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, 1999 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 X.
As of March 22, 2000, there were 5,372,400 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 $81,257,550.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD
PART I.
ITEM 1. BUSINESS
(a) Chorus Communications Group, Ltd., (Chorus or the Company) is a
telecommunications company serving Wisconsin, Minnesota, Iowa and
Illinois.
Local exchange carrier services are provided by the following Chorus
subsidiaries: Mid-Plains, Inc. (Mid-Plains), The Farmers Telephone
Company (Farmers) and Dickeyville Telephone Corporation (Dickeyville).
These subsidiaries are public utilities providing telephone and data
services to customers in local exchanges located in Southern Wisconsin.
Chorus Networks, Inc., (Chorus Networks) was formed by the January 1,
1999 mergers of Chorus subsidiaries Mid-Plains Communications Systems,
Inc. (MPCS), Executive Systems & Software, Inc. d/b/a The ComputerPLUS,
and IntraNet, Inc.
Chorus Networks and Pioneer Communications, Inc. (Pioneer) sell, install
and service business telephone systems, computers and computer networks.
Their primary markets are in Southern Wisconsin.
Chorus also provides Internet access and resells long distance services
in Southern Wisconsin through Chorus Networks and Pioneer. Pioneer also
publishes telephone directories for various telephone companies in
Wisconsin, Minnesota and Iowa.
Competitive local exchange carrier (CLEC) services are presently being
provided by Chorus Networks. Additionally, HBC Telecom, Inc. (HBC) was
formed as a subsidiary of Chorus Networks in 1999, to provide CLEC and
long distance telephone service in the Winona, Minnesota area. Service
by HBC is expected to commence in July of 2000.
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 owns a 2% interest in a limited
partnership providing cellular telephone service in southwestern
Wisconsin.
Mid-Plains also has a 75% interest in PCS Wisconsin, LLC (PCS-WI). This
limited liability company was formed in 1996. In April of 1997, PCS-WI
was granted the F-block license by the FCC, which allows PCS-WI to
construct and operate a Personal Communication System (PCS) in 10
counties in Southern Wisconsin. Under the terms of the license, there
must be a 25% buildout within five years. Buildout would require
substantial capital and operating expenditures in a highly competitive
market. Management is currently studying various opportunities with
regard to buildout, partnering with established wireless providers
and/or the sale of the license.
There were no other material changes in the nature of the business
conducted by Chorus during 1999.
<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 42,300
1998 42,800
1999 43,600
(b) The financial information regarding Chorus' industry segments is
provided in Item 8 - Chorus Communications Group, Ltd. Consolidated
Financial Statements (Note 12) for the year ended December 31, 1999.
(c) Chorus is a telecommunications company operating primarily in Southern
Wisconsin. Chorus' business development strategy is to expand existing
operations through internal growth, offer new and bundled services, and
develop other businesses to complement Chorus operations. Additionally,
Chorus plans to expand its current subscriber base through growth in
CLEC services and through future acquisitions. Chorus operates in the
segments listed below.
LEC - Chorus operates the following local exchange carrier subsidiaries:
Mid-Plains, Inc.
The Farmers Telephone Company
Dickeyville Telephone Corporation
System Sales and Services - Chorus sells, installs and services business
telephone systems, computers and computer networks through the following
operations:
Chorus Networks, Inc.
Pioneer Communications, Inc.
Internet - Chorus provides Internet access to subscribers through the
following operations:
Chorus Networks, Inc.
pcii.net
Long Distance - Chorus provides long distance service to subscribers
through the following operations:
Chorus Networks, Inc.
Pioneer Telecom
Directory Publishing - Chorus publishes telephone directories for local
exchange carriers in three states through the following subsidiary:
Pioneer Communications, Inc.
LEC services revenues consist of two major classes: local service and
network access. Local service revenues are based upon fees charged to
customers for providing local telephone exchange service within
designated service areas. Network access revenues are based on fees
charged to interexchange carriers that use the LEC's local network to
provide long distance service to their customers. System sales and
services sell, install and service business telephone systems, 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>
1999 1998 1997
<S> <C> <C> <C>
LEC Services
Local service revenues 22.9% 21.6% 23.6%
Network access 28.4% 29.0% 36.9%
System Sales and Services 23.3% 28.4% 19.6%
</TABLE>
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 is currently studying various opportunities
with regard to buildout, partnering with established wireless providers
and/or the sale of the license.
The business of Chorus is not seasonal to any significant extent.
Information regarding the Company's major customers is provided in Item
8 - Chorus Communications Group, Ltd. Consolidated Financials Statements
(Note 12) for the year ended December 31, 1999.
Order backlog is not a significant consideration in the Company's
business, and the Company has no contracts or subcontracts which may be
subject to renegotiation of profits or termination at the election of
the Federal government.
Competition within the Company's LEC segment is anticipated to increase.
The 1996 Federal Telecommunications Act allowed for the opening up of
the local network to competition and required all incumbent LECs to take
steps in making it feasible for new entrants to compete. It also
removed restrictions prohibiting electric utilities from providing
telecommunications services.
One of Chorus' LEC subsidiaries, Mid-Plains, has faced competition since
June of 1997, when the Public Service Commission of Wisconsin issued
orders authorizing two CLECs to provide local exchange services in
Mid-Plains' territory. These competitors now offer switched voice and
data services, as well as private line services, which permits bypassing
of the Company's local telephone facilities. In addition, microwave
transmission services, wireless communications, fiber optic and coaxial
cable deployment and other services permit bypass of the local exchange
network. These alternatives to the local exchange service represent a
potential threat to the Company's long-term ability to provide local
exchange service at economical rates.
In order to meet this competition, the Company has deployed new
technology in its local exchange networks to increase operating
efficiencies and to provide new and improved services to our customers.
The Company maintains the latest generation of digital switching
technology. It has also protected the majority of its network with
redundant fiber rings, which allows traffic to be re-routed if trouble
appears on the network, allowing the Company to offer a very reliable
level of service to its customers. The Company also constantly monitors
its response time to customer inquiries, installations and repairs, as
well as receiving constant customer feedback, all in an effort to
maintain a competitive advantage.
Chorus' two other LEC subsidiaries are in more rural areas where
competition is less likely to be a factor due to the lower population
densities being less attractive for new market entrants.
Competition within the Company's System Sales and Services segment has
intensified. While there has always been numerous companies competing in
the communications product market in which Chorus operates, the
competition had primarily been on price and service. This segment now
faces intensified price competition from CLEC providers as they try to
lure customers on to their new local exchange networks. The Company
expects this trend to continue. To meet this competition, the Company is
currently bundling its equipment sales with Internet and long distance.
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 10, 2000 was 331.
<PAGE>
ITEM 2. PROPERTIES
The Company's business is primarily focused on the provision of services and
its properties are used for administrative support and to store and safeguard
equipment. At December 31, 1999, the Company's gross book value of property,
plant and equipment of $81.9 million consisted primarily of telephone plant and
equipment. The Company owns their central telephone offices with related real
estate in the communities they serve. Additionally, the Company leases
facilities to house its Internet and CLEC central office equipment as well as
leasing office space in various locations serviced by the Company. Chorus'
65,000 square foot headquarters building is located in Madison, Wisconsin and
is owned by the Company. Virtually all owned property is subject to liens
securing long-term debt. In management's opinion, the plant is in good repair
and suitably equipped for its intended purpose. For further information
concerning the Company's properties see Item 8 - Chorus Communications Group,
Ltd. Consolidated Financial Statements (Note 3) for the year ended December
31, 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in or aware of any material pending legal
proceedings as of March 22, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were none in the fourth quarter of 1999.
