<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter ended March 31, 1998 Commission file number 333-23435
CHORUS COMMUNICATIONS GROUP, LTD.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-1880843
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8501 Excelsior Drive, Madison, Wisconsin 53717
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (608) 828-2000
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of April 1, 1998, there were 5,408,606 shares of Common Stock
outstanding.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
1st QUARTER REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flow -
Three Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
All other schedules and compliance information called for by the
instructions to Form 10-Q have been omitted since the required information
is not present or not present in amounts sufficient to require submission.
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
March 31, December 31,
1998 1997
In Thousands
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,416 $2,736
Temporary investments 2,400 2,500
Accounts receivable
Due from customers 4,852 3,045
Other, principally connecting
companies 1,939 2,446
Inventories
Plant materials and supplies 596 542
Systems and parts 1,215 911
Other 1,190 1,498
Total Current Assets 15,608 13,678
PROPERTY, PLANT AND EQUIPMENT
In service and under construction 70,312 68,325
Less accumulated depreciation (29,230) (27,667)
Total Property, Plant, and Equipment 41,082 40,658
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,465 3,418
GOODWILL, net of amortization of $24 thousand 1,425 -
OTHER ASSETS 1,306 1,285
TOTAL ASSETS $ 66,601 $ 62,754
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
March 31, December 31,
1998 1997
In Thousands
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 617 $ 614
Notes payable 2,325 1,328
Accounts payable 2,899 3,345
Accrued pension cost 781 781
Other 3,002 1,005
Total Current Liabilities 9,624 7,073
LONG-TERM DEBT 21,852 22,012
DEFERRED INCOME TAXES 3,154 3,142
OTHER LIABILITIES 1,434 1,384
Total Liabilities 36,064 33,611
MINORITY INTEREST 371 370
SHAREHOLDERS' EQUITY
Common stock, no par value; 14,668 13,868
authorized 25 million shares;
issued and outstanding 5,408,606
and 5,368,606 shares, respectively
Retained earnings 15,498 14,905
Total Shareholders' Equity 30,166 28,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 66,601 $62,754
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended
March 31, March 31,
1998 1997
In thousands except for per share data
<S> <C> <C>
REVENUES AND SALES
Local exchange carrier services $ 6,595 $ 5,649
System sales and services 2,645 1,541
Other services and sales 1,698 1,123
Total Revenues and Sales 10,938 8,313
OPERATING COSTS AND EXPENSES
Cost of goods sold 1,818 864
Cost of services 1,815 1,593
Selling, general & administrative 3,456 2,913
Depreciation & amortization 1,290 1,167
Total Operating Costs and Expenses 8,379 6,537
OPERATING INCOME 2,559 1,776
Other income 77 54
Interest Expense (408) (335)
Minority Interest (1) 5
INCOME BEFORE INCOME TAXES 2,227 1,500
Income tax expense 850 522
NET INCOME $ 1,377 $ 978
EARNINGS PER SHARE $ .26 $ .18
Average common shares outstanding 5,399 5,365
Dividends per share .145 .135<F1>
<FN>
<F1> The March 31, 1997 cash dividend per share is for Mid-Plains stock prior
to the June 1997 mergers.
</FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31, March 31,
1998 1997
In Thousands
<S> <C> <C>
OPERATIONS
Net income $ 1,377 $ 978
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 1,290 1,167
Deferred income taxes 10
Changes in current assets and
current liabilities:
Receivables - net (649) (936)
Inventories - net 39 (27)
Payables - net (941) (418)
Other - net 2,194 1,284
Net cash from operations 3,310 2,058
INVESTING
Capital expenditures (1,249) (1,388)
Personal Communication Services license (47) (694)
Acquisitions (net of cash acquired) (282) -
Short-term investments - net 100 (200)
Other - net (25) 127
Net cash (used in) investing (1,503) (2,155)
FINANCING
Stock plans - 103
Dividends paid (784) (538)
Long-term debt issued - 745
Long-term debt repaid (338) (42)
Short-term bank notes - net (5) 1,174
Net cash from (used in) financing (1,127) 1,442
Increase in cash and cash equivalents 680 1,345
Cash and cash equivalents:
Beginning of period 2,736 1,902
End of period $ 3,416 $ 3,247
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information in footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures are
adequate to make the information presented not misleading. It
is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's Form 10-K for the year ended December
31, 1997.
