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« on: March 30, 2007, 09:46:57 AM » |
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I have been keeping a close eye on any and all SEC filings made by consolidated this year. As of yet they have not filed their definitive Proxy Statement. Last year it was filed with the SEC on April 11th. So I assume it will be coming soon. Proxy statements have interesting information regarding the directors and executives.
They did file their Form 10K on the 9th of this month. A form 10K is an annual report that shows performance. This is to provide stockholders with information. As a publicly traded company Consolidated must follow disclosure guidelines set forth by the SEC.
So I am reading their Form 10K this morning. So far this is what I have learned.
Revenues:
Their Public services (calling service for correctional facilities) is lumped into their "Other Operations". Last fiscal year their % of total telephone revenues were 87.4 million. Other Operations brought in 12.6 million. Please remember however that "other operations" is not just correctional calling. Here is their description:
Our Other Operations segment consists of complementary businesses including Public Services, Business Systems, Market Response, Operator Services and Mobile Services. Public Services provides local and long distance service and automated calling service for correctional facilities. Business Systems sells and installs telecommunications equipment, such as key and private branch exchange telephone systems to residential and business customers. Market Response provides telemarketing and order fulfillment services. Operator Services offers both live and automated local and long distance operator services and national directory assistance on a wholesale and retail basis. Mobile Services provides one-way messaging service to residential and business customers and includes revenues from our Illinois cellular agency operations.
Our Other Operations segment generated approximately $1.7 million and $2.4 million of cash flows from operating activities for the years ended December 31, 2006 and 2005, respectively. As of December 31, 2006, our Other Operations had total assets of approximately $24.4 million.
Sales & Marketing:
"Other Operations" uses an independent sales and marketing team.
State Regulation of CCI Illinois
"Our Other Illinois Operations are not subject to any significant state regulation outside of any specific contractually imposed obligations."
So the question to pose would be: are their any contractual obligations? What are they?
And now the interesting Section….If you have been bored so far, don’t worry, This is the bit that provides the most information:
Loss of a large customer could reduce our revenues. In addition, a significant portion of our revenues from the State of Illinois is based on contracts that are favorable to the government.
Our success depends in part upon the retention of our large customers such as AT&T and the State of Illinois. AT&T accounted for 8.4% and 5.0% and the State of Illinois accounted for 6.0% and 5.8% of our revenues during 2006 and 2005, respectively. In general, telecommunications companies such as ours face the risk of losing customers as a result of contract expiration, merger or acquisition, business failure or the selection of another provider of voice or data services. In addition, we generate a significant portion of our operating revenues from originating and terminating long distance and international telephone calls for the long distance divisions of AT&T and Verizon, which have recently been acquired or experienced substantial financial difficulties. We cannot assure you that we will be able to retain long-term relationships or secure renewals of short-term relationships with our customers in the future.
In 2006 and 2005, 47.0% and 46.2%, respectively, of our Other Operations revenues were derived from our relationships with various agencies of the State of Illinois, principally the Department of Corrections through Public Services. Our relationship with the Department of Corrections accounted for 93.3% and 93.0%, respectively, of our Public Services revenues during 2006 and 2005. Our predecessor’s relationship with the Department of Corrections has existed since 1990 despite changes in government administrations. Nevertheless, obtaining contracts from government agencies is challenging, and government contracts, like our contracts with the State of Illinois, often include provisions that are favorable to the government in ways that are not standard in private commercial transactions. Specifically, each of our contracts with the State of Illinois:
includes provisions that allow the respective state agency to terminate the contract without cause and without penalty under some circumstances
is subject to decisions of state agencies that are subject to political influence on renewal
gives the State of Illinois the right to renew the contract at its option but does not give us the same right; and
could be cancelled if state funding becomes unavailable
The failure of the State of Illinois to perform under the existing agreements for any reason, or to renew the agreements when they expire, could have a material adverse effect on our revenues. For example, the State of Illinois, which represented 40.8% of the revenues of our Market Response business for 2004, awarded the renewal of the Illinois State Toll Highway Authority contract, the sole source of those revenues, to another provider.
If we are unsuccessful in obtaining and maintaining necessary rights-of-way for our network, our operations may be interrupted and we would likely face increased costs.
We need to obtain and maintain the necessary rights-of-way for our network from governmental and quasi-governmental entities and third parties, such as railroads, utilities, state highway authorities, local governments and transit authorities. We may not be successful in obtaining and maintaining these rights-of-way or obtaining them on acceptable terms whether in existing or new service areas. Some of the agreements relating to these rights-of-way may be short-term or revocable at will, and we cannot be certain that we will continue to have access to existing rights-of-way after they have expired or terminated. If any of our rights-of-way agreements were terminated or could not be renewed, we may be forced to remove our network facilities from under the affected rights-of-way or relocate or abandon our networks. We may not be able to maintain all of our existing rights-of-way and permits or obtain and maintain the additional rights-of-way and permits needed to implement our business plan. In addition, our failure to maintain the necessary rights-of-way, franchises, easements, licenses and permits may result in an event of default under the amended and restated credit agreement and other credit agreements we may enter into in the future and, as a result, other agreements governing our debt. As a result of the above, our operations may be interrupted and we may need to find alternative rights-of-way and make unexpected capital expenditures.
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