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, 1998 Commission file number 333-23435
CHORUS COMMUNICATIONS GROUP, LTD.
(Exact Name of Registrant as Specified in Its Charter)
WISCONSIN 39-1880843
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8501 Excelsior Drive, Madison, Wisconsin 53717-0070
(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 February 28, 1999, there were 5,408,606 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 $102,763,514.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD
PART I.
ITEM 1. BUSINESS
(a) Chorus Communications Group, Ltd., (Chorus or the Company) is a
telecommunications company which was formed on June 1, 1997 by the
mergers of Mid-Plains, Inc. (Mid-Plains) and Pioneer Communications,
Inc. (Pioneer). Chorus' primary operations include local exchange
carrier services and system sales and services.
Local exchange carrier services are provided by the following Chorus
subsidiaries: 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. Mid-Plains, Farmers
and Dickeyville were incorporated in 1901, 1898 and 1956, respectively.
System sales and services are provided by the following Chorus
subsidiaries: Mid-Plains Communications Systems, Inc. (MPCS), Executive
Systems & Software, Inc. d/b/a The ComputerPLUS and Pioneer. These
companies sell, install and service business telephone systems,
computers and computer networks. Their primary markets are in southern
Wisconsin. MPCS and Pioneer were incorporated in 1980 and 1987,
respectively, while The ComputerPLUS was acquired on January 29, 1998.
Chorus also provides Internet access and resells long distance services
through MPCS and Pioneer in southern Wisconsin. Additionally, on
January 29, 1998, Chorus acquired IntraNet, Inc. which expanded its
Internet subscriber's base. Pioneer also publishes telephone
directories for various telephone companies in Wisconsin as well as
Minnesota and Iowa.
Mid-Plains has an 18% interest in a limited partnership, which provides
cellular telephone service in Madison, Janesville and Beloit, Wisconsin,
and bordering areas. Farmers own 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. Management has performed preliminary
planning and is currently studying options to develop, construct and
introduce PCS service.
As further discussed in Item 8 - Chorus Communications Group, Ltd.
Consolidated Financial Statements (Note 14), in June 1997, the PSCW
issued orders authorizing two competitors to provide local exchange
service in the Mid-Plains service territory. As part of these orders,
the PSCW held that Mid-Plains was no longer entitled to either an
exclusive franchise under state law or a rural telephone company
exemption under federal law. Mid-Plains disagreed and has filed a
petition for judicial review. If Mid-Plains is not ultimately
successful in its appeal, additional competing local exchange providers
will have the opportunity to provide local exchange service in the
Mid-Plains service territory. If Mid-Plains is successful in its
appeal, other potential competitors will have to obtain permission from
the PSCW to serve in the Mid-Plains service territory and the PSCW will
have to find that Mid-Plains' Federal rural telephone exemption can be
lifted.
Mid-Plains experienced a loss of revenues due to competition in 1998
and expects that it may have significant competition in 1999, which
will further impact its revenues. The extent of that effect is unknown
at this time.
Effective January 1, 1999, Executive Systems & Software, Inc. d/b/a The
ComputerPLUS and IntraNet, Inc. were merged into MPCS with MPCS
remaining as the surviving corporation. Immediately upon the
completion of the merger, MPCS' name was changed to Chorus Networks,
Inc.
There were no other material changes in the nature of the business
conducted by Chorus during 1998.
<PAGE>
Information regarding the recent development of the Company's business
in the number of access lines is shown below:
ACCESS
YEAR LINES IN SERVICE
1995 35,900
1996 38,500
1997 41,900
1998 42,200
(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, 1998.
(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,
develop other businesses to complement Chorus operations and become a
growing coalition of independent communications companies through
future mergers and acquisitions. Chorus operates in the segments
listed below.
LEC - Chorus operates the following local exchange carrier subsidiaries,
which provide telephone service to 42,000 access lines:
Mid-Plains, Inc.
The Farmers Telephone Company
Dickeyville Telephone Corporation
System Sales and Services - Chorus sells, installs and services
business telephone systems, computers and computer networks through the
following operations:
Mid-Plains Communications Systems, Inc. (MPCS)**
The ComputerPLUS*
Pioneer
Internet - Chorus provides Internet access to 18,500 subscribers
through the following operations:
Mid-Plains Internet (MPI)*
IntraNet, Inc.*
pcii.net
Long Distance - Chorus provides long distance service to over 8,700
customers through the following operations:
Mid-Plains Long Distance (MPLD)
Pioneer Telecom
Directory Publishing - Chorus publishes telephone directories for 46
local exchange carriers in three states through the following subsidiary:
Pioneer Communications, Inc.
* On January 1, 1999, these entities were merged into MPCS.
** On January 1, 1999, MPCS changed its name to Chorus Networks, Inc.
LEC services revenues consist of three major classes: local service
revenues, interstate network access and intrastate network access. Local
service revenues are based upon fees charged to customers for providing
local telephone exchange service within designated franchise areas.
Interstate and intrastate 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,
computers and computer networks.
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:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
LEC Services
Local service revenues 21.6% 23.6% 19.7%
Interstate network access 20.1% 24.5% 25.2%
Intrastate network access 8.9% 12.4% 16.0%
System Sales and Services 28.4% 19.6% 22.7%
</TABLE>
<PAGE>
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. Management has performed preliminary
planning and is currently studying options to develop, construct and
introduce PCS service. Management is also analyzing financing
alternatives, which include the issuance of debt, equity financing
and/or the inclusion of additional partners in PCS-WI.
The business of Chorus is not seasonal to any significant extent.
For discussion of competitive conditions, see Item 7 - Management's
Discussion and Analysis of Financial Conditions and Result of
Operations.
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, 1998.
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.
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 11, 1999 was 325.
ITEM 2. PROPERTIES
Information regarding the Company's properties is provided in Item 8 -
Chorus Communications Group, Ltd. Consolidated Financial Statements (Note 6)
for the year ended December 31, 1998. Substantially all of the Company's
properties are necessary to provide LEC services in the Company's serving
areas. Between January 1, 1996 and December 31, 1998, the Company made
property additions of $27.4 million. Virtually all of this 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.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings the Company is currently engaging in
is provided in Item 8 - Chorus Communications Group, Ltd. Consolidated
Financial Statements (Note 14) for the year ended December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were none in the fourth quarter of 1998.
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
There is no established trading market for the Company's stock and there are
no principal market makers. As explained in Item 8 - Chorus Communications
Group, Ltd. Consolidated Financial Statements (Note 1), effective June 1,
1997, Mid-Plains and Pioneer merged into subsidiaries of Chorus. The stock
and dividend information is for Mid-Plains stock prior to the June 1997
mergers and for Chorus stock beginning June 1997. The stock data includes
broker transactions reported in the OTC Bulletin Board Research Service and
non-broker transactions voluntarily reported to the Company. Non-broker
prices do not include retail markup, markdown or commissions, which with the
exception of commissions are included in broker prices. Average prices are
the weighted average of the transactions described above. These prices
should not be relied upon as an indication of the price at which Chorus
stock may be traded in the future.
Stock and dividend information has been adjusted from amounts previously
reported to include transactions reported in the OTC Bulletin Board Research
Service which were not previously included in 1997 data, and to reflect a
1998 two-for-one stock split.
<TABLE>
CASH
TRANSACTIONS PRICE PER SHARE DIVIDENDS
NUMBER SHARES HIGH LOW AVERAGE PER SHARE
<S> <C> <C> <C> <C> <C> <C>
1998
Chorus 4th Quarter 142 113,640 $18.25 $15.50 $16.51 $.155
Chorus 3rd Quarter 92 66,536 21.50 16.00 18.28 .145
Chorus 2nd Quarter 80 78,710 21.50 18.00 19.59 .145
Chorus 1st Quarter 52 71,128 21.00 20.12 19.53 .145
1997
Chorus 4th Quarter 99 115,492 $21.00 $18.50 $20.37 $.145
Chorus 3rd Quarter 86 71,892 22.50 20.00 20.65 .135
Chorus June 5 3,056 21.00 20.00 20.93 -
Mid-Plains April - May 9 4,160 21.50 20.00 20.53 .135
Mid-Plains 1st Quarter 21 39,716 21.50 19.88 20.78 .135
</TABLE>
There were 3,646 shareholders of record as of December 31, 1998. The
Company has regularly paid dividends to its shareholders and expects it will
continue to do so in the future. For 1997, Pioneer paid a cash dividend of
$0.27 in the 2nd Quarter 1997, based on equivalent Chorus shares.
At December 31, 1998, 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 $13 million
underlying retained earnings of all Chorus subsidiaries at December 31,
1997, $5.2 million was available for the payment of dividends on the
subsidiaries common stock.
As further discussed in Item 8 - Chorus Communications Group, Ltd.
Consolidated Financial Statements (Note 2), Chorus issued 40,000 shares of
common stock to three individuals, each of whom were Wisconsin residents at
the time of issuance, in connection with the simultaneous acquisitions of
Executive Systems & Software, Inc., d/b/a The ComputerPLUS and IntraNet,
Inc. There were no underwriters used in these transactions. The securities
were exempt from registration under the Securities Act of 1933 (the "33
Act") pursuant to Section 4 (2) of the '33 Act, 15 U.S.C. Section 77d(2)
(the "Section 4(2) Private Placement Exemption"). The securities were also
exempt from registration pursuant to Section 3(a) (11) of the '33 Act,
Section 77 c(a) (11) (the "Intrastate Offering Exemption") and Rule 505, 17
C.F.R. Section 230.505 (a Regulation D Exemption"). The securities are
"restricted securities" pursuant to the rules promulgated under the '33 Act,
and cannot be resold for an indefinite period of time.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1998 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, described Item 8 - Chorus
Communications Group, Ltd., Consolidated Financial Statements (Note 1), have
always been one.
<TABLE>
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Access Lines 42,232 41,940 38,504 35,894 33,304
Total Assets $ 72,677 $ 62,754 $ 51,705 $ 52,046 $ 44,618
Shareholders' Equity $ 31,552 $ 28,773 $ 26,485 $ 26,051 $ 23,912
Long-Term Debt, Including
Current Maturities $ 26,811 $ 22,626 $ 15,860 $ 12,195 $ 10,762
Short-Term Notes
Payable to Banks $ 2,630 $ 1,328 $ - $ 4,440 $ 1,300
Ratio of Earnings to
Interest Expenses <F1><F2> 5.96 7.42 6.45 7.11 6.52
Revenue and Sales $ 45,997 $ 36,337 $ 33,181 $ 30,539 $ 27,166
Net Income <F2> $ 5,171 $ 5,136 $ 4,741 $ 4,572 $ 3,888
Basic and Diluted Earnings
Per Share <F2><F3> $ .96 $ .96 $ .88 $ .86 $ .74
Cash Dividends Per Share <F3> $ .590 $ .550 $ .515 $ .525 $ .424
Average Common Shares
Outstanding <F3> 5,406 5,368 5,356 5,342 5,254
Shareholders of Record 3,646 3,531 3,434 3,287 3,217
These financial highlights should not be relied upon as an indication of
future financial condition or results of operations.
<FN>
<F1> For the purpose of this ratio, earnings have been calculated by adding
net income, interest expense and income taxes.
<F2> For 1996, the amount is before the extraordinary charge.
<F3> All periods have been restated to reflect a 1998 two-for-one stock
split.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Chorus Communications Group, Ltd. and its subsidiaries (Chorus or the
Company) was formed on June 1, 1997 as a result of the mergers of
Mid-Plains, Inc. (Mid-Plains) and Pioneer Communications, Inc. (Pioneer).
The mergers have been accounted for as a pooling-of-interests and,
accordingly, historical financial data shown below has been reported as if
the companies have always been one.
On January 29, 1998, Chorus acquired Executive Systems & Software, Inc.
d/b/a The ComputerPLUS, and IntraNet, Inc. These acquisitions have been
accounted for under the purchase method of accounting and, accordingly,
financial data from these two entities has only been included subsequent to
the date of the acquisitions.
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW
Chorus' net income remained constant in 1998 as compared to 1997 with the
growth in net income from the Company's local exchange carriers (LEC) being
offset by a decline in net income from its system sales and services. The
Company's net income increased in 1997 $2.2 million from 1996 primarily due
to an extraordinary charge against income relating to the discontinuance of
regulatory accounting principles for one of the company's local exchange
carriers (LEC), as discussed in Note 3 to Consolidated Financial Statements,
which decreased net income by $1.8 million in 1996. Excluding the
extraordinary charge, net income increased $0.4 million in 1997, primarily
due to growth in LEC services.
Revenues increased $9.7 million in 1998, to $46 million, and $3.2 million in
1997, to $36.3 million. The increase in 1998 was primarily due to the
acquisition of The ComputerPLUS and IntraNet, Inc. noted above as well as
growth in LEC and other services and sales revenues. The increase in 1997
was due to growth in LEC services and other services and sales revenues
offset by a decrease in system sales and services.
