UNITED STATES 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 September 30, 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 October 31, 1998, there were 5,408,606 shares of Common Stock outstanding.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
3rd QUARTER REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997
Consolidated Statements of Income -
Three and Nine Month Periods Ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 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 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>
SEPTEMBER 30, DECEMBER 31,
1998 1997
In Thousands
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,653 $ 2,736
Temporary investments 1,400 2,500
Accounts receivable
Due from customers 3,627 3,045
Other, principally connecting companies 2,969 2,446
Inventories
Plant materials and supplies 685 542
Systems and parts 1,381 911
Other 1,331 1,498
Total Current Assets 16,046 13,678
PROPERTY, PLANT AND EQUIPMENT
In service and under construction 72,155 68,325
Less accumulated depreciation (28,089) (27,667)
Total Property, Plant, and Equipment 44,066 40,658
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,577 3,418
GOODWILL, net of amortization of $102 thousand 1,412 -
OTHER ASSETS 1,506 1,285
TOTAL ASSETS $ 70,322 $ 62,754
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1998 1997
In Thousands
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 800 $ 614
Notes payable to banks 788 1,328
Accounts payable 4,926 3,345
Accrued pension cost - 781
Other 1,551 1,005
Total Current Liabilities 8,065 7,073
LONG-TERM DEBT 25,848 22,012
DEFERRED INCOME TAXES 3,117 3,142
OTHER LIABILITIES 1,714 1,384
Total Liabilities 38,744 33,611
MINORITY INTEREST 374 370
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized
25 million shares; issued and outstanding
5,408,606 and 5,368,606 shares, respectively 14,668 13,868
Retained earnings 16,536 14,905
Total Shareholders' Equity 31,204 28,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 70,322 $ 62,754
</TABLE>
See Notes to Consolidated Financial Statements
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT.30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
In Thousands Except For
Per Share Data
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local exchange carrier services $ 6,191 $ 6,168 $ 18,987 $ 17,914
System sales and services 3,507 1,994 9,278 5,109
Other services and sales 1,930 1,428 5,470 3,931
Total Revenues and Sales 11,628 9,590 33,735 26,954
OPERATING COSTS AND EXPENSES
Cost of goods sold 2,571 1,175 6,561 2,954
Cost of services 2,050 1,519 5,532 4,689
Selling, general & administrative 3,404 2,885 10,092 8,632
Depreciation & amortization 1,352 1,188 3,995 3,521
Total Operating Costs
and Expenses 9,377 6,767 26,180 19,796
OPERATING INCOME 2,251 2,823 7,555 7,158
Other income 191 108 278 273
Interest expense (476) (328) (1,270) (1,001)
Minority interest (1) 6 (4) 17
INCOME BEFORE INCOME TAXES 1,965 2,609 6,559 6,447
Income tax expense 796 1,070 2,574 2,483
NET INCOME $ 1,169 $ 1,539 $ 3,985 $ 3,964
EARNINGS PER SHARE $ .22 $ .29 $ .74 $ .74
Average common shares outstanding 5,409 5,369 5,405 5,367
Dividends per share $ .145 $ 0.135 $ 0.435 $ 0.405
</TABLE>
See Notes to Consolidated Financial Statements
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
1998 1997
In Thousands
<S> <C> <C>
OPERATIONS
Net income $ 3,985 $ 3,964
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 3,995 3,520
Deferred income taxes (13) (212)
Changes in current assets and
current liabilities excluding
effect of acquisitions:
Receivables - net (453) (924)
Inventories - net (216) (20)
Payables - net 305 (309)
Other - net 597 765
Net cash from operations 8,200 6,784
INVESTING
Capital expenditures (6,993) (4,670)
Personal Communication Services license (159) (787)
Acquisitions (net of cash acquired) (282) -
Cellular Investment - 127
Short-term investments - net 1,100 (300)
Other - net 106 128
Net cash (used in) investing (6,228) (5,502)
FINANCING
Stock plans - 103
Dividends paid (2,354) (2,174)
Long-term debt issued 4,486 745
Long-term debt repaid (645) (443)
Short-term bank notes - net (1,542) 734
Net cash (used in) financing (55) (1,035)
Increase in cash and cash equivalents 1,917 247
Cash and cash equivalents:
Beginning of period 2,736 1,902
End of period $ 4,653 $ 2,149
Cash paid during the period:
Interest $ 1,256 $ 980
Income taxes $ 2,728 $ 2,340
</TABLE>
See Notes to Consolidated Financial Statements
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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 are 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 management, the information furnished reflects all
adjustments, consisting of normal recurring accruals and an adjustment
a fair statement of the results for the interim periods. The results
for the nine months ended September 30, 1998 are not necessarily
indicative of the results of operations which may be expected for the
entire year ending December 31, 1998.