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is reported on the Over-The-Counter Bulletin Board
(OTC BB) under the symbol CCGL.
The following stock prices are for broker transactions reported in the OTC BB
Research Service.
<TABLE>
CASH
MARKET PRICE DIVIDEND
HIGH LOW DECLARED
<S> <C> <C> <C>
1999
First Quarter $21 $17 3/4 $.155
Second Quarter 18 3/4 17 5/8 .155
Third Quarter 19 17 3/4 .155
Fourth Quarter 18 1/4 15 3/8 .160
1998
First Quarter $21 $19 1/2 $.145
Second Quarter 20 3/4 18 .145
Third Quarter 21 1/2 16 .145
Fourth Quarter 18 1/4 15 1/2 .155
</TABLE>
Certain amounts previously reported for 1998 have been adjusted to reflect
prices reported in the OTC BB Research Service.
Adjusted to reflect 1998 stock split. See Note 1 to Consolidated Financial
Statements.
There were 3,606 shareholders of record at December 31, 1999. The Company
has regularly paid dividends to its shareholders and expects it will continue
to do so in the future.
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
$11.2 million underlying retained earnings of all Chorus subsidiaries at
December 31, 1999, $4.5 million was available for the payment of dividends on
the subsidiaries' common stock.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five years
in the period ended December 31, 1999 have been derived from the audited
consolidated Financial Statements of the Company. The selected consolidated
financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated Financial Statements and notes thereto
included elsewhere in this report. All financial data has been reported as
if the merged companies which formed Chorus in 1997 have always been one.
<TABLE>
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Total Assets $72,955 $72,677 $62,754 $51,705 $52,046
Shareholders' Equity $30,942 $31,552 $28,773 $26,485 $26,051
Long-Term Debt, Including
Current Maturities $25,550 $26,811 $22,626 $15,860 $12,195
Short-Term Notes
Payable to Banks $ 4,726 $ 2,630 $ 1,328 $ - $ 4,440
Ratio of Earnings to
Interest Expenses<F1><F2> 4.10 5.96 7.42 6.45 7.11
Revenue and Sales $47,592 $45,997 $36,337 $33,181 $30,539
Net Income<F2> $ 3,367 $ 5,171 $ 5,136 $ 4,741 $ 4,572
Basic and Diluted Earnings
Per Share<F2><F3> $ 0.62 $ 0.96 $ 0.96 $ 0.88 $ 0.86
Cash Dividends Per Share<F3> $ 0.625 $ 0.590 $ 0.550 $ 0.515 $ 0.525
Average Common Shares
Outstanding<F3> 5,412 5,406 5,368 5,356 5,342
Shareholders of Record 3,606 3,646 3,531 3,434 3,287
<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 of $1.8 million,
or $0.33 per share.
<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
RESULTS OF OPERATIONS
OVERVIEW
Chorus Communications Group, Ltd. and its subsidiaries' (Chorus or the
Company) revenues increased $1.6 million to $47.6 million in 1999. This was
principally due to the growth in Internet, Local Exchange Carrier (LEC) and
Competitive Local Exchange Carrier (CLEC) revenues, offset by a decline in
system sales and services revenues. Revenues in 1998 increased $9.7 million
to $46.0 million, primarily from the acquisition of The ComputerPLUS and
IntraNet, Inc. (see Note 2 to Consolidated Financial Statements) as well as
growth in LEC and other services and sales revenues.
Operating costs and expenses increased $5.0 million in 1999 to $41.1 million.
The higher costs were primarily due to servicing the Company's growing
Internet and CLEC subscriber base and higher labor costs. Operating costs and
expenses increased $9.0 million in 1998, primarily due to the acquisition of
The ComputerPLUS and IntraNet, Inc.
Other income increased $0.4 million in 1999, principally due to the receipt
of distributions from the Company's limited cellular partnership interest.
Interest expense remained level in 1999 as compared to 1998 at $1.8 million.
The increase of $0.4 million in 1998 was due to increased borrowings related
to continuing plant expansion and the business acquisitions noted above.
Chorus' net income declined $1.8 million to $3.4 million in 1999, primarily
due to the loss incurred in the company's system sales and services segment.
Chorus' net income for 1998 as compared to 1997 remained constant with growth
in net income from the Company's LECs being offset by a decline in net income
from its system sales and other services.
Certain amounts previously reported for prior years have been reclassified to
conform to the 1999 presentation.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
Chorus has two reportable segments: Local Exchange Carriers and System Sales
and Services. All non-reportable segments are included in Other Services and
Sales. For additional information about Chorus' segments see Note 12 to
Consolidated Financial Statements.
LOCAL EXCHANGE CARRIERS
LEC services provide telephone, data and other services to customers in local
exchanges located in Southern Wisconsin. LEC services operating income
consisted of the following:
<TABLE>
In Thousands 1999 1998 1997
<S> <C> <C> <C>
Revenues and Sales
Local service revenues $10,901 $ 9,948 $ 8,571
Network access 13,879 13,613 14,079
Other 3,183 2,706 2,638
27,963 26,267 25,288
Operating Costs and Expenses
Cost of services 3,665 3,231 3,387
Selling, general & administrative 9,517 8,748 8,518
Depreciation 4,949 4,625 4,521
18,131 16,604 16,426
LEC Services Operating Income 9,832 9,663 8,862
Less: Intercompany eliminations
Revenues (1,362) (675) (1,282)
Expenses 831 421 -
Operating Income $ 9,301 $ 9,409 $ 7,580
</TABLE>
Regulatory, legislative and judicial decisions, new technologies and the
convergence of other industries with the telecommunications industry are
causes of increasing competition in the telecommunications industry. The
1996 Federal Telecommunications Act opened up the local network to
competition and required all incumbent LECs to take steps in making it
feasible for new entrants to compete. It also removed restrictions
prohibiting electric utilities from providing telecommunications services.
One of Chorus' LEC subsidiaries, Mid-Plains, Inc., has faced competition
since June of 1997, when the Public Service Commission of Wisconsin issued
orders authorizing two CLECs to provide local exchange services in
Mid-Plains' territory. Management expects this competition to continue to
increase. Chorus' two other LEC subsidiaries are in more rural areas where
competition is less likely to be a factor due to the lower population
densities being less attractive for new market entrants.
LEC services revenues are derived from local network services, network access
and other services. Local service revenues are based on fees charged to
customers for providing local telephone exchange service within designated
service areas.
Local service revenues grew by $1.0 million or 9.6% in 1999, of which $0.6
million was due to rate increases. In 1998, local service revenues grew by
$1.4 million or 16.1%, of which $0.8 million was due to rate increases.
Network access revenues are based on fees charged to interexchange carriers
that use the LECs' local network to provide long distance service to their
customers. In 1999, network access revenues increased 2.0% after declining
3.3% in 1998. The 1999 increase was due to a periodic settlement of
inter-state access revenues along with growth in special access revenues,
offset by a 3.2% decrease in minutes of use. The 1998 decrease in revenues
was caused by a decrease in access rates due to a rate re-balancing on the
intra-state level, as well as industry reductions on the inter-state level,
which were offset in part, by an increase in special access revenues.
Reductions in access rates, an industry trend, and the effects of competition
are expected to continue to have a negative impact on network access revenues.
