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 June 30, 2001 Commission file number 333-23435
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CHORUS COMMUNICATIONS GROUP, LTD.
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(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-1880843
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8501 Excelsior Drive, Madison, Wisconsin 53717
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (608) 828-2000
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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, 2001, there were 5,375,533 shares of Common Stock
outstanding.
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, 2001 and December 31, 2000
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2001 and 2000
Consolidated Statements of Cash Flow -
Six Months Ended June 30, 2001 and 2000
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 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.
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
CHORUS COMMUNICATIONS GROUP, LTD.
---------------------------------
CONSOLIDATED BALANCE SHEETS
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June 30, December 31,
ASSETS 2001 2000
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In Thousands
CURRENT ASSETS
Cash and cash equivalents $ 3,231 $ 3,773
Temporary investments - 100
Accounts receivable
Due from customers 3,938 4,056
Other, principally connecting
companies 2,394 2,519
Inventories 2,427 2,376
Cellular Limited Partnership Interests 3,715 3,715
Personal Communication Services License 3,748 3,748
Other 2,310 2,022
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Total Current Assets 21,763 22,309
PROPERTY, PLANT AND EQUIPMENT, Net 54,393 55,440
GOODWILL, Net of accumulated amortization of
$532 and $454, respectively 982 1,060
OTHER 1,705 1,670
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TOTAL ASSETS $ 78,843 $ 80,479
========= =========
(UNAUDITED)
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
- ------------------------------------ -------- ---------
In Thousands Except For
Share Amounts
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,599 $ 1,593
Notes payable to banks 16,380 17,122
Accounts payable 1,517 2,098
Accrued expenses 3,804 3,012
Other 928 745
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Total Current Liabilities 24,228 24,570
LONG-TERM DEBT 22,025 22,815
DEFERRED INCOME TAXES 2,869 2,869
OTHER LIABILITIES 2,196 2,229
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Total Liabilities 51,318 52,483
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MINORITY INTEREST 442 335
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SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25,000,000 shares;
issued 5,415,288 shares 14,797 14,783
Less treasury stock at cost; 39,755
and 40,563 shares respectively (680) (694)
Retained earnings 12,966 13,572
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Total Shareholders' Equity 27,083 27,661
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 78,843 $ 80,479
========= =========
See Notes to Consolidated Financial Statements
(UNAUDITED)
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
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June 30, June 30, June 30, June 30
2001 2000 2001 2000
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In Thousands Except For Per Share Data
REVENUES AND SALES
Local exchange carrier services 6,582 $ 6,305 $ 13,296 13,071
System sales and services 1,764 1,858 3,819 3,882
Other services and sales 2,723 2,939 6,116 6,006
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Total Revenues and Sales 11,069 11,102 23,231 22,959
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OPERATING COSTS AND EXPENSES
Cost of goods sold 1,211 1,448 2,686 2,991
Cost of services 2,982 2,652 6,525 5,571
Selling, general & administrative 4,893 4,527 9,522 8,464
Depreciation & amortization 2,039 1,683 4,045 3,340
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Total Operating Costs
and Expenses 11,125 10,310 22,778 20,366
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OPERATING (LOSS) INCOME (56) 792 453 2,593
Other income 15 11 63 93
Interest Expense (690) (614) (1,470) (1,125)
Minority Interest 8 10 18 16
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(LOSS) INCOME BEFORE INCOME TAXES (723) 199 (936) 1,577
Income tax (benefit) expense (253) 118 (331) 653
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NET (LOSS) INCOME $ (470) $ 81 $ (605) $ 924
======= ======= ======= =======
BASIC AND DILUTED (LOSS) EARNINGS
PER SHARE $ (.09) $ .01 $ (.11) $ .17
======= ======= ======= =======
Average common shares outstanding 5,376 5,372 5,376 5,372
======= ======= ======= ========
Dividends per share $ - $ .16 $ - $ .32
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See Notes to Consolidated Financial Statements
(UNAUDITED)
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
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June 30, June 30,
2001 2000
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In Thousands
OPERATIONS
Net (loss) income $ (605) $ 924
Adjustments to reconcile net (loss) income
to net cash from operations:
Depreciation and amortization 4,045 3,340
Deferred income taxes - (35)
Provision for uncollectible accounts 61 (43)
Changes in current assets and
current liabilities:
Receivables 182 806
Inventories (51) (186)
Payables (581) (483)
Accrued expenses 792 (883)
Other (68) 146
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Net cash from operations 3,775 3,586
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INVESTING
