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, 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 May 1, 2000, there were 5,372,013 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, 2000 and December 31, 1999
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 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 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,
ASSETS 2000 1999
In Thousands
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,763 $ 4,078
Temporary investments 800 800
Accounts receivable
Due from customers 4,891 5,354
Other, principally connecting
companies 1,650 1,625
Inventories 1,770 1,829
Other 1,844 1,825
Total Current Assets 12,718 15,511
PROPERTY, PLANT AND EQUIPMENT, Net 50,038 47,221
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,748 3,748
GOODWILL, Net of accumulated amortization of
$336 and $297, respectively 1,178 1,217
OTHER 1,434 1,543
TOTAL ASSETS $ 72,831 $ 72,955
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
MARCH 31, 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 $ 1,210 $ 1,333
Notes payable to banks 3,459 4,726
Accounts payable 4,358 2,531
Accrued expenses 2,225 2,557
Other 792 638
Total Current Liabilities 12,044 11,785
LONG-TERM DEBT 23,920 24,217
DEFERRED INCOME TAXES 3,690 3,707
OTHER LIABILITIES 1,924 1,927
Total Liabilities 41,578 41,636
MINORITY INTEREST 371 377
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25 million shares;
issued 5,415,288 shares 14,791 14,791
Less treasury stock at cost; 44,668
and 41,880 shares respectively (764) (717)
Retained earnings 16,855 16,868
Total Shareholders' Equity 30,882 30,942
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,831 $ 72,955
See Notes to Consolidated Financial Statements
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
In Thousands Except For Per Share Data
<S> <C> <C>
REVENUES AND SALES
Local exchange carrier services $ 6,766 $ 6,449
System sales and services 2,024 3,088
Other services and sales 3,067 2,119
Total Revenues and Sales 11,857 11,656
OPERATING COSTS AND EXPENSES
Cost of goods sold 1,543 2,328
Cost of services 2,919 2,157
Selling, general & administrative 3,937 3,794
Depreciation & amortization 1,657 1,402
Total Operating Costs and Expenses 10,056 9,681
OPERATING INCOME 1,801 1,975
Other income 82 74
Interest expense (511) (423)
Minority interest 6 (2)
INCOME BEFORE INCOME TAXES 1,378 1,624
INCOME TAX EXPENSE 535 624
NET INCOME $ 843 $ 1,000
BASIC AND DILUTED EARNINGS PER SHARE $ .16 $ .18
Average common shares outstanding 5,373 5,409
Dividends per share $ .160 $ .155
See Notes to Consolidated Financial Statements
</TABLE>
(UNAUDITED)
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
In Thousands
<S> <C> <C>
OPERATIONS
Net income $ 843 $ 1,000
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 1,657 1,402
Deferred income taxes (17) (17)
Provision for uncollectible accounts (16) (14)
Changes in current assets and
current liabilities excluding
effects of acquisitions:
Receivables 454 392
Inventories 59 (7)
Payables 1,827 124
Accrued expenses (332) 147
Other 235 205
Net cash from operations 4,710 3,232
INVESTING
Capital expenditures (4,476) (1,467)
Personal Communication Services license - (41)
Net decrease in short-term investments - 100
Other 41 10
Net cash used in investing (4,435) (1,398)
FINANCING
Net repayment of short-term bank notes (1,267) (2,414)
Long-term debt repaid (420) (341)
Sale of common stock - 36
Sale of treasury stock under employee stock plan 28 -
Purchase of treasury stock (75) -
Dividends paid (856) (838)
Net cash used in financing (2,590) (3,557)
Decrease in cash and cash equivalents (2,315) (1,723)
Cash and cash equivalents:
Beginning of period 4,078 5,327
End of period $ 1,763 $ 3,604
Cash paid during the period:
Interest $ 519 $ 437
Income tax $ 262 $ 252
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 March 31, 2000
and December 31, 1999, and the results of operations and cash flows for
the three months ended March 31, 2000 and 1999. The results for the
three months ended March 31, 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 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. 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. Chorus also has operations in
directory publishing, long distance, CLEC, and Internet services that
do not meet the quantitative thresholds for reportable segments.
<TABLE>
(In Thousands) LOCAL EXCHANGE SYSTEM SALES
CARRIERS and SERVICES OTHER TOTAL
MARCH 31, 2000
<S> <C> <C> <C> <C>
Revenues and sales
External customers $ 6,766 $ 2,024 $ 3,067 $ 11,857
Intersegment 348 58 407 813
Segment profit (loss) 1,573 (536) (194) 843
</TABLE>
<TABLE>
MARCH 31, 1999
<S> <C> <C> <C> <C>
Revenues and sales
External customers $ 6,449 $ 3,088 $ 2,119 $ 11,656
Intersegment 200 0 315 515
Segment profit 1,265 (266) 30 1,029
</TABLE>
<PAGE>
3. 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.
4. RECLASSIFICATION
Certain amounts previously reported for prior periods 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 Communication Group, Ltd. and its subsidiaries (Chorus or
the Company) increased $0.2 million for the first quarter of 2000 as compared
to the first quarter of 1999. The increase was primarily due to growth in
the Company's LEC and Internet operating revenues, offset by a decline in
personal desktop computer sales.
Operating costs and expenses increased $0.4 million for the first quarter of
2000 as compared to the first quarter of 1999. This was primarily due to
costs incurred in servicing the Company's growing Internet subscriber base
and general growth of supporting corporate operations offset by a decline in
cost of goods sold in the Company's system sales and services segment.
Interest expense for the first quarter of 2000 was $0.1 million higher than
the comparable time period in 1999. This was a 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 part of the license.
As a result of the above, Chorus' reported net income decreased 16% to $0.8
million for the quarter ended March 31, 2000, as compared to the same period
in 1999.