2. MERGERS
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. ("Chorus"). The
mergers have been accounted for as a pooling-of-interests.
3. 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 40,000 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 nine months ended September 30, 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)
NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
1998 1997
<S> <C> <C>
Net Sales $34,292 $33,347
Net Income 3,873 3,968
Earnings per share $ .72 $ .74
</TABLE>
<PAGE>
These amounts include The ComputerPlus' and Intranet, Inc.'s actual
results for the nine months ended September 30, 1998 and 1997. These
amounts are based upon certain assumptions and estimates. 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.
4. STOCK SPLIT
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.
5. PENSION PLAN SETTLEMENT
In April of 1997, Mid-Plains, Inc. a subsidiary of Chorus, terminated
its defined benefit pension plan. In June of 1998, upon receiving
final approval for the termination from the Internal Revenue Service,
plan settlement was made. The actual settlement was lower than what
previously had been actuarially determined, resulting in a decrease in
1998 pension plan expense of $325,000.
6. 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, 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> <C> <C> <C> <C>
THREE MONTHS
ENDED SEPT. 30,
1998 1997 1998 1997 1998 1997 1998 1997
Revenues and sales
External customers $ 6,191 $ 6,168 $ 3,507 $ 1,994 $ 1,930 $ 1,428 $11,628 $ 9,590
Intersegment $ 155 $ 262 $ 0 $ 0 $ 341 $ 83 $ 496 $ 345
Segment profit(loss)$ 1,193 $ 1,373 $ (58)$ 115 $ 35 $ 82 $ 1,170 $ 1,570
NINE MONTHS
ENDED SEPT. 30,
1998 1997 1998 1997 1998 1997 1998 1997
Revenues and sales
External customers $18,987 $17,914 $ 9,278 $ 5,109 $ 5,470 $ 3,931 $33,735 $26,954
Intersegment $ 520 $ 859 $ 0 $ 0 $ 507 $ 83 $ 1,027 $ 942
Segment profit (loss)$ 3,965 $ 3,718 $ (51)$ 293 $ 75 $ (23) $ 3,989 $ 3,988
</TABLE>
<PAGE>
RECONCILIATION OF SEGMENT INFORMATION
<TABLE>
(In Thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
PROFIT
Total profit for
reportable segments $ 1,135 $ 1,488 $ 3,914 $ 4,011
Other profit (loss) 35 82 75 (23)
Unallocated amounts:
Non-operating segment (37) (41)
Minority interest (1) 6 (4) 17
Net Income $ 1,169 $ 1,539 $ 3,985 $ 3,964
</TABLE>
7. 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 has decided
not to challenge the certification of TDS or KMC and is proceeding with
interconnection agreements with TDS. Mid-Plains continues to challenge
the determination that Mid-Plains has given a blanket waiver of its
franchise and rural exemption rights. Mid-Plains expects that
competition will have some adverse effect upon its revenues in the
future. The full extent of the effect of competition is unknown at this
time.
Management is continuing to study options for development of its
Personal Communication System ("PCS") license. Build-out of the system
would require substantial capital and operating expenditures over the
next several years in a highly competitive market.
There has been no resolution of the cellular limited partnership
dispute resulting from the company's holding of the PCS license in an
area partially served by the cellular partnership. Management believes
that none of its actions conflict with the partnership agreement.
