ATN International, Inc. — 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013; the requested fourth-quarter information is included in unaudited quarterly data. ATN provides wireless and wireline services in the United States, Guyana, Bermuda and other Caribbean markets. In September 2013, it sold its U.S. retail wireless business, operated under the Alltel brand, to AT&T. Alltel results and the sale gain are reported as discontinued operations; figures below distinguish continuing operations where relevant.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Continuing-operations revenue | $292.8 million | $277.8 million |
| Operating income | $64.1 million | $56.6 million |
| Operating margin | 21.9% | 20.4% |
| Income from continuing operations | $36.9 million | $24.0 million |
| Net income attributable to ATN shareholders | $311.7 million | $48.9 million |
| Diluted EPS | $19.71 | $3.13 |
| Cash, cash equivalents and restricted cash at year-end | $434.6 million | $136.6 million |
| Debt at year-end | None | $272.1 million |
| Capital expenditures, continuing operations | $69.3 million | $42.2 million |
- Revenue increased 5.4%. U.S. wireless revenue rose 5.0% to $107.9 million, international wireless rose 12.2% to $91.4 million, wireline declined 1.1% to $84.6 million, and equipment and other revenue rose 11.2% to $8.9 million.
- Operating income increased 13.1%; operating expenses rose 3.4% to $228.8 million. General and administrative costs and transaction-related charges increased, while several other expense categories declined.
- Shareholder net income and EPS were dominated by the after-tax Alltel sale gain of $307.1 million in discontinued operations. Continuing-operations diluted EPS was $1.83, versus $1.33 in 2012.
- Cash from operating activities was negative $112.0 million for the year, compared with positive $187.5 million in 2012. Continuing operations used $131.4 million; the company attributes the change largely to taxes paid on the Alltel gain and lower discontinued-operation cash flow.
- Investing activities provided $643.1 million, principally reflecting Alltel sale proceeds; financing activities used $310.5 million, including repayment of $272.1 million of term debt. ATN reported $434.6 million in cash, cash equivalents and restricted cash, including $78.0 million of escrowed proceeds.
- At December 31, working capital was $350.9 million and total assets were $859.7 million. Stockholders’ equity was $643.3 million.
Fourth-quarter snapshot
For the three months ended December 31, 2013, revenue was $77.0 million, operating income was $16.1 million, and income from continuing operations was $18.2 million. Net income attributable to ATN shareholders was $17.9 million. The quarter included a $1.9 million after-tax adjustment to the Alltel sale gain; quarterly cash flow is not separately provided in the filing text.
Material changes and outlook
- The Alltel sale generated approximately $796.8 million of adjusted proceeds, including working-capital consideration. ATN used proceeds to repay term loans and pay substantial taxes; year-end debt was zero. The sale materially changed the company’s business and revenue mix.
- U.S. wireless growth reflected higher data traffic, expanded capacity and an increase in base stations from 569 to 640; the sale of network assets in late 2012 offset some growth. Four national carriers generated a substantial share of wholesale wireless revenue. Management expects data volumes to rise in 2014, but at a slower rate, and says rate reductions, lower voice traffic or reduced roaming could offset growth.
- International wireless revenue benefited from subscriber growth in Island Wireless and increased roaming, despite lower Guyana wireless subscribers. Wireline revenue declined as Guyana local-landline and international-call revenue weakened, partly offset by U.S. wholesale long-distance growth.
- Management forecast 2014 continuing-operations capital expenditures of $65–70 million and said cash and credit-facility availability should meet needs for at least twelve months. This is capital-spending guidance, not earnings guidance. Vermont’s federally supported network project was expected to finish in the latter half of 2014.
- The company declared $1.04 per share in dividends for 2013, up from $0.96 in 2012. Future dividends remain subject to the board’s discretion, cash needs and contractual restrictions.
Risks, contingencies and unusual items
- Guyana regulation and litigation: GT&T generated approximately 32% of consolidated revenue. Proposed legislation could end its exclusive domestic fixed and international service rights. Related license litigation and disputes with Digicel remain unresolved; the company says outcomes and timing are uncertain.
- Internal controls: Management and the auditor identified material weaknesses related to a new Guyana billing system and inadequate accounting resources and training at GT&T. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end. Management reported no resulting material misstatement, but did report out-of-period revenue adjustments and planned remediation through 2014. The financial-statement audit opinion was unqualified.
- Other exposures: Aruba’s license expired in January 2014; the government sought a renewal fee of about $4 million, which ATN contests while continuing operations. Disputed Guyana tax assessments total $33.2 million; ATN says it believes the government would owe reimbursement under the applicable investment arrangement. The filing estimates contingencies of $39.9 million, with $5.0 million accrued because other adverse outcomes were not considered probable.
- Other unusual items: 2013 included a $5.4 million loss when interest-rate derivatives were terminated and $4.7 million of accelerated financing-cost expense on debt repayment. A non-recurring $8.6 million tax benefit related to a U.S. intercompany-note write-down reduced the reported effective tax rate.
- Key operating risks include dependence on a small number of wholesale roaming customers, network investment needs, competition, foreign political and regulatory changes, Guyana currency convertibility, weather events, and the possibility of reduced U.S. universal-service support. ATN also disclosed that $71.9 million of cash was held at non-insured institutions or foreign banks.
Investor verification priorities
- Separate recurring continuing-operations earnings and cash generation from the Alltel sale gain, sale proceeds and discontinued-operation results.
- Review the causes and potential implications of negative 2013 operating cash flow, including the timing of sale-related tax payments and remaining tax obligations.
- Track remediation and independent validation of the Guyana billing-system and accounting-control weaknesses.
- Monitor Guyana exclusivity proceedings, proposed telecom reforms, disputed taxes and Aruba license-fee negotiations.
- Assess the durability of roaming revenue and margins given customer concentration, carrier network build-outs, pricing pressure and planned network capital spending.
- Confirm the timing and release conditions for the $78.0 million Alltel escrow and the use of remaining liquidity, including any acquisitions, capital expenditures or dividends.