In the opinion of the Company, the accompanying financial
statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 1998 and December 31, 1997, and the
results of operations and cash flows for the three months ended
March 31, 1998 and 1997. The results for the three months ended
March 31, 1998 are not necessarily indicative of the results of
operations which may be expected for the entire year ending
December 31, 1998.
2. ACQUISITIONS
On January 29, 1998, Chorus acquired Executive Systems &
Software, Inc., d/b/a The ComputerPlus, and IntraNet Inc., which
were under common ownership. The businesses were acquired for
20,000 shares of common stock, cash of $500,000 and notes
payable of $500,000.
The acquisitions were accounted for as a purchase and,
accordingly, the operating results of The ComputerPlus and
Intranet, Inc. have been included in Chorus' consolidated
financial statements since the date of acquisition. The excess
of the aggregate purchase price over the fair value of net
assets acquired of $1.4 million is being amortized over 10
years.
The following summarized unaudited pro forma consolidated
results of operations for the quarter ended March 31, 1998 and
1997 assumes the acquisition had occurred on January 1 of each
year.
PRO FORMA INFORMATION
<TABLE>
(In Thousands, except for per share data)
Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Net Sales $ 11,495 $ 10,489
Net Income 1,265 1,057
Earnings per share $ .23 $ .20
</TABLE>
These amounts include The ComputerPlus' and Intranet, Inc.'s
actual results for the three months ended March 31, 1998 and
1997. These amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies which
might be achieved from continued operations. The pro forma
results do not necessarily represent results which would have
occurred if the acquisition had taken place on the basis assumed
above, nor are they indicative of the results of future combined
operations.
<PAGE>
3. SUBSEQUENT EVENT
On April 1, 1998, Chorus declared a 2-for-1 common stock split.
Retroactive effect has been given to the stock split in all
common share and per share data.
4. OPERATING SEGMENTS
Chorus organizes its business into two reportable segments:
local exchange carrier (LEC) services and system sales and
services. The LEC services segment provides telephone and data
services to customers in local exchanges located in Southern
Wisconsin. As a result of acquisitions in January 1998, the
system sales and services operations, which provide the sale,
installation and servicing of business phone systems, was
expanded to include computer network systems integration and
computer sales. Chorus also has operations in long distance,
Internet services, and directory publishing that do not meet the
quantitative thresholds for reportable segments.
<TABLE>
(In Thousands) Local Exchange Systems Sales
Carriers and Services Other Total
<S> <C> <C> <C> <C>
March 31, 1998
Revenues and sales
External customers- $ 6,595 $ 2,645 $ 1,698 $10,938
Intersegment 179 0 110 289
Segment profit 1,333 14 45 1,392
March 31, 1997
Revenues and sales
External customers- $ 5,649 $ 1,541 $ 1,123 $ 8,313
Intersegment 331 0 29 360
Segment profit (loss) 970 93 (89) 974
</TABLE>
<TABLE>
Reconciliation of Segment Information
(In Thousands) March 31, 1998 March 31, 1997
<S> <C> <C>
Profit
Total profit for reportable segments $ 1,347 $ 1,063
Other profit (loss) 45 (89)
Unallocated amounts:
Non-operating segment (14) -
Minority interest (1) 4
Net Income $ 1,377 $ 978
</TABLE>
<PAGE>
5. CONTINGENCIES
On May 14, 1998, the Public Service Commission of Wisconsin
(the"Commission") issued an order which certified two
competitors, TDS Metrocom, Inc., and KMC Telecom, Inc., to
provide local telephone service in the territory served by Mid-
Plains, Inc. The Commission also terminated the rural telephone
company exemption of Mid-Plains as it pertains to the interconnection
request of TDS. Mid-Plains is in the process of reviewing the
Commission's order and what legal action Mid-Plains may pursue
as a response. As a result of the authorization of two
competitors, Mid-Plains does expect that competition will have
some adverse effect upon its revenues in the future. The extent
of that effect is unknown at this time.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Effective June 1, 1997, Mid-Plains, Inc. (Mid-Plains) and Pioneer
Communications, Inc. (Pioneer) merged into subsidiaries of a new
holding company, Chorus Communications Group, Ltd. The mergers have
been accounted for as a pooling-of-interests and, accordingly,
historical financial data shown below has been reported as if the
companies have always been one.
