UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 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 53717-0070
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (608)828-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value
(Title of Class)
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
As of March 16, 2001, there were 5,375,533 shares of Common Stock
outstanding. The aggregate market value (based upon unrelated party
non-broker transactions which the Company was familiar with) of Common Stock
held by nonaffiliates on that date was $185,455,889.
CHORUS COMMUNICATIONS GROUP, LTD
PART I.
Item 1. BUSINESS
(a) On November 24, 2000 Chorus Communications Group, Ltd ("Chorus" or 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. A copy of the merger agreement was
attached to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 27, 2000.
Consummation of the merger is subject to a number of conditions including,
among others, (i) approval of the merger agreement by the requisite vote
of Chorus shareholders, (ii) expiration or early termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (iii) receipt of required
governmental approvals, except as would not be expected to have a material
adverse effect on TDS or its subsidiaries and (iv) each party's compliance
with its agreements under the merger agreement, including the disposition
of certain of Chorus' wireless properties.
Chorus intends to mail the proxy statement relating to the proposed merger
to shareholders in April 2001. On January 11, 2001, early termination of
the HSR Act waiting period was granted to Chorus. In addition, before the
merger can be consummated, Chorus and TDS must obtain the approval of the
Federal Communications Commission pursuant to the Communications Act of
1934 for the transfer of control from Chorus to TDS of certain FCC
licenses and authorizations currently held by Chorus and its subsidiaries.
Applications for such transfers have been filed with the FCC and remain
pending. Chorus and TDS also submitted an application to the Minnesota
Public Utilities Commission to approve the change in control over the HBC
Telecom Certificate of Authority and such approval was granted on March 22,
2001. Furthermore, Chorus is required to notify the Wisconsin Public
Service Commission of the merger within ten (10) days of the effective
time of the merger, but no prior approval is required. Chorus and TDS
hope to complete the proposed merger by the end of the second quarter or
the beginning of the third quarter of 2001. However, no assurances can be
made that Chorus and TDS will receive the necessary governmental
clearances, or satisfy the other conditions of the merger, to complete the
merger by then or by September 29, 2001 (the date that either Chorus or
TDS may terminate the merger agreement if the merger has not been
completed by such date).
Chorus is a telecommunications company primarily serving Southern
Wisconsin.
Local exchange carrier (LEC) services are provided by the following Chorus
subsidiaries: Mid-Plains, Inc. (Mid-Plains), The Farmers Telephone Company
(Farmers) and Dickeyville Telephone Corporation (Dickeyville). These
subsidiaries are public utilities providing telephone and data services to
customers in local exchanges located in Southern Wisconsin.
Chorus Networks and Pioneer Communications, Inc. (Pioneer) sell, install
and service business telephone systems and computer networks. Their primary
markets are in Southern Wisconsin.
Chorus also provides Internet access and resells long distance services in
Southern Wisconsin through Chorus Networks and Pioneer. Additionally,
Pioneer publishes telephone directories for various telephone companies in
Wisconsin, Minnesota and Iowa.
Competitive local exchange carrier (CLEC) services are being provided by
Chorus Networks in Madison, Wisconsin and by HBC Telecom, Inc., which began
providing service in October 2000 to the Winona, Minnesota area.
Mid-Plains has an 18.1% interest in a limited partnership, which provides
cellular telephone service in Madison, Janesville and Beloit, Wisconsin,
and bordering areas ("Madison Partnership"). Farmers owns a 2% interest in
a limited partnership providing cellular telephone service in southwestern
Wisconsin.
Mid-Plains also has a 75% interest in PCS Wisconsin, LLC (PCS-WI). This
limited liability company was formed in 1996. In April of 1997, PCS-WI was
granted the F-block license by the FCC, which allows PCS-WI to construct
and operate a Personal Communication System (PCS) in 10 counties in
Southern Wisconsin.
As part of the pending merger with TDS, the Company is required to divest
itself of its Madison and PCS-WI wireless investments prior to the
consummation of the merger.
On February 28, 2001, Mid-Plains entered into an agreement with Metcalf
Partners, L.P. ("Metcalf") providing for the sale and transfer of
Mid-Plains' seventy-five percent (75%) interest in PCS-WI to Metcalf.
The agreement provides, among other matters, that the closing of such sale
shall occur simultaneously with the closing of the transactions
contemplated by the merger agreement.
There were no other material changes in the nature of the business
conducted by Chorus during 2000.
Information regarding the recent development of the Company's LEC business
in the number of access lines is shown below:
Access
Year Lines in Service
1996 38,500
1997 42,300
1998 42,800
1999 43,600
2000 44,900
(b) The financial information regarding Chorus' industry segments is
provided in Item 8 - Chorus Communications Group, Ltd. Consolidated
Financial Statements (Note 13) for the year ended December 31, 2000.
(c) Chorus is a telecommunications company operating primarily in Southern
Wisconsin. Chorus' business development strategy is to expand existing
operations through internal growth, offer new and bundled services, and
develop other businesses to complement Chorus operations. Additionally,
Chorus plans to expand its current subscriber base through growth in CLEC
services. Chorus operates in the businesses listed below.
LEC- Chorus operates the following local exchange carrier subsidiaries:
Mid-Plains, Inc.
The Farmers Telephone Company
Dickeyville Telephone Corporation
System Sales and Services - Chorus sells, installs and services business
telephone systems and computer networks through the following operations:
Chorus Networks, Inc.
Pioneer Communications, Inc.
Internet - Chorus provides Internet access to subscribers through the
following operations:
Chorus Networks, Inc.
pcii.net
Long Distance - Chorus provides long distance service to subscribers
through the following operations:
Chorus Networks, Inc.
Pioneer Telecom
HBC Telecom, Inc.
CLEC - Chorus operates the following competitive local exchange carrier
subsidiaries:
Chorus Networks, Inc.
HBC Telecom, Inc.
Directory Publishing - Chorus publishes telephone directories for local
exchange carriers in three states through the following subsidiary:
Pioneer Communications, Inc.
LEC services revenues consist of two major classes: local service and
network access. Local service revenues are based upon fees charged to
customers for providing local telephone exchange service within designated
service areas. Network access revenues are based on fees charged to
interexchange carriers that use the LEC's local network to provide long
distance service to their customers. System sales and services sell,
install and service business telephone systems and computer networks.
Internet provides dial up and dedicated Internet services.
The percent of revenues from each of these primary classes included in
the Consolidated Statements of Income over the last three years are as
follows:
2000 1999 1998
LEC Services
Local service revenues 25.4% 22.9% 21.6%
Network access 27.8% 28.4% 29.0%
System Sales and Services 6.0% 23.3% 28.4%
Internet 11.8% 9.4% 5.7%
As noted above, PCS-WI was granted the F-block license by the FCC, which
allows PCS- WI to construct and operate a Personal Communication System
(PCS) in 10 counties in southern Wisconsin. The license is for 10 years
and is renewable. As part of the pending merger with TDS, the Company is
required to divest itself of its PCS investment prior to the consummation
of the merger.
The business of Chorus is not seasonal to any significant extent.
Information regarding the Company's major customers is provided in Item 8-
Chorus Communications Group, Ltd. Consolidated Financials Statements (Note
13) for the year ended December 31, 2000.
Order backlog is not a significant consideration in the Company's business,
and the Company has no contracts or subcontracts which may be subject to
renegotiation of profits or termination at the election of the Federal
government.
Competition within the Company's LEC segment is anticipated to increase.
The 1996 Federal Telecommunications Act allowed for the opening up of the
local network to competition and required all incumbent LECs to take steps
in making it feasible for new entrants to compete. It also removed
restrictions prohibiting electric utilities from providing
telecommunications services.
One of Chorus' LEC subsidiaries, Mid-Plains, has faced competition since
June of 1997, when the Public Service Commission of Wisconsin issued orders
authorizing two CLECs to provide local exchange services in Mid-Plains'
territory. These competitors now offer switched voice and data services,
as well as private line services, which permits bypassing of the Company's
local telephone facilities. In addition, microwave transmission services,
wireless communications, fiber optic and coaxial cable deployment and other
services permit bypass of the local exchange network. These alternatives
to the local exchange service represent a potential threat to the Company's
long-term ability to provide local exchange service at economical rates.
In order to meet this competition, the Company has deployed new technology
in its local exchange networks to increase operating efficiencies and to
provide new and improved services to our customers. The Company maintains
the latest generation of digital switching technology. It has also
enhanced the majority of its network with redundant fiber rings, which
allows traffic to be re-routed if trouble appears on the network, allowing
the Company to offer a very reliable level of service to its customers.
The Company also constantly monitors its response time to customer
inquiries, installations and repairs, as well as receiving constant
customer feedback, all in an effort to maintain a competitive advantage.
Chorus' two other LEC subsidiaries are in more rural areas where
competition is less likely to be a factor because the lower population
densities make these markets less attractive for new market entrants.
Competition within the Company's System Sales and Services segment has
intensified in the past several years. While there has always been numerous
companies competing in the communications product market in which Chorus
operates, the competition had primarily been on price and service. This
segment continues to face intensified price competition from CLEC providers
as they try to attract customers onto their new local exchange networks.
The Company expects this trend to continue. To meet this competition, the
Company is currently packaging its equipment sales with local, long
distance and Internet services.
The Company has significant competition in its Internet segment based on
price, reliability and features. The Company expects this competition to
continue.
Information regarding the Company's working capital practice is provided in
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The number of employees as of March 5, 2001 was 330.