<PAGE>
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' consolidated net income was $1.2 million and $1.5 million for the three
months ended September 30, 1998 and 1997, respectively. Consolidated net income
remained constant at $4 million for the first nine months of 1998 as compared to
1997. Revenues increased $2.0 million and $6.8 million for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997. The acquisition of The ComputerPlus and IntraNet, Inc. accounted for
the majority of increases ($2.2 million and $5.6 million, respectively).
Operating costs and expenses increased $2.6 million and $6.4 million for the
three and nine months ended September 30, 1998, respectively, as compared to the
same periods in 1997. The operations of the acquired companies noted above
accounted for $2.3 million and $5.5 million of the increases. Additionally, due
to the settlement of a subsidiary's defined benefit pension plan, (Note 5 to the
Consolidated Financial Statements) operating expenses decreased $0.3 million for
the nine months ended September 30, 1998 as compared to the same period in 1997.
Other income increased $0.1 million for the three months ended September 30,
1998 as compared to the same time period in 1997, due to again on the sale of
real estate in connection with a city redevelopment effort.
Interest expense increased $0.1 million and $0.3 million for the three and nine
months ended September 30, 1998 as compared to the same time periods in 1997 due
to an increase in borrowings.
<PAGE>
RESULTS OF OPERATIONS OF THE BUSINESS SEGMENT
Chorus' primary operations are local exchange carrier services and system sales
and services.
LOCAL EXCHANGE CARRIER ("LEC") 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>
(In Thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues and Sales $ 6,346 $ 6,430 $19,507 $18,773
Operating Costs and Expenses 4,201 3,857 12,273 11,976
LEC Services Operating Income 2,145 2,573 7,234 6,797
Intercompany Eliminations 110 (262) (255) (859)
Operating Income $ 2,255 $ 2,311 $ 6,979 $ 5,938
</TABLE>
As stated in Note 7 to the financial statements, in May of 1998, TDS Metrocom,
Inc. ("TDS") and KMC Telecom, Inc. ("KMC") were certified to offer local service
in Mid-Plains service territory. As of September 30, 1998, TDS and KMC have
acquired 1800 access lines previously served by Mid-Plains, 1600 of which
provide service to the corporate offices of TDS, which is located within the
service territory of Mid-Plains. The loss of these access lines was offset by
the addition of new access lines, which resulted in Chorus providing service to
approximately the same number of access lines (41,200) in September of 1998 as
in September of 1997. Management does expect that competition will have some
adverse effect upon its revenues in the future. The full extent of that effect
is unknown at this time.
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 $0.3 million and $1.1 million for the three and nine months ended
September 30, 1998 as compared to the same periods in 1997. This was
principally due to rate increases on September 1, 1997 and 1998, having the
effect of increasing local service revenues by $0.1 million and $0.5 million for
the three and nine months ended September 30, 1998 as compared to 1997, offset
in part by the loss of access lines noted above.
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 declined $0.1 million for the
three months ended September 30, 1998, while growing $0.3 million for the nine
months ended September 30, 1998, both as compared to the same periods in 1997.
This was due to higher demand for access services as evidenced by a 9% growth in
minutes of use for switched access services for the first nine months of 1998 as
compared to the first nine months of 1997, as well as an increase in special
access services revenues of 31%. These increases were offset by an 11% decrease
in average rates for switched access services applied in 1998 and the results
of competition. Additionally, in the first quarter of 1997, Chorus recorded a
true-up adjustment from the National Exchange Carrier Association ("NECA") which
reduced interstate network access revenues by $0.2 million.
<PAGE>
Intrastate network access revenues decreased $0.2 million and $0.7 million for
the three and nine months ended September 30, 1998 as compared to the same time
periods in 1997. This was primarily due to Mid-Plains Alternative Regulation
Plan, which lowered intrastate network access rates as well as the access line
losses noted above.
Operating costs and expenses increased $0.3 million for both the three and nine
months ended September 30, 1998 as compared to the same time period in 1997. The
increases were primarily due to occupancy costs of new facilities and
professional fees resulting from increased regulatory issues pertaining to local
competition. For the nine month period ended September 1998, this was offset by
a reduction of expenses related to the settlement of Mid-Plains defined benefit
pension plan (see Note 5 of the financial statements).