Other revenues increased $0.5 million or 17.6% in 1999 after being similar in
1998 and 1997. The 1999 increase was primarily due to increases in
inter-company occupancy and equipment rents.
Cost of service increased $0.4 million or 13.4% in 1999 after declining 4.6%
in 1998. The 1998 cost of service was lower due to capitalization of certain
engineering and central office labor costs as part of a central office
upgrade.
Selling, general and administrative expenses increased $0.8 million or 8.8%
in 1999, after being level in 1998 and 1997. The 1999 increase was primarily
due to reciprocal compensation to competitive local exchange carriers,
increased inter-company occupancy, equipment rental and labor costs, which
were offset in part, by a reduction in legal expenditures.
SYSTEM SALES AND SERVICES
This 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 1999 1998 1997
<S> <C> <C> <C>
Revenues and Sales $11,065 $13,060 $ 7,123
Operating Costs and Expenses
Cost of goods sold 9,408 9,362 4,298
Selling, general and administrative 5,252 3,500 2,245
Depreciation 288 214 122
14,948 13,076 6,665
System Sales & Services Operating (Loss) Income (3,883) (16) 458
Less: Intercompany eliminations - Expenses 620 150 37
Operating (Loss) Income $(3,263) $ 134 $ 495
</TABLE>
System sales and services revenues decreased $2 million or 15.3% in 1999.
Computer sales and networking services fell $2.7 million due to declining
prices and increased competition related to computer hardware. This decline
was offset by $0.7 increase in sales of business telephone systems. Revenues
in 1998 increased $5.9 million or 83.4% primarily due to the acquisition of
The ComputerPLUS.
Gross profit margins decreased from 28.3% in 1998 to 15% in 1999. This was
primarily due to a net increase in inventory reserves of $0.5 million along
with higher labor costs. The majority of the net increase in inventory
reserves was due to management's intention to narrow its product offerings in
year 2000. In 1998, gross profit margins declined from 39.7% in 1997 to
28.3%. The decrease was due to the more competitive nature of computer
equipment sales resulting in lower margins as compared to business telephone
systems.
Selling, general and administrative costs increased $1.8 million or 50.1% in
1999. This was primarily due to increases in labor and occupancy costs as
well as an increase in the valuation allowances for customer receivables.
The increase in selling, general and administrative costs in 1998 over 1997
was due primarily to the 1998 acquisition.
OTHER SERVICES AND SALES
Other services and sales include operations from long distance, internet,
CLEC and directory publishing operations. Other services and sales operating
income consisted of the following:
<TABLE>
In Thousands 1999 1998 1997
<S> <C> <C> <C>
Revenues and Sales $11,244 $8,152 $5,257
Operating Costs and Expenses
Cost of services 6,370 4,952 3,711
Selling, general and administrative 3,600 2,416 1,445
Depreciation 720 497 121
10,690 7,865 5,277
Other Services & Sales Operating Income (Loss) 554 287 (20)
Less: Intercompany eliminations
Revenues (1,319) (807) (49)
Expenses 1,230 911 1,294
Operating Income $ 465 $ 391 $1,225
</TABLE>
Revenue from other services and sales increased $3.1 million or 37.9% in
1999. Growth in internet, long distance and CLEC subscribers accounted for
$2.5 million of the increase. In 1998, revenue from other services and sales
increased $2.9 million or 55.1%. The increase was due in part to the
acquisition of IntraNet, Inc., which accounted for $1.3 million of the
increase. Additionally, the 1998 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.
Cost of services increased $1.4 million or 28.6% in 1999, due primarily to
the growth in the internet and CLEC subscriber base. In 1998, the cost of
service increased $1.2 million or 33.4%, primarily due to the acquisition of
IntraNet, Inc.
Selling, general and administrative costs increased $1.2 million or 49% in
1999 and $1.0 million or 67.2% in 1998, primarily due to the growth of
internal operations and in 1998, the acquisition of IntraNet, Inc.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Chorus requires funds primarily for its construction programs, the maturity
and retirement of long-term debt, repurchase of Company stock, dividend
payments and investments. The capital resources available to meet these
requirements are provided through operating and financing activities. Net
cash from operating activities of Chorus and its subsidiaries for the years
1997 - 1999 was $28.2 million. External financing activities for the same
period totaled $13.5 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 1997-1999 were $28.6 million. Capital expenditures for 2000
are expected to approximate $17 million, which include $6 million for
investments in new internet and CLEC markets.
The Company owns 75% of PCS Wisconsin, LLC (PCS-WI). PCS-WI was granted a
personal communications services (PCS) license from the Federal
Communications Commission in April of 1997 which allows it to construct and
operate a PCS network in ten counties in Southern Wisconsin. Under the terms
of the license there must be a 25% buildout within five years. Buildout would
require substantial capital and operating expenditures in a highly
competitive market. Management is currently studying various opportunities
with regard to buildout, partnering with established wireless providers
and/or the sale of the license.
In 1999, Chorus received cash distributions from its cellular limited
partnership totaling $0.6 million.
FINANCING ACTIVITIES
Financing for the years 1997 - 1999 was $13.5 million consisting of $9.2
million of long-term debt financing, $0.2 million from the sale of common
stock under stock plans and employee incentives and a net increase in
short-term bank notes of $4.1 million.
The Company has certain borrowings with the Rural Telephone Finance
Cooperative (RTFC). In 1999, the RTFC authorized the Company to draw down $5
million for the repayment of the Company's subordinate debentures, which
mature in June of 2000. Additionally, future borrowings of $4 million are
currently available from the RTFC. The interest rate on these funds are
variable based upon the RTFC's cost of funds, which at February 1, 2000 was
7.35%.
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
$11.2 million underlying retained earnings of all Chorus subsidiaries at
December 31, 1999, $4.5 million was available for the payment of dividends on
the subsidiaries' common stock.
In 1999, the Company's Board of Directors authorized management to repurchase
shares of Chorus common stock in the open market or through private
transactions. During 1999, the Company repurchased 41,880 shares for $0.7
million. Management has the authority to repurchase approximately 499,000
additional shares, with no definite timetable.
It is anticipated that 2000 capital requirements for Chorus' construction
programs, maturity and retirement of long-term debt, dividend payments and
repurchase of Chorus stock will be provided for with cash flow from operating
activities and the issuance of debt.
At February 24, 2000, Chorus has available unused lines-of-credit of $10.5
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.
In 1998, the Financial Accounting Standards Board issued SFAS 133 "Accounting
for Derivative Instruments and Hedging Activities." Management does not
believe that the Company currently has any derivatives and/or hedging
activities and thus the adoption of this statement will not have a material
impact on the Company's financial statements.
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 established a
Year 2000 Project Team, to coordinate and monitor the Company's Year 2000
compliance efforts. Begun in 1997, Chorus' Year 2000 effort covered its
network and supporting infrastructure for the provisioning of local switched
and data telecommunications services. Additionally, within the scope of this
initiative were 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 included a review of the Year 2000 compliance
efforts of the Company's key vendors and suppliers. While this initiative
was broad in scope, it was structured to identify and prioritize the
Company's efforts for mission critical systems, network elements and products
and key vendors and suppliers.
In 1999, Chorus completed its Year 2000 compliance efforts. To date, our
systems and software have not experienced any disruption due to the onset of
Year 2000. However, there can be no assurance that problems will not arise
for Chorus, its suppliers, its customers or others with whom Chorus does
business in the future. Chorus will continue to monitor its systems and third
party relationships throughout 2000 to address any unanticipated problems
(which may include problems associated with non-Year 2000 compliant third
parties).