Operating costs and expense increased $9 million in 1998, to $36 million,
and $2.7 million in 1997, to $27 million. The increase in 1998 was
primarily due to the acquisitions of The ComputerPLUS and IntraNet, Inc.
The increase in 1997 was primarily due to merger related expenditures, costs
related to regulatory matters and growth of internal operations.
Interest expense increased $0.4 million in 1998 due to increased borrowings
related to continuing plant expansion and the business acquisitions noted
above.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
Chorus' primary operations are local exchange carrier services and system
sales and services.
LOCAL EXCHANGE CARRIER SERVICES
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:
<TABLE>
In Thousands 1998 1997 1996
<S> <C> <C> <C>
Revenues and Sales
Local service revenues $ 9,948 $ 8,571 $ 6,546
Interstate network access 9,407 9,162 8,590
Intrastate network access 4,206 4,917 5,471
Other 2,706 2,638 2,895
26,267 25,288 23,502
Operating Costs and Expenses
Cost of services 3,652 3,387 3,115
Selling, general & administrative 8,327 8,518 7,482
Depreciation 4,625 4,521 4,158
16,604 16,426 14,755
LEC Services Operating Income 9,663 8,862 8,747
Less: Intercompany eliminations
Revenues (675) (1,282) (635)
Expenses 421 - -
Operating Income $ 9,409 $ 7,580 $ 8,112
</TABLE>
LEC services revenues are derived from local network services, interstate
network access, intrastate network access and other services. Local service
revenues are based on fees charged to customers for providing local
telephone exchange service within designated franchise areas.
The telecommunications industry has undergone significant regulatory,
competitive and technological changes, and the pace of change is likely to
continue. The Federal Telecommunications Act of 1996 (1996 Act) has
transformed the telecommunications industry and changed telecommunications
policies in such areas as entry into local exchange markets, pricing of
telecommunications services and ownership of facilities.
<PAGE>
For regulatory purposes, Chorus has three LECs, two of which are currently
considered by the Public Service Commission of Wisconsin (PSCW) to be small
telecommunications utilities subject to reduced regulation. The other LEC,
Mid-Plains, is also considered a small telecommunications utility, but in
August, 1996 received PSCW approval to implement an Alternative Regulation
Plan (the Plan). The Plan set rate ceilings, reduced intrastate access
charges and established certain goals.
As discussed in Note 14 to Consolidated Financial Statements, in June 1997,
the PSCW issued orders authorizing KMC Telecom, Inc. (KMC) and TDS Metrocom,
Inc. (TDS) to provide local exchange service in Mid-Plains service
territory. The PSCW held that Mid-Plains was no longer entitled to either
an exclusive franchise under state law or a rural telephone company
exemption under federal law as a result of entering into the Plan.
Mid-Plains disagreed and filed a petition for judicial review in the Dane
County Circuit Court. The outcome of this petition does not affect KMC or
TDS's ability to provide service in Mid-Plains' service territory. However,
it may affect the process by which future potential competitors enter into
Mid-Plains' service territory.
On January 25, 1999, the U.S. Supreme Court (Court) issued a decision that
supported in large part the Federal Communications Commission's (FCC) rules
that were issued to implement several local competition provisions of the
Telecommunications Act of 1996. The Court addressed these rules after
several telecommunications carriers and the FCC petitioned them to hear the
case after the U.S. Court of Appeals for the Eighth Circuit held that the
FCC exceeded its authority in setting nationwide price guidelines and
vacated significant portions of FCC rules.
The Supreme Court held that the FCC has general jurisdiction to implement
the 1996 Act's local competition provision. The Supreme Court ruled on
several key elements of the FCC's Interconnection Order: it agreed with the
FCC's definition of network elements, which includes operational support
systems (OSS), and vertical switching features such as Caller ID; it upheld
the FCC's rules allowing competitors to provide local phone service relying
solely on unbundled elements from an incumbent's network; and, it upheld the
FCC's "pick and choose" rule which allows new competition to "pick and
choose" among terms and conditions in prior interconnection agreements.
Resolution of the regulatory matters discussed above that are currently
under FCC or judicial review is uncertain and regulations to implement other
provisions of the 1996 Act have yet to be issued. However, Chorus expects
to have increasing competition which will have some adverse effect upon its
operations. The full extent of the effect is unknown at this time.
Local service revenues increased 16% in 1998. This growth was principally
due to rate increases on September 1, 1998 and 1997, having the effect of
increasing local service revenues by $0.8 million during 1998. As discussed
above, TDS and KMC were authorized to offer local service in Mid-Plains'
service territory. As of December 31, 1998, they have acquired 2,000 access
lines previously served by Mid-Plains, approximately 1,500 of which provide
service to the corporate offices of TDS. The loss of these access lines was
offset by the addition of new access lines, which resulted in Chorus
providing service to 42,200 access lines at December 31, 1998. This is a
slight increase (.7%) over the number of access lines served by Chorus at
December 31, 1997.
Local service revenues increased 30.9% in 1997. This growth was principally
due to rate increases on September 1, 1997 and 1996 due to Mid-Plains'
Alternative Regulation Plan, which had the effect of increasing local
service revenues in 1997 by $1.1 million. Additionally, the LECs
experienced a greater demand for service in 1997 as evidenced by an 8.9%
increase in the number of access lines in service.
Interstate and intrastate network access revenues are based on fees charged
to interexchange carriers that use the LECs' local network to provide long
distance service to their customers. Interstate revenues increased 2.7% in
1998 and 6.7% in 1997. These increases were due to higher demand for
switched access services as evidenced by a 7.4% and 9.7% increase in minutes
of use for 1998 and 1997, respectively. These increases in switched access
revenues were offset by a decrease in average switched access rates charged
to the interexchange carriers of 8.3% and 3.7% for 1998 and 1997,
respectively. Additionally, interstate special access revenue continued to
grow by 32.9% and 34.5% for 1998 and 1997, respectively.
<PAGE>
Intrastate network access revenues decreased 14.5% and 10.1% in 1998 and
1997, respectively. The decrease in 1998 was due to lower demand for
switched access services as evidenced by a 4.2% decrease in minutes of use
for 1998. Additionally, average access rates dropped 15.5% in 1998. The
1997 decrease was due to Mid-Plains' Alternative Regulation Plan, which had
the effect of decreasing average intrastate access rates by 18.7% resulting
in decreased revenues of $1 million for 1997. This decrease was offset in
part by higher demand as evidenced by increase minutes of use of 5%.
Other revenues decreased 8.9% in 1997. The decrease was due to lower
billing and collection rates that went into effect in October, 1996.
Cost of service increased 7.8% and 8.7% in 1998 and 1997, respectively. The
growth in 1998 was primarily due to occupancy costs of new facilities of
$0.3 million. The growth in 1997 was due primarily to growth in internal
operations.
Selling, general and administrative expenses decreased 2.2% in 1998. The
decrease was due primarily to the reduction in expenses related to the
settlement of Mid-Plains' defined benefit pension plan. Selling, general
and administrative expenses in 1997 increased 13.8% due to growth in
internal operations and $0.3 million in expenditures related to regulatory
and judicial proceedings regarding competitors entering into one of Chorus'
LEC subsidiary's service territory.
Depreciation increased 2.3% in 1998 and 8.7% in 1997 due to increased
depreciable property.
SYSTEM SALES AND SERVICES
This operational segment sells, installs and services business telephone
systems, computers and computer networks. System sales and services
operating income consisted of the following:
<TABLE>
In Thousands 1998 1997 1996
<S> <C> <C> <C>
Revenues and Sales $13,060 $7,123 $7,538
Operating Costs and Expenses
Cost of goods sold and cost of services 9,362 4,298 4,475
Selling, general and administrative 3,500 2,245 2,197
Depreciation 214 122 108
13,076 6,665 6,780
System Sales & Services Operating Income (Loss) (16) 458 758
Less: Intercompany eliminations - Expenses 150 37 37
Operating Income $ 134 $ 495 $ 795
</TABLE>
System sales and services revenues increased 83.4% in 1998 primarily due to
the acquisition of The ComputerPLUS on January 29, 1998. In 1997 system
sales and services revenues decreased 5.5% which was related primarily to
the cancellation of a commission arrangement.
Cost of goods sold as a percentage of system sales and services revenues
increased from 60.3% in 1997 to 71.7% in 1998. The increase is due to the
more competitive nature of the computer sales industry resulting in lower
margins on computer equipment sales as compared to business telephone
systems. Cost of goods sold as a percentage of system sales and services
revenues for 1997 was consistent with 1996.
The increase in selling, general and administrative costs in 1998 over 1997
was due primarily to the 1998 acquisition.
<PAGE>
OTHER SERVICES AND SALES
Other services and sales include operations from long distance, internet and
directory publishing operations. Other services and sales operating income
consisted of the following:
<TABLE>
In Thousands 1998 1997 1996
<S> <C> <C> <C>
Revenues and Sales $8,152 $5,257 $2,826
Operating Costs and Expenses
Cost of services 5,312 3,955 2,151
Selling, general and administrative 2,056 1,201 1,269
Depreciation 497 121 68
7,865 5,277 3,488
Other Services & Sales Operating Income (Loss) 287 (20) (662)
Less: Intercompany eliminations
Revenues (807) (49) (50)
Expenses 911 1,294 648
Operating Income (Loss) $ 391 $1,225 $ (64)
</TABLE>
Revenue from other services and sales increased $2.9 million (55%) in 1998.
The increase was due in part to the acquisition of IntraNet, Inc., which
accounted for $1.3 million of the increase. Additionally, the revenue
growth was due to the overall expansion in the long distance, internet and
directory customer base. These increases were offset, in part, from the
termination in October, 1997 of a temporary arrangement to resell intralata
toll service.
Revenues from other services and sales increased 86% in 1997 primarily due
to a temporary arrangement to resell intralata toll for part of 1997, as
well as growth in the number of customers.
The cost of service for other services increased 34.3% and 83.9% for 1998
and 1997, respectively. The increase in 1998 was due to the acquisition of
IntraNet, Inc., while the 1997 increase was primarily due to increased
intralata toll traffic and an increase in the customer base.
The increase in selling, general and administrative costs for 1998 was
primarily due to the acquisition of IntraNet, Inc. and growth of internal
operations. The increase in selling, general and administrative expenses
during 1997 was due to growth in internal operations.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Chorus requires funds primarily for its construction programs, the maturity
and retirement of long-term debt, dividend payments and investments. The
capital resources available to meet these requirements are provided through
operating and financing activities. Net cash from operating activities of
Chorus and its subsidiaries for the years 1996 - 1998 was $30.1 million.
External financing activities for the same period totaled $11.9 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 1996-1998 were $27.4 million. Capital
expenditures for 1999 are expected to approximate $7 million.
On April 28, 1997, PCS Wisconsin, LLC (PCS-WI), a 75% owned subsidiary of
the Company, was granted the F block license by the FCC (see Note 14 to
Consolidated Financial Statements). The license allows PCS-WI to construct
and operate a personal communications service system (PCS) in 10 counties in
Southern Wisconsin. PCS-WI bid for the license was $3.2 million. At
December 31, 1998, $2.6 million remains payable through 2007.
<PAGE>
Under the terms of the license, PCS-WI is required to construct an operating
system that will be capable of providing service to at least 25% of the
population in the license area within five years of the grant of the
license. The Company has performed preliminary planning and is currently
studying options to develop, construct and introduce PCS service.
Management is also analyzing financing alternatives, which include the
issuance of debt, equity financing and/or the inclusion of additional
partners in PCS-WI.
In addition to the risks associated with startup operations of PCS-WI, it is
anticipated that PCS-WI will encounter stiff competition from existing
cellular providers as well as from PCS license holders.
In 1997 and 1996, Chorus received cash distributions from its cellular
limited partnership totaling $0.7 million.
FINANCING ACTIVITIES
Financing for the years 1996 - 1998 was $11.9 million consisting of $9.2
million of debt financing, $0.3 million from the sale of common stock under
stock plans and a net increase in short-term bank notes of $2.4 million.
On January 31, 1997, the Company entered into a financing agreement with the
Rural Telephone Finance Cooperative (RTFC) that allows it to borrow up to
$22 million. The agreement provides up to $12 million for refinancing
existing debt, capital expenditures and working capital for LEC operations;
$9 million for investment in PCS-WI (see above) and $1 million for the
purchase of RTFC's Subordinate Capital Certificates, a condition of
obtaining the financing. The interest rate on $4 million of the debt is
fixed at 7.4% with the remainder variable based upon the RTFC's cost of
funds, which at February 1, 1999 was 5.85%. At December 31, 1998, all funds
had been advanced for local exchange carrier purposes and future borrowings
of $9 million are available to invest in PCS-WI.
In October, 1997, Chorus acquired an office building for $4.4 million.
Funding for this acquisition was provided by a $4 million loan from
AnchorBank, S.S.B. and $400,000 in short-term borrowings. The $4 million
loan is payable over 20 years with the interest fixed for the first five
years at 7.75%.