Capital expenditures (2,990) (7,540)
Net decrease in short-term investments 100 -
Other 71 56
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Net cash used in investing (2,819) (7,484)
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FINANCING
Net borrowing (repayment) of short-term bank notes (742) 4,065
Long-term debt issued - 5,000
Long-term debt repaid (784) (5,719)
Sale of treasury stock under employee stock plan 28 49
Purchase of treasury stock - (75)
Dividends paid - (1,720)
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Net cash (used in) provided by financing (1,498) 1,600
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Decrease in cash and cash equivalents (542) (2,298)
Cash and cash equivalents:
Beginning of period 3,773 4,078
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End of period $ 3,231 $ 1,780
======== =========
Cash paid during the period:
Interest $ 1,491 $ 1,184
Income tax $ 303 $ 742
See Notes to Consolidated Financial Statements
(UNAUDITED)
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CHORUS COMMUNICATIONS GROUP, LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
1. MERGER
As stated in Chorus Comunications Group, Ltd's (the "Company")
Form 10K for the year ended December 31, 2000, on November 24,
2000, the Company entered into an Agreement and Plan of Merger
with Telephone and Data Systems, Inc. ("TDS") and Singer
Acquisition Corp. ("Singer"), a wholly owned subsidiary of TDS,
pursuant to which Singer will be merged with and into the Company
and the Company will become a wholly owned subsidiary of TDS.
Under the merger agreement, each outstanding share of common stock
of the Company will be converted into the right to receive from
TDS $36.07 per share in cash.
Consummation of the merger is subject to a number of conditions
including, among others, (i) receipt of required governmental
approvals, except as would not be expected to have a material
adverse effect on TDS or its subsidiaries and (ii) each party's
compliance with its agreements under the merger agreement,
including the disposition of certain of Chorus' wireless
properties. On August 10, 2001, the FCC granted its approval of
the proposed merger with TDS. The Merger Agreement with TDS
provides that TDS need not consummate the merger until the 40 day
review and appeal period applicable to these types of orders has
expired. Another condition of the merger agreement was the
approval of the merger agreement by the requisite vote of Chorus
shareholders, which was obtainted at a special shareholder meeting
on June 5, 2001.
On June 13, 2001, Chorus, TDS and Singer entered into an Amendment
No. 1 to Agreement and Plan of Merger, which extends the date by
which the transactions must be consumated from September 29, 2001
to December 31, 2001.
2. BASIS OF PRESENTATION
The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). 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, 2000.
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, 2001 and December 31, 2000, and the results of operations
and cash flows for the three and six month periods ended June 30,
2001 and 2000. The results for the three and six months ended June
30, 2001 are not necessarily indicative of the results of
operations which may be expected for the entire year ending
December 31, 2001.
3. 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. The Company's Internet segment provides dialup and
dedicated Internet services to subscribers in Southern Wisconsin.
Chorus also has operations in directory publishing, long distance,
and competitive local exchange (CLEC) services, that do not meet
the quantitative thresholds for reportable segments.
(In Thousands) Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
LEC Services
Revenues and sales
External customers $ 6,582 $ 6,305 $ 13,296 $ 13,071
Intersegment 472 413 910 761
Segment profit 1,023 1,211 2,264 2,784
System Sales and Services
Revenues and sales
External customers $ 1,764 $ 1,858 $ 3,819 $ 3,882
Intersegment 33 13 67 71
Segment (loss) (461) (667) (954) (1,203)
Internet
Revenues and sales
External customers $ 1,488 $ 1,324 $ 2,939 $ 2,628
Intersegment 11 17 22 17
Segment (loss) (74) (76) (328) (131)
Other
Revenues and sales
External customers $ 1,235 $ 1,615 $ 3,177 $ 3,378
Intersegment 768 312 1,536 719
Segment (loss) (958) (387) (1,587) (526)
Total
Revenues and sales
External customers $ 11,069 $ 11,102 $ 23,231 $ 22,959
Intersegment 1,284 755 2,535 1,568
Segment (loss) profit (470) 81 (605) 924
4. CONTINGENCIES
An industry controversy exists concerning incumbent LEC liability
for reciprocal compensation on certain calling activity with
Internet providers. In November of 2000, the Public Service
Commission of Wisconsin ("PSCW") issued a generic order regarding
this compensation. The Company has filed a petition for judicial
review of the order. In April of 2001, the FCC adopted an Order
announcing the adoption of new rules to clarify the proper
inter-carrier compensation for telecommunications traffic
delivered to Internet service providers. The Company continues to
believe that it is not legally obligated to pay the compensation
required under the PSCW order, given the facts and circumstances
of its particular contract with TDS. However, if the Company is
not successful in it's challenge of this order, the Company might
be required to pay up to $1.0 million in reciprocal compensation
to TDS for the period August 1, 1998 through June 30, 2001. Due to
the uncertainty of this matter, this potential liability is not
recorded in the Company's consolidated financial statements at
June 30, 2001.
5. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 prohibits the use of the
pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001, and applies to all
business combinations completed after June 30, 2001. There are
also transition provisions that apply to purchase business
combinations completed prior to June 30, 2001. SFAS No. 141 is
effective immediately. SFAS No. 142 is effective for the Company
beginning January 1, 2002, and applies to goodwill and other
intangible assets recognized in the Company's consolidated balance
sheet as of that date, regardless of when those assets were
initially recognized. The Company is currently evaluating the
provisions of SFAS No. 142 and it has not determined the impact
SFAS no. 142 will have on its consolidated financial statements.
6. RECLASSIFICATION
Certain amounts previously reported have been reclassified to
conform to the current 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) remained level for the three months period ended June 30,
2001, while increasing $0.3 million for the six month period ended June 30,
2001, both as compared to similar periods in 2000. The increase for the six
months was primarily due to an increase in local exchange carrier (LEC)
revenues.
Operating costs and expenses increased $0.8 million and $2.4 million for
the three and six months ended June 30, 2001 as compared to similar periods
in 2000. This was primarily due to costs incurred in servicing the
Company's growing CLEC business and general growth of supporting corporate
operations. Additionally, merger related costs of $0.6 million were
incurred during the first six months of 2001. These increases were
partially offset by a decline in the cost of goods sold related to the
Company's system sales and services.
Interest expense for the three and six months ended June 30, 2001 was $0.1
and $0.3 million higher than comparable periods in 2000. This was due to
the Company's plant investment in 2000, which resulted in an increased
utilization of the Company's short-term lines of credit during 2001.
As a result of the above, Chorus incurred a net loss of $0.5 and $0.6
million for the three and six months ended June 30, 2001 as compared to a
net income of $0.1 and $0.9 million for similar periods in 2000.
RESULTS OF OPERATIONS OF THE 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:
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues and Sales $ 7,054 $ 6,718 $ 14,206 $ 13,832
Operating Costs and Expenses 5,171 4,439 10,101 8,831
------- ------- ------- -------
LEC Services Operating Income 1,883 2,279 4,105 5,001
Intercompany Eliminations (368) (237) (461) (286)
------- ------- ------- --------
Operating Income $ 1,515 $ 2,042 $ 3,644 $ 4,715
======= ======= ======= =======
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 $0.2 million and $0.1 million for the three and
six months ended June 30, 2001 as compared to 2000. This was primarily due
to a 2.3% increase in the number of access lines served by the Company from
June of 2000 to June of 2001.
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 increased $0.2 and $0.3 million for the
three and six months ended June 30, 2001 as compared to similar periods in
2000. This was primarily due to an increase in the number of special access
circuits provided.
Operating costs increased $0.7 million and $1.3 million for the three and
six month periods ended June 30, 2001 as compared to similar periods in
2000. This was primarily related to increased depreciation expense recorded
in 2001 due to the Company's plant investment in 2000, and an increase in
engineering and central office labor expenses, due to these costs being
capitalized as part of the CLEC central office installation in 2000.
Additionally the Company recorded increased expenditures related to
promotional efforts in 2001, as well as the general growth in corporate
operations.
System Sales and Services
This segment sells, installs and services business telephone systems and
computer networks.
System sales and services operating income consisted of the following:
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues and Sales $ 1,797 $ 1,871 $ 3,886 $ 3,953
Operating Costs and Expenses 2,476 2,750 5,196 5,717
------- ------- ------- -------
System Sales and Services
Operating (Loss) (679) (879) (1,310) (1,764)
Intercompany Eliminations 137 212 211 368
------- ------- ------- -------
Operating (Loss) $ (542) $ (667) $ (1,099) $ (1,396)
======= ======= ======= =======
Revenues remained level for the first and second quarter of 2001 as
compared to the similar periods of 2000, while operating expenses declined
$0.3 and $0.5 million. The decline in operating expenses was primarily due
to an improvement in profit margin on sales, as well as a decrease in the
company's support personnel.