ITEM 2. PROPERTIES
The Company's business is primarily focused on the provision of services and
its properties are used for administrative support and to store and safeguard
equipment. At December 31, 2000, the Company's gross book value of property,
plant and equipment of $95.5 million consisted primarily of telephone plant
and equipment. The Company owns its central telephone offices with related
real estate in the communities it serves. Additionally, the Company leases
facilities to house its Internet and CLEC central office equipment as well as
leasing office space in various locations serviced by the Company. Chorus'
65,000 square foot headquarters building is located in Madison, Wisconsin and
is owned by the Company. Virtually all owned property is subject to liens
securing long-term debt. In management's opinion, the plant is in good
repair and suitably equipped for its intended purpose. For further
information concerning the Company's properties see Item 8 - Chorus
Communications Group, Ltd. Consolidated Financial Statements (Note 4) for the
year ended December 31, 2000.
ITEM 3. 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 issued a
generic order regarding this compensation. The Company has filed a petition
for judicial review of the order. The Company continues to believe that it
is not legally obligated to pay the compensation required under the 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 $0.7 million in reciprocal
compensation to TDS for the period August 1, 1998 through December 31, 2000.
Due to the uncertainty of this matter, this potential liability is not
recorded in the Company's consolidated financial statements at December 31,
2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were none in the fourth quarter of 2000.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Chorus common stock is traded on the OTC Bulletin Board under the symbol
"CCGL." The table below sets forth by quarter, the high bid and low bid
quotations for the common stock as reported on the Bulletin Board and the
dividends paid per share. These quotations are representative of prices
between dealers, do not include retail markups, markdowns or commissions and
may not represent actual transactions.
Cash
Market Price Dividend
High Low Declared
2000
First Quarter $17 3/8 $14 $.160
Second Quarter 16 1/4 14 1/2 .160
Third Quarter 17 14 3/4 .160
Fourth Quarter 34 1/2 14 .160
1999
First Quarter $21 $17 3/4 $.155
Second Quarter 18 3/4 17 5/8 .155
Third Quarter 19 17 3/4 .155
Fourth Quarter 18 1/4 15 3/8 .160
There were 3,578 shareholders of record at March 21, 2001. The Company has
regularly paid dividends to its shareholders, however, per the merger
agreement with TDS, the Company may not declare, set aside for payment or pay
any dividends to its shareholders in respect to the Company's first two
fiscal quarters of 2001 prior to the consummation of the merger.
In connection with its long-term debt, certain subsidiaries of Chorus may not
transfer funds to Chorus in the form of cash dividends, loans or advances
until certain financial requirements of their mortgages are met. Of the $9.9
million underlying retained earnings of all Chorus subsidiaries at December
31, 2000, $4.7 million was available for the payment of dividends on the
subsidiaries' common stock.
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five years
in the period ended December 31, 2000 have been derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this report. All financial data has been reported as
if the merged companies which formed Chorus in 1997 have always been one.
In thousands,
except per share data 2000 1999 1998 1997 1996
Total Assets $ 80,479 $ 72,955 $ 72,677 $ 62,754 $ 51,705
Shareholders' Equity $ 27,661 $ 30,942 $ 31,552 $ 28,773 $
26,485
Long-Term Debt,
including Current Maturities $ 24,408 $ 25,550 $ 26,811 $ 22,626 $ 15,860
Short-Term Notes Payable to
Banks $ 17,122 $ 4,726 $ 2,630 $ 1,328 $ -
Revenue and Sales $ 44,747 $ 47,592 $ 45,997 $ 36,337 $ 33,181
Net Income1 $ 142 $ 3,367 $ 5,171 $ 5,136 $ 4,741
Basic and Diluted
Earnings Per Share1,2 $ 0.03 $ 0.62 $ 0.96 $ 0.96 $
0.88
Cash Dividends Per Share2 $ 0.640 $ 0.625 $ 0.590 $ 0.550 $ 0.515
Basic Average Common
Shares Outstanding2 5,373 5,412 5,406 5,368 5,356
Shareholders of Record 3,555 3,606 3,646 3,531 3,434
1 For 1996, the amount is before the extraordinary charge of $1.8 million, or
$0.33 per share.
2 All periods have been restated to reflect a 1998 two-for-one stock split.
See Note 12 to the Company's 2000 consolidated financial statements for
discussion of possible contingencies.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Chorus Communications Group, Ltd. and its subsidiaries' (Chorus or the
Company) revenues decreased $2.8 million or 6.0% in 2000 to $44.7 million.
This was principally due to lower sales in the Company's system sales and
service segment as a result of management's decision to eliminate personal
desktop computers from the Company's 2000 sales offerings. Additionally, the
Company's local exchange carrier ("LEC") segment revenues decreased during
2000. These declines were partially offset by an increase in revenues from
the Company's competitive local exchange carrier ("CLEC"), long distance and
directory publishing operations.
In 1999, revenues increased $1.6 million or 3.5% to $47.6 million. This was
principally due to growth in Internet, LEC and CLEC revenues, offset by a
decline in system sales and services revenues.
Operating costs increased $1.0 million (2.4%) in 2000 to $42.1 million. This
was primarily due to additional costs associated with the Company's new CLEC
operating facilities commencing operations in 2000, increased costs
associated with serving the Company's Internet subscribers, as well as costs
incurred related to the pending merger with TDS, as noted in Part 1 Item 1 of
this Form 10-K. These costs were partially offset by a decrease in the cost
of goods sold related to the decline in the Company's system sales and
service revenues.
Operating costs and expenses increased $5.0 million (14%) in 1999 to $41.1
million. The higher costs were primarily due to servicing the Company's
growing Internet and CLEC subscriber base and higher labor costs.
Other income was $0.6 million lower and $0.4 million higher for the years
ended December 31, 2000 and 1999, respectively. This was primarily due to
distributions received and recorded as income in 1999 from the Company's
limited cellular partnership interest.
Interest expense was $0.7 million higher in 2000 as compared to 1999. This
was the result of the Company's increased utilization of its short-term lines
of credit to meet its investing and financing needs, as well as increased
interest rates. Additionally, due to management's consideration of the sale
of its PCS license, interest related to the PCS license was expensed in 2000,
whereas in prior years, these costs had been capitalized.
Interest expense remained level in 1999 as compared to 1998 at $1.8 million.
Chorus' net income declined $3.2 million in 2000, primarily due to the large
overhead costs associated with the start-up of new CLEC operations, increased
costs associated with serving the Company's Internet subscriber base, costs
associated with the pending merger with TDS and lower revenues from the
Company's LEC segment.
Chorus' net income declined $1.8 million to $3.4 million in 1999, primarily
due to the loss incurred in the company's system sales and services segment.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
Chorus has three reportable segments: Local Exchange Carriers (LEC), System
Sales and Services and Internet. All non-reportable segments are included in
Other Services and Sales. For additional information about Chorus' segments
see Note 13 to the Consolidated Financial Statements.
Local Exchange Carriers
LEC services provide telephone, data and other services to customers in local
exchanges located in Southern Wisconsin. LEC services operating income
consisted of the following:
In Thousands 2000 1999 1998
Revenues and Sales
Local service revenues $11,348 $10,901 $ 9,948
Network access 13,265 13,879 13,613
Other 3,418 3,183 2,706
28,031 27,963 26,267
Operating Costs and Expenses
Cost of services 3,712 3,665 3,231
Selling, general & administrative 8,975 9,517 8,748
Depreciation 5,566 4,949 4,625
18,253 18,131 16,604
LEC Services Operating Income 9,778 9,832 9,663
Less: Intercompany eliminations
Revenues (1,806) (1,362) (675)
Expenses 1,306 831 421
Operating Income $ 9,278 $ 9,301 $ 9,409
The telecommunications industry has come under increased competition in
recent years. The 1996 Federal Telecommunications Act opened up the local
network to competition and required all incumbent LECs to take steps in
making it feasible for new entrants to compete in the once exclusive LEC
territories. In addition, regulatory, legislative and judicial decisions, new
technologies and the convergence of other industries with the
telecommunications industry have fostered increasing competition in the
industry.
One of Chorus' LEC subsidiaries, Mid-Plains, Inc., has faced competition
since 1997, when the Public Service Commission of Wisconsin ("PSCW") issued
orders authorizing two CLECs to provide local exchange services in
Mid-Plains' territory. Chorus' two other LEC subsidiaries are in more rural
areas, where competition is less likely to be a factor because the lower
population densities make these markets less attractive for new market
entrants.
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 grew by $0.4 million or 4.1% in 2000,
primarily due to an increase of access lines of 2.9%. In 1999, local service
revenues grew by $1.0 million or 9.6%, of which $0.6 million was due to rate
increases.
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. In 2000, network access revenues decreased $0.6 million or 4.4%.
This was primarily due to a periodic settlement in 1999 with the National
Exchange Carriers Association ("NECA"), which resulted in an increase in the
1999 interstate access revenues. The decline in 2000, was partially offset by
a 4.3% increase in special access revenues.
In 1999, network access revenues increased $0.3 million (2.0%). The 1999
increase was due to a periodic NECA settlement along with growth in special
access revenues, offset by a 3.2% decrease in minutes of use.
Other revenues increased $0.2 million (7.4%) in 2000 and $0.5 million (17.6%)
in 1999. The increases in both years were primarily due to additional
intercompany rental income.