In January 1998, Chorus acquired Executive Systems & Software, Inc. d/b/a
The ComputerPLUS, and IntraNet, Inc. The businesses were acquired for
40,000 shares of common stock, $0.5 million in cash and notes of $0.5
million to be paid over two years.
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 $13 million underlying retained earnings of all Chorus subsidiaries
at December 31, 1998, $5.2 million was available for the payment of
dividends on the subsidiaries' common stock.
As more fully discussed in Note 12 to the Consolidated Financial Statements,
in December 1998, Chorus established an Employee Stock Purchase Plan, to
begin in January, 1999, subject to shareholder approval.
It is anticipated that the capital requirements for Chorus' construction
programs, maturity and retirement of long-term debt, and dividend payments
will be provided for with cash flow from operating activities and the
issuance of debt.
At February 19, 1999, Chorus has available unused lines-of-credit of $12.5
million. Chorus has experienced no difficulty in obtaining funds for its
construction programs or other purposes. However, competition could have an
adverse effect on Chorus' future operations and cash flows.
OTHER FINANCIAL INFORMATION
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.
<PAGE>
YEAR 2000 (Y2K)
The Year 2000 compliance issue exists because many computerized information
systems use two-digit data fields to designate a year and cannot process
date-sensitive information beyond December 31, 1999. Chorus has established
a Year 2000 Project Team, to coordinate and monitor the Company's Year 2000
compliance efforts. Begun in 1997, Chorus' Year 2000 effort covers its
network and supporting infrastructure for the provisioning of local switched
and data telecommunications services. Additionally, within the scope of
this initiative are the Company's operational and financial information
technology systems and applications, end-user computing resources and
building systems, such as security, elevator and environmental control
systems. The project also includes a review of the Year 2000 compliance
efforts of the Company's key vendors and suppliers. While this initiative
is broad in scope, it has been structured to identify and prioritize the
Company's efforts for mission critical systems, network elements and
products and key vendors and suppliers.
Work is progressing in the following phases: inventory, assessment,
planning, deployment and monitoring. The inventory and assessment phases
have been substantially completed as of April 1998. The planning stage has
also been substantially completed as of December 31, 1998, except for the
Company's contingency plan (see below). The deployment phase is in progress
and the Company has established a target date for completing this phase of
June 1, 1999 for billing and customer service support systems and July 1,
1999 for network elements, products and financial information technology
systems. The ability to meet these target dates is dependent upon the
timely provision of the necessary upgrades and modifications by the
Company's vendors and suppliers. Additionally, the Company is dependent on
vendors' and suppliers' assurances that their upgrades will be Year 2000
compliant. Also, the Company cannot guarantee that third parties on whom it
depends for essential services (such as electric utilities, interexchange
carriers, etc.) will convert their critical systems and processes in a
timely manner. Failure or delay by any of these parties could significantly
disrupt the Company's business. However, the Company has established a
vendor and supplier compliance program, and is working with key vendors and
suppliers to minimize such risks.
Chorus currently estimates that it will incur expenses of approximately $.1
million through 1999 in connection with anticipated Year 2000 efforts.
Chorus anticipates that a portion of Year 2000 expenses will not be
incremental costs, but rather will represent the redeployment of existing
resources. Chorus also expect to incur certain capital improvement costs
(totaling approximately $.4 million) to support this project. Such capital
costs are being incurred sooner than originally planned, but, for the most
part, would have been required in the normal course of business.
As part of our Year 2000 initiative, Chorus is evaluating scenarios that may
occur as a result of the century change and is in the process of developing
contingency plans tailored for the Year 2000 related occurrences. Chorus
has established a target date of June 1, 1999 for the completion of these
plans.
In management's view, the most reasonable worst case scenario for Year 2000
failure prospects faced by Chorus is that a limited number of important
operational and financial information technology systems and applications
may unexpectedly fail. In addition, no assurance can be given that there
may not be problems with the Company's network and supporting infrastructure
for provisioning of local switched and data telecommunications services
relating to Year 2000. Failure by Chorus or by certain of its vendors and
suppliers to remediate Year 2000 compliance issues in advance of the Year
2000 and to execute appropriate contingency plans in event that a critical
failure is experienced, could result in disruption of Chorus' operations,
possibly impacting the Company's network and impairing Chorus' ability to
bill and collect revenues.
The above information is based on the Company's current best estimates,
which was derived using numerous assumptions of future events, including the
availability and future costs of certain technological and other resources,
third party modification actions and other factors. Given the complexity of
these issues and possible as yet unidentified risks, actual results may vary
materially from those anticipated and discussed above. Specific factors
that might cause such differences include, among others, the availability
and cost of personnel trained in this area, the ability to locate and
correct all affected computer code, the timing and success of remedial
efforts of the Company's third party vendor and suppliers and similar
uncertainties.
<PAGE>
This communication constitutes a "Year 2000 Readiness Disclosure" as
provided in Section 3 (9) of the Year 2000 Information and Readiness
Disclosure Act of 1998.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes, and future filings by the Company on Form 10-K, Form
10-Q and Form 8-K, and future oral and written statements by the Company and
its management may include, certain forward-looking statements, including
(without limitation) statements with respect to anticipated future operating
and financial performance, growth opportunities and growth rates,
acquisition opportunities, Year 2000 compliance and other similar forecasts
and statements of expectation. Words such as expects, anticipates, plans,
believes, estimates, could, and should, and variations of these words and
similar expressions, are intended to identify these forward-looking
statements. Forward-looking statements by the Company and its management
are based on estimates, projections, beliefs and assumptions of management
and are not guarantees of future performance. The Company disclaims any
obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management as a result of a number of important factors. Representative
examples of these factors include (without limitation) rapid technological
developments and changes in the telecommunications and information services
industries; ongoing deregulation (and the resulting likelihood of
significantly increased price and product/service competition) in the
telecommunications industry as a result of the Telecommunications Act of
1996 and other federal and state rules and regulations enacted pursuant to
that legislation and regulatory limitations on the Company's ability to
change its pricing for communications services. In addition to these
factors, actual future outcomes and results may differ materially because
factors including (without limitation) market conditions and growth rates,
economic conditions, policy changes and the continued availability of
financing in the amounts, at the terms, and on the conditions necessary to
support the Company's future business.
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.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHORUS COMMUNICATIONS GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Financial Statements for each of the three years
ended December 31, 1998:
Statements of Income
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Chorus Communications Group, Ltd.:
We have audited the accompanying consolidated balance sheet of Chorus
Communications Group, Ltd. and subsidiaries as of December 31, 1998, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit
provides 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, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 12, 1999
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors,
Chorus Communications Group, Ltd.
We have audited the accompanying consolidated balance sheet of Chorus
Communications Group, Ltd. (a Wisconsin Corporation) and subsidiaries as of
December 31, 1997 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Chorus Communications
Group, Ltd. and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the consolidated financial statements, a
subsidiary discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," in 1996.
/S/ Kiesling Associates LLP
KIESLING ASSOCIATES LLP
Madison, Wisconsin
February 6, 1998
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31,
ASSETS 1998 1997
In Thousands
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,327 $ 2,736
Temporary investments 1,300 2,500
Accounts receivable
Due from customers 4,511 3,436
Other, principally connecting
companies 2,472 2,055
Inventories
Plant materials and supplies 689 542
Systems and parts 1,231 911
Other 1,606 1,498
Total Current Assets 17,136 13,678
PROPERTY, PLANT AND EQUIPMENT, Net 45,421 40,658
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,580 3,418
GOODWILL, Net of accumulated amortization
of $141 1,373 -
OTHER 1,452 1,285
TOTAL ASSETS $ 72,677 $ 62,754
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
In Thousands
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,260 $ 614
Notes payable to banks 2,630 1,328
Accounts payable 4,790 3,345
Accrued pension cost - 781
Other 1,064 1,005
Total Current Liabilities 9,744 7,073
LONG-TERM DEBT 25,551 22,012
DEFERRED INCOME TAXES 3,579 3,142
OTHER LIABILITIES 1,877 1,384
Total Liabilities 40,751 33,611
MINORITY INTEREST 374 370
COMMITMENTS AND CONTINGENCIES (See Notes)
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25,000,000 shares;
issued and outstanding 5,408,606
and 5,368,606 shares, respectively 14,668 13,868
Retained earnings 16,884 14,905
Total Shareholders' Equity 31,552 28,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,677 $ 62,754
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
YEAR ENDED DECEMBER 31,
1998 1997 1996
In Thousands Except For Per Share Data
<S> <C> <C> <C>
REVENUES AND SALES
Local exchange carrier services $25,592 $24,006 $22,867
System sales and services 13,060 7,123 7,538
Other services and sales 7,345 5,208 2,776
Total Revenues and Sales 45,997 36,337 33,181
OPERATING COSTS AND EXPENSES
Cost of goods sold 9,326 4,267 4,474
Cost of services 7,705 6,096 4,665
Selling, general & administrative 13,696 11,910 10,865
Depreciation and amortization 5,336 4,764 4,334
Total Operating Costs and Expenses 36,063 27,037 24,338
OPERATING INCOME 9,934 9,300 8,843
Other income 362 327 235
Interest expense (1,727) (1,301) (1,408)
Minority interest (4) 28 3
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE 8,565 8,354 7,673
INCOME TAX EXPENSE 3,394 3,218 2,932
INCOME BEFORE EXTRAORDINARY CHARGE 5,171 5,136 4,741
EXTRAORDINARY CHARGE, net of
income taxes of $1,133 - - (1,782)
NET INCOME $ 5,171 $ 5,136 $ 2,959
BASIC AND DILUTED EARNINGS PER SHARE
Income before extraordinary charge $ .96 $ .96 $ .88
Extraordinary charge - - (.33)
Net income $ .96 $ .96 $ .55
Average common shares outstanding 5,406 5,368 5,356
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
COMMON STOCK TOTAL
RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
In Thousands
<S> <C> <C> <C> <C>
Balances, December 31, 1995 5,281 $13,536 $12,515 $26,051
Net income 2,959 2,959
Cash dividend - $.515 a
share (2,754) (2,754)
Stock plans 12 229 229
Grants exercised 70
Balances, December 31, 1996 5,363 13,765 12,720 26,485
Net income 5,136 5,136
Cash dividend - $.55 a
share (2,951) (2,951)
Stock plan 6 103 103
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
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
1998 1997 1996
In Thousands
<S> <C> <C> <C>
OPERATIONS
Net income $ 5,171 $ 5,136 $ 2,959
Adjustments to reconcile net income
to net cash from operations:
Extraordinary charge - - 1,782
Depreciation and amortization 5,336 4,764 4,334
Deferred income taxes 333 (189) 549
Changes in current assets and
current liabilities excluding effects
of acquisitions:
Receivables (840) (813) 232
Inventories (70) 110 (94)
Payables 169 403 10
Other 93 (538) 1,282
Net cash from operations 10,192 8,873 11,054
INVESTING
Capital expenditures (9,653) (11,258) (6,446)
Acquisitions (net of cash acquired) (357) - -
Cellular investment - 453 273
Personal Communication Services license (22) (820) -
Purchases of short-term investments (1,300) (1,000) (1,900)
Proceeds from sale of short-term
investments 2,500 1,700 1,300
Other - net 119 238 (299)
Net cash used in investing (8,713) (10,687) (7,072)
FINANCING
Stock plans - 103 229
Dividends paid (3,192) (2,951) (2,754)
Long-term debt issued 4,486 4,745 -
Long-term debt repaid (801) (577) (1,135)
Net change in short-term debt 619 1,328 360
Net cash from (used in) financing 1,112 2,648 (3,300)
Increase in cash and
cash equivalents 2,591 834 682
Cash and cash equivalents:
Beginning of period 2,736 1,902 1,220
End of period $ 5,327 $ 2,736 $ 1,902
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MERGERS
Effective June 1, 1997, Mid-Plains, Inc, (Mid-Plains) and Pioneer
Communications, Inc. (Pioneer) merged into subsidiaries of a new holding
company, Chorus Communications Group, Ltd. (the "Mergers"). Pursuant to
the Mergers, Mid-Plains shareholders received two (2) shares of holding
company common stock (3,983,486 shares) for each share of Mid-Plains
common stock; Pioneer shareholders received eight (8) shares of holding
company common stock (1,385,120 shares) for each share of Pioneer common
stock. The Mergers have been accounted for as a pooling-of-interests and,
accordingly, historical financial data has been reported as if the
companies have always been one.
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,
computers and computer networks. Additionally, the Company has operations
in long distance, internet service and directory publishing. 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 accounting policies of Chorus conform to generally accepted accounting
principles. The accounting records of the LEC subsidiaries are maintained
in accordance with the uniform system of accounts prescribed by the Public
Service Commission of Wisconsin (PSCW).
