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 June 30, 2000 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 August 1, 2000, there were 5,373,596 shares of Common Stock outstanding.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
2ND QUARTER REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flow -
Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
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>
June 30, December 31,
ASSETS 2000 1999
In Thousands
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,780 $ 4,078
Temporary investments 800 800
Accounts receivable
Due from customers 4,026 5,354
Other, principally connecting
companies 2,190 1,625
Inventories 2,015 1,829
Other 2,041 1,825
Total Current Assets 12,852 15,511
PROPERTY, PLANT AND EQUIPMENT, Net 51,444 47,221
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,748 3,748
GOODWILL, Net of accumulated amortization of
$376 and $297, respectively 1,138 1,217
OTHER 1,661 1,543
TOTAL ASSETS $ 74,558 $ 72,955
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
In Thousands Except For Share Amounts
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,573 $ 1,333
Notes payable to banks 8,791 4,726
Accounts payable 2,048 2,531
Accrued expenses 1,674 2,557
Other 839 638
Total Current Liabilities 14,925 11,785
LONG-TERM DEBT 23,521 24,217
DEFERRED INCOME TAXES 3,672 3,707
OTHER LIABILITIES 1,959 1,927
Total Liabilities 44,077 41,636
MINORITY INTEREST 361 377
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25 million shares;
issued 5,415,288 shares 14,788 14,791
Less treasury stock at cost; 43,275
and 41,880 shares respectively (740) (717)
Retained earnings 16,072 16,868
Total Shareholders' Equity 30,120 30,942
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 74,558 $ 72,955
See Notes to Consolidated Financial Statements
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
In Thousands Except For Per Share Data
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local exchange carrier services $ 6,305 $ 6,574 $ 13,071 $ 13,023
System sales and services 1,858 2,688 3,882 5,776
Other services and sales 2,939 2,285 6,006 4,404
Total Revenues and Sales 11,102 11,547 22,959 23,203
OPERATING COSTS AND EXPENSES
Cost of goods sold 1,448 2,158 2,991 4,486
Cost of services 2,652 2,284 5,571 4,441
Selling, general & administrative 4,527 3,673 8,464 7,467
Depreciation & amortization 1,683 1,498 3,340 2,900
Total Operating Costs
and Expenses 10,310 9,613 20,366 19,294
OPERATING INCOME 792 1,934 2,593 3,909
Other income 11 308 93 382
Interest expense (614) (435) (1,125) (858)
Minority interest 10 1 16 (1)
INCOME BEFORE INCOME TAXES 199 1,808 1,577 3,432
Income tax expense 118 720 653 1,344
NET INCOME $ 81 $ 1,088 $ 924 $ 2,088
BASIC AND DILUTED EARNINGS PER SHARE $ .01 $ .21 $ .17 $ .39
Average common shares outstanding 5,372 5,411 5,372 5,410
Dividends per share $ .16 $ .155 $ .32 $ .31
See Notes to Consolidated Financial Statements
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended
June 30, June 30,
2000 1999
In Thousands
<S> <C> <C>
OPERATIONS
Net income $ 924 $ 2,088
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 3,340 2,900
Deferred income taxes (35) 34
Provision for uncollectible accounts (43) (2)
Changes in current assets and
current liabilities:
Receivables 806 542
Inventories (186) (32)
Payables (483) (66)
Accrued expenses (883) 843
Other 146 (211)
Net cash from operations 3,586 6,096
INVESTING
Capital expenditures (7,540) (3,191)
Personal Communication Services license - (82)
Net decrease in short-term investments - 200
Other 56 (5)
Net cash used in investing (7,484) (3,078)
FINANCING
Net borrowing (repayment) of short-term bank notes 4,065 (2,291)
Long-term debt issued 5,000 -
Long-term debt repaid (5,719) (560)
Sale of common stock - 64
Sale of treasury stock under employee stock plan 49 -
Purchase of treasury stock (75) -
Dividends paid (1,720) (1,677)
Net cash provided (used) in financing 1,600 (4,464)
Decrease in cash and cash equivalents (2,298) (1,446)
Cash and cash equivalents:
Beginning of period 4,078 5,327
End of period $ 1,780 $ 3,881
Cash paid during the period:
Interest $ 1,184 $ 863
Income tax $ 742 $ 1,102
See Notes to Consolidated Financial Statements
</TABLE>
(UNAUDITED)
<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 accounting
principles generally accepted in the United States of America 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, 1999.
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 June 30, 2000
and December 31, 1999, the results of operations for the three and six
month periods ended June 30, 2000 and 1999, and cash flows for the six
months ended June 30, 2000 and 1999. The results for the six months
ended June 30, 2000 are not necessarily indicative of the results of
operations which may be expected for the entire year ending December
31, 2000.