Cost of service remained level in 2000 after increasing $0.4 million (13%) in
1999. The 1999 increase was due to the capitalization in 1998 of certain
engineering and central office labor costs as part of a central office
upgrade.
Selling, general and administrative expenses declined $0.5 million (5.7%) in
2000 after increasing $0.8 million (8.8%) in 1999. The decrease in 2000 was
primarily due to a change in Wisconsin property tax law. In 2000, telephone
companies were assessed based upon their property tax values, whereas in
prior years the assessment was based upon the Company's gross receipts. The
increase selling, general and administrative expenses in 1999 was primarily
due to reciprocal compensation to competitive local exchange carriers,
increased inter-company occupancy, equipment rental and labor costs, which
were offset in part, by a reduction in legal expenditures.
Depreciation expense increased $0.6 million (12%) and $0.3 million (7.0%) in
2000 and 1999, respectively. This was due to the Company's increased plant
investment.
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:
In Thousands 2000 1999 1998
Revenues and Sales $ 7,144 $11,065 $13,060
Operating Costs and Expenses
Cost of goods sold 5,317 9,408 9,362
Selling, general and administrative 5,027 5,252 3,500
Depreciation 300 288 214
10,644 14,948 13,076
System Sales & Services Operating (Loss) (3,500) (3,883) (16)
Less: Intercompanpany eliminations
Revenues (191) - -
Expenses 463 620 150
Operating (Loss) Income $(3,228) $(3,263) $ 134
Revenues in the system sales and services segment decreased $3.9 million
(35%)and $2.0 million (15%) for 2000 and 1999, respectively. The 2000
decline was the result of management's decision to eliminate personal desktop
computers from the Company's 2000 sales offerings, as well as a 22% reduction
in the sale of new business telephone systems. The 1999 reduction was due to
lower computer and networks services revenues of $2.7 million which was
caused by declining prices and increased competition related to computer
hardware. The 1999 decline was partially offset by a $0.7 million increase
in the sale of business telephone systems.
Gross profit margins increased from 15% in 1999 to 26% in 2000. This was
primarily the result of lower gross margins in 1999 due to an increase in the
Company's inventory valuation allowance.
In 1999, the gross profit margins decreased to 15% from 28.3% in 1998.
This was primarily due to a net increase in inventory valuation allowance of
$0.5 million along with higher labor costs. The majority of the net increase
in inventory valuation allowance was due to management's intention to narrow
its product offerings in year 2000.
Selling, general and administrative costs decreased $0.2 million (4.3%) in
2000 after increasing $1.8 million (50%) in 1999. The 2000 decrease was
primarily due to higher selling, general and administrative costs incurred in
1999 relating to uncollectible accounts receivable. Additionally, the 1999
increase was due to increases in labor and occupancy costs.
Internet
This segment provides dial up and dedicated Internet services to subscribers
in Southern Wisconsin. Internet operating income consisted of the following:
In Thousands 2000 1999 1998
Revenues and Sales $ 5,280 $ 4,463 $ 2,617
Operating Costs and Expenses
Cost of services 2,753 1,802 1,169
Selling, general and administrative 2,339 1,915 978
Depreciation 698 447 170
5,790 4,164 2,317
Internet Operating (Loss) Income (510) 299 300
Less: Intercompany eliminations
Revenues (44) - -
Expenses 346 347 149
Operating (Loss) Income $ (208) $ 646 $ 449
Internet revenues increased $0.8 million (18%) and $1.8 million (71%) for
2000 and 1999, respectively. The increase in 2000 was primarily the result
of a 30% monthly rate increase on dial up accounts, which went into effect in
September of 1999 as well as a 14.8% growth in accounts served. The increase
in 1999 was primarily the result of a 44.3% growth in accounts served as well
as a September 1999 rate increase.
Operating costs and expenses increased $1.6 million (39%) and $1.8 million
(80%)in 2000 and 1999, respectively. This was primarily the result of
increased costs necessary to service the growth in the number of the
Company's Internet subscribers. In addition, the 2000 increase was due to
costs associated with the Company's new technology center becoming
operational, as well as costs of expanding types and location of services
offered.
Other Services and Sales
Other services and sales include operations from long distance, CLEC and
directory publishing operations. Other services and sales operating income
consisted of the following:
In Thousands 2000 1999 1998
Revenues and Sales $ 8,353 $ 6,782 $ 5,535
Operating Costs and Expenses
Cost of services 6,426 4,568 3,783
Selling, general and administrative 4,637 1,687 1,438
Depreciation 387 272 327
11,450 6,527 5,548
Other Services & Sales Operating (Loss) Income (3,097) 255 (13)
Less: Intercompany eliminations
Revenues (2,020) (1,319) (807)
Expenses 1,946 883 762
Operating (Loss) $(3,171) $ (181) $ (58)
Revenues from other services and sales increased $1.6 million (23%) and $1.2
million (23%) in 2000 and 1999, respectively. Revenues from the growth of
CLEC ($0.6 million) and directory publishing ($0.6 million), were the main
contributors to the 2000 increase. In 1999, the increases were mainly due to
grow in CLEC services ($0.7 million).
Cost of services increased $1.9 million (41%) and $0.8 million (21%) in 2000
and 1999, respectively. The increase in 2000 was mainly from costs associated
with the Company's new CLEC operating facilities commencing operations in
2000 as well as additional directory publishing expenses. The increase in
1999 was primarily due to the growth in the Company's CLEC subscriber base.
Selling, general and administrative costs increased $3.0 million (175%) and
$0.2 million (17%) in 2000 and 1999, respectively. The increase in 2000 was
primarily due to costs of expanding the Company's CLEC operations.
Additionally, costs of $0.8 million were incurred in regards to the pending
merger with TDS. The increase in 1999 was primarily due to the growth of
internal operations.
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 were provided through operating and
financing activities. Net cash from operating activities of Chorus and its
subsidiaries for the years 1998 through 2000 was $25.9 million. External
financing proceeds for the same period totaled $24.8 million.
INFLATION
Management believes that inflation affects Chorus' business to no greater
extent than the general economy.
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 years 1998 through 2000 were $32.6 million. Capital expenditures for
2001 are expected to approximate $9 million.
The Company has two limited partnership interests in cellular telephone
service providers, an 18.1% interest in the Madison Metropolitan Statistical
Area ("Madison") and 2.0% interest in Wisconsin Rural Statistical Area 8.
These investments, which are accounted for on the cost method, totaled $3.7
million at December 31, 2000.
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 by April 2002. Buildout would
require substantial capital and operating expenditures in a highly
competitive market. At December 31, 2000, the Company's investment in the
PCS license was $3.7 million.
As part of the pending merger with TDS, the Company is required to divest
itself of its Madison and PCS-WI wireless investments prior to the
consummation of the merger. On February 28, 2001, Mid-Plains entered into an
agreement with Metcalf providing for the sale and transfer of Mid-Plains'
seventy-five percent (75%) interest in PCS-WI to Metcalf. The agreement
provides, among other matters, that the closing of such sale shall occur
simultaneously with the closing of the transactions contemplated by the
merger agreement.
In 1999, Chorus received cash distributions from its cellular limited
partnership totaling $0.6 million.
FINANCING ACTIVITIES
Financing for the years 1998 through 2000 was $24.8 million consisting of
$9.5 million of long-term debt financing, $0.2 million from the sale of
common stock under stock plans and employee incentives and a net increase in
short-term bank notes of $15.1 million.
In June of 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). The interest
rate on these funds is variable based upon the RTFC's cost of funds, which at
March 1, 2001 was 8.45%. As a condition of the loan, the Company purchased
additional Subordinate Capital Certificates of $263,000.
The Company's short-term bank notes of $17.1 million and $12.5 million of its
long-term debt are variable rate instruments. The short-term interest rate
rose from 8.3% at December 31, 1999 to 10.1% at December 31, 2000. The
long-term interest rate rose from 6.95% at December 31, 1999 to 8.4% at
December 31, 2000.
In connection with its long-term debt, certain subsidiaries of Chorus may not
transfer funds to Chorus in the form of cash dividends, loans or advances
until certain financial requirements of their mortgages are met. Of the $9.9
million underlying retained earnings of all Chorus subsidiaries at December
31, 2000, $4.7 million was available for the payment of dividends on the
subsidiaries' common stock.
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. During 2000 and 1999, the Company repurchased 46,318 shares for
$0.8 million. Per the merger agreement signed with TDS, the Company may not
redeem, purchase or otherwise acquire additional Chorus shares.
It is anticipated that 2001 capital requirements for Chorus' construction
programs and maturity and retirement of long-term debt will be provided for
with cash flow from operating activities and the issuance of debt. Per the
merger agreement with TDS, the Company may not declare, set aside for payment
or pay any dividends to its shareholders in respect of the Company's first
two fiscal quarters of 2001 prior to the consummation of the merger.
At February 28, 2001, Chorus has available unused lines-of-credit of $2.9
million. Chorus has experienced no 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 sale of wireless investments described above, unless
waived or remedied, may constitute a violation of the Company's loan
agreement with the Rural Telephone Finance Cooperative.
ENVIRONMENTAL MATTERS
Management is currently not aware of any environmental matters, which in the
aggregate would have a material adverse effect on the financial condition or
results of operations of the Company.
NEW ACCOUNTING PRONOUNCEMENT
In January 2001, the Company adopted the Financial Accounting Standards
Board's SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company does not currently have any derivatives and/or
hedging activities and thus the adoption of this statement did not have a
material impact on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
accounting principles generally accepted in the United States of America to
revenue recognition in financial statements. The Company adopted SAB 101 in
the fourth quarter of 2000. Adoption of this standard did not have an impact
on the Company's financial statements.
