telkom is party to various additional proceedings and lawsuits in the ordinary course of its business, which management does not believe
will have a material adverse impact on Telkom.
Negative working capital ratio
At each of the financial periods ended March 31, 2009, 2008 and 2007 the Company had a negative working capital ratio. A negative
working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from
operating cash flows, new borrowings and borrowings available under existing credit facilities.