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.
System sales and services operating income consisted of the following:
<TABLE>
(In Thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues and Sales $ 3,507 $ 1,994 $ 9,278 $ 5,109
Operating Costs and Expenses 3,575 1,807 9,314 4,658
System Sales and Services
Operating Income (68) 187 (36) 451
Intercompany Eliminations 43 (67) 79 -
Operating Income $ (25) $ 120 $ 43 $ 451
</TABLE>
System sales and services revenues increased $1.5 and $4.2 million for the three
and nine months ended September 30, 1998, respectively, as compared to the same
periods in 1997. The revenue increases were due to the acquisition of The
ComputerPlus whose revenues are included in the financial statements from the
date of the acquisition offset by lower sales of business phone systems due to
competition and the availability of qualified staffing.
Operating costs and expenses increased $1.8 million and $4.7 million for the
three and nine months ended September 30, 1998 as compared to the same periods
in 1997. This was due to cost of goods sold which increased by $1.3 million and
$3.5 million, primarily as a result of the purchase of The ComputerPlus. In
addition, selling, general and administrative expenses increased $0.3 million
and $1.0 million, for the three and nine months ended September 30, 1998,
respectively, primarily due to the operations of the acquisition.
<PAGE>
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>
(In Thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues and Sales $ 2,271 $ 1,511 $ 5,977 $ 4,014
Operating Costs and Expenses 1,930 1,447 5,620 4,104
Other Services and Sales Operating
Income (Loss) 341 64 357 (90)
Intercompany Eliminations (153) 328 176 859
Operating Income $ 188 $ 392 $ 533 $ 769
</TABLE>
Revenues from other services and sales increased $0.8 million and $2.0 million
for the three and nine months ended September 30, 1998, as compared to the same
periods in 1997. The increase was due in part to the acquisition of IntraNet,
Inc., which accounted for $0.3 million and $0.9 million of the increase for
three and nine months ended September 30, 1998, respectively. Additionally, a
short-term rental agreement (that terminated in June of 1998) of an office
property accounted for $0.3 million of the increase during the first nine months
of 1998. The revenue growth was also due to the overall expansion in
the Long Distance and Internet customer base.
The increases were offset, in part, from the termination in October of 1997 of a
temporary arrangement to resell intralata toll service. The increases in
operating costs and expenses for the three and nine months ended September 30,
1998 as compared to the same time periods in 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 nine months of 1998 was $8.2 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 nine months of 1998 were $7.0 million. Additionally, Chorus
acquired Executive Systems & Software, Inc., d/b/a/ The ComputerPlus and
IntraNet, Inc. for 40,000 shares of common stock, $0.5 million cash and notes
of $0.5 million to be paid over two years.
<PAGE>
FINANCING ACTIVITIES
During the first nine months of 1998, Chorus borrowed an additional $4.5 million
in long term debt while repaying $0.6 million of its
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.
As further explained in Note 7 to the financial statements, management is
continuing to study options for development of its Personal Communication System
("PCS") license for which build-out of the system would require substantial
capital and operating expenditures over the next several years. As part of this
study, management is also considering financing alternatives, which include the
issuance of debt, equity financing and the inclusion of additional partners in
PCS-WI.
At October 30, 1998, Chorus has available unused lines-of-credit of $13 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.
YEAR 2000
The Year 2000 compliance issue exists because many computerized information
systems use two-digit data fields to designate a year and cannot process
date-sensitive information beyond December 31, 1999. Chorus has established a
Year 2000 Project Team, to coordinate and monitor the Company's Year 2000
compliance efforts. Begun in 1997, our Year 2000 effort covers our network and
supporting infrastructure for our provision of local switched and data
telecommunications services. Additionally within the scope of this initiative
are our operational and financial information technology systems and
applications, end-user computing resources and building systems, such as
security, elevator and environmental control systems. In addition, the project
includes a review of the Year 2000 compliance efforts of our key vendors and
suppliers. While this initiative is broad in scope, it has been structured to
identify and prioritize our efforts for mission critical systems, network
elements and products and key vendors and suppliers.