2. OPERATING SEGMENTS
Chorus organizes its business into three reportable segments: local
exchange carrier (LEC) services, system sales and services and Internet
services. The LEC services segment provides telephone and data
services to customers in local exchanges located in Southern
Wisconsin. The system sales and services segment sells, installs and
services business telephone systems, and computer networks. Prior to
2000, this segment also sold and serviced personal desktop computers.
The Company's Internet segment provides dial up and dedicated Internet
services to subscribers in Southern Wisconsin. Chorus also has
operations in directory publishing, long distance and competitive local
exchange services (CLEC), that do not meet the quantitative thresholds
for reportable segments.
Due to continued growth, the Company's Internet operations have met the
requirements for a reportable segment in accordance with Statement of
Financial Accounting Standard Number 131, "Disclosures About Segments
of an Enterprise and Related Information". Accordingly, previously
reported segment information has been restated to reflect the current
presentation.
<PAGE>
<TABLE>
(In Thousands) Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
LEC Services
Revenues and sales
External customers $ 6,305 $ 6,574 $ 13,071 $ 13,023
Intersegment 413 124 761 324
Segment profit 1,211 1,540 2,784 2,805
System Sales and Services
Revenues and sales
External customers $ 1,858 $ 2,688 $ 3,882 $ 5,776
Intersegment 13 - 71 -
Segment (loss) (667) (424) (1,203) (690)
Internet
Revenues and sales
External customers $ 1,324 $ 1,050 $ 2,628 $ 2,006
Intersegment 17 - 17 -
Segment profit (loss) (76) 39 (131) 68
Other
Revenues and sales
External customers $ 1,615 $ 1,235 $ 3,378 $ 2,398
Intersegment 312 337 719 652
Segment (loss) (387) (67) (526) (95)
Total
Revenues and sales
External customers $ 11,102 $ 11,547 $ 22,959 $ 23,203
Intersegment 755 461 1,568 976
Segment profit 81 1,088 924 2,088
</TABLE>
3. On June 30, 2000, registered subordinate debentures of $5 million were
retired by the Company. Funds for the retirement were provided by
long-term financing by the Rural Telephone Finance Cooperative (RTFC).
Terms of the debt call for quarterly payments through 2012 with a
variable interest rate based upon RTFC's cost of funds, which at June
30, 2000 was 8.05%. Additionally as a condition of the loan, the
Company purchased additional Subordinate Capital Certificates of
$263,000.
<PAGE>
4. On April 27, 2000, the Company granted 52,600 stock options in
connection with its Stock Incentive Plan. The Plan is to provide
incentives and rewards to employees. There are 500,000 shares of
Common Stock authorized for this plan.
The 52,600 stock options described above were not included in the
computation of diluted earnings per share because including them would
have been antidilutive.
5. CONTINGENCIES
As described in the Company's Form 10-K for the year ended December 31,
1999, an industry controversy exists concerning incumbent LEC liability
for reciprocal compensation on certain calling activity with Internet
providers. There has been no change in the status of this controversy
as of the date of this report.
6. RECLASSIFICATION
Certain amounts previously reported for the prior year have been
reclassified to conform to the 2000 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
OVERVIEW
Revenues for Chorus Communications Group, Ltd. and its subsidiaries (Chorus
or the Company) decreased $0.4 million and $0.2 million for the three and six
months ended June 30, 2000 as compared to similar periods in 1999. The
decrease was primarily due to the decision to eliminate personal desktop
computers from the Company's sales offerings, offset by increases in the
Company's Internet, CLEC and long distance operating revenues.
Operating costs and expenses increased $0.7 million and $1.1 million for the
three and six months ended June 30, 2000 as compared to similar periods in
1999. This was primarily due to costs incurred in servicing the Company's
growing Internet subscriber base, costs associated with expanding the
Company's CLEC operations and general growth of supporting corporate
operations. These increases were partially offset by a decline in cost of
goods sold related to the decline in the Company's system sales and services
revenues.
Other income was $0.3 million lower for the three months and six months ended
June 30, 2000 as compared to similar periods in 1999, due to a receipt in
1999 of a partnership distribution relating to the Company's cellular limited
partnership interest.
<PAGE>
Interest expense for the three and six months ended June 30, 2000 was $0.2
and $0.3 million higher than comparable periods in 1999. This was the result
of the Company's increased utilization of its short-term lines of credit
during 2000 to meet its investing and financing needs. Additionally due to
management's consideration of the sale of its PCS license, interest related
to the PCS license is being expensed, whereas prior to 2000, these costs had
been capitalized.