Effective January 29, 1998, Chorus acquired Executive Systems &
Software, Inc., d/b/a/ The ComputerPlus and IntraNet, Inc. The
acquisitions were accounted for under the purchase method of
accounting and accordingly, the results of operations of The
ComputerPlus and IntraNet, Inc. have been included in the
consolidated results of operations of Chorus from the date of
acquisition.
RESULTS OF OPERATIONS
OVERVIEW
Chorus' reported net income increased $0.4 million, to $1.4 million
for the quarter ended March 31, 1998 as compared to the same period
in 1997.
Revenues increased $2.6 million for the first quarter of 1998 as
compared to the first quarter of 1997. The acquisition of The
ComputerPLUS and IntraNet, Inc. accounted for $1.5 million of the
increase with the remainder due to growth in LEC services and Other
Services and Sales.
Operating costs and expenses increased $1.8 million for the first
quarter of 1998 as compared to the first quarter of 1997. $1.4
million of the increased costs were due to the operations of the
acquisitions noted above.
RESULTS OF OPERATIONS OF THE BUSINESS SEGMENT
Chorus' primary operations are local exchange carrier services
and system sales and services.
<PAGE>
Local Exchange Carrier Services
LEC services provide telephone and data services to customers in
local exchanges located in Southern Wisconsin. LEC services
operating income consisted of the following:
<TABLE>
For the First Quarter Ended
1998 1997
In Thousands
<S> <C> <C>
Revenues and Sales 6,774 5,980
Operating Costs and Expenses 4,283 4,213
LEC Services Operating Income 2,491 1,767
Intercompany eliminations (179) (331)
Operating Income $2,312 $1,436
</TABLE>
LEC services revenues are derived from local network services,
interstate network access, intrastate network access and other
services. Local service revenues are based on fees charged to
customers for providing local telephone exchange service within
designated franchise areas. Local service revenues increased $0.4
million for the first quarter of 1998 as compared to the first
quarter of 1997. This was principally due to Mid-Plains Alternative
Regulation Plan, which raised local service rates on September 1,
1997, having the effect of increasing local service revenues by $0.2
million for the first quarter of 1998 as compared to 1997.
Additionally, all LECs experienced a greater demand for service as
evidenced by an 8% increase in the number of access lines.
Interstate and intrastate network access revenues are based on fees
charged to interexchange carriers that use the LECs' local network to
provide long distance service to their customers. Interstate
revenues grew $0.5 million in the first quarter of 1998 as compared
to the first quarter of 1997. This increase was largely due to higher
demand for access services as evidenced by a 12% growth in minutes of
use for the first quarter of 1998 as compared to the first quarter of
1997. Additionally, a true-up adjustment from the National Exchange
Carrier Association reduced 1997 interstate network access revenues
by $0.2 million.
Intrastate network access revenues decrease $0.2 million in the first
quarter of 1998 as compared to the first quarter of 1997. This was
due to Mid-Plains Alternative Regulation Plan, which lowered
intrastate network access rates, decreasing revenues by $0.2 million
for the first quarter of 1998 as compared to the first quarter of
1997.
Operating costs and expenses grew $0.1 million in the first quarter
of 1998 as compared to the same time period in 1997. This increase
was primarily due to $0.1 million of expenditures related to
regulatory matters more fully discussed in Part II, Item 1 Legal Proceedings.
System Sales and Services
System sales and services sell business systems and provide
installation and services throughout Southern Wisconsin.
Additionally, with the acquisition of The ComputerPlus, this segment
was expanded to include computer network systems integration and
computer sales.