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Certain LEC subsidiaries of Chorus are subject to the provisions of
Statement of Financial Accounting Standards No. 71 (FAS 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 FAS 71 is appropriate for these LEC
subsidiaries.
One LEC subsidiary of Chorus discontinued applying FAS 71 in the second
quarter of 1996 (see Note 3). Other LEC subsidiaries continue to apply
FAS 71 because the Company believes FAS 71 criteria are still being met;
and therefore, has no current plans to change the method of accounting.
In analyzing the effects of discontinuing the application of FAS 71,
management has determined that the useful lives of plant assets used for
regulatory purposes are consistent with generally accepted accounting
principles and therefore any adjustments to accumulated depreciation would
be immaterial, as would be the write-off of regulatory assets and
liabilities.
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.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVENTORIES
Inventories are stated at the lower of cost or market.
The cost of materials and supplies inventory, which is used primarily for
the construction of LEC plant, is determined principally by the average
cost method.
The cost of systems and parts inventory, held primarily for sale and
servicing of telephone and computer systems, is determined principally by
the First-In, First-Out method.
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.
LOCAL EXCHANGE CARRIER SERVICES - Chorus' LECs are required to
provide service and grant credit to subscribers within their defined
service territory.
Local network service revenues are recognized over the period a
subscriber is connected to the LEC network.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Network access is derived from charges for access to the LECs'
networks. The interstate portion of access revenues is based on
an average schedule company settlement formula administered by
the National Exchange Carrier Association which is regulated by
the FCC. The intrastate portion of access revenues is based on
individual company tariff access charge structures approved by
the PSCW. The tariffs developed from these methods are used to
charge the connecting carriers and recognize revenues in the
period the traffic is transported.
SYSTEM SALES AND SERVICES REVENUES - Revenues from system sales and
services are derived from the sale, installation and servicing of
telephone and computer systems. Chorus grants credit to customers,
substantially all of whom are located in Southern Wisconsin.
Customer contracts for sales and installations are accounted for
using the completed-contract method which recognizes income only if
the contract is substantially completed.
OTHER SERVICES AND SALES - Other revenues include long distance,
internet services and directory publishing. These revenues are
recognized over the period the services are provided.
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.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
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.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Accordingly, all common shares
and per share data for all periods presented in the consolidated
financial statements have been restated to reflect the stock split.
BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding. No material
potentially dilutive securities or stock plans existed in the periods
presented.
RECLASSIFICATION
Certain amounts previously reported for prior years have been reclassified
to conform with the 1998 presentation.
2. 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. On an unaudited pro forma basis, the effects
of the acquisitions were not significant to the Company's results of
operations. The resulting goodwill of $1.5 million is being amortized
over a ten year period using the straight-line method.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EXTRAORDINARY CHARGE
In response to legislation, an alternative plan of regulation and in
recognition of potential increased competition, a LEC subsidiary of
Chorus discontinued the use of FAS 71 in the second quarter of 1996.
As a result of the decision to discontinue applying FAS 71 to the
subsidiary, the Company recorded a noncash, after-tax extraordinary
charge of $1.8 million (net of tax benefits of $1.1 million), or $0.33
per share, in the second quarter of 1996. The charge primarily
represented a reduction in the net book value of the subsidiary's
telephone plant and equipment through an increase in accumulated
depreciation.
4. LONG-TERM DEBT
Long-term debt as of December 31, 1998 and 1997 is as follows:
<TABLE>
INTEREST DECEMBER 31,
RATES MATURITIES 1998 1997
In Thousands
<S> <C> <C> <C> <C>
Registered Subordinate
Debentures 8% 2000 $ 5,000 $ 5,000
Promissory Notes 8.5% 1999-2000 375 -
Mortgage Notes -
RUS 2% to 5% 1999-2017 526 564
FCC 6.25% 1999-2007 2,598 2,598
RTB 4% to 8% 1999-2017 2,364 2,495
RTFC 6.4% to 7.4%<F1> 1999-2012 12,050 7,976
AnchorBank 7.75%<F2> 1999-2017 3,898 3,993
26,811 22,626
Less current portion (1,260) (614)
Long-term debt $25,551 $22,012
<FN>
<F1> Variable rate based on RTFC's cost except for $3.9 million fixed at 7.4%
through February 2008.
<F2> Fixed through November 2002.
</FN>
</TABLE>
During 1998, Chorus incurred $0.5 million in promissory notes related to
the acquisition of IntraNet, Inc. (see Note 2). Additionally, in 1997,
Chorus incurred $2.6 million in long-term debt related to the acquisition
of the F-block PCS license (see Notes 9 and 14).
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT (Continued)
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 RTFC loan, Subordinated Capital Certificates (SCCs) are
required to be purchased by the Company equal to 5% of the advanced
amount. SCCs are noninterest-bearing and are returned as the loan is
repaid. Under the RTFC loans, future borrowings of $9 million are
available to invest in PCS-WI (see Note 14).
Cash paid for interest for 1998, 1997 and 1996, totaled $1.7 million,
$1.3 million, and $1.3 million, respectively.
The annual requirements for principal repayments on long-term debt are
approximately $1.3 million, $6.3 million, $1.3 million, $1.4 million, and
$1.5 million for the years 1999 through 2003, respectively.
5. SHORT-TERM FINANCING
Short-term financing included notes payable at December 31, 1998 of $2.6
million at a weighted average interest rate of 7.52%.
Chorus and its subsidiaries had available unused lines-of-credit of $10.4
million at December 31, 1998.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
DECEMBER 31,
1998 1997
In Thousands
<S> <C> <C>
Land $ 1,378 $ 1,368
Buildings 8,274 8,025
Digital switching equipment 19,925 18,912
Cable, wiring and conduit 34,684 32,541
Other 10,038 7,479
Under construction 377 -
74,676 68,325
Less accumulated depreciation (29,255) (27,667)
Total property, plant and equipment $45,421 $40,658
</TABLE>
Depreciation expense for LECs in 1998, 1997 and 1996 was equivalent to a
composite average percentage of 7.4%, 7.5% and 7.3%, respectively. All
other property, plant and equipment is depreciated using useful lives
ranging from three to forty years.
7. RESTRICTION ON COMMON STOCK DIVIDENDS
At December 31, 1998, 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 $13 million
underlying retained earnings of all Chorus subsidiaries at
December 31, 1998, $5.2 million was available for the payment of
dividends on the subsidiaries' common stock.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CELLULAR LIMITED PARTNERSHIP INTERESTS
The following is a summary of the Company's limited partnership
interests through which cellular telephone service is provided in
Wisconsin Standard Metropolitan Statistical Area (SMSA) and Rural
Statistical Areas (RSA). (See Note 14).
DECEMBER 31,
1998 1997
In Thousands
18.1% Interest in Madison SMSA $3,649 $3,649
2.0% Interest in Wisconsin RSA 8 66 66
$3,715 $3,715
9. PERSONAL COMMUNICATION SERVICES LICENSE
The Company owns 75% of PCS Wisconsin, LLC (PCS-WI) with the remaining
25% held by a minority interest. 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. The license is
carried at cost including acquisition costs and interest charges which
are being capitalized prior to commencing operations. For 1998 and 1997,
interest of $162,000 and $130,000, respectively, was capitalized.
(See Note 14).
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, temporary investments
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:
1998 1997
In Thousands
Carrying amount $26,811 $22,626
Fair market value $27,456 $22,565
It was not practicable to estimate the fair value of Chorus' investments
in cellular limited partnership interests because of a lack of quoted
market prices. The carrying amount at December 31, 1998 is based upon
the cost method of accounting (See Notes 8 and 14).
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
YEAR ENDED DECEMBER 31,
1998 1997 1996
In Thousands
<S> <C> <C> <C>
Current:
Federal $2,446 $2,751 $1,888
State 594 703 521
Deferred:
Federal 285 (153) 493
State 110 (24) 107
Amortization of deferred
investment tax credits (41) (59) (77)
Total income tax expense $3,394 $3,218 $2,932
</TABLE>
Cash paid for income taxes for 1998, 1997 and 1996 totaled $3.5 million,
$3.5 million and $2.1 million, respectively.
The following is a reconciliation of the statutory federal income tax
rate of 34% to Chorus' effective income tax rate.
<TABLE>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax
rate 34.0% 34.0% 34.0%
State income taxes, net of
federal benefit 5.7 5.2 5.4
Amortization of investment tax
credits (.5) (.7) (1.0)
Amortization of goodwill .5 - -
Amortization of excess deferred
federal taxes - - (.3)
Other (.1) - .1
Effective income tax rate 39.6% 38.5% 38.2%
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (Continued)
The components of Chorus' deferred tax assets (liabilities) were as
follows:
<TABLE>
DECEMBER 31,
1998 1997
In Thousands
<S> <C> <C>
Deferred tax assets:
Pension $ - $ 306
Merger costs 111 109
Compensated absences 332 292
Deferred compensation 279 225
Deferred income 124 105
Other 347 160
Deferred tax assets 1,193 1,197
Deferred tax liabilities:
Property, plant and equipment
depreciation (3,835) (3,317)
Cellular interest (232) (639)
Unamortized investment tax credit (73) (114)
PCS License amortization (273) -
Other (5) (6)
Deferred tax liabilities (4,418) (4,076)
Net deferred tax liabilities (3,225) (2,879)
Less: Current deferred tax assets (354) (263)
Long-term deferred tax liabilities $(3,579) $(3,142)
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BENEFIT PLANS
PENSION PLAN
On April 15, 1998, a LEC subsidiary of Chorus received a favorable
determination letter from the IRS relating to its defined benefit plan
which it had terminated as of April 15, 1997. The pension plan, which
covered most of the subsidiary's employees, was non-contributory and
provided benefits to eligible employees at retirement based primarily
upon years of service and compensation rates near retirement.
The Financial Accounting Standards Board (FASB) issued FAS 132, "Employers
Disclosures about Pensions and Other Post Retirement Benefits", in 1998.
The new standard revises employers' disclosures about pension and other
postretirement benefit plans. The following tables, prepared in
accordance with the new standard, set forth the benefit obligations and
plan assets as of December 31, 1997. On June 29, 1998, final
distributions were made to all participants in the form of lump-sum
settlements. No assets or liabilities of the pension plan remained at
December 31, 1998.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BENEFIT PLANS (Continued)
<TABLE>
1998 1997
In Thousands
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $7,836 $9,124
Service cost - 624
Interest cost - 590
Settlements (7,325) -
Actuarial (loss) (282) (2,129)
Benefits paid (229) (373)
Benefit obligation at end of year - 7,836
Change in plan assets
Fair value of plan assets at
beginning of year 7,055 6,748
Actual return of plan assets 73 680
Employer contribution 426 -
Settlements (7,325) -
Benefits paid (229) (373)
Fair value of plan assets at end of year - 7,055
Funded status - (781)
Unrecognized actuarial loss - 73
Unrecognized net asset at transition - (73)
Net amount recognized $ - $ (781)
</TABLE>
<TABLE>
Components of net periodic benefit cost 1998 1997 1996
<S> <C> <C> <C>
Service cost $ - $ 624 $ 506
Interest cost - 590 488
Expected return on plan assets - (540) (486)
Amortization of prior service cost - 43 43
Amortization of transitional asset - (20) (21)
Recognized actuarial loss - 78 35
Net periodic benefit cost - 775 565
Additional (gain) loss recognized
due to settlement/curtailment (355) 4 -
Total benefit (income) costs $ (355) $ 779 $ 565
</TABLE>
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: 1998 - $457,000, 1997 - $382,000, and
1996 - $234,000.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BENEFIT PLANS (Continued)
STOCK PLANS
Prior to March 1997, a subsidiary of Chorus had a stock purchase plan
which allowed employees and directors to purchase limited quantities of
stock. The plan had a pricing policy under which employees, other than
officers, could purchase shares at a discounted market price and officers
and directors could buy shares at full market price. Purchases under the
plan were as follows: 1997 - $103,000 and 1996 - $220,000.
Another subsidiary of Chorus previously had a Director Stock Option Plan
which was terminated effective January 2, 1996 and all outstanding
options were exercised for $9,000 in 1996.
In December 1998, Chorus established an Employee Stock Purchase Plan to
begin in January 1999, subject to shareholder approval. Under the plan,
employees may 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 will
be determined by a committee selected by the Company's Board of Directors.
13. OPERATING SEGMENTS
Chorus organizes its business into two reportable segments: local exchange
carrier (LEC) services and system sales and services. The LEC services
segment provides telephone, data and other services to customers in local
exchanges. The system sales and services segment sells business telephone
systems and provides installation and service. Additionally, with the
1998 acquisition of The ComputerPLUS, this segment was expanded to include
computer network system integration and computer sales. Chorus also has
operations in long distance, internet services, and directory publishing
that do not meet the quantitative thresholds for reportable segments.
Chorus' reportable business segments are strategic business units that
offer different products and services. Each reportable segment is managed
separately primarily because of different products, services and
regulatory environments. LEC segments have been aggregated because of
their similar characteristics.