REGULATION
Pursuant to a nationwide rule adopted by the Federal Communications
Commission, the Public Service Commission of Wisconsin (the "Commission") in
November 2000 issued an order to collect data to establish a minimum of three
cost-related zones for unbundled local loops. Although the impact upon the
LEC operations of Mid-Plains, Farmers Telephone Company and Dickeyville
Telephone Corporation is not known, among other potential impacts the
possibility exists that they will be required to geographically de-average
its unbundled local loop rates at some time in the future, which could
adversely affect its revenues and results of operations.
Also in November 2000, the Commission issued a generic order regarding
reciprocal compensation. For a discussion of this order see Item 8,
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Note 12 included in this Form
10-K.
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 and
shareholder 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 7A. 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.
As of December 31, 2000, $12.5 million of the Company's long-term debt is
sensitive to changes in interest rates. A 10% change in interest rates on
this debt would result in a change in interest expense of $0.1 million.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHORUS COMMUNICATIONS GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Financial Statements for each of the three years in the period
ended December 31, 2000:
Statements of Income
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Chorus Communications Group, Ltd.
We have audited the accompanying consolidated balance sheets of Chorus
Communications Group, Ltd. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
Our audits also included the financial statement schedule listed in the Index
at Item 14. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Chorus Communications Group,
Ltd. and subsidiaries as of December 31, 2000 and 1999,and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, on November
24, 2000, the Company entered into an Agreement and Plan of Merger with
Telephone and Data Systems, Inc.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 13, 2001
(February 28, 2001 as to Note 15)
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
ASSETS 2000 1999
Dollars In Thousands
CURRENT ASSETS
Cash and cash equivalents $ 3,773 $ 4,078
Temporary investments 100 800
Accounts receivable
Due from customers, net of allowance
for uncollectible accounts of $306
and $449, respectively 4,056 5,354
Other, principally connecting
companies 2,519 1,625
Inventories 2,376 1,829
Cellular limited partnership interests 3,715 -
Personal communication services license 3,748 -
Other 2,022 1,825
Total Current Assets 22,309 15,511
PROPERTY, PLANT AND EQUIPMENT- NET 55,440 47,221
CELLULAR LIMITED PARTNERSHIP INTERESTS - 3,715
PERSONAL COMMUNICATION SERVICES LICENSE - 3,748
GOODWILL, Net of accumulated amortization
of $454 and $297, respectively 1,060 1,217
OTHER 1,670 1,543
TOTAL ASSETS $ 80,479 $ 72,955
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
Dollars in Thousands
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,593 $ 1,333
Notes payable to banks 17,122 4,726
Accounts payable 2,098 2,531
Accrued expenses 3,012 2,557
Other 745 638
Total Current Liabilities 24,570 11,785
LONG-TERM DEBT 22,815 24,217
DEFERRED INCOME TAXES 2,869 3,707
OTHER LIABILITIES 2,229 1,927
Total Liabilities 52,483 41,636
MINORITY INTEREST 335 377
COMMITMENTS AND CONTINGENCIES (See Notes)
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25,000,000 shares;
issued 5,415,288 shares 14,783 14,791
Less treasury stock at cost
40,563 and 41,880 shares, respectively (694) (717)
Retained earnings 13,572 16,868
Total Shareholders' Equity 27,661 30,942
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 80,479 $ 72,955
See Notes to Consolidated Financial Statements.
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
In Thousands Except for Per Share Data Year Ended December 31,
2000 1999 1998
REVENUES AND SALES
Local exchange carrier services $26,225 $26,601 $25,592
System sales and services 6,953 11,065 13,060
Other services and sales 11,569 9,926 7,345
Total Revenues and Sales 44,747 47,592 45,997
OPERATING COSTS AND EXPENSES
Cost of goods sold 5,317 9,408 9,326
Cost of local exchange carrier and
other services 12,085 9,381 7,705
Selling, general & administrative 17,723 16,343 13,696
Depreciation and amortization 6,951 5,957 5,336
Total Operating Costs and Expenses 42,076 41,089 36,063
OPERATING INCOME 2,671 6,503 9,934
Other income 153 744 362
Interest expense (2,451) (1,767) (1,727)
Minority interest 42 (3) (4)
INCOME BEFORE INCOME TAXES 415 5,477 8,565
INCOME TAX EXPENSE 273 2,110 3,394
NET INCOME $ 142 $ 3,367 $ 5,171
BASIC AND DILUTED EARNINGS PER SHARE $ .03 $ .62 $ .96
Basic weighted average common
shares outstanding 5,373 5,412 5,406
Diluted weighted average common
shares outstanding 5,379 5,412 5,406
See Notes to Consolidated Financial Statements.
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In Thousands Except for Per Share Data
Common Stock Treasury Stock Total
Retained Shareholders'
Shares Amount Shares Amount Earnings Equity
Balances,
December 31, 1997 5,369 $ 13,868 $ 14,905 $ 28,773
Net income 5,171 5,171
Cash dividend
- $.59 a share (3,192) (3,192)
Issuance of stock
in acquisition
of businesses 40 800 800
Balances,
December 31, 1998 5,409 14,668 16,884 31,552
Net income 3,367 3,367
Cash dividend
- $.625 a share (3,383) (3,383)
Employee stock
purchase plan 4 86 86
Stock incentive 2 37 37
Purchase of
common stock 42 $ (717) (717)
Balances,
December 31, 1999 5,415 14,791 42 (717) 16,868 30,942
Net income 142 142
Cash dividend
- $.64 a share (3,438) (3,438)
Employee stock
purchase plan (8) (5) 98 90
Purchase of
common stock 4 (75) (75)
Balances,
December 31, 2000 5,415 $14,783 41 $ (694) $13,572 $27,661
See Notes to Consolidated Financial Statements.
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
Dollars In Thousands 2000 1999 1998
OPERATIONS
Net income $ 142 $ 3,367 $ 5,171
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 6,951 5,957 5,336
Deferred income taxes (657) (298) 333
Provision for uncollectible accounts (143) 385 53
Changes in current assets and
current liabilities excluding effects
of acquisitions:
Receivables 547 (381) (893)
Inventories (547) 91 (70)
Payables (433) (2,259) 169
Accrued expenses 455 1,866 (202)
Other 194 434 295
Net cash from operations 6,509 9,162 10,192
INVESTING
Capital expenditures (15,237) (7,690) (9,653)
Acquisitions (net of cash acquired) - - (357)
Personal communication services license - (168) (22)
Change in short-term investments 700 500 1,200
Other - net 155 89 119
Net cash used in investing (14,382) (7,269) (8,713)
FINANCING
Net change in short-term debt 12,396 2,096 619
Long-term debt issued 5,000 - 4,486
Long-term debt repaid (6,405) (1,261) (801)
Sale of common stock - 123 -
Sale of treasury stock under employee
stock plan 90 - -
Purchase of treasury stock (75) (717) -
Dividends paid (3,438) (3,383) (3,192)
Net cash from (used in) financing 7,568 (3,142) 1,112
(Decrease) increase in cash and
cash equivalents (305) (1,249) 2,591
Cash and cash equivalents:
Beginning of period 4,078 5,327 2,736
End of period $ 3,773 $ 4,078 $ 5,327
See Notes to Consolidated Financial Statements.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PENDING MERGER
On November 24, 2000 Chorus Communications Group, Ltd. (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) approval of the merger agreement by the requisite vote of
Chorus shareholders, (ii) receipt of required governmental approvals, except
as would not be expected to have a material adverse effect on TDS or its
subsidiaries and (iii) each party's compliance with its agreements under the
merger agreement, including the disposition of certain of Chorus' wireless
properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Chorus Communications Group, Ltd. and its subsidiaries ("Chorus or the
Company") is a telecommunications company that provides phone, data and other
services through its local exchange carrier ("LEC") subsidiaries. The Company
also sells, installs and services business telephone systems and computer
networks. Additionally, the Company has operations in directory publishing,
long distance, competitive local exchange carrier ("CLEC") and Internet
services. The Company's operations are primarily in Southern Wisconsin.
BASIS OF PRESENTATION
The consolidated financial statements of Chorus include the accounts of its
majority-owned subsidiaries. All significant intercompany items have been
eliminated in consolidation. Investments of less than 20% are accounted for
on the cost basis.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Certain LEC subsidiaries of Chorus are subject to the provisions of Statement
of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the
Effects of Certain Types of Regulation." The Company periodically reviews
the criteria for applying these provisions to determine whether continuing
application of SFAS 71 is appropriate for these LEC subsidiaries.
PROPERTY, PLANT AND EQUIPMENT
Plant in service and under construction is stated at the original cost
of construction including the capitalized costs of certain taxes and
payroll-related expenses. Normal retirements of LEC property are charged
against accumulated depreciation along with the costs of removal less
salvage, with no gain or loss recognition. Renewals and betterments of LEC
plant and equipment are capitalized while repairs, as well as renewals of
minor items, are charged to operating expenses. When non-LEC property is
sold or retired, a gain or loss is recognized.
Depreciation is provided primarily on the composite group remaining
life method using straight-line composite rates.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived Assets
to be Disposed Of," the Company would record impairment losses on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Based on current estimates, management
does not believe any of its long-lived assets are impaired.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the average cost method.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Chorus files a consolidated federal income tax return.