<PAGE>
System sales and services operating income consisted of the
following:
<TABLE>
For the First Quarter Ended
1998 1997
In Thousands
<S> <C> <C>
Revenues and Sales $ 2,645 $ 1,541
Operating Costs and Expenses 2,599 1,403
System Sales & Services Operating Income 46 138
Intercompany eliminations 9 15
Operating Income $ 55 $ 153
</TABLE>
System sales and services revenues increased $1.1 million in the
first quarter of 1998 as compared to the first quarter of 1997. The
increase in revenues is due to the acquisition of The ComputerPlus
whose revenues are included in the financials statements and related
data from January 29, 1998, the date of the acquisition.
Operating costs and expenses increased $1.2 million in the first
quarter of 1998 as compared to the first quarter of 1997. This was due
primarily to cost of goods sold which increased by $0.9 million
primarily as a result of the purchase of The ComputerPlus. In addition,
selling, general and administrative expenses increased $0.2 million,
primarily due to the acquisition of The ComputerPlus.
Other Services and Sales
Other services and sales include operations from long distance,
Internet and directory publishing operations. Other services and
sales operating income consisted of the following:
<TABLE>
For the First Quarter Ended
1998 1997
In Thousands
<S> <C> <C>
Revenues and Sales $ 1,726 $ 1 152
Operating Costs and Expenses 1,704 1,281
Other Services & Sales Operating Income (Loss) 22 (129)
Intercompany eliminations 170 316
Operating Income $ 192 $ 187
</TABLE>
Revenues from other services and sales increased $0.6 million in the
first quarter of 1998 as compared to the first quarter of 1997. The
increase was due to the acquisition of IntraNet, Inc. on January 29,
1998, which accounted for $0.2 million of the increase, as well as
the growth in the number of customers. This was offset in part from
the termination in October of 1997 of a temporary arrangement to
resell intralata toll service.
<PAGE>
The increases in operating costs and expenses in the first quarter of
1998 as compared to the first quarter of 1997 were primarily due to
the acquisition of IntraNet, Inc. as well as growth in internal
operations.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Chorus requires funds primarily for its construction programs, the
maturity and retirement of long-term debt, dividend payments and
investments. The capital resources available to meet these
requirements are provided through operating and financing activities.
Net cash from operating activities of Chorus and its subsidiaries for
the first quarter of 1998 was $3.3 million.
INVESTING ACTIVITIES AND CAPITAL REQUIREMENTS
The primary capital requirement of Chorus has historically consisted
of expenditures under its construction program. Total construction
expenditures for the first quarter of 1998 was $1.2 million.
Additionally, Chorus acquired Executive Systems & Software, Inc.,
d/b/a/ The ComputerPlus and IntraNet, Inc. for 20,000 shares of
common stock, $0.5 million cash and notes of $0.5 million to be paid
over two years.
FINANCING ACTIVITIES
During the first quarter of 1998, Chorus repaid $0.3 million of long-
term debt.
It is anticipated that the capital requirements for Chorus'
construction programs, maturity and retirement of long-term debt, and
dividend payments will be provided for with cash flow from operating
activities and the issuance of debt.
At May 7, 1998, Chorus has available unused lines-of-credit of $10.7
million. Chorus has experienced no difficulty in obtaining funds for
its construction programs or other purposes. However, competition
could have a negative impact on Chorus' future operations and cash
flows.
REGULATION AND COMPETITION
As more fully discussed in Part II Item 1 Legal Proceedings, Mid-
Plains is subject to future competition which Mid-Plains expects will
have some adverse effect upon its future revenues. The extent of that
effect is unknown at this time.
FORWARD-LOOKING STATEMENTS
The Company cautions that except for historical information, the
matters discussed or incorporated by reference in the Quarterly
Report on Form 10-Q are forward-looking statements that involve risks
and uncertainties that may affect the Company's actual results and
cause results to differ materially from such forward-looking
statements. Such risks and uncertainties include, but are not limited
to rapid technological developments and changes in the telecommunications
and information services industries; ongoing deregulation (and the resulting
likelihood of significantly increased price and product/service competition) in
the telecommunications industry and regulatory limitations on the
Company's ability to change its pricing for communications services.