<PAGE>
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.
<TABLE>
1998
LOCAL SYSTEM
EXCHANGE SALES AND
CARRIERS SERVICES OTHER TOTAL
In Thousands
<S> <C> <C> <C> <C>
Revenues and sales -
External customers $25,592 $13,060 $ 7,345 $45,997
Intersegment revenues and sales 675 - 807 1,482
Interest revenue 234 - 140 374
Interest expense 1,407 60 410 1,877
Depreciation and amortization 4,625 214 497 5,336
Segment profit (loss) 5,250 (34) 137 5,353
Segment assets 53,518 5,646 12,173 71,337
Expenditures for segment assets 8,100 315 1,238 9,653
</TABLE>
<TABLE>
1997
LOCAL SYSTEM
EXCHANGE SALES AND
CARRIERS SERVICES OTHER TOTAL
In Thousands
<S> <C> <C> <C> <C>
Revenues and sales -
External customers $24,006 $ 7,123 $ 5,208 $36,337
Intersegment revenues and sales 1,282 - 49 1,331
Interest revenue 222 42 135 399
Interest expense 1,260 - 115 1,375
Depreciation and amortization 4,521 122 121 4,764
Segment profit (loss) 4,857 291 (42) 5,106
Segment assets 47,252 3,912 12,238 63,402
Expenditures for segment assets 6,523 78 4,657 11,258
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OPERATING SEGMENTS (Continued)
<TABLE>
1996
LOCAL SYSTEM
EXCHANGE SALES AND
CARRIERS SERVICES OTHER TOTAL
In Thousands
<S> <C> <C> <C> <C>
Revenues and sales -
External customers $22,867 $ 7,538 $2,776 $33,181
Intersegment revenues and sales 635 - 50 685
Interest revenue 148 36 94 278
Interest expense 1,408 3 44 1,455
Depreciation and amortization 4,158 108 68 4,334
Extraordinary item 1,782 - - 1,782
Segment profit (loss) 4,631 484 (377) 4,738
Segment assets 46,377 3,732 4,143 54,252
Expenditures for segment assets 6,220 104 123 6,447
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OPERATING SEGMENTS (Continued)
<TABLE>
Reconciliation of Segment Information 1998 1997 1996
In Thousands
<S> <C> <C> <C>
REVENUES AND SALES
Total revenues and sales for reportable
segments $39,327 $32,411 $31,040
Other revenues 8,152 5,257 2,826
Elimination of intersegment revenues
and sales (1,482) (1,331) (685)
Consolidated Revenues $45,997 $36,337 $33,181
PROFIT
Total profit for reportable segments $ 5,216 $ 5,148 $ 5,115
Other profit (loss) 137 (42) (377)
Unallocated amounts:
Non-operating segment (178) 2 -
Extraordinary charge - - (1,782)
Minority interest (4) 28 3
Net Income $ 5,171 $ 5,136 $ 2,959
ASSETS
Total assets for reportable segments* $59,164 $51,164 $50,109
Other assets 12,173 12,238 4,143
Elimination of intercompany receivables (2,797) (1,774) (2,544)
Non-operating segment 3,763 756 -
Minority interest 374 370 (3)
Consolidated Assets $72,677 $62,754 $51,705
</TABLE>
*The depreciation of Chorus' headquarters building, acquired in October
1997, is allocated to segments using its facilities. The related net cost
of $5 million and $4.4 million at December 31, 1998 and 1997,
respectively, is not allocated, but included in the other segment assets.
Total segment interest expense includes intercompany activity of $150,000,
$74,000, and $47,000 for 1998, 1997 and 1996, respectively.
Major Customer Information
The percentage of revenues for long-distance services provided to local
exchange carriers which exceeded 10% of LEC revenues were: AT&T
Communications, Inc. 16% in 1998,19% in 1997, and 28% in 1996; MCI 13% in
1998, 11% in 1997 and 14% in 1996; and Ameritech 17% in 1996. No other
customer accounted for more than 10% of total revenues.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES
Capital expenditures for 1999 are expected to approximate $7 million, and
substantial commitments have been made in connection with such
expectations.
PCS LICENSE
PCS-WI (see Note 9) is required by the FCC to construct a PCS system
providing service to at least 25% of the population in the license area
within five years of the grant of the license. The license was granted
on April 28, 1997.
The Company has performed preliminary planning and is currently studying
options to develop, construct and introduce PCS service. Buildout
requires substantial capital and operating expenditures over the next
several years in a highly competitive market.
CELLULAR LIMITED PARTNERSHIP LITIGATION
In 1997, a lawsuit between Mid-Plains, Inc., and Ameritech Mobile
Communications of Wisconsin, Inc., involving the Madison SMSA Limited
Partnership was pending. That lawsuit has been settled and a Stipulation
and Order of Dismissal has been signed and entered by the court.
PSCW LITIGATION
In June 1997, the PSCW issued orders authorizing two companies, KMC
Telecom, Inc. ("KMC") and TDS Datacom, Inc., n/k/a TDS Metrocom, Inc.
("TDS"), to provide local exchange service in the Mid-Plains, Inc. service
territory. As part of these orders, the PSCW held that Mid-Plains was
no longer entitled to either an exclusive franchise under state law or a
rural telephone company exemption under federal law. Mid-Plains disagreed
and filed a petition for judicial review in Dane County Circuit Court.
The disposition of this petition by the Circuit Court is currently
on appeal with the Wisconsin Court of Appeals and the Dane County Circuit
Court.
If Mid-Plains is not ultimately successful in its circuit court action,
other competing local exchange providers will have the same opportunities
as KMC and TDS to provide local exchange service in the Mid-Plains service
territory. If Mid-Plains is successful in its circuit court action, other
potential competitors will have to successfully obtain permission from the
PSCW to serve in the Mid-Plain's service territory and the PSCW will have
to find that Mid-Plains's federal rural telephone company exemption can be
lifted.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES (Continued)
One other company has informed Mid-Plains of an intention to provide local
exchange service in the Mid-Plains service territory using the same
interconnection agreements that are presently in place for KMC and TDS.
Until the Dane County Circuit Court action is completed, Mid-Plains is
obligated to negotiate and provide interconnection service to the
additional competitor. Mid-Plains intends to continue to defend its right
to its state franchise and federal rural telephone company exemption
determined under due process of law.
15. QUARTERLY FINANCIAL INFORMATION (Unaudited):
<TABLE>
QUARTER ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC.31
In Thousands Except
For Per Share Data
<S> <C> <C> <C> <C>
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
1997
Operating Revenues $ 8,313 $ 9,051 $ 9,590 $ 9,383
Operating Income 1,776 2,559 2,823 2,142
Net Income 978 1,447 1,539 1,172
Basic and Diluted
Earnings per Share .18 .27 .29 .22
</TABLE>
<PAGE>
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, directors and director nominee of Chorus with ages as of
January 1, 1999, are as follows:
<TABLE>
NAME AGE POSITION
<S> <C> <C>
Dean W. Voeks 56 President/Chief Executive Officer and
Director: 2001<F3>
Howard G. Hopeman 54 Executive Vice President and
Chief Financial Officer
Darold J. Londo 34 Vice President, Human Resources and
Corporate Counsel
Daniel J. Stein 43 Executive Vice President of subsidiary,
Mid-Plains Communications Systems, Inc.
(MPCS)
Fredrick E. Urben 57 Secretary & Treasurer
G. Burton Bloch 77 Director: 1999<F3>
Carrie L. Bennett-Barndt 46 Director nominee
Charles Maulbetsch <F1><F2> 63 Director: 1999<F3>
Harold L.(Lee) Swanson<F1><F2> 60 Director: 2000<F3>
Douglas J. Timmerman <F1> 58 Director: 2001<F3>
<FN>
<F1> Member of Compensation Committee
<F2> Member of Audit Committee
<F3> Annual Meeting at which current director term expires
</FN>
</TABLE>
<PAGE>
Dean W. Voeks is President/Chief Executive Officer of Chorus; he has been
associated with Chorus and/or its subsidiaries for more than 12 years.
Howard G. Hopeman is Executive Vice President and Chief Financial Officer of
Chorus; he has been associated with Chorus and/or its subsidiaries for more than
10 years.
Darold J. Londo is 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.
Daniel J. Stein was Executive Vice President of MPCS for the past 12 years. On
January 1, 1999, MPCS changed its name to Chorus Networks, Inc. and Mr. Stein
became its President.
Fredrick E. Urben is Secretary & Treasurer of Chorus; he has been associated
with Chorus and/or its subsidiaries for more than 28 years.
G. Burton Bloch is a retired dentist.
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 9 years.
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.
Harold L.(Lee) Swanson is Chief Executive Officer, President and Director of
State Bank of Cross Plains of which he has been associated with for more than
33 years; also a director of Madison Gas & Electric Company.
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 21 years.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The total 1998 annual director fees that Messrs. Bloch, Maulbetsch,
Swanson and Timmerman each received for serving on Chorus' Board, and any
subsidiary boards was $20,000. In addition, Messrs. Bloch and Timmerman
received $5,500 and $3,400, respectively, for serving as officers of
subsidiary companies. Mr. Voeks did not receive any director fees. The Chorus
Board of Directors met ten times in 1998. 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 in which they served.
The members of the Compensation Committee are Messrs. Maulbetsch,
Swanson and Timmerman. The Compensation Committee determines the
compensation of the Chief Executive Officer and reviews compensation
guidelines for all other employees. The Compensation Committee held three
meetings in 1998.
<PAGE>
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 fiscal years 1996,
1997 and 1998 of the Chief Executive Officer and the other executive officer
whose compensation exceeded $100,000 for fiscal year 1998.
<TABLE>
Summary Compensation Table
NAME AND ANNUAL COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION<F1>
<S> <C> <C> <C> <C>
Dean W. Voeks: 1998 $175,000 $40,000 $54,190
President and Chief 1997 $150,000 $45,000 $53,690
Executive Officer 1996 $145,000 $35,000 $53,690<F2>
Howard G. Hopeman: 1998 $110,000 $25,000 $41,420
Executive Vice President 1997 $100,500 $20,000 $39,661
and Chief Financial 1996 $ 97,000 $15,000 $36,674
Officer
<FN>
<F1> Represents the Company's matching contribution to each executive's 401(k)
plan. Additionally, $44,190 and $31,970, respectively, represents the annual
contributions each year for 1998, 1997 and 1996 to a nonqualified supplemental
retirement plan for Mr. Voeks and Mr. Hopeman. In prior years, contributions
to a nonqualified supplemental retirement plan were reported together with the
defined benefit pension plan, which has been discontinued, in a separate
section of the Form 10-K.
<F2> Includes an amount paid in 1998 to adjust Company matching contribution to
correct amount.
</FN>
</TABLE>
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of three independent Directors who are responsible for the
setting and administering compensation, including Base Salary and Annual
Bonus paid or awarded to Mr. Voeks, Chief Executive Officer of the Company. In
addition, the Committee reviews the salaries of other executives, which are
set by Mr. Voeks. The following report represents the actions regarding
compensation paid to executives for 1998.
The principal goal of the Chorus Communications Group, Ltd. compensation
program is to pay employees, including executive officers, at levels that are:
* consistent with the Company's current financial condition,
earnings and projected Consumer Price Index.
* reflective of individual performance and experience,
* competitive in the marketplace, and
* administered in a fair and consistent manner.
The salary of executive officers is established within a range that
considers competitive salary levels for similar sized companies. The
companies considered are not the same as companies included in the
performance graph new peer group in this Form 10-K. The new peer group
companies are significantly larger than Chorus with much higher compensation
levels. The new peer group was created to consist of telecommunications
holding companies that, although larger than Chorus, are substantially
smaller than the old peer group, and serve similar rural Wisconsin markets.
Company performance targets were set at continuing improvement in revenues,
net income, earnings per share, dividends paid and market capitalization.
Executive's salaries were determined by subjectively evaluating the individual's
performance and experience, and the Company's performance.
For 1998, the Company maintained a strong financial position, grew revenues,
achieved net income and earnings per share equal to 1997 levels despite
increased competition, and increased dividend paid. Additionally, Chorus
maintained an industry leadership role in Wisconsin.
In February 1999, the Committee reviewed Mr. Voeks' 1998 salary level, adjusted
it and awarded him a bonus of $40,000 for 1998. In addition to considering
compensation levels for similar sized companies, the Committee referred to
compensation surveys prepared by independent telephone company associations in
prior years, and the Consumer Price Index.
Harold L. (Lee) Swanson, Chairman
Charles Maulbetsch
Douglas J. Timmerman
<PAGE>
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total shareholder
returns for Chorus<F1> as compared with the S&P 500 Stock Index, New Peer
Group<F2> and Old Peer Group<F3>. Chorus has created a new peer group that it
believes is more representative of its' peers. Chorus believes that it is
more appropriate to compare its market performance with a peer group consisting
of telecommunications holding companies that primarily serve a similar
market, and have market capitalization which is significantly less than the
RBOC's (Regional Bell Holding Companies) and GTE. The performance of the Old
Peer Group is displayed here for comparative purposes as required by SEC
Regulations and will not be provided in the future.