Internet
This segment provides dial up and dedicated Internet services to
subscribers in Southern Wisconsin. Internet operating revenues consisted of
the following:
(In Thousands) THREE MONTHS ENDED SIX MONTHS END
------------------ --------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues and Sales $ 1,499 $ 1,341 $ 2,961 $ 2,645
Operating Costs and Expenses 1,508 1,374 3,251 $ 2,727
------- ------- ------- -------
Internet Operating (Loss) (9) (33) (290) (82)
Intercompany Eliminations 206 (17) 416 (17)
------- -------- ------- ------
Operating Income (Loss) $ 197 $ (50) $ 126 $ (99)
======= ======= ======= ======
Internet revenues grew $0.2 million and $0.3 million for the three and
six months ended June 30, 2001 as compared to similar periods in 2000. The
growth was primarily the result of a $4 monthly rate increase on dialup
accounts, which went into effect in June of 2001, as well as a 5.5% growth
in number of subscribers served.
Operating costs and expenses increased $0.1 million and $0.5 million for
the three and six month periods ended June 30, 2001 as compared to similar
periods in 2000. This was primarily due to additional expenditures relating
to the Company's new technology center becoming operational in late 2000,
as well as other costs necessary to service the growth in the Internet
subscriber base.
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:
(In Thousands) THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues and Sales $ 2,003 $ 1,927 $ 4,713 $ 4,097
Operating Costs and Expenses 3,254 2,502 6,765 4,659
------- ------- ------- -------
Other Services and Sales
Operating (Loss) (1,251) (575) (2,052) (562)
Intercompany Eliminations 25 42 (166) (65)
------- ------- ------- -------
Operating (Loss) $ (1,226) $ (533) $ (2,218) $ (627)
======== ======== ======== ========
Revenue from other services and sales increased $0.1 million and $0.6
million for the three and six months ended June 30, 2001, as compared to
the same time period in 2000. This was primarily due to the growth in the
Company's CLEC business.
Operating costs and expenses increased $0.8 million and $2.1 million for
the three and six month periods ended June 30, 2001 as compared to similar
periods in 2000. This was due primarily to costs associated with the new
CLEC operating facilities placed in service in 2000 as well as $0.6 million
in merger related expenses.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Chorus has historically required 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 2001 was $3.8 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 six months of 2001 were $3.0 million.
FINANCING ACTIVITIES
During the first half of 2001, Chorus repaid a net $0.7 million of
short-term debt and $0.8 million on long-term debt. The Company's
short-term debt of $16.4 million and $12.1 million of its long-term debt
are variable rate instruments. The short-term interest rate declined from
10.1% at December 31, 2000, to 6.2% at June 30, 2001. The long-term rate
declined from 8.4% at December 31, 2000 to 6.8% at June 30, 2001.
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 2000, the Company repurchased 46,318 shares
for $0.8 million. Per the merger agreement with TDS, the Company may not
redeem, purchase or otherwise acquire additional Chorus shares.
It is anticipated that the 2001 capital requirements for Chorus'
construction programs and the maturity and retirement of its long-term debt
will be provided for with cash flow from operating activities and the
issuance of short-term debt. Per the agreement with TDS, the Company may
not pay any dividends to its shareholders prior to consummation of the
merger.
At July 20, 2001, Chorus had available unused lines of credit of $4.0
million. Chorus has not experienced difficulty in obtaining funds for its
construction programs or other purposes. However, reduced earnings and
competition could have an adverse effect on Chorus' future ability to
obtain funds. In addition, the disposition of wireless investments
described in Note 1 to the Consolidated Financial Statements, unless waived
or remedied, may constitute a violation of the Company's loan agreement
with the Rural Telephone Finance Cooperative.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
prohibits the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001, and applies to all
business combinations completed after June 30, 2001. There are also
transition provisions that apply to purchase business combinations
completed prior to June 30, 2001. SFAS No. 141 is effective immediately.