Chorus incurred expenses approximating $0.4 million through 1999 in
connection with Year 2000 compliance efforts. A portion of these
expenditures were not incremental costs, but rather represent a redeployment
of existing resources. Chorus also incurred certain capital improvement costs
(totaling approximately $1.5 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. Expense and
capital costs amounts have increased from previous estimates due to the
incorporation of new billing and customer care software packages.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes, and future filings by the Company on Form 10-K, Form
10-Q and Form 8-K, and future oral and written statements by the Company and
its management may include statements that are based on our estimates and
assumptions, and are subject to risks and uncertainties. Forward-looking
statements include the information concerning our possible or assumed future
results of operations. Forward-looking statements also include those
preceded or followed by the words "anticipates," "believes," "estimates,"
"expects" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The following important factors, along with those discussed elsewhere in this
report and other reports issued by the Company, could affect future results
and could cause those results to differ materially from those expressed in
the forward-looking statements:
- - materially adverse changes in economic conditions in the markets served
by us;
- - material changes in available technology;
- - federal, state and local regulatory and judicial decisions and
proceedings, pertaining to, among other matters, the terms of
interconnection, access charges, universal service, and unbundled
network element and resale rates;
- - the extent, timing, success, and overall effects of competition from
others in the markets we currently serve: and
- - the timing and profitability of our entry into new internet and
competitive local exchange markets.
ITEM 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHORUS COMMUNICATIONS GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Financial Statements for each of the three years
ended December 31, 1999:
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 sheets of Chorus
Communications Group, Ltd. and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our
audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Chorus Communications Group,
Ltd. and subsidiaries as of December 31, 1999 and 1998,and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 11, 2000
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors,
Chorus Communications Group, Ltd.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Chorus Communications Group Ltd., (a
Wisconsin Corporation) and subsidiaries for the year ended December 31, 1997.
These consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated results of
operations, stockholders' equity, and cash flows of Chorus Communications
Group, Ltd. and subsidiaries for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
We have also audited the related financial statement schedule for the year
ended December 31, 1997 listed in Item 14(a)(2) of this Form 10-K. In our
opinion, the 1997 financial statement schedule referred to above, when
considered in relation to the 1997 consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
/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 1999 1998
Dollars In Thousands
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,078 $ 5,327
Temporary investments 800 1,300
Accounts receivable
Due from customers, net of allowance
for uncollectible accounts of $449
and $64, respectively 5,354 4,511
Other, principally connecting
companies 1,625 2,472
Inventories 1,829 1,920
Other 1,825 1,606
Total Current Assets 15,511 17,136
PROPERTY, PLANT AND EQUIPMENT 47,221 45,421
CELLULAR LIMITED PARTNERSHIP INTERESTS 3,715 3,715
PERSONAL COMMUNICATION SERVICES LICENSE 3,748 3,580
GOODWILL, Net of accumulated amortization
of $297 and $141, respectively 1,217 1,373
OTHER 1,543 1,452
TOTAL ASSETS $ 72,955 $ 72,677
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
DECEMBER 31, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
Dollars in Thousands
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,333 $ 1,260
Notes payable to banks 4,726 2,630
Accounts payable 2,531 4,790
Accrued expenses 2,557 691
Other 638 373
Total Current Liabilities 11,785 9,744
LONG-TERM DEBT 24,217 25,551
DEFERRED INCOME TAXES 3,707 3,579
OTHER LIABILITIES 1,927 1,877
Total Liabilities 41,636 40,751
MINORITY INTEREST 377 374
COMMITMENTS AND CONTINGENCIES (See Notes)
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized 25,000,000 shares;
issued 5,415,288 and
5,408,606 shares, respectively 14,791 14,668
Less treasury stock at cost
41,880 shares (717) -
Retained earnings 16,868 16,884
Total Shareholders' Equity 30,942 31,552
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,955 $ 72,677
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
In Thousands Except for Per Share Data YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
REVENUES AND SALES
Local exchange carrier services $26,601 $25,592 $24,006
System sales and services 11,065 13,060 7,123
Other services and sales 9,926 7,345 5,208
Total Revenues and Sales 47,592 45,997 36,337
OPERATING COSTS AND EXPENSES
Cost of goods sold 9,408 9,326 4,267
Cost of local exchange carrier and
other services 9,381 7,705 6,096
Selling, general & administrative 16,343 13,696 11,910
Depreciation and amortization 5,957 5,336 4,764
Total Operating Costs and Expenses 41,089 36,063 27,037
OPERATING INCOME 6,503 9,934 9,300
Other income 744 362 327
Interest expense (1,767) (1,727) (1,301)
Minority interest (3) (4) 28
INCOME BEFORE INCOME TAXES 5,477 8,565 8,354
INCOME TAX EXPENSE 2,110 3,394 3,218
NET INCOME $ 3,367 $ 5,171 $ 5,136
BASIC AND DILUTED EARNINGS PER SHARE $ .62 $ .96 $ .96
Average common shares outstanding 5,412 5,406 5,368
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
In Thousands Except for Per Share Data
COMMON STOCK TREASURY STOCK TOTAL
RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C>
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
Net income 3,367 3,367
Cash dividend
- $.625 a share (3,383) (3,383)
Employee stock
purchase plan 4 86 86
Stock incentive 2 37 37
Purchase of
common stock 42 $(717) (717)
Balances,
December 31, 1999 5,415 $ 14,791 $ 16,868 42 $(717) $ 30,942
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
Dollars In Thousands 1999 1998 1997
<S> <C> <C> <C>
OPERATIONS
Net income $ 3,367 $ 5,171 $ 5,136
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 5,957 5,336 4,764
Deferred income taxes 298 333 (189)
Provision for uncollectible accounts 385 53 -
Changes in current assets and
current liabilities excluding effects
of acquisitions:
Receivables (381) (893) (813)
Inventories 91 (70) 110
Payables (2,259) 169 403
Accrued expenses 1,866 (202) 156
Other (162) 295 (694)
Net cash from operations 9,162 10,192 8,873
INVESTING
Capital expenditures (7,690) (9,653) (11,258)
Acquisitions (net of cash acquired) - (357) -
Cellular investment - - 453
Personal Communication Services license (168) (22) (820)
Change in short-term investments 500 1,200 700
Other - net 89 119 238
Net cash used in investing (7,269) (8,713) (10,687)
FINANCING
Stock issued 123 - 103
Purchase of treasury stock (717) - -
Dividends paid (3,383) (3,192) (2,951)
Long-term debt issued - 4,486 4,745
Long-term debt repaid (1,261) (801) (577)
Net change in short-term debt 2,096 619 1,328
Net cash (used in) from financing (3,142) 1,112 2,648
(Decrease) increase in cash and
cash equivalents (1,249) 2,591 834
Cash and cash equivalents:
Beginning of period 5,327 2,736 1,902
End of period $ 4,078 $ 5,327 $ 2,736
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Chorus Communications Group, Ltd. and its subsidiaries (Chorus or the
Company) is a telecommunications company that provides phone, data and
other services through its local exchange carrier (LEC) subsidiaries.
The Company also sells, installs and services business telephone
systems, computers and computer networks. Additionally, the Company has
operations in directory publishing, long distance, competitive local
exchange carrier (CLEC) and Internet services. The Company's operations
are primarily in Southern Wisconsin.