[Line graph of data points]
<TABLE>
S&P 500 OLD PEER NEW PEER
INDEX GROUP GROUP CHORUS
<S> <C> <C> <C> <C>
1993 100 100 100 100
1994 101 96 89 116
1995 139 144 97 133
1996 171 146 84 143
1997 229 204 101 143
1998 294 299 138 132
Explanation
The graph assumes $100 invested on December 31, 1993 in Chorus common stock, the
S&P 500 Index, New Peer Group common stock and Old Peer Group common stock.
Total return assumes reinvestment of dividends.
<FN>
<F1> 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> The New Peer Group is composed of four holding companies that compete in
the Company's industry segment of telecommunications services, and operate in
similar markets, rural communities that include Wisconsin. The New Peer Group
is comprised of: Century Telephone Enterprise; Citizens Utilities Company;
Frontier Corporation and Telephone & Data Systems, Inc.
<F3> The Old Peer Group was composed of five RBOC's (Ameritech Corporation,
Bell Atlantic Corporation, Bellsouth Corporation, SBC Communications Inc., and
US West Communications Group), GTE, Alltel Corporation and Frontier Corporation.
</FN>
</TABLE>
<PAGE>
Management Continuity Plan
Chorus has severance pay agreements ("Agreements") with certain key employees
including Messrs. Hopeman and Voeks. 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 2.99 times the executive's annual compensation. Each agreement
terminates on December 3, 2001, but is automatically extended annually for an
additional year on December 3 of each year, commencing December 3, 2001,
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.
Security Ownership of Management
At January 1, 1999, each director or nominee and each executive officer
named in the Summary Compensation Table and all directors and executive
officers of the Company as a group beneficially owned common stock of the
Company as listed in the following table. To our knowledge, no shareholder
owned 5 percent or more of the Company's outstanding common stock as of
January 1, 1999.
<TABLE>
SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
Carrie L. Bennett-Barndt 940<F1> 0.0%
G. Burton Bloch 37,746<F2> 0.7%
Howard G. Hopeman 15,318<F3> 0.3%
Charles Maulbetsch 51,000<F3> 0.9%
Harold L. (Lee) Swanson 13,741<F3> 0.3%
Douglas J. Timmerman 57,021<F4> 1.1%
Dean W. Voeks 4,608<F3><F5> 0.1%
All directors or nominees and
executive officers as a group
(10 persons) 227,817 4.2%
<FN>
<F1> Includes 440 shares of Common Stock in a corporation in which
Ms. Bennett-Barndt has a pecuniary interest, voting and investment power.
<F2> Common Stock in a family trust in which Mr. Bloch has a pecuniary interest,
voting and investment power.
<F3> Includes 10,488, 1,000, 11,030 and 2,074 shares of Common Stock in
self-directed Individual Retirement Accounts, to which Messrs. Hopeman,
Maulbetsch, Swanson and Voeks, respectively, have voting and investment power.
<F4> Includes 45,424 shares of Common Stock in a family partnership and 2,262
shares of Common Stock in a family trust in which Mr. Timmerman has a pecuniary
interest, voting and investment power; and 168 shares of Common Stock in
custodial ownership form in which Mr. Timmerman has voting and investment power.
<F5> Includes 300 shares of Common Stock in a Supplemental Retirement Plan to
which Mr. Voeks has voting and investment power.
</FN>
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 notes that
during 1998 all required filings were made in a timely fashion, except for
Daniel J. Stein, who filed one report late relating to a sale of stock.
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
All 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
(3ii) By-Laws
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP,
Independent Auditors
23.2 Consent of Kiesling Associates, LLP,
Independent Auditors
27 Financial Data Schedule
EXHIBITS INCORPORATED BY REFERENCE
16 Letter regarding change in certifying accountants is
incorporated by reference to Form 8-K, filed on
October 23, 1998.
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).
(B) REPORTS ON FORM 8-K
On October 21, 1998, Chorus filed a Form 8-K Current Report under Item 4
Changes in Registrant's Certifying Accountant where the Company reported
selecting the accounting firm of Deloitte & Touche LLP as principal
accountants for the Registrant for 1998.
<PAGE>
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, 1999 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 Chief Executive Officer and March 30, 1999
Dean W. Voeks Director
(Principal Executive Officer)
/s/Howard G. Hopeman Executive Vice-President and March 30, 1999
Howard G. Hopeman Chief Financial Officer
(Principal Financial
and Accounting Officer)
/s/Charles Maulbetsch Director March 30, 1999
Charles Maulbetsch
/s/Harold L. Swanson Director March 30, 1999
Harold L. (Lee) Swanson
The above signatures include a majority of the signatures of the Board of
Directors.
EXHIBIT (3ii)
CHORUS COMMUNICATIONS GROUP, LTD.
BYLAWS OF CHORUS COMMUNICATIONS GROUP, LTD.(A WISCONSIN CORPORATION)
Revised as of February 1999
TABLE OF CONTENTS
ARTICLE I. OFFICES
Section 1.Principal Office
Section 2.Registered Office
ARTICLE II. SHAREHOLDERS
Section 1.Annual Meeting
Section 2.Special Meetings
Section 3.Nominations for the Board of Directors
Section 4.Shareholder Proposals
Section 5.Place of Meeting
Section 6.Notice of Meeting
Section 7.Quorum
Section 8.Proxies
Section 9.Voting
Section 10.Acceptance and Rejection of Votes, Proxies, Etc.
Section 11.Fixing of Record Date
ARTICLE III. BOARD OF DIRECTORS
Section 1.General Powers
Section 2.Number and Term
Section 3.Qualifications
Section 4.Regular Meetings
Section 5.Special Meetings
Section 6.Notice
Section 7.Quorum
Section 8.Manner of Acting
Section 9.Vacancies
Section 10.Compensation
Section 11.Informal Action by Directors
Section 12.Removal
Section 13.Committees
Section 14.Director Emeritus
ARTICLE IV. OFFICERS
Section 1.Number and Qualifications
Section 2.Election and Term of Office
Section 3.Removal
Section 4.Vacancies
Section 5.President/CEO
Section 6.The Vice-Presidents
Section 7.The Secretary
Section 8.The Treasurer
Section 9.Assistant Secretaries and Assistant Treasurers
Section 10.Salaries
ARTICLE V. CONTRACTS, LOANS. CHECKS AND DEPOSITS
Section 1.Contracts
Section 2.Loans
Section 3.Checks, Drafts, etc
Section 4.Deposits
ARTICLE VI. CERTIFICATES OF STOCK OWNERSHIP
Section 1.Certificated and Uncertificated Shares
Section 2.Acquisition of Shares
ARTICLE VII. FISCAL YEAR
ARTICLE VIII. AMENDMENTS
ARTICLE IX. LOST CERTIFICATES
<PAGE>
ARTICLE X. INDEMNIFICATION
Section 1.Indemnification for Successful Defense
Section 2.Other Indemnification
Section 3.Written Request
Section 4.Nonduplication
Section 5.Determination of Right to Indemnification
Section 6.Advance Payment of Expenses as Incurred
Section 7.Nonexclusivity
Section 8.Insurance
Section 9.Securities Law Claims
Section 10.Liberal Construction
ARTICLE XI. DISTRIBUTIONS
ARTICLE XII. CORPORATE SEAL
ARTICLE XIII. EMERGENCY BYLAWS
<PAGE>
BYLAWS
OF
CHORUS COMMUNICATIONS GROUP, LTD.
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation in
the State of Wisconsin shall be located at 1912 Parmenter Street, Middleton,
Wisconsin. The corporation may have such other offices, within the State of
Wisconsin, as the Board of Directors may designate from time to time.
SECTION 2. REGISTERED OFFICE. The registered office of the
corporation required by the Wisconsin business corporation law to be
maintained in the State of Wisconsin may be, but need not be, identical with
the principal office in the State of Wisconsin, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The date of the Annual Meeting of
Shareholders shall be in April of each year or at such time as the Board of
Directors may determine. The specific date and time shall be determined by
the Board of Directors. The purpose of the annual meeting is to elect directors
and to transact other business as may properly come before the meeting, pursuant
to Section 4 below. If the election of directors is not held at the annual
meeting of the shareholders, or other business is not transacted at any
subsequent continuation after adjournment thereof, the Board of Directors shall
cause the election to be held and the other business to be transacted at a
special meeting of the shareholders as soon thereafter as convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by statute, may be
called by the President/CEO, the Secretary, or the Board of Directors, and
shall be called by the President/CEO at the request of holders of ten percent
(10%) of the issued voting stock of the corporation .
SECTION 3. NOMINATIONS FOR THE BOARD OF DIRECTORS. Nominations for
election to the then current Board of Directors may be made by the Board
of Directors or by any shareholder of the corporation. Nominations for the
Board of Directors, other than those made by the then current Board of
Directors, shall be made in writing and received at the principal
executive offices of the corporation not less than 120 calendar days before
the date in the current year of the corporation's proxy statement released to
shareholders in connection with the previous year's annual meeting.
Notice of the specific date by which to make a nomination shall be given to
all shareholders in the corporation proxy statement for the year
preceding the election. Nominations for the Board of Directors made by a
shareholder shall contain the name, address and date of birth of each
proposed nominee, the principal occupation of each proposed nominee for
the last five years, the name and address of the nominating shareholder, and
the number of shares of common stock of the corporation owned by the proposed
nominee and the nominating shareholder. The Nominating Committee of the Board
of Directors in its sole discretion shall recommend to the full Board of
Directors which, if any, of the proposed nominees shall be set forth as the
nominee for each eligible position in the corporation proxy statement mailed in
anticipation of the upcoming Annual Meeting of Shareholders.
<PAGE>
SECTION 4. SHAREHOLDER PROPOSALS. Proposals to be considered by the
shareholders at an Annual Meeting of Shareholders may be made (i) by or at the
direction of the Board of Directors, or (ii) by any shareholder of the
corporation pursuant to the Securities Exchange Act, including timely notice
in writing to the Secretary of the corporation. To be timely, a
Shareholder's notice for proposals to be included in the corporation's proxy
statement ("Rule 14a-8 proposals") must be received at the principal executive
offices of the corporation not less than 120 calendar days before the date in
the current year of the corporation's proxy statement released to
shareholders in connection with the previous year's annual meeting. Non-Rule
14a-8 proposals must be received at the principal executive offices of the
corporation not less than 45 calendar days before the date in the current year
of the corporation's proxy statement released to shareholders in connection with
the previous year's annual meeting. Each Shareholder's notice to the Secretary
shall set forth (a) the shareholder giving notice and the beneficial owner, if
any, on whose behalf the proposal is made, (i) their name and record address,
(ii) the number of shares of capital stock of the corporation which are
beneficially owned by each of them, (iii) verification that the shareholder owns
such shares and the period that they have been continuously owned by the
shareholder, and (iv) a statement whether the shareholder intends to continue to
hold the shares through the date of the Annual Meeting of Shareholders, and
(b) a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder giving notice and the
beneficial owner, if any, on whose behalf the proposal is made. Only such
business shall be conducted at a special meeting of shareholders as shall have
been brought before the meeting pursuant to the corporation's Notice of Meeting.
Only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this section.
SECTION 5. PLACE OF MEETING. The Board of Directors may designate any
place, within the State of Wisconsin, as the place of meeting for any annual
meeting or for any special meeting called by the President/CEO, the
Secretary, or the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, within
the State of Wisconsin, as the place for the holding of such meeting. If no
designation is made, the place of meeting shall be the registered office of
the corporation in the State of Wisconsin, but any meeting may be adjourned
to reconvene at any place designated by vote of a majority of the
shareholders. If no designation is made, the place of meeting shall be the
principal business office of the corporation in the State of Wisconsin or
such other suitable place in the county of such principal office as may be
designated by the person calling such meeting, but any meeting may be
adjourned to reconvene at any place designated by vote of a majority of the
shares represented thereat.
SECTION 6. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10)
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the President/CEO, the Secretary, or the
Board of Directors, to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at the shareholder's address as
it appears on the books of the corporation, with postage thereon prepaid.
SECTION 7. QUORUM. The holders of a majority of the issued common
stock of the corporation shall constitute a quorum at a meeting of
shareholders. Though less than a quorum of shareholders are represented at a
meeting, the holders of a majority of the issued voting common stock so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or be represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting. If a quorum exists, action on a matter
(other than the election of directors) by the shareholders is approved if the
votes cast by the shareholders favoring the action exceed the votes cast
opposing the action.
<PAGE>
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder
entitled to vote may vote by proxy appointed in writing by such shareholder.