As a result of the above, Chorus' net income decreased $1.0 and $1.2 million
for the three and six months ended June 30, 2000 as compared to similar
periods in 1999.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
Chorus' primary operations are local exchange carrier services, system sales
and services and Internet services.
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>
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues and Sales $ 6,718 $ 6,698 $ 13,832 $ 13,347
Operating Costs and Expenses 4,439 4,231 8,831 8,606
LEC Services Operating Income 2,279 2,467 5,001 4,741
Intercompany Eliminations (237) 65 (286) 38
Operating Income $ 2,042 $ 2,532 $ 4,715 $ 4,779
</TABLE>
LEC services revenues are derived from local network services, network
access, and other services.
Local service revenues are based on fees charged to customers for providing
local telephone exchange service within designated service areas. Local
service revenues remained level for the three months ended June 30, 2000 as
compared to the same time period in 2000. For the six months ended June 30,
2000, as compared to similar time period in 1999, revenues increased $0.3
million. This was principally due to an increase in residential rates, an
increase in the number of residential subscribers and an increase in enhanced
services provided, partially offset by a decrease in business subscribers and
revenues caused by competition.
Network access revenues are based on fees charged to exchange carriers that
use the LEC's local network to provide long distance service to their
customers. Networks access revenues decreased $0.1 million for the three and
six months ended June 30, 2000 as compared to similar periods in 1999. This
was due to a 4.6% decline in minutes of use.
Operating costs increased 4.9% and 2.6% for the three and six month periods
ended June 30, 2000, due to general growth in operations.
<PAGE>
SYSTEM SALES AND SERVICES
This segment sells, installs and services business telephone systems and
computer networks. Prior to 2000, this segment also sold and serviced
personal desktop computers.
System sales and services operating income consisted of the following:
<TABLE>
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues and Sales $ 1,871 $ 2,688 $ 3,953 $ 5,776
Operating Costs and Expenses 2,750 3,357 5,717 6,857
System Sales and Services
Operating (Loss) (879) (669) (1,764) (1,081)
Intercompany Eliminations 212 77 368 149
Operating (Loss) $ (667) $ (592) $ (1,396) $ (932)
</TABLE>
The decline in revenues of $0.8 million and $1.8 million for the three and
six months ended June 30, 2000 as compared to similar periods in 1999 were
due to the Company's elimination of personal desktop computers from the
Company's sales offerings.
Operating costs and expenses decreased $0.6 million and $1.1 million for the
three and six month periods ended June 30, 2000 as compared to similar
periods in 1999. The decrease was primarily due to lower cost of goods sold
resulting from the decline in sales noted above, partially offset by an
increase in selling, general and administrative costs.
INTERNET
This segment provides dial up and dedicated Internet services to subscribers
in Southern Wisconsin. Internet operating revenues consisted of the following:
<TABLE>
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues and Sales $ 1,341 $ 1,050 $ 2,645 $ 2,006
Operating Costs and Expenses 1,374 920 2,727 1,812
Internet Operating
Income (Loss) (33) 130 (82) 194
Intercompany Eliminations (17) - (17) -
Operating Income (Loss) $ (50) $ 130 $ (99) $ 194
</TABLE>
Internet revenues increased $0.3 million and $0.6 million for the three and
six months ended June 30, 2000 as compared to similar periods in 1999.
Approximately 50% of the increase was the result of a $3 monthly rate
increase on dial up accounts which went into effect in September of 1999. The
remaining 50% was due to a 17% increase in the number of subscribers served.
<PAGE>
Operating costs and expenses increased $0.5 million and $0.9 million for the
three and six month periods ended June 30, 2000 as compared to similar
periods in 1999. This was primarily the result of increased costs necessary
to service the growth in the number of the Company's Internet subscribers, as
well as costs associated with expanding service.
OTHER SERVICES AND SALES
Other services and sales include operations from long distance, competitive
local exchange carrier and directory publishing operations. Other services
and sales operating income consisted of the following:
<TABLE>
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues and Sales $ 1,927 $ 1,572 $ 4,097 $ 3,050
Operating Costs and Expenses 2,502 1,566 4,659 2,995
Other Services and Sales
Operating Income (Loss) (575) 6 (562) 55
Intercompany Eliminations 42 (142) (65) (187)
Operating (Loss) $ (533) $ (136) $ (627) $ (132)
</TABLE>
Revenue from other services and sales increased $0.4 million and $1.0 million
for the three and six months ended June 30, 2000, as compared to the same
time period in 1999. The increase for the three month period was related an
$0.2 million increase in CLEC revenues as well as a $0.1 million increase in
long distance revenues. The increase for the six month period included the
above plus an increase of $0.6 million in intercompany directory publishing
revenues.