BASIS OF PRESENTATION
The consolidated financial statements of Chorus include the accounts of
its majority-owned subsidiaries. All significant intercompany items
have been eliminated in consolidation. Investments of less than 20% are
accounted for on the cost basis.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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.
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.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed Of," the Company would record impairment losses on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. Based on current
estimates, management does not believe any of its long-lived assets are
impaired.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the average cost method.
INCOME TAXES
Chorus files a consolidated federal income tax return.
Income taxes are accounted for using a liability method and provide for
the tax effects of transactions reported in the consolidated financial
statements including both taxes currently due and deferred. Deferred
taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The deferred tax
assets and liabilities represent the future tax consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Investment tax credits (ITC), which were deferred prior to the Tax
Reform Act of 1986, are being amortized over the life of the plant which
produced the ITC.
REVENUE RECOGNITION
Chorus recognizes revenues when earned, regardless of the period in
which they are billed. Customer contracts for sales and installations
are accounted for using the completed-contract method which recognizes
income only when the contract is substantially completed.
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.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TEMPORARY INVESTMENTS
Cash investments with original maturities of three months to 12 months
are classified as temporary investments. Temporary investments are
stated at cost which approximates market value.
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.
TREASURY STOCK
In December 1999, the board of directors authorized the repurchase, at
management's discretion, of up to 10% of the outstanding shares of the
Company's stock. The Company's repurchases of shares of Common Stock
are recorded as "Treasury Stock" and result in a reduction of
"Shareholders' Equity".
BASIC AND DILUTED EARNINGS PER SHARE
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.
NEW ACCOUNTING PRONOUNCEMENT
In 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities."
Management does not believe that the Company currently has any
derivatives and/or hedging activities and thus the adoption of this
statement will not have a material impact on the Company's financial
statements.
RECLASSIFICATION
Certain amounts previously reported for prior years have been
reclassified to conform with the 1999 presentation.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The resulting goodwill
of $1.5 million is being amortized over a ten year period using the
straight-line method.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
DECEMBER 31,
1999 1998
In Thousands
<S> <C> <C>
Land $ 1,382 $ 1,378
Buildings 8,349 8,274
Digital switching equipment 21,657 19,925
Cable, wiring and conduit 36,929 34,684
Computers 4,562 3,259
Internet equipment 1,626 1,000
Other 7,107 5,779
Under construction 276 377
81,888 74,676
Less accumulated depreciation (34,667) (29,255)
Total property, plant and equipment $47,221 $45,421
</TABLE>
Property, plant and equipment is depreciated using useful lives ranging
from three to forty years.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. WIRELESS INVESTMENTS
The Company has two limited partnership interests in cellular telephone
service providers. Both partnerships are accounted for using the cost
method. The Company's 18.1% interest in the Madison Metropolitan
Statistical Area and 2.0% interest in Wisconsin Rural Statistical Area 8
totaled $3.7 million in 1999 and 1998.
The Company owns 75% of PCS Wisconsin, LLC (PCS-WI). PCS-WI holds an
F-block license which allows it to construct and operate a personal
communications services system (PCS) in ten counties in Southern
Wisconsin. The license is carried at cost including acquisition costs
and capitalized interest charges of $168,000, $162,000 and $130,000 for
1999, 1998 and 1997, respectively.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT
Long-term debt as of December 31, 1999 and 1998 is as follows:
<TABLE>
INTEREST DECEMBER 31,
RATES MATURITIES 1999 1998
In Thousands
<S> <C> <C> <C> <C>
Registered Subordinate
Debentures 8% 2000<F1> $ 5,000 $ 5,000
Promissory Notes 8.5% 2000 125 375
Mortgage Notes -
RUS 2% to 5% 2000-2017 486 526
FCC 6.25% 2000-2007 2,471 2,598
RTB 4% to 8% 2000-2017 2,224 2,364
RTFC 5.9% to 7.4%<F2> 2000-2012 11,442 12,050
AnchorBank 7.75%<F3> 2000-2017 3,802 3,898
25,550 26,811
Less current portion (1,333) (1,260)
Long-term debt $24,217 $25,551
<FN>
<F1>
Chorus has secured a commitment for long-term financing for the
debentures upon their maturity in 2000 and accordingly these have
been classified as long-term at December 31, 1999. Terms of the
commitment call for payments through 2012 with a variable interest
rate, which on February 1, 2000 was 7.25%.
<F2>
Variable rate based on RTFC's cost except for $3.9 million fixed at
7.4% through February 2008.
<F3>
Fixed through November 2002.
</FN>
</TABLE>
During 1998, Chorus incurred $0.5 million in promissory notes related to
the acquisition of IntraNet, Inc. Additionally, in 1997, Chorus
incurred $2.6 million in long-term debt related to the acquisition of
the F-block PCS license.
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).
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT (Continued)
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.
The annual requirements for principal repayments on long-term debt are
approximately $1.3 million, $1.3 million, $1.4 million, $1.5 million,
and $1.5 million for the years 2000 through 2004, respectively.
Short-term financing included notes payable at December 31, 1999 of $4.7
million at a weighted average interest rate of 8.3%. Chorus and its
subsidiaries had available unused lines-of-credit of $8.3 million at
December 31, 1999.
Cash paid for interest for 1999, 1998 and 1997 totaled $1.8 million,
$1.7 million and $1.3 million, respectively.
Under the RTFC loans, future borrowings of $4 million are available to
the Company.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
In Thousands
<S> <C> <C> <C>
Current:
Federal $1,695 $2,446 $2,751
State 713 594 703
Deferred:
Federal 23 285 (153)
State (264) 110 (24)
Amortization of deferred
investment tax credits (57) (41) (59)
Total income tax expense $2,110 $3,394 $3,218
</TABLE>
Cash paid for income taxes for 1999, 1998 and 1997 totaled $2.4 million,
$3.5 million and $3.5 million, respectively.
The following is a reconciliation of the statutory federal income tax
rate of 34% to Chorus' effective income tax rate.
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Statutory federal income tax
rate 34.0% 34.0% 34.0%
State income taxes, net of
federal benefit 5.4 5.7 5.2
Amortization of investment tax
credits (1.0) (.5) (.7)
Amortization of goodwill .9 .5 -
Other (.8) (.1) -
Effective income tax rate 38.5% 39.6% 38.5%
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES (Continued)
The components of Chorus' deferred tax assets (liabilities) were as
follows:
<TABLE>
DECEMBER 31,
1999 1998
In Thousands
<S> <C> <C>
Deferred tax assets:
Compensated absences $ 367 $ 332
Inventory reserve 327 108
Deferred compensation 320 279
Allowance for uncollectible accounts 171 17
State net operating loss carry forward 163 -
Deferred income 128 124
Merger costs 113 111
Other 314 222
Deferred tax assets 1,903 1,193
Deferred tax liabilities:
Property, plant and equipment
depreciation (4,384) (3,835)
Cellular interest - (232)
PCS License amortization (410) (273)
Unamortized investment tax credit (36) (73)
Other - (5)
Deferred tax liabilities (4,830) (4,418)
Net deferred tax liabilities (2,927) (3,225)
Less: Current deferred tax assets (780) (354)
Long-term deferred tax liabilities $(3,707) $(3,579)
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASES
The Company leases various facilities and offices under operating leases
which expire over the next ten years. Rent expense under these leases
was $143,000, $130,000 and $58,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
The future minimum lease payments under noncancelable operating leases
greater than one year as of December 31, 1999 are as follows:
2000 $ 270,000
2001 252,000
2002 258,000
2003 264,000
2004 212,000
Thereafter 604,000
$1,860,000
8. RESTRICTION ON COMMON STOCK DIVIDENDS
At December 31, 1999, 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 $11.2 million
underlying retained earnings of all Chorus subsidiaries at December 31,
1999, $4.5 million was available for the payment of dividends on the
subsidiaries' common stock.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BENEFIT PLANS
PENSION PLAN
On April 15, 1997, a LEC subsidiary of Chorus terminated its defined
benefit pension plan. Total pension plan benefit income was $0.4
million in 1998 while total pension plan benefit cost was $0.8 million
in 1997.