Such proxy shall be filed with the Secretary of the corporation before or at
the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy. Unless
otherwise provided in the proxy, a proxy may be revoked at any time before it
is voted, either by written notice filed with the Secretary or the acting
Secretary of the meeting or by oral notice given by the shareholder to the
presiding officer during the meeting. The presence of a shareholder who
has filed his or her proxy shall not of itself constitute a revocation.
SECTION 9. VOTING. Each shareholder entitled to vote shall be
entitled to one vote for each share held upon each matter submitted to a vote
at a meeting of shareholders.
SECTION 10. ACCEPTANCE AND REJECTION OF VOTES, PROXIES, ETC.. If
the name signed on a vote, consent, waiver, or proxy appointment corresponds
to the name of a shareholder, the corporation if acting in good faith is
entitled to accept the vote, consent, waiver, or proxy appointment and give
it effect as the act of the shareholders. The corporation is entitled to
reject a vote, consent, waiver, or proxy appointment if the Secretary or
other officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or
about the signatory's authority to sign for the shareholder. The corporation and
its officer or agent who accepts or rejects a vote, consent, waiver, or proxy
appointment in good faith and in accordance with the standards of this section
are not liable in damages to the shareholder for the consequences of the
acceptance or rejection. Corporate action based on the acceptance or rejection
of a vote, consent, waiver, or proxy appointment under this section is valid
unless a court of competent jurisdiction determines otherwise.
SECTION 11. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders,
or shareholders entitled to receive payment of any distribution or dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date. Such record
date shall not be less then ten (10) nor more than seventy (70) days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If no record date is so fixed by the Board of
Directors for the determination of shareholders entitled to notice of, or to
vote at a meeting of shareholders, or shareholders entitled to receive a share
dividend or distribution, the record date for determination of such shareholders
shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special
shareholder meeting called by the Board of Directors or any person
specifically authorized by the Board of Directors or these Bylaws
to call a meeting, the date on which the first notice is
delivered to shareholders;
(b) With respect to a special shareholder's meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the Board
of Directors authorizes the share dividend;
(d) And with respect to a distribution to shareholders, (other than one
involving a repurchase or reacquisition of shares), the date the
Board of Directors authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof unless the Board
of Directors fixes a new record date which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the
original meeting.
<PAGE>
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The affairs of the corporation shall be
managed by its Board of Directors.
SECTION 2.NUMBER AND TERM. The Board of Directors of the corporation
shall consist of such number of directors, not less than five (5) nor more
than thirteen (13), as shall, from time to time, be fixed by the Board
of Directors. The Board of Directors shall be divided into three classes
as nearly equal in number as may be, with the term of office of one class
expiring each year. When the number of directors is changed, any newly created
directorships or any decrease in directorships shall be so apportioned among
the classes as to make all classed as nearly equal in number as possible.
Subject to the foregoing, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
SECTION 3. QUALIFICATIONS. Directors shall be residents of the
State of Wisconsin and shareholders of the corporation.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of
Directors may be held without other notice than this By-law immediately
after, and at the same place as, the annual meeting of shareholders, and
each adjourned session thereof, and the Board of Directors may provide
by resolution for the holding of additional regular meetings. The time and
place, within or without the State of Wisconsin, for the holding of such
additional regular meetings shall be without other notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President/CEO, Secretary or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, within or without the State of
Wisconsin, as the place for holding any special meeting of the Board of
Directors called by them. If no other place is fixed, the place of the meeting
shall be the principal office of the corporation in the State of Wisconsin.
SECTION 6. NOTICE. Notice of any special meeting shall be given at
least forty-eight (48) hours previously thereto by mail, telegram,
radiogram, facsimile, telex, e-mail, other form of wire or wireless
communication medium, or by personal service delivered to each director at
his or her address as designated. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram, teletype,
facsimile, e-mail, or other form of wire or wireless communication medium,
such notice shall be deemed to be delivered when said notice is delivered to
the applicable transferring medium. Whenever any notice whatever is
required to be given to any director of the corporation under the provisions
of these By-laws or under the provisions of any statute, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting,
by the director entitled to such notice, shall be deemed equivalent to the
giving of such notice. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction
of any business and at the beginning of the meeting (or promptly upon his or
her arrival) objects to holding the meeting or transacting business at the
meeting, and does not thereafter vote for or assent to action taken at the
meeting.
Neither the business to be transacted at, nor the purpose of any regular
or special meeting of the Board of Directors, need be specified in the notice
or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by the
Board of Directors shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but though less than such quorum is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
<PAGE>
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors, unless the act of a greater number is required by these
Bylaws or by law. Any or all directors may participate in a regular or
special meeting by, or conduct the meeting through the use of, any means of
communication by which (i) all directors participating may simultaneously
hear each other during the meeting or (ii) all communication during the meeting
is immediately transmitted to each participating director, and each
participating director is able to immediately send messages to all other
participating directors. If a meeting will be conducted through the use
of any means described in (i) and (ii) above, all participating directors
shall be informed that a meeting is taking place at which official business
may be transacted. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed
to have assented to the action taken unless: (1) he or she objects at the
beginning of the meeting (or promptly upon his or her arrival) to holding it or
transacting business at the meeting; or (2) his or her dissent or abstention
from the action taken is entered in the minutes of the meeting; or (3) he or
she delivers written notice of his or her dissent or abstention to the
presiding officer of the meeting before its adjournment or to the
corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor of the
action taken.
SECTION 9. VACANCIES. Any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the unexpired term by the affirmative vote
of a majority of the directors then in office; provided, that in case of a
vacancy created by the removal of a director by vote of the shareholders,
the shareholders shall have the right to fill such vacancy at the same meeting
or any adjournment thereof.
SECTION 10. COMPENSATION. The Board of Directors shall receive such
compensation as the Board of Directors shall from time to time determine.
SECTION 11. INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the Board of Directors, or any other action which may
be taken at a meeting of the Board of Directors, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof.
SECTION 12. REMOVAL. A director may be removed from office with
or without cause by the affirmative vote of a majority of the outstanding
shares entitled to vote for the election of such director, taken at a meeting
of shareholders called for that purpose. A director may resign at any time
by delivering written notice of his or her resignation to the Board of
Directors, to the President/CEO or Secretary of the corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
SECTION 13. COMMITTEES.
(a) Creation of Committees. The Board of Directors may create one
or more committees and appoint members of the Board of Directors to serve
on them. Each committee must have two or more members, who serve at the
pleasure of the Board of Directors.
(b) Selection of Members. The creation of a committee and appointment
of members to it must be approved by a majority of all the directors in office
when the action is taken.
(c) Required Procedures. Sections of this Article III, which govern
meetings, action without meetings, notice and waiver of notice, quorum and
voting requirements of the Board of Directors, apply to committees and their
members.
<PAGE>
(d) Authority. Each committee may exercise those aspects of the
authority of the Board of Directors which the Board of Directors confers upon
such committee in the resolution creating the committee. Provided,
however, a committee may not do any of the following: (1) authorize
distributions; (2) approve or propose to shareholders action that the
Wisconsin Business Corporation Act requires be approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its committees;
(4) amend the Articles of Incorporation; (5) adopt, amend, or repeal Bylaws;
(6) approve a plan of merger; (7) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; or (8) authorize or approve the issuance or sale or contract for
sale of shares or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee (or a senior executive officer
of the corporation) to do so within limits specifically prescribed by the
Board of Directors. Unless otherwise provided by the Board of Directors
in creating the committee, a committee may employ counsel, accountants and
other consultants to assist it in the exercise of authority.
SECTION 14. DIRECTOR EMERITUS. The Board of Directors may appoint one
or more former directors to the position of Director Emeritus to assist the
Board with the discharge of its duties upon such terms and conditions and at
such compensation as the Board of Directors may determine. A Director
Emeritus shall not be entitled to vote on any matter that comes before the
Board.
ARTICLE IV. OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The principal officers of the
corporation shall be a President/Chief Executive Officer (CEO), a
Vice-President, a Secretary, an Assistant Secretary, a Treasurer and an
Assistant Treasurer, each of whom shall be elected by the Board of Directors.
Such other officers and assistant officers as may be deemed necessary may
be elected by the Board of Directors. Whenever the Board of Directors
shall so order, two offices may be held by the same person except
President/CEO and Vice-President, and President/CEO and Secretary.
Officers of the corporation, other than the President/CEO, need not be directors
of the corporation.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Each officer shall hold office until his or her successor shall have been
elected and shall have been qualified or until his or her death or until he or
she shall resign.
SECTION 3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation will be served thereby.
SECTION 4. VACANCIES. Should a vacancy in any officer position arise
because of an officer's death, resignation, removal, disqualification or
otherwise, such vacancy, upon recommendation of the President/CEO, shall be
filled by the Board of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT/CEO. The President/CEO shall be the chief
executive officer of the corporation and subject to the control of the
Board of Directors, shall in general supervise and control all of the
business and affairs of the corporation. He or she shall, when present,
preside at all meetings of the shareholders and of the Board of Directors.
He or she shall have authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such officers, agents and employees
of the corporation as he or she shall deem necessary, to prescribe their
powers, duties, and compensation, and to delegate authority to them. He or
she may sign, with the Secretary or any other proper officer of the
corporation thereunto authorized by the Board of Directors, certificates
representing shares of the corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized
to be executed, except in cases where the signing or the execution thereof
shall be expressly delegated by the Board of Directors or by these By-laws to
some other officer or agent of the corporation, or shall be required by law to
be otherwise signed or executed; and in general shall perform all
duties incident to the office of the President/CEO and such other duties as
may be prescribed by the Board of Directors from time to time.
<PAGE>
SECTION 6. THE VICE-PRESIDENTS. The Board of Directors may appoint an
Executive Vice-President and as many Vice-Presidents as it deems appropriate.
Any Vice-President shall perform such duties and have such authority as
from time to time may be delegated or assigned to him or her by the
President/CEO or the Board of Directors. In the absence of the President/CEO
or in the event of his or her death, inability or refusal to act, the
Vice-President delegated authority under Section 5 and, in the absence of
such delegation, the Executive Vice-President and then the Vice-President with
the most seniority as a Vice-President and who is not then absent or
disabled, shall perform the duties of the President/CEO, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President/CEO. Any Vice-President may sign, with the
Secretary, certificates representing the shares of the corporation; and
shall perform such other duties as from time to time may be assigned to him or
her by the President/CEO or by the Board of Directors.
SECTION 7. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the shareholders and of the Board of Directors meetings in one or more books
provided for that purpose; (b) see that all notices are given in accordance
with the provisions of these By-laws or as required by law; (c) be custodian
of the corporate records; (d) keep a register of the post office
address of each shareholder which shall be furnished to the Secretary
by such shareholder; (e) sign with the President/CEO, or a Vice-President,
certificates of stock ownership of the corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President/CEO
or by the Board of Directors.
SECTION 8. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine. He or she shall: (a) have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositaries as shall be selected
in accordance with the provisions of Article V of these By-laws; and (b) in
general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him or her by the
President/CEO or by the Board of Directors.
SECTION 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The Assistant Secretaries, when authorized by the Board of Directors, may
sign with the President/CEO or any Vice-President certificates for shares
of the corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and
Assistant Treasurers, in general, shall perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
President/CEO or the Board of Directors.
SECTION 10. SALARIES. The salary of the President/CEO shall be fixed
from time to time by the Board of Directors or by a duly authorized
committee thereof. All other salaries of principal officers shall be fixed
by the President/CEO, subject to review by the Board of Directors.
ARTICLE V. CONTRACTS. LOANS. CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authorization may be general or confined to specific instances.
SECTION 2. LOANS. No long-term loans shall be contracted on behalf of
the corporation without approval of a majority of the Board of Directors.
<PAGE>
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to
time be determined by or under the authority of resolution of the Board of
Directors or any of its committees.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as may
be selected by or under the authority of the Board of Directors.
ARTICLE VI. CERTIFICATES OF STOCK OWNERSHIP
SECTION 1. CERTIFICATED AND UNCERTIFICATED SHARES. Shares of the corporation's
stock may be certificated or uncertificated, as provided under Wisconsin law.
If certificated, certificates representing shares of the corporation shall be
in such form as shall be determined by the Board of Directors. Such
certificates shall be signed by the President/CEO or any vice-president and by
the Secretary or Assistant Secretary. All certificates shall be consecutively
numbered or otherwise identified. The name and address of the shareholder to
whom the certificated shares thereby are issued, and date of issue, shall be
entered on the books of the corporation. If uncertificated, the corporation,
directly or through its agent, shall maintain records, written or electronic,
to permit identification of the shareholder, the date of issue, the number of
shares, and such other information as the corporation shall deem appropriate or
necessary. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificates shall be issued until the former
certificates for a like number of shares shall have been surrendered and
cancelled, except that in the case of a lost, destroyed, or mutilated
certificate, a new one may be issued therefor pursuant to Article IX hereof or
upon such other terms and indemnity to the corporation as the Board of
Directors may prescribe.