Income taxes are accounted for using a liability method and provide for the
tax effects of transactions reported in the consolidated financial statements
including both taxes currently due and deferred. Deferred taxes reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. The deferred tax assets and liabilities represent the
future tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Investment tax credits (ITC), which were deferred prior to the Tax Reform Act
of 1986, are being amortized over the life of the plant which produced the
ITC.
REVENUE RECOGNITION
Chorus recognizes revenues when earned, regardless of the period in which
they are billed. Customer contracts for sales and installations are
accounted for using the completed-contract method which recognizes income
only when the contract is substantially completed.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
accounting principles generally accepted in the United States of America to
revenue recognition in financial statements. The Company adopted SAB 101 in
the fourth quarter of 2000. Adoption of this standard did not have an impact
on the Company's financial statements.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense
totaled $1.1 million, $0.7 million and $0.5 million in 2000, 1999, and 1998,
respectively.
CASH AND CASH EQUIVALENTS
All highly liquid, short-term investments with an original maturity of three
months or less are considered to be cash equivalents.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TEMPORARY INVESTMENTS
Cash investments with original maturities of three months to 12 months are
classified as temporary investments. Temporary investments are stated at
cost which approximates market value.
CONCENTRATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable, cash and cash equivalents and
temporary investments. Accounts receivable due from customers are stated net
of allowances for uncollectible accounts of approximately $0.3 million and
$0,4 million as of December 31, 2000 and 1999, respectively. Other accounts
receivable are due primarily from connecting companies. The percentage of
revenues for long-distance services provided to local exchange carriers which
exceeded 10% of LEC revenues were: AT&T Communications, Inc. 20% in 2000,
17% in 1999, and 16% in 1998; and MCI 13% in 1998.
STOCK COMPENSATION
The Company accounts for employee stock options and employee stock purchase
plans in accordance with Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees." Under APB 25, the Company
recognizes no compensation expense related to employee stock options, as no
options are granted at a price below the market price of the stock on the day
of grant. Subsequent to ABP 25, SFAS No, 123, "Accounting for Stock Based
Compensation", became effective. SFAS 123, which prescribes the recognition
of compensation expense based on the fair value of options on the grant date,
allows companies to continue applying APB 25 if certain pro forma disclosures
are made assuming hypothetical fair value method application. See Note 10
for pro forma disclosures required by SFAS 123 plus additional information on
the Company's stock options.
STOCK SPLIT
On March 6, 1998, the Company declared a two-for-one stock split in the
form of a 100% dividend, which was distributed on April 15, 1998, to
shareholders of record on April 1, 1998.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TREASURY STOCK
In December 1999, the board of directors authorized the repurchase, at
management's discretion, of up to 10% of the outstanding shares of the
Company's stock. The Company's repurchases of shares of Common Stock are
recorded as "Treasury Stock" and result in a reduction of "Shareholders'
Equity".
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Shares
used in the diluted earnings calculation are based on the weighted average
number of shares of common stock outstanding increased by dilutive potential
common equivalent shares from stock options. Common equivalent shares are
computed using the treasury stock method.
NEW ACCOUNTING PRONOUNCEMENT
In January 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company does not currently have any derivatives and/or
hedging activities and thus the adoption of this statement did not have a
material impact on the Company's financial statements.
RECLASSIFICATION
Certain amounts previously reported for prior years have been reclassified to
conform with the 2000 presentation.
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 at $20 per share
and cash and promissory notes totaling $1.0 million. Additionally, Chorus
entered into covenants not to compete with the prior owner for $0.4 million.
The acquisitions have been accounted for under the purchase method of
accounting and accordingly, financial data from the acquired entities has
been consolidated into the financial statements subsequent to the purchase.
The resulting goodwill of $1.5 million is being amortized over a ten year
period using the straight-line method.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
December 31,
2000 1999
In Thousands
Land $ 1,382 $ 1,382
Buildings 8,415 8,349
Digital switching equipment 30,332 21,657
Cable, wiring and conduit 39,794 36,929
Computers 4,801 4,562
Internet equipment 3,401 1,626
Other 7,190 7,107
Under construction 218 276
95,533 81,888
Less accumulated depreciation (40,093) (34,667)
Total property, plant and equipment $55,440 $47,221
Property, plant and equipment is depreciated using useful lives ranging
from three to forty years.
5. WIRELESS INVESTMENTS
The Company has two limited partnership interests in cellular telephone
service providers. Both partnerships are accounted for using the cost
method. The Company's 18.1% interest in the Madison Metropolitan Statistical
Area ("Madison") and 2.0% interest in Wisconsin Rural Statistical Area 8
totaled $3.7 million in 2000 and 1999.
The Company owns 75% of PCS Wisconsin, LLC (PCS-WI). PCS-WI holds an
F-block license which allows it to construct and operate a personal
communications services system (PCS) in ten counties in Southern Wisconsin.
Under the terms of the license, there must be a 25% buildout by April 2002.
Buildout would require substantial capital and operating expenditures in a
highly competitive market. The license is carried at cost including
acquisition costs. In addition, interest charges of $168,000 and 162,000
were capitalized to the license in 1999 and 1998, respectively. No interest
was capitalized in 2000.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. WIRELESS INVESTMENTS (CONTINUED)
As part of the pending merger of the Company described in Note 1, the
Company is required to divest itself of its Madison and PCS-WI wireless
investments, and correspondingly, these investments have been classified as
current as of December 31, 2000. The sale of these investments, unless
waived or remedied, may constitute a violation of the Company's RTFC Loan
Agreement discussed in Note 6.
6. DEBT
Long-term debt as of December 31, 2000 and 1999 is as follows:
Interest December 31,
Rates Maturities 2000 1999
In Thousands
Mortgage Notes -
RUS 2% to 5% 2001-2017 $ 445 $ 486
FCC 6.25% 2001-2007 2,204 2,471
RTB 4% to 8% 2001-2017 2,074 2,224
RTFC 6.95% to 8.4%* 2001-2012 15,986 11,442
AnchorBank 7.75%** 2001-2017 3,699 3,802
Registered Subordinate
Debentures 8% 2000 - 5,000
Promissory Notes 8.5% 2000 - 125
24,408 25,550
Less current portion (1,593) (1,333)
Long-term debt $22,815 $24,217
* Variable rate based on RTFC's cost except for $3.5 million fixed at
7.4% through February 2008.
** Fixed through November 2002.
In June of 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). In January of
1998, Chorus incurred $0.5 million in promissory notes related to the
acquisition of IntraNet, Inc.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT (Continued)
Under the RTFC loans, Subordinated Capital Certificates (SCCs) are required
to be purchased by the Company equal to 5% of the advanced amount. SCCs are
non-interest bearing and are returned as the loan is repaid.
Substantially all assets of Chorus are pledged as collateral for the
long-term debt under loan agreements with the Rural Utilities Service (RUS),
the Rural Telephone Bank (RTB), the Rural Telephone Finance Cooperative
(RTFC) or AnchorBank. The PCS license is pledged as collateral for the
long-term debt under a loan agreement with the Federal Communications
Commission (FCC).
Under the loan agreements, certain subsidiaries have restrictions as to the
transfer of funds (see Note 9) and the amount of debt until certain financial
requirements are met. There are also other restrictive covenants related to
specific financial ratios. The Company is currently in compliance with these
financial ratios.
The annual requirements for principal repayments on long-term debt are
approximately $1.6 million, $1.7 million, $1.8 million, $1.9 million, and
$2.1 million for the years 2001 through 2005, respectively.
Short-term financing included notes payable at December 31, 2000 and 1999 of
$17.1 million and $4.7 million at weighted average interest rates of 10.1%
and 8.3%, respectively. The stock of one of the Company's LEC subsidiaries
is pledged as collateral on this debt. Chorus and its subsidiaries had
available unused lines-of-credit of $0.9 million at December 31, 2000.
Cash paid for interest for 2000, 1999 and 1998 totaled $2.4 million, $1.8
million and $1.7 million, respectively.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The components of income tax expense were as follows:
Year Ended December 31,
2000 1999 1998
In Thousands
Current:
Federal $ 157 $1,695 $2,446
State 773 713 594
Deferred:
Federal 101 23 285
State (703) (264) 110
Amortization of deferred
investment tax credits (55) (57) (41)
Total income tax expense $ 273 $2,110 $3,394
Cash paid for income taxes for 2000, 1999 and 1998 totaled $1.1 million, $2.4
million and $3.5 million, respectively.
The following is a reconciliation of the statutory federal income tax rate of
34% to Chorus' effective income tax rate.