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: 1999 - $498,000,
1998 - $457,000, and 1997 - $382,000.
STOCK PLANS
In January 1999, Chorus initiated an Employee Stock Purchase Plan.
Under the plan, employees are able to purchase common stock of the
Company during quarterly periods, not to exceed $7,500 for a calendar
year. The price an employee pays for a share of stock may be no less
than 85% of fair market value. In the absence of an established market,
fair market value is determined by a committee selected by the Company's
Board of Directors.
Prior to March 1997, a subsidiary of Chorus had a stock plan which
allowed employees and directors to purchase limited quantities of stock.
In 1999, the Company issued 2000 shares as incentive compensation to an
officer of the Company.
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:
1999 1998
In Thousands
Carrying amount $25,550 $26,811
Fair market value $25,046 $27,456
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
In 1999, Chorus entered into an agreement to acquire certain property,
plant and equipment of $2.8 million to be placed in service in 2000.
PCS-WI was granted a PCS license from the FCC in April of 1997. Under
the terms of the license there must be a 25% buildout within five years.
Buildout would require substantial capital and operating expenditures in
a highly competitive market. The Company is currently studying options
regarding the license.
Regulatory bodies are currently reviewing an industry controversy which
has arisen concerning incumbent LEC liability for reciprocal
compensation on certain calling activity with Internet service
providers. Management does not expect that the ultimate resolution of
this pending regulatory matter will have a material effect on the
Company's financial condition, but it could have a material effect on
the Company's operations.
12. OPERATING SEGMENTS
Chorus organizes its business into two reportable segments: local
exchange carrier 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, installs and services business telephone systems, computers and
computer networks. Chorus also has operations in directory publishing,
long distance, CLEC and Internet services that do not meet the
quantitative thresholds for reportable segments.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. OPERATING SEGMENTS (Continued)
The segments' accounting policies are the same as those described in the
summary of significant accounting policies.
<TABLE>
1999
LOCAL SYSTEM
EXCHANGE SALES AND
CARRIERS SERVICES OTHER TOTAL
In Thousands
<S> <C> <C> <C> <C>
Revenues and sales -
External customers $26,601 $11,065 $ 9,926 $47,592
Intersegment revenues and sales 1,362 - 1,319 2,681
Interest revenue 512 3 44 559
Interest expense 1,355 87 597 2,039
Depreciation and amortization 4,949 289 719 5,957
Segment profit (loss) 5,981 (2,426) (188) 3,367
Segment assets 51,549 6,417 14,989 72,955
Expenditures for segment assets 5,896 618 1,176 7,690
</TABLE>
<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) (45) 5,171
Segment assets 51,842 5,389 15,446 72,677
Expenditures for segment assets 8,100 315 1,238 9,653
</TABLE>
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. OPERATING SEGMENTS (Continued)
<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 (12) 5,136
Segment assets 46,290 3,775 12,689 62,754
Expenditures for segment assets 6,523 78 4,657 11,258
</TABLE>
The depreciation of Chorus' headquarters building is allocated to each
segment. The related net cost of $5 million at December 31, 1999 and
1998 is not allocated to each segment, but included in the other segment
assets.
Total segment interest expense includes intercompany activity of
$272,000, $150,000 and $74,000 for 1999, 1998 and 1997, 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. 17% in 1999, 16% in 1998, and 19% in 1997; and MCI
13% in 1998 and 11% in 1997. No other customer accounted for more than
10% of total revenues.
<PAGE>
CHORUS COMMUNICATIONS GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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>
1999
Operating Revenues $ 11,656 $ 11,547 $11,300 $13,089
Operating Income 1,975 1,934 1,517 1,077
Net Income 1,000 1,088 764 515
Basic and Diluted
Earnings Per Share .18 .21 .14 .09
1998
Operating Revenues $10,938 $11,169 $11,628 $12,262
Operating Income 2,559 2,745 2,251 2,379
Net Income 1,377 1,439 1,169 1,186
Basic and Diluted
Earnings Per Share .26 .27 .22 .21
</TABLE>
Adjustments during the fourth quarter of 1999 included increases to the
valuation allowances for customer receivables and inventory which, net
of taxes, approximated $0.6 million.
<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, 2000, are as follows:
<TABLE>
NAME AGE POSITION
<S> <C> <C>
Dean W. Voeks 57 President, Chief Executive
Officer and Director: 2001*
Howard G. Hopeman 55 Executive Vice President,
Chief Financial Officer and
Treasurer
Darold J. Londo 35 President of Chorus Networks, Inc.
a subsidiary
Grant B. Spellmeyer 34 Vice President, Secretary and
General Counsel
Carrie L. Bennett-Barndt<F1> 47 Director: 2002*
Charles Maulbetsch<F1><F2> 64 Director: 2002*
Harold L.(Lee) Swanson<F1><F2> 61 Director: 2000*
Douglas J. Timmerman <F1> 59 Director: 2001*
<FN>
<F1>
Member of Compensation Committee
<F2>
Member of Audit Committee
</FN>
* Annual Meeting at which current director term expires
</TABLE>
Dean W. Voeks is President and Chief Executive Officer of Chorus; he has been
associated with Chorus and/or its subsidiaries for more than 13 years.
Howard G. Hopeman is Executive Vice President, Chief Financial Officer and
Treasurer of Chorus; he has been associated with Chorus and/or its
subsidiaries for more than 11 years.
<PAGE>
Darold J. Londo was appointed President of Chorus Networks, Inc. in May of
1999. Prior to this, Mr. Londo was Vice President of Human Resources of
Chorus and Corporate Counsel since joining the organization in December of
1997. Prior to this, Mr. Londo was an attorney for Axley Brynelson,
Attorneys and Counselors, since 1993.
Grant B. Spellmeyer is Vice President, Secretary and General Counsel of
Chorus since joining the organization in June of 1999. Prior to this, Mr.
Spellmeyer was an attorney for Axley Brynelson, Attorneys and Counselors,
since 1993.
Carrie L. Bennett-Barndt is President and Director of Bennett-Barndt
Enterprises, Inc., an operator of certain McDonald Restaurants with which she
has been associated for over 10 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
34 years. Mr. Swanson is also a director of Madison Gas & Electric Company
and is currently Chairman of Chorus' Compensation Committee.
Douglas J. Timmerman is Chairman of the Board, President and Chief Executive
Officer of Anchor BanCorp Wisconsin Inc. with which he has been associated
with for more than 22 years.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based solely on review of the
copies of such forms furnished to the Company and written representations
from certain reporting persons, the Company believes that during 1999 all
required filings were made in a timely fashion.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The total 1999 annual director fees received for serving on Chorus'
Board and any subsidiary boards were $20,000 each for Messrs. Maulbetsch,
Swanson and Timmerman and $19,000 for Ms. Bennett-Barndt. In addition, Mr.