In addition to these factors, actual future outcomes and results may
differ materially because factors including (without limitation)
market conditions and growth rates, economic conditions, policy
changes and the continued availability of financing in the amounts,
at the terms, and on the conditions necessary to support the
Company's future business, and other factors indicated from time to
time in the Company's filings with the Securities and Exchange
Commission. Such forward-looking statements reflect only information
available at the time this report is being filed, as a result the
Company undertakes no obligation to update the statements to reflect
subsequent circumstances or events.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 14, 1998, the Public Service Commission of Wisconsin (the
"Commission") issued an order which certified two competitors, TDS
Metrocom Inc. and KMC Telecom, Inc. to provide local phone service in
the territory served by Mid-Plains, Inc. The Commission also terminated
the rural telephone company exemption of Mid-Plains as it pertains
to the interconnection request of TDS. Mid-plains is in the process
of reviewing the Commission's order and what legal action Mid-Plains
may pursue as a response. As a result of the authorization of two
competitors, Mid-Plains does expect that competition will have some
adverse effect upon its revenues in the future. The extent of that
effect is unknown at this time.
Item 2. Changes in Securities
On January 29, 1998 Chorus issued 20,000 shares of common stock to
three individuals, each of whom were Wisconsin residents at the time
of issuance, in connection with the simultaneous acquisitions of
Executive Systems & Software, Inc., d/b/a The ComputerPLUS and
IntraNet, Inc. There were no underwriters used in these transactions.
The securities were exempt from registration under the Securities Act
of 1933 (the "33 Act") pursuant to Section 4(2) of the '33 Act, 15
U.S.C. Section 77d(2) (the "Section 4(2) Private Placement
Exemption"). The securities were also exempt from registration
pursuant to Section 3(a)(11) of the '33 Act, Section 77 c(a)(11)(the
"Intrastate Offering Exemption") and Rule 505, 17 C.F.R. Section
230.505 (a "Regulation D Exemption"). The securities are "restricted
securities" pursuant to the rules promulgated under the '33 Act, and
cannot be resold for an indefinite period of time.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held April 20, 1998. The
meeting involved the election of directors. The shareholders
approved the nomination of Douglas J. Timmerman and Dean W. Voeks to
serve the Company as directors for a three-year term. Directors of
the Company who are continuing their terms are G. Burton Block, Charles
Maulbetsch and Howard L. (Lee) Swanson.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On January 15, 1998, Chorus filed a Form 8-K Current Report
under Item 5 Other Events where the Company reported issuing a
press release announcing acquisition of Executive Systems,Inc.
d/b/a The ComputerPLUS and IntraNet, Inc. On January 23, 1998,
Chorus filed a Form 8-K Current Report under Item 5 Other Events
where the Company reported that one of its subsidiaries, Mid-
Plains, Inc. was engaged in litigation regarding its cellular
partnership investments.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CHORUS COMMUNICATIONS GROUP, LTD.
(Registrant)
Date: May 15, 1998 /s/Dean W. Voeks
Dean W. Voeks
Chief Executive Officer
Date: May 15, 1998 /s/Howard G. Hopeman
Howard G. Hopeman
Executive Vice-President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,416
<SECURITIES> 0
<RECEIVABLES> 6,791
<ALLOWANCES> 0
<INVENTORY> 1,811
<CURRENT-ASSETS> 15,608
<PP&E> 70,312
<DEPRECIATION> 29,230
<TOTAL-ASSETS> 66,601
<CURRENT-LIABILITIES> 9,624
<BONDS> 0
0
0
<COMMON> 14,668
<OTHER-SE> 15,498
<TOTAL-LIABILITY-AND-EQUITY> 66,601
<SALES> 0
<TOTAL-REVENUES> 10,938
<CGS> 0
<TOTAL-COSTS> 8,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408
<INCOME-PRETAX> 2,227
<INCOME-TAX> 850
<INCOME-CONTINUING> 1,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,377
<EPS-PRIMARY> .145
<EPS-DILUTED> .145
</TABLE>