Year Ended December 31,
2000 1999 1998
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal benefit 11.2 5.4 5.7
Amortization of investment tax
credits (13.2) (1.0) (.5)
Adjustments of prior period estimates 15.2 - -
Amortization of goodwill 12.0 .9 .5
Other 6.6 (.8) (.1)
Effective income tax rate 65.8% 38.5% 39.6%
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (Continued)
The components of Chorus' deferred tax assets (liabilities) were as
follows:
December 31,
2000 1999
In Thousands
Deferred tax assets:
Compensated absences $ 466 $ 367
Inventory reserve 214 327
Deferred compensation 354 320
Allowance for uncollectible accounts 115 171
State net operating loss carry forward 586 163
Deferred income 72 128
Merger costs 316 113
Deferred startup cost 301 51
Cellular interests 448 78
Other 309 185
Deferred tax assets 3,181 1,903
Deferred tax liabilities:
Property, plant and equipment
depreciation (4,956) (4,384)
PCS License amortization (495) (410)
Unamortized investment tax credit - (36)
Deferred tax liabilities (5,451) (4,830)
Net deferred tax liabilities (2,270) (2,927)
Less: Current deferred tax assets (599) (780)
Long-term deferred tax liabilities $(2,869) $(3,707)
The Company has $12.1 million in state net operating losses which will expire
in 2020.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LEASES
The Company leases various facilities and offices under operating leases
which expire over the next ten years. Rent expense under these leases was
$282,000, $143,000 and $130,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
The future minimum lease payments under noncancelable operating leases
greater than one year as of December 31, 2000 are as follows:
2001 $ 295,000
2002 301,000
2003 280,000
2004 239,000
2005 131,000
Thereafter 522,000
$1,768,000
9. RESTRICTION ON COMMON STOCK DIVIDENDS
At December 31, 2000, all of the consolidated retained earnings were
available for the payment of cash dividends on shares of Chorus common
stock. However, certain LECs may not transfer funds to the parent in the
form of cash dividends, loans or advances until certain financial
requirements of their mortgages have been met. Of the $9.9 million
underlying retained earnings of all Chorus subsidiaries at December 31, 2000,
$4.7 million was available for the payment of dividends on the subsidiaries'
common stock.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BENEFIT PLANS AND STOCK COMPENSATION
PENSION PLAN
On April 15, 1997, a LEC subsidiary of Chorus terminated its defined benefit
pension plan. As a result of the settlement of the plan, the Company
realized pension plan benefit income of $0.4 million in 1998.
401(k) BENEFIT PLANS
Chorus sponsors defined contribution 401(k) benefit plans to substantially
all full-time employees. Under the plans, the Company provides matching
contributions based on qualified employee contributions. Matching
contributions were as follows: 2000 - $595,000, 1999 - $498,000 and 1998 -
$457,000.
STOCK PURCHASE PLAN AND STOCK BASED COMPENSATION
In January 1999, Chorus initiated an Employee Stock Purchase Plan. Under the
plan, employees are able to purchase common stock of the Company during
quarterly periods, not to exceed $7,500 for a calendar year. The price an
employee pays for a share of stock may be no less than 85% of fair market
value. In the absence of an established market, fair market value is
determined by a committee selected by the Company's Board of Directors. In
accordance with the terms and conditions of the merger agreement with TDS,
the plan was suspended on December 31, 2000.
In 1999, the Company issued 2,000 shares as incentive compensation to an
officer of the Company.
STOCK INCENTIVE PLAN
The Company adopted a stock incentive plan effective January 1, 2000. Under
terms of the plan, officers and certain other employees may be granted
options to purchase the company's common stock at no less than 100% of the
market price on the date the option is granted. Options generally vest
immediately upon the grant and have a maximum term of 10 years. Options
become exercisable upon the earlier of meeting certain performance criteria,
a change in control as defined in the plan, retirement, death or disability.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BENEFIT PLANS AND STOCK COMPENSATION (CONTINUED)
At December 31, 2000, a total of 445,900 shares were reserved for future
issuance under the stock incentive plan. During 2000, 54,100 options were
granted with a weighted average exercise price of $15.03. The range of
exercise prices on options granted in 2000 is $15.00 to $15.94. No shares
were exercised or cancelled in 2000. None of the options are exercisable at
December 31, 2000. The merger agreement with TDS provides that all stock
options held by employees of the Company, whether vested or not, will be
cancelled at the time the pending merger is completed in exchange for, at
the election of the option holder, either (i) a cash payment equal to the
"spread" on the option or (ii) options to acquire a number of shares of TDS
common stock equal in value to the value of the options held immediately
prior to consummation of the merger.
Had compensation expense for the Company's stock incentive and stock
purchase plans been recognized based on the fair value on the grant date
under the methodology prescribed by SFAS 123, for the year ended
December 31, 2000 the Company's net income would have been reduced to
$111,000 from the reported $142,000. Diluted earnings per share would have
been reduced to $0.02 from $0.03 for the year ended December 31, 2000.
The fair value of options granted, which is amortized to expense over the
option vesting period in determining the pro forma impact, is estimated on
the date of grant using the Black Scholes option pricing model with the
following weighted average assumptions: expected life of option of 6 years;
risk-free interest rate of 5.0%; expected volatility of 40% and an expected
dividend yield of 1.85%. The weighted average fair value of options granted
during 2000 was $5.82.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, temporary investments,
accounts receivable, accounts payable, accrued expenses and short-term debt
are based on face amounts which approximate fair value.
The fair value of long-term debt, estimated using discounted cash flow
analysis based on Chorus' estimated current incremental borrowing rates for
debt with similar terms, was as follows:
December 31,
2000 1999
In Thousands
Carrying amount $24,408 $25,550
Fair market value $23,451 $25,046
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND 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 issued a
generic order regarding this compensation. The Company has filed a petition
for judicial review of the order. The Company continues to believe that it
is not legally obligated to pay the compensation required under the 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 $0.7 million in reciprocal
compensation to TDS for the period August 1, 1998 through December 31, 2000.
Due to the uncertainty of this matter, this potential liability is not
reflected in the Company's financial statements at December 31, 2000.
13. 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 in 2000, the Company's Internet operations 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.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OPERATING SEGMENTS (Continued)
The segments' accounting policies are the same as those described in the
summary of significant accounting policies.
(In Thousands)
2000 1999 1998
LEC Services
Revenue and sales -
External customers 26,225 26,601 25,592
Intersegment 1,806 1,362 675
Interest revenue 471 512 234
Interest expense 1,514 1,355 1,407
Depreciation and amortization 5,566 4,949 4,625
Segment profit 5,423 5,981 5,250
Segment assets 52,758 51,549 51,842
Expenditures for segment assets 6,630 5,896 8,100
System Sales and Services
Revenue and sales -
External customers 6,953 11,065 13,060
Intersegment 191 - -
Interest revenue 8 3 -
Interest expense 455 87 60
Depreciation and amortization 300 289 214
Segment loss (2,327) (2,426) (34)
Segment assets 2,869 6,417 5,389
Expenditures for segment assets 133 618 315
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPERATING SEGMENTS (Continued)
(In Thousands)
2000 1999 1998
Internet
Revenue and sales -
External customers 5,236 4,463 2,617
Intersegment 44 - -
Interest revenue - 1 1
Interest expense 317 164 56
Depreciation and amortization 698 447 170
Segment (loss) profit (650) 35 150
Segment assets 4,160 1,429 1,164
Expenditures for segment assets 1,806 785 508
Other
Revenue and sales -
External customers 6,333 5,463 4,728
Intersegment 2,020 1,319 807
Interest revenue 6 43 139
Interest expense 668 433 354
Depreciation and amortization 387 272 327
Segment loss (2,304) (223) (195)
Segment assets 20,692 13,560 14,282
Expenditures for segment assets 6,668 391 730
Total
Revenue and sales -
External customers 44,747 47,592 45,997
Intersegment 4,062 2,681 1,482
Interest revenue 485 559 374
Interest expense 2,954 2,039 1,877
Depreciation and amortization 6,951 5,957 5,336
Segment profit 142 3,367 5,171
Segment assets 80,479 72,955 72,677
Expenditures for segment assets 15,237 7,690 9,653
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OPERATING SEGMENTS (Continued)
The depreciation of Chorus' headquarters building is allocated to each
segment. The related net cost of $5 million at December 31, 2000, 1999 and
1998 is not allocated to each segment, but included in the other segment
assets.
Total segment interest expense includes intercompany activity of $503,000,
$272,000 and $150,000 for 2000, 1999, and 1998, respectively.
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY FINANCIAL INFORMATION (Unaudited):
Quarter Ended
March 31 June 30 Sept. 30 Dec.31
In Thousands,
Except For Per Share Data
2000
Operating Revenues $ 11,857 $ 11,102 $11,124 $10,664
Operating Income 1,801 792 880 (802)
Net Income 843 81 181 (963)
Basic and Diluted
Earnings Per Share .16 .01 .03 (.17)
1999
Operating Revenues $ 11,656 $ 11,547 $11,300 $13,089
Operating Income 1,975 1,934 1,517 1,077
Net Income 1,000 1,088 764 515
Basic and Diluted
Earnings Per Share .18 .21 .14 .09
1998
Operating Revenues $10,938 $11,169 $11,628 $12,262
Operating Income 2,559 2,745 2,251 2,379
Net Income 1,377 1,439 1,169 1,186
Basic and Diluted
Earnings Per Share .26 .27 .22 .21
Increased expenses during the fourth quarter of 2000 were the result of
costs incurred in regard to the pending merger and costs associated with the
start-up of the Company's CLEC operations. These costs, when combined,
approximated $1.0 million, net of taxes.
Adjustments during the fourth quarter of 1999 included increases to the
valuation allowances for customer receivables and inventory which, net of
taxes, approximated $0.6 million.