Timmerman received $3,400 for serving as an officer of a subsidiary company.
Mr. Voeks did not receive any director fees. The Chorus Board of Directors
met eight times in 1999. All directors attended more than 75% of the total
number of meetings of the Board and the total number of meetings held by all
committees of the Board on which they served.
<PAGE>
The Company has standing Audit and Compensation Committees.
The members of the AUDIT COMMITTEE are Messrs. Maulbetsch and Swanson.
The Audit Committee's function is to meet with management and the independent
public accountants to review with them the scope and results of their audits,
the Company's accounting practices, and the adequacy of the Company's
internal controls. The Audit Committee held one meeting in 1999.
The members of the COMPENSATION COMMITTEE are Messrs. Maulbetsch,
Swanson and Timmerman, and Ms. Bennett-Barndt, who became a member in
December 1999. 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 1999.
COMPENSATION COMMITTEE INTERLOCKS
AND
INSIDER PARTICIPATION
Mr. Timmerman, President of Dickeyville Telephone Corporation, a Chorus
subsidiary, is a member of the Compensation Committee.
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the years 1997, 1998
and 1999 of the Chief Executive Officer and two other executive officers
whose annual compensation exceeded $100,000 for 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
LONG-TERM
NAME AND ANNUAL COMPENSATION COMPENSATION
PRINCIPAL OTHER ANNUAL RESTRICTED ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARD COMPENSATION<F3>
<S> <C> <C> <C> <C> <C> <C>
Dean W. Voeks: 1999 $185,000 $ 0 $16,000(1) $37,000(2) $54,500
President and 1998 175,000 40,000 0 0 54,190
Chief Executive 1997 150,000 45,000 0 0 53,690
Officer
Howard G.
Hopeman: 1999 $116,000 $25,000 $ 0 $ 0 $41,926
Executive Vice 1998 110,000 25,000 0 0 41,420
President, Chief 1997 100,500 20,000 0 0 39,661
Financial Officer
and Treasurer
Darold J. Londo: 1999 $ 95,700 $30,000 $ 0 $ 0 $ 7,669
President of 1998 85,000 10,000 0 0 4,408
Chorus Networks, 1997 0 0 0 0 0
Inc., a subsidiary
<FN>
<F1>
In 1999 Mr. Voeks received $16,000 for the reimbursement of taxes on a
restricted stock grant.
<F2>
In 1999, Mr. Voeks was granted 2000 shares of vested restricted stock
which was valued at market price at the time of grant. Dividends are
paid on this restricted stock.
<F3>
All other compensation for 1999 includes the following: (i) the Company's
contribution to 401K and/or deferred compensation plans: Mr. Voeks -
$10,000, Mr. Hopeman - $9,956, and Mr. Londo - $7,669; (ii) the Company's
contributions to a non-qualified supplemental retirement plan: Mr. Voeks
- - $44,190, and Mr. Hopeman - $31,970; and (iii) the Company's payment to
Mr. Voeks of $310 to cover a dividend missed on the restricted stock.
</FN>
</TABLE>
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four independent Directors who are responsible for setting and
administering compensation, including base salary and annual bonus paid or
awarded to Mr. Voeks, Chief Executive Officer of Chorus Communications Group,
Ltd. ("Chorus" or the "Company"). In addition, the Committee reviews the
salaries of other executives, which are set by Mr. Voeks.
NEW EXECUTIVE COMPENSATION PROGRAM FOR 2000
During 1999 into early 2000, the Committee, with the assistance of Deloitte &
Touche LLP, developed a new executive compensation program focused on
rewarding shareholder value creation and performance against key drivers of
total shareholder return. Key features of the new executive compensation
program are as follow:
Compensation Philosophy
- - Reward shareholder value creation and performance versus key drivers of
total shareholder return.
- - Reward team success while recognizing individual contribution.
- - Structure compensation opportunities and the mix of base salary,
annual incentives, and long-term incentives to reflect compensation
practices at similarly-sized telecommunication industry peers.
- - Fund annual incentives and determine the exercisability of stock options
in part by performance relative to that of the performance of the
compensation peer group.
- - Encourage stock ownership to foster an ownership mentality.
Peers: A group of peer telecommunications industry companies was used to
identify competitive compensation opportunities. Peer selection primarily
reflected Chorus' classification within the telecommunications industry, its
business mix, and relative revenue size. Information contained in peer
proxies and other sources of competitive data were analyzed and reviewed by
the Committee to ensure an understanding of competitive compensation
opportunities. The companies considered for compensation purposes are not the
same as companies included in the performance graph peer group in this Proxy
Statement. The performance graph peer group companies are significantly
larger than Chorus with much higher compensation levels.
The review indicated that compensation for Chorus executives is generally
below the actual compensation paid in 1998 and reported in 1999 proxies by
peers. The Committee intends to review 1999 peer compensation data as it
becomes publicly available.
Base Salary: Base salaries and salary increases will be based on individual
performance, as demonstrated over time and will be managed around the peer
group median.
Annual Incentives: Relative peer performance measures will be used to assess
corporate performance. Relative performance measures will allow the
Committee to assess how well Chorus performs versus identified peers. Thus,
management's ability to create value for our shareholders in a changing
regulatory environment, changing economic conditions, and in response to
changing consumer behaviors versus how well our peers perform will directly
affect executive pay. Other performance criteria that support value creation
will also be used as deemed appropriate by the Committee. Individual awards
will also reflect each executive's performance versus their performance
goals. The Committee intends that future annual incentive awards be paid
using a combination of cash and restricted stock. Awards for above average
performance will be paid via grants of restricted stock with a two-year
restriction period. Restricted stock will increase executive/stockholder
linkage, focus executives on making contributions contributing to long term
stock price appreciation, and allow Chorus to retain key executives.
Long-Term Incentives: Chorus will use stock options (subject to shareholder
approval of the Stock Incentive Plan) to reward success as measured by the
appreciation in the Company's common stock price. Thus, the interests of
executives will be more closely linked with those of stockholders. Using
relative total shareholder return versus the peer group to determine when
stock options will become exercisable will further strengthen this linkage.
To this end, the Stock Incentive Plan is being submitted in the Proxy
Statement for stockholder approval at the 2000 Annual Meeting.
1999 COMPENSATION
The following report represents the actions regarding compensation paid to
executives for 1999. During 1999, the principal goal of the Company's
compensation program was 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 for compensation purposes in 1999 are not the same as companies
included in the performance graph peer group in this Proxy Statement. The
performance graph peer group companies are significantly larger than Chorus
with much higher compensation levels. Executive salaries were determined by
subjectively evaluating the individual's performance and experience, and the
Company's performance.
For 1999, the Company maintained a strong financial position and prepared
itself to be a key player in the marketplace of the new century.
Additionally, Chorus maintained an industry leadership role in Wisconsin.
In March of 1999, the Committee reviewed Mr. Voeks' compensation level and
granted him 2000 shares of restricted common stock in the Company and $16,000
as reimbursement for the payment of taxes associated with the grant of stock.