Work is progressing in the following phases: inventory, assessment, remediation,
deployment and monitoring. The inventory and assessment phases have been
substantially completed as of April of 1998 and the remediation phase is in
progress. Under our current Year 2000 plan, we have established a target date
for deployment of January 1, 1999 for our network elements and products,
April 1, 1999 for our billing and customer service support systems and
July 1, 1999 for our financial information technology systems. The ability to
meet these target dates are dependent upon the timely provision of the necessary
upgrades and modifications by our vendors and suppliers. Additionally, we
are dependent on our vendors' and suppliers' assurances that their upgrades will
be Year 2000 compliant. Also, we cannot guarantee that third parties on whom we
depend for essential services (such as electric utilities, interexchange
carriers, etc.) will convert their critical systems and processes in a timely
manner. Failure or delay by any of these parties could significantly disrupt
our business. However, we have established a vendor and supplier compliance
program, and we are working with our key vendors and suppliers to minimize such
risks.
<PAGE>
We currently estimate that we will incur expenses of approximately $.1 million
through 1999 in connection with our anticipated Year 2000 efforts. We
anticipate that a portion of our Year 2000 expenses will not be incremental
costs, but rather will represent the redeployment of existing resources. We
also expect to incur certain capital improvement costs (totaling approximately
$.4 million) to support this project. Such capital costs are being incurred
sooner than originally planned, but, for the most part, would have been required
in the normal course of business.
As part of our Year 2000 initiative, we are evaluating scenarios that may occur
as a result of the century change and are in the process of developing
contingency plans tailored for the Year 2000 related occurrences. We have
established a target date of April 1, 1999 for the completion of these plans.
In management's view, the most reasonable worst case scenario for year 2000
failure prospects faced by Chorus is that a limited number of important
operational and financial information technology systems and applications may
unexpectedly fail. In addition, no assurance can be given that there may not be
problems with our network and supporting infrastructure for our provision of
local switched and data telecommunications services relating to year 2000.
Failure by Chorus or by certain of its vendors and suppliers to remediate year
2000 compliance issues in advance of the year 2000 and to execute appropriate
contingency plans in event that a critical failure is experienced, could result
in disruption of Chorus' operations, possibly impacting our network and
impairing Chorus' ability to bill and collect revenues.
The above information is based on our current best estimates, which were derived
using numerous assumptions of future events, including the availability and
future costs of certain technological and other resources, third party
modification actions and other factors. Given the complexity of these issues
and possible as yet unidentified risks, actual results may vary materially from
those anticipated and discussed above. Specific factors that might cause such
differences include, among others, the availability and cost of personnel
trained in this area, the ability to locate and correct all affected computer
code, the timing and success of remedial efforts of our third party vendors and
suppliers and similar uncertainties.
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
As reported in the company's Form 10-Q filed for the second quarter of 1998,
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 has decided not to challenge the certification of TDS or KMC and is
proceeding with interconnection agreements with TDS. Mid-Plains continues to
challenge the determination that Mid-Plains has given a blanket waiver of its
franchise and rural exemption rights. 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 full extent of that effect is
unknown at this time.
As explained in Note 7 to the Financial Statements, there has been no resolution
of the cellular limited partnership dispute resulting from the company's holding
of the PCS license in an area partially served by the cellular partnership.
Management believes that none of its actions conflict with the partnership
agreement.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On October 23, 1998, Chorus Communications Group, Ltd. filed a Form 8-K
informing the Commission that the Company had engaged the accounting
firm of Deloitte & Touche LLP as principal accountants for the
Registrant for 1998.
<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: November 13, 1998 /S/DEAN W. VOEKS
Dean W. Voeks
Chief Executive Officer
Date: November 13, 1998 /S/HOWARD G. HOPEMAN
Howard G. Hopeman
Executive Vice-President and
Chief Financial Officer
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