15. SUBSEQUENT EVENT
As described in Note 5, the Company has a 75% interest in PCS-WI which holds
an F-block wireless license. On February 28, 2001, the Company entered into
an agreement for the sale of its interest in PCS-WI which is expected to
result in a gain. The agreement provides, among other matters, that the
closing of such sale shall occur simultaneously with the closing of the
transactions contemplated by the TDS merger agreement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of Chorus with ages as of January 1,
2001, are as follows:
Name Age Position
Dean W. Voeks 58 President, Chief Executive Officer
and Director: 2001*
Howard G. Hopeman 56 Executive Vice President, Chief
Financial Officer and Treasurer
Darold J. Londo 36 President of Chorus Networks, Inc.
a subsidiary
Grant B. Spellmeyer 35 Vice President, Secretary and
General Counsel
Carrie L. Bennett-Barndt (1)(2) 48 Director: 2002*
Charles Maulbetsch (1)(2) 65 Director: 2002*
Harold L.(Lee) Swanson (1)(2) 62 Director: 2003*
Douglas J. Timmerman (1)(2) 60 Director: 2001*
[FN]
<F1>
(1) Member of Compensation Committee
<F2>
(2) Member of Audit Committee
* Annual Meeting at which current director term expires
</FN>
Dean W. Voeks is President, Chief Executive Officer and a Director of Chorus;
he has been associated with Chorus and/or its subsidiaries for more than 14
years. He has been President, Chief Executive Officer and a director of
Chorus since it was formed in June 1997 and President and Director of a
subsidiary of Chorus since 1991. Mr. Voeks is also a director of First
Business Bank of Madison.
Howard G. Hopeman is Executive Vice President, Chief Financial Officer and
Treasurer of Chorus; he has been associated with Chorus and/or its
subsidiaries for more than 12 years. He has been Executive Vice President
and Chief Financial Officer of Chorus since it was formed in June 1997,
Treasurer of Chorus since 1999 and an officer of a subsidiary of Chorus since
1988.
Darold J. Londo was appointed President of Chorus Networks, Inc. in May of
1999. Prior to this, Mr. Londo was Vice President of Human Resources of
Chorus and Corporate Counsel since joining the organization in December of
1997. Prior to this, Mr. Londo was an attorney for Axley Brynelson,
Attorneys and Counselors, since 1993.
Grant B. Spellmeyer is Vice President, Secretary and General Counsel of
Chorus since joining the organization in June of 1999. Prior to this, Mr.
Spellmeyer was an attorney for Axley Brynelson, Attorneys and Counselors,
since 1993.
Carrie L. Bennett-Barndt is President and Director of Bennett-Barndt
Enterprises, Inc., an operator of certain McDonald Restaurants with which she
has been associated for over 11 years. She has been a director of Chorus
since April 1999.
Charles Maulbetsch was a Vice President of Middleton Community Bank from
January 1, 1995 until his retirement December 31, 1995; prior to that he was
a Bank Consultant. He has been a director of Chorus since it was formed in
June 1997 and a director of a subsidiary of Chorus from 1981 to 1999.
Harold L.(Lee) Swanson is Chairman of the Board and Chief Executive Officer
of State Bank of Cross Plains of which he has been associated with for more
than 35 years. He has been a director of Chorus since it was formed in June
1997 and a director of a subsidiary of Chorus from 1981 to 1999. Mr. Swanson
is also a director of Madison Gas & Electric Company and is currently
Chairman of Chorus' Audit Committee.
Douglas J. Timmerman is Chairman of the Board, President and Chief Executive
Officer of Anchor BanCorp Wisconsin Inc. with which he has been associated
with for more than 23 years. He has been a director of Chorus since it was
formed in June 1997 and a director of a subsidiary of Chorus from 1976 to
2001. Mr. Timmerman is currently Chairman of Chorus' Compensation Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based solely on review of the
copies of such forms furnished to the Company and written representations
from certain reporting persons, the Company believes that during 2000 all
required filings were made in a timely fashion, except the following officers
filed late their initial statement of ownership: Ms. DeAnne Boegli and Mr.
Mark Mathews. It was not previously reported in 1999 that one officer, Mr.
Robert Busch, filed late an initial statement of ownership.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The total 2000 annual director fees received for serving on Chorus' Board and
any subsidiary boards were $20,000 each for Messrs. Maulbetsch, Swanson and
Timmerman and Ms. Bennett-Barndt. In addition, Mr. Timmerman received $3,400
for serving as an officer of a subsidiary company. Mr. Voeks did not receive
any director fees. The Chorus Board of Directors met eleven times in 2000.
All directors attended more than 75% of the total number of meetings of the
Board and the total number of meetings held by all committees of the Board on
which they served.
The Company has standing Audit and Compensation Committees.
The members of the Audit Committee are Messrs. Maulbetsch, Swanson and
Timmerman and Ms. Bennett-Barndt. The Audit Committee's function is to meet
with management and the independent public accountants to review with them
the scope and results of their audits, the Company's accounting practices,
and the adequacy of the Company's internal controls. The Audit Committee
held three meetings in 2000.
The members of the Compensation Committee are Messrs. Maulbetsch, Swanson and
Timmerman and Ms. Bennett-Barndt. The Compensation Committee determines the
compensation of the Chief Executive Officer and reviews compensation
guidelines for all other employees. The Compensation Committee held four
meetings in 2000.
COMPENSATION COMMITTEE INTERLOCKS
AND
INSIDER PARTICIPATION
Mr. Timmerman, President of Dickeyville Telephone Corporation, a Chorus
subsidiary, is a member of the Compensation Committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the years 2000, 1999 and
1998 of the Chief Executive Officer and the three other executive officers of
the Company.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and Restricted Stock
Principal Other Annual Stock Option All Other
Position Year Salary Bonus Compensation Award Award # Compensation(3)
Dean W. Voeks: 2000 $205,000 $52,000 $ 0 $ 0 12,300 $54,690
President and 1999 185,000 0 16,000(1)37,000(2) 0 54,500
Chief Executive 1998 175,000 40,000 0 0 0 54,190
Officer
Howard G.
Hopeman: 2000 $145,000 $29,000 $ 0 $ 0 8,700 $42,470
Executive 1999 116,000 25,000 0 0 0 41,926
Vice President, 1998 110,000 25,000 0 0 0 41,420
Chief Financial
Officer,
and Treasurer
Darold J. Londo: 2000 $117,000 $23,000 $ 0 $ 0 7,000 $ 9,813
President of 1999 95,700 30,000 0 0 0 7,669
Chorus 1998 85,000 10,000 0 0 0 4,408
Networks, Inc.,
a subsidiary
Grant B. 2000 $115,000 $23,000 $ 0 $ 0 6,900 $ 9,548
Spellmeyer(4) 1999 46,552 17,500 0 0 0 4,448
Vice President, 1998 0 0 0 0 0 0
Secretary And
General Counsel
<FN>
Footnotes
<F1>
1In 1999 Mr. Voeks received $16,000 for the reimbursement of taxes on a
restricted stock grant.
<F2>
2In 1999, Mr. Voeks was granted 2000 shares of vested restricted stock
which was valued at market price at the time of grant. Dividends are paid on
this restricted stock.
<F3>
3All other compensation includes the following: (i) the Company's
contributions to 401K and/or deferred compensation plans; (ii) the Company's
annual contributions for 2000, 1999 and 1998 to a non-qualified supplemental
retirement plan: Mr. Voeks - $44,190, and Mr. Hopeman - $31,970; and (iii)
the Company's 1999 payment to Mr. Voeks of $310 to cover a dividend missed on
the restricted stock.
<F4>
4 Mr. Spellmeyer joined the company in June 1999.
</FN>
Stock Options Granted in 2000
The Company adopted a stock incentive plan effective January 1, 2000. Under
terms of the plan, officers and certain other employees may be granted
options to purchase the Company's common stock at no less than 100% of the
market price on the date the option is granted. Options generally vest
immediately upon the grant and have a maximum term of 10 years. Options
become exercisable upon the earlier of meeting certain performance criteria,
a change in control as defined in the plan, retirement, death or disability.
All stock options held by employees of the Company, whether vested or not,
will be cancelled at the time the pending merger with TDS is completed in
exchange for, at the election of the option holder, either (i) a cash payment
equal to the "spread" on the option or (ii) options to acquire a number of
shares of TDS common stock equal in value to the value of the options held
immediately prior to consummation of the merger.
The following table sets forth information for the year ended December 31,
2000 reflecting the grant of stock options to the executive officers of the
Company.
Potential Value
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (a)
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price Date 5% 10%
Dean W. Voeks 12,300 22.7% $ 15.00 4/27/06 $ 62,748 $142,353
Howard G. Hopeman 8,700 16.1 15.00 4/27/06 44,382 100,689
Darold J. Londo 7,000 12.9 15.00 4/27/06 35,710 81,014
Grant B. Spellmeyer 6,900 12.8 15.00 4/27/06 35,200 79,857
(a) This column shows the hypothetical gains on the options granted based on
assumed annual compound price appreciation of 5% and 10% over the full
six-year term of the options. The assumed rates of appreciation are mandated
by the SEC and do not represent our estimate or projection of future prices.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four independent Directors who are responsible for setting and
administering compensation, including base salary and annual bonus paid or
awarded to Mr. Voeks, President and Chief Executive Officer of Chorus
Communications Group, Ltd. ("Chorus" or the "Company"). In addition, the
Committee reviews the compensation of other executives, which are set by Mr.
Voeks.
During 1999 into early 2000, the Committee developed a new executive
compensation program focused on rewarding shareholder value creation and
performance against key drivers of total shareholder return. Key features of
the new executive compensation program are as follow:
Compensation Philosophy:
Reward shareholder value creation and performance versus key drivers of total
shareholder return.
Reward team success while recognizing individual contribution.