Operating costs and expenses increased $0.9 million and $1.7 million for the
three and six month periods ended June 30, 2000 as compared to similar
periods in 1999. For the three months ended June 30, 2000, this was due to
costs incurred relating to expanding the Company's CLEC and long distance
operations. Additionally, the six month period included costs associated with
the increase in publishing revenues.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Chorus requires funds primarily for its construction programs, the maturity
and retirement of long-term debt, repurchase of Company stock, 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
six months of 2000 was $3.6 million.
<PAGE>
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 six months of 2000 were $7.5 million.
The Company owns 75% of PCS Wisconsin, LLC (PCS-WI). PCS-WI was granted a
personal communications services (PCS) license from the Federal
Communications Commission in April of 1997 which allows it to construct and
operate a PCS network in ten counties in Southern Wisconsin. Under the terms
of the license there must be a 25% buildout within five years. Buildout would
require substantial capital and operating expenditures in a highly
competitive market. Management is currently considering various opportunities
with regard to buildout, partnering with established wireless providers
and/or the sale of the license.
FINANCING ACTIVITIES
On June 30, 2000, registered subordinate debentures of $5 million were
retired by the Company. Funds for the retirement were provided by long-term
financing by the Rural Telephone Finance Cooperative (RTFC). Terms of the
debt call for quarterly payment through 2012 with a variable interest rate
based upon RTFC's cost of funds, which at June 30, 2000 was 8.05%. As a
condition of the loan, the Company purchased additional Subordinate Capital
Certificates of $263,000.
In addition to the above financing activities, Chorus borrowed a net $4.1
million of short-term debt, while repaying $0.7 million on other long-term
debt during the first six months of 2000.
In 1999, the Company's Board of Directors authorized management to repurchase
shares of Chorus common stock in the open market or through private
transactions. Through August 1, 2000 the Company repurchased 46,318 shares
for $0.8 million, with 4,626 shares being subsequently reissued in 2000 under
the Company's Employee Stock Ownership Plan. Management has the authority to
repurchase approximately 494,000 additional shares, with no definite
timetable.
It is anticipated that the cash requirements for Chorus' construction
programs, retirement of long-term debt, repurchase of Company stock, dividend
payments and investments will be provided for with cash flow from operating
activities and the issuance of debt. Competition and lower earnings may have
a negative impact on Chorus' future operations and cash flows.
At July 30, 2000, Chorus has available unused lines-of-credit of $3.9
million.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes, and future filings by the Company on Form 10-K, Form
10-Q and Form 8-K, and future oral and written statements by the Company and
its management may include statements that are based on our estimates and
assumptions, and are subject to risks and uncertainties. Forward-looking
statements include information concerning our possible or assumed future
results of operations. Forward-looking statements also include those
preceded or followed by the words "anticipates," "believes," "estimates,"
"expects" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The following important factors, along with those discussed elsewhere in this
report and other reports issued by the Company, could affect future results
and could cause those results to differ materially from those expressed in
the forward-looking statements. Materially adverse changes in economic
conditions in the markets served by us; material changes in available
technology; federal, state and local regulatory and judicial decisions and
proceedings, pertaining to, among other matters, the terms of interconnection,
access charges, universal service, and unbundled network element and resale
rates; the extent, timing, success, and overall effects of competition from
others in the markets we currently serve; and the timing and profitability of
our entry into new internet and competitive local exchange markets.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has debt financial instruments that are sensitive to changes in
interest rates. The interest rate on the Company's short-term debt is
variable and is tied to London Interbank Offered Rate and prime, while the
interest rate on its long-term variable interest debt is tied to the Rural
Telephone Finance Cooperatives cost of funds. Market risk is defined as the
potential decrease in annual earnings resulting from a hypothetical increase
of 10% in the interest rates. Such an increase in rates would result in
approximately $0.1 million reductions in earnings. To manage this risk, the
Company has maintained a mixture of both variable and fixed interest debt.
<PAGE>
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
3(i) Articles of Incorporation (incorporated by reference to
Form 8-12G, reporting under Exchange Act Section 12(g), filed
on December 2, 1997, File No. 000-23443)
3(ii) By-Laws (incorporated by reference to Form 10-K, reporting
under Exchange Act Section 12(g), filed on March 30, 1999,
File No. 000-23443)
(27) Financial Data Schedule
<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: August 14, 2000 Dean W. Voeks
Dean W. Voeks
President, Chief Executive Officer and Director
Date: August 14, 2000 Howard G. Hopeman
Howard G. Hopeman
Executive Vice-President, Chief Financial Officer and
Treasurer
