ATN International, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 15, 2012. This is an annual report, not a standalone Q4 filing. The filing also presents unaudited quarterly results. ATN provides wireless and wireline telecommunications services in the United States, Guyana, Bermuda and other Caribbean markets. U.S. Wireless generated approximately 78% of 2011 consolidated revenue.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $759.2 million | $619.1 million |
| Operating income | $55.3 million | $38.3 million |
| Operating margin | 7.3% | 6.2% |
| Net income attributable to ATN shareholders | $21.8 million | $38.5 million |
| Diluted EPS | $1.41 | $2.48 |
| Cash from operating activities | $132.6 million | $102.8 million |
| Capital expenditures | $101.4 million | $135.7 million |
| Cash and cash equivalents at year-end | $48.7 million | $37.3 million |
| Total debt at year-end | $286.0 million | $288.3 million |
Operating cash flow less capital expenditures was approximately $31.2 million in 2011. Working capital was $38.1 million, versus $16.0 million in 2010. Management said available cash and credit-facility availability should cover working capital and capital expenditures for at least the next 12 months. The weighted-average interest rate on borrowings, after swaps, was 5.09%; ATN reported compliance with its credit-facility covenants.
Revenue increased 22.6%, while operating income grew 44.3%. Net income attributable to shareholders fell 43.3%; 2010 included a $27.0 million after-tax bargain-purchase gain on the Alltel acquisition. Interest expense rose to $17.4 million from $10.0 million. The 2011 effective tax rate was 48%, reflecting the geographic mix of earnings and other tax items.
Business changes and comparable-period results
- U.S. Wireless revenue rose to $572.2 million from $452.9 million, reflecting a full year of Alltel operations. U.S. retail subscribers declined to about 582,000 from 718,000 at year-end 2010. Management cited competition, tighter credit and contract policies, distribution losses, expiring contracts and network separation effects.
- International Wireless revenue increased to $73.0 million from $50.6 million, largely reflecting the May 2011 Bermuda merger with M3 Wireless and a full year of services launched in 2010.
- Wireline revenue was essentially flat at $85.0 million. Guyana international long-distance revenue declined, partly offset by data growth and higher internet revenue following deployment of a submarine fiber cable.
- ATN completed migration of Alltel customers and systems to its own platforms in July 2011, eliminating most duplicate transition costs in the third quarter. The Alltel acquisition materially affects year-over-year comparisons.
- Fourth-quarter 2011 revenue was $182.9 million, compared with $194.7 million in Q4 2010; net income attributable to ATN shareholders was $4.1 million versus $3.3 million. Quarterly figures are unaudited.
Outlook, risks and unusual items
- Management expected U.S. retail wireless revenue to stabilize sometime in 2012, citing improved Q4 churn and gross additions. It forecast 2012 capital expenditures of $90–$110 million, including $50–$65 million for U.S. Wireless; spending could include an initial LTE network upgrade, for which no vendor or solution had been selected.
- Management expected wholesale data revenue to grow with smartphone and data usage, but warned this could be offset by carrier network overbuilds, lower voice traffic and roaming rates, and a possible 2012 network buyout by a roaming partner.
- Guyana’s exclusive domestic fixed and international voice/data license is subject to material political and regulatory uncertainty. Proposed competition legislation was withdrawn in 2011, but could be reintroduced. ATN also cited illegal international-call bypass and potential regulatory changes to universal-service support and intercarrier compensation.
- Guyana tax disputes total $36.8 million; ATN had accrued $5.0 million for matters where it considered an adverse outcome probable. Management said reimbursement protections under its Guyana agreement may apply, but the ultimate outcome and timing are uncertain.
- ATN recorded a $2.4 million noncash goodwill impairment in Island Wireless due to weaker expected cash flows. It also recognized a $2.4 million gain on a disposition of fully depreciated network assets.
- Debt covenants restrict additional borrowing, dividends, investments and other actions. A $235.4 million principal repayment is scheduled for 2014. Of $286.0 million debt, $143.0 million was covered by interest-rate swaps; the remainder was exposed to variable rates.
Most important facts for investors to verify
- Whether subscriber trends, churn and retail revenue stabilized as management expected in 2012.
- The amount and timing of wholesale revenue losses from carrier network overbuilds and any roaming-partner buyout.
- Developments concerning Guyana’s license exclusivity, tax assessments, spectrum fees and international-call bypass.
- Cash generation, capital spending, debt repayment capacity and continued compliance with credit-facility covenants.
- Whether planned LTE investment and stimulus-funded fiber projects meet cost, timing and customer-demand assumptions.