Structure compensation opportunities and the mix of base salary, annual
incentives, and long-term incentives to reflect compensation practices at
similarly-sized telecommunication industry peers.
Fund annual incentives and determine the exercisability of stock options in
part by performance relative to that of the performance of the compensation
peer group.
Encourage stock ownership to foster an ownership mentality.
Peers: A group of peer telecommunications industry companies was used to
identify competitive compensation opportunities. Peer selection primarily
reflected Chorus' classification within the telecommunications industry, its
business mix, and relative revenue size. The companies considered for
compensation purposes are not the same as companies included in the
performance graph peer group in this Proxy Statement. The performance graph
peer group companies are significantly larger than Chorus with much higher
compensation levels.
Base Salary: Base salaries and salary increases are based on individual
performance, as demonstrated over time and managed around the peer group
median.
Annual Incentives: Relative peer performance measures are used to assess
corporate performance. Relative performance measures allow the Committee to
assess how well Chorus performs versus identified peers. Thus, management's
ability to create value for our shareholders in a changing regulatory
environment, changing economic conditions, and in response to changing
consumer behaviors versus how well our peers perform directly affect
executive pay. Individual awards also reflect each executive's performance.
The Committee intended that annual incentive awards be paid using a
combination of cash and restricted stock. For 2000, cash stock awards were
granted based on the factors described above. However, restricted stock was
not awarded because it is not allowed under the November 24, 2000 Agreement
and Plan of Merger which the Company entered into with Telephone and Data
Systems, Inc.
Long-Term Incentives: Chorus uses stock options under the Stock Incentive
Plan approved by the shareholders on April 26, 2000, to reward success as
measured by the appreciation in the Company's common stock price. As a
result, the interests of executives are closely linked with those of
stockholders. In 2000, a total of 54,100 stock options were awarded under the
Stock Incentive Plan, including 38,700 stock options to the executive
officers named in the summary compensation table.
2000 COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Compensation Committee considered the factors described above in
establishing the President and Chief Executive Officer's 2000 remuneration,
including base salary and annual cash incentive (bonus), as well as stock
options awarded during 2000 under the Stock Incentive Plan. Among other
factors, this included a comparison of a peer group of telecommunications
industry companies' revenue and net income growth rates, and return on equity
for approximately the past three year period.
Respectfully submitted by:
Douglas J. Timmerman, Chairman
Carrie Bennett-Barndt
Charles Maulbetsch
Harold L. (Lee) Swanson
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total shareholder returns
for Chorus(1) as compared with the Russell 2000 and a Peer Group(2).
[Line graph of data points]
INDEX RETURNS
Years Ending
Base
Period
Company Name/Index Dec 95 Dec 96 Dec 97 Dec 98 Dec99 Dec 00
Chorus Communication Group, Ltd. 100 105.23 105.49 99.27 97.22 199.19
Russell 2000 100 116.49 142.54 138.91 168.44 163.35
Peer Group 100 93.43 116.50 155.15 253.03 186.47
Explanation
The graph assumes $100 invested on December 31, 1995 in Chorus common stock,
Russell 2000, and the Peer Group. Total return assumes reinvestment of
dividends.
<FN>
FOOTNOTES
<F1>
1 Chorus was formed on June 1, 1997 as a result of merging Mid-Plains, Inc.
and Pioneer Communications, Inc. into subsidiaries of the Company. The total
return for Chorus is based on the total return on Chorus' common stock
beginning June 1997 and Mid-Plains, Inc.'s common stock prior to the mergers.
<F2>
2 The Peer Group is composed of the following holding companies that compete
in the Company's industry segment of telecommunications services and operate
in markets which include rural Wisconsin communities: Century Tel Inc.;
Citizens Communication Company; and Telephone & Data Systems, Inc. Frontier
Corporation was removed from the Peer Group because it has been acquired.
</FN>
MANAGEMENT CONTINUITY PLAN
Chorus has severance pay agreements ("Agreements") with Messrs. Voeks,
Hopeman, Londo and Spellmeyer. The purpose of the Agreements is to encourage
the executive officers to continue to carry out their duties in the event of
the possibility of a change in control of the Company.
Benefits are payable under the Agreements only if a change in control has
occurred and within three years after such change the executive's employment
is terminated: (a) by the Company or its successor for reasons other than
"cause"; or (b) voluntarily by the executive for "good reason," in each case
as defined in the Agreements. The principal benefit under the Agreement is a
lump-sum payment equal to as much as 2.99 times the executive's annual
compensation. The agreements for Messrs. Voeks, Hopeman and Londo are dated
December 3, 1998 and the agreement for Mr. Spellmeyer is dated July 9, 1999.
Each agreement terminates after three years but is automatically extended on
an annual basis unless either the Company or the respective employee gives a
written notice of cancellation of such automatic extension.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount of Chorus common stock beneficially
owned by each of its directors, each of the executive officers and all
directors and executive officers as a group as of February 6, 2001. To
Chorus' knowledge, no shareholder owned five percent or more of Chorus'
outstanding common stock as of February 6, 2001. Unless otherwise indicated,
each shareholder has sole voting and investment power with respect to the
shares indicated, as of February 6, 2001.
Shares Percent
Name of Beneficial Owner Beneficially Owned of Class
Carrie L. Bennett-Barndt 940(1) *
Howard G. Hopeman 24,018(2)(3) *
Darold J. Londo 7,188(3) *
Charles Maulbetsch 53,000(2) 1.0%
Grant B. Spellmeyer 7,400(2)(3) *
Harold L. (Lee) Swanson 16,500(2) *
Douglas J. Timmerman 76,421(4) 1.4%
Dean W. Voeks 19,989(2)(3)(5) *
All directors and executive
officers as a group
(8 persons) 205,456(6) 3.8%
<FN>
* Represents less than one percent of class of outstanding shares.
<F1>
1 Includes 440 shares of common stock held by a corporation in which Ms.
Bennett-Barndt has a pecuniary interest and voting and investment power.
<F2>
2 Includes 10,488, 1,000, 500, 13,789 and 2,074 shares of common stock
in self-directed Individual Retirement Accounts, to which Messrs. Hopeman,
Maulbetsch, Spellmeyer, Swanson and Voeks, respectively, have voting and
investment power.
<F3>
3 Includes 8,700, 7,000, 6,900 and 12,300 shares of common stock
underlying options grated pursuant to the company's 2000 Stock Incentive Plan
to Messrs. Hopeman, Londo, Spellmeyer and Voeks, respectively.
<F4>
4 Includes 45,424 shares of common stock in a family partnership and
30,829 shares of common stock in a family trust in which Mr. Timmerman has a
pecuniary interest and voting and investment power; and 168 shares of common
stock in which Mr. Timmerman has voting and investment power.
<F5>
5 Includes 300 shares of common stock in a Supplemental Retirement Plan
to which Mr. Voeks has voting and investment power.
<F6>
6 Includes 34,900 shares of common stock underlying options granted
pursuant to the company's 2000 Stock Incentive Plan.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
(a) 1. Consolidated Financial Statements
See Index to Consolidated Financial Statements under Item 8 of this
Form 10-K.
2. Financial Statements Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because of the absence of conditions
under which they are required.
3. Exhibits
Exhibits filed (or to be filed) as a part of this Form 10-K Annual
Report are as follows:
Exhibit Number Description
10(i) Dean W. Voeks
Executive Severence Agreement
Chorus Communications Group, Ltd.
December 3, 1998
10(ii) Howard G. Hopeman
Executive Severence Agreement
Chorus Communications Group, Ltd.
December 3, 1998
10(iii) Darold J. Londo
Executive Severence Agreement
Chorus Communications Group, Ltd.
December 3, 1998
10(iv) Grant B. Spellmeyer
Executive Severence Agreement
Chorus Communications Group, Ltd.
July 9, 1999
10(v) Chorus Communications Group, Ltd.
Stock Incentive Plan
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP,
Independent Auditors
Exhibits Incorporated by Reference
2 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).
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 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 November 27, 2000, Chorus filed a Form 8-K announcing that it has
entered into an Agreement and Plan of Merger, dated as of
November 24, 2000 by and among the Company, Telephone and Data Systems,
Inc. ("TDS") and Singer Acquisition Corp., a wholly-owned subsidiary of
TDS.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHORUS COMMUNICATIONS GROUP, LTD.
(Registrant)
Date: March 30, 2001 By /S/Dean W. Voeks
Dean W. Voeks, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
/S/Dean W. Voeks President Chief Executive March 30, 2001
Dean W. Voeks Officer and Director
(Principal Executive Officer)
/S/Howard G. Hopeman Executive Vice-President, March 30, 2001
Howard G. Hopeman Chief Financial Officer
and Treasurer
(Principal Financial
and Accounting Officer)
/s/Charles Maulbetsch Director March 30, 2001
Charles Maulbetsch
/s/Harold L.(Lee) Swanson Director March 30, 2001
Harold L. (Lee) Swanson
The above signatures include a majority of the signatures of the Board of
Directors.
Schedule II - Valuation and Qualifying Accounts
CHORUS COMMUNICATIONS GROUP, LTD.
(In Thousands)
Balances at Balance
Beginning Charged to at End
Description of Period Expense Writeoffs of Period
1998
Allowance for uncollectible
accounts 11 214 161 64
Inventory reserves 235 66 26 275
1999
Allowance for uncollectible
accounts 64 631 246 449
Inventory reserves 275 559 834
2000
Allowance for uncollectible
accounts 449 149 292 306
Inventory reserves 834 69 359 544