SFAS No. 142 is effective for the Company beginning January 1, 2002, and
applies to goodwill and other intangible assets recognized in the Company's
consolidated balance sheet as of that date, regardless of when those assets
were initially recognized. The Company is currently evaluating the
provisions of SFAS No. 142 and it has not determined the impact SFAS no.
142 will have on its consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Certain information contained herein should be considered "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 which is subject to a number of risks and uncertainties. The
preparation of forward-looking statements requires the use of estimates of
future revenues, expenses, activity levels and economic and market
conditions, many of which are outside our control. Specific factors that
could cause actual results to differ materially from those set forth in the
forward-looking statements include: receipt and timing of regulatory
approvals and the satisfaction of other closing conditions to the merger;
materially adverse changes in economic conditions in the markets served by
Chorus; acquisitions/divestitures of properties and or licenses; 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 Chorus currently serves;
the timing and profitability of Chorus' entry into new Internet and
competitive local exchange markets; and other operational matters and risks
and uncertainties listed from time to time in our reports to the SEC. Other
factors and assumptions not identified above are also involved in the
preparation of forward-looking statements, and the failure of such other
factors and assumptions to be realized may also cause actual results to
differ materially from those discussed. Chorus assumes no obligation to
update such estimates to reflect actual results, changes in assumptions or
changes in other factors affecting such estimates.
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 rates on the Company's short-term debt are
variable and are tied to the London Interbank Offered Rate or prime, while
the interest rate on it's long term debt is tied to the Rural Telephone
Finance Cooperative's 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.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
An industry controversy exists concerning incumbent LEC liability for
reciprocal compensation on certain calling activity with Internet
providers. In November of 2000, the Public Service Commission of Wisconsin
("PSCW") issued a generic order regarding this compensation. The Company
has filed a petition for judicial review of the order. In April of 2001,
the FCC adopted an Order announcing the adoption of new rules to clarify
the proper inter-carrier compensation for telecommunications traffic
delivered to Internet service providers. The Company continues to believe
that it is not legally obligated to pay the compensation required under the
PSCW order, given the facts and circumstances of its particular contract
with TDS. However, if the Company is not successful in the challenge of
this order, the Company might be required to pay up to $1.0 million in
reciprocal compensation to TDS for the period August 1, 1998 through June
30, 2001. Due to the uncertainty of this matter, this potential liability
is not recorded in the Company's consolidated financial statements at June
30, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting held on June 5, 2001, the shareholders of the Company
voted and approved the Agreement and Plan of Merger between the Company and
Telephone and Data Systems, Inc. The vote was as follows:
Vote % of outstanding shares
---- -----------------------
Voted for 73.8%
Voted against 4.8%
Abstain 0.8%
Not Voted 20.6%
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
2(i) Agreement and Plan of Merger by and among Chorus
Communications Group, Ltd., Telephone and Data Systems,
Inc. and Singer Acquisition Corp., dated as of November
24, 2000 (incorporated by reference to Current Report on
Form 8-K, reporting under Exchange Act Section 12(g),
filed on November 27, 2000, file No. 000-23443).
2(ii) Amendment No. 1 to Agreement and Plan of Merger
(incorporated by reference to current Report of Form 8-K,
reporting under Exchange Act section 12(g), filed June
13, 2001, file no. 000-23443)
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).
4(i) Rights Agreement dated as of March 22, 2000 between the
Company and Norwest Bank Minnesota, N.A. (incorporated by
reference to Current Report on Form 8-K, reporting under
Exchange Act Section 12(g), filed on April 5, 2000, file
No. 000-23443).
(b) Reports on Form 8-K
On June 6, 2001, Chorus filed a Form 8-K reporting that the Company had
issued a press release announcing that its shareholders had approved the
proposed merger between Chorus, Telephone and Data Systems, Inc. at a
special meeting held on June 5, 2001.
On June 13, 2001, Chorus filed a Form 8-K reporting that the Company and
Telephone Data Systems, Inc. had entered into Amendment No.1 to Agreement
and Plan of Merger, which extends the date by which the merger must be
consumated from September 29, 2001 to December 31, 2001.
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.
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(Registrant)
Date: August 13, 2001 /s/ Dean W. Voeks
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Dean W. Voeks
President, Chief Executive Officer and Director
Date: August 13, 2001 /s/ Howard G. Hopeman
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Howard G. Hopeman
Executive Vice-President, Chief Financial Officer
and Treasurer