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 QUARTER ENDED MARCH 31,
2000 1999
In Thousands
<S> <C> <C>
Revenues and Sales $7,114 $6,649
Operating Costs and Expenses 4,392 4,375
LEC Services Operating Income 2,722 2,274
Intercompany Eliminations (49) (27)
Operating Income $2,673 $2,247
</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 increased $0.3 million for the first quarter of 2000
as compared to the similar period in 1999. This was principally due to the
growth in access lines and services offered.
Network access revenues are based on fees charged to exchange carriers that
use the LECs' local network to provide long distance service to their
customers. For the first quarter of 2000, access revenues remained level with
that of the first quarter of 1999.
Other services revenues increased $0.2 million primarily due to increases in
intercompany occupancy and equipment rents.
Operating costs and expenses were level for the first quarter of 2000 as
compared to the same time period in 1999.
<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>
FOR THE QUARTER ENDED MARCH 31,
2000 1999
In Thousands
<S> <C> <C>
Revenues and Sales $2,082 $3,088
Operating Costs and Expenses 2,967 3,500
System Sales & Services Operating Loss (885) (412)
Intercompany Eliminations 156 72
Operating Loss $ (729) $ (340)
</TABLE>
The decline in revenues of $1.0 million in the first quarter of 2000 as
compared to the similar period in 1999 was primarily due to the Company's
elimination of personal desktop computers from the Company's sales offerings.
While the decision to leave this market resulted in lower revenues, it also
resulted in an improvement in gross profit percentage by 4.4%.
Operating costs and expenses decreased $0.5 million in the first quarter of
2000 as compared to the same period in 1999. This was due to lower cost of
goods sold related to the lower sales volume and improved gross profit
percentage noted above, partially offset by an increase in selling and
internal operating expenses.
OTHER SERVICES AND SALES
Other services and sales include operations from long distance, Internet,
competitive local exchange carrier and directory publishing operations.
Other services and sales operating income consisted of the following:
<TABLE>
FOR THE QUARTER ENDED MARCH 31,
2000 1999
In Thousands
<S> <C> <C>
Revenues and Sales $3,474 $2,434
Operating Costs and Expenses 3,510 2,321
Other Services & Sales Operating Income (36) 113
Intercompany Eliminations (107) (45)
Operating (Loss) Income $ (143) $ 68
</TABLE>
<PAGE>
Revenues from other services and sales increased $1.0 million in the first
quarter of 2000 as compared to the first quarter of 1999. Inter-company
directory publishing revenues accounted for $0.6 million of the increase.
The remainder of the revenue growth was primarily related to an rate increase
of $3.00 per month (to $12.95) on the Company's predominate Internet plan
offering, as well as an growth in the number of Internet subscribers served.
Operating costs and expenses from other services and sales segment increased
$1.2 million. This was primarily the result of increased costs necessary to
service the growth in number of the Company's Internet subscribers as well as
additional costs directly 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
quarter of 2000 was $4.7 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 2000 were $4.5 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 studying various opportunities
with regard to buildout, partnering with established wireless providers
and/or the sale of the license.
FINANCING ACTIVITIES
During the first quarter of 2000, Chorus repaid $0.4 million of long-term
debt and $1.3 million of short-term debt.
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 May 1, 2000 the Company repurchased 46,318 shares for
$0.8 million, with 3,042 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.
<PAGE>
It is anticipated that the capital requirements for Chorus' construction
programs, maturity and 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.
At April 30, 2000, Chorus has available unused lines-of-credit of $6.3
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.
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 the 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 does not have market exposure relating to foreign currency
exchange rates or derivative financial instruments. Additionally, the
Company is not exposed to material earnings, cash flow or changes in fair
value exposures from changes in interest rates on its long-term obligations.
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The company is not involved in or aware of any material pending legal
proceeding as of May 1, 2000.
Item 2. Changes in Securities
a. On March 22, 2000, the Company's Board of Directors approved a
Shareholders Rights Agreement. The agreement is designed to protect the
shareholders in the event of the Company and/or its shareholders are
confronted with coercive and unfair takeover tactics. For a full description
of the additional rights provided to the shareholders, refer to Form 8-K
filed by the Company on April 5, 2000 and hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held April 26, 2000. At the meeting
Harold L. (Lee) Swanson was elected to serve as company director for a
three-year term:
<TABLE>
FOR WITHHELD
<S> <C> <C>
The number of shares cast were as follows: 3,975,517.252 213,292.180
</TABLE>
Directors of the Company who are continuing their terms are Carrie L.
Bennett-Barndt, Charles Maulbetsch, Douglas J. Timmerman and Dean W. Voeks.
Additionally at the annual meeting, the shareholders approved the Chorus
Communications Group, Ltd. Stock Incentive Plan. The number of shares cast
were as follows:
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2,850,181.668 798,811.764 539,816
</TABLE>
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>
(b) Reports on Form 8-K
On April 5, 2000, the Company announced that its Board of Directors had
approved the Chorus Communications Group, Ltd's Stockholders Rights Agreement.
On April 28, 2000, the Company filed a report announcing the results of
the votes held at the annual meeting. It also announced its intention to
have the Company's stock listed on NASDAQ in the near future. Additionally,
the Company announced that it continues to pursue its stock buyback program,
having repurchased less than 1% of the outstanding stock as of the date of
the form 8-K filing.
<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 12, 2000 /s/DEAN W. VOEKS
Dean W. Voeks
President, Chief Executive Officer and Director
Date: May 12, 2000 /s/HOWARD G. HOPEMAN
Howard G. Hopeman
Executive Vice-President, Chief Financial Officer,
and Treasurer
<TABLE> <S> <C>
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,763
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