Respectfully submitted by:
Harold L. (Lee) Swanson, Chairman
Charles Maulbetsch
Douglas J. Timmerman
Carrie Bennett-Barndt
<PAGE>
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total shareholder
returns for Chorus(1) as compared with the S&P 500-Telephone, Russell 2000,
and a Peer Group(2). The Company has decided to use the Russell 2000 for the
broad equity market index comparison. Given the Company's market
capitalization relative to the companies in the S&P 500-Telephone and the
Russell 2000, the Company believes the Russell 2000 companies are a more
representative alternative than the S&P 500-Telephone.
[Line graph of data points]
<TABLE>
BASE YEARS ENDING
PERIOD
COMPANY NAME/INDEX DEC 94 DEC 95 DEC 96 DEC 97 DEC 98 DEC 99
<S> <C> <C> <C> <C> <C> <C>
Chorus 100 117.49 126.48 126.78 116.51 114.12
S&P 500-Telephone 100 150.64 152.15 212.46 312.11 329.94
Russell 2000 100 137.58 157.89 190.29 183.73 219.78
Peer Group 100 109.05 94.96 113.71 156.13 254.64
EXPLANATION
The graph assumes $100 invested on December 31, 1994 in Chorus common stock,
S&P 500-Telephone, Russell 2000, and the Peer Group. Total return assumes
reinvestment of dividends.
FOOTNOTES
1Chorus 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.
2The Peer Group is composed of the following holding companies that
compete in the Company's industry segment of telecommunications services and
operate in markets which include rural Wisconsin communities: Century
Telephone Enterprise; Citizens Utilities Company; Frontier Corporation and
Telephone & Data Systems, Inc.
</TABLE>
<PAGE>
MANAGEMENT CONTINUITY PLAN
Chorus has severance pay agreements ("Agreements") with certain key
employees including Messrs. Voeks, Hopeman and Londo. 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. The agreements for Messrs. Voeks, Hopeman and Londo are dated
December 3, 1998. Each agreement terminates after three years but is
automatically extended on an annual basis unless either the Company or the
respective employee gives a written notice of cancellation of such automatic
extension.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
At January 1, 2000, 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, 2000.
<TABLE>
SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
Carrie L. Bennett-Barndt 940<F1> 0.0%
Howard G. Hopeman 15,318<F2> 0.3%
Darold J. Londo 93 0.0%
Charles Maulbetsch 53,000<F2> 1.0%
Harold L. (Lee) Swanson 16,500<F2> 0.3%
Douglas J. Timmerman 68,421<F3> 1.3%
Dean W. Voeks 6,968<F2><F4> 0.1%
All directors or nominees and
executive officers as a group
(10 persons) 161,874 3.0%
<FN>
<F1>
Includes 440 shares of Common Stock held by a corporation in which Ms.
Bennett-Barndt has a pecuniary interest and voting and investment power.
<F2>
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.
<F3>
Includes 45,424 shares of Common Stock in a family partnership and 22,829
shares of Common Stock in a family trust in which Mr. Timmerman has a
pecuniary interest and voting and investment power; and 168 shares of
Common Stock in custodial ownership form in which Mr. Timmerman has
voting and investment power.
<F4>
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
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements under Item 8
of this Form 10-K.
2. FINANCIAL STATEMENTS SCHEDULE
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because of the absence of
conditions under which they are required.
3. EXHIBITS
Exhibits filed (or to be filed) as a part of this Form 10-K Annual
Report are as follows:
EXHIBIT NUMBER DESCRIPTION
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 Certified Public Accountants
27 Financial Data Schedule
EXHIBITS INCORPORATED BY REFERENCE
3(i) Articles of Incorporation (incorporated by reference to
Form
8-12G, reporting under Exchange Act Section 12(g), filed
on December 2, 1997, file No. 000-23443).
3(ii)By-laws (incorporated by reference to Form 10-K,
reporting under Exchange Act Section 12(g), filed on
March 30, 1999, file no. 000-23443).
(b) REPORTS ON FORM 8-K
On December 6, 1999 the Company announced that the Board of Directors
had approved the Company's repurchase, at Management's discretion, of up
to ten-percent of its outstanding common stock, effective immediately.
<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, 2000 By /s/ Dean W. Voeks
Dean W. Voeks, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
/s/ Dean W. Voeks President, Chief Executive March 30, 2000
Dean W. Voeks Officer and Director
(Principal Executive Officer)
/s/ Howard G. Hopeman Executive Vice-President, March 30, 2000
Howard G. Hopeman Chief Financial Officer
And Treasurer
(Principal Financial
and Accounting Officer)
/s/ Charles Maulbetsch Director March 30, 2000
Charles Maulbetsch
/s/ Harold L. (Lee) Swanson Director March 30, 2000
Harold L. (Lee) Swanson
The above signatures include a majority of the signatures of the Board of
Directors.
<PAGE>
Schedule II - Valuation and Qualifying Accounts
CHORUS COMMUNICATIONS GROUP, LTD.
<TABLE>
(In Thousands)
BALANCES AT BALANCE
BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSES WRITEOFFS OF PERIOD
<S> <C> <C> <C> <C>
1997
Allowance for uncollectible
accounts 11 75 75 11
Inventory reserves 168 67 235
1998
Allowance for uncollectible
accounts 11 214 161 64
Inventory reserves 235 66 26 275
1999
Allowance for uncollectible
accounts 64 631 246 449
Inventory reserves 275 559 834
</TABLE>
<TABLE>
EXHIBIT 12
CHORUS COMMUNICATIONS GROUP, LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
In Thousands
<S> <C> <C> <C> <C> <C>
Net Income* $3,367 $5,171 $5,136 $4,741 $4,572
Income Tax
Expense 2,110 3,394 3,218 2,932 2,781
Interest Charges 1,767 1,727 1,301 1,408 1,203
Total Earnings $7,244 $10,292 $9,655 $9,081 $8,556
Interest Expense $1,767 $1,727 $1,301 $1,408 $1,203
Ratio 4.10 5.96 7.42 6.45 7.11
*For 1996, the amount is before extraordinary charge.
</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
Chorus Networks, 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
HBC Telecom, Inc. Minnesota
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 11, 2000, appearing in this Annual Report on Form 10-K of
Chorus Communications Group, Ltd. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 30, 2000
EXHIBIT 23.2
CHORUS COMMUNICATIONS GROUP, LTD.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion of our report dated February 6, 1998, on the
consolidated financial statements of Chorus Communications Group, Ltd., and
subsidiaries for the year ended December 31, 1997, included in this Form
10-K and to it's incorporation by reference in the Company's previously filed
Form S-8 Registrant Statement No. 333-68873.
Kiesling Associates LLP
Madison, Wisconsin
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. Dollars
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 4078
<SECURITIES> 0
<RECEIVABLES> 6979
<ALLOWANCES> 449
<INVENTORY> 1829
<CURRENT-ASSETS> 15511
<PP&E> 81888
<DEPRECIATION> 34667
<TOTAL-ASSETS> 72955
<CURRENT-LIABILITIES> 11785
<BONDS> 0
0
0
<COMMON> 14791
<OTHER-SE> 16151
<TOTAL-LIABILITY-AND-EQUITY> 72955
<SALES> 0
<TOTAL-REVENUES> 47592
<CGS> 9408
<TOTAL-COSTS> 18789
<OTHER-EXPENSES> 22300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1767
<INCOME-PRETAX> 5477
<INCOME-TAX> 2110
<INCOME-CONTINUING> 3367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3367
<EPS-BASIC> .62
<EPS-DILUTED> .62
</TABLE>