SECTION 2. ACQUISITION OF SHARES. The corporation may acquire its own
shares and the shares so acquired shall constitute authorized but unissued
shares.
ARTICLE VII. FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January and end on the last day of December in each following year.
ARTICLE VIII. AMENDMENTS
The corporation's shareholders may amend or repeal the corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors of the corporation unless the shareholders in
adopting, amending, or repealing a particular bylaw provide expressly that the
Board of Directors may not amend or repeal that bylaw.
The Secretary of the corporation shall mail a copy of each amendment
adopted by the Board of Directors at the time of payment of the dividend next
following the adoption of the amendment.
ARTICLE IX. LOST CERTIFICATES
Any shareholder claiming a certificate of stock to have been lost,
stolen or destroyed shall make an affidavit or affirmation of such fact, and
shall give the Board of Directors such bond as the Treasurer may require
sufficient to indemnify against any claim that may be made against the
corporation on account of the alleged loss, theft or destruction of such
certificate or any damage or loss that may arise from issuing a new
certificate, whereupon the Board of Directors may by resolution duly
entered on record order a new certificate of the same alleged to be lost or
destroyed.
<PAGE>
ARTICLE X. INDEMNIFICATION
SECTION 1. INDEMNIFICATION FOR SUCCESSFUL DEFENSE. Within twenty (20)
days after receipt of a written request pursuant to Section 3 below, the
corporation shall indemnify a director or officer, to the extent he or she
has been successful on the merits or otherwise in the defense of a
proceeding, for all reasonable expenses incurred in the proceeding if the
director or officer was a party because he or she is a director or officer of
the corporation. The phrase "expenses" in this Article X shall include
fees, costs, charges, disbursements, attorneys fees, and other expenses
incurred in connection with a proceeding. The phrase "director or officer"
in this Article X shall mean each present, former, and future director or
officer of the corporation or an individual who, while a director or officer
of the corporation, is or was serving at the corporation's request as an
officer, director, partner, trustee, member of any governing or
decision-making committee, manager, employee or agent of another
corporation or foreign corporation, limited liability company,
partnership, joint venture, trust or other enterprise. Other definitions
which may be relevant to this Article X are as set forth in Section 180.0850 of
the Wisconsin Statutes.
SECTION 2. OTHER INDEMNIFICATION.
(a) In cases not included under Section 1 above, the corporation shall
indemnify a director or officer against liability and expenses incurred by
such person in a proceeding to which the person was a party because he or she
is a director or officer unless liability was incurred because the person
breached or failed to perform a duty he or she owes or owed to the corporation
and the breach or failure to perform constitutes any of the following:
(1) A willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the
person has a material conflict of interest.
(2) A violation of criminal law, unless the director or officer
had reasonable cause to believe his or her conduct was
lawful or not reasonable cause to believe his or her
conduct was unlawful.
(3) A transaction from which the director or officer derived an
improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required under this
section shall be made pursuant to Section 5 below.
(c) The termination of a proceeding by judgment, order, settlement,
or conviction, or upon a plea of no contest or an equivalent plea,
does not, by itself, create a presumption that indemnification of the
director or officer is not required under this section.
SECTION 3. WRITTEN REQUEST. A director or officer who seeks
indemnification under Sections 1 or 2 above shall make a written request to
the corporation.
SECTION 4. NONDUPLICATION. The corporation shall not indemnify a
director or officer under Sections 1 or 2 above if the director or officer
has previously received indemnification or allowance of expenses from any
person, including the corporation, in connection with the same
proceeding. However, the director or officer has no affirmative duty
to look to any other person for indemnification nor to first exhaust
his or her remedies to seek indemnification from such other person.
SECTION 5. DETERMINATION OF RIGHT TO INDEMNIFICATION. The director
or officer seeking indemnification under Section 2 above shall seek one of
the methods for determining his or her right to indemnification pursuant to
the provisions of Section 180.0855(1) through (6) of the Wisconsin Statutes;
and such selection shall be made within sixty (60) days after the
commencement of any proceeding. Such selection shall be made in writing
and delivered to the Secretary of the corporation. If it is determined
that indemnification is required under Section 2 above, the corporation
shall pay all liabilities and expenses not prohibited by Section 4 above
within ten (10) days after receipt of the written determination as to a
director's or officer's indemnification under Section 2 above. The
corporation shall also pay all expenses incurred by the director or officer in
the determination process.
<PAGE>
SECTION 6. ADVANCE PAYMENT OF EXPENSES AS INCURRED. Upon written
request by the person seeking indemnification under Section 2 above, the
corporation will pay or reimburse his or her reasonable expenses as incurred
if the person requesting such indemnification provides the corporation with
all of the following: (a) a written affirmation of his or her good faith
belief that he or she has not breached or failed to perform his or her duties
to the corporation and (b) a written undertaking, executed by such person,
to repay the allowance and reasonable interest on the allowance to the
extent it is ultimately determined under Section 5 above that indemnification
under Section 2 above is not required and that indemnification is not
ordered by a court under Section 180.0854 of the Wisconsin Statutes. The
undertaking under this section shall be an unlimited general obligation of
the director or officer and may be accepted without reference to his or
her ability to repay the allowance. The undertaking may be secured or
unsecured.
SECTION 7. NONEXCLUSIVITY.
(a) Except as provided in (b), Sections 1, 2, and 6 above do not
preclude any additional right to indemnification or allowance of expenses
that a director or officer may have under any of the following:
(1) The articles of incorporation.
(2) A written agreement between the director or officer and the
corporation.
(3) A resolution of the Board of Directors.
(4) A resolution, after notice, adopted by a majority vote of
all of the corporation's voting shares then issued and outstanding.
(5) The statutes or common law of the State of Wisconsin.
(b) Regardless of the existence of an additional right under (a), the
corporation shall not indemnify a director or officer or permit a director or
officer to retain any allowance of expenses, unless it is determined by or
on behalf of the corporation that the director or officer did not breach
or fail to perform a duty he or she owed or owes to the corporation which
constitutes conduct under Section 2(a) (1), (2), (3) or (4). A director or
officer who is a party to the same or related proceeding for which
indemnification or an allowance of expenses is sought may not participate in a
determination under this subsection.
(c) Sections 1 to 8 herein do not affect the corporation's power to
pay or reimburse expenses incurred by a director or officer in any of the
following circumstances:
(1) As a witness in a proceeding to which he or she is not a party.
(2) As a plaintiff or petitioner in a proceeding because he or she
is or was a director or officer of the corporation.
SECTION 8. INSURANCE. The corporation may purchase and maintain
insurance on behalf of an individual who is a director or officer of the
corporation against liability asserted against or incurred by the
individual in his or her capacity as a director or officer, regardless of
whether the corporation is required or authorized to indemnify or allow
expenses to the individual against the same liability under Sections 1, 2, or
6.
SECTION 9. SECURITIES LAW CLAIMS.
(a) Pursuant to the public policy of the State of Wisconsin, the
corporation shall provide ndemnification, allowance of expenses, and
insurance for any liability incurred in connection with a poceeding involving
securities regulation described under (b) to the extent required or permitted
under Sections 1 to 8.
(b) Section 1 to 8 apply, to the extent applicable to any other
proceeding, to any proceeding involving a federal or state statute, rule, or
regulation regulating the offer, sale, or purchase of securities, securities
brokers or dealers, or investment companies or investment advisors.
<PAGE>
SECTION 10. LIBERAL CONSTRUCTION. In order for the corporation to
obtain and retain qualified directors and officers, the foregoing provisions
shall be liberally administered in order to afford maximum indemnification of
directors or officers and, accordingly, the indemnification above provided for
shall be granted in all cases unless to do so would clearly contravene
applicable law, controlling precedent, or public policy.
ARTICLE XI. DISTRIBUTIONS.
The Board of Directors may authorize, and the corporation may make,
distributions (including dividends on its outstanding shares) in the manner
and upon the terms and conditions provided by law.
ARTICLE XII. CORPORATE SEAL.
The Board of Directors may provide a corporate seal which may be
circular in form and have inscribed thereon any designation including the
name of the corporation, Wisconsin as the state of incorporation, and the
words "Corporate Seal."
ARTICLE XIII. EMERGENCY BYLAWS.
The following provisions of this Article XIII, "Emergency Bylaws" shall
be effective only during an emergency, which is defined as when a quorum of
the corporation's directors cannot be readily assembled because of some
catastrophic event or events. These Emergency Bylaws are not effective
after the emergency ends.
During such emergency:
(a) Notice of Board of Director Meetings. Any one member of the Board
of Directors or any one of the following officers: President/CEO,
Vice-President, Secretary, or Treasurer, may call a meeting of the Board of
Directors. Notice of such meeting need be given only to those directors whom
it is practicable to reach, and may be given in any practical manner,
including by publication and radio. Such notice shall be given at least six
(6) hours prior to commencement of the meeting.
(b) Temporary Directors and Quorum. One or more officers of the
corporation present at the emergency Board of Directors meeting, as is
necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in
order of seniority. In the event that less than a quorum of the directors are
present (including any officers who are to serve as directors for the
meeting), those directors present (including the officers serving as
directors) shall constitute a quorum.
(c) Actions Permitted To Be Taken. The Board of Directors as
constituted in paragraph (b), and after notice as set forth in paragraph (a)
may:
(1) Officers' Powers. Prescribe emergency powers to any officer of
the corporation;
(2) Delegation of Any Power. Delegate to any officer or
director, any of the powers of the Board of Directors;
(3) Lines of Succession. Designate lines of succession of
officers and agents, in the event that any of them are unable to discharge
their duties;
(4) Relocate Principal Place of Business. Relocate the principal
place of business, or designate successive or simultaneous principal places of
business;
(5) All Other Action. Take any other action, convenient, helpful,
or necessary to carry on the business of the corporation.
<TABLE>
EXHIBIT 12
CHORUS COMMUNICATIONS GROUP, LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
In Thousands:
<S> <C> <C> <C> <C> <C>
Net Income<F1> $5,171 $5,136 $4,741 $4,572 $3,888
Income Tax
Expense 3,394 3,218 2,932 2,781 2,356
Interest Charges 1,727 1,301 1,408 1,203 1,132
Total Earnings 10,292 9,655 9,081 8,556 7,376
Interest Expense 1,727 1,301 1,408 1,203 1,132
Ratio 5.96 7.42 6.45 7.11 6.52
<FN>
<F1> For 1996, the amount is before extraordinary charge.
</FN>
</TABLE>
EXHIBIT 21
CHORUS COMMUNICATIONS GROUP, LTD.
SUBSIDIARIES OF THE CORPORATION
The subsidiaries of the Chorus Communications Group, Ltd.and their subsidiaries
are listed below.
NAME STATE OF INCORPORATION
Mid-Plains, Inc. Wisconsin
**Mid-Plains Communications Systems, Inc. Wisconsin
MPC of Illinois Illinois
PCS Wisconsin, LLC. Wisconsin
Pioneer Communications, Inc. Wisconsin
The Farmers Telephone Company Wisconsin
Dickeyville Telephone Corporation Wisconsin
Chorus Properties, LLC. Wisconsin
*Executive Systems & Software, Inc.
d/b/a The ComputerPLUS Wisconsin
*IntraNet, Inc. Wisconsin
* On January 1, 1999, these entities were merged into Mid-Plains Communication
Systems, Inc. (MPCS).
** On January 1, 1999, MPCS changed its name to Chorus Networks, Inc.
EXHIBIT 23.1
CHORUS COMMUNICATIONS GROUP, LTD.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-68873 of Chorus Communications Group, Ltd. on Form S-8 of our report
dated February 12, 1999, appearing in the Annual Report on Form 10-K of Chorus
Communications Group, Ltd. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 30, 1999
EXHIBIT 23.2
CHORUS COMMUNICATIONS GROUP, LTD.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation of our report dated February 6, 1998, on the
consolidated financial statements of Chorus Communications Group, Ltd. and
subsidiaries as of December 31, 1997, and for each of the two years in the
period ended December 31, 1997, included in this Form 10-K, in the Company's
previously filed Form S-8 Registrant Statement No. 333-68873.
Kiesling Associates LLP
Madison, Wisconsin
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. Dollars
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 5327
<SECURITIES> 0
<RECEIVABLES> 6983
<ALLOWANCES> 0
<INVENTORY> 1920
<CURRENT-ASSETS> 17136
<PP&E> 74676
<DEPRECIATION> 29255
<TOTAL-ASSETS> 72677
<CURRENT-LIABILITIES> 9744
<BONDS> 0
0
0
<COMMON> 14668
<OTHER-SE> 16884
<TOTAL-LIABILITY-AND-EQUITY> 72677
<SALES> 0
<TOTAL-REVENUES> 45997
<CGS> 9326
<TOTAL-COSTS> 17031
<OTHER-EXPENSES> 19032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1727
<INCOME-PRETAX> 8565
<INCOME-TAX> 3394
<INCOME-CONTINUING> 5171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5171
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
